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 annual period 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: 000-54970
CORPORATE PROPERTY ASSOCIATES 18 – GLOBAL INCORPORATED
(Exact name of registrant as specified in its charter)
Maryland
 
90-0885534
(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: None

Securities registered pursuant to Section 12(g) of the Act:

Common Stock, Par Value $0.001 Per Share

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes o No þ

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 o
Accelerated filer o
Non-accelerated filer þ
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 Exchange Act). Yes o No þ
Registrant has no active market for its common stock. Non-affiliates held 97,257,506 and 7,576,489 of Class A and Class C shares, respectively, of outstanding common stock at June 30, 2014.
As of March 23, 2015 , there were 100,794,838 shares of Class A common stock and 27,266,757 shares of Class C 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.
 

Forward-Looking Statements

This Annual Report on Form 10-K, or this 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. It is important to note that our actual results could be materially different from those projected in such forward-looking statements. 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 that 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. 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 .



CPA ® :18 – Global 2014 10-K – 1

PART I

Item 1. Business.

General Development of Business

Overview

Corporate Property Associates 18 – Global Incorporated, or CPA ® :18 – Global, and, together with its consolidated subsidiaries, we, us, or our, is a publicly-owned, non-listed real estate investment trust, or REIT, that invests in a diversified portfolio of income-producing commercial real estate properties and other real estate-related assets, both domestically and outside the United States. We qualified as a REIT for U.S. federal income tax purposes beginning with the taxable year ending December 31, 2013 . We conduct substantially all of our investment activities and own all of our assets through CPA:18 Limited Partnership, a Delaware limited partnership, which is our Operating Partnership. In addition to being a general partner and a limited partner of the Operating Partnership, we also own a 99.97% capital interest in the Operating Partnership. The Operating Partnership was formed on April 8, 2013. On July 3, 2013, WPC–CPA ® :18 Holdings, LLC, or CPA ® :18 Holdings, a subsidiary of our sponsor, W. P. Carey Inc., or WPC, acquired the remaining special general partner interest in the Operating Partnership.

On August 20, 2013, we acquired our first property. At December 31, 2014 , our portfolio was comprised of full or partial ownership interests in 47 properties, the majority of which were fully-occupied and triple-net leased to 73 tenants totaling 7.4 million square feet. The remainder of our portfolio was comprised of our full ownership interests in 14 self-storage properties and two multi-family properties totaling 1.5 million square feet.

We are managed by WPC through its subsidiary, Carey Asset Management Corp., or the advisor. WPC is a publicly-traded REIT listed on the New York Stock Exchange under the symbol “WPC.” Pursuant to an advisory agreement with us, the advisor provides both strategic and day-to-day management services for us, including capital funding services, investment research and analysis, investment financing and other investment-related services, asset management, disposition of assets, investor relations, and administrative services. The advisor also provides office space and other facilities for us. We pay asset management fees and certain transactional fees to the advisor and also reimburse the advisor for certain expenses incurred in providing services to us, including those fees associated with personnel provided for administration of our operations. The current advisory agreement is scheduled to expire on December 31, 2015 , unless extended. As of December 31, 2014, the advisor also served in this capacity for Corporate Property Associates 17 – Global Incorporated, or CPA ® :17 – Global, which, together with us, is referred to throughout this Report as the CPA ®  REITs; and Carey Watermark Investors Incorporated, or CWI, a publicly-owned, non-traded REIT that invests in lodging and lodging-related properties; which, together with the CPA ®  REITs is referred to as the Managed REITs. The advisor also currently serves in this capacity for Carey Watermark Investors Incorporated 2, or CWI 2, a new non-traded lodging REIT.

On May 7, 2013, our registration statement on Form S-11 (File No. 333-185111), or the Registration Statement, was declared effective by the SEC under the Securities Act of 1933, as amended. This Registration Statement covers our initial public offering of up to $1.0 billion of common stock, in any combination of Class A common stock and Class C common stock, at a price of $10.00 per Class A share of common stock and $9.35 per Class C share of common stock. The Registration Statement also covers the offering of up to $400.0 million in common stock, in any combination of Class A common stock and Class C common stock, pursuant to our distribution reinvestment and stock purchase plan at a price of $9.60 per share of Class A common stock and $8.98 per share of Class C common stock. Our initial public offering is being made on a “best efforts” basis by Carey Financial, LLC, or Carey Financial, our dealer manager and an affiliate of the advisor, and selected other dealers. The per share amount of distributions on shares of Class A common stock and Class C common stock will likely differ because of different allocations of class-specific expenses. Specifically, distributions on shares of Class C common stock will likely be lower than distributions on shares of Class A common stock because shares of Class C common stock are subject to ongoing distribution and shareholder servicing fees, or the shareholder servicing fee ( Note 3 ).

On July 25, 2013, aggregate subscription proceeds exceeded the minimum offering amount of $2.0 million and we began to admit stockholders. On May 1, 2014, in order to moderate the pace of our fundraising, our board of directors approved the discontinuation of the sale of Class A shares as of June 30, 2014. In order to facilitate the final sales of Class A shares as of June 30, 2014 and the continued sale of Class C shares, the board of directors also approved the reallocation to our initial public offering of up to $250.0 million of the shares that were initially allocated to sales of our stock through our distribution reinvestment and stock purchase plan. In June 2014, we reallocated the full $250.0 million in shares from the distribution reinvestment and stock purchase plan. We currently intend to sell Class C shares until on or about March 27, 2015, unless we sell all of the shares sooner; however, our board of directors may decide to extend the offering for up to an additional 18

CPA ® :18 – Global 2014 10-K – 2

months. Through March 23, 2015 , we have raised gross offering proceeds for our Class A common stock and Class C common stock of $977.4 million and $251.2 million , respectively. The gross offering proceeds raised exclude reinvested distributions through the distribution reinvestment and stock purchase plan of $25.9 million and $3.5 million for our Class A common stock and Class C common stock, respectively. We intend to use substantially all of the net proceeds from the offering to continue to acquire and operate income-producing commercial real estate properties and other real estate-related assets, primarily consisting of properties that are leased to single tenants on a long-term, triple-net lease basis.

We have no employees. At December 31, 2014, the advisor employed 272 individuals who are available to perform services for us under our agreement with the advisor ( Note 3 ).

Financial Information About Segments
 
We operate in one reportable segment, real estate ownership, with domestic and foreign investments. Refer to Note 13 for financial information about our segment and geographic concentrations.

Business Objectives and Strategy

Our investment objectives are to:

•
generate current income for our stockholders in the form of quarterly cash distributions;
•
realize attractive risk-adjusted returns, meaning returns that are attractive in light of the risk involved generating the returns; 
•
preserve and protect our stockholders’ investment in our company; and 
•
achieve capital appreciation.

We cannot assure investors that we will achieve these investment objectives. We intend to consider alternatives for providing additional liquidity for our stockholders beginning after the seventh anniversary of the closing of our initial public offering.

We believe the competitive strengths of our investment strategy, which may contribute to achievement of the objectives noted above, include: 

•
Sophisticated Risk Management — Each of our investments will undergo a review and approval process that has been in place since 1979, consisting of an in-depth fundamental credit analysis and asset valuation, and an independent investment committee review; 
•
Reputation and Track Record — We believe that WPC’s reputation and track record of sourcing, underwriting, and consummating investment opportunities, both directly and on behalf of us, as well as in managing similar companies through all phases of their life cycles, will benefit us as we seek to achieve our investment objectives;
•
Cash Flow Generation Focus — We intend to focus on investments that, when combined with our moderate leverage policy, should provide us with attractive levels of funds from operations and income over the long term; 
•
Prudent Use of Leverage — We will use leverage to enhance our potential returns, and will target a leverage strategy limited to the lesser of 75% of the total costs of our investments, or 300% of our net assets. We currently estimate that, on average, our portfolio will be approximately 50% leveraged; and 
•
Disciplined Investment Approach — We intend to rely on the advisor’s and its investment committee’s expertise, developed over more than 40 years of investing, in identifying investments that it believes will provide us with attractive risk adjusted returns. 

Our core investment strategy is to acquire, own, and manage a diversified portfolio of income producing commercial real estate properties, including the following:

•
commercial real estate properties leased to companies on a single-tenant, long-term, net-lease basis; 
•
equity investments in real properties that are not long-term net leased to a single tenant and may include partially-leased properties, multi-tenanted properties, vacant or undeveloped properties, properties subject to short-term net leases, multi-family residential properties, and self-storage properties, among others; 
•
mortgage loans secured by commercial real properties; and
•
equity and debt securities, loans, and other assets related to entities that are engaged in real estate-related businesses, including real estate funds and other REITs.


CPA ® :18 – Global 2014 10-K – 3

We currently expect that, for the foreseeable future, at least a majority of our investments will be in commercial real estate properties leased to single tenants under long-term, triple-net leases. Although not part of our core investment strategy, we may make non-real estate related investments from time to time, subject to our intention to maintain our REIT qualification. We may engage in securitization transactions with respect to the mortgage loans we purchase. We expect to make investments both domestically and outside the United States. To date, the advisor has made significant foreign investments on our behalf because foreign markets have presented attractive opportunities relative to U.S. real estate markets, which have seen significant increases in price for commercial real estate investments. The advisor will evaluate potential acquisitions on a case-by-case basis. We are unable to predict at this time what percentage of our assets may consist of other types of investments.

We intend our portfolio to be diversified by property type, geography, tenant, and industry. We are not required to meet any diversification standards and have no specific policies or restrictions regarding the geographic areas where we make investments, the industries in which our tenants or borrowers may conduct business, or the percentage of our capital that we may invest in a particular asset type.

Our Portfolio
 
At December 31, 2014 , our portfolio was comprised of our full or partial ownership interests in 47 fully-occupied properties, most of which were triple-net leased to 73 tenants and totaled approximately 7.4 million square feet. The remainder of our portfolio was comprised of 14 self-storage properties and two multi-family properties that aggregate 1.5 million square feet. At December 31, 2014 , our directly-owned real estate properties located outside of the United States represented 58% of consolidated contractual minimum annualized base rent, or ABR. See Management’s Discussion and Analysis of Financial Condition and Results of Operations — Portfolio Overview in Item 7 for more information about our portfolio.

Subsequent to December 31, 2014 and through March 23, 2015 , we purchased 11 additional properties totaling approximately $244.3 million (excluding acquisition costs). Of these 11 properties, six are self-storage facilities, two are multi-family properties, two are build-to-suit projects, and one is an industrial site ( Note 15 ).

Asset Management
 
The advisor is generally responsible for all aspects of our operations, including selecting our investments, formulating and evaluating the terms of each proposed acquisition, arranging for the acquisition of the investment, negotiating the terms of borrowings, managing our day-to-day operations, and arranging for and negotiating sales of assets. With respect to our net lease investments, asset management functions include restructuring transactions to meet the evolving needs of current tenants, re-leasing properties, refinancing debt, selling assets, and utilizing knowledge of the bankruptcy process.
 
The advisor monitors compliance by tenants with their lease obligations and other factors that could affect the financial performance of any of our properties. Monitoring involves verifying 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. The advisor reviews the financial statements of our tenants and undertakes physical inspections of the condition and maintenance of our properties. Additionally, the advisor periodically analyzes each tenant’s financial condition, the industry in which each tenant operates, and each tenant’s relative strength in its industry. With respect to other real estate-related assets (e.g. self-storage properties, multi-tenant properties, mortgage loans, and mezzanine loans), asset management operations include evaluating potential borrowers’ creditworthiness, operating history, and capital structure. The advisor will also monitor our portfolio to ensure that investments in equity and debt securities of companies engaged in real estate activities do not require us to register as an “investment company.”
 
Our board of directors has authorized the advisor to retain one or more subadvisors with expertise in our target asset classes to assist the advisor with investment decisions and asset management. If the advisor retains any subadvisor, the advisor will pay the subadvisor a portion of the fees that it receives from us.

Holding Period

We generally intend to hold our investments in real property for an extended period, depending on the type of investment. We may dispose of other types of investments, such as investments in securities, more frequently. However, circumstances might arise that could result in the early sale of some assets. An asset may be sold before the end of the expected holding period if, in our judgment or in the judgment of the advisor, the sale of the asset is in the best interest of our stockholders.


CPA ® :18 – Global 2014 10-K – 4

We will consider the following relevant factors, among others, in making the determination of whether a particular asset should be sold or otherwise disposed of:

•
the prevailing economic conditions;
•
achieving maximum capital appreciation for our stockholders; and
•
avoiding increases in risk.

We intend to consider alternatives for providing liquidity to our stockholders beginning after the seventh anniversary of the closing of our initial public offering. A liquidity event could include sales of assets, either on a portfolio basis or individually, a listing of our shares on a stock exchange or inclusion in an automated quotation system, a merger (which may include a merger with one or more of the other Managed REITS, WPC or its affiliates), or another transaction approved by our board of directors.

Market conditions and other factors could cause us to delay the consideration or commencement of a liquidity event. We are under no obligation to conclude a liquidity event within a set time. While we are considering liquidity alternatives, we may choose to limit the making of new investments unless our board of directors, including a majority of our independent directors, determines that, in light of our expected life at that time, it is in our stockholders ’ interests for us to continue making new investments.

Target Investments

Commercial Real Estate Properties

In executing our investment strategy, we intend to continue to invest primarily in income-producing commercial real estate properties that are, upon acquisition, improved or being developed or that are to be developed within a reasonable period after acquisition. Such properties may consist of office buildings, shopping malls, warehouse facilities, self-storage facilities, apartment buildings, and hotels and resorts, which we believe will retain their value and potentially increase in value for an extended period of time. We may make equity and debt investments.

We will continue to utilize the advisor ’ s expertise in credit and real estate underwriting and its more than 40 years of experience in evaluating fixed income and real estate investment opportunities to analyze opportunities for us. The advisor’s investment department, under the oversight of its chief investment officer, is primarily responsible for evaluating, negotiating, and structuring potential investment opportunities. In analyzing potential investment opportunities, the advisor will review all aspects of a transaction, including the credit metrics and underlying real estate fundamentals of the investment, to determine whether a potential acquisition satisfies our acquisition criteria.

Long-Term, Net-Leased Assets

We intend to continue to acquire long-term, net-leased assets through sale-leaseback transactions in which we acquire properties from companies that simultaneously lease the properties back from us. These sale-leaseback transactions provide the lessee company with a source of capital that is an alternative to other financing sources such as corporate borrowing, mortgaging real property, or selling shares of common stock. These leases generally require the tenant to pay substantially all of the costs associated with operating and maintaining the property such as maintenance, insurance, taxes, structural repairs, and other operating expenses (referred to as triple-net leases). We generally consider leases having a remaining term of seven years or more to be long-term leases, and those with a shorter term to be short-term leases. Sale-leasebacks may be in conjunction with acquisitions, recapitalizations, or other corporate transactions. We may act as one of several sources of financing for these transactions by purchasing real property from the seller and net leasing it to the company or its successor in interest (the lessee). Through the advisor, we actively seek such opportunities.

In analyzing potential investment opportunities, in addition to the items discussed above under Commercial Real Estate Properties, the advisor may also consider the following aspects specific to each net-lease transaction:

Tenant/Borrower Evaluation —  The advisor will 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. The advisor will seek opportunities in which it believes the tenant may have a stable or improving credit profile or credit potential that has not been recognized by the market. In evaluating a possible investment, the creditworthiness of a tenant or borrower is often a more significant factor than the value of the underlying real estate, particularly if the underlying property is specifically suited to the needs of the tenant; however, in

CPA ® :18 – Global 2014 10-K – 5

certain circumstances where the real estate is attractively valued, the creditworthiness of the tenant may be a secondary consideration. Whether a prospective tenant or borrower is creditworthy will be determined by the advisor or the independent investment committee. 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.

Properties Critical to Tenant/Borrower Operations —  The advisor will generally focus on properties that it believes are critical to the ongoing operations of the tenant. The advisor believes that these properties provide better protection in the event of a bankruptcy, since a tenant/borrower is less likely to risk the loss of a mission critical lease or property in a bankruptcy proceeding.

Lease Terms —  Generally, the net-leased properties in which we invest will be leased on a full-recourse basis to our tenants or their affiliates. In addition, the advisor will 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 above a stated level. Alternatively, a lease may provide for mandated rental increases on specific dates or other methods.

Diversification   —  The advisor will attempt to diversify our portfolio to avoid dependence on any one particular property type, geographic location, investment size, or investment risk and to generate risk adjusted returns. By diversifying our portfolio, the advisor tries to reduce the adverse effect of a single under-performing investment or a downturn in any particular industry or geographic region.

Transaction Provisions that Enhance and Protect Value —  The advisor will attempt to include provisions in its leases that require our consent to specified activity, require the tenant to provide indemnification protections, or require the tenant to satisfy specific operating tests. These provisions may help protect our investment from changes in the operating and financial characteristics of a tenant that may affect its ability to satisfy its obligations to us or reduce the value of our investment. The advisor 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, security deposits, or through a letter of credit. This credit enhancement, if obtained, provides us with additional financial security. However, in markets where competition for net-lease transactions is strong, some or all of these provisions may be difficult to obtain. In addition, in some circumstances, tenants may require a right to purchase 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 —  The advisor may attempt to obtain equity enhancements in connection with transactions. These equity enhancements may involve 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 us to achieve our goal of increasing investor returns.

Real Estate-Related Assets —  We believe there may be opportunities to purchase non-long-term, net-leased real estate assets from companies and other owners due to the advisor’s significant presence in the corporate real estate marketplace. These assets may differ significantly in character from long-term, net-leased real estate assets: short-term net leases, vacant property, land, multi-tenanted property, non-commercial property, property leased to non-related tenants, etc. However, we believe we may find attractive opportunities to make investments in these assets as they may either be part of a larger sale-leaseback transaction, an existing relationship with the owner, or from some other source where our market presence and reputation may give us an advantage over certain other investors.

Self-Storage Investments — The advisor has a team of professionals dedicated to investments in the self-storage sector. The team, which was formed in 2006, combines a rigorous underwriting process and an active management of property managers with a goal to generate attractive risk-adjusted returns. We had full or partial ownership interests in 14 self-storage properties at December 31, 2014.


CPA ® :18 – Global 2014 10-K – 6

Transactions with Affiliates
 
We have entered, and expect in the future to enter, into transactions with our affiliates, including the other Managed REITs and the advisor or its affiliates, if we believe that doing so is consistent with our investment objectives and we comply with our investment policies and procedures. These transactions typically take the form of equity investments in jointly-owned entities, direct purchases of assets, mergers, or another type of transaction. Joint ventures with our affiliates are permitted only if:

•
a majority of our directors (including a majority of our independent directors) not otherwise interested in the transaction approve the allocation of the transaction among the affiliates as being fair and reasonable to us; and
•
the affiliate makes its investment on substantially the same terms and conditions as us.

Our transactions with affiliates and jointly-owned investments are discussed in Note 3 .

Investment Decisions

The advisor’s investment department, under the oversight of its chief investment officer, is primarily responsible for evaluating, negotiating, and structuring potential investment opportunities for the CPA ® REITs and WPC. The advisor also has an investment committee that provides services to the CPA ® REITs and WPC. Before an investment is made, the transaction is reviewed by the advisor’s independent investment committee, except under limited circumstances described below. The independent investment committee is not directly involved in originating or negotiating potential investments, but instead functions as a separate and final step in the acquisition process. The advisor places special emphasis on having experienced individuals serve on its investment committee. Subject to limited exceptions, the advisor generally will not invest in a transaction on our behalf unless it is approved by the investment committee.

The investment committee has developed policies that permit some investments to be made without committee approval. Under current policy, certain investments may be approved by either the Chairman of the investment committee or the chief investment officer. Additional such delegations may be made in the future at the discretion of the investment committee.

The advisor is required to use its best efforts to present a continuing and suitable investment program to us but is not required to present to us any particular investment opportunity, even if it is of a character that, if presented, could be taken by us.

Competition

In raising funds for investment, we face competition from other funds with similar investment objectives that seek to raise funds from investors through publicly registered, non-traded funds, publicly-traded funds, and private funds. This competition, as well as any change in the attractiveness to investors of an investment in the types of assets held by us, relative to other types of investments, could adversely affect our ability to raise funds for future investments. We face competition for the acquisition of commercial properties and real estate-related assets from insurance companies, credit companies, pension funds, private individuals, investment companies, and other REITs. We also face competition from institutions that provide or arrange for other types of commercial financing through private or public offerings of equity or debt or traditional bank financings. These institutions may accept greater risk or lower returns, allowing them to offer more attractive terms to prospective tenants. In addition, the advisor ’ s evaluation of the acceptability of rates of return on our behalf will be affected by our relative cost of capital. Thus, to the extent our fee structure and cost of fundraising is higher than our competitors, we may be limited in the amount of new acquisitions we are able to make.

We may also compete for investment opportunities with WPC, the other Managed REITs, and entities that may in the future be managed by the advisor. The advisor has undertaken in the advisory agreement to use its best efforts to present investment opportunities to us and to provide us with a continuing and suitable investment program. The advisor follows allocation guidelines set forth in the advisory agreement when allocating investments among us, WPC, the other Managed REITs, and entities that may in the future be managed by the advisor. Each quarter, our independent directors review the allocations made by the advisor during the most recently-completed quarter. Compliance with the allocation guidelines is one of the factors that our independent directors consider when determining whether to renew the advisory agreement each year.

Financing Strategies

Consistent with our investment policies, we use leverage when available on terms we believe are favorable. We will generally borrow in the same currency that is used to pay rent on the property. This enables us to hedge a portion of our currency risk on international investments. We, through the subsidiaries we form to make investments, generally will seek to borrow on a non-

CPA ® :18 – Global 2014 10-K – 7

recourse basis and in amounts that we believe will maximize the return to our stockholders. The use of non-recourse financing may allow us to improve returns to our stockholders and to limit our exposure on any investment to the amount invested. Non-recourse indebtedness means the indebtedness of the borrower or its subsidiaries that is secured only by the assets to which such indebtedness relates, without recourse to the borrower or any of its subsidiaries (other than in case of customary carve-outs for which the borrower or its subsidiaries acts as guarantor in connection with such indebtedness, such as fraud, misappropriation, misapplication of funds, environmental conditions and material misrepresentation). Since non-recourse financing generally restricts the lender ’ s claim on the assets of the borrower, the lender generally may only take back the asset securing the debt, which protects our other assets. In some cases, particularly with respect to non-U.S. investments, the lenders may require that they have recourse to other assets owned by a subsidiary borrower, in addition to the asset securing the debt. Such recourse generally would not extend to the assets of our other subsidiaries. Lenders typically seek to include change of control provisions in the terms of a loan making the termination or replacement of the advisor, or the dissolution of the advisor, events of default or events requiring the immediate repayment of the full outstanding balance of the loan. While we will attempt to negotiate to not include such provisions, lenders may require them.

We currently estimate that we will borrow, on average, up to 50% of the purchase price of our properties; however, there is no limitation on the amount we may borrow against any single property. Our aggregate borrowings, secured and unsecured, will be reasonable in relation to our net assets and will be reviewed by our board of directors at least quarterly. Aggregate borrowings as of the time that the net proceeds of the offering have been fully invested and at the time of each subsequent borrowing may not exceed on average the lesser of 75% of the total costs of all investments, or 300% of our net assets, unless the excess is approved by a majority of our independent directors and disclosed to stockholders in our next quarterly report, along with justification for the excess. Net assets are our total assets (other than intangibles), valued at cost before deducting depreciation, reserves for bad debts and other non-cash reserves, less total liabilities.

Environmental Matters

We have invested in, 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 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 Management’s Discussion and Analysis of Financial Condition and Results of Operations — Portfolio Overview in Item 7 and Note 13 for financial information pertaining to our geographic operations.

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.cpa18global.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 website 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, http://www.cpa18global.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.

Item 1A. Risk Factors.

Our business, results of operations, financial condition, and ability to pay distributions at the current rate could be materially adversely affected by various risks and uncertainties, including those enumerated below. These risk factors may have affected, and in the future could affect, our actual operating and financial results and could cause such results to differ materially from those in any forward-looking statements. You should not consider this list exhaustive. New risk factors emerge periodically and we cannot assure you that the factors described below list all risks that may become material to us at any later time.

We are newly formed and have limited operating history; therefore, there is no assurance that we will be able to achieve our investment objectives.

We are newly formed and have limited operating history. We are subject to all of the business risks and uncertainties associated with any new business, including the risk that we will not achieve our investment objectives as described in this Report and that the value of your investment could decline substantially. Our financial condition and results of operations will depend on many factors, including the availability of opportunities for the acquisition of assets, readily accessible short and long-term financing, conditions in the financial markets, economic conditions generally, and the performance of the advisor. There can be no assurance that we will be able to generate sufficient cash flow over time to pay our operating expenses and make distributions to stockholders.

The offering prices for shares being offered in our initial public offering and through our distribution reinvestment and stock purchase plan were arbitrarily determined by our board of directors and may not be indicative of the prices at which the shares would trade if they were listed on an exchange or were actively traded by brokers.

The offering prices of the shares being offered in our initial public offering and through our distribution reinvestment and stock purchase plan were arbitrarily determined by our board of directors in the exercise of its business judgment. These prices may not be indicative of the price at which shares would trade if they were listed on an exchange or actively traded by brokers, the proceeds that a stockholder would receive if we were liquidated or dissolved, or the value of our portfolio at the time you purchase shares.

A delay in investing funds may adversely affect or cause a delay in our ability to deliver expected returns to investors and may adversely affect our performance.

We have not yet identified all of the assets to be purchased with the proceeds of the initial public offering and our distribution reinvestment and stock purchase plan; therefore, there could be a substantial delay between the time stockholders invest in our shares and the time substantially all the proceeds are invested by us. We currently expect that, if the entire offering is subscribed for, it may take up to two years after commencement of the offering or one year after the termination of the initial public offering, if later, until our capital is substantially invested. Pending investment, the balance of the proceeds of the initial public offering will be invested in permitted temporary investments, which include short-term U.S. government securities, bank certificates of deposit, and other short-term liquid investments. The rate of return on those investments, which affects the amount of cash available to make distributions to stockholders, has been extremely low in recent years and most likely will be less than the return obtainable from real property or other investments. Therefore, delays in our ability to invest the proceeds of the initial public offering could adversely affect our ability to pay distributions to our stockholders and adversely affect their total return. If we fail to timely invest the net proceeds of this offering or to invest in quality assets, our ability to achieve our investment objectives could be materially adversely affected.

We may be unable to pay or maintain cash distributions or increase distributions over time.

The amount of cash available for distributions is affected by many factors, such as the performance of the advisor in selecting investments for us to make, selecting tenants for our properties and securing financing arrangements, our ability to buy properties as offering proceeds become available, rental income from our properties, and our operating expense levels, as well as many other variables. We may not always be in a position to pay distributions to you and any distributions we do make may not increase over time. In addition, our actual results may differ significantly from the assumptions used by our board of directors in establishing the distribution rate to our stockholders. There also is a risk that we may not have sufficient cash from operations to make a distribution required to maintain our REIT status.


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Before we substantially invest the net proceeds of our initial public offering, our distributions are likely to exceed our funds (used in) from operations, or FFO, and may be paid from offering proceeds, borrowings, and other sources, without limitation.

Over the life of our company, the regular quarterly cash distributions we pay are expected to be principally sourced by our FFO. However, before we substantially invest the net proceeds of our initial public offering, our distributions may exceed our FFO. As such, we have funded, and we may in the future fund, our cash distributions, in whole or in part, using net proceeds from the initial public offering, and we may also use borrowings and other sources, without limitation, to do so. Through December 31, 2014 , approximately 99.8% of our distributions have been funded with offering proceeds. If our properties are not generating sufficient cash flow or our other expenses require it, we may need to sell properties or other assets, incur indebtedness, or use offering proceeds if necessary to satisfy the REIT requirement that we distribute at least 90% of our REIT net taxable income, excluding net capital gains, and to avoid the payment of federal income tax. If we fund distributions from financings, then such financings will need to be repaid, and if we fund distributions from offering proceeds, then we will have fewer funds available for the acquisition of properties, which may affect our ability to generate future cash flows from operations and, therefore, reduce stockholders’ overall return. These risks will be greater for persons who acquire our shares relatively early in this offering, before a significant portion of the offering proceeds have been invested.

Because we have paid, and may continue to pay, distributions from sources other than our FFO, distributions at any point in time may not reflect the current performance of our properties or our current operating cash flows.

Our charter permits us to make distributions from any source, including the sources described in the risk factor above. Because the amount we pay out in distributions has exceeded, and may in the future continue to exceed, our FFO, distributions may not reflect the current performance of our properties or our current operating cash flows. To the extent distributions exceed cash flow from operations, distributions may be treated as a return of your investment and could reduce your basis in our stock. A reduction in a stockholder’s basis in our stock could result in the stockholder recognizing more gain upon the disposition of his or her shares, which in turn could result in greater taxable income to such stockholder.

Stockholders’ equity interests may be diluted.

Our stockholders do not have preemptive rights to any shares of common stock issued by us in the future. Therefore, if we (i) sell shares of common stock in the future, including those issued pursuant to our distribution reinvestment and stock purchase plan, (ii) sell securities that are convertible into our common stock, (iii) issue common stock in a private placement to institutional investors, or (iv) issue shares of common stock to our directors or to WPC and its affiliates for payment of fees in lieu of cash, then existing stockholders and investors purchasing shares in the initial public offering will experience dilution of their percentage ownership in us. Depending on the terms of such transactions, most notably the offering price per share, which may be less than the price paid per share in our initial public offering, and the value of our properties and our other investments, existing stockholders might also experience a dilution in the book value per share of their investment in us.

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. 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. At December 31, 2014, the leases for Bank Pekao S.A., or Bank Pekao, State Farm Automobile Company, or State Farm, and Konzum d. d., or Agrokor, each represented consolidated ABR of greater than 10%, for an aggregate of 33.9% of our consolidated ABR. A failure by any one of these tenants to meet their obligations to us could have a material adverse effect on our financial condition and results of operations and on our ability to pay distributions to our stockholders.

Our board of directors may change our investment policies without stockholder approval, which could materially adversely affect our ability to achieve our investment objectives.

Our charter requires that our independent directors review our investment policies at least annually to determine that the policies we are following are in the best interest of our stockholders. These policies may change over time. The methods of implementing our investment policies may also vary, as new investment techniques are developed. Our investment policies, the methods for their implementation, and our other objectives, policies, and procedures may be altered by a majority of the directors (which must include a majority of the independent directors), without the approval of our stockholders. A change in

CPA ® :18 – Global 2014 10-K – 9

our investment strategy may, among other things, increase our exposure to interest rate risk, default risk, and commercial real property market fluctuations, all of which could materially adversely affect our ability to achieve our investment objectives.

We are an “emerging growth company” under the federal securities laws and will be subject to reduced public company reporting requirements.

In April 2012, President Obama signed into law the JOBS Act. We are an “emerging growth company,” as defined in the JOBS Act, and therefore are eligible to take advantage of certain exemptions from, or reduced disclosure obligations relating to, various reporting requirements that normally are applicable to public companies. For so long as we remain an emerging growth company, we will not be required to (i) comply with the auditor attestation requirements of Section 404 of the Sarbanes-Oxley Act of 2002, (ii) submit certain executive compensation matters to stockholder advisory votes pursuant to the “say on frequency” and “say on pay” provisions of Section 14A(a) of the Exchange Act (requiring a non-binding stockholder vote to approve compensation of certain executive officers) and the “say on golden parachute” provisions of Section 14A(b) of the Exchange Act (requiring a non-binding stockholder vote to approve golden parachute arrangements for certain executive officers in connection with mergers and certain other business combinations), (iii) disclose more than two years of audited financial statements in a registration statement filed with the SEC, (iv) disclose selected financial data pursuant to the rules and regulations of the Securities Act of 1933 (requiring selected financial data for the past five years or for the life of the issuer, if less than five years) in our periodic reports filed with the SEC for any period prior to the earliest audited period presented in this registration statement, and (v) disclose certain executive compensation related items, such as the correlation between executive compensation and performance and comparisons of the chief executive officer ’ s compensation to median employee compensation as required by the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010. We have not yet made a decision whether to take advantage of any of or all such exemptions. If we decide to take advantage of any of these exemptions, some investors may find our shares of common stock a less attractive investment as a result.

We will remain an “emerging growth company” for up to five years, although we will lose that status sooner if our annual gross revenues exceed $1.0 billion, if we issue more than $1.0 billion in non-convertible debt in a three-year period, or if market value of our common stock that is held by non-affiliates equals or exceeds $700.0 million after we have been publicly reporting for at least 12 months and have filed at least one annual report on Form 10-K with the SEC.

Our success is dependent on the performance of the advisor, but the past performance of other programs managed by the advisor may not be indicative of success.

Our ability to achieve our investment objectives and to pay distributions is largely dependent upon the performance of the advisor in the selection and acquisition of investments, the determination of any financing arrangements, and the management of our assets. The advisory agreement currently in effect is scheduled to expire on December 31, 2015 and may be renewed upon expiration.

The past performance of partnerships and CPA ® REITs managed by the advisor may not be indicative of the advisor’s performance with respect to us. We cannot guarantee that the advisor will be able to successfully manage and achieve liquidity for us to the extent it has done so for prior programs.

We may invest in assets outside the advisor’s core expertise and incur losses as a result.

We are not restricted in the types of investments we may make, and we may invest in assets outside the advisor’s core expertise of long-term, net-leased properties. The advisor may not be as familiar with the potential risks of investments outside net-leased properties and self storage. If we invest in assets outside the advisor’s core expertise, such as our investments in multi-family properties, the fact that the advisor does not have the same level of experience in evaluating investments outside its core business could result in such investments performing more poorly than long-term net-lease investments and self storage, which in turn could adversely affect our revenues, estimated net asset values, and distributions to our stockholders.

WPC and our dealer manager are parties to a settlement agreement with the SEC and are subject to a federal court injunction as well as a consent order with the Maryland Division of Securities.

In 2008, WPC and Carey Financial settled all matters relating to an investigation by the SEC, including matters relating to payments by certain CPA ® REITs other than us during 2000-2003 to broker-dealers that distributed their shares, which were alleged by the SEC to be undisclosed underwriting compensation, which WPC and Carey Financial neither admitted nor denied. In connection with implementing the settlement, a federal court injunction was entered against WPC and Carey Financial enjoining them from violating a number of provisions of the federal securities laws. Any further violation of these laws by WPC

CPA ® :18 – Global 2014 10-K – 10

or Carey Financial could result in civil remedies, including sanctions, fines, and penalties, which may be more severe than if the violation had occurred without the injunction being in place. Additionally, if WPC or Carey Financial breaches the terms of the injunction, the SEC may petition the court to vacate the settlement and restore the SEC’s original action to the active docket for all purposes.

In 2012, Corporate Property Associates 15 Incorporated, which was also a non-traded REIT advised by WPC and Carey Financial, settled all matters relating to an investigation by the state of Maryland regarding the sale of unregistered securities of Corporate Property Associates 15 Incorporated in 2002 and 2003. Under the consent order, Corporate Property Associates 15 Incorporated, WPC, and Carey Financial agreed, without admitting or denying liability, to cease and desist from any further violations of selling unregistered securities in Maryland. Contemporaneous with the issuance of the consent order, Corporate Property Associates 15 Incorporated, WPC, and Carey Financial paid the Maryland Division of Securities a civil penalty of $10,000.

Additional regulatory action, litigation, or governmental proceedings could adversely affect us by, among other things, distracting WPC and Carey Financial from their duties to us, resulting in significant monetary damages to WPC and Carey Financial, which could adversely affect their ability to perform services for us, or resulting in injunctions or other restrictions on WPC’s or Carey Financial’s ability to act as the advisor and dealer manager, respectively, in the United States or in one or more states.

Exercising our right to repurchase all or a portion of CPA ® :18 Holdings’ special general partner interest in our Operating Partnership upon certain termination events could be prohibitively expensive and could deter us from terminating the advisory agreement.

The termination of Carey Asset Management Corp., a subsidiary of WPC, as the advisor, including by non-renewal of the advisory agreement and replacement with an entity that is not an affiliate of Carey Asset Management Corp., or the resignation of the advisor, all after two years from the start of operations of our Operating Partnership, would give our Operating Partnership the right, but not the obligation, to repurchase all or a portion of CPA ® :18 Holdings’ special general partner interest in our Operating Partnership at a value based on the lesser of: (i) five times the amount of the last completed fiscal year’s special general partner distributions; and (ii) the discounted present value of the estimated future special general partner distributions until March 2025. This repurchase could be prohibitively expensive, could require the Operating Partnership to sell assets in order to raise sufficient funds to complete the repurchase, and could discourage or deter us from terminating the advisory agreement. Alternatively, if our Operating Partnership does not exercise its repurchase right and CPA ® :18 Holdings’ interest is converted into a special limited partnership interest, we might be unable to find another entity that would be willing to act as the advisor while CPA ® :18 Holdings owns a significant interest in the Operating Partnership. If we do find another entity to act as the advisor, we may be subject to higher fees than the fees charged by Carey Asset Management Corp.

The repurchase of CPA ® :18 Holdings’ special general partner interest in our Operating Partnership upon the termination of Carey Asset Management Corp. as the advisor may discourage certain business combination transactions.

In the event of a merger in which our advisory agreement is terminated and Carey Asset Management Corp. is not replaced by an affiliate of Carey Asset Management Corp. as the advisor, the Operating Partnership must either repurchase all or a portion of CPA ® :18 Holdings’ special general partner interest in our Operating Partnership at the value described in the immediately preceding risk factor or obtain the consent of CPA ® :18 Holdings to the merger. This obligation may deter a transaction that could result in a merger in which we are not the acquiring entity. This deterrence may limit the opportunity for stockholders to receive a premium for their shares of common stock that might otherwise exist if a third party attempted to acquire us through a merger.

The termination or replacement of the advisor could trigger a default or repayment event under our financing arrangements for some of our assets.

Lenders for certain of our assets may request change of control provisions in the loan documentation that would make the termination or replacement of WPC or its affiliates as the advisor an event of default or an event requiring the immediate repayment of the full outstanding balance of the loan. If an event of default or repayment event occurs with respect to any of our assets, our revenues and distributions to our stockholders may be adversely affected.


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Payment of fees to the advisor and distributions to our special general partner will reduce cash available for investment and distribution.

The advisor performs services for us in connection with the offer and sale of our shares, the selection and acquisition of our investments, the management, and leasing of our properties, and the administration of our other investments. Unless the advisor elects to receive our common stock in lieu of cash compensation, and our board of directors approves such election, we will pay the advisor substantial cash fees for these services. In addition, our special general partner is entitled to certain distributions from our Operating Partnership. The payment of these fees and distributions will reduce the amount of cash available for investments or distribution to our stockholders.

The advisor and its affiliates are subject to conflicts of interest.

The advisor manages our business and selects our investments. The advisor and its affiliates have conflicts of interest in their dealings with us. Circumstances under which a conflict could arise between us and the advisor and its affiliates include:

•
the receipt of compensation by the advisor for acquisitions of investments, leases, sales, and financing for us, which may cause the advisor to engage in transactions that generate higher fees, rather than transactions that are more appropriate or beneficial for our business;
•
agreements between us and the advisor, including agreements regarding compensation, will not be negotiated on an arm’s-length basis, as would occur if the agreements were with unaffiliated third parties; 
•
acquisitions of single assets or portfolios of assets from affiliates, including another CPA ® REIT, subject to our investment policies and procedures, which may take the form of a direct purchase of assets, a merger, or another type of transaction; 
•
competition with WPC and entities managed by it for investment acquisitions, which are resolved by the advisor, present conflicts of interest, which may not be resolved in the manner that is most favorable to our interests);
•
a decision by the advisor (on our behalf) of whether to hold or sell an asset, which could impact the timing and amount of fees payable to the advisor, as well as allocations and distributions payable to CPA ® :18 Holdings pursuant to its special general partner interests (e.g. the advisor receives asset management fees and may decide not to sell an asset, however, CPA ® :18 Holdings will be entitled to certain profit allocations and cash distributions based upon sales of assets as a result of its Operating Partnership profits interest);
•
business combination transactions, including mergers, with WPC or another CPA ® REIT; 
•
decisions regarding liquidity events, which may entitle the advisor and its affiliates to receive additional fees and distributions in respect of the liquidations; 
•
a recommendation by the advisor that we declare distributions at a particular rate because the advisor and CPA ® :18 Holdings may begin collecting subordinated fees once the applicable preferred return rate has been met;
•
disposition fees based on the sale price of assets and interests in disposition proceeds based on net cash proceeds from the sale, exchange, or other disposition of assets cause a conflict between the advisor’s desire to sell an asset and our plans to hold or sell the asset; and
•
the termination of the advisory agreement and other agreements with the advisor and its affiliates.

We delegate our management functions to the advisor.

We delegate our management functions to the advisor, for which it earns fees pursuant to an advisory agreement. Although at least a majority of our board of directors must be independent, because the advisor earns fees from us and has an ownership interest in us, we have limited independence from the advisor.

We face competition from affiliates of the advisor in the purchase, sale, lease, and operation of properties.

WPC and its affiliates specialize in providing lease financing services to corporations and in sponsoring funds that invest in real estate, such as CPA ® :17 – Global and, to a lesser extent, CWI and CWI 2. WPC and CPA ® :17 – Global have investment policies and return objectives that are similar to ours and they, CWI, and CWI 2 are currently actively seeking opportunities to invest capital. Therefore, WPC and its affiliates, including CPA ® :17 – Global, CWI, CWI 2, and future entities advised by WPC, may compete with us with respect to properties, potential purchasers, sellers, and lessees of properties, and mortgage financing for properties. We do not have a non-competition agreement with WPC, CPA ® :17 – Global, CWI, or CWI 2, and there are no restrictions on WPC’s ability to sponsor or manage funds or other investment vehicles that may compete with us in the future. Some of the entities formed and managed by WPC may be focused specifically on particular types of investments and receive preference in the allocation of those types of investments.


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The advisor may in the future hire subadvisors in areas where the advisor is seeking additional expertise. Stockholders will not be able to review these subadvisors and the advisor may not have sufficient expertise to monitor the subadvisors.

The advisor has the right to appoint one or more subadvisors with expertise in our target asset classes to assist the advisor with investment decisions and asset management. We do not have control over which subadvisors the advisor may choose and the advisor may not have the necessary expertise to effectively monitor the subadvisors’ investment decisions.

If we internalize our management functions, the percentage of our outstanding common stock owned by our other stockholders could be reduced and we could incur other significant costs associated with being self-managed.

In the future, our board of directors may consider internalizing the functions currently performed for us by the advisor by, among other methods, acquiring the advisor’s assets. The method by which we could internalize these functions could take many forms. There is no assurance that internalizing our management functions will be beneficial to us and our stockholders. There is also no assurance that the key employees of the advisor who perform services for us would elect to work directly for us, instead of remaining with the advisor or another affiliate of WPC. An acquisition of the advisor could also result in dilution of your interests as a stockholder and could reduce earnings per share and FFO per share. Additionally, we may not realize the perceived benefits, be able to properly integrate a new staff of managers and employees, or be able to effectively replicate the services provided previously by the advisor. Internalization transactions, including without limitation transactions involving the acquisition of advisors or property managers affiliated with entity sponsors, have also, in some cases, been the subject of litigation. Even if these claims are without merit, we could be forced to spend significant amounts of money defending claims, which would reduce the amount of funds available for us to invest in properties or other investments and to pay distributions. All of these factors could have a material adverse effect on our results of operations, financial condition, and ability to pay distributions.

We could be adversely affected if the advisor completed an internalization with another Managed REIT.

If WPC were to sell or otherwise transfer its advisory business to another Managed REIT, we could be adversely affected because the advisor could be incentivized to make decisions regarding investment allocation, asset management, liquidity transactions, and other matters that are more favorable to its Managed REIT owner than to us. If we terminate the advisory agreement and repurchase the special general partner’s interest in our Operating Partnership, which we would have the right to do in such circumstances, the costs to us could be substantial and we may have difficulty finding a replacement advisor that would perform at a level at least as high as that of the advisor.

We intend to invest primarily in commercial real estate-related assets; therefore, our results will be affected by factors that affect the commercial real estate industry, including volatility in economic conditions and fluctuations in interest rates.

Our operating results will be subject to risks generally incident to the ownership of commercial real estate, including:

•
volatility in general economic conditions;
•
changes in supply of or demand for similar or competing properties in a geographic area; 
•
changes in interest rates and availability of permanent mortgage funds that may render the sale of a property difficult or unattractive;
•
the illiquidity of real estate investments generally; 
•
changes in tax, real estate, environmental, and zoning laws; and 
•
periods of high interest rates and tight money supply.

For these and other reasons, we cannot assure you that we will be profitable or that we will realize growth in the value of our commercial real estate properties.

We may have difficulty selling or re-leasing our properties, and this lack of liquidity may limit our ability to quickly change our portfolio in response to changes in economic or other conditions.

Real estate investments generally have less liquidity compared to other financial assets and this lack of liquidity may limit our ability to quickly change our portfolio in response to changes in economic or other conditions. The leases we may enter into or acquire may be for properties that are specially suited to the particular needs of our tenant. With these properties, if the current lease is terminated or not renewed, we may be required to renovate the property or to make rent concessions in order to lease

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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 sell properties without adversely affecting returns to our stockholders.

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 geographic areas internationally in which our investments are located. Adverse changes in national economic conditions or in the economic conditions of the international regions in which we conduct substantial business would likely have an adverse effect on real estate values and, accordingly, our financial performance, and our ability to pay distributions.

We may recognize substantial impairment charges on our properties.

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 (or, for direct financing leases, that the unguaranteed residual value of the underlying property has declined). By their nature, the timing or extent of impairment charges are not predictable. Impairment charges reduce our net income, although they do not necessarily affect our FFO, which is the metric we use to evaluate our distribution coverage.

Liability for uninsured losses could adversely affect our financial condition.

Losses from disaster-type occurrences (such as wars, terrorist activities, floods, or earthquakes) may be either uninsurable or not insurable on economically-viable terms. Should an uninsured loss or a loss in excess of the limits of our insurance occur, we could lose our capital investment and/or anticipated profits and cash flow from one or more investments, which in turn could cause the value of the shares and distributions to our stockholders to be reduced.

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 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. 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 Financial Accounting Standards Board and International 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 Financial Accounting Standards Board and International Accounting Standards Board continue their redeliberations of the proposals included in the May 2013 Exposure Draft based on the comments received and, as of the date of this Report, the proposed guidance has not yet been finalized. Changes to the accounting guidance could affect our accounting for leases, as well as that of our 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 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.

Our ability to control the management 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. A bankrupt or financially-troubled tenant may be more likely to defer maintenance and it may be more difficult to enforce remedies, including those provided in the applicable lease, 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. Monitoring of

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compliance by tenants with their lease obligations and other factors that could affect the financial performance of our properties may not in all circumstances ascertain or forestall deterioration either in the condition of a property or the financial circumstances of a tenant.

Our participation in joint ventures creates additional risk.

From time to time, we may participate in joint ventures and purchase assets jointly with the other CPA ® REITs and/or WPC and other entities managed by it, 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 our investment partner. In addition, there is the potential that our joint venture partner may become bankrupt or that we may have diverging or inconsistent economic or business interests. These diverging interests could, among other things, expose us to liabilities in 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 the advisor or members of our board of directors may owe to our partner in an affiliated transaction may make it more difficult for us to enforce our rights.

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 of 1940, or 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, which is referred to as the “40% test.”

We believe that we and our subsidiaries are engaged primarily in the business of acquiring and owning interests in real estate. We hold ourselves out as a real estate firm and do not engage primarily in the business of investing, reinvesting, or trading in securities. Accordingly, we do not believe that we are an investment company as defined in section 3(a)(1)(A) of the Investment Company Act and described in the first bullet point above. Excepted from the term “investment securities” for purposes of the 40% test described in the second bullet point above are securities issued by majority-owned subsidiaries, such as our operating partnership, that are not themselves investment companies and are not relying on the exception from the definition of investment company set forth in Section 3(c)(1) or Section 3(c)(7) of the Investment Company Act.

Our operating partnership generally expects to satisfy the 40% test, however, depending on the nature of its investments, our operating partnership may rely upon the exclusion from registration as an investment company pursuant to Section 3(c)(5)(C) of the Investment Company Act, which is available for entities “primarily engaged in the business of purchasing or otherwise acquiring mortgages and other liens on and interests in real estate.” This exclusion generally requires that at least 55% of the operating partnership's assets must be comprised of qualifying real estate assets and at least 80% of its portfolio must be comprised of qualifying real estate assets and real estate-related assets. Qualifying assets for this purpose include mortgage loans and other assets, including certain mezzanine loans and B notes, that the SEC staff in various no-action letters has affirmed can be treated as qualifying assets. We treat the following as real estate-related assets: commercial mortgage-backed securities, debt and equity securities of companies primarily engaged in real estate businesses, and securities issued by pass through entities of which substantially all the assets consist of qualifying assets and/or real estate-related assets. We rely on guidance published by the SEC staff or on our analyses of guidance published with respect to other types of assets to determine which assets are qualifying real estate assets and real estate-related assets. In August 2011, the SEC issued a concept release soliciting public comment on a wide range of issues relating to Section (3)(c)(5)(C), including the nature of the assets that qualify for purposes of the exemption and whether mortgage REITs should be regulated in a manner similar to investment companies. There can be no assurance that the laws and regulations governing the Investment Company Act status of REITs, including the guidance of the SEC or its staff regarding this exclusion, will not change in a manner that adversely affects our operations. To the extent that the SEC staff publishes new or different guidance with respect to these matters, we may be required to adjust our strategy accordingly. In addition, we may be limited in our ability to make certain investments and these limitations could result in the operating partnership holding assets we might wish to sell or selling assets we might wish to hold.

To maintain compliance with an Investment Company Act exemption or exclusion, we may be unable to sell assets 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

CPA ® :18 – Global 2014 10-K – 15

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 would be prohibited from engaging in our business as currently contemplated because the Investment Company Act imposes significant limitations on leverage. In addition, we would have to seek to restructure the advisory agreement because the compensation that it contemplates would not comply with the Investment Company Act. If we fail to comply with the Investment Company Act, criminal and civil actions could be brought against us, our contracts could be unenforceable unless a court were to require enforcement, and a court could appoint a receiver to take control of us and liquidate our business.

Because the operating partnership is not an investment company and does not rely on the exclusion from investment company registration provided by Section 3(c)(1) or 3(c)(7), and the operating partnership is our majority-owned subsidiary, our interests in the operating partnership do not constitute investment securities for purposes of the 40% test. Our interest in the operating partnership is our only material asset; therefore, we believe that we satisfy the 40% test.

We use derivative financial instruments to hedge against interest rate and currency fluctuations, which could reduce the overall returns on your investment.

We use derivative financial instruments to hedge exposures to changes in interest rates and currency rates. These instruments involve risk, such as the risk that counterparties may fail to perform under the terms of the derivative contract or that such arrangements may not be effective in reducing our exposure to interest rate changes. In addition, the possible use of such instruments may reduce the overall return on our investments. These instruments may also generate income that may not be treated as qualifying REIT income for purposes of the 75% or 95% REIT income test.

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 58% of consolidated ABR. These investments may be affected by factors particular to the laws of the jurisdiction in which the property is located and 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;
•
tax requirements vary by country and we may be subject to additional taxes as a result of 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. It may also impair our ability to receive timely and accurate financial information from tenants necessary to meet our reporting obligations to financial institutions or governmental or regulatory agencies. Certain of these risks may be greater in emerging markets and less developed countries. The advisor’s expertise to date has primarily been in the United States and certain countries in Europe and Asia, and the advisor has less experience in other international markets. The advisor may not be as familiar with the potential risks to our investments outside these markets, and we could incur losses as a result.
 

CPA ® :18 – Global 2014 10-K – 16

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. 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 exposures are to the euro and, to the lesser extent, the Norwegian krone and British pound sterling. We attempt to mitigate a portion of the risk of currency fluctuation by financing our properties in the local currency denominations, although there can be no assurance that this will be effective. Because we generally place both our debt obligation to the lender and the tenant’s rental obligation to us in the same currency, the results of our foreign operations benefit from a weaker U.S. dollar and are adversely affected by a stronger U.S. dollar relative to foreign currencies (i.e., 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).

Because most of our properties are occupied by a single tenant, our success is materially dependent upon the financial stability of our tenants.
 
Most of our commercial real estate properties are occupied by a single tenant; therefore, the success of our investments is materially dependent on the financial stability of these tenants. Revenues from several of our tenants/guarantors constitute a significant percentage of our lease revenues. Our five largest tenants/guarantors represented approximately 51% of consolidated ABR at December 31, 2014 . Lease payment defaults by tenants could negatively impact our net income and reduce the amounts available for distributions to our stockholders. A tenant default on lease payments to us could cause us to lose the revenue from the property and, if the property is subject to a mortgage, require us to find an alternative source of revenue to meet any mortgage payment and prevent a foreclosure. In the event of a default, we may experience delays in enforcing our rights as landlord and may incur substantial costs in protecting our investment and re-leasing our 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.

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 asset;
•
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. 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.

CPA ® :18 – Global 2014 10-K – 17

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. 

CPA ® :17 – Global and several other non-traded REITs previously managed by the advisor have had tenants (including several international tenants) file for bankruptcy protection in the past and have been involved in bankruptcy-related litigation. Four prior programs managed by the advisor 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.

Highly-leveraged tenants may have a higher possibility of filing for bankruptcy or insolvency.
 
Highly-leveraged tenants that experience downturns in their operating results due to adverse changes to their business or economic conditions may have a higher possibility of filing for bankruptcy or insolvency. In bankruptcy or insolvency, a tenant may have the option of vacating a property instead of paying rent. Until such a property is released from bankruptcy, our revenues may be reduced and could cause us to reduce distributions to stockholders.

We will incur debt to finance our operations, which may subject us to an increased risk of loss.

We will incur debt to finance our operations. The leverage we employ will vary depending on our ability to obtain credit facilities, the loan-to-value and debt service coverage ratios of our assets, the yield on our assets, the targeted leveraged return we expect from our investment portfolio, and our ability to meet ongoing covenants related to our asset mix and financial performance. Our return on our investments and cash available for distribution to our stockholders may be reduced to the extent that changes in market conditions cause the cost of our financing to increase relative to the income that we can derive from the assets we acquire.

Debt service payments will reduce the net income available for distributions to our stockholders. Moreover, we may not be able to meet our debt service obligations and, to the extent that we cannot, we risk the loss of some or all of our assets to foreclosure or sale to satisfy our debt obligations. Our charter or bylaws do not restrict the form of indebtedness we may incur.

The credit profiles of our tenants may create a higher risk of lease defaults and therefore lower revenues.
 
Generally, no credit rating agencies evaluate or rank the debt or the credit risk of many of our tenants, as we seek tenants that we believe will have stable or improving credit profiles that have not been recognized by the traditional credit market. Our long-term leases with certain of these tenants may therefore pose a higher risk of default than would long-term leases with tenants whose credit is rated highly by a rating agency.

We may incur costs to finish build-to-suit properties.
 
We may acquire undeveloped land or partially developed buildings for the purpose of owning to-be-built facilities for a prospective tenant. The primary risks of a build-to-suit project are potential for failing to meet an agreed-upon delivery schedule and cost-overruns, which may among other things, cause the total project costs to exceed the original appraisal. In some cases, the prospective tenant will bear these risks. However, in other instances we may be required to bear these risks, which means that we may have to advance funds to cover cost-overruns that we would not be able to recover through increased rent payments or that we may experience delays in the project that delay commencement of rent. We will attempt to minimize these risks through guaranteed maximum price contracts, review of contractor financials, and completed plans and specifications prior to commencement of construction. The incurrence of the costs described above or any non-occupancy by the tenant upon completion may reduce the project’s and our portfolio’s returns or result in losses to us.


CPA ® :18 – Global 2014 10-K – 18

A decrease in demand for self-storage space would likely have an adverse effect on our revenues from operating real estate.

A decrease in the demand for self-storage space would have an adverse effect on our revenues from our operating real estate. Demand for self-storage space has been and could be adversely affected by ongoing weakness in the national, regional, and local economies, changes in supply of, or demand for, similar or competing self-storage facilities in an area and the excess amount of self-storage space in a particular market. To the extent that any of these conditions occur, they are likely to affect market rents for self-storage space, which could cause a decrease in our revenues.

Short-term leases may expose us to the effects of declining market rent.

Certain types of the properties we own and may acquire, such as self-storage and multi-family properties, typically have short-term leases, generally one year or less, with tenants. There is no assurance that we will be able to renew these leases as they expire or attract replacement tenants on comparable terms, if at all.

We are subject, in part, to the risks of real estate ownership, which could reduce the value of our properties.

Our performance and asset value is, in part, subject to risks incident to the ownership and operation of real estate, including:

•
changes in the general economic climate;
•
changes in local conditions such as an oversupply of space or reduction in demand for real estate;
•
changes in interest rates and the availability of financing; and
•
changes in laws and governmental regulations, including those governing real estate usage, zoning, and taxes.

Potential liability for environmental matters could adversely affect our financial condition.

We expect to continue to invest in real properties historically used for industrial, manufacturing, and commercial purposes. We therefore may own properties that have known or potential environmental contamination as a result of historical or ongoing operations. Buildings and structures on the properties we purchase may have known or suspected asbestos-containing building materials. We may invest in properties located in countries that have adopted laws or observe environmental management standards that are less stringent than those generally followed in the United States, which may pose a greater risk that releases of hazardous or toxic substances have occurred. Leasing properties to tenants that engage in these activities, and owning properties historically and currently used for industrial, manufacturing, and commercial purposes, will cause us to be subject to the risk of liabilities under environmental laws. Some of these laws could impose the following on us:

•
responsibility and liability for the costs of investigation, removal, or remediation of hazardous or toxic substances released on or from our real 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;
•
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; and 
•
responsibility for managing asbestos-containing building materials, and third-party claims for exposure to those materials.

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 on one 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. 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, we may be required, in connection with any future divestitures of property, to provide buyers with indemnification against potential environmental liabilities.

We and our independent property operators will rely on information technology in our operations, and any material failure, inadequacy, interruption or security failure of that technology could harm our business.

We and our independent property operators will rely on information technology networks and systems, including the internet, to process, transmit, and store electronic information, and to manage or support a variety of business processes, including financial

CPA ® :18 – Global 2014 10-K – 19

transactions and records, personal identifying information, reservations, billing, and operating data. We will purchase some of our information technology from vendors, on whom our systems depend. We rely on commercially available systems, software, tools, and monitoring to provide security for processing, transmission, and storage of confidential customer information, such as individually identifiable information, including information relating to financial accounts. It is possible that our safety and security measures will not be able to prevent the systems' improper functioning or damage, or the improper access or disclosure of personally identifiable information such as in the event of cyber-attacks. Security breaches, including physical or electronic break-ins, computer viruses, attacks by hackers, and similar breaches, can create system disruptions, shutdowns, or unauthorized disclosure of confidential information. Any failure to maintain proper function, security, and availability of our information systems could interrupt our operations, damage our reputation, subject us to liability claims or regulatory penalties, and could have a material adverse effect on our business, financial condition, and results of operations.

We face active competition for the funds we raise and the investments we make.

We face active competition for the acquisition of commercial properties and real estate-related assets from insurance companies, credit companies, pension funds, private individuals, investment companies, and other REITs. We also face competition from institutions that provide or arrange for other types of commercial financing through private or public offerings of equity or debt or traditional bank financings. These institutions may accept greater risk or lower returns, allowing them to offer more attractive terms to prospective tenants. In addition, the advisor’s evaluation of the acceptability of rates of return on our behalf will be affected by our relative cost of capital. Also, to the extent our fee structure and cost of fundraising is higher than our competitors, we may be limited in the amount of new acquisitions we are able to make.

Valuations that we obtain may include leases in place on the property being appraised, and if the leases terminate, the value of the property may become significantly lower.

The valuations that we obtain on our properties may be based on the value of the properties when the properties are leased. If the leases on the properties terminate, the value of the properties may fall significantly below the appraised value.

The mortgage loans in which we may invest will be subject to delinquency, foreclosure, and loss, which could result in losses to us.

The ability of a borrower to repay a loan secured by an income-producing property typically is dependent primarily upon the successful operation of the property rather than upon the existence of independent income or assets of the borrower. If the net operating income of the property is reduced, the borrower’s ability to repay the loan may be impaired. Net operating income of an income-producing property can be affected by the risks particular to real property described above, as well as, among other things:

•
tenant mix; 
•
success of tenant businesses; 
•
property management decisions; 
•
property location and condition; 
•
competition from comparable types of properties; 
•
changes in specific industry segments; 
•
declines in regional or local real estate values, or rental or occupancy rates; and 
•
increases in interest rates, real estate tax rates, and other operating expenses.

In the event of any default under a mortgage loan (or any financing lease or net lease that is recharacterized as a mortgage loan) held directly by us, we will bear a risk of loss of principal to the extent of any deficiency between the value of the collateral and the principal and accrued interest of the mortgage loan, which could have a material adverse effect on our ability to achieve our investment objectives, including, without limitation, diversification of our commercial real estate properties portfolio by property type and location, moderate financial leverage, low to moderate operating risk, and an attractive level of current income. In the event of the bankruptcy of a mortgage loan borrower (or any tenant under a financing lease or a net lease that is recharacterized as a mortgage loan), the mortgage loan (or any financing lease or net lease that is recharacterized as a mortgage loan) to that borrower will be deemed to be secured only to the extent of the value of the underlying collateral at the time of bankruptcy (as determined by the bankruptcy court), and the lien securing the mortgage loan will be subject to the avoidance powers of the bankruptcy trustee or debtor-in-possession to the extent the lien is unenforceable under state law. Foreclosure of a mortgage loan (or any financing lease or net lease that is recharacterized as a mortgage loan) can be an expensive and lengthy process that could have a substantial negative effect on our anticipated return on the foreclosed mortgage loan.


CPA ® :18 – Global 2014 10-K – 20

Investment in non-conforming and non-investment grade loans may involve increased risk of loss.

We may acquire or originate certain loans that do not conform to conventional loan criteria applied by traditional lenders and are not rated or are rated as non-investment grade (i.e., lower than Baa3 for investments rated by Moody’s Investors Service and BBB- or below for Standard & Poor’s Rating Services). The non-investment grade ratings for these loans typically result from the overall leverage of the loans, the lack of a strong operating history for the properties underlying the loans, the borrowers’ credit history, the properties’ underlying cash flow, or other factors. As a result, these loans have a higher risk of default and loss than conventional loans. Any loss we incur may reduce distributions to our stockholders. There are no limits on the percentage of unrated or non-investment grade assets we may hold in our portfolio.

Investments in mezzanine loans involve greater risks of loss than senior loans secured by income-producing properties. 

We may invest in mezzanine loans. Investments in mezzanine loans take the form of subordinated loans secured by second mortgages on the underlying property or loans secured by a pledge of the ownership interests in the entity that directly or indirectly owns the property. These types of investments involve a higher degree of risk than a senior mortgage loan because the investment may become unsecured as a result of foreclosure by the senior lender. In the event of a bankruptcy of the entity providing the pledge of its ownership interests as security, we may not have full recourse to the assets of the property owning entity, or the assets of the entity may not be sufficient to satisfy our mezzanine loan. If a borrower defaults on our mezzanine loan or debt senior to our loan, or in the event of a borrower bankruptcy, our mezzanine loan will be satisfied only after the senior debt is paid in full. As a result, we may not recover some or all of our investment, which could result in losses. In addition, mezzanine loans may have higher loan-to-value ratios than conventional mortgage loans, resulting in less equity in the property and increasing the risk of loss of principal.

Our investments in debt securities are subject to specific risks relating to the particular issuer of securities and to the general risks of investing in subordinated real estate securities.

Our investments in debt securities involve special risks. REITs generally are required to invest substantially in real estate or real estate-related assets and are subject to the inherent risks associated with real estate-related investments discussed in this Report. Our investments in debt are subject to the risks described above with respect to mortgage loans and mortgage-backed securities and similar risks, including:

•
risks of delinquency and foreclosure, and risks of loss in the event thereof;
•
the dependence upon the successful operation of and net income from real property;
•
risks generally incident to interests in real property; and
•
risk that may be presented by the type and use of a particular commercial property.

Debt securities are generally unsecured and may also be subordinated to other obligations of the issuer. We may also invest in debt securities that are rated below investment grade. As a result, investment in debt securities are also subject to risks of:

•
limited liquidity in the secondary trading market;
•
substantial market price volatility resulting from changes in prevailing interest rates;
•
subordination to the prior claims of banks and other senior lenders to the issuer;
•
the operation of mandatory sinking fund or call/redemption provisions during periods of declining interest rates that could cause the issuer to reinvest premature redemption proceeds in lower yielding assets; 
•
the possibility that earnings of the debt security issuer may be insufficient to meet its debt service; and 
•
the declining creditworthiness and potential for insolvency of the issuer of such debt securities during periods of rising interest rates and economic downturn.

The risks may adversely affect the value of outstanding debt securities and the ability of the issuers thereof to repay principal and interest.

Investments in loans collateralized by non-real estate assets create additional risk and may adversely affect our REIT qualification.

We may invest in secured corporate loans, which are loans collateralized by real property, personal property connected to real property (i.e., fixtures), and/or personal property, on which another lender may hold a first priority lien. If a default occurs, the value of the collateral may not be sufficient to repay all of the lenders that have an interest in the collateral. Our rights in bankruptcy will be different for these loans than typical net lease transactions. To the extent that loans are collateralized by

CPA ® :18 – Global 2014 10-K – 21

personal property only, or to the extent the value of the real estate collateral is less than the aggregate amount of our loans and equal or higher-priority loans secured by the real estate collateral, that portion of the loan will not be considered a “real estate asset” for purposes of the 75% REIT asset test. Also, income from that portion of such a loan will not qualify under the 75% REIT income test for REIT qualification.

Investments in securities of REITs, real estate operating companies, and companies with significant real estate assets will expose us to many of the same general risks associated with direct real property ownership.

Investments we may make in other REITs, real estate operating companies, and companies with significant real estate assets, directly or indirectly through other real estate funds, will be subject to many of the same general risks associated with direct real property ownership. In particular, equity REITs may be affected by changes in the value of the underlying property owned by such REITs, while mortgage REITs may be affected by the quality of any credit extended. Since REIT investments, however, are securities, they also may be exposed to market risk and price volatility due to changes in financial market conditions and changes as discussed below.

The value of the equity securities of companies engaged in real estate activities that we may invest in may be volatile and may decline.

The value of equity securities of companies engaged in real estate activities, including those of REITs, fluctuates in response to issuer, political, market, and economic developments. In the short term, equity prices can fluctuate dramatically in response to these developments. Different parts of the market and different types of equity securities can react differently to these developments and they can affect a single issuer, multiple issuers within an industry, economic sector, or geographic region, or the market as a whole. These fluctuations in value could result in significant gains or losses being reported in our financial statements because we will be required to mark such investments to market periodically.

The real estate industry is sensitive to economic downturns. The value of securities of companies engaged in real estate activities can be adversely affected by changes in real estate values and rental income, property taxes, interest rates, and tax and regulatory requirements. In addition, the value of a REIT’s equity securities can depend on the structure and amount of cash flow generated by the REIT. It is possible that our investments in securities may decline in value even though the obligor on the securities is not in default of its obligations to us.

The lack of an active public trading market for our shares combined with the limit on the number of our shares a person may own may discourage a takeover and make it difficult for stockholders to sell shares quickly.
 
There is no active public trading market for our shares and we do not expect there ever will be one. Moreover, we are not required to complete a liquidity event by a specified date. To assist us in meeting the REIT qualification rules, among other things, our charter also prohibits the ownership by one person or affiliated group of more than 9.8% in value of our stock or more than 9.8% in value or number, whichever is more restrictive, of our outstanding shares of common stock, unless exempted by our board of directors. This ownership limitation may discourage third parties from making a potentially financially attractive tender offer for your shares, thereby inhibiting a change of control in us. Moreover, you should not rely on our redemption plan as a method to sell shares promptly because our redemption plan includes numerous restrictions that limit your ability to sell your shares to us, and our board of directors may amend, suspend, or terminate our redemption plan without giving you advance notice. In particular, the redemption plan provides that we may redeem shares only if we have sufficient funds available for redemption and to the extent the total number of shares for which redemption is requested in any quarter, together with the aggregate number of shares redeemed in the preceding three fiscal quarters, does not exceed five percent of the total number of our shares outstanding as of the last day of the immediately preceding fiscal quarter. Therefore, it may be difficult for you to sell your shares promptly or at all. In addition, the price received for any shares sold prior to a liquidity event is likely to be less than the proportionate value of the real estate we own. Investor suitability standards imposed by certain states may also make it more difficult to sell your shares to someone in those states. As a result, our shares should only be purchased as a long-term investment.
 

CPA ® :18 – Global 2014 10-K – 22

Failing to qualify as a REIT would adversely affect our operations and ability to make distributions.

If we fail to qualify as a REIT in any taxable year, we would be subject to U.S. federal income tax on our net taxable income at corporate rates. In addition, we would generally be disqualified from treatment as a REIT for the four taxable years following the year we lost our REIT qualification. Losing our REIT qualification would reduce our net earnings available for investment or distribution to stockholders because of the additional tax liability, and we would no longer be required to make distributions. We might be required to borrow funds or liquidate some investments in order to pay the applicable tax.

Qualification as a REIT involves the application of highly technical and complex provisions under the Internal Revenue Code for which there are only limited judicial and administrative interpretations. The determination of various factual matters and circumstances not entirely within our control may affect our ability to qualify as a REIT. In order to qualify as a REIT, we must satisfy a number of requirements regarding the composition of our assets and the sources of our gross income. Also, we must make distributions to our stockholders aggregating annually at least 90% of our REIT net taxable income, excluding net capital gains. Because we intend to make investments in foreign real property, we are subject to foreign currency gains and losses. Foreign currency gains may or may not be taken into account for purposes of the REIT income requirements. In addition, legislation, new regulations, administrative interpretations, or court decisions may adversely affect our investors, our ability to qualify as a REIT for U.S. federal income tax purposes, or the desirability of an investment in a REIT relative to other investments.

The Internal Revenue Service may treat sale-leaseback transactions as loans, which could jeopardize our REIT qualification.

The Internal Revenue Service may take the position that specific sale-leaseback transactions that we treat as true leases are not true leases for U.S. federal income tax purposes but are, instead, financing arrangements or loans. If a sale-leaseback transaction were so recharacterized, we might fail to satisfy the qualification requirements applicable to REITs.

Distributions payable by REITs generally do not qualify for reduced U.S. federal income tax rates because qualifying REITs do not pay U.S. federal income tax on their distributed net income.

The maximum U.S. federal income tax rate for distributions payable by domestic corporations to taxable U.S. stockholders is 20% under current law. Distributions payable by REITs, however, are generally not eligible for the reduced rates, except to the extent that they are attributable to distributions paid by a taxable REIT subsidiary, or TRS, a C corporation, or relate to certain other activities. This is because qualifying REITs receive an entity level tax benefit from not having to pay U.S. federal income tax on their distributed net income. As a result, the more favorable rates applicable to regular corporate distributions could cause stockholders who are individuals to perceive investments in REITs to be relatively less attractive than investments in the stocks of non-REIT corporations that pay distributions, which could adversely affect the value of the stock of REITs, including our common stock. In addition, the relative attractiveness of real estate in general may be adversely affected by the reduced U.S. federal income tax rates applicable to corporate distributions, which could negatively affect the value of our properties.

If we were considered to actually or constructively pay a “preferential dividend” to certain of our stockholders, our status as a REIT could be adversely affected.

In order to qualify as a REIT, we must distribute to our stockholders at least 90% of our annual REIT taxable income (excluding net capital gain), determined without regard to the deduction for dividends paid. In order for distributions to be counted as satisfying the annual distribution requirements for REITs, and to provide us with a REIT-level tax deduction, the distributions must not be “preferential dividends.” A dividend is not a preferential dividend if the distribution is pro rata among all outstanding shares of stock within a particular class, and in accordance with the preferences among different classes of stock as set forth in our organizational documents. There is no de minimis exception with respect to preferential dividends; therefore, if the Internal Revenue Service were to take the position that we paid a preferential dividend, we may be deemed to have failed the 90% distribution test, and our status as a REIT could be terminated for the year in which such determination is made if we were unable to cure such failure. We have received a private letter ruling from the Internal Revenue Service concluding that the differences in the dividends distributed to holders of Class A shares and holders of Class C shares due to the class-specific fee allocations, as described in the ruling, will not cause such dividends to be preferential dividends. We may change the way our fees and expenses are incurred and allocated to different classes of stockholders if the tax rules applicable to REITs change such that we could do so without adverse tax consequences.


CPA ® :18 – Global 2014 10-K – 23

Our board of directors may revoke our REIT election without stockholder approval, which may cause adverse consequences to our stockholders.

Our organizational documents permit our board of directors to revoke or otherwise terminate our REIT election, without the approval of our stockholders, if the board determines that it is not in our best interest to qualify as a REIT. In such a case, we would become subject to U.S. federal income tax on our net taxable income and we would no longer be required to distribute most of our net taxable income to our stockholders, which may have adverse consequences on the total return to our stockholders.

Conflicts of interest may arise between holders of our common stock and holders of partnership interests in our Operating Partnership.

Our directors and officers have duties to us and to our stockholders under Maryland law in connection with their management of us. At the same time, we as general partner have fiduciary duties under Delaware law to our Operating Partnership and to the limited partners in connection with the management of our Operating Partnership. Our duties as general partner of our Operating Partnership may come into conflict with the duties of our directors and officers to us and our stockholders.

Under Delaware law, a general partner of a Delaware limited partnership owes its limited partners the duties of good faith and fair dealing. Other duties, including fiduciary duties, may be modified or eliminated in the partnership’s partnership agreement. The partnership agreement of our Operating Partnership provides that, for so long as we own a controlling interest in our Operating Partnership, any conflict that cannot be resolved in a manner not adverse to either our stockholders or the limited partners will be resolved in favor of our stockholders.

Additionally, the partnership agreement expressly limits our liability by providing that we and our officers, directors, employees, and designees will not be liable or accountable to our Operating Partnership for losses sustained, liabilities incurred, or benefits not derived if we or our officers, directors, agents, employees, or designees, as the case may be, acted in good faith. In addition, our Operating Partnership is required to indemnify us and our officers, directors, agents, employees, and designees to the extent permitted by applicable law from and against any and all claims arising from operations of our Operating Partnership, unless it is established that: (i) the act or omission was committed in bad faith, was fraudulent, or was the result of active and deliberate dishonesty; (ii) the indemnified party actually received an improper personal benefit in money, property, or services; or (iii) in the case of a criminal proceeding, the indemnified person had reasonable cause to believe that the act or omission was unlawful. These limitations on liability do not supersede the indemnification provisions of our charter.

The provisions of Delaware law that allow the fiduciary duties of a general partner to be modified by a partnership agreement have not been tested in a court of law, and we have not obtained an opinion of counsel covering the provisions set forth in the partnership agreement that purport to waive or restrict our fiduciary duties.

Maryland law could restrict changes in control, which could have the effect of inhibiting a change in control even if a change in control were in our stockholders ’ interest.

Provisions of Maryland law applicable to us prohibit business combinations with:

•
any person who beneficially owns 10% or more of the voting power of our outstanding voting stock, referred to as an interested stockholder; 
•
an affiliate or associate who, at any time within the two-year period prior to the date in question, was the beneficial owner of 10% or more of the voting power of our outstanding stock, also referred to as an interested stockholder; or 
•
an affiliate of an interested stockholder.

These prohibitions last for five years after the most recent date on which the interested stockholder became an interested stockholder. Thereafter, any business combination must be recommended by our board of directors and approved by the affirmative vote of at least 80% of the votes entitled to be cast by holders of our outstanding voting stock and two-thirds of the votes entitled to be cast by holders of our voting stock (other than voting stock held by the interested stockholder or by an affiliate or associate of the interested stockholder). These requirements could have the effect of inhibiting a change in control even if a change in control were in our stockholders’ interest. These provisions of Maryland law do not apply, however, to business combinations that are approved or exempted by our board of directors prior to the time that someone becomes an interested stockholder. In addition, a person is not an interested stockholder if the board of directors approved in advance the transaction by which he or she otherwise would have become an interested stockholder. However, in approving a transaction,

CPA ® :18 – Global 2014 10-K – 24

the board of directors may provide that its approval is subject to compliance, at or after the time of approval, with any terms and conditions determined by the board.

Our charter permits our board of directors to issue stock with terms that may subordinate the rights of the holders of our current common stock or discourage a third party from acquiring us.

Our board of directors may classify or reclassify any unissued stock into other classes or series of stock and establish the preferences, conversion or other rights, voting powers, restrictions, limitations as to dividends and other distributions, qualifications, and terms or conditions of redemption of any such stock. Thus, our board of directors could authorize the issuance of such stock with terms and conditions that could subordinate the rights of the holders of our common stock or have the effect of delaying, deferring, or preventing a change in control of us, including an extraordinary transaction (such as a merger, tender offer, or sale of all or substantially all of our assets) that might provide a premium price for holders of our common stock. However, the issuance of preferred stock must also be approved by a majority of independent directors not otherwise interested in the transaction, who will have access at our expense to our legal counsel or to independent legal counsel. In addition, the board of directors, with the approval of a majority of the entire board and without any action by the stockholders, may amend our charter from time to time to increase or decrease the aggregate number of shares or the number of shares of any class or series that we have authority to issue. If our board of directors determines to take any such action, it will do so in accordance with the duties it owes to holders of our common stock.

Item 1B. Unresolved Staff Comments.

None.

Item 2. Properties.

Our principal corporate offices are located in the offices of the advisor at 50 Rockefeller Plaza, New York, NY 10020. The advisor also has primary international investment offices located in London and Amsterdam, as well as additional office space domestically in New York and Dallas, Texas and internationally in Hong Kong and Shanghai. The advisor leases all of these offices and believes these leases are suitable for our operations for the foreseeable future.

See Item 1. Business — Our 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.
 
At December 31, 2014 , we were not involved in any material litigation.

Various claims and lawsuits arising in the normal course of business may be 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.

Item 4. Mine Safety Disclosures.
 
Not applicable.

CPA ® :18 – Global 2014 10-K – 25

PART II

Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities.

Unlisted Shares and Distributions

There is no active public trading market for our shares. At March 23, 2015 , there were 29,270 holders of record of our shares of common stock.
 
We are required to distribute annually at least 90% of our distributable REIT net taxable income to maintain our status as a REIT. Quarterly distributions per share for the past two years, which are calculated and paid based on a declared daily rate, are as follows:
 
Years Ended December 31,
 
2014
 
2013
 
Class A
 
Class C
 
Class A
 
Class C
First quarter
$
0.1562

 
$
0.1329

 
$
—

 
$
—

Second quarter
0.1562

 
0.1329

 
—

 
—

Third quarter (a)
0.1562

 
0.1329

 
0.1155

 
0.0982

Fourth quarter
0.1562

 
0.1329

 
0.1562

 
0.1329

 
$
0.6248

 
$
0.5316

 
$
0.2717

 
$
0.2311

__________
(a)
On July 25, 2013, the aggregate subscription proceeds for our Class A and Class C common stock exceeded the minimum offering amount of $2.0 million and we began to admit stockholders.

Unregistered Sales of Equity Securities

During the three months ended December 31, 2014 , we issued 85,905 shares of our Class A common stock to the advisor as consideration for asset management fees. These shares were issued at $10.00 per share, which is the price at which shares of our Class A common stock were sold in our initial public offering. Since this transaction was not considered to have involved a “public offering” within the meaning of Section 4(a)(2) of the Securities Act of 1933, the shares issued were deemed to be exempt from registration. In acquiring our shares, the advisor represented that such interests were being acquired by it for the purposes of investment and not with a view to the distribution thereof . From September 7, 2012, or the date of inception, and through December 31, 2014 , we have issued 237,290 shares of our Class A common stock to the advisor as aggregate consideration for asset management fees.

All prior sales of unregistered securities have been reported in our previously filed quarterly reports on Form 10-Q.


CPA ® :18 – Global 2014 10-K – 26

Use of Offering Proceeds

Our Registration Statement (File No. 333-185111) for our initial public offering was declared effective by the SEC on May 7, 2013. As of December 31, 2014 , the cumulative use of proceeds from our initial public offering was as follows (dollars in thousands):
 
Common Stock
 
 
 
Class A
 
Class C
 
Total
Shares registered (a)
100,000,000

 
26,737,968

 
126,737,968

Aggregate price of offering amount registered (a)
$
1,000,000

 
$
250,000

 
$
1,250,000

Shares sold  (b)
97,936,653

 
17,721,984

 
115,658,637

Aggregated offering price of amount sold
$
977,410

 
$
165,701

 
$
1,143,111

Direct or indirect payments to directors, officers, general partners
of the issuer or their associates; to persons owning ten percent or more
of any class of equity securities of the issuer; and to affiliates of the issuer
(72,914
)
 
(3,569
)
 
(76,483
)
Direct or indirect payments to others
(31,258
)
 
(3,741
)
 
(34,999
)
Net offering proceeds to the issuer after deducting expenses
$
873,238

 
$
158,391

 
1,031,629

Purchases of real estate, net of financing and noncontrolling interests
 
 
 
 
(567,910
)
Cash distributions paid to stockholders
 
 
 
 
(37,618
)
Repayment of mortgage financing
 
 
 
 
(1,668
)
Repurchase of shares
 
 
 
 
(1,520
)
Working capital (c)
 
 
 
 
6,635

Temporary investments in cash and cash equivalents
 
 
 
 
$
429,548

__________
(a)
These amounts are based on the assumption that the shares sold in our initial public offering will be composed of 80% Class A common stock and 20% Class C common stock.
(b)
Excludes shares issued to affiliates, including the advisor, and shares issued pursuant to our distribution reinvestment and stock purchase plan. We terminated the offering of shares of Class A common stock on June 30, 2014.
(c)
Working capital has been reduced to reflect $59.2 million of acquisition expenses.

Issuer Purchases of Equity Securities
2014 Period
 
Total number of Class A
shares purchased (a)
 
Average price
paid per share
 
Total number of shares
purchased as part of
publicly announced plans or program  (a)
 
Maximum number (or
approximate dollar value)
of shares that may yet be
purchased under the plans or program  (a)
October
 
—

 
$
—

 
N/A
 
N/A
November
 
—

 
—

 
N/A
 
N/A
December
 
118,086

 
9.73

 
N/A
 
N/A
Total
 
118,086

 
 
 
 
 
 
___________
(a)
Represents shares of our Class A common stock repurchased under our redemption plan, pursuant to which we may elect to redeem shares at the request of our stockholders who have held their shares for at least one year from the date of their issuance, subject to certain exceptions, conditions, and limitations. The maximum amount of shares purchasable by us in any period depends on a number of factors and is at the discretion of our board of directors. We satisfied all of the above redemption requests received during the three months ended December 31, 2014 . The redemption plan will terminate if and when our shares are listed on a national securities market or upon the occurrence of a liquidity event. We generally receive fees in connection with share redemptions.




CPA ® :18 – Global 2014 10-K – 27

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
Operating Data (a)
 
 
 
Total revenues
$
54,317

 
$
3,292

Net loss
(56,556
)
 
(241
)
Net loss (income) attributable to noncontrolling interests
689

 
(390
)
Net loss attributable to CPA ® :18 – Global
(55,867
)
 
(631
)
 
 
 

Loss per share:
 
 

Net loss attributable to CPA ® :18 – Global Class A
(0.63
)
 
(0.18
)
Net loss attributable to CPA ® :18 – Global Class C
(0.72
)
 
(0.27
)
 
 
 

Distributions per share declared to CPA ® :18 – Global Class A
0.6248

 
0.2717

Distributions per share declared to CPA ® :18 – Global Class C
0.5316

 
0.2311

Balance Sheet Data
 
 

Total assets
1,615,884

 
355,670

Net investments in real estate (b)
941,357

 
171,664

Long-term obligations (c)
539,503

 
87,765

Other Information
 
 

Net cash (used in) provided by operating activities
(9,914
)
 
2,262

Cash distributions paid
37,636

 
115

Payments of mortgage principal (d)
1,668

 
—

___________
(a)
For the period from the date of inception to December 31, 2012, we had no significant assets, cash flows, or results of operations, and accordingly periods prior to January 1, 2013 are not presented.
(b)
Net investments in real estate consists of Net investments in properties, Net investments in direct financing leases, Real estate under construction, and Note receivable, as applicable.
(c)
Represents non-recourse mortgage obligations, bonds payable, and deferred acquisition fee installments, including interest.
(d)
Represents scheduled mortgage principal payments.


CPA ® :18 – Global 2014 10-K – 28



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 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 were formed in September 2012, and we qualified as a REIT beginning with the taxable year ended December 31, 2013 . On May 7, 2013, our Registration Statement was declared effective by the SEC, and on July 25, 2013, aggregate subscription proceeds exceeded the minimum offering amount of $2.0 million and we began to admit stockholders. The Registration Statement relates to our initial public offering, which is being made on a “best efforts” basis by our dealer manager and selected other dealers, and covers up to  $1.0 billion  of common stock, in any combination of Class A common stock and Class C common stock at a price of  $10.00  per share of Class A common stock and  $9.35  per share of Class C common stock. The Registration Statement also covers the offering of up to  $400.0 million  in common stock, in any combination of Class A common stock and Class C common stock, pursuant to our distribution reinvestment and stock purchase plan at a price of  $9.60  per share of Class A common stock and  $8.98  per share of Class C common stock. See Significant Developments below.

Based on our investment pipeline and an assessment of the environment for investment opportunities, we believed it was in our best interest to reduce our sales of shares after June 30, 2014. On May 1, 2014, our board of directors approved the discontinuation of the sale of Class A shares after June 30, 2014 in order to moderate the pace of our fundraising. In order to facilitate the final sales of Class A shares as of June 30, 2014 and the continued sale of Class C shares, the board of directors also approved the reallocation up to $250.0 million of the shares that were initially allocated to sales of our stock through our distribution reinvestment and stock purchase plan to our initial public offering. In June 2014, we reallocated the full $250.0 million in shares from the distribution reinvestment and stock purchase plan. We currently intend to sell Class C shares until March 27, 2015, unless we sell all of our shares sooner.

We have no paid employees and are externally advised and managed by the advisor. We intend to use substantially all of the net proceeds from our offering to invest primarily in a diversified portfolio of income-producing commercial real estate properties and other real estate-related assets, both domestically and outside the United States. We currently expect that, for the foreseeable future, at least a majority of our investments will be in commercial real estate properties leased to single tenants on a long-term triple-net lease basis.

Our operating results and cash flows are primarily influenced by lease revenues from our commercial properties, interest expense on our property indebtedness and acquisition and operating expenses. Revenue is subject to fluctuation because of the timing of new lease transactions and foreign currency exchange rates. We may also experience lease terminations, lease expirations, contractual rent adjustments, tenant defaults, and sales of properties in future periods.

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

CPA ® :18 – Global 2014 10-K – 29



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

Investor Capital Inflows  — Through  December 31, 2014 , we raised gross offering proceeds from the sale of our Class A common stock and Class C common stock of  $977.4 million  and  $165.7 million , respectively. The gross offering proceeds raised exclude reinvested distributions through our distribution reinvestment and stock purchase plan of  $17.9 million  and  $2.2 million  for our Class A and Class C common stock, respectively. We terminated sales of our Class A common stock on June 30, 2014. We currently intend to sell shares of our Class C common stock until March 27, 2015.

Acquisition Activity — During 2014 , we entered into  41 investments at a total cost of approximately  $911.7 million , including $441.4 million  for international investments, which we refer to collectively as our 2014 Acquisitions. Amounts are based on the exchange rate of the foreign currency at the date of acquisition, as applicable. Subsequent to December 31, 2014 and through March 23, 2015 , we purchased 11 additional properties totaling approximately $244.3 million (excluding acquisition costs). Of these 11 properties, six are self-storage facilities, two are multi-family, two are build-to-suit projects, and one is an industrial site ( Note 15 ).

Financing Activity — During 2014 , we obtained non-recourse mortgage and bond financing totaling  $394.2 million  with a weighted-average annual interest rate and term of  4.3%  and 8.5 years, respectively. Amounts are based on the exchange rate of the foreign currency at the date of financing, as applicable. Subsequent to  December 31, 2014 and through March 23, 2015 , we obtained approximately  $158.5 million  of new financing related to the properties acquired in 2014 and 2015 ( Note 15 ).

Distributions — We distributed  $0.6248  per Class A share and  $0.5316  per Class C share for the year ended December 31, 2014 and $0.1155  per Class A share and  $0.0982  per Class C share from July 25, 2013, when we began admitting shareholders, to December 31, 2013.


CPA ® :18 – Global 2014 10-K – 30



Portfolio Overview

We intend to continue to acquire a diversified portfolio of income-producing commercial properties and other real estate-related assets. We expect to make these investments both domestically and outside of the United States. We acquired our first three investments on August 20, 2013, December 18, 2013, and December 30, 2013, which we refer to collectively as the 2013 Acquisitions. See below for more details regarding our portfolio at December 31, 2014 and 2013. Portfolio information is provided on a consolidated basis to facilitate the review of our accompanying consolidated financial statements. In addition, we provide such information on a pro rata basis to better illustrate the economic impact of our various net-leased, jointly-owned investments.

Portfolio Summary
 
 
December 31,
 
 
2014
 
2013
Number of net-leased properties
 
47

 
9

Number of operating properties (a)
 
16

 
—

Number of tenants (b)
 
73

 
3

Total square footage (in thousands) (c)
 
8,942

 
1,339

Occupancy — Single-tenant (b) (c)
 
100.0
%
 
100.0
%
Occupancy — Multi-tenant (c) (d)
 
91.0
%
 
N/A

Weighted-average lease term — Single-tenant properties (in years) (b) (c)
 
13.2

 
19.3

Weighted-average lease term — Multi-tenant properties (in years) (c) (d)
 
8.3

 
N/A

Number of countries
 
8

 
2

Total assets (in thousands)
 
$
1,615,884

 
$
355,670

Net investments in real estate (in thousands)
 
941,357

 
171,664

Funds raised — cumulative to date (in thousands)
 
1,143,111

 
237,307


 
 
Years Ended December 31,
(dollars in thousands, except exchange rate)
 
2014
 
2013
Acquisition volume — consolidated (e)
 
$
1,044,234

 
$
235,459

Acquisition volume —   pro rata (c) (e)
 
911,699

 
158,266

Financing obtained — consolidated
 
466,354

 
85,060

Financing obtained —   pro rata (c)
 
394,193

 
48,660

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

 
N/A

Increase in the U.S. CPI (g)
 
0.8
 %
 
N/A

Decrease in the Harmonized Index of Consumer Prices (g)
 
(0.2
)%
 
N/A

Increase in the Norwegian CPI (g)
 
2.1
 %
 
N/A

__________
(a)
At December 31, 2014 , our operating portfolio consisted of 14 wholly-owned self-storage properties and two multi-family properties.
(b)
Represents our single-tenant properties within our net-leased portfolio and, accordingly, excludes all operating properties. Also includes certain multi-tenant properties that each have a single tenant that comprises over 75% of ABR for the property.
(c)
Represents pro rata basis. See Terms and Definitions below for a description of pro rata metrics.
(d)
Represents our multi-tenant properties within our net-leased portfolio and, accordingly, excludes all operating properties. We consider a property to be multi-tenant if it does not have a single tenant that comprises more than 75% of ABR for the property.
(e)
The amount for the year ended December 31, 2014 includes acquisition-related costs, which were included in Acquisition expenses in the consolidated financial statements.
(f)
The average conversion rate for the U.S. dollar in relation to the euro increased during the year ended December 31, 2014 as compared to 2013, resulting in a positive impact on earnings in the current year period for our euro-denominated investments.

CPA ® :18 – Global 2014 10-K – 31



(g)
Many of our lease agreements include contractual increases indexed to changes in the CPI or other similar indices.

 
 
 
 
 
 
 
 
Consolidated
 
Pro Rata (a)
 
Remaining Lease Term (in years)
 
 
Tenant/Lease Guarantor
 
Location
 
Property Type

Acquisition Date
 
Square Footage
 
Purchase Price (b)
 
Square Footage

Purchase Price (b)

 
Percent Owned
(dollars in thousands)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Net-Leased Properties (c)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
State Farm (d)
 
Austin, TX
 
Office
 
8/20/2013
 
479,411

 
$
115,604

 
239,706

 
$
57,802

 
13.7

 
50
%
Agrokor (d)
 
Split, Zadar, Zagreb (3), Croatia
 
Retail
 
12/18/2013
 
564,578

 
96,957

 
451,662

 
77,566

 
19.0

 
80
%
Crowne Group Inc.  (d)
 
Logansport, IN
Madison, IN
Marion, SC
Frasier, MI
Warren, MI
 
Industrial
 
12/30/2013
3/7/2014
 
859,701

 
30,940

 
859,701

 
30,940

 
24.3

 
100
%
Air Enterprises Acquisition, or Air Enterprises
 
Streetsboro, OH
 
Industrial
 
1/16/2014
 
178,180

 
5,901

 
178,180

 
5,901

 
14.2

 
100
%
Solo Cup Operating Property, or Solo Cup (d)   (e)
 
University Park, IL
 
Warehouse/Distribution
 
2/3/2014
 
1,552,475

 
84,588

 
1,552,475

 
84,588

 
8.8

 
100
%
Automobile Protection Corporation
 
Norcross, GA
 
Office
 
2/7/2014
 
50,600

 
5,822

 
50,600

 
5,822

 
14.2

 
100
%
Siemens AS (d) (e) (f)
 
Oslo, Norway
 
Office
 
2/27/2014
 
165,905

 
89,327

 
165,905

 
89,327

 
11.0

 
100
%
Bank Pekao (d) (e) (f)
 
Warsaw, Poland
 
Office
 
3/31/2014
 
423,818

 
156,282

 
211,909

 
78,141

 
8.4

 
50
%
Swift Spinning, Inc.
 
Columbus, GA (2)
 
Industrial
 
4/21/2014
 
432,769

 
11,931

 
432,769

 
11,931

 
19.3

 
100
%
North American Lighting, Inc.  (e)
 
Farmington Hills, MI
 
Office
 
5/6/2014
 
75,286

 
9,489

 
75,286

 
9,489

 
11.3

 
100
%
Janus International, or Janus
 
Temple, GA
Houston, TX
Surprise, AZ
 
Industrial
 
5/16/2014
 
330,306

 
15,953

 
330,306

 
15,953

 
19.3

 
100
%
Bell Telephone Company, or AT&T  (e)
 
Chicago, IL
 
Warehouse/Distribution
 
5/19/2014
 
206,000

 
12,248

 
206,000

 
12,248

 
12.8

 
100
%
Belk Inc. (e)   (g)
 
Jonesville, SC
 
Warehouse/Distribution
 
6/4/2014
 
515,279

 
44,021

 
515,279

 
44,021

 
8.4

 
100
%
Truffle Portfolio (e) (h)
 
Ayr, Bathgate, Dundee, Dunfermline, Invergordon, Livingston, United Kingdom
 
Industrial
 
8/19/2014
 
229,417

 
19,837

 
229,417

 
19,837

 
8.7

 
100
%
Oakbank Portfolio (e) (h)
 
Livingston, United Kingdom
 
Industrial
 
9/26/2014
 
76,573

 
4,632

 
76,573

 
4,632

 
4.3

 
100
%
Infineon Technologies AG, or Infineon (e)
 
Warstein, Germany
 
Office
 
9/30/2014
 
120,384

 
25,020

 
120,384

 
25,020

 
16.9

 
100
%
Cooper Tire & Rubber Company, or Cooper Tire (e)
 
Albany, GA
 
Warehouse/Distribution
 
10/31/2014
 
653,082

 
10,435

 
653,082

 
10,435

 
9.8

 
100
%
Apply Sorco AS, or Apply AS
 
Stavanger, Norway
 
Office
 
10/31/2014
 
223,394

 
108,281

 
113,931

 
55,223

 
14.0

 
51
%
Midcontinent Independent System Operator, Inc., or MISO (e)
 
Eagan, MN
 
Office
 
11/3/2014
 
60,463

 
15,196

 
60,463

 
15,196

 
11.2

 
100
%
Alliant Techsystems Inc.,
or ATK (e)
 
Plymouth, MN
 
Office
 
11/13/2014
 
191,336

 
43,066

 
191,336

 
43,066

 
9.9

 
100
%
Barnsco, Inc.
 
Dallas (4) and Fort Worth, TX
 
Industrial
 
11/14/2014
 
131,690

 
7,657

 
131,690

 
7,657

 
14.9

 
100
%
UK Auto (e) (h)
 
Durham and Dunfermline, United Kingdom
 
Industrial
 
11/20/2014
 
71,094

 
11,126

 
71,094

 
11,126

 
9.5

 
100
%
USF Holland (e) (i)
 
Byron Center, MI
 
Warehouse/Distribution
 
11/21/2014
 
—

 
11,942

 
—

 
11,942

 
15.7

 
100
%
Royal Vopak NV, or Vopak (d) (e)
 
Rotterdam, Netherlands
 
Office
 
12/17/2014
 
164,591

 
85,004

 
164,591

 
85,004

 
12.4

 
100
%
Craigentinny (e) (h)
 
Edinburgh, United Kingdom
 
Industrial
 
12/22/2014
 
25,089

 
4,941

 
25,089

 
4,941

 
8.6

 
100
%
Club Med Albion Resorts, or Albion Resorts (d) (e)
 
Albion, Mauritius
 
Hotel
 
12/30/2014
 
296,716

 
69,225

 
296,716

 
69,225

 
14.3

 
100
%
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 

CPA ® :18 – Global 2014 10-K – 32



 
 
 
 
 
 
 
 
Consolidated
 
Pro Rata (a)
 
Remaining Lease Term (in years)
 
 
Tenant/Lease Guarantor
 
Location
 
Property Type

Acquisition Date
 
Square Footage
 
Purchase Price (b)
 
Square Footage

Purchase Price (b)

 
Percent Owned
(dollars in thousands)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Operating Properties (e)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Self-Storage Properties
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Self-storage facility
 
Kissimmee, FL
 
Self-storage
 
1/22/2014
 
184,456

 
12,610

 
184,456

 
12,610

 
N/A

 
100
%
Self-storage facility
 
St. Petersburg, FL
 
Self-storage
 
1/23/2014
 
84,700

 
12,270

 
84,700

 
12,270

 
N/A

 
100
%
Self-storage facility
 
Corpus Christi, TX
 
Self-storage
 
7/22/2014
 
100,100

 
4,501

 
100,100

 
4,501

 
N/A

 
100
%
Self-storage facility
 
Kailua-Kona, HI
 
Self-storage
 
7/31/2014
 
39,500

 
6,146

 
39,500

 
6,146

 
N/A

 
100
%
Self-storage facility
 
Miami, FL
 
Self-storage
 
8/5/2014
 
57,240

 
4,874

 
57,240

 
4,874

 
N/A

 
100
%
Self-storage facility
 
Palm Desert, CA
 
Self-storage
 
8/11/2014
 
93,097

 
11,160

 
93,097

 
11,160

 
N/A

 
100
%
Self-storage facility
 
Columbia, SC
 
Self-storage
 
9/18/2014
 
63,121

 
4,821

 
63,121

 
4,821

 
N/A

 
100
%
Self-storage facility
 
Kailua-Kona, HI
 
Self-storage
 
10/9/2014
 
56,352

 
6,258

 
56,352

 
6,258

 
N/A

 
100
%
Self-storage facility
 
Pompano Beach, FL
 
Self-storage
 
10/28/2014
 
74,927

 
4,936

 
74,927

 
4,936

 
N/A

 
100
%
Self-storage facility
 
Jensen Beach, FL
 
Self-storage
 
11/13/2014
 
63,650

 
9,079

 
63,650

 
9,079

 
N/A

 
100
%
Self-storage facility
 
Dickinson, TX
 
Self-storage
 
12/10/2014
 
76,800

 
10,457

 
76,800

 
10,457

 
N/A

 
100
%
Self-storage facility
 
Humble, TX
 
Self-storage
 
12/15/2014
 
59,325

 
8,176

 
59,325

 
8,176

 
N/A

 
100
%
Self-storage facility
 
Temecula, CA
 
Self-storage
 
12/16/2014
 
89,228

 
10,508

 
89,228

 
10,508

 
N/A

 
100
%
Self-storage facility
 
Cumming, GA
 
Self-storage
 
12/17/2014
 
73,237

 
4,646

 
73,237

 
4,646

 
N/A

 
100
%
Multi-Family Properties
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Dupont Place Apartments, or Dupont
 
Tucker, GA
 
Residential
 
10/28/2014
 
200,363

 
22,235

 
194,352

 
21,568

 
N/A

 
97
%
Gentry’s Walk, or Gentry
 
Atlanta, GA
 
Residential
 
10/28/2014
 
221,257

 
22,234

 
214,619

 
21,567

 
N/A

 
97
%
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Other
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Cipriani (j)
 
New York, NY
 
Retail
 
7/21/2014
 
—

 
29,348

 
—

 
29,348

 
 
 
 
 
 
 
 
 
 
 
 
9,615,490

 
$
1,279,684

 
8,928,848

 
$
1,069,958

 
 
 
 
__________
(a)
Represents pro rata basis. See Terms and Definitions below for a description of pro rata metrics.
(b)
Purchase price represents the contractual purchase price, including acquisition fees and transaction closing costs, based on the exchange rate, as applicable.
(c)
All properties are considered to be single-tenant unless otherwise noted.
(d)
Reflects tenants that exceed 5% of pro rata ABR as of December 31, 2014 . See Terms and Definitions below for a description of pro rata metrics and ABR.
(e)
Represents business combinations in which acquisition fees are expensed in purchase accounting. Such acquisition fees are included in the purchase price listed above to depict the total cost of each respective investment.
(f)
Represents net-leased properties that have more than one tenant. However, each property includes one tenant that comprised over 75% of its respective total ABR as of December 31, 2014 .
(g)
The purchase price includes $18.5 million related to our funding commitment to develop an expansion to the existing facility of Belk Inc. located in Spartanburg, South Carolina, which was completed in December 2014 ( Note 4 ).
(h)
Represents multi-tenant properties.
(i)
The purchase price includes $9.7 million related to our funding commitment to develop an expansion to USF Holland’s facility located in Grand Rapids, Michigan, which is currently expected to be completed in the third quarter of 2015 ( Note 4 ).
(j)
Represents an investment in a note receivable ( Note 5 ).


CPA ® :18 – Global 2014 10-K – 33



Net-Leased Portfolio

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

Portfolio Diversification by Geography and Property Type
(in thousands, except percentages)
 
 
Consolidated

Pro Rata
Region
 
ABR

Percent

ABR

Percent
United States
 
 
 
 
 
 
 
 
Midwest (a)
 
$
14,888

 
21
%
 
$
14,888

 
25
%
South (b)
 
11,265

 
16
%
 
7,716

 
13
%
East
 
2,774

 
4
%
 
2,774

 
5
%
West
 
396

 
1
%
 
396

 
1
%
United States Total
 
29,323

 
42
%
 
25,774

 
44
%
International
 
 
 
 
 
 
 
 
Norway
 
10,827

 
15
%
 
7,983

 
14
%
Poland
 
9,244

 
12
%
 
4,621

 
8
%
Croatia
 
6,838

 
10
%
 
5,470

 
9
%
Mauritius
 
5,294

 
7
%
 
5,294

 
9
%
Netherlands
 
4,738

 
7
%
 
4,738

 
8
%
United Kingdom (c)
 
3,285

 
5
%
 
3,285

 
5
%
Germany
 
1,601

 
2
%
 
1,601

 
3
%
International Total
 
41,827

 
58
%
 
32,992

 
56
%
Total
 
$
71,150

 
100
%
 
$
58,766

 
100
%
 
 
 
 
 
 
 
 
 
 
 
Consolidated
 
Pro Rata
Property Type
 
ABR
 
Percent
 
ABR
 
Percent
Office
 
$
39,016

 
55
%
 
$
28,000

 
48
%
Warehouse/Distribution
 
10,370

 
15
%
 
10,370

 
18
%
Retail
 
6,838

 
10
%
 
5,470

 
9
%
Industrial
 
6,347

 
9
%
 
6,347

 
11
%
Hotel
 
5,294

 
6
%
 
5,294

 
9
%
Multi-tenant (c)
 
3,285

 
5
%
 
3,285

 
5
%
 
 
$
71,150

 
100
%
 
$
58,766

 
100
%
__________
(a)
Pro rata ABR for the Midwest region contains a concentration of 8% for our Solo Cup investment located in Illinois.
(b)
Pro rata ABR for the South region contains a concentration of 5% for our State Farm investment located in Texas.
(c)
Represents the multi-tenant properties within our net-lease portfolio.


CPA ® :18 – Global 2014 10-K – 34



Portfolio Diversification by Tenant Industry
(in thousands, except percentages)
 
 
Consolidated
 
Pro Rata
Industry Type
 
ABR
 
Percent
 
ABR
 
Percent
Oil and Gas
 
$
9,905

 
14
%
 
$
7,060

 
12
%
Banking
 
9,103

 
13
%
 
4,552

 
8
%
Insurance
 
7,578

 
11
%
 
4,029

 
7
%
Grocery
 
6,838

 
10
%
 
5,470

 
9
%
Chemicals, Plastics, Rubber, and Glass
 
6,596

 
9
%
 
6,596

 
11
%
Electronics
 
6,325

 
9
%
 
6,325

 
11
%
Leisure, Amusement, and Entertainment
 
5,381

 
8
%
 
5,338

 
9
%
Automobile
 
3,523

 
5
%
 
3,523

 
6
%
Multi-tenant (a)
 
3,285

 
5
%
 
3,285

 
6
%
Mining, Metals, and Primary Metal Industries
 
3,199

 
4
%
 
3,199

 
5
%
Construction and Building
 
1,983

 
3
%
 
1,983

 
3
%
Retail Stores
 
1,907

 
3
%
 
1,907

 
3
%
Textiles, Leather, and Apparel
 
1,150

 
1
%
 
1,150

 
2
%
Telecommunications
 
994

 
1
%
 
966

 
2
%
Utilities
 
982

 
1
%
 
982

 
2
%
Transportation - Cargo
 
914

 
1
%
 
914

 
1
%
Other (b)
 
1,487

 
2
%
 
1,487

 
3
%
 
 
$
71,150

 
100
%
 
$
58,766

 
100
%
__________
(a)
Represents the multi-tenant properties within our net-lease portfolio.
(b)
Includes ABR from tenants in the following industries: machinery; and business and commercial services.

Lease Expirations
(in thousands, except number of leases and percentages)
 
 
Consolidated (a)
 
Pro Rata (a)
Year of Lease Expiration (b)
 
Number of Leases Expiring
 
ABR
 
Percent
 
Number of Leases Expiring
 
ABR
 
Percent
2015
 
5

 
$
164

 
—
%
 
5

 
$
162

 
—
%
2016
 
4

 
260

 
—
%
 
4

 
217

 
—
%
2017
 
2

 
215

 
—
%
 
2

 
215

 
—
%
2018
 
7

 
297

 
—
%
 
7

 
272

 
1
%
2019
 
6

 
357

 
1
%
 
6

 
357

 
1
%
2020
 
6

 
831

 
1
%
 
6

 
831

 
1
%
2021
 
2

 
241

 
—
%
 
2

 
241

 
1
%
2022
 
3

 
193

 
—
%
 
3

 
193

 
—
%
2023
 
9

 
16,745

 
24
%
 
9

 
12,193

 
21
%
2024
 
9

 
4,700

 
7
%
 
9

 
4,700

 
8
%
2025
 
3

 
5,117

 
7
%
 
3

 
5,117

 
9
%
2026
 
2

 
1,829

 
3
%
 
2

 
1,829

 
3
%
2027
 
7

 
5,052

 
7
%
 
7

 
5,052

 
9
%
2028
 
3

 
13,030

 
18
%
 
3

 
6,637

 
11
%
Thereafter
 
35

 
22,119

 
32
%
 
35

 
20,750

 
35
%
 
 
103

 
$
71,150

 
100
%
 
103

 
$
58,766

 
100
%
__________

CPA ® :18 – Global 2014 10-K – 35



(a)
Assumes tenant does not exercise renewal option.
(b)
These maturities also include our multi-tenant properties, which generally have a shorter duration than our single-tenant properties, and on a combined basis represent both consolidated and pro rata ABR of $3.3 million . All the years listed above include multi-tenant properties, except 2026.

Operating Properties

At December 31, 2014 , our operating portfolio consisted of 14 wholly-owned self-storage properties and two multi-family properties, which had an average occupancy rate of 85% and 91% , respectively. As of December 31, 2014, our operating portfolio was comprised as follows (square footage in thousands):
State
 
Number of Properties
 
Square Footage
Florida
 
5

 
465

Georgia (a)
 
3

 
495

Texas
 
3

 
236

California
 
2

 
182

Hawaii
 
2

 
96

South Carolina
 
1

 
63

Total
 
16

 
1,537

__________
(a)
Includes our two multi-family properties.

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, as applicable, even if our ownership is less than 100%. Under the pro rata consolidation method, we 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.

Financial Highlights
(in thousands)
 
 
Years Ended December 31,
 
 
2014
 
2013  (a)
Total revenues
 
$
54,317

 
$
3,292

Net loss attributable to CPA ® :18 – Global
 
(55,867
)
 
(631
)
 
 
 
 
 
Cash distributions paid
 
37,636

 
115

 
 
 
 
 
Net cash (used in) provided by operating activities
 
(9,914
)
 
2,262

Net cash used in investing activities
 
(945,583
)
 
(223,813
)
Net cash provided by financing activities
 
1,282,829

 
330,308

 
 
 
 
 
Supplemental financial measures:
 
 
 
 
FFO (b)
 
(38,405
)
 
68

Modified funds from (used in) operations, or MFFO (b)
 
20,043

 
(54
)
__________

CPA ® :18 – Global 2014 10-K – 36



(a)
We began to admit stockholders on July 25, 2013 and acquired our first investment on August 20, 2013.
(b)
We consider the performance metrics listed above, including FFO and MFFO, which are supplemental measures that are not defined by GAAP, both referred to as non-GAAP measures, 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 definitions of these non-GAAP measures and reconciliations to their most directly comparable GAAP measures.

As a result of our 2013 Acquisitions and 2014 Acquisitions, for the year ended December 31, 2014, MFFO was in an income position and GAAP losses were primarily driven by acquisition costs that were expensed.

Results of Operations

We acquired our first three investments subsequent to the second quarter of 2013. During the year ended December 31, 2014 , we made 41 additional investments ( Note 4 ).

The following table presents the comparative results of operations (in thousands):
 
 
Years Ended December 31,
 
 
2014
 
2013
 
Change
Revenues
 
 
 
 
 
 
Lease revenues:
 
 
 
 
 
 
Rental income
 
$
41,383

 
$
3,262

 
$
38,121

Interest income from direct financing leases
 
3,450

 
11

 
3,439

Total lease revenues
 
44,833

 
3,273

 
41,560

Other real estate income
 
4,743

 
—

 
4,743

Other operating income
 
3,473

 
19

 
3,454

Other interest income
 
1,268

 
—

 
1,268

 
 
54,317

 
3,292

 
51,025

Operating Expenses
 
 
 
 
 
 
Acquisition expenses
 
59,225

 
86

 
59,139

Depreciation and amortization
 
21,981

 
1,314

 
20,667

Property expenses
 
7,379

 
121

 
7,258

General and administrative
 
4,708

 
783

 
3,925

Other real estate expenses
 
1,838

 
—

 
1,838

 
 
95,131

 
2,304

 
92,827

Other Income and Expenses
 
 
 
 
 
 
Interest expense
 
(15,753
)
 
(1,250
)
 
(14,503
)
Other income and (expenses)
 
(1,153
)
 
32

 
(1,185
)
 
 
(16,906
)
 
(1,218
)
 
(15,688
)
Loss before income taxes
 
(57,720
)
 
(230
)
 
(57,490
)
Benefit from (provision for) income taxes
 
1,164

 
(11
)
 
1,175

Net Loss
 
(56,556
)
 
(241
)
 
(56,315
)
Net loss (income) attributable to noncontrolling interests
 
689

 
(390
)
 
1,079

Net Loss Attributable to CPA ® :18 – Global
 
$
(55,867
)
 
$
(631
)
 
$
(55,236
)
MFFO
 
$
20,043

 
$
(54
)
 
$
20,097


Lease Revenues — For the year ended December 31, 2014 as compared to 2013 , lease revenues increased by $41.6 million , primarily due to lease revenues recognized from our 2014 Acquisitions of $27.2 million and the remainder due to a full-year of activity related to our 2013 Acquisitions.


CPA ® :18 – Global 2014 10-K – 37

Other Real Estate Income — For the year ended December 31, 2014 , other real estate income totaled $4.7 million , which was generated from the 14 self-storage properties and two multi-family properties that we acquired during 2014 ( Note 4 ). We did not recognize any other real estate income during the year ended December 31, 2013 .

Other Operating Income — For the year ended December 31, 2014 , other operating income totaled $3.5 million , which was primarily related to reimbursable tenant costs from our net-leased properties. These costs are recorded as both income and property expenses. We did not recognize any significant other operating income during the year ended December 31, 2013 .

Other Interest Income — For the year ended December 31, 2014 , other interest income totaled $1.3 million , which related to our note receivable investment that we acquired during 2014. We did not recognize any other interest income during the year ended December 31, 2013 .

Acquisition Expenses — For the year ended December 31, 2014 , acquisition expenses totaled $59.2 million , most of which were related to our 2014 Acquisitions that were deemed to be business combinations. We did not incur any significant acquisition expenses during the year ended December 31, 2013 because none of our 2013 Acquisitions were deemed to be business combinations.

Depreciation and Amortization — For the year ended December 31, 2014 as compared to 2013 , depreciation and amortization increased by $20.7 million , of which $15.6 million related to our 2014 Acquisitions and the remainder was due to a full-year of activity related to our 2013 Acquisitions.

Property Expenses — For the year ended December 31, 2014 as compared to 2013 , property expenses increased by $7.3 million , primarily due to an increase in asset management fees and other property related expenses that are a result of the increase in our investment volume in 2014 . At the advisor’s election, we settled such asset management fees in the form of shares of our Class A common stock, rather than in cash ( Note 3 ).

General and Administrative — For the year ended December 31, 2014 as compared to 2013 , general and administrative expenses increased by $3.9 million , primarily due increases in professional fees of $2.5 million and in management expenses of $0.9 million . Professional fees were primarily comprised of accounting fees, which were incurred in conjunction with our new investments and public filings, and investor relations costs. Management expenses are primarily related to the Class C shareholder servicing fee.

Interest Expense — For the year ended December 31, 2014 as compared to 2013 , interest expense increased by $14.5 million , primarily as a result of mortgage financing obtained or assumed in connection with our investing activity during 2014 and 2013 .

Other Income and (Expenses) — Other income and (expenses) primarily consists of the interest income we generate through our cash held at certain banking institutions, gains and losses on foreign currency transactions, and derivative instruments. For intercompany transactions that are of a long-term investment nature, the gain or loss is recognized as a cumulative translation adjustment in Other comprehensive income or loss. We also recognize gains or losses on foreign currency transactions when we repatriate cash from our foreign investments. The timing and amount of such gains or losses cannot always be estimated and are subject to fluctuation.

For the year ended December 31, 2014 , other expense was $1.2 million , comprised of $4.6 million of foreign currency translation losses, partially offset by $3.2 million related to interest income earned from our cash held at certain banking institutions and a $0.2 million gain on derivatives.

We did not have any significant other income and (expenses) during the year ended December 31, 2013 .

Net Loss (Income) Attributable to Noncontrolling Interests — For the year ended December 31, 2014 , net loss attributable to noncontrolling interests was $0.7 million compared to net income attributable to noncontrolling interests of $0.4 million during 2013. The change from the prior year was primarily due to the $2.8 million increase of CPA ® :17 – Global’s interest in the net losses generated from certain of our joint investments partially offset by an increase of $1.7 million of the available cash distribution of the Operating Partnership. As discussed in Note 3 , the advisor owns a special general partner interest in our Operating Partnership entitling it to up to 10% of the available cash of our Operating Partnership, as defined.


CPA ® :18 – Global 2014 10-K – 38

Net Loss Attributable to CPA ® :18 – Global — For the year ended December 31, 2014 as compared to 2013 , the resulting net loss attributable to CPA ® :18 – Global increased by $55.2 million .

Modified Funds from (Used in) Operations — MFFO is a non-GAAP measure that we use to evaluate our business. For a definition of MFFO and a reconciliation to net loss attributable to CPA ® :18 – Global, see Supplemental Financial Measures below.

For the year ended December 31, 2014 , MFFO was $20.0 million compared to a negative MFFO of less than $0.1 million during 2013. The change from the prior year was primarily a result of the increase in the number of our investments during 2014 from 2013 .

Financial Condition

Sources and Uses of Cash During the Year

We are currently raising capital from the sale of our Class C common stock in our initial public offering and expect to continue to invest such proceeds primarily in a diversified portfolio of income-producing commercial real estate properties and other real estate-related assets. After investing capital raised through our initial public offering, we expect our primary source of operating cash flow to be generated from cash flow from our investments. We expect that these cash flows will fluctuate periodically due to a number of factors, which may include, among other things: the timing of purchases and sales of real estate; the timing of the receipt of the proceeds from, and the repayment of, non-recourse mortgage loans and the receipt of lease revenues; the advisor’s annual election to receive fees in shares of our common stock or cash, which our board of directors must approve; the timing and characterization of distributions received from equity investments in real estate; the timing of payments of the available cash distributions to the advisor; and changes in foreign currency exchange rates. Despite these fluctuations, we believe our investments will generate sufficient cash from operations to meet our short-term and long-term liquidity needs in the future as described below. However, as we continue to invest the capital raised in our initial public offering, it may be necessary to use cash raised in that offering to fund our operating activities and distributions to our stockholders.

We qualified as a REIT beginning with the tax year ended December 31, 2013 and we are not subject to U.S. federal income taxes on amounts distributed to stockholders, provided that we meet certain conditions, including distributing at least 90% of our taxable income to stockholders. Our objectives are to pay quarterly distributions, to increase equity in our commercial real estate through regular mortgage principal payments and to own a diversified portfolio of net-leased commercial real estate and other real estate-related assets that will increase in value. Our distributions declared through December 31, 2014 have exceeded our FFO and were paid almost entirely from offering proceeds. When we have substantially invested the net proceeds from our initial public offering, we expect that future distributions will be paid in whole or in part from FFO. Until we substantially invest the net proceeds of our initial public offering, we expect that distributions will be paid primarily from offering proceeds.

2014

Operating Activities — Net cash used in operating activities for the year ended December 31, 2014 was $9.9 million as compared to net cash provided by operating activities of $2.3 million for 2013. This change was primarily due to the increase in the number investments during 2014 that were considered to be business combinations and their related acquisition costs.
 
Investing Activities — Our investing activities are generally comprised of real estate-related transactions (purchases and sales), payment of deferred acquisition fees to the advisor related to asset acquisitions, and capitalized property-related costs. Net cash used in investing activities totaled $945.6 million for the year ended December 31, 2014 . This was primarily the result of cash outflows related to our 2014 Acquisitions, including acquisitions of real estate and direct financing leases of $902.2 million , value added taxes of $35.5 million paid in connection with our Bank Pekao investment, and $28.0 million related to our note receivable investment. We also had cash inflows related to the $36.5 million of value added taxes refunded for our Bank Pekao and Agrokor investments.

Financing Activities — Net cash provided by financing activities totaled $1.3 billion for the year ended December 31, 2014 . This was primarily due to net proceeds received from our initial public offering of $844.3 million and proceeds of $327.2 million and $105.4 million from non-recourse mortgage financings and bond financings, respectively, primarily related to the 2014 Acquisitions. We also received contributions of $117.8 million from the noncontrolling interests in our Bank Pekao and Apply AS investments held by our affiliate, CPA ® :17 – Global, which was partially offset by distributions paid to noncontrolling interests of $69.8 million that primarily related to CPA ® :17 – Global’s interest in the financing for the Bank

CPA ® :18 – Global 2014 10-K – 39



Pekao investment. We also paid distributions of $37.6 million to our stockholders related to the fourth quarter of 2013 and the first three quarters of 2014.

2013

Operating Activities — Net cash provided by operating activities during the year ended December 31, 2013 totaled  $2.3 million , primarily reflecting cash flows received for both rental income and prepaid rent that were directly related to our first three property investments, which were slightly offset by interest paid for our State Farm mortgage loan and other operating costs.

Investing Activities — Net cash used in investing activities totaled  $223.8 million  during the year ended December 31, 2013, related to our acquisitions of real estate and direct financing leases of  $220.5 million , value added taxes paid in connection with Agrokor property investment of $2.7 million , payment of deferred acquisition fees to an affiliate of  $0.4 million for the State Farm property investment, and a change in investing restricted cash of  $0.2 million .

Financing Activities — Net cash provided by financing activities totaled  $330.3 million  during the year ended December 31, 2013, comprised of  $208.3 million  of net proceeds received from our initial public offering,  $85.1 million  of proceeds from the non-recourse mortgage related to the acquisition of properties leased to State Farm and Crowne Group Inc., contributions of  $38.2 million  representing the noncontrolling interest in our State Farm and Agrokor investments held by our affiliate CPA ® :17 – Global, and  $15.0 million  of proceeds from a loan from WPC ( Note 3 ), partially offset by the full repayment of the WPC loan, distributions to noncontrolling interests of  $0.9 million , payment of deferred financing costs and mortgage deposits totaling  $0.3 million , and  $0.1 million  of distributions we paid to stockholders.

Distributions

Our objectives are to generate sufficient cash flow over time to provide stockholders with increasing distributions and to seek investments with potential for capital appreciation throughout varying economic cycles. From inception through December 31, 2014 , we have declared distributions to stockholders totaling $55.4 million , which were comprised of cash distributions of $26.0 million and $29.4 million reinvested by stockholders in shares of our common stock pursuant to our distribution reinvestment and stock purchase plan. We have determined that FFO is the most appropriate metric to evaluate our ability to fund distributions to stockholders. For a discussion of FFO, see Supplemental Financial Measures below. Through December 31, 2014 , we have not yet generated sufficient FFO to fund all of our distributions; therefore, we have funded substantially all of our cash distributions declared to date from the proceeds of our initial public offering.

Redemptions

We maintain a quarterly redemption program pursuant to which we may, at the discretion of our board of directors, redeem shares of our common stock from stockholders seeking liquidity. We limit the redemptions so that the shares we redeem in any quarter, together with the aggregate number of shares redeemed in the preceding three fiscal quarters, do not exceed a maximum of 5% of our total shares outstanding as of the last day of the immediately preceding quarter. In addition, our ability to effect redemptions will be subject to our having available cash to do so. During the three months ended December 31, 2014 , we received requests to redeem 118,086 shares of Class A common stock pursuant to our redemption plan, all of which were redeemed in the same period, at a weighted-average price of $9.73 per share, net of redemption fees, totaling $1.1 million .

CPA ® :18 – Global 2014 10-K – 40




Liquidity and Capital Resources

Our principal demands for funds will be for the acquisition of real estate and real estate-related investments and the payment of acquisition-related expenses, operating expenses, interest and principal on current and future indebtedness, and distributions to stockholders. We currently expect that, for the short-term, the aforementioned cash requirements will be funded by our cash on hand, financings, and the capital we raise in our initial public offering. We have raised aggregate gross proceeds in our initial public offering of approximately $1.2 billion through March 23, 2015, as follows (in thousands):
 
 
Funds Raised
Period
 
Class A
 
Class C
 
Total
Third quarter of 2013 (a)
 
$
17,260

 
$
3,258

 
$
20,518

Fourth quarter of 2013
 
194,370

 
22,419

 
216,789

First quarter of 2014
 
378,185

 
20,786

 
398,971

Second quarter of 2014
 
375,039

 
23,668

 
398,707

Third quarter of 2014
 
12,556

 
43,044

 
55,600

Fourth quarter of 2014
 
—

 
52,525

 
52,525

January 2015
 
—

 
17,221

 
17,221

February 2015
 
—

 
29,274

 
29,274

March 1, 2015 - March 23, 2015
 
—

 
39,044

 
39,044

 
 
$
977,410

 
$
251,239

 
$
1,228,649

__________
(a)
We began admitting stockholders on July 25, 2013.

We expect to use approximately 88% of the gross proceeds raised in our initial public offering to acquire investments, assuming that we sell the maximum amount of shares both in the initial public offering and pursuant to our distribution reinvestment and stock purchase plan. The remaining portion of the proceeds will be used to pay distributions to stockholders, to pay offering fees and expenses, including the payment of fees to our dealer manager, and for the payment of fees and reimbursement of expenses to the advisor. 

We expect to meet our short-term liquidity requirements generally through existing cash balances, future offering proceeds that we raise through the completion of our public offering, which is currently scheduled to be completed on or about March 27, 2015, and, if necessary, short-term borrowings. We expect that in the future, as our portfolio grows and matures, our properties will provide sufficient cash flow to cover operating expenses and the payment of stockholder distributions.

Our liquidity would be affected adversely by unanticipated costs and greater-than-anticipated operating expenses. To the extent that our working capital reserve is insufficient to satisfy our cash requirements, additional funds may be provided from cash generated from operations or through short-term borrowings.


CPA ® :18 – Global 2014 10-K – 41



Summary of Financing
 
The table below summarizes our non-recourse debt and bonds payable (dollars in thousands):
 
December 31,
 
2014
 
2013
Carrying Value
 
 
 
Fixed rate
$
429,251

 
$
72,800

Variable rate:
 
 
 
Amount subject to floating interest rates
54,501

 
—

Amount subject to interest rate swaps
37,960

 
12,260

 
92,461

 
12,260

 
$
521,712

 
$
85,060

Percent of Total Debt
 
 
 
Fixed rate
82
%
 
86
%
Variable rate
18
%
 
14
%
 
100
%
 
100
%
Weighted-Average Interest Rate at End of Year
 
 
 
Fixed rate
4.5
%
 
4.5
%
Variable rate
4.2
%
 
5.6
%

Cash Resources
 
At December 31, 2014 , our cash resources consisted of cash and cash equivalents totaling $429.5 million . Of this amount, $34.0 million , at then-current exchange rates, was held in foreign subsidiaries, but we could be subject to restrictions or significant costs should we decide to repatriate these amounts. We also had unleveraged properties that had an aggregate carrying value of $188.7 million at December 31, 2014 , although there can be no assurance that we would be able to obtain financing for these properties on satisfactory terms, if at all. Our cash resources may be used for future investments and can be used for working capital needs and other commitments. In addition, our board of directors and the board of directors of WPC have each approved unsecured loans to us from WPC of up to $100.0 million in the aggregate for the purpose of facilitating acquisitions, with any such loans made solely at the discretion of WPC’s management. Our cash resources may be used for future investments and can be used for working capital needs, other commitments, and distributions to our stockholders.
 
Cash Requirements
 
During the next 12 months, we expect that our cash requirements will include acquiring new investments, funding capital commitments, paying distributions to our stockholders and to our affiliates that hold noncontrolling interests in entities we control, and making any scheduled mortgage interest and principal payments, as well as other normal recurring operating expenses. We expect to fund $12.8 million related to capital and other lease commitments during the next 12 months.


CPA ® :18 – Global 2014 10-K – 42



Off-Balance Sheet Arrangements and Contractual Obligations

The table below summarizes our debt, off-balance sheet arrangements, and other contractual obligations (primarily our capital commitments and lease 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
Debt — principal (a)
$
521,446

 
$
5,079

 
$
25,771

 
$
25,890

 
$
464,706

Interest on borrowings and deferred acquisition fees
164,815

 
21,344

 
42,383

 
40,110

 
60,978

Deferred acquisition fees — principal (b)
16,390

 
7,037

 
9,353

 
—

 
—

Capital commitments (c)
12,547

 
12,547

 
—

 
—

 
—

Other lease commitments (d)
5,369

 
225

 
454

 
457

 
4,233

Asset retirement obligations, net (e)
2,002

 
—

 
—

 
—

 
2,002

Organization and offering costs payable to affiliate (f)
223

 
223

 
—

 
—

 
—

 
$
722,792

 
$
46,455

 
$
77,961

 
$
66,457

 
$
531,919

__________
(a)
Represents the non-recourse debt and bonds payable that we obtained in connection with our investments. Excludes $0.3 million of unamortized premium, which was included in Non-recourse debt at December 31, 2014 .
(b)
Represents deferred acquisition fees due to the advisor as a result of our acquisitions. These fees are scheduled to be paid in three equal annual installments from the date of each respective acquisition.
(c)
Capital commitments include our current USF Holland build-to-suit project of $9.7 million ( Note 4 ) and $2.9 million related to other construction commitments.
(d)
Other lease commitments consist of rental obligations under ground leases and our share of future rents payable pursuant to our advisory agreement for the purpose of leasing office space used for the administration of real estate entities. Amounts are allocated among WPC, the CPA ® REITs, and CWI ( Note 3 ).
(e)
Represents the future amount of obligations estimated for the removal of asbestos and environmental waste in connection with certain of our acquisitions, payable upon the retirement or sale of the assets ( Note 4 ).
(f)
Represents the organization and offering costs incurred by the advisor for which we are liable ( Note 3 ). The payment of such costs is contingent on the amount of offering proceeds raised over our initial offering period, which is currently expected to be completed on or about March 27, 2015.

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 and, to a lesser extent, the Norwegian krone and British pound sterling. At December 31, 2014 , we had no material capital lease obligations for which we were the lessee, either individually or in the aggregate.


CPA ® :18 – Global 2014 10-K – 43



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 protections (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 may be 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.

We have recorded asset retirement obligations totaling $2.0 million at December 31, 2014 for the removal of asbestos and environmental waste in connection with certain of our acquisitions.

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. We determine the value of tangible assets, consisting of land and buildings, and record intangible assets, including the above- and below-market value of leases, and the value of in-place leases at their estimated fair values.

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 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 the estimated costs of sale.

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;

CPA ® :18 – Global 2014 10-K – 44



•
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 assume 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 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 a similar property, both of which are measured over a period equal to the estimated lease term, which includes any renewal options with rental rates below estimated market rental rates. We discount the difference between the estimated market rent and contractual rent to a present value using an interest rate reflecting our current assessment of the risk associated with the lease acquired, which includes a consideration of the credit of the lessee. 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 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

CPA ® :18 – Global 2014 10-K – 45



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 our sole reporting unit in which such goodwill arose.

Impairments
 
We periodically assess whether there are any indicators that the value of our long-lived and indefinite-lived assets, including goodwill, 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, a lease default by a tenant that is experiencing financial difficulty, the termination of a lease by a tenant, or the rejection of a lease in a bankruptcy proceeding. We may incur impairment charges on real estate and direct financing leases. We may also incur impairment charges on marketable securities investments. Estimates and judgments used when evaluating whether these assets are impaired are presented below.
 
Real Estate
 
For real estate assets held for investment and related intangible assets 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 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. 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. As our investment objective is to hold properties on a long-term basis, holding periods used in the undiscounted cash flow analysis are generally 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. 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.
 
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 and third-party estimates where available. 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 and therefore the asset’s holding period is reduced, 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.

Goodwill
 
We evaluate goodwill for possible impairment at least annually or upon the occurrence of a triggering event. 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.
 

CPA ® :18 – Global 2014 10-K – 46



The goodwill impairment test is three-step test. Step zero is a qualitative analysis whereas step one and two are quantitative. if step zero is not considered, the first step is to identify whether the value of the recorded goodwill is impaired and if it is determined that goodwill is impaired, the second step seeks to measure the amount of the impairment.

The company applied step zero to its analysis. In this step, qualitative factors are assessed to determine if it is more likely that not that the fair value of the reporting unit is less than its carrying value. In this step the macro-economic environment in which the reporting unit operates is analyzed for any significant changes such as deterioration in the market that the Company operates or overall financial performance such as declining cash flows. Also, entity specific changes are analyzed such as change in management, strategy or composition of reporting unit. If after assessing the overall macro-economic environment, it is unlikely that the fair value is less than the carrying value, steps one and two do not need to be performed.

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

Proposed Accounting Change 

The following proposed accounting change may potentially impact our business if the outcome has a significant influence on sale-leaseback demand in the marketplace: 

The International Accounting Standards Board and 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 completely 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 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 Financial Accounting Standards Board continue their redeliberations of the proposals included in the May 2013 Exposure Draft based on the comments received and as of the date of this Report, 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 FFO and MFFO, which are supplemental non-GAAP measures. We believe that these non-GAAP measures are useful to investors to consider because it may assist them to better understand and measure the performance of our business over time and against similar companies. A description of FFO and MFFO and reconciliations of FFO and MFFO to the most directly comparable GAAP measures are provided below.

Funds from Operations, or FFO, and Modified Funds from Operations, or MFFO

Due to certain unique operating characteristics of real estate companies, as discussed below, the National Association of Real Estate Investment Trusts, Inc., or NAREIT, an industry trade group, has promulgated a non-GAAP measure known as FFO which we believe to be an appropriate supplemental measure, when used in addition to and in conjunction with results presented in accordance with GAAP, to reflect the operating performance of a REIT. The use of FFO is recommended by the REIT industry as a supplemental non-GAAP measure. FFO is not equivalent to nor a substitute for net income or loss as determined under GAAP.

We define FFO, a non-GAAP measure, consistent with the standards established by the White Paper on FFO approved by the Board of Governors of NAREIT, as revised in February 2004. The White Paper defines FFO as net income or loss computed in accordance with GAAP, excluding gains or losses from sales of property, impairment charges on real estate, and depreciation and amortization; and after adjustments for unconsolidated partnerships and jointly-owned investments. Adjustments for unconsolidated partnerships and jointly-owned investments are calculated to reflect FFO. Our FFO calculation complies with NAREIT’s policy described above.

The historical accounting convention used for real estate assets requires straight-line depreciation of buildings and improvements, which implies that the value of real estate assets diminishes predictably over time, especially if such assets are

CPA ® :18 – Global 2014 10-K – 47



not adequately maintained or repaired and renovated as required by relevant circumstances and/or is requested or required by lessees for operational purposes in order to maintain the value disclosed. We believe that, since real estate values historically rise and fall with market conditions, including inflation, interest rates, the business cycle, unemployment, and consumer spending, presentations of operating results for a REIT using historical accounting for depreciation may be less informative. Historical accounting for real estate involves the use of GAAP. Any other method of accounting for real estate such as the fair value method cannot be construed to be any more accurate or relevant than the comparable methodologies of real estate valuation found in GAAP. Nevertheless, we believe that the use of FFO, which excludes the impact of real estate-related depreciation and amortization as well as impairment charges of real estate-related assets, provides a more complete understanding of our performance to investors and to management, and when compared year over year, reflects the impact on our operations from trends in occupancy rates, rental rates, operating costs, general and administrative expenses, and interest costs, which may not be immediately apparent from net income. In particular, we believe it is appropriate to disregard impairment charges, as this is a fair value adjustment that is largely based on market fluctuations and assessments regarding general market conditions which can change over time. An asset will only be evaluated for impairment if certain impairment indicators exist. Then a two-step process is performed, of which first is to determine whether an asset is impaired by comparing the carrying value, or book value, to the total estimated undiscounted future cash flows (including net rental and lease revenues, net proceeds on the sale of the property, and any other ancillary cash flows at a property or group level under GAAP) from such asset, then measure the impairment loss as the excess of the carrying value over its estimated fair value. It should be noted, however, that determinations of whether impairment charges have been incurred are based partly on anticipated operating performance, because estimated undiscounted future cash flows from a property (including estimated future net rental and lease revenues, net proceeds on the sale of the property, and certain other ancillary cash flows) are taken into account in determining whether an impairment charge has been incurred. While impairment charges are excluded from the calculation of FFO described above, due to the fact that impairments are based on estimated future undiscounted cash flows and the relatively limited term of our operations, it could be difficult to recover any impairment charges. However, FFO and MFFO, as described below, should not be construed to be more relevant or accurate than the current GAAP methodology in calculating net income or in its applicability in evaluating the operating performance of the company. The method utilized to evaluate the value and performance of real estate under GAAP should be construed as a more relevant measure of operational performance and considered more prominently than the non-GAAP FFO and MFFO measures and the adjustments to GAAP in calculating FFO and MFFO.

Changes in the accounting and reporting promulgations under GAAP (for acquisition fees and expenses from a capitalization/depreciation model to an expensed-as-incurred model) were put into effect in 2009. These other changes to GAAP accounting for real estate subsequent to the establishment of NAREIT’s definition of FFO have prompted an increase in cash-settled expenses, specifically acquisition fees and expenses for all industries as items that are expensed under GAAP, that are typically accounted for as operating expenses. Management believes these fees and expenses do not affect our overall long-term operating performance. Publicly-registered, non-listed REITs typically have a significant amount of acquisition activity and are substantially more dynamic during their initial years of investment and operation. While other start-up entities may also experience significant acquisition activity during their initial years, we believe that non-listed REITs are unique in that they have a limited life with targeted exit strategies within a relatively limited time frame after acquisition activity ceases. As disclosed in the prospectus, we intend to begin the process of achieving a liquidity event (i.e., listing of our common stock on a national exchange, a merger or sale of our assets or another similar transaction) within seven years following the closing of our initial public offering, which is currently scheduled to occur on or about March 27, 2015. Thus, we do not intend to continuously purchase assets and intend to have a limited life. Due to the above factors and other unique features of publicly-registered, non-listed REITs, the Investment Program Association, an industry trade group, has standardized a measure known as MFFO, which the Investment Program Association has recommended as a supplemental non-GAAP measure for publicly-registered, non-listed REITs and which we believe to be another appropriate supplemental measure to reflect the operating performance of a non-listed REIT having the characteristics described above. MFFO is not equivalent to our net income or loss as determined under GAAP, and MFFO may not be a useful measure of the impact of long-term operating performance on value if we do not continue to operate with a limited life and targeted exit strategy, as currently intended. We believe that, because MFFO excludes costs that we consider more reflective of investing activities and other non-operating items included in FFO, and also excludes acquisition fees and expenses that affect our operations only in periods in which properties are acquired, MFFO can provide, on a going forward basis, an indication of the sustainability (that is, the capacity to continue to be maintained) of our operating performance after the period in which we are acquiring properties and once our portfolio is in place. By providing MFFO, we believe we are presenting useful information that assists investors and analysts to better assess the sustainability of our operating performance after our initial public offering has been completed and once essentially all of our properties have been acquired. We also believe that MFFO is a recognized measure of sustainable operating performance by the non-listed REIT industry. Further, we believe MFFO is useful in comparing the sustainability of our operating performance after our initial public offering and most of our acquisitions are completed with the sustainability of the operating performance of other real estate companies that are not as involved in acquisition activities. MFFO should only be used to assess the

CPA ® :18 – Global 2014 10-K – 48



sustainability of a company’s operating performance after a company’s offering has been completed and properties have been acquired, as it excludes acquisition costs that have a negative effect on a company’s operating performance during the periods in which properties are acquired.

We define MFFO, a non-GAAP measure, consistent with the Investment Program Association’s Guideline 2010-01, Supplemental Performance Measure for Publicly Registered, Non-Listed REITs: Modified Funds from Operations, or the Practice Guideline, issued by the Investment Program Association in November 2010. The Practice Guideline defines MFFO as FFO further adjusted for the following items, as applicable, included in the determination of GAAP net income: acquisition fees and expenses; amounts relating to deferred rent receivables and amortization of above- and below-market leases and liabilities (which are adjusted in order to reflect such payments from a GAAP accrual basis to a cash basis of disclosing the rent and lease payments); accretion of discounts and amortization of premiums on debt investments; nonrecurring impairments of real estate-related investments (i.e., infrequent or unusual, not reasonably likely to recur in the ordinary course of business); mark-to-market adjustments included in net income; nonrecurring gains or losses included in net income from the extinguishment or sale of debt, hedges, foreign exchange, derivatives, or securities holdings where trading of such holdings is not a fundamental attribute of the business plan, unrealized gains or losses resulting from consolidation from, or deconsolidation to, equity accounting, and after adjustments for consolidated and unconsolidated partnerships and jointly-owned investments, with such adjustments calculated to reflect MFFO on the same basis. The accretion of discounts and amortization of premiums on debt investments, nonrecurring unrealized gains and losses on hedges, foreign exchange, derivatives or securities holdings, unrealized gains and losses resulting from consolidations, as well as other listed cash flow adjustments are adjustments made to net income in calculating the cash flows provided by operating activities and, in some cases, reflect gains or losses which are unrealized and may not ultimately be realized. While we are responsible for managing interest rate, hedge, and foreign exchange risk, we retain an outside consultant to review all our hedging agreements. Inasmuch as interest rate hedges are not a fundamental part of our operations, we believe it is appropriate to exclude such infrequent gains and losses in calculating MFFO, as such gains and losses are not reflective of on-going operations.

Our MFFO calculation complies with the Investment Program Association’s Practice Guideline described above. In calculating MFFO, we exclude acquisition-related expenses, amortization of above- and below-market leases, fair value adjustments of derivative financial instruments, deferred rent receivables, and the adjustments of such items related to noncontrolling interests. Under GAAP, acquisition fees and expenses are characterized as operating expenses in determining operating net income. These expenses are paid in cash by a company. All paid and accrued acquisition fees and expenses will have negative effects on returns to investors, the potential for future distributions, and cash flows generated by the company, unless earnings from operations or net sales proceeds from the disposition of other properties are generated to cover the purchase price of the property, these fees and expenses, and other costs related to such property. Further, under GAAP, certain contemplated non-cash fair value and other non-cash adjustments are considered operating non-cash adjustments to net income in determining cash flow from operating activities. In addition, we view fair value adjustments of derivatives and gains and losses from dispositions of assets as infrequent items or items which are unrealized and may not ultimately be realized, and which are not reflective of on-going operations and are therefore typically adjusted for assessing operating performance. We account for certain of our equity investments using the hypothetical liquidation model which is based on distributable cash as defined in the operating agreement. Equity income for the period recognized under this model may be net of the equity investee’s payments of loan principal. Under GAAP, payments of loan principal do not impact net income.

Our management uses MFFO and the adjustments used to calculate it in order to evaluate our performance against other non-listed REITs which have limited lives with short and defined acquisition periods and targeted exit strategies shortly thereafter. As noted above, MFFO may not be a useful measure of the impact of long-term operating performance on value if we do not continue to operate in this manner. We believe that our use of MFFO and the adjustments used to calculate it allow us to present our performance in a manner that reflects certain characteristics that are unique to non-listed REITs, such as their limited life, limited and defined acquisition period, and targeted exit strategy, and hence that the use of such measures is useful to investors. For example, acquisition costs are generally funded from the proceeds of our initial public offering and other financing sources and not from operations. By excluding expensed acquisition costs, the use of MFFO provides information consistent with management’s analysis of the operating performance of the properties. Additionally, fair value adjustments, which are based on the impact of current market fluctuations and underlying assessments of general market conditions, but can also result from operational factors such as rental and occupancy rates, may not be directly related or attributable to our current operating performance. By excluding such changes that may reflect anticipated and unrealized gains or losses, we believe MFFO provides useful supplemental information.

Presentation of this information is intended to provide useful information to investors as they compare the operating performance of different REITs, although it should be noted that not all REITs calculate FFO and MFFO the same way, so comparisons with other REITs may not be meaningful. Furthermore, FFO and MFFO are not necessarily indicative of cash flow

CPA ® :18 – Global 2014 10-K – 49



available to fund cash needs and should not be considered as an alternative to net income (loss) or income (loss) from continuing operations as an indication of our performance, as an alternative to cash flows from operations as an indication of our liquidity, or indicative of funds available to fund our cash needs, including our ability to make distributions to our stockholders. FFO and MFFO should be reviewed in conjunction with other GAAP measurements as an indication of our performance.

Neither the SEC, NAREIT, nor any other regulatory body has passed judgment on the acceptability of the adjustments that we use to calculate FFO or MFFO. In the future, the SEC, NAREIT, or another regulatory body may decide to standardize the allowable adjustments across the non-listed REIT industry and we would have to adjust our calculation and characterization of FFO or MFFO accordingly.

FFO and MFFO were as follows (in thousands):
 
 
Years Ended December 31,
 
 
2014
 
2013
Net loss attributable to CPA ® :18 – Global
 
$
(55,867
)
 
$
(631
)
Adjustments:
 
 
 
 
Depreciation and amortization of real property
 
21,980

 
1,309

Proportionate share of adjustments for noncontrolling interests to arrive at FFO
 
(4,518
)
 
(610
)
Total adjustments
 
17,462

 
699

FFO — as defined by NAREIT
 
(38,405
)
 
68

Adjustments:
 
 
 
 
Acquisition expenses  (a)
 
59,383

 
95

Realized losses (gains) on foreign currency, derivatives and other
 
4,377

 
(32
)
Straight-line and other rent adjustments  (b)
 
(2,480
)
 
(394
)
Unrealized losses on mark-to-market adjustments
 
867

 
—

Above- and below-market rent intangible lease amortization, net
 
98

 
(40
)
Other amortization and other non-cash charges
 
24

 
67

Proportionate share of adjustments for noncontrolling interests to arrive at MFFO
 
(3,821
)
 
182

Total adjustments
 
58,448

 
(122
)
MFFO
 
$
20,043

 
$
(54
)
__________
(a)
Includes Acquisition expenses and amortization of deferred acquisition fees. In evaluating investments in real estate, management differentiates the costs to acquire the investment from the operations derived from the investment. Such information would be comparable only for non-listed REITs that have completed their acquisition activity and have other similar operating characteristics. By excluding expensed acquisition costs and amortization of deferred acquisition fees, management believes MFFO provides useful supplemental information that is comparable for each type of real estate investment and is consistent with management’s analysis of the investing and operating performance of our properties. Acquisition fees and expenses include payments to the advisor or third parties. Acquisition fees and expenses under GAAP are considered operating expenses and as expenses included in the determination of net income (loss) and income (loss) from continuing operations, both of which are performance measures under GAAP. All paid and accrued acquisition fees and expenses will have negative effects on returns to stockholders, the potential for future distributions, and cash flows generated by us, unless earnings from operations or net sales proceeds from the disposition of properties are generated to cover the purchase price of the property, these fees and expenses, and other costs related to the property.
(b)
Under GAAP, rental receipts are allocated to periods using an accrual basis. This may result in income recognition that is significantly different than underlying contract terms. By adjusting for these items (to reflect such payments from a GAAP accrual basis to a cash basis of disclosing the rent and lease payments), management believes that MFFO provides useful supplemental information on the realized economic impact of lease terms and debt investments, provides insight on the contractual cash flows of such lease terms and debt investments, and aligns results with management’s analysis of operating performance.


CPA ® :18 – Global 2014 10-K – 50



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; 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 assets to decrease. 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, which are included in Accounts payable, accrued expenses and other liabilities in the consolidated financial statements, was in a liability position of $2.5 million ( Note 8 ).

At December 31, 2014 , our outstanding debt bore interest at a fixed rate, or was either swapped to a fixed rate or, in the case of our Norwegian investments, inflation-linked to the Norwegian CPI. The annual interest rates on our fixed-rate debt at December 31, 2014 ranged from 3.1% to 7.2% . The contractual annual interest rates on our variable-rate debt at December 31, 2014 ranged from 3.5% to 5.6% . Our debt obligations are more fully described in Note 9 and Financial Condition – Summary of Financing in Item 7 above. The following table presents principal cash outflows 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)
$
4,557

 
$
5,013

 
$
18,940

 
$
6,265

 
$
6,287

 
$
387,923


$
428,985


$
438,068

Variable-rate debt (a)
$
522

 
$
850

 
$
968

 
$
968

 
$
12,370

 
$
76,783


$
92,461


$
102,509

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

At December 31, 2014 , the estimated fair value of our fixed-rate debt and variable-rate debt, which either have effectually been converted to a fixed rate through the use of interest rate swaps or, in the case of our Norwegian investments, is inflation-linked to the Norwegian CPI, approximated their carrying values. 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 $31.8 million or an aggregate decrease of $34.0 million , respectively. This debt is generally not subject to short-term fluctuations in interest rates.


CPA ® :18 – Global 2014 10-K – 51



As more fully described under Financial Condition – Summary of Financing in Item 7 above, a portion of our variable-rate debt in the table 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 several international investments, primarily in Europe, and as a result we are subject to risk from the effects of exchange rate movements in the euro and, to a lesser extent, the Norwegian krone and British pound sterling, which may affect future costs and cash flows. Although all of our foreign investments through the fourth quarter of 2014 were conducted in these currencies, we may conduct business in other currencies in the future as we seek to invest a portion of the funds from our initial public offering internationally. We manage foreign currency exchange rate movements by generally placing both 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 actual equity that we have invested and the equity portion of our cash flow. 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); 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.

We obtain mortgage and bond financing in local currencies. 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 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 at 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 (b)
 
$
27,866

 
$
26,702

 
$
27,780

 
$
27,777

 
$
27,726

 
$
223,040

 
$
360,891

Norwegian krone (c)
 
10,923

 
10,932

 
10,928

 
10,928

 
10,923

 
82,665

 
137,299

British pound sterling (d)
 
3,276

 
3,276

 
3,276

 
3,276

 
2,950

 
13,187

 
29,241

 
 
$
42,065

 
$
40,910

 
$
41,984

 
$
41,981

 
$
41,599

 
$
318,892

 
$
527,431


Scheduled debt service payments (principal and interest) for mortgage notes and bonds denominated in Norwegian krone for our foreign operations at December 31, 2014 , during each of the next five calendar years and thereafter, are as follows (in thousands):
Debt Service   (a)
 
2015
 
2016
 
2017
 
2018
 
2019
 
Thereafter
 
Total
Euro (b)
 
$
9,840

 
$
10,341

 
$
23,312

 
$
10,165

 
$
9,737

 
$
101,235

 
$
164,630

Norwegian krone (c)
 
3,627

 
3,627

 
3,627

 
3,627

 
3,627

 
104,538

 
122,673

British pound sterling (d)
 
451

 
448

 
446

 
446

 
11,843

 
—

 
13,634

 
 
$
13,918

 
$
14,416

 
$
27,385

 
$
14,238

 
$
25,207

 
$
205,773

 
$
300,937

__________
(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)
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 $2.0 million .
(c)
We estimate that, for a 1% increase or decrease in the exchange rate between the Norwegian krone and the U.S. dollar, there would be a corresponding change in the projected estimated property-level cash flow at December 31, 2014 of $0.1 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 $0.2 million .

As a result of scheduled balloon payments on certain of our international debt obligations, projected debt service obligations exceed projected lease revenues in 2019 for the British pound sterling and after 2019 for the Norwegian krone. We currently anticipate that, by their respective due dates, we will refinance certain of our debt obligations and/or renew the related lease, but

CPA ® :18 – Global 2014 10-K – 52



there can be no assurance that we will be able to do so on favorable terms, if at all. If that has not occurred, we would expect to use our cash resources 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 currently have concentrations of credit risk in our portfolio as we have a limited number of investments. We regularly monitor our portfolio to assess potential concentrations of credit risk as we make additional investments. As we invest the proceeds of our initial public offering, we will seek to ensure that our portfolio is reasonably well-diversified and does not contain any unusual concentration of credit risks. At December 31, 2014 , our net-lease portfolio, which excludes our self-storage facilities and multi-family properties, had the following significant property and lease characteristics (percentages based on the percentage of our consolidated ABR as of December 31, 2014 ) in excess of 10% in certain areas, as follows:

•
42% related to domestic properties, which included a concentration in Texas of 11% ;
•
58%  related to international properties, which included concentrations in Norway ( 15% ), Poland ( 12% ), and Croatia ( 10% );
•
55%  related to office properties,  15%  related to warehouse/distribution properties, and 10% related to retail properties; and
•
14% related to the oil and gas industry,  13% related to the banking industry, 11%  related to the insurance industry, and 10% related to the grocery industry.

CPA ® :18 – Global 2014 10-K – 53

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.



CPA ® :18 – Global 2014 10-K – 54

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To the Board of Directors and Stockholders of Corporate Property Associates 18 – Global Incorporated:
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 Corporate Property Associates 18 – Global Incorporated and its subsidiaries (the “Company”) at December 31, 2014 and 2013 , and the results of their operations and their cash flows for each of the two 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. These financial statements and financial statement schedules are the responsibility of the Company’s management. Our responsibility is to express an opinion on these financial statements and financial statement schedules based on our audits. We conducted our audits of these statements in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes 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. We believe that our audits provide a reasonable basis for our opinion.
/s/ PricewaterhouseCoopers LLP
March 27, 2015


CPA ® :18 – Global 2014 10-K – 55

CORPORATE PROPERTY ASSOCIATES 18 – GLOBAL INCORPORATED
CONSOLIDATED BALANCE SHEETS
(in thousands, except share and per share amounts)
 
December 31,
 
2014
 
2013
Assets
 
 
 
Investments in real estate:
 
 
 
   Real estate, at cost
$
743,735

 
$
150,424

   Operating real estate, at cost
133,596

 
—

   Accumulated depreciation
(11,814
)
 
(824
)
Net investments in properties
865,517

 
149,600

Real estate under construction
2,258

 
—

Net investments in direct financing leases
45,582

 
22,064

Note receivable
28,000

 
—

Net investments in real estate
941,357

 
171,664

Cash and cash equivalents
429,548

 
109,061

Goodwill
9,692

 
—

In-place lease intangible assets, net
167,635

 
53,337

Other intangible assets, net
25,667

 
8,224

Other assets, net
41,985

 
13,384

Total assets
$
1,615,884

 
$
355,670

Liabilities and Equity
 
 
 
Liabilities:
 
 
 
Non-recourse debt
$
430,462

 
$
85,060

Bonds payable
91,250

 
—

Deferred income taxes
28,753

 
8,350

Prepaid and deferred rental income
13,749

 
3,317

Accounts payable, accrued expenses and other liabilities
13,162

 
1,502

Due to affiliate
20,651

 
5,149

Distributions payable
17,629

 
1,821

Total liabilities
615,656

 
105,199

Commitments and contingencies ( Note 10 )

 

Equity:
 
 
 
CPA ® :18 – Global stockholders’ equity:
 
 
 
Preferred stock, $0.001 par value; 50,000,000 shares authorized; none issued
—

 
—

Class A common stock, $0.001 par value; 320,000,000 shares authorized; 100,079,255 and 21,290,097 shares issued, respectively, and 99,924,009 and 21,290,097 shares outstanding, respectively
100

 
21

Class C common stock, $0.001 par value; 80,000,000 shares authorized; 18,026,013 and 2,776,001 shares issued and outstanding, respectively
18

 
3

Additional paid-in capital
1,056,862

 
215,371

Distributions and accumulated losses
(111,878
)
 
(2,567
)
Accumulated other comprehensive loss
(20,941
)
 
(94
)
Less: treasury stock at cost, 155,246 and 0 shares, respectively
(1,520
)
 
—

Total CPA ® :18 – Global stockholders’ equity
922,641

 
212,734

Noncontrolling interests
77,587

 
37,737

Total equity
1,000,228

 
250,471

Total liabilities and equity
$
1,615,884

 
$
355,670


See Notes to Consolidated Financial Statements.

CPA ® :18 – Global 2014 10-K – 56

CORPORATE PROPERTY ASSOCIATES 18 – GLOBAL INCORPORATED
CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands, except share and per share amounts)  
 
 
Years Ended December 31,
 
 
2014
 
2013
Revenues
 
 
 
 
Lease revenues:
 
 
 
 
Rental income
 
$
41,383

 
$
3,262

Interest income from direct financing leases
 
3,450

 
11

Total lease revenues
 
44,833

 
3,273

Other real estate income
 
4,743

 
—

Other operating income
 
3,473

 
19

Other interest income
 
1,268

 
—

 
 
54,317


3,292

Operating Expenses
 
 
 
 
Acquisition expenses (inclusive of $38,825 and $0, respectively, to a related party)
 
59,225

 
86

Depreciation and amortization
 
21,981

 
1,314

Property expenses (inclusive of $2,635 and $117, respectively, to a related party)
 
7,379

 
121

General and administrative (inclusive of $1,084 and $226, respectively, to a related party)
 
4,708

 
783

Other real estate expenses
 
1,838

 
—

 
 
95,131

 
2,304

Other Income and Expenses
 
 
 
 
Interest expense (inclusive of $151 and $36, respectively, to a related party)
 
(15,753
)
 
(1,250
)
Other income and (expenses)
 
(1,153
)
 
32

 
 
(16,906
)
 
(1,218
)
Loss before income taxes
 
(57,720
)
 
(230
)
Benefit from (provision for) income taxes
 
1,164

 
(11
)
Net Loss
 
(56,556
)
 
(241
)
Net loss (income) attributable to noncontrolling interests (inclusive of available cash distribution to a related party of $1,778 and $92, respectively)
 
689

 
(390
)
Net Loss Attributable to CPA ® :18 – Global
 
$
(55,867
)

$
(631
)
 
 
 
 
 
Class A common stock
 
 
 
 
Net loss attributable to CPA ® :18 – Global
 
$
(49,494
)
 
$
(496
)
Weighted-average shares outstanding
 
78,777,525

 
2,792,648

Loss per share
 
$
(0.63
)
 
$
(0.18
)
 
 
 
 
 
Class C common stock
 
 
 
 
Net loss attributable to CPA ® :18 – Global
 
$
(6,373
)
 
$
(135
)
Weighted-average shares outstanding
 
8,847,966

 
497,725

Loss per share
 
$
(0.72
)
 
$
(0.27
)

See Notes to Consolidated Financial Statements.

CPA ® :18 – Global 2014 10-K – 57

CORPORATE PROPERTY ASSOCIATES 18 – GLOBAL INCORPORATED
CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSS
(in thousands)  
 
 
Years Ended December 31,
 
 
2014
 
2013
Net Loss
 
$
(56,556
)
 
$
(241
)
Other Comprehensive Loss
 
 
 
 
Foreign currency translation adjustments
 
(29,602
)
 
156

Change in net unrealized gain (loss) on derivative instruments
 
1,371

 
(219
)
 
 
(28,231
)
 
(63
)
Comprehensive Loss
 
(84,787
)
 
(304
)
 
 
 
 
 
Amounts Attributable to Noncontrolling Interests
 
 
 
 
Net loss (income)
 
689

 
(390
)
Foreign currency translation adjustments
 
7,384

 
(31
)
Comprehensive loss (income) attributable to noncontrolling interests
 
8,073

 
(421
)
Comprehensive Loss Attributable to CPA ® :18 – Global
 
$
(76,714
)
 
$
(725
)
 
See Notes to Consolidated Financial Statements.


CPA ® :18 – Global 2014 10-K – 58

CORPORATE PROPERTY ASSOCIATES 18 – GLOBAL INCORPORATED
CONSOLIDATED STATEMENTS OF EQUITY
Years Ended December 31, 2014 and 2013 , and Period from September 7, 2012 (Inception) to December 31, 2012
(in thousands, except share and per share amounts) 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
CPA ® :18 – Global Stockholders
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Additional Paid-In Capital
 
Distributions
and
Accumulated
Losses
 
Accumulated
Other Comprehensive Loss
 
Treasury Stock
 
Total CPA ® :18 – Global Stockholders
 
Noncontrolling Interests
 
 
 
Common Stock
 
 
 
 
 
 
 
 
 
Class A
 
Class C
 
General
 
 
 
 
 
 
 
 
 
Shares
 
Amount
 
Shares
 
Amount
 
Shares
 
Amount
 
 
 
 
 
 
 
Total
Balance at September 7, 2012 (Inception)
—

 
$
—

 
—

 
$
—

 
—

 
$
—

 
$
—

 
$
—

 
$
—

 
$
—

 
$
—

 
$
—

 
$
—

Shares, $0.001 par value, issued to Carey REIT II, Inc. at $9.00 per share
—

 
—

 
—

 
—

 
23,222

 
—

 
209

 
—

 
—

 
—

 
209

 
—

 
209

Balance at December 31, 2012
—

 
—

 
—

 
—

 
23,222

 
—

 
209

 
—

 
—

 
—

 
209

 
—

 
209

Renaming of General Shares to Class A common stock
23,222

 
—

 
—

 
—

 
(23,222
)
 
—

 
—

 
—

 
—

 
—

 
—

 
—

 
—

Shares issued, net of offering costs
21,251,565

 
21

 
2,776,001

 
3

 
—

 
—

 
215,016

 
—

 
—

 
—

 
215,040

 
—

 
215,040

Shares issued to affiliate
7,903


—


—


—


—


—


79


—


—

 
—

 
79


—


79

Stock-based compensation
7,407

 
—

 
—

 
—

 
—

 
—

 
67

 
—

 
—

 
—

 
67

 
—

 
67

Contributions from noncontrolling interests
—

 
—

 
—

 
—

 
—

 
—

 
—

 
—

 
—

 
—

 
—

 
38,169

 
38,169

Distributions to noncontrolling interests
—

 
—

 
—

 
—

 
—

 
—

 
—

 
—

 
—

 
—

 
—

 
(853
)
 
(853
)
Distributions declared ($0.2717 and $0.2311 per share to Class A and Class C, respectively)
—

 
—

 
—

 
—

 
—

 
—

 
—

 
(1,936
)
 
—

 
—

 
(1,936
)
 
—

 
(1,936
)
Net Loss
—

 
—

 
—

 
—

 
—

 
—

 
—

 
(631
)
 
—

 
—

 
(631
)
 
390

 
(241
)
Other Comprehensive Loss:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
   Foreign currency translation adjustments
—

 
—

 
—

 
—

 
—

 
—

 
—

 
—

 
125

 
—

 
125

 
31

 
156

   Change in unrealized loss on derivative instrument
—

 
—

 
—

 
—

 
—

 
—

 
—

 
—

 
(219
)
 
—

 
(219
)
 
—

 
(219
)
Balance at December 31, 2013
21,290,097

 
21

 
2,776,001

 
3

 
—

 
—

 
215,371

 
(2,567
)
 
(94
)
 
—

 
212,734

 
37,737

 
250,471

Shares issued, net of offering costs
78,548,660

 
79

 
15,250,012

 
15

 
—

 
—

 
839,097

 
—

 
—

 
—

 
839,191

 
—

 
839,191

Shares issued to affiliate
229,387

 
—

 
—

 
—

 
—

 
—

 
2,294

 
—

 
—

 
—

 
2,294

 
—

 
2,294

Stock-based compensation
11,111

 
—

 
—

 
—

 
—

 
—

 
100

 
—

 
—

 
—

 
100

 
—

 
100

Contributions from noncontrolling interests
—

 
—

 
—

 
—

 
—

 
—

 
—

 
—

 
—

 
—

 
—

 
117,761

 
117,761

Distributions to noncontrolling interests
—

 
—

 
—

 
—

 
—

 
—

 
—

 
—

 
—

 
—

 
—

 
(69,838
)
 
(69,838
)
Distributions declared ($0.6248 and $0.5316 per share to Class A and Class C, respectively)
—

 
—

 
—

 
—

 
—

 
—

 
—

 
(53,444
)
 
—

 
—

 
(53,444
)
 
—

 
(53,444
)
Net Loss
—

 
—

 
—

 
—

 
—

 
—

 
—

 
(55,867
)
 
—

 
—

 
(55,867
)
 
(689
)
 
(56,556
)
Other Comprehensive Loss:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
   Foreign currency translation adjustments
—

 
—

 
—

 
—

 
—

 
—

 
—

 
—

 
(22,218
)
 
—

 
(22,218
)
 
(7,384
)
 
(29,602
)
   Change in net unrealized gain on derivative instruments
—

 
—

 
—

 
—

 
—

 
—

 
—

 
—

 
1,371

 
—

 
1,371

 
—

 
1,371

Repurchase of shares
(155,246
)
 
—

 
—

 
—

 
—

 
—

 
—

 
—

 
—

 
(1,520
)
 
(1,520
)
 
—

 
(1,520
)
Balance at December 31, 2014
99,924,009

 
$
100

 
18,026,013

 
$
18

 
—

 
$
—

 
$
1,056,862

 
$
(111,878
)
 
$
(20,941
)
 
$
(1,520
)
 
$
922,641

 
$
77,587

 
$
1,000,228


See Notes to Consolidated Financial Statements.

CPA ® :18 – Global 2014 10-K – 59

CORPORATE PROPERTY ASSOCIATES 18 – GLOBAL INCORPORATED
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
 
 
Years Ended December 31,
 
 
2014
 
2013
Cash Flows — Operating Activities
 

 
 
Net loss
 
$
(56,556
)
 
$
(241
)
Adjustments to net loss:
 
 
 
 
Depreciation and amortization, including intangible assets and deferred financing costs
 
23,367

 
1,326

Loss (gain) on foreign currency transactions and other
 
4,215

 
(19
)
Straight-line rent adjustment and amortization of rent-related intangibles
 
(2,230
)
 
(434
)
Stock-based compensation expense
 
100

 
67

Organizational costs paid by affiliate
 
—

 
65

Deferred acquisition fees
 
15,547

 
—

Net change in operating assets and liabilities
 
5,643

 
1,498

Net Cash (Used in) Provided by Operating Activities
 
(9,914
)
 
2,262

 
 
 
 
 
Cash Flows — Investing Activities
 


 


Acquisitions of real estate and direct financing leases, net of cash acquired
 
(902,189
)
 
(220,538
)
Value added taxes refunded in connection with acquisition of real estate
 
36,472

 
—

Value added taxes paid in connection with acquisition of real estate
 
(35,543
)
 
(2,683
)
Investment in note receivable
 
(28,000
)
 
—

Change in investing restricted cash
 
(14,960
)
 
(207
)
Payment of deferred acquisition fees to an affiliate
 
(1,363
)
 
(385
)
Net Cash Used in Investing Activities
 
(945,583
)
 
(223,813
)
 
 
 
 
 
Cash Flows — Financing Activities
 
 
 
 
Proceeds from issuance of shares, net of issuance costs
 
844,254

 
208,336

Proceeds from mortgage financing
 
327,188

 
85,060

Contributions from noncontrolling interests
 
117,761

 
38,169

Proceeds from bond financing
 
105,408

 
—

Distributions to noncontrolling interests
 
(69,838
)
 
(853
)
Distributions paid
 
(37,636
)
 
(115
)
Payment of deferred financing costs and mortgage deposits
 
(5,182
)
 
(289
)
Receipt of tenant security deposits
 
4,062

 
—

Scheduled payments of mortgage principal
 
(1,668
)
 
—

Purchase of treasury stock
 
(1,520
)
 
—

Note payable proceeds from affiliate
 
—

 
15,000

Repayment of note payable to affiliate
 
—

 
(15,000
)
Net Cash Provided by Financing Activities
 
1,282,829

 
330,308

 
 
 
 
 
Change in Cash and Cash Equivalents During the Year
 
 
 
 
       Effect of exchange rate changes on cash and cash equivalents
 
(6,845
)
 
95

Net increase in cash and cash equivalents
 
320,487

 
108,852

Cash and cash equivalents, beginning of year
 
109,061

 
209

Cash and cash equivalents, end of year
 
$
429,548

 
$
109,061



CPA ® :18 – Global 2014 10-K – 60

CORPORATE PROPERTY ASSOCIATES 18 – GLOBAL INCORPORATED
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Continued)

Supplemental Cash Flow Information
(In thousands)
 
 
Years Ended December 31,
 
 
2014
 
2013
Interest paid, net of amounts capitalized
 
$
11,569

 
$
1,050

Interest capitalized
 
$
143

 
$
—

Income taxes paid
 
$
88

 
$
—


See Notes to Consolidated Financial Statements.

CPA ® :18 – Global 2014 10-K – 61

CORPORATE PROPERTY ASSOCIATES 18 – GLOBAL INCORPORATED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Note 1. Organization and Offering

Organization

CPA ® :18 – Global is a publicly-owned, non-listed REIT that invests primarily in a diversified portfolio of income-producing commercial real estate properties and other real estate-related assets, both domestically and outside the United States. As a REIT, we are not subject to U.S federal income taxation as long as we satisfy certain requirements, principally relating to the nature of our income, the level of our distributions, and other factors. We earn revenue principally by leasing the properties we own to single corporate tenants, 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. Revenue is subject to fluctuation because of the timing of new lease transactions, lease terminations, lease expirations, contractual rent adjustments, tenant defaults, sales of properties, and changes in foreign currency exchange rates.

We are a general partner and a limited partner of the Operating Partnership and own a 99.97% interest in the Operating Partnership. We conduct substantially all of our investment activities and own all of our assets through our Operating Partnership. The remaining interest in the Operating Partnership is held by a subsidiary of WPC.

On August 20, 2013, we acquired our first property. At December 31, 2014 , our portfolio was comprised of full or partial ownership interests in 47 properties, the majority of which were fully-occupied and triple-net leased to 73 tenants totaling 7.4 million square feet (unaudited). The remainder of our portfolio was comprised of our full ownership interests in 14 self-storage properties and two multi-family properties totaling 1.5 million square feet (unaudited).

We were formed in September 2012 and are managed by WPC through one of its subsidiaries, which is the advisor. The advisor provides both strategic and day-to-day management services for us, including capital funding services, investment research and analysis, investment financing and other investment-related services, asset management, disposition of assets, investor relations, and administrative services. W. P. Carey & Co. B.V., an affiliate of the advisor, provides asset management services with respect to our foreign investments.

Public Offering

On May 7, 2013, our Registration Statement was declared effective by the SEC under the Securities Act. The Registration Statement relates to our initial public offering of up to $1.0 billion of common stock, in any combination of Class A common stock, at a price of $10.00 per share, and Class C common stock, at a price of $9.35 per share. The Registration Statement also covers the offering of up to $400.0 million in common stock, in any combination of Class A common stock and Class C common stock, pursuant to our distribution reinvestment and stock purchase plan at a price of $9.60 per share of Class A common stock and $8.98 per share of Class C common stock. Our initial public offering is being made on a “best efforts” basis Carey Financial and other selected dealers. The per share amount of distributions on shares of Class A and C common stock will likely differ because of different allocations of class-specific expenses. Specifically, distributions on shares of Class C common stock will be lower than distributions on shares of Class A common stock because shares of Class C common stock are subject to ongoing distribution and shareholder servicing fees ( Note 3 ). 

On July 25, 2013, aggregate subscription proceeds for our Class A and Class C common stock exceeded the minimum offering amount of $2.0 million and we began to admit stockholders. On May 1, 2014, in order to moderate the pace of our fundraising, our board of directors approved the discontinuation of the sale of Class A shares as of June 30, 2014. In order to facilitate the final sales of Class A shares as of June 30, 2014 and the continued sale of Class C shares, the board of directors also approved the reallocation to our initial public offering of up to  $250.0 million  of the shares that were initially allocated to sales of our stock through our distribution reinvestment and stock purchase plan. In June 2014, we reallocated the full $250.0 million in shares from the distribution reinvestment and stock purchase plan. We currently intend to sell Class C common stock until March 27, 2015. Through December 31, 2014 , we raised gross offering proceeds for our Class A common stock and Class C common stock of $977.4 million and $165.7 million , respectively. The gross offering proceeds raised exclude reinvested distributions through the distribution reinvestment and stock purchase plan of $17.9 million and $2.2 million for our Class A common stock and Class C common stock, respectively.


CPA ® :18 – Global 2014 10-K – 62

Notes to Consolidated Financial Statements


Note 2. Summary of Significant Accounting Policies

Basis of Presentation

We had no operating activity prior to April 8, 2013 and acquired our first investment on August 20, 2013. As such, consolidated statements of operations and cash flows from the period of inception to December 31, 2012 have not been presented.

Basis of Consolidation

Our consolidated financial statements reflect all of our accounts, including those of our controlled subsidiaries. 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.

When we obtain an economic interest in an entity, we evaluate the entity to determine if it is deemed to be a variable interest entity, or a VIE, and, if so, whether we are deemed to be the primary beneficiary and are therefore required to consolidate the entity. 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. We performed an analysis of all of our subsidiary entities to determine whether they qualify as VIEs and whether they should be consolidated or accounted for as equity investments in an unconsolidated venture. As a result of our assessment, we have concluded that none of our subsidiaries qualified as a VIE. All our subsidiaries are consolidated.

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.

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 capitalize acquisition-related costs and fees associated with asset acquisitions. 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 building site improvements. The intangible assets include the above- and below-market value of leases and the value of in-place leases, which includes the value of 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 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

CPA ® :18 – Global 2014 10-K – 63

Notes to Consolidated Financial Statements


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 the 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 its determination of residual value.

For self-storage assets, the hypothetical sales price is derived by capitalizing the estimated net operating income at the end of the expected holding period. Estimated net operating income factors in the gross potential revenue of the business less economic vacancy rates and expected operational expenses. 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 Revenue Recognition 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 or 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 that includes renewal options that have rental rates below estimated market rental rates. We amortize the above-market lease intangible as a reduction of rental income over the contractual lease term. We amortize the below-market lease intangible as an increase to rental income over the contractual lease term and any below-market renewal periods in the respective leases. We include the value of below-market leases in Prepaid and deferred rental income in the consolidated financial statements. We include the amortization of below-market ground lease intangibles in Property expenses in the consolidated financial statements. We include the amortization of above-market ground lease intangibles in Depreciation and amortization in the 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 improvement allowances given to tenants. We determine these values using our estimates or by relying in part upon third-party appraisals. We amortize the 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.


CPA ® :18 – Global 2014 10-K – 64

Notes to Consolidated Financial Statements


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 our sole Real Estate 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. All or a portion of the goodwill may be attributed to foreign deferred tax liabilities assumed in the business combination. The deferred tax liability results from the excess of basis under GAAP over the tax basis of the asset in the taxing jurisdiction.

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.

Real Estate Under Construction 

For properties under construction, operating expenses, including interest charges and other property expenses (e.g. real estate taxes) are capitalized rather than expensed. We capitalize interest by applying the interest rate applicable to outstanding borrowings to the average amount of accumulated qualifying expenditures for properties under construction during the period.

Note 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. 

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. 

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.

Other Assets and Other Liabilities 

We include restricted cash balances, escrow balances held by lenders, tenant receivables, deferred charges, prepaid expenses, derivative assets, and deferred tax assets in Other assets. We include derivative instruments and amounts held on behalf of tenants in Other liabilities. Deferred charges are costs incurred in connection with mortgage financings and refinancings that are amortized over the terms of the mortgages and included in Interest expense in the consolidated financial statements.

Deferred Acquisition Fees Payable to Affiliate 

Fees payable to the advisor for structuring and negotiating investments and related mortgage financing on our behalf are included in Due to affiliates ( Note 3 ). This fee together with its accrued interest, is payable in three equal annual installments on

CPA ® :18 – Global 2014 10-K – 65

Notes to Consolidated Financial Statements


the first business day of the fiscal quarter immediately following the fiscal quarter in which an investment is made, and the first business day of the corresponding fiscal quarter in each of the subsequent two fiscal years. The timing of the payment of such fees is subject to the preferred return criterion, a non-compounded cumulative distribution return of  5%  per annum (based initially on our invested capital).

Treasury Stock 

Treasury stock is recorded at cost under our redemption plan, pursuant to which we may elect to redeem shares at the request of our stockholders, subject to certain exceptions, conditions, and limitations. The maximum amount of shares purchasable by us in any period depends on a number of factors and is at the discretion of our board of directors. 

Noncontrolling Interests 

We accounted for the Special General Partner Interest as a noncontrolling interest ( Note 3 ). The Special General Partner Interest entitles the Special General Partner to cash distributions and, in the event there is a termination or non-renewal of the advisory agreement, redemption rights. Cash distributions to the Special General Partner are accounted for as an allocation to net income attributable to noncontrolling interest.

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 year ended December 31, 2014 , our tenants, pursuant to their lease obligations, have made direct payments to the taxing authorities of real estate taxes of approximately $3.5 million .

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 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 rent increases 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 4 ).

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.

Asset Retirement Obligations

Asset retirement obligations relate to the legal obligations associated with the retirement of long-lived assets that result from the acquisition, construction, development, and/or normal operation of a long-lived asset. The fair value of a liability for an asset retirement obligation is recorded in the period in which it is incurred and the cost of such liability is recorded as an increase in the carrying amount of the related long-lived asset by the same amount. The liability is accreted each period and the capitalized cost is depreciated over the estimated remaining life of the related long-lived asset. Revisions to estimated retirement obligations result in adjustments to the related capitalized asset and corresponding liability.
 

CPA ® :18 – Global 2014 10-K – 66

Notes to Consolidated Financial Statements


In order to determine the fair value of the asset retirement obligations, we make certain estimates and assumptions including, among other things, projected cash flows, the borrowing interest rate, and an assessment of market conditions that could significantly impact the estimated fair value. These estimates and assumptions are subjective.

Interest Capitalized in Connection with Real Estate Under Construction 

Operating real estate is stated at cost less accumulated depreciation. Interest directly related to build-to-suit projects is capitalized. We consider a build-to-suit project as substantially completed upon the completion of improvements. If discrete portions of a project are substantially completed and occupied and other portions have not yet reached that stage, the substantially completed portions are accounted for separately. We allocate costs incurred between the portions under construction and the portions substantially completed and only capitalize those costs associated with the portion under construction. We determine an interest rate to be applied for capitalizing interest based on the interest rate of any debt linked to the project or a blended rate of the mortgages outstanding in the company if there is no debt on the project.

Organization and Offering Costs

The advisor has paid various organization and offering costs on our behalf, all of which we are liable for under the advisory agreement. During the offering period, costs incurred in connection with the raising of capital will be accrued as deferred offering costs and included in Other assets, net on the consolidated balance sheets. Upon receipt of offering proceeds, we will charge the deferred costs to stockholders’ equity and will reimburse the advisor for costs incurred. Such reimbursements will not exceed regulatory cost limitations.

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, a lease default by a tenant that is experiencing financial difficulty, the termination of a lease by a tenant, or the rejection of a lease in a bankruptcy proceeding. We may incur impairment charges on long-lived assets, including real estate and direct financing leases. We may also incur impairment charges on goodwill. Our policies for evaluating whether these assets are impaired are presented below.

Real Estate 

For real estate assets held for investment and related intangible assets 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, among other things, 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. 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.

As our investment objective is to hold properties on a long-term basis, holding periods used in the undiscounted cash flow analysis are generally 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 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.


CPA ® :18 – Global 2014 10-K – 67

Notes to Consolidated Financial Statements


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.

Note 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.

Goodwill
 
We evaluate goodwill for possible impairment at least annually or upon the occurrence of a triggering event. 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.
 
The goodwill impairment test is three-step test. Step zero is a qualitative analysis whereas step one and two are quantitative. if step zero is not considered, the first step is to identify whether the value of the recorded goodwill is impaired and if it is determined that goodwill is impaired, the second step seeks to measure the amount of the impairment.

The company applied step zero to its analysis. In this step, qualitative factors are assessed to determine if it is more likely that not that the fair value of the reporting unit is less than its carrying value. In this step the macro-economic environment in which the reporting unit operates is analyzed for any significant changes such as deterioration in the market that the Company operates or overall financial performance such as declining cash flows. Also, entity specific changes are analyzed such as change in management, strategy or composition of reporting unit. If after assessing the overall macro-economic environment, it is unlikely that the fair value is less than the carrying value, steps one and two do not need to be performed.

Foreign Currency 

Translation

We have interests in real estate investments primarily in Europe and the United Kingdom, for which the functional currency is either the euro, the British pound sterling, or the Norwegian krone. We perform the translation from local currencies 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 this translation as a component of Other comprehensive loss in equity. These translation gains and losses are released to net loss when we have substantially exited from all investments in the related currency. 


CPA ® :18 – Global 2014 10-K – 68

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 will generally be included in net income for the period in which the transaction is settled. Also, intercompany foreign currency transactions that are scheduled for settlement, consisting primarily consisting 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 loss.

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 loss but are reported as a component of Other comprehensive loss 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 and 2013 , we recognized net realized losses on such transactions of $0.4 million and less than $0.1 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 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 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 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 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, 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 primarily within the United States and Europe and, as a result, we or one or more of our subsidiaries file income tax returns in the U.S. 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.

Deferred income taxes are recorded for the corporate subsidiary TRSs 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

CPA ® :18 – Global 2014 10-K – 69

Notes to Consolidated Financial Statements


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 12 ). 

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, 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 carryforwards 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 GAAP purposes as described in Note 12 ). In addition, deferred tax assets may 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).

Loss Per Share

We have a simple equity capital structure with only common stock outstanding. As a result, loss per share, as presented, represents both basic and dilutive per-share amounts for all periods presented in the consolidated financial statements. We calculate loss per share using the two-class method to reflect the different classes of our outstanding common stock. Loss per basic share of common stock is calculated by dividing Net loss attributable to CPA ® :18 – Global by the weighted-average number of shares of common stock issued and outstanding during the year. The allocation of Net loss attributable to CPA ® :18 – Global is calculated based on the weighted-average shares outstanding for Class A common stock and Class C common stock for the years ended December 31, 2014 and 2013 , respectively. The allocation for the Class A common stock excludes the shareholder servicing fee of  $0.8 million  and less than $0.1 million for the years ended December 31, 2014 and 2013 , respectively, that is only applicable to holders of Class C common stock ( Note 3 ).

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.

Recent Accounting Requirements

The following Accounting Standards Updates, or ASUs, promulgated by the Financial Accounting Standards 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.


CPA ® :18 – Global 2014 10-K – 70

Notes to 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. 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 may sell properties, which, under prior accounting guidance, would have been reported each 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 any dispositions after December 31, 2014 . Consequently, individually significant operations that are sold or classified as held-for-sale during 2014 will not be reclassified to discontinued operations in the consolidated financial statements, but will be disclosed in the Notes. 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.

Revision of Prior Period Financial Statements

Foreign Currency Matters - We identified an error related to the functional currency of one of our subsidiary entities, whose functional currency was incorrectly designated as the euro instead of the U.S. dollar, and as a result the applicable financial results of this entity were being translated when they should have been remeasured. The correction of this error resulted in the increase of foreign currency losses within the consolidated statement of operations of $0.2 million , $0.4 million , and $3.0 million for the three months ended March 31, 2014, June 30, 2014, and September 30, 2014, respectively, and a decrease of foreign currency losses in the consolidated statements of comprehensive loss for the same amounts.

Deferred Taxes - We identified an error related to the initial recognition of deferred tax balances related to the misinterpretation of tax requirements in the corresponding foreign jurisdictions, and as a result we did not recognize a deferred tax liability and corresponding deferred tax expense within the correct reporting period. The correction of this error resulted in the recognition of an increase to the provision for income taxes of $0.3 million for the three months ended March 31, 2014 and reduction for the same amount for the three months ended June 30, 2014. This error had no impact on the results of operations for the year ended December 31, 2014.

We performed both a qualitative and quantitative assessment of the materiality of these errors for each of the aforementioned financial periods. We concluded that the errors noted above were significant but not material to our financial position or results of operations for any of the prior periods. We determined that it is useful for the reader of the financial statements to view these adjustments in the periods in which they originated and, as such, we revised the presentation of the selected quarterly financial data for the periods noted above and will revise all future presentations of our consolidated financial statements as described in Note 14 .

Note 3. Agreements and Transactions with Related Parties

Transactions with the Advisor

We have an advisory agreement with the advisor whereby the advisor performs certain services for us under a fee arrangement, including the identification, evaluation, negotiation, purchase, and disposition of real estate and related assets and mortgage loans, day-to-day management, and the performance of certain administrative duties. The current advisory agreement is scheduled to expire on December 31, 2015 , unless otherwise extended.


CPA ® :18 – Global 2014 10-K – 71

Notes to Consolidated Financial Statements


The following tables present a summary of fees we paid and expenses we reimbursed to the advisor and other affiliates in accordance with the terms of the related agreements (in thousands):
 
 
Years Ended December 31,
 
 
2014
 
2013
Amounts Included in the Consolidated Statements of Operations
 
 
 
 
Acquisition expenses
 
$
38,825

 
$
—

Asset management fees
 
2,635

 
117

Available cash distribution
 
1,778

 
92

Shareholder servicing fee
 
814

 
46

Personnel and overhead reimbursements
 
170

 
—

Interest expense on deferred acquisition fees and note payable
 
151

 
36

Stock-based compensation
 
100

 
67

Costs incurred by the advisor
 
—

 
182

Excess operating expenses charged back to the advisor
 
—

 
(69
)
 
 
$
44,473

 
$
471

 
 
 
 
 
Other Transaction Fees Incurred
 
 
 
 
Selling commissions and dealer manager fees
 
$
104,117

 
$
23,428

Current acquisition fees
 
3,568

 
4,324

Deferred acquisition fees
 
2,855

 
3,459

Offering costs
 
2,993

 
5,050

 
 
$
113,533

 
$
36,261

 
 
December 31,
 
 
2014
 
2013
Due to Affiliate
 
 
 
 
Deferred acquisition fees, including interest
 
$
17,525

 
$
2,705

Accounts payable
 
2,702

 
2,406

Asset management fees payable
 
378

 
38

Reimbursable costs
 
46

 
—

 
 
$
20,651

 
$
5,149


Organization and Offering Costs

Pursuant to the advisory agreement with the advisor, we are liable for certain expenses related to our initial public offering, which include filing, legal, accounting, printing, advertising, transfer agent, and escrow fees, and are to be deducted from the gross proceeds of the offering. We will reimburse Carey Financial or selected dealers for reasonable bona fide due diligence expenses incurred that are supported by a detailed and itemized invoice. The total underwriting compensation to Carey Financial and selected dealers in connection with the offering cannot exceed limitations prescribed by the Financial Industry Regulatory Authority. The advisor has agreed to be responsible for the repayment of organization and offering expenses (excluding selling commissions and dealer manager fees paid to Carey Financial and selected dealers and fees paid and expenses reimbursed to selected dealers) that exceed in the aggregate 1.5% of the gross proceeds from the initial public offering. From inception and through December 31, 2014 , the advisor has incurred organization costs and offering costs of $0.1 million and $8.0 million , respectively, on our behalf, of which we repaid $7.9 million . Organization costs were expensed as incurred and are included in General and administrative expenses in the consolidated financial statements. We recorded a liability to the advisor for the remaining unpaid offering costs based on our estimate of expected gross offering proceeds. From inception through December 31, 2014 , we charged  $6.1 million  of deferred offering costs to stockholders’ equity. We have recorded a liability to the advisor for the remaining unpaid offering costs based on our estimate of expected gross offering proceeds.


CPA ® :18 – Global 2014 10-K – 72

Notes to Consolidated Financial Statements


Loans from WPC

Our board of directors and the board of directors of WPC have approved unsecured loans from WPC to us of up to $100.0 million , in the aggregate, at a rate equal to the rate at which WPC is able to borrow funds under its senior credit facility, for the purpose of facilitating acquisitions approved by the advisor’s investment committee that we would not otherwise have sufficient available funds to complete, with any loans to be made solely at the discretion of the management of WPC. We did not borrow any funds from WPC during the year ended December 31, 2014 nor do we have any amounts outstanding at December 31, 2014 . On August 20, 2013, our Operating Partnership borrowed  $15.0 million  from WPC at the aforementioned interest rate, and a maturity date of August 20, 2014 . These funds were used to acquire a  50%  controlling interest in a jointly-owned investment with an affiliate, which was our first investment. On October 4, 2013, this note was repaid in full with accrued interest thereon. The interest expense on this note payable to our affiliate was included in Interest expense on the consolidated financial statements.

Asset Management Fees

Pursuant to the advisory agreement, the advisor is entitled to an annual asset management fee ranging from 0.5% to 1.5% , depending on the type of investment and based on the average market value or average equity value, as applicable, of our investments. The asset management fees were payable in cash or shares of our Class A common stock at our option, upon the recommendation of the advisor. If the advisor receives all or a portion of its fees in shares, the number of shares issued is determined by dividing the dollar amount of fees by our most recently published estimated net asset value, or, if net asset values have not yet been published, as currently is the case, $10.00 per share, which is the price at which our Class A shares were being sold in our initial public offering. For both 2013 and 2014, the advisor received its asset management fees in shares of our Class A common stock. At December 31, 2014 , the advisor owned 260,512 shares, or 0.2% , of our outstanding Class A common stock. Asset management fees are included in Property expenses in the consolidated financial statements.

Selling Commissions and Dealer Manager Fees

Pursuant to our dealer manager agreement with Carey Financial, Carey Financial receives a selling commission, depending on the class of common stock sold, of $0.70 and $0.14 per share sold and a dealer manager fee of $0.30 and $0.21 per share sold for the Class A and Class C common stock, respectively. These amounts are recorded in Additional paid-in capital in the consolidated financial statements.

Carey Financial also receives an annual distribution and shareholder servicing fee in connection with sales of our Class C common stock. The amount of the shareholder servicing fee is 1.0% of the selling price per share (or, once published, the amount of our net asset values) for the Class C common stock in our initial public offering. The shareholder servicing fee accrues daily and is payable quarterly in arrears. We will no longer incur the shareholder servicing fee beginning 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 WPC and its affiliates, equals 10.0% of the gross proceeds from our initial public offering, which we have not yet reached. The shareholder servicing fee for the years ended December 31, 2014 and 2013 was $0.8 million and less than $0.1 million, respectively, and is included in General and administrative expenses in the consolidated financial statements.

Acquisition and Disposition Fees

The advisor receives acquisition fees, a portion of which is payable upon acquisition and the payment of the remaining portion is subordinated to a preferred return of a non-compounded cumulative distribution of 5.0% per annum (based initially on our invested capital). The initial acquisition fee and subordinated acquisition fee are 2.5% and 2.0% , respectively, of the aggregate total cost of our portion of each investment for all investments other than those in readily-marketable real estate securities purchased in the secondary market, for which the advisor will not receive any acquisition fees. Deferred acquisition fees are scheduled to be paid in three equal annual installments following the quarter in which a property was purchased. Unpaid deferred acquisition fees are included in Due to affiliate in the consolidated financial statements. The total acquisition fees to be paid (initial and subordinated, and including interest thereon) may not exceed 6.0% of the aggregate contract purchase price of all investments and loans.

In addition, pursuant to the advisory agreement, the advisor may be entitled to receive a disposition fee in an amount equal to the lesser of (i)  50.0% of the competitive real estate commission (as defined in the advisory agreement) or (ii)  3.0% of the contract sales price of the investment being sold.


CPA ® :18 – Global 2014 10-K – 73

Notes to Consolidated Financial Statements


Personnel and Overhead Reimbursements

Under the terms of the advisory agreement, the advisor allocates a portion of its personnel and overhead expenses to us and the other Managed REITs. The advisor allocates these expenses on the basis of our trailing four quarters of reported revenues and those of WPC and the CPA ®  REITs. The advisor allocates expenses to CWI based on the time incurred by its personnel.

We reimburse the advisor for various expenses it incurs in the course of providing services to us. We reimburse certain third-party expenses paid by the advisor on our behalf, including property-specific costs, professional fees, office expenses, and business development expenses. In addition, we reimburse the advisor for the allocated costs of personnel and overhead in managing our day-to-day operations, including accounting services, stockholder services, corporate management, and property management and operations. We do not reimburse the advisor for the cost of personnel if these personnel provide services for transactions for which the advisor receives a transaction fee, such as acquisitions and dispositions. Personnel and overhead reimbursements are included in General and administrative expenses in the consolidated financial statements.

Excess Operating Expenses
 
The advisory agreement provides that, for any four trailing quarters (with quoted variables as defined in the advisory agreement), “operating expenses” may not exceed the greater of 2.0% of our “average invested assets” or 25.0% of our “adjusted net income.” For the year ended December 31, 2013, we charged back less than $0.1 million  to the advisor as excess operating expenses pursuant to the limitation described above. Our board of directors may elect to repay the advisor for such excess operating expenses in its sole discretion. For the most recent four trailing quarters, our operating expenses were below the 2.0% / 25.0% threshold. 

Available Cash Distributions

CPA ® :18 Holdings’ interest in the Operating Partnership entitles it to receive distributions of 10.0% of the available cash generated by the Operating Partnership. During the years ended December 31, 2014 and 2013 , we made $1.8 million and $0.1 million of such distributions, respectively. Available cash distributions are included in Net loss (income) attributable to noncontrolling interests in the consolidated financial statements.

Stock-Based Compensation

We issued  1,851  shares Class A common stock to each of our four independent directors during the third quarter of 2014, valued at  $9.00  per share, as part of their director compensation. For both of the years ended December 31, 2014 and 2013, we recognized stock-based compensation expense of $0.1 million related to shares issued to our directors.

Jointly-Owned Investments and Other Transactions with our Affiliate

At December 31, 2014 , we owned interests in four jointly-owned investments, with the remaining interests held by our affiliate, CPA ® :17 – Global as follows:

•
$108.3 million , of which our share was $55.2 million , or 51% , for an office facility located in Stavanger, Norway on October 31, 2014;
•
$147.9 million , of which our share was  $74.0 million , or 50% , for an office facility located in Warsaw, Poland on March 31, 2014;
•
$97.0 million , of which our share was  $77.6 million , or 80% , for a retail portfolio consisting of five properties located in Croatia on December 18, 2013; and
•
$115.6 million , of which our share was  $57.8 million , or 50% , for an office facility located in Austin, Texas on August 20, 2013.

We consolidate all of the above joint ventures because we are either the majority equity holder and/or control the significant activities of the ventures. Additionally, no other parties, including CPA ® :17 – Global, hold any rights that overcome our control. We accounts for CPA ® :17 – Global’s investments as noncontrolling interests.


CPA ® :18 – Global 2014 10-K – 74

Notes to Consolidated Financial Statements


Note 4. Net Investments in Properties and Real Estate Under Construction

Real Estate

Real estate, which consists of land and buildings leased to others, at cost, and which are subject to operating leases, is summarized as follows (in thousands):
 
December 31,
 
2014
 
2013
Land
$
104,604

 
$
36,636

Buildings
639,131

 
113,788

Less: Accumulated depreciation
(10,875
)
 
(824
)
 
$
732,860

 
$
149,600


The impact on the carrying value of our Real estate due to the strengthening of the U.S. dollar relative to foreign currencies during the year ended December 31, 2014 was a $44.5 million decrease from December 31, 2013 to December 31, 2014 .

Operating Real Estate
 
Operating real estate, which consists of our 14 self-storage properties and two multi-family properties, at cost, is summarized as follows (in thousands):
 
December 31,
 
2014
 
2013
Land
$
28,040

 
$
—

Buildings
105,556

 
—

Less: Accumulated depreciation
(939
)
 
—

 
$
132,657

 
$
—


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
 
$
67,598

2016
 
67,022

2017
 
68,474

2018
 
69,199

2019
 
69,437

Thereafter
 
542,259

Total
 
$
883,989


2014 Acquisitions

During the year ended December 31, 2014 , we acquired 54 properties leased to 70 tenants. Of these properties, 12 were deemed to be asset acquisitions, five were deemed to be direct financing leases ( Note 5 ), and the remainder were considered to be business combinations. We also acquired a note receivable ( Note 5 ). In connection with certain of our acquisitions during 2014, we paid value added taxes and substantially all of such payments have since been refunded to us.

Real Estate Asset Acquisitions

During the year ended December 31, 2014 , 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 in connection with these

CPA ® :18 – Global 2014 10-K – 75

Notes to Consolidated Financial Statements


acquisitions, at a total cost of $152.2 million , including lease intangibles of $29.4 million ( Note 6 ) and acquisition-related costs and fees of $9.2 million , which were capitalized:

•
$5.9 million for a warehouse/distribution facility in Streetsboro, Ohio on January 16, 2014;
•
$5.8 million for an office building in Norcross, Georgia on February 7, 2014;
•
$8.5 million for an industrial facility in Columbus, Georgia on April 21, 2014;
•
$14.4 million for an industrial facility in Temple, Georgia, a manufacturing facility in Surprise, Arizona, and a parcel of land in Houston, Texas on May 16, 2014;
•
$7.7 million for five industrial facilities in Dallas and Fort Worth, Texas on November 14, 2014; and
•
$1.6 million for a 22 -acre parcel of land in Grand Rapids, Michigan on November 21, 2014 related to a build-to-suit transaction (see Real Estate Under Construction below).

We also acquired a 51% controlling interest in a jointly-owned investment, co-owned by our affiliate, CPA ® :17 – Global ( Note 3 ), which acquired an office building in Stavanger, Norway on October 31, 2014. The property is leased to Apply AS. The jointly-owned investment acquired real estate assets and intangibles of $108.3 million , with our portion of the investment totaling $55.2 million . CPA ® :17 – Global’s equity investment was $53.1 million , which we account for as a noncontrolling interest. Amounts are based on the exchange rate of the Norwegian krone at the date of acquisition. Because we acquired stock to complete the acquisition, this investment is a share transaction, and as a result, we assumed the historical tax basis of the property owned by the entity that we purchased and recorded a deferred tax liability of $12.5 million .

A portion of the transaction fees capitalized include current and deferred acquisition fees paid and payable, respectively, to the advisor ( Note 3 ). During the year ended December 31, 2014 , in connection with certain of investments listed above, we entered into mortgage loans totaling $85.0 million . At December 31, 2014 , we had unfunded commitments of $1.7 million related to building improvements.

Business Combinations — Net-Leased Properties

During the year ended December 31, 2014 , we acquired the following investments that were deemed to be business combinations because we assumed the existing leases on the properties, for which the sellers were not the lessees, and expensed aggregate acquisition costs of $48.1 million , which included acquisition fees paid to the advisor ( Note 3 ).

Albion Resorts — On December 30, 2014, we acquired a 266 -room holiday resort leased to a single-tenant located in Albion, Mauritius from an unaffiliated third party for $61.7 million , which is based on the exchange rate of the euro on the date of acquisition. We acquired this property by purchasing 100% of the shares of Albion Resorts. We assumed the existing mortgages on the property totaling $19.3 million , which is based on the exchange rate of the euro on the date of acquisition ( Note 9 ). We acquired stock to complete the acquisition, and as a result, we assumed the historical tax basis of the property owned by the entity that we purchased and recorded a deferred tax liability of $4.4 million and goodwill in the same amount.

Craigentinny — On December 22, 2014, we acquired a retail site located in Edinburgh, United Kingdom from an unaffiliated third party for $4.4 million , which is based on the exchange rate of the British pound sterling on the date of acquisition. The retail site includes one single-tenant warehouse and one multi-tenant warehouse. We intend to engage an unaffiliated third party to act as the asset manager for this property.

Vopak — On December 17, 2014, we acquired an office building leased to Vopak and an adjacent multi-tenant high rise tower located in Rotterdam, Netherlands from an unaffiliated third party for $76.1 million, which is based on the exchange rate of the euro on the date of acquisition.

UK Auto — On November 20, 2014, we acquired two automotive dealerships sites located in Durham, United Kingdom and Dunfermline, United Kingdom from an unaffiliated third party for $10.0 million , which is based on the exchange rate of the British pound sterling on the date of acquisition. The Durham site is leased to a single auto dealer and the Dunfermline site is leased to five auto dealers, one industrial trade park, and one service facility. We intend to engage an unaffiliated third party to act as the asset manager for these properties.

ATK — On November 13, 2014, we acquired an office building located in Plymouth, Minnesota from an unaffiliated third party for $41.0 million . The property is leased to ATK. On December 18, 2014, we entered into a mortgage loan in the amount of $27.7 million for this property ( Note 9 ).


CPA ® :18 – Global 2014 10-K – 76

Notes to Consolidated Financial Statements


MISO — On November 3, 2014, we acquired an office building located in Eagan, Minnesota from an unaffiliated third party for $14.4 million . The property is leased to MISO.

Cooper Tire — On October 31, 2014, we acquired a distribution center located in Albany, Georgia from an unaffiliated third party for $9.9 million . The property is leased to Cooper Tire. Simultaneously, we entered into a mortgage loan in the amount of $6.7 million ( Note 9 ).

Infineon — On September 30, 2014, we acquired an office/research and development facility located in Warstein, Germany from an unaffiliated third party for $22.2 million , which is based on the exchange rate of the euro on the date of acquisition. The property is leased to Infineon. We assumed the existing mortgage on the facility for the amount of $14.4 million , which is based on the exchange rate of the euro on the date of acquisition ( Note 9 ).

Oakbank Portfolio — On September 26, 2014, we acquired one industrial trade park located in Livingston, United Kingdom from an unaffiliated third party for a total cost of $4.1 million , which is based on the exchange rate of the British pound sterling on the date of acquisition. The property is leased to three tenants. We have engaged an unaffiliated third party to act as the asset manager for this property. The asset manager will receive 5% of certain net-lease income related to this portfolio as a management fee and will be eligible to receive a one-time fee equal to 20% of the disposition proceeds above a 12% internal rate of return hurdle based on our initial investment. If we do not dispose of the property and trigger this one-time fee through a disposition, the asset manager may elect to receive the aforementioned one-time fee in 2019 by requesting us to perform an agreed upon valuation of the property, after which the asset manager will receive 20% of the hypothetical proceeds above a 12% internal rate of return hurdle based on our initial investment.

Truffle Portfolio — On August 19, 2014, we acquired six industrial trade parks located in Livingston, Ayr, Bathgate, Dundee, Dunfermline, and Invergordon, United Kingdom from an unaffiliated third party for a total cost of $17.6 million , which is based on the exchange rate of the British pound sterling on the date of acquisition. These properties are leased to 24 tenants. We have engaged an unaffiliated third party to act as the asset manager for these properties. The asset manager will receive 5% of certain net-lease income related to this portfolio as a management fee and will be eligible to receive a one-time fee equal to 20% of the disposition proceeds above a 12% internal rate of return hurdle based on our initial investment. If we do not dispose of the properties and trigger this one-time fee through dispositions, the asset manager may elect to receive the aforementioned one-time fee in 2019 by requesting us to perform an agreed upon valuation of the properties, after which the asset manager will receive 20% of the hypothetical proceeds above a 12% internal rate of return hurdle based on our initial investment. On December 11, 2014, we obtained an $11.5 million mortgage loan on the Truffle and Oakbank properties, which is based on the exchange rate of the British pound sterling on the same date ( Note 9 ).

Belk Inc. — On June 4, 2014, we acquired a fulfillment center located in Jonesville, South Carolina from an unaffiliated third party for $20.5 million . The property is leased to Belk Inc. In addition, we funded the development of an expansion of the existing facility of Belk Inc. (see Real Estate Under Construction below).

AT&T — On May 19, 2014, we acquired an industrial warehouse and the land on which the building is located in Chicago, Illinois from an unaffiliated third party for $11.6 million . The property is leased to AT&T. In accordance with GAAP, we have accounted for the land, which constituted more than 25% of the fair value of the leased property, as a business combination and the building as a direct financing lease ( Note 5 ). On June 2, 2014, we entered into a mortgage loan in the amount of $8.0 million for this property ( Note 9 ).

North American Lighting Inc. — On May 6, 2014, we acquired an office building located in Farmington Hills, Michigan from an unaffiliated third party for $8.4 million . The property is leased to North American Lighting Inc. Simultaneously, we entered into a mortgage loan in the amount of $7.3 million ( Note 9 ).

Bank Pekao — On March 31, 2014, we acquired a 50% controlling interest in a jointly-owned investment, co-owned by our affiliate, CPA ® :17 – Global ( Note 3 ), which acquired the Bank Pekao office headquarters located in Warsaw, Poland from an unaffiliated third party. The jointly-owned investment acquired real estate assets and intangibles of $147.9 million , with our portion of the investment totaling $74.0 million . CPA ® :17 – Global’s equity investment was $74.0 million , which we account for as a noncontrolling interest. Amounts are based on the exchange rate of the euro at the date of acquisition. We have concluded that we will consolidate this entity as we are the managing member and the non-managing member does not have substantive participating or “kick-out” rights. This office facility is subject to multiple leases, of which Bank Pekao is the largest tenant and occupies over 98% of the rental space. The rent increase is subject to Harmonized Index of Consumer Prices, which is an indicator of inflation and price stability for the European Central Bank. We recorded a deferred tax asset of $1.9 million related to this investment, which was fully offset by a valuation allowance as we currently estimate that it is more likely

CPA ® :18 – Global 2014 10-K – 77

Notes to Consolidated Financial Statements


than not that we will be unable to realize this asset. On May 21, 2014, this jointly-owned investment obtained a $73.1 million mortgage loan on the property, which is based on the exchange rate of the euro on the same date ( Note 9 ).

Siemens AS — On February 27, 2014, we acquired the office headquarters of Siemens AS, located in Oslo, Norway from an unaffiliated third party for $82.0 million , which is based on the exchange rate of the Norwegian krone on the date of acquisition. This facility consists of an office building and three underground parking floors, all of which Siemens AS leases except for a portion of the parking area. We incurred debt at closing through the issuance of privately-placed bonds indexed to inflation in the amount of $52.1 million , which is based on the exchange rate of the Norwegian krone on the date of acquisition ( Note 9 ). Because we acquired stock to complete the acquisition, this investment is considered to be a share transaction, and as a result, we assumed the historical tax basis of the property owned by the entity that we purchased and recorded a deferred tax liability of $7.0 million and goodwill in the same amount.

Solo Cup — On February 3, 2014, we acquired a distribution center located in University Park, Illinois from an unaffiliated third party for $80.7 million . The property is leased to Solo Cup. Simultaneously, we entered into a mortgage loan in the amount of $47.3 million ( Note 9 ).

Business Combinations — Operating Properties

During the year ended December 31, 2014 , we entered into 14 self-storage investments and two multi-family investments that are considered to be operating properties, at a total cost of $146.0 million , including lease intangible assets of $13.2 million ( Note 6 ).

Self-Storage Properties

We acquired the following self-storage properties aggregating $103.9 million during the year ended December 31, 2014 , which we refer to as our 2014 Self Storage Acquisitions:

•
$11.7 million for a facility located in Kissimmee, Florida on January 22, 2014. On April 30, 2014, we acquired an additional ground lease connected to this facility for the amount of $0.2 million . On January 23, 2014, we entered into a mortgage loan in the amount of $14.5 million that we allocated between St. Petersburg and Kissimmee facilities, which are jointly and severally liable for any possible defaults on the loan ( Note 9 );
•
$11.5 million for a facility located in St. Petersburg, Florida on January 23, 2014;
•
$4.2 million for a facility located in Corpus Christi, Texas on July 22, 2014;
•
$5.8 million for a facility located in Kailua-Kona, Hawaii on July 31, 2014;
•
$4.5 million for a facility located in Miami, Florida on August 5, 2014;
•
$10.5 million for a facility located in Palm Desert, California on August 11, 2014;
•
$4.5 million for a facility located in Columbia, South Carolina on September 18, 2014;
•
$5.7 million for a facility located in Kailua-Kona, Hawaii on October 9, 2014. We simultaneously obtained a mortgage loan for $23.0 million , which was allocated to the six self-storage properties purchased from July 22, 2014 through October 9, 2014 as described above;
•
$4.7 million for a facility located in Pompano Beach, Florida on October 28, 2014;
•
$8.6 million for a facility located in Jensen Beach, Florida on November 13, 2014;
•
$9.9 million for a facility located in Dickinson, Texas on December 10, 2014;
•
$7.8 million for a facility located in Humble, Texas on December 15, 2014;
•
$10.0 million for a facility located in Temecula, California on December 16, 2014; and
•
$4.4 million for a facility located in Cumming, Georgia on December 17, 2014.

Multi-Family Properties

Gentry — On October 28, 2014, we acquired a 97% controlling interest in Gentry, a 227 -unit multi-family property located in Atlanta, Georgia for $21.9 million . The deal was closed in partnership with two joint venture partners. One of the venture partners has been engaged to be the property manager. Simultaneously, we entered into a mortgage loan in the amount of $15.3 million ( Note 9 ).

Dupont — On October 28, 2014, we acquired a 97% controlling interest in Dupont, a 217 -unit multi-family property located in Tucker, Georgia for $20.2 million . The deal was closed in partnership with two joint venture partners. One of the venture partners has been engaged to be the property manager. Simultaneously, we entered into a mortgage loan in the amount of $14.1 million ( Note 9 ).

CPA ® :18 – Global 2014 10-K – 78

Notes to Consolidated Financial Statements



For both Dupont and Gentry, the property manager will receive 3% of certain rent collections related to these properties as a management fee. We also entered into an agreement with the second venture partner under which it will be eligible to receive a one-time fee equal to 7.5% of our “adjusted distributions” for the joint venture above an 8.5% internal rate of return hurdle based on our initial investment.

In connection with our operating property transactions, we incurred acquisition expenses totaling $8.5 million , which are included in Acquisition expenses in the consolidated financial statements.

The following tables present a summary of assets acquired and liabilities assumed in these business combinations, each at the date of acquisition, and revenues and earnings thereon, since their respective dates of acquisition through December 31, 2014 (in thousands):
 
 
2014 Business Combinations (a)
 
 
Vopak
 
Bank Pekao
 
Siemens AS
 
Solo Cup
 
Other Business Combinations (b)
 
Total
Cash consideration
 
$
76,134

 
$
73,952

 
$
82,019

 
$
80,650

 
$
337,724

 
$
650,479

Assets acquired at fair value:
 
 
 
 
 
 
 
 
 
 
 
 
Land
 
$
4,493

 
$
—

 
$
14,362

 
$
13,748

 
$
52,439

 
$
85,042

Buildings
 
54,286

 
112,676

 
59,219

 
52,135

 
275,609

 
553,925

In-place lease intangible assets
 
16,376

 
23,471

 
10,528

 
15,394

 
42,145

 
107,914

Above-market rent intangible assets
 
1,156

 
3,014

 
—

 
773

 
3,467

 
8,410

Below-market ground lease intangible assets
 
—

 
9,456

 
—

 
—

 
—

 
9,456

Other assets acquired (c)
 
—

 
—

 
3,538

 
—

 
105

 
3,643

 
 
76,311

 
148,617

 
87,647

 
82,050

 
373,765

 
768,390

Liabilities assumed at fair value:
 
 
 
 
 
 
 
 
 
 
 
 
Mortgages assumed
 
—

 
—

 
—

 
—

 
(33,758
)
 
(33,758
)
Below-market rent intangible liabilities
 
(177
)
 
(713
)
 
—

 
(1,400
)
 
(1,499
)
 
(3,789
)
Above-market ground lease intangible liabilities
 
—

 
—

 
—

 
—

 
(133
)
 
(133
)
Deferred tax liability
 
—

 
—

 
(6,982
)
 
—

 
(4,058
)
 
(11,040
)
Other liabilities assumed (c)
 
—

 
—

 
(5,628
)
 
—

 
(651
)
 
(6,279
)
 
 
(177
)
 
(713
)
 
(12,610
)
 
(1,400
)
 
(40,099
)
 
(54,999
)
Total identifiable net assets
 
76,134

 
147,904

 
75,037

 
80,650

 
333,666

 
713,391

Amounts attributable to noncontrolling interest
 
—

 
(73,952
)
 
—

 
—

 
—

 
(73,952
)
Goodwill
 
—

 
—

 
6,982

 
—

 
4,058

 
11,040

 
 
$
76,134

 
$
73,952

 
$
82,019

 
$
80,650

 
$
337,724

 
$
650,479

 
 
Vopak
 
Bank Pekao
 
Siemens AS
 
Solo Cup
 
Other Business Combinations (b)
 
 
 
 
December 17, 2014 through
December 31, 2014
 
March 31, 2014 through
December 31, 2014
 
February 27, 2014 through
December 31, 2014
 
February 3, 2014
through
December 31, 2014
 
Respective Acquisition
Dates through
December 31, 2014
 
Total
Revenues
 
$
217

 
$
9,586

 
$
5,437

 
$
5,489

 
$
9,872

 
$
30,601

 
 
 
 
 
 
 
 
 
 
 
 
 
Net loss
 
$
(7,864
)
 
$
(12,920
)
 
$
(6,487
)
 
$
(4,004
)
 
$
(30,101
)
 
$
(61,376
)
Net loss attributable to noncontrolling interests
 
—

 
3,349

 
—

 
—

 
32

 
3,381

Net loss attributable to CPA ® :18 – Global
 
$
(7,864
)
 
$
(9,571
)
 
$
(6,487
)
 
$
(4,004
)
 
$
(30,069
)
 
$
(57,995
)
___________

(a)
The purchase price for each transaction was allocated to the assets acquired and liabilities assumed based upon their preliminary fair values. The information in this table is based on the best estimates of management as of the date of this Report. We are in the process of finalizing our assessment of the fair value of the assets acquired and liabilities assumed. Accordingly, the fair value of these assets acquired and liabilities assumed are subject to change.
(b)
Other business combinations include: Albion Resorts, Craigentinny, UK Auto, ATK, MISO, Cooper Tire, Gentry, Dupont, Infineon, Oakbank Portfolio, Truffle Portfolio, Belk Inc., AT&T, North American Lighting Inc., and our 2014 Self Storage Acquisitions.

CPA ® :18 – Global 2014 10-K – 79

Notes to Consolidated Financial Statements


(c)
During the year ended December 31, 2014 , we recorded a measurement period adjustment related to our Siemens AS purchase price allocation, which we acquired in February 2014. This adjustment, which was made as a result of new information that became available to us later in the year, included an increase of $0.7 million to both other liabilities assumed and other assets acquired. No other adjustment was needed to retrospectively record this measurement period adjustment as if the accounting was completed at the acquisition date.

Pro Forma Financial Information
 
The following unaudited consolidated pro forma financial information presents our financial results as if the acquisitions that were deemed business combinations that we completed during the year ended December 31, 2014 , and any new financings related to these acquisitions, had occurred on January 1, 2013. The pro forma information below includes all business combinations. The pro forma financial information is not necessarily indicative of what the actual results would have been had the acquisitions actually occurred on January 1, 2013, nor does it purport to represent the results of operations for future periods.

(Dollars in thousands, except share and per share amounts)
 
 
Years Ended December 31,
 
 
2014
 
2013
Pro forma total revenues (a)
 
$
92,486

 
$
72,168

Pro forma net income (loss) (b) (c)
 
1,261

 
(53,893
)
Pro forma net (income) loss attributable to noncontrolling interests
 
(3,207
)
 
3,769

Pro forma net loss attributable to CPA ® :18 – Global
 
$
(1,946
)
 
$
(50,124
)
 
 
 
 
 
Pro forma loss per Class A share:
 
 
 
 
Net loss attributable to CPA ® :18 – Global (d)
 
$
(1,046
)
 
$
(49,544
)
Weighted-average shares outstanding (e)
 
107,420,043

 
46,215,482

Loss per share
 
$
(0.01
)
 
$
(1.07
)
 
 
 
 
 
Pro forma loss per Class C share:
 
 
 
 
Net loss attributable to CPA ® :18 – Global
 
$
(900
)
 
$
(580
)
Weighted-average shares outstanding (e)
 
8,847,966

 
497,725

Loss per share
 
$
(0.10
)
 
$
(1.16
)
___________

(a)
Pro forma total revenues includes revenues from lease contracts based on the terms in place at December 31, 2014 and does not include adjustments to contingent rental amounts.
(b)
During the year ended December 31, 2014 , we incurred $56.6 million of acquisition expenses related to our 2014 Acquisitions that were deemed to be business combinations. The pro forma table above presents such acquisition expenses as if they were incurred on January 1, 2013.
(c)
During the year ended December 31, 2014 , we incurred $1.6 million of one-time tax expenses related to our 2014 Acquisitions that were deemed to be business combinations. The pro forma table above presents such tax expenses as if they were incurred on January 1, 2013.
(d)
For the years ended December 31, 2014 and 2013 , the allocation for the Class A common stock excludes the shareholder servicing fee of $0.8 million and less than $0.1 million, respectively, which is only applicable to holders of Class C common stock ( Note 3 ).
(e)
The pro forma weighted-average shares outstanding were determined as if the number of shares issued in our initial public offering in order to raise the funds used for our business combinations were issued on January 1, 2013. We assumed that we would have issued 43,399,504 Class A shares to raise such funds.


CPA ® :18 – Global 2014 10-K – 80

Notes to Consolidated Financial Statements


2013 Acquisitions

During 2013, we entered into the following investments, which were deemed to be real estate asset acquisitions because we entered into new leases in connection with the acquisitions, at a total cost of $212.6 million , including noncontrolling interests of $77.2 million , net lease intangible assets of $60.4 million ( Note 6 ), and acquisition-related costs and fees of $11.9 million , which were capitalized:

•
$115.6 million for a 50% controlling interest in a jointly-owned investment on August 20, 2013, co-owned by our affiliate, CPA ® :17 – Global ( Note 3 ), which acquired an office facility from State Farm located in Austin, Texas; and
•
$97.0 million for a 80% controlling interest in a jointly-owned investment on December 18, 2013, co-owned by our affiliate, CPA ® :17 – Global ( Note 3 ), which acquired a retail portfolio from Agrokor consisting of five properties located in Croatia.

In connection with certain of our acquisitions during 2013, we paid value added taxes and such payments have since been refunded to us.

Real Estate Under Construction

The following table provides the activity of our Real estate under construction (in thousands):
 
Years Ended December 31,
 
2014
 
2013
Beginning balance
$
—

 
$
—

Capitalized funds
20,617

 
—

Placed into service
(18,502
)
 
—

Capitalized interest
143

 
—

Ending balance
$
2,258

 
$
—


Capitalized Funds

During the year ended December 31, 2014 , total capitalized funds were primarily comprised of construction draws related to the Belk Inc. and UFS Holland build-to-suit projects, both of which were initiated in 2014.

Placed Into Service

During the year ended December 31, 2014 , the Belk Inc. build-to-suit project was placed into service for the amount of $18.5 million , which was then reclassified to Real estate, at cost.

Ending Balance

At December 31, 2014 , we had one open build-to-suit project related to our USF Holland investment. The aggregate unfunded commitment on this remaining project totaled $9.7 million .

Asset Retirement Obligations

We have recorded asset retirement obligations totaling $2.0 million for the removal of asbestos and environmental waste in connection with certain of our acquisitions. We estimated the fair value of the asset retirement obligations based on the estimated economic lives of the properties and the estimated removal costs provided by the inspectors. The liability was discounted using the weighted-average interest rate on the associated fixed-rate mortgage loans at the time the liability was incurred. We include asset retirement obligations in Accounts payable, accrued expenses and other liabilities in the consolidated financial statements.


CPA ® :18 – Global 2014 10-K – 81

Notes to Consolidated Financial Statements


Note 5. 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 and our Note receivable. Operating leases are not included in finance receivables as such amounts are not recognized as an asset in the 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
 
$
86,338

 
$
50,006

Unguaranteed residual value
 
45,473

 
22,064

 
 
131,811

 
72,070

Less: unearned income
 
(86,229
)
 
(50,006
)
 
 
$
45,582

 
$
22,064


At December 31, 2014 , Other assets, net included $0.2 million of accounts receivable related to amounts billed under our direct financing leases. We did not have any outstanding account receivables related to our direct financing lease at December 31, 2013 .

AT&T — As discussed in Note 4 , on May 19, 2014, we entered into a domestic net lease financing transaction in which we acquired an industrial warehouse located in Chicago, Illinois that is leased to AT&T. The total cost of the building was  $8.6 million .

Janus — On May 16, 2014, we acquired an office building and two manufacturing facilities from Janus. One property, located in Houston, Texas, was considered to be a domestic net lease financing transaction with a total cost of $1.6 million and the other two properties were considered to be real estate asset acquisitions ( Note 4 ).

Swift Spinning Inc. — On April 21, 2014, we acquired two industrial facilities from Swift Spinning Inc. One property, located in Columbus, Georgia, was considered to be a domestic net lease financing transaction, with a total cost of $3.4 million , and the other property was considered to be a real estate asset acquisition ( Note 4 ).

Crowne Group Inc.— On March 7, 2014, we entered into a domestic net lease financing transaction with a subsidiary of Crowne Group Inc. from which we acquired two industrial facilities located in Michigan. The total cost was  $8.0 million , including land of  $1.0 million , building of $6.8 million , and transaction costs of  $0.2 million  that were capitalized. This is a follow-on transaction to the acquisition that we completed with Crowne Group Inc. in December 2013. We amended the existing lease with Crowne Group Inc. to include the two new properties in Michigan. The amended lease now encompasses a total of five properties, all of which are leased for a 25 -year term. Crowne Group Inc. will continue to serve as the guarantor under the lease.


CPA ® :18 – Global 2014 10-K – 82

Notes to Consolidated Financial Statements


Scheduled Future Minimum Rents

Scheduled future minimum rents, exclusive of renewals and expenses paid by tenants and future CPI-based adjustments, under non-cancelable direct financing leases at December 31, 2014 were as follows (in thousands):
Years Ending December 31, 
 
Total
2015
 
$
3,856

2016
 
3,885

2017
 
3,915

2018
 
3,945

2019
 
3,977

Thereafter
 
66,760

Total
 
$
86,338


Note Receivable

On July 21, 2014, we acquired a $28.0 million mezzanine tranche of 10-year commercial mortgage-backed securities originated by Cantor Fitzgerald on the Cipriani banquet halls in New York, New York. The mezzanine tranche is subordinated to a $60.0 million senior loan on the properties. We will receive interest-only payments at a rate of 10% per annum. The collateral for the loan is comprised of the banquet halls as well as certain other cash flows. In connection with this transaction, we expensed acquisition costs of $1.3 million . Earnings related to this investment are reported in Other interest income 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. Additionally, there were no modifications of finance receivables during either of the years ended December 31, 2014 or 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 .

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
 
—
 
—
 
$
—

 
$
—

2
 
1
 
—
 
8,962

 
—

3
 
4
 
1
 
64,620

 
22,064

4
 
—
 
—
 
—

 
—

5
 
—
 
—
 
—

 
—

 
 
 
 
 
 
$
73,582

 
$
22,064


Note 6. Intangible Assets and Liabilities

In connection with our acquisitions of properties ( Note 4 ), we have recorded net lease intangibles that are being amortized over periods ranging from one year to 30 years. In addition, we have ground lease intangibles that are being amortized over periods of up to 99 years. In-place lease intangibles are included in In-place lease intangible assets, net in the consolidated financial statements. Below-market ground lease intangibles and above-market rent intangibles are included in Other intangible assets, net in the consolidated financial statements. Below-market rent intangibles and above-market ground lease intangibles are included in Prepaid and deferred rental income in the consolidated financial statements.


CPA ® :18 – Global 2014 10-K – 83

Notes to Consolidated Financial Statements


In connection with our investment activity during the year ended December 31, 2014 , we recorded net lease intangibles comprised as follows (life in years, dollars in thousands):
 
Weighted-Average Life
 
Amount
Amortizable Intangible Assets
 
 
 

In-place lease
11.4
 
$
135,679

Above-market rent
13.7
 
11,067

Below-market ground lease
74.9
 
9,625

 
 
 
$
156,371

Amortizable Intangible Liabilities
 
 
 
Below-market rent
16.2
 
$
(4,723
)
Above-market ground lease
81.1
 
(133
)
 
 
 
$
(4,856
)

Goodwill is included in the consolidated financial statements. The following table presents a reconciliation of our goodwill (in thousands):
 
 
Total
Balance at January 1, 2014
 
$
—

Acquisition of Siemens AS (a)
 
6,982

Acquisition of Albion Resorts (a)
 
4,058

Foreign currency translation adjustment
 
(1,348
)
Balance at December 31, 2014
 
$
9,692

___________
(a)
This asset represents the consideration exceeding the fair value of the identifiable assets acquired and liabilities assumed in our Siemens AS and Albion Resorts investments ( Note 4 ).

We performed our annual test for impairment during the fourth quarter of 2014 for goodwill recorded in our sole reporting unit, and no impairment was indicated.

Intangible assets and liabilities 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
 
 
 
 
 
 
 
 
 
 
 
In-place lease
$
177,970

 
$
(10,335
)
 
$
167,635

 
$
53,832

 
$
(495
)
 
$
53,337

Below-market ground lease
15,790

 
(167
)
 
15,623

 
8,227

 
(3
)
 
8,224

Above-market rent
10,424

 
(380
)
 
10,044

 
—

 
—

 
—

 
204,184

 
(10,882
)
 
193,302

 
62,059

 
(498
)
 
61,561

Unamortizable Intangible Assets
 
 
 
 
 
 
 
 
 
 
 
Goodwill
9,692

 
—

 
9,692

 
—

 
—

 
—

Total intangible assets
$
213,876

 
$
(10,882
)
 
$
202,994

 
$
62,059

 
$
(498
)
 
$
61,561

 
 
 
 
 
 
 
 
 
 
 
 
Amortizable Intangible Liabilities
 
 
 
 
 
 
 
 
 
 
 
Below-market rent
$
(6,276
)
 
$
347

 
$
(5,929
)
 
$
(1,647
)
 
$
40

 
$
(1,607
)
Above-market ground lease
(127
)
 
—

 
(127
)
 
—

 
—

 
—

Total intangible liabilities
$
(6,403
)
 
$
347

 
$
(6,056
)
 
$
(1,647
)
 
$
40

 
$
(1,607
)


CPA ® :18 – Global 2014 10-K – 84

Notes to Consolidated Financial Statements


Net amortization of intangibles, including the effect of foreign currency translation, was $10.6 million and $0.5 million for the years ended December 31, 2014 and 2013 , respectively. Amortization of below-market and above-market rent intangibles is recorded as an adjustment to Rental income in the consolidated financial statements. We amortize in-place lease intangibles to Depreciation and amortization expense in the consolidated financial statements over the remaining initial term of each lease. Amortization of below-market and above-market ground lease intangibles is included in Property expenses in the consolidated financial statements.

Based on the intangible assets and liabilities recorded at December 31, 2014 , scheduled annual net amortization of intangibles is as follows (in thousands):
Years Ending December 31,
 
Net Decrease in Rental Income
 
Increase to Amortization/Property Expenses
 
Net
2015
 
$
98

 
$
17,298

 
$
17,396

2016
 
427

 
16,572

 
16,999

2017
 
370

 
14,865

 
15,235

2018
 
304

 
13,636

 
13,940

2019
 
295

 
13,113

 
13,408

Thereafter
 
2,621

 
107,647

 
110,268

Total
 
$
4,115

 
$
183,131

 
$
187,246


Note 7. 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 swaps and foreign currency forward contracts; and Level 3, for securities and other derivative assets 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.

Derivative Assets — Our derivative assets, which are included in Other assets, net in the consolidated financial statements, are comprised of foreign currency forward contracts ( Note 8 ). These derivatives 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.

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 ( Note 8 ). These derivatives were measured at fair value using readily observable market inputs, such as quotations on interest rates, and 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.
 
We did not have any transfers into or out of Level 1, Level 2, and Level 3 measurements during the years ended December 31, 2014 and 2013. Gains and losses (realized and unrealized) included in earnings are reported in Other income and (expenses) in the consolidated financial statements.
 

CPA ® :18 – Global 2014 10-K – 85

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
 
2013
 
Level
 
Carrying Value
 
Fair Value
 
Carrying Value
 
Fair Value
Debt (a)
3
 
$
521,712

 
$
540,577

 
$
85,060

 
$
85,060

Note receivable (b)
3
 
28,000

 
28,000

 
—

 
—

Deferred acquisition fees payable  (c)
3
 
17,525

 
17,520

 
2,705

 
2,705

___________
(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 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)
We estimated that the fair value of the note receivable approximated its carrying value.
(c)
We determined the estimated fair value of our deferred acquisition fees based on an estimate of discounted cash flows using two significant unobservable inputs, which are the leverage adjusted unsecured spread and an illiquidity adjustment of 108 basis points and 75 basis points, respectively. Significant increases or decreases to these inputs in isolation would result in a significant change in the fair value measurement.

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 .

Note 8. 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 assets and liabilities. 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 investments due to changes in interest rates or other market factors. We own international investments primarily in Europe and are subject to the risks associated with changing foreign currency exchange rates.
 
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. In addition to derivative instruments that we entered into on our own behalf, we may also be a party to derivative instruments that are embedded in other contracts, and we may own common stock warrants, granted to us by lessees when structuring lease transactions, which are considered to be derivative instruments. 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 until the hedged item is recognized in earnings. For a derivative designated and qualified as a net investment hedge, the effective portion of the change in its fair value and/or the net settlement of the derivative are reported in Other comprehensive loss as part of the cumulative foreign currency translation adjustment. Amounts are reclassified out of Other comprehensive loss 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.

CPA ® :18 – Global 2014 10-K – 86

Notes to Consolidated Financial Statements


 
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 instruments on a gross basis on our consolidated financial statements. At both December 31, 2014 and 2013 , no cash collateral had been posted or received for any of our derivative positions.

The following table sets forth certain information regarding our derivative instruments (in thousands):
 
 
 
 
Asset Derivatives Fair Value at
 
Liability Derivatives Fair Value at
Derivative Designated as Hedging Instruments
 
 
 
December 31,
 
December 31,
 
Balance Sheet Location
 
2014
 
2013
 
2014
 
2013
Foreign currency forward contracts
 
Other assets, net
 
$
3,664

 
$
—

 
$
—

 
$
—

Interest rate swaps
 
Accounts payable, accrued expenses and other liabilities
 
—

 
—

 
(2,501
)
 
(219
)
 
 
 
 
$
3,664

 
$
—

 
$
(2,501
)
 
$
(219
)

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 on Derivatives (Effective Portion)
 
 
Years Ended December 31,
Derivatives in Cash Flow Hedging Relationships 
 
2014
 
2013
Interest rate swaps
 
$
(2,282
)
 
$
(219
)
Foreign currency forward contracts
 
3,653

 
—

Derivatives in Net Investment Hedging Relationship (a)
 
 
 
 
Foreign currency forward contracts
 
11

 
—

Total
 
$
1,382

 
$
(219
)
___________
(a)
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 until the underlying investment is sold, at which time we reclassify the gain or loss to earnings.

The following tables present the impact of our derivative instruments in the consolidated financial statements (in thousands):
 
 
 
 
Amount of Gain (Loss) Reclassified from
Other Comprehensive Loss on Derivatives into Income (Effective Portion)
 
 
Location of Gain (Loss)
 
Years Ended December 31,
Derivatives in Cash Flow Hedging Relationships 
 
Recognized in Income
 
2014
 
2013
Interest rate swaps
 
Interest expense
 
$
(759
)
 
$
(1
)
Foreign currency forward contracts
 
Other income and (expenses)
 
151

 
—

Total
 
 
 
$
(608
)
 
$
(1
)

Interest Rate Swaps

We are exposed to the impact of interest rate changes primarily through our borrowing activities. To limit this exposure, we attempt to obtain mortgage financing on a long-term, fixed-rate basis. However, from time to time, we or our investment partners may obtain non-recourse variable-rate mortgage loans and, as a result, may enter into interest rate swap 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 notional, or face, amount on which the swaps are based is not exchanged.
 

CPA ® :18 – Global 2014 10-K – 87

Notes to Consolidated Financial Statements


The interest rate swaps that we had outstanding on our consolidated subsidiaries at December 31, 2014 are summarized as follows (currency in thousands):
Interest Rate Derivatives
 
Number of Instruments
 
Notional
Amount
 
Fair Value at
December 31, 2014  (a)
Interest rate swaps
 
6
 
USD
43,600

 
$
(2,359
)
Interest rate swaps
 
1
 
GBP
5,505

 
(142
)
 
 
 
 
 
 
 
$
(2,501
)
___________
(a)
Fair value amount is based on the exchange rate of the British pound sterling at December 31, 2014 , as applicable.

Foreign Currency Contracts
 
We are exposed to foreign currency exchange rate movements, primarily in the euro and, to a lesser extent, the Norwegian krone and the British pound sterling. 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. This instrument locks the range in which the foreign currency exchange rate may fluctuate.

The following table presents the foreign currency derivative contracts we had outstanding and their designations at December 31, 2014 (currency in thousands):
Foreign Currency Derivatives
 
Number of Instruments
 
Notional
Amount
 
Fair Value at
December 31, 2014  (a)
Designated as Cash Flow Hedging Instruments
 
 
 
 
 
 
 
Foreign currency forward contracts (b)
 
47
 
EUR
18,051

 
$
2,426

Foreign currency forward contracts (c)
 
37
 
NOK
62,423

 
1,227

Designated as Net Investment Hedging Instruments
 
 
 
 
 
 
 
Foreign currency forward contracts
 
5
 
NOK
8,320

 
11

 
 
 
 
 
 
 
$
3,664

___________
(a)
Fair value amounts are based on the applicable exchange rate of the euro or the Norwegian krone, as applicable, at December 31, 2014 .
(b)
On January 16, 2014, March 31, 2014, and September 17, 2014, we entered into a series of forward contracts to exchange euros for U.S. dollars for each quarter through September 2020, which was intended to protect our then-projected revenue collections against possible exchange rate fluctuations in the euro.
(c)
On February 27, 2014, September 14, 2014, and December 19, 2014, in conjunction with our Siemens AS and Apply AS investments ( Note 4 ), we entered into a series of forward contracts to exchange Norwegian krone for U.S. dollars for each quarter through January 2020, which was intended to protect our then-projected revenue collections from this investment against possible exchange rate fluctuations in Norwegian krone.

Credit Risk-Related Contingent Features

Amounts reported in Other comprehensive loss related to our 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 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 $1.4 million and $0.9 million will be reclassified as Interest expense and other income, respectively, during the next 12 months.


CPA ® :18 – Global 2014 10-K – 88

Notes to Consolidated Financial Statements


We measure our credit exposure on a counterparty basis as the 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 was $3.7 million , inclusive of noncontrolling interest, and the maximum exposure to any single counterparty was $2.4 million .

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 $2.6 million at December 31, 2014 , which included accrued interest and any adjustment for nonperformance risk. If we had breached any of these provisions at December 31, 2014 , we could have been required to settle our obligations under these agreements at their aggregate termination value of $2.7 million .

Portfolio Concentration 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. As of December 31, 2014 , we had concentrations of credit risk in our portfolio because we had a limited number of investments. We intend to regularly monitor our portfolio to assess potential concentrations of credit risk as we make additional investments. As we invest the proceeds of our initial public offering, we will seek to ensure that our portfolio is reasonably well diversified and does not contain any unusual concentration of credit risks.

For the year ended December 31, 2014 , the following tenants represented 5% or more of total lease revenues:

•
State Farm ( 18.2% );
•
Agrokor ( 16.7% );
•
Bank Pekao ( 16.3% );
•
Solo Cup ( 12.2% ); and
•
Siemens AS ( 11.1% ).


CPA ® :18 – Global 2014 10-K – 89

Notes to Consolidated Financial Statements


Note 9. Debt

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 $613.9 million and $119.3 million at December 31, 2014 and 2013 , respectively. The following table presents a summary of the non-recourse mortgage loans on our real estate property investments (dollars in thousands):
 
 
 
 
 
 
 
 
Carrying Amount at December 31,
Tenant
 
Interest Rate
 
Rate Type
 
Maturity Date
 
2014
 
2013
Infineon (a)
 
3.1
%
 
Fixed
 
2/28/2017
 
$
13,756

 
$
—

Albion Resorts (a)
 
6.7
%
 
Fixed
 
9/1/2019
 
3,136

 
—

Albion Resorts  (a)
 
7.2
%
 
Fixed
 
9/1/2019
 
5,592

 
—

Truffle/Oakbank (a) (b)
 
3.9
%
 
Variable
 
12/11/2019
 
11,401

 
—

Albion Resorts (a)
 
7.0
%
 
Fixed
 
1/31/2020
 
10,536

 
—

Agrokor (c)
 
5.8
%
 
Fixed
 
12/31/2020
 
37,038

 
—

Bank Pekao (a)
 
3.3
%
 
Fixed
 
3/10/2021
 
64,852

 
—

Dupont (a)
 
3.8
%
 
Fixed
 
11/1/2021
 
14,140

 
—

Gentry (a)
 
3.8
%
 
Fixed
 
11/1/2021
 
15,330

 
—

State Farm (c) (d)
 
4.5
%
 
Fixed
 
9/10/2023
 
72,800

 
72,800

Crowne Group Inc. (b)   (c)
 
5.6
%
 
Variable
 
12/30/2023
 
11,980

 
12,260

Crowne Group Inc. (a) (b)
 
5.5
%
 
Variable
 
12/30/2023
 
3,987

 
—

St. Petersburg/Kissimmee properties (a) (e)
 
4.9
%
 
Fixed
 
2/1/2024
 
14,500

 
—

Automobile Protection Corporation (a) (b)
 
5.1
%
 
Variable
 
2/5/2024
 
3,752

 
—

Solo Cup (a) (d)
 
5.1
%
 
Fixed
 
2/6/2024
 
47,250

 
—

Swift Spinning Inc. (a)
 
5.0
%
 
Fixed
 
5/1/2024
 
7,738

 
—

Janus (a) (b)
 
4.9
%
 
Variable
 
5/5/2024
 
11,538

 
—

AT&T  (a)
 
4.6
%
 
Fixed
 
6/11/2024
 
8,000

 
—

Self-storage - Multiple properties (a) (f)
 
4.4
%
 
Fixed
 
10/11/2024
 
23,000

 
—

Cooper Tire (a) (b)
 
4.7
%
 
Variable
 
10/31/2024
 
6,704

 
—

Barnsco Inc. (a)
 
4.5
%
 
Fixed
 
11/14/2024
 
5,200

 
—

ATK (a)
 
4.2
%
 
Fixed
 
1/6/2025
 
27,650

 
—

North American Lighting Inc. (a)
 
4.8
%
 
Fixed
 
5/6/2026
 
7,325

 
—

Air Enterprises (a)
 
5.3
%
 
Fixed
 
4/1/2039
 
3,257

 
—

 
 
 
 
 
 
 
 
$
430,462

 
$
85,060

__________
(a)
These debt instruments were entered into or assumed in conjunction with the 2014 Acquisitions as described in Note 4 and Note 5 . During the year ended December 31, 2014 , we capitalized $4.7 million of deferred financing costs related to these debt instruments. We amortize deferred financing costs over the term of the related debt instrument using a method which approximates the effective interest method.
(b)
These mortgage loans have variable interest rates, which have been effectively converted to fixed rates through the use of interest rate swaps ( Note 8 ). The interest rates presented for these mortgage loans reflect interest rate swaps in effect at December 31, 2014 .
(c)
These mortgage loans were entered into in conjunction with the 2013 Acquisitions as described in Note 4 .
(d)
These mortgage loans have payments that are interest-only until their respective maturity dates.
(e)
On January 23, 2014, we entered into a mortgage loan that we allocated between our St. Petersburg Self Storage and Kissimmee Self Storage investments, which are jointly and severally liable for any possible defaults on the loan.
(f)
On October 9, 2014, we obtained a mortgage loan for $23.0 million , which was allocated to the six self-storage properties purchased from July 22, 2014 through October 9, 2014 ( Note 4 ).


CPA ® :18 – Global 2014 10-K – 90

Notes to Consolidated Financial Statements


Bonds Payable

In conjunction with our Apply AS investment ( Note 4 ), on October 31, 2014, we issued privately-placed bonds totaling $53.3 million , which is based on the exchange rate of the Norwegian krone at that date. These bonds are collateralized by the Apply AS property and have a fixed coupon of 4.4% . The bonds are coterminous with the lease and mature on October 31, 2021 . Coupon payments will be made annually in arrears on October 30. At December 31, 2014 , this bond had a carrying value of $48.2 million .

In conjunction with our Siemens AS investment ( Note 4 ), on February 27, 2014, we issued privately-placed bonds totaling $52.1 million , which is based on the exchange rate of the Norwegian krone at that date. These bonds are collateralized by the Siemens AS property and have a coupon of 3.5% . The bonds are coterminous with the lease and mature on December 15, 2025 . The bonds are inflation-linked to the Norwegian CPI and the annual principal balance and coupon payment will increase as that inflation index increases. During 2014, the principal balance increased by $0.7 million as a result of the Norwegian CPI fluctuation. Coupon payments will be made annually in arrears on December 15. At December 31, 2014 , this bond had a carrying value of $43.1 million .

Certain of our mortgage loans and bonds have a covenant that requires compliance with a “loan to value ratio.”

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
2015
 
$
5,079

2016
 
5,863

2017
 
19,908

2018
 
7,233

2019
 
18,657

Thereafter through 2039
 
464,706

 
 
521,446

Unamortized premium
 
266

Total
 
$
521,712


Certain amounts in the table above are based on the applicable foreign currency exchange rate at December 31, 2014. The impact on the carrying value of our Non-recourse debt and bonds payable due to the strengthening of the U.S. dollar relative to foreign currencies during 2014 was a decrease of $28.8 million from December 31, 2013 to December 31, 2014.

Note 10. Commitments and Contingencies

At December 31, 2014 , we were not involved in any material litigation. Various claims and lawsuits arising in the normal course of business may be 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. See Note 4 for unfunded construction commitments.


CPA ® :18 – Global 2014 10-K – 91

Notes to Consolidated Financial Statements


Note 11. Loss Per Share and Equity

Loss Per Share

The following tables present loss per share (in thousands, except share and per share amounts):
 
Year Ended December 31, 2014
 
Weighted-Average
Shares Outstanding 
 
Allocation of Net Loss
 
Loss
Per Share 
Class A common stock
78,777,525

 
$
(49,494
)
 
$
(0.63
)
Class C common stock
8,847,966

 
(6,373
)
 
(0.72
)
Net loss attributable to CPA ® :18 – Global
 
 
$
(55,867
)
 

 
Year Ended December 31, 2013
 
Weighted-Average
Shares Outstanding 
 
Allocation of Net Loss
 
Loss
Per Share 
Class A common stock
2,792,648

 
$
(496
)
 
$
(0.18
)
Class C common stock
497,725

 
(135
)
 
(0.27
)
Net loss attributable to CPA ® :18 – Global

 
$
(631
)
 


The allocation of Net loss attributable to CPA ® :18 – Global is calculated based on weighted-average shares outstanding for Class A common stock and Class C common stock for each respective period. For the years ended December 31, 2014 and 2013 , the allocation for the Class A common stock excludes the shareholder servicing fee of $0.8 million and less than $0.1 million, respectively, which is only applicable to holders of Class C common stock ( Note 3 ).

Subsequent to December 31, 2014 and through March 23, 2015 , we issued an additional 870,829 shares of Class A common stock and 9,240,744 shares of Class C common stock in our initial public offering.

Proceeds from certain of the shares that we sold are held in escrow and considered unsettled until such time as all contingencies have been removed and the buyer has voting rights, or approximately three days. Net cash used in financing activities for the year ended December 31, 2014 does not include $1.5 million of shares sold but not settled (net of costs).

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 annualized distributions per share reported for 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):
 
Years Ended December 31,
 
2014
 
2013
 
Class A
 
Class C
 
Class A
 
Class C
Ordinary income
$
0.2164

 
$
0.1841

 
$
—

 
$
—

Return of capital
0.4084

 
0.3475

 
0.1155

 
0.0982

Total distributions paid
$
0.6248

 
$
0.5316

 
$
0.1155

 
$
0.0982


On September 19, 2014, our board of directors declared distributions at a daily rate of $0.0016983 per share f or our Class A common stock and $0.0014442 per share for our Class C common stock for the quarter ending December 31, 2014 . The distributions in the amount of $17.6 million were paid on January 15, 2015 to stockholders of record on each day during the period.

On December 15, 2014, our board of directors declared distributions at a daily rate of $0.0016983 per share for our Class A common stock and $0.0014442 per share for our Class C common stock for the quarter ending March 31, 2015, payable on or about April 15, 2015 to stockholders of record on each day of the quarter.


CPA ® :18 – Global 2014 10-K – 92

Notes to Consolidated Financial Statements


Distributions are declared at the discretion of our board of directors and are not guaranteed. Until we substantially invest the net proceeds of our initial public offering, we expect that distributions will be paid substantially from offering proceeds, which reduces amounts available to invest in properties and could lower our overall return.

Accumulated Other Comprehensive Loss
 
The following table presents the components of Accumulated other comprehensive loss reflected in equity, net of tax. Amounts include our proportionate share of other comprehensive loss from our unconsolidated investments (in thousands):
 
 
December 31,
 
 
2014
 
2013
Foreign currency translation adjustments
 
$
(22,093
)
 
$
125

Net unrealized gain (loss) on derivative instruments
 
1,152

 
(219
)
Accumulated other comprehensive loss
 
$
(20,941
)
 
$
(94
)

Reclassifications Out of Accumulated Other Comprehensive Loss

The following tables present a reconciliation of changes in Accumulated other comprehensive loss by component for the periods presented (in thousands):
 
Year Ended December 31, 2014
 
Gains and Losses
on Derivative Instruments
 
Foreign Currency Translation Adjustments
 
Total
Beginning balance
$
(219
)
 
$
125

 
$
(94
)
Other comprehensive income (loss) before reclassifications
763

 
(29,602
)
 
(28,839
)
Amounts reclassified from accumulated other comprehensive loss to:
 
 
 
 
 
Interest expense
759

 
—

 
759

Other income and (expenses)
(151
)
 
—

 
(151
)
Total
608

 
—

 
608

Net current-period Other comprehensive income
1,371

 
(29,602
)
 
(28,231
)
Net current-period Other comprehensive loss attributable to noncontrolling interests
—

 
7,384

 
7,384

Ending balance
$
1,152

 
$
(22,093
)
 
$
(20,941
)
 
Year Ended December 31, 2013
 
Gains and Losses
on Derivative Instruments
 
Foreign Currency Translation Adjustments
 
Total
Beginning balance
$
—

 
$
—

 
$
—

Other comprehensive income (loss) before reclassifications
(219
)
 
156

 
(63
)
Net current-period Other comprehensive income
(219
)
 
156

 
(63
)
Net current-period Other comprehensive loss attributable to noncontrolling interests
—

 
(31
)
 
(31
)
Ending balance
$
(219
)
 
$
125

 
$
(94
)

Note 12. Income Taxes
 
We have elected to be taxed as a REIT under Sections 856 through 860 of the Internal Revenue Code. We believe we have operated, and we intend to continue to operate, in a manner that allows us to continue to qualify as a REIT. Under the REIT operating structure, we are permitted to deduct distributions paid to our stockholders and generally will not be required to pay U.S. federal income taxes. Accordingly, no provision has been made for U.S. federal income taxes in the consolidated financial statements.
 

CPA ® :18 – Global 2014 10-K – 93

Notes to Consolidated Financial Statements


We conduct business in various states and municipalities, primarily within the United States and in Europe, and as a result, we file income tax returns in the U.S. federal jurisdiction and various states and certain foreign jurisdictions.
 
Our tax returns are subject to audit by taxing authorities. Such audits can often take years to complete and settle.

Deferred Income Taxes

Our deferred tax assets before valuation allowances were $3.9 million at December 31, 2014 and we did not have a deferred tax asset at December 31, 2013 . Our deferred tax liabilities were $28.8 million and $8.4 million at December 31, 2014 and 2013, respectively. We determined that at December 31, 2014 , $2.2 million of our deferred tax assets did not meet the criteria for recognition under the accounting guidance for income taxes, and accordingly, a valuation allowance was established in that amount. Our deferred tax assets and liabilities at December 31, 2014 are primarily the result of temporary differences related to:

•
basis differences between tax and GAAP for real estate assets (for income tax purposes, certain acquisitions have resulted in us assuming the seller’s basis, or the carry-over basis, in assets and liabilities for tax purposes. In accordance with purchase accounting requirements under GAAP, we record all of the acquired assets and liabilities at their estimated fair values at the date of acquisition. For our subsidiaries subject to income taxes in the United States or in foreign jurisdictions, we recognize deferred income tax liabilities representing the tax effect of the difference between the tax basis and the fair value of the tangible and intangible assets recorded at the date of acquisition for GAAP.); and
•
tax net operating losses in foreign jurisdictions that may be realized in future periods if we generate sufficient taxable income.

At December 31, 2014, we had net operating losses in foreign jurisdictions of approximately $7.7 million and will begin to expire in 2015 in certain foreign jurisdictions. The utilization of net operating losses may be subject to certain limitations under the tax laws of the relevant jurisdiction.


CPA ® :18 – Global 2014 10-K – 94

Notes to Consolidated Financial Statements


Note 13. Segment Information

We have determined that we operate in one reportable segment, real estate ownership, with domestic and international investments. Geographic information for this segment is as follows (in thousands):
 
 
As of and for the Year Ended December 31, 2014
 
 
Domestic
 
International
 
 
 
 
Texas
 
Illinois
 
Other Domestic
 
Total
 
Poland
 
Croatia
 
Norway
 
Other International (a)
 
Total
 
Total
Revenues
 
$
8,830

 
$
6,307

 
$
13,905

 
$
29,042

 
$
9,586

 
$
7,511

 
$
6,560

 
$
1,618

 
$
25,275

 
$
54,317

Income (loss) before income taxes
 
416

 
(4,242
)
 
(11,782
)
 
(15,608
)
 
(12,920
)
 
(1,711
)
 
(6,291
)
 
(21,190
)
 
(42,112
)
 
(57,720
)
Net (income) loss attributable to noncontrolling interests
 
(804
)
 
—

 
(1,764
)
 
(2,568
)
 
3,349

 
(397
)
 
321

 
(16
)
 
3,257

 
689

Net loss attributable to CPA ® :18 – Global
 
(464
)
 
(4,242
)
 
(13,564
)
 
(18,270
)
 
(9,571
)
 
(1,684
)
 
(6,943
)
 
(19,399
)
 
(37,597
)
 
(55,867
)
Long-lived assets (b)
 
122,965

 
33,999

 
342,132

 
499,096

 
97,707

 
45,076

 
138,676

 
160,802

 
442,261

 
941,357

Non-recourse debt and bonds payable
 
83,226

 
55,250

 
145,674

 
284,150

 
64,852

 
37,039

 
91,250

 
44,421

 
237,562

 
521,712

 
 
As of and for the Year Ended December 31, 2013
 
 
Domestic
 
International
 
 
 
 
Texas
 
Other Domestic
 
Total
 
Croatia
 
Other International (a)
 
Total
 
Total
Revenues
 
$
2,999

 
$
9

 
$
3,008

 
$
284

 
$
—

 
$
284

 
$
3,292

Income (loss) before income taxes
 
566

 
(693
)
 
(127
)
 
(155
)
 
52

 
(103
)
 
(230
)
Net (income) loss attributable to noncontrolling interests
 
(293
)
 
(68
)
 
(361
)
 
(45
)
 
16

 
(29
)
 
(390
)
Net loss (income) attributable to CPA ® :18 – Global
 
272

 
(761
)
 
(489
)
 
(210
)
 
68

 
(142
)
 
(631
)
Long-lived assets (b)
 
96,437

 
22,898

 
119,335

 
52,418

 
(89
)
 
52,329

 
171,664

Non-recourse debt
 
72,800

 
12,260

 
85,060

 
—

 
—

 
—

 
85,060

___________
(a)
Other international includes the United Kingdom, the Netherlands, Germany, and Mauritius in 2014 and the Netherlands in 2013.
(b)
Consists of Net investments in real estate. 


CPA ® :18 – Global 2014 10-K – 95

Notes to Consolidated Financial Statements


Note 14. Selected Quarterly Financial Data (Unaudited)
 
(Dollars in thousands, except per share amounts)
 
Three Months Ended
 
March 31, 2014 (a)
 
June 30, 2014 (a)
 
September 30, 2014 (a)
 
December 31, 2014
Revenues
$
6,694

 
$
12,647

 
$
14,882

 
$
20,094

Expenses
23,091

 
12,099

 
18,580

 
41,361

Net loss
(18,443
)
 
(3,110
)
 
(9,465
)
 
(25,538
)
Net loss (income) attributable to noncontrolling interests
3,773

 
(1,248
)
 
(1,136
)
 
(700
)
Net loss attributable to CPA ® :18 – Global
$
(14,670
)
 
$
(4,358
)
 
$
(10,601
)
 
$
(26,238
)
 
 
 
 
 
 
 
 
Class A common stock
 
 
 
 
 
 
 
Loss per share (b)
$
(0.35
)
 
$
(0.05
)
 
$
(0.10
)
 
$
(0.22
)
Weighted-average shares outstanding
38,001,011

 
77,300,223

 
99,007,256

 
99,836,316

Distributions declared per share
$
0.1562

 
$
0.1562

 
$
0.1562

 
$
0.1562

 
 
 
 
 
 
 
 
Class C common stock
 
 
 
 
 
 
 
Loss per share (b)
$
(0.37
)
 
$
(0.07
)
 
$
(0.12
)
 
$
(0.25
)
Weighted-average shares outstanding
3,820,432

 
6,126,012

 
9,925,481

 
15,376,487

Distributions declared per share
$
0.1329

 
$
0.1329

 
$
0.1329

 
$
0.1329

 
 
 
 
 
 
 
 
 
Three Months Ended
 
March 31, 2013
 
June 30, 2013
 
September 30, 2013
 
December 31, 2013
Revenues
$
—

 
$
—

 
$
947

 
$
2,345

Expenses
—

 
65

 
604

 
1,635

Net loss
—

 
(65
)
 
(72
)
 
(104
)
Net income attributable to noncontrolling interests
—

 
—

 
(66
)
 
(324
)
Net loss attributable to CPA ® :18 – Global
$
—

 
$
(65
)
 
$
(138
)
 
$
(428
)
 
 
 
 
 
 
 
 
Class A common stock
 
 
 
 
 
 
 
Loss per share (b)
$
—

 
$
(2.81
)
 
$
(0.18
)
 
$
(0.03
)
Weighted-average shares outstanding
—

 
23,222

 
616,292

 
10,469,534

Distributions declared per share
$
—

 
$
—

 
$
0.1155

 
$
0.1562

 
 
 
 
 
 
 
 
Class C common stock
 
 
 
 
 
 
 
Loss per share (b)
$
—

 
$
—

 
$
(0.20
)
 
$
(0.05
)
Weighted-average shares outstanding
—

 
—

 
149,294

 
1,825,374

Distributions declared per share
$
—

 
$
—

 
$
0.0982

 
$
0.1329

___________
(a)
As discussed in Note 2 , we identified certain errors in the consolidated financial statements for the quarterly periods in 2014. As a result, we recorded revision adjustments to the amounts previously reported, which aggregated to an increase to Net loss of $0.5 million , $0.1 million , and $3.0 million ; an increase to Net loss (income) attributable to noncontrolling interests of less than $0.1 million , less than $(0.1) million , and zero ; an increase to Net loss attributable to CPA ® :18 – Global of $0.4 million , $0.2 million , and $3.0 million ; and an increase of $0.01 , zero , and $0.03 to loss per share for each of Class A and Class C, for the three months ended March 31, 2014, June 30, 2014, and September 30, 2014, respectively. In our quarterly reports for the periods ending March 31, 2015, June 30, 2015, and September 30, 2015 we will revise the presentation of the periods ended March 31, 2014, June 30, 2014, and September 30, 2014 to reflect these revision adjustments.

CPA ® :18 – Global 2014 10-K – 96

Notes to Consolidated Financial Statements


(b)
The sum of the quarterly Loss per share does not agree to the annual Loss per share for both 2014 and 2013 due to the issuances of our common stock that occurred during such periods.

Note 15. Subsequent Events

Subsequent to December 31, 2014 and through March 27, 2015, we purchased 11 additional properties totaling approximately $244.3 million (excluding acquisitions costs) and obtained $158.5 million  of new financing related to the properties acquired in 2014 and 2015. Of these 11 properties, six are self-storage facilities, two are multi-family, two are build-to-suit projects, and one is an industrial site. The largest of these investments was our build-to-suit project for a Class-A office building, which will serve as Rabobank’s headquarters in Eindhoven, Netherlands. The total estimated project cost for this investment upon completion is approximately $85.5 million .

It is not practicable to disclose the preliminary purchase price allocation or consolidated pro forma financial information for these transactions given the short period of time between the acquisition dates and the filing of this Report.


CPA ® :18 – Global 2014 10-K – 97



CORPORATE PROPERTY ASSOCIATES 18 – GLOBAL INCORPORATED
SCHEDULE II — VALUATION AND QUALIFYING ACCOUNTS
Years Ended December 31, 2014 and 2013
(in thousands)  
Description
 
Balance at
Beginning
of Year
 
Change
 
Balance at
End of Year
Year Ended December 31, 2014
 
 
 
 
 
 
Valuation reserve for deferred tax assets
 
$
—

 
$
2,236

 
$
2,236

 
 
 
 
 
 
 
Year Ended December 31, 2013
 
 
 
 
 
 
Valuation reserve for deferred tax assets
 
$
—

 
$
—

 
$
—




CPA ® :18 – Global 2014 10-K – 98

CORPORATE PROPERTY ASSOCIATES 18 – GLOBAL INCORPORATED
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 facility in Austin, TX
 
$
72,800

 
$
29,215

 
$
67,993

 
$
—

 
$
—

 
$
29,215

 
$
67,993

 
$
97,208

 
$
2,880

 
1993
 
Aug. 2013
 
40 yrs.
Retail facility in Zagreb, Croatia
 
8,236

 
—

 
10,828

 
—

 
(1,179
)
 
—

 
9,649

 
9,649

 
293

 
2005
 
Dec. 2013
 
34 yrs.
Retail facility in Zagreb, Croatia
 
8,155

 
—

 
10,576

 
—

 
(1,229
)
 
—

 
9,347

 
9,347

 
268

 
2006
 
Dec. 2013
 
36 yrs.
Retail facility in Zagreb, Croatia
 
7,999

 
2,264

 
10,676

 
—

 
(1,504
)
 
2,000

 
9,436

 
11,436

 
296

 
2006
 
Dec. 2013
 
34 yrs.
Retail facility in Zadar, Croatia
 
8,991

 
4,320

 
10,536

 
—

 
(1,728
)
 
3,815

 
9,313

 
13,128

 
316

 
2007
 
Dec. 2013
 
33 yrs.
Retail facility in Split, Croatia
 
3,656

 
—

 
3,161

 
—

 
(367
)
 
—

 
2,794

 
2,794

 
107

 
2001
 
Dec. 2013
 
27 yrs.
Land in Madison, IN
 
426

 
834

 
—

 
—

 
—

 
834

 
—

 
834

 
—

 
N/A
 
Dec. 2013
 
N/A
Industrial facility in Streetsboro, OH
 
3,257

 
1,163

 
3,393

 
719

 
—

 
1,163

 
4,112

 
5,275

 
188

 
1993
 
Jan. 2014
 
21 yrs.
Warehouse/distribution facility in University Park, IL
 
47,250

 
13,748

 
52,135

 
—

 
—

 
13,748

 
52,135

 
65,883

 
1,752

 
2003
 
Feb. 2014
 
34 - 36 yrs.
Office facility in Norcross, GA
 
3,752

 
1,044

 
3,361

 
—

 
—

 
1,044

 
3,361

 
4,405

 
106

 
1999
 
Feb. 2014
 
40 yrs.
Office facility in Oslo, Norway
 
43,099

 
14,362

 
59,219

 
—

 
(13,707
)
 
11,686

 
48,188

 
59,874

 
1,008

 
2013
 
Feb. 2014
 
40 yrs.
Office facility in Warsaw, Poland
 
64,852

 
—

 
112,676

 
—

 
(13,091
)
 
—

 
99,585

 
99,585

 
1,878

 
2008
 
Mar. 2014
 
40 yrs.
Industrial facility in Columbus, GA
 
4,894

 
448

 
5,841

 
—

 
—

 
448

 
5,841

 
6,289

 
147

 
1995
 
Apr. 2014
 
30 yrs.
Office facility in Farmington Hills, MI
 
7,325

 
2,251

 
3,390

 
672

 
47

 
2,251

 
4,109

 
6,360

 
72

 
2001
 
May 2014
 
40 yrs.
Industrial facility in Surprise, AZ
 
2,322

 
298

 
2,347

 
—

 
—

 
298

 
2,347

 
2,645

 
57

 
1998
 
May 2014
 
35 yrs.
Industrial facility in Temple, GA
 
6,714

 
381

 
6,469

 
—

 
—

 
381

 
6,469

 
6,850

 
139

 
2007
 
May 2014
 
33 yrs.
Land in Houston, TX
 
1,280

 
1,675

 
—

 
—

 
—

 
1,675

 
—

 
1,675

 
—

 
N/A
 
May 2014
 
N/A
Land in Chicago, IL
 
2,024

 
3,036

 
—

 
—

 
—

 
3,036

 
—

 
3,036

 
—

 
N/A
 
May 2014
 
N/A
Warehouse/distribution facility in Jonesville, SC
 
—

 
2,995

 
14,644

 
18,662

 
—

 
2,995

 
33,306

 
36,301

 
400

 
1997
 
Jun. 2014
 
28 yrs.
Industrial facility in Ayr, United Kingdom
 
2,532

 
1,150

 
3,228

 
—

 
(312
)
 
1,068

 
2,998

 
4,066

 
53

 
1950
 
Aug. 2014
 
15 - 32 yrs.
Industrial facility in Bathgate, United Kingdom
 
1,688

 
627

 
1,852

 
—

 
(177
)
 
582

 
1,720

 
2,302

 
23

 
2009
 
Aug. 2014
 
20 - 35 yrs.
Industrial facility in Dundee, United Kingdom
 
1,604

 
384

 
2,305

 
—

 
(192
)
 
357

 
2,140

 
2,497

 
33

 
2008
 
Aug. 2014
 
22 yrs.
Industrial facility in Dunfermline, United Kingdom
 
928

 
294

 
808

 
—

 
(79
)
 
273

 
750

 
1,023

 
16

 
1990
 
Aug. 2014
 
13 - 35 yrs.
Industrial facility in Invergordon, United Kingdom
 
473

 
261

 
549

 
—

 
(57
)
 
243

 
510

 
753

 
8

 
2006
 
Aug. 2014
 
22 yrs.


CPA ® :18 – Global 2014 10-K – 99

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 Livingston, United Kingdom
 
2,026

 
447

 
3,015

 
—

 
(247
)
 
415

 
2,800

 
3,215

 
34

 
2008
 
Aug. 2014
 
29 yrs.
Industrial facility in Livingston, United Kingdom
 
2,152

 
—

 
3,360

 
—

 
(161
)
 
—

 
3,199

 
3,199

 
35

 
1997
 
Sep. 2014
 
24 yrs.
Office facility in Warstein, Germany
 
13,756

 
281

 
15,671

 
—

 
(668
)
 
270

 
15,014

 
15,284

 
98

 
2011
 
Sep. 2014
 
40 yrs.
Warehouse/distribution facility in Albany, GA
 
6,704

 
1,141

 
5,997

 
—

 
—

 
1,141

 
5,997

 
7,138

 
93

 
1977
 
Oct. 2014
 
14 yrs.
Office facility in Stavanger, Norway
 
48,151

 
8,276

 
80,476

 
—

 
(8,637
)
 
7,470

 
72,645

 
80,115

 
305

 
2012
 
Oct. 2014
 
40 yrs.
Office facility in Eagan, MN
 
—

 
1,189

 
11,279

 
—

 
—

 
1,189

 
11,279

 
12,468

 
49

 
2013
 
Nov. 2014
 
40 yrs.
Office facility in Plymouth, MN
 
27,650

 
3,990

 
30,320

 
—

 
—

 
3,990

 
30,320

 
34,310

 
109

 
1982
 
Nov. 2014
 
40 yrs.
Industrial facility in Dallas, TX
 
1,680

 
512

 
1,283

 
—

 
—

 
512

 
1,283

 
1,795

 
7

 
1990
 
Nov. 2014
 
26 yrs.
Industrial facility in Dallas, TX
 
790

 
509

 
340

 
—

 
—

 
509

 
340

 
849

 
4

 
1990
 
Nov. 2014
 
20 yrs.
Industrial facility in Dallas, TX
 
281

 
128

 
204

 
—

 
—

 
128

 
204

 
332

 
2

 
1990
 
Nov. 2014
 
21 yrs.
Industrial facility in Dallas, TX
 
1,217

 
360

 
1,120

 
—

 
—

 
360

 
1,120

 
1,480

 
6

 
1990
 
Nov. 2014
 
29 yrs.
Industrial facility in Fort Worth, TX
 
1,232

 
809

 
671

 
—

 
—

 
809

 
671

 
1,480

 
5

 
2008
 
Nov. 2014
 
30 yrs.
Industrial facility in Dunfermline, United Kingdom
 
—

 
1,162

 
5,631

 
—

 
(60
)
 
1,152

 
5,581

 
6,733

 
27

 
2000
 
Nov. 2014
 
23 - 31 yrs.
Industrial facility in Durham, United Kingdom
 
—

 
207

 
2,108

 
—

 
(21
)
 
205

 
2,089

 
2,294

 
7

 
1998
 
Nov. 2014
 
35 yrs.
Office facility in Rotterdam, Netherlands
 
—

 
2,247

 
27,149

 
—

 
(765
)
 
2,189

 
26,442

 
28,631

 
27

 
1960
 
Dec. 2014
 
40 yrs.
Office facility in Rotterdam, Netherlands
 
—

 
2,246

 
27,135

 
—

 
(764
)
 
2,187

 
26,430

 
28,617

 
27

 
1960
 
Dec. 2014
 
40 yrs.
Industrial facility in Edinburgh, United Kingdom
 
—

 
938

 
2,842

 
—

 
(34
)
 
929

 
2,817

 
3,746

 
—

 
1985
 
Dec. 2014
 
35 yrs.
Hotel in Albion, Mauritius
 
19,264

 
4,047

 
54,927

 
—

 
(140
)
 
4,037

 
54,797

 
58,834

 
—

 
2007
 
Dec. 2014
 
40 yrs.
 
 
$
429,160

 
$
109,239

 
$
659,515

 
$
20,053

 
$
(45,072
)
 
$
104,604

 
$
639,131

 
$
743,735

 
$
10,875

 
 
 
 
 
 


CPA ® :18 – Global 2014 10-K – 100

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
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Industrial facility in Logansport, IN
 
$
4,437

 
$
455

 
$
7,689

 
$
—

 
$
—

 
$
8,144

 
1990
 
Dec. 2013
Industrial facility in Madison, IN
 
1,911

 
356

 
3,382

 
—

 
—

 
3,738

 
2000
 
Dec. 2013
Industrial facility in Marion, SC
 
5,205

 
753

 
9,430

 
—

 
—

 
10,183

 
1968
 
Dec. 2013
Industrial facility in Fraser, MI
 
2,172

 
542

 
3,840

 
—

 
—

 
4,382

 
1984
 
Mar. 2014
Industrial facility in Warren, MI
 
1,814

 
429

 
3,231

 
—

 
—

 
3,660

 
1947
 
Mar. 2014
Industrial facility in Columbus, GA
 
2,845

 
488

 
2,947

 
—

 
1,479

 
4,914

 
1965
 
Apr. 2014
Industrial facility in Houston, TX
 
1,222

 
—

 
1,573

 
—

 
26

 
1,599

 
1973
 
May 2014
Warehouse/distribution facility in Chicago, IL
 
5,976

 
—

 
8,564

 
—

 
398

 
8,962

 
1942
 
May 2014
 
 
$
25,582

 
$
3,023

 
$
40,656

 
$
—

 
$
1,903

 
$
45,582

 
 
 
 

 
 
 
 
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 – Multi-Family Facilities
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Tucker, GA
 
$
14,140

 
$
4,288

 
$
15,201

 
$
237

 
$
—

 
$
—

 
$
4,288

 
$
15,201

 
$
237

 
$
19,726

 
$
83

 
2002
 
Oct. 2014
 
40 yrs.
Atlanta, GA
 
15,330

 
4,513

 
16,404

 
780

 
—

 
—

 
4,513

 
16,404

 
780

 
21,697

 
101

 
1990
 
Oct. 2014
 
38 yrs.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Operating Real Estate – Self-Storage Facilities
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Kissimmee, FL
 
$
7,000

 
$
3,306

 
$
7,190

 
$
—

 
$
—

 
$
—

 
$
3,306

 
$
7,190

 
$
—

 
$
10,496

 
$
198

 
2005
 
Jan. 2014
 
38 yrs.
St. Petersburg, FL
 
7,500

 
3,258

 
7,128

 
—

 
—

 
—

 
3,258

 
7,128

 
—

 
10,386

 
184

 
2007
 
Jan. 2014
 
40 yrs.
Corpus Christi, TX
 
2,725

 
340

 
3,428

 
—

 
—

 
—

 
340

 
3,428

 
—

 
3,768

 
63

 
1998
 
Jul. 2014
 
28 yrs.
Kailua-Kona, HI
 
3,770

 
1,356

 
3,699

 
—

 
—

 
—

 
1,356

 
3,699

 
—

 
5,055

 
54

 
1991
 
Jul. 2014
 
32 yrs.
Miami, FL
 
3,034

 
1,915

 
1,894

 
—

 
—

 
—

 
1,915

 
1,894

 
—

 
3,809

 
27

 
1986
 
Aug. 2014
 
33 yrs.
Palm Desert, CA
 
6,890

 
669

 
8,899

 
—

 
—

 
—

 
669

 
8,899

 
—

 
9,568

 
93

 
2006
 
Aug. 2014
 
40 yrs.
Columbia, SC
 
3,056

 
1,065

 
2,742

 
—

 
—

 
—

 
1,065

 
2,742

 
—

 
3,807

 
32

 
1988
 
Sep. 2014
 
27 - 30 yrs.
Kailua-Kona, HI
 
3,525

 
2,263

 
2,704

 
—

 
—

 
—

 
2,263

 
2,704

 
—

 
4,967

 
22

 
2004
 
Oct. 2014
 
32 yrs.
Pompano Beach, FL
 
—

 
700

 
3,436

 
—

 
—

 
—

 
700

 
3,436

 
—

 
4,136

 
24

 
1992
 
Oct. 2014
 
28 yrs.
Jensen Beach, FL
 
—

 
1,596

 
5,963

 
—

 
—

 
—

 
1,596

 
5,963

 
—

 
7,559

 
25

 
1989
 
Nov. 2014
 
37 yrs.
Dickinson, TX
 
—

 
1,680

 
7,165

 
—

 
—

 
—

 
1,680

 
7,165

 
—

 
8,845

 
14

 
2001
 
Dec. 2014
 
35 yrs.
Humble, TX
 
—

 
341

 
6,582

 
—

 
—

 
—

 
341

 
6,582

 
—

 
6,923

 
8

 
2009
 
Dec. 2014
 
39 yrs.
Temecula, CA
 
—

 
449

 
8,574

 
—

 
—

 
—

 
449

 
8,574

 
—

 
9,023

 
11

 
2006
 
Dec. 2014
 
37 yrs.
Cumming, GA
 
—

 
300

 
3,531

 
—

 
—

 
—

 
301

 
3,530

 
—

 
3,831

 
—

 
1994
 
Dec. 2014
 
27 yrs.
 
 
$
66,970

 
$
28,039

 
$
104,540

 
$
1,017

 
$
—

 
$
—

 
$
28,040

 
$
104,539

 
$
1,017

 
$
133,596

 
$
939

 
 
 
 
 
 


CPA ® :18 – Global 2014 10-K – 101

SCHEDULE III — REAL ESTATE AND ACCUMULATED DEPRECIATION (Continued)
December 31, 2014
(in thousands)
___________
(a)
Consists of the cost of improvements subsequent to purchase and acquisition costs, including construction costs on build-to-suit transactions, 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 and (ii) changes in foreign currency exchange rates.
(c)
A reconciliation of real estate and accumulated depreciation follows:



CPA ® :18 – Global 2014 10-K – 102

CORPORATE PROPERTY ASSOCIATES 18 – GLOBAL INCORPORATED
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
Beginning balance
 
$
150,424

 
$
—

Additions
 
618,248

 
150,403

Improvements
 
1,551

 
—

Reclassification from real estate under construction
 
18,502

 
—

Foreign currency translation adjustment
 
(44,990
)
 
21

Ending balance
 
$
743,735

 
$
150,424

 
 
Reconciliation of Accumulated 
Depreciation for Real Estate 
Subject to Operating Leases
 
 
Years Ended December 31,
 
 
2014
 
2013
Beginning balance
 
$
824

 
$
—

Depreciation expense
 
10,543

 
824

Foreign currency translation adjustment
 
(492
)
 
—

Ending balance
 
$
10,875

 
$
824

 
 
Reconciliation of Operating Real Estate
 
 
Years Ended December 31,
 
 
2014
 
2013
Beginning balance
 
$
—

 
$
—

Additions
 
133,596

 
—

Ending balance
 
$
133,596

 
$
—

 
 
Reconciliation of Accumulated 
Depreciation for Operating Real Estate
 
 
Years Ended December 31,
 
 
2014
 
2013
Beginning balance
 
$
—

 
$
—

Depreciation expense
 
939

 
—

Ending balance
 
$
939

 
$
—


At December 31, 2014 , the aggregate cost of real estate we and our consolidated subsidiaries own for federal income tax purposes was $1.0 billion . 


CPA ® :18 – Global 2014 10-K – 103

CORPORATE PROPERTY ASSOCIATES 18 – GLOBAL INCORPORATED
SCHEDULE IV — MORTGAGE LOANS ON REAL ESTATE
December 31, 2014
(dollars in thousands)
 
 
Interest Rate
 
Final Maturity Date
 
Fair Value
 
Carrying Amount
Description
 
 
 
 
Financing agreement - Cipriani
 
10.0
%
 
Jul. 2024
 
$
28,000

 
$
28,000



NOTES TO SCHEDULE IV — MORTGAGE LOANS ON REAL ESTATE
(in thousands)
 
 
Reconciliation of Mortgage Loans on Real Estate
 
 
Year Ended December 31,
 
 
2014
 
2013
Balance
 
$
—

 
$
—

Additions
 
28,000

 
—

Ending balance
 
$
28,000

 
$
—

 


CPA ® :18 – Global 2014 10-K – 104

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 such term is 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 as of December 31, 2014. In making this assessment, we used criteria set forth in Internal Control - Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission. Based on our assessment, we concluded that, as of December 31, 2014, our internal control over financial reporting is effective based on those criteria.
 
This Annual Report does not include an attestation report of our independent registered public accounting firm regarding internal control over financial reporting. Management’s report was not subject to attestation by our independent registered public accounting firm pursuant to SEC rules that permit us to provide only management’s report in this Annual Report.

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 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

Item 9B. Other Information.
 
None.

CPA ® :18 – Global 2014 10-K – 105



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.

CPA ® :18 – Global 2014 10-K – 106



PART IV
Item 15. Exhibits and Financial Statement Schedules.

The following exhibits are filed with this Report, except where indicated.
Exhibit No.
 
Description
 
Method of Filing
3.1

Articles of Incorporation

Incorporated by reference to Exhibit 3.1 to the registrant's Registration Statement on Form S-11 (File No. 333-185111) filed on March 15, 2013





3.2

Articles of Amendment and Restatement of Corporate Property Associates 18 – Global Incorporated

Incorporated by reference to Exhibit 3.1 to the registrant's Form 8-A filed on June 11, 2013





3.3

Bylaws of Corporate Property Associates 18 – Global Incorporated

Incorporated by reference to Exhibit 3.2 to the registrant's Registration Statement on Form S-11 (File No. 333-185111) filed on November 21, 2012





4.1

Distribution Reinvestment and Stock Purchase Plan

Incorporated by reference to Exhibit 4.1 to the registrant’s Form 8-A filed on June 11, 2013





10.1

Form of Selected Dealer Agreement

Incorporated by reference to Exhibit 10.1 to the registrant's Registration Statement on Form S-11 (File No. 333-185111) filed on April 15, 2013





10.2
 
Purchase and Sale Agreement by University Cup, LLC and Cups Number One (DE) LLC, dated as of January 13, 2014
 
Incorporated by reference to Exhibit 10.1 to Current Report on Form 8-K filed on February 7, 2014
 
 
 
 
 
10.3
 
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 the registrant’s Quarterly Report on Form 10-Q filed on June 20, 2013
 
 
 
 
 
10.4
 
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.
 
Incorporated by reference to Exhibit 10.15 to W. P. Carey’s Annual Report on Form 10-K filed on March 2, 2015
 
 
 
 
 
10.5
 
Amended and Restated Agreement of Limited Partnership, dated as of January 1, 2015, by and between Corporate Property Associates 18 – Global Incorporated and WPC–CPA ® :18 Holdings, LLC
 
Filed herewith
 
 
 
 
 
10.6
 
Asset Management Agreement, dated as of July 24, 2013, between Corporate Property Associates 18 – Global Incorporated and W. P. Carey & Co. B.V.
 
Incorporated by reference to Exhibit 10.24 to W. P. Carey’s Annual Report on Form 10-K filed on March 2, 2015
 
 
 
 
 
10.7
 
Amended and Restated Limited Liability Company Operating Agreement of SFT INS (TX) LLC, effective as of August 20, 2013
 
Incorporated by reference to Exhibit 10.1 to the registrant's Quarterly Report on Form 10-Q filed on November 8, 2013
 
 
 
 
 
10.8
 
Framework Agreement dated December 18, 2013 among Agrokor d.d., Konzum d.d. and WPC Agro 5 d.o.o.
 
Incorporated by reference to Exhibit 10.1 to the registrant's current Report on Form 8-K filed on December 24, 2013
 
 
 
 
 
21.1

List of Registrant Subsidiaries

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






CPA ® :18 – Global 2014 10-K – 107



Exhibit No.
 
Description
 
Method of Filing
101

The following materials from Corporate Property Associates 18 – Global Incorporated’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 Operations for the years ended December 31, 2014 and 2013, (iii) Consolidated Statements of Comprehensive Loss for the years ended December 31, 2014 and 2013, (iv) Consolidated Statements of Equity for the years ended December 31, 2014, 2013, and Period from September 7, 2012 (Inception) to December 31, 2012 (v) Consolidated Statements of Cash Flows for the years ended December 31, 2014 and 2013, (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

CPA ® :18 – Global 2014 10-K – 108

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.

Corporate Property Associates 18 – Global Incorporated

Date:
March 27, 2015
 
 
 
 
By:
/s/ Catherine D. Rice
 
 
 
Catherine D. Rice
 
 
 
Chief Financial Officer

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
 
Chief Executive Officer and Director
 
March 27, 2015
Trevor P. Bond
 
(Principal Executive Officer)
 
 
 
 
 
 
 
/s/ Catherine D. Rice
 
Chief Financial Officer
 
March 27, 2015
Catherine D. Rice
 
(Principal Financial Officer)
 
 
 
 
 
 
 
/s/ Hisham A. Kader
 
Chief Accounting Officer
 
March 27, 2015
Hisham A. Kader
 
(Principal Accounting Officer)
 
 
 
 
 
 
 
/s/ Marshall E. Blume
 
Director
 
March 27, 2015
Marshall E. Blume
 
 
 
 
 
 
 
 
 
/s/ Elizabeth P. Munson
 
Director
 
March 27, 2015
Elizabeth P. Munson
 
 
 
 
 
 
 
 
 
/s/ Richard J. Pinola
 
Director
 
March 27, 2015
Richard J. Pinola
 
 
 
 
 
 
 
 
 
/s/ James D. Price
 
Director
 
March 27, 2015
James D. Price
 
 
 
 



CPA ® :18 – Global 2014 10-K – 109

EXHIBIT INDEX

The following exhibits are filed with this Report, except where indicated.
Exhibit No.
 
Description
 
Method of Filing
3.1

Articles of Incorporation

Incorporated by reference to Exhibit 3.1 to the registrant's Registration Statement on Form S-11 (File No. 333-185111) filed on March 15, 2013





3.2

Articles of Amendment and Restatement of Corporate Property Associates 18 – Global Incorporated

Incorporated by reference to Exhibit 3.1 to the registrant's Form 8-A filed on June 11, 2013





3.3

Bylaws of Corporate Property Associates 18 – Global Incorporated

Incorporated by reference to Exhibit 3.2 to the registrant's Registration Statement on Form S-11 (File No. 333-185111) filed on November 21, 2012





4.1

Distribution Reinvestment and Stock Purchase Plan

Incorporated by reference to Exhibit 4.1 to the registrant’s Form 8-A filed on June 11, 2013





10.1

Form of Selected Dealer Agreement

Incorporated by reference to Exhibit 10.1 to the registrant's Registration Statement on Form S-11 (File No. 333-185111) filed on April 15, 2013





10.2
 
Purchase and Sale Agreement by University Cup, LLC and Cups Number One (DE) LLC, dated as of January 13, 2014
 
Incorporated by reference to Exhibit 10.1 to Current Report on Form 8-K filed on February 7, 2014
 
 
 
 
 
10.3
 
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 the registrant’s Quarterly Report on Form 10-Q filed on June 20, 2013
 
 
 
 
 
10.4
 
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.
 
Incorporated by reference to Exhibit 10.15 to W. P. Carey’s Annual Report on Form 10-K filed on March 2, 2015
 
 
 
 
 
10.5
 
Amended and Restated Agreement of Limited Partnership, dated as of January 1, 2015, by and between Corporate Property Associates 18 – Global Incorporated and WPC–CPA ® :18 Holdings, LLC
 
Filed herewith
 
 
 
 
 
10.6
 
Asset Management Agreement, dated as of July 24, 2013, between Corporate Property Associates 18 – Global Incorporated and W. P. Carey & Co. B.V.
 
Incorporated by reference to Exhibit 10.24 to W. P. Carey’s Annual Report on Form 10-K filed on March 2, 2015
 
 
 
 
 
10.7
 
Amended and Restated Limited Liability Company Operating Agreement of SFT INS (TX) LLC, effective as of August 20, 2013
 
Incorporated by reference to Exhibit 10.1 to the registrant's Quarterly Report on Form 10-Q filed on November 8, 2013
 
 
 
 
 
10.8
 
Framework Agreement dated December 18, 2013 among Agrokor d.d., Konzum d.d. and WPC Agro 5 d.o.o.
 
Incorporated by reference to Exhibit 10.1 to the registrant's current Report on Form 8-K filed on December 24, 2013
 
 
 
 
 
21.1

List of Registrant Subsidiaries

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







Exhibit No.
 
Description
 
Method of Filing
101

The following materials from Corporate Property Associates 18 – Global Incorporated’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 Operations for the years ended December 31, 2014 and 2013, (iii) Consolidated Statements of Comprehensive Loss for the years ended December 31, 2014 and 2013, (iv) Consolidated Statements of Equity for the years ended December 31, 2014, 2013, and Period from September 7, 2012 (Inception) to December 31, 2012 (v) Consolidated Statements of Cash Flows for the years ended December 31, 2014 and 2013, (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





Exhibit 10.5

AMENDED AND RESTATED
AGREEMENT OF LIMITED PARTNERSHIP
OF CPA:18 LIMITED PARTNERSHIP

THIS AMENDED AND RESTATED AGREEMENT OF LIMITED PARTNERSHIP OF CPA:18 LIMITED PARTNERSHIP, a Delaware limited partnership (the “Partnership”), dated as of January 1, 2015 (the “Effective Date”), is entered into by and among Corporate Property Associates 18 - Global Incorporated, a Maryland corporation holding both general partner and limited partner interests in the Partnership (the “General Partner”), and WPC-CPA:18 Holdings, LLC, a Delaware limited liability company holding a special general partner interest in the Partnership (the “Special General Partner”), together with any other Persons who become Partners in the Partnership as provided herein.
WHEREAS, the Partnership was formed when a Certificate of Limited Partnership was filed and accepted by the Secretary of State of the State of Delaware; and
WHEREAS, the Partners entered into that certain Agreement of Limited Partnership of CPA:18 Limited Partnership, dated May 7, 2013 (the “Original Partnership Agreement”), and the Partners desire re to amend and restate the Original Partnership Agreement on the terms set forth herein; and
WHEREAS, Section 7.3B of the Original Partnership Agreement provides that the General Partner may amend the Original Partnership Agreement with the Consent of the Partners, which consent is evidenced by the execution of this Agreement by the General Partner;
NOW, THEREFORE, BE IT RESOLVED, that for good and adequate consideration, the receipt of which is hereby acknowledged, the parties hereto agree as follows:
Article 1
DEFINED TERMS
Section 1.1      Definitions.
The following definitions shall be for all purposes, unless otherwise clearly indicated to the contrary, applied to the terms used in this Agreement.
“Act” means the Delaware Revised Uniform Limited Partnership Act (6 Del. C. Section 17-101 et seq.), as it may be amended from time to time, and any successor to such statute.
“Additional Funds” shall have the meaning set forth in Section 4.4.A.
“Additional Limited Partner” means a Person admitted to the Partnership as a Limited Partner pursuant to Section 12.2 and who is shown as such on the books and records of the Partnership.
“Adjusted Capital Account Deficit” means, with respect to any Partner, the deficit balance, if any, in such Partner’s Capital Account as of the end of the relevant fiscal year, after giving effect to the following adjustments:
(i)    such deficit shall be decreased by any amounts which such Partner is obligated to restore pursuant to this Agreement or is deemed to be obligated to restore pursuant to Regulations Section 1.704-1(b)(2)(ii)(c) or the penultimate sentence of each of Regulations Sections 1.704-2(i)(5) and 1.704-2(g)(1); and

 
 
 


(ii)    such deficit shall be increased by the items described in Regulations Section 1.704-1(b)(2)(ii)(d)(4), (5) and (6).
The foregoing definition of Adjusted Capital Account Deficit is intended to comply with the provisions of Regulations Section 1.704-1(b)(2)(ii)(d) and shall be interpreted consistently therewith. A positive balance in a Partner’s Capital Account, after giving effect to the adjustments described above in clauses (i) and (ii), is referred to in this Agreement as an “Adjusted Capital Account Balance.”
“Adjustment Date” means, with respect to any Capital Contribution, the close of business on the Business Day last preceding the date of the Capital Contribution, provided , that if such Capital Contribution is being made by the General Partner in respect of the proceeds from the issuance of REIT Shares (or the issuance of the General Partner’s securities exercisable for, convertible into or exchangeable for REIT Shares), then the Adjustment Date shall be as of the close of business on the Business Day last preceding the date of the issuance of such securities.
“Advisor” means Carey Asset Management Corp., a Delaware corporation.
“Advisory Agreement” means that certain Advisory Agreement between the Advisor and the General Partner entered into contemporaneously with this Agreement.
“Affiliate” means, with respect to any Person, any Person directly or indirectly controlling, controlled by or under common control with such Person. Control of any Person means the power to direct the management and policies of such Person, directly or indirectly, whether through the ownership of voting securities, by contract or otherwise, and the terms “controlling” and “controlled” have meanings correlative to the foregoing.
“Agreed Value” means (i) in the case of any Contributed Property set forth in Exhibit A and as of the time of its contribution to the Partnership, the Agreed Value of such property as set forth in Exhibit A; (ii) in the case of any Contributed Property not set forth in Exhibit A and as of the time of its contribution to the Partnership, the fair market value of such property or other consideration as determined by the General Partner, reduced by any liabilities either assumed by the Partnership upon such contribution or to which such property is subject when contributed; and (iii) in the case of any property distributed to a Partner by the Partnership, the fair market value of such property as determined by the General Partner at the time such property is distributed, reduced by any liabilities either assumed by such Partner upon such distribution or to which such property is subject at the time of the distribution as determined under Section 752 of the Code and the Regulations thereunder.
“Agreement” means this Agreement of Limited Partnership, as it may be amended, modified, supplemented or restated from time to time.
“Appraisal” means with respect to any assets, the opinion of an independent third party experienced in the valuation of similar assets, selected by the General Partner and the Special General Partner in good faith; such opinion may be in the form of an opinion by such independent third party that the value for such property or asset as set by the General Partner is fair, from a financial point of view, to the Partnership.
“Assignee” means a Person to whom one or more OP Units have been transferred in a manner permitted under this Agreement, but who has not become a Substituted Limited Partner, and who has the rights set forth in Section 11.5.

 
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“Available Cash” means, with respect to any period for which such calculation is being made, the cash flow generated by Partnership operations and investments as determined in the reasonable discretion of the General Partner, taking into account all cash available for distribution from all sources excluding Capital Proceeds, after the payment of regular debt payments (including, without limitation, regularly scheduled payments of interest and amortization, but excluding balloon payments and early prepayment of debt principal) and Operating Expenses of the Partnership (as defined in the Advisory Agreement) but before the payment of distributions to Partners. Notwithstanding the foregoing, the operating cash flow of any entity in which the Partnership owns, directly or indirectly, less than a 100% interest shall be multiplied by the percentage ownership of such entity held, directly or indirectly, by the Partnership.
“Available Cash from Investments” means that portion of Available Cash attributable to Investments (other than Available Cash from Real Estate Securities), as determined by the General Partner in its reasonable discretion.
“Available Cash from Real Estate Securities” means that portion of Available Cash attributable to the Partnership’s investments in readily marketable real estate securities, as determined by the General Partner in its reasonable discretion.
“Business Day” means any day except a Saturday, Sunday or other day on which commercial banks in New York, New York are authorized or required by law to be closed.
“Capital Account” means, with respect to any Partner, the Capital Account maintained for such Partner in accordance with the following provisions:
(a)    To each Partner’s Capital Account there shall be added such Partner’s Capital Contributions, such Partner’s share of Net Income and any items in the nature of income or gain which are specially allocated pursuant to Section 6.3, and the amount of any Partnership liabilities assumed by such Partner or which are secured by any property distributed to such Partner.
(b)    From each Partner’s Capital Account there shall be subtracted the amount of cash and the Gross Asset Value of any property distributed to such Partner pursuant to any provision of this Agreement, such Partner’s distributive share of Net Loss and any items in the nature of expenses or losses which are specially allocated pursuant to Section 6.3, and the amount of any liabilities of such Partner assumed by the Partnership or which are secured by any property contributed by such Partner to the Partnership (except to the extent already reflected in the amount of such Partner’s Capital Contribution).
(c)    In the event any interest in the Partnership is transferred in accordance with the terms of this Agreement, the transferee shall succeed to the Capital Account of the transferor to the extent it relates to the transferred interest.
(d)    In determining the amount of any liability for purposes of subsections (a) and (b) hereof, there shall be taken into account Code Section 752(c) and any other applicable provisions of the Code and Regulations.
(e)    The foregoing provisions and the other provisions of this Agreement relating to the maintenance of Capital Accounts are intended to comply with Regulations Sections 1.704-1(b) and 1.704-2, and shall be interpreted and applied in a manner consistent with such Regulations. In the event the General Partner shall determine that it is prudent to modify the manner in which the Capital Accounts, or any debits or credits thereto (including, without limitation, debits or credits relating to liabilities which are secured by contributed or distributed property or which are assumed by the Partnership, the General

 
3
 


Partner, or the Limited Partners) are computed in order to comply with such Regulations, the General Partner may make such modification, provided that it is not likely to have a material effect on the amounts distributable to any Person pursuant to Article 13 of this Agreement upon the dissolution of the Partnership. The General Partner also shall (i) make any adjustments that are necessary or appropriate to maintain equality between the Capital Accounts of the Partners and the amount of Partnership capital reflected on the Partnership’s balance sheet, as computed for book purposes, in accordance with Regulations Section 1.704-1(b)(2)(iv)(q), and (ii) make any appropriate modifications in the event unanticipated events might otherwise cause this Agreement not to comply with Regulations Section 1.704-1(b) or Section 1.704-2.
“Capital Contribution” means, with respect to any Partner, the amount of money and the initial Gross Asset Value of any property (other than money) contributed to the Partnership by such Partner (net of any liabilities assumed by the Partnership relating to such property and any liability to which such property is subject).
“Capital Proceeds” means the gross receipts received by the Partnership from a Capital Transaction, Change of Control Event or a Listing Event (including any borrowing or other transaction entered into in connection with, or as part of, a Capital Transaction, Change of Control Event or a Listing Event), less any expenses related to the Capital Transaction, Change of Control Event or a Listing Event.
“Capital Transaction” means any transaction outside the ordinary course of the Partnership’s business involving the sale, exchange, other disposition, or refinancing of any Partnership asset.
“Cash Amount” means, with respect to any OP Units subject to a Redemption, an amount of cash equal to the Deemed Partnership Interest Value attributable to such OP Units.
“Certificate” means the Certificate of Limited Partnership relating to the Partnership filed in the office of the Secretary of the State of the State of Delaware, as amended from time to time in accordance with the terms hereof and the Act.
“Change of Control” shall be deemed to have occurred at such time as (i) the date a “person” or “group” (within the meaning of Sections 13(d) and 14(d) of the Exchange Act) becomes the ultimate “beneficial owner” (as defined in Rules 13d-3 and 13d-5 under the Exchange Act, except that a person or group shall be deemed to have beneficial ownership of all shares of voting stock that such person or group has the right to acquire regardless of when such right is first exercisable), directly or indirectly, of voting stock representing more than 50% of the total voting power of the total voting stock of the General Partner; (ii) the date the General Partner sells, transfers or otherwise disposes of all or substantially all of its assets; or (iii) the date of the consummation of a merger or share exchange of the General Partner with another entity where the General Partner’s stockholders immediately prior to the merger or share exchange would not beneficially own, immediately after the merger or share exchange, shares representing 50% or more of all votes (without consideration of the rights of any class of stock to elect directors by a separate group vote) to which all stockholders of the corporation issuing cash or securities in the merger or share exchange would be entitled in the election of directors, or where members of the board of directors of the General Partner immediately prior to the merger or share exchange would not immediately after the merger or share exchange constitute a majority of the board of directors of the corporation issuing cash or securities in the merger or share exchange.
“Change of Control Event” means (i) the date on which another Person acquires more than fifty percent (50%) of the aggregate ordinary voting power represented by the equity securities of the General Partner by purchase or by merger provided that the indirect ownership of the General Partner immediately

 
4
 


after the acquisition differs from the direct ownership of the General Partner immediately before the acquisition by more than a de minimis amount; or (ii) the date on which the General Partner merges with another Person provided that the ownership of the entity surviving the merger immediately after the merger differs from the ownership of the General Partner immediately before the merger by more than a de minimis amount.
“Charter” means the Articles of Incorporation of the General Partner filed with the State Department of Assessments and Taxation of Maryland on September 7, 2012, as amended or restated from time to time.
“Class” means a class of REIT Shares or OP Units, as the context may require.
“Class A REIT Shares” means the REIT Shares classified as “Class A” shares in the Charter.
“Class A OP Unit” means an OP Unit entitling the holder thereof to the rights of a holder of a Class A OP Unit as provided in this Agreement.
“Class C REIT Shares” means the REIT Shares classified as “Class C” shares in the Charter.
“Class C OP Unit” means an OP Unit entitling the holder thereof to the rights of a holder of a Class C OP Unit as provided in this Agreement.
“Code” means the Internal Revenue Code of 1986, as amended from time to time or any successor statute thereto. Any reference herein to a specific section or sections of the Code shall be deemed to include a reference to any corresponding provision of future law.
“Consent” means the consent to, approval of, or vote on a proposed action by a Partner given in accordance with Article 14.
“Consent of the Limited Partners” means the Consent of a Majority in Interest of the Limited Partners, which Consent shall be obtained prior to the taking of any action for which it is required by this Agreement and may be given or withheld by a Majority in Interest of the Limited Partners, unless otherwise expressly provided herein, in their sole and absolute discretion.
“Consent of the Partners” means the Consent of Partners holding Percentage Interests that in the aggregate are equal to or greater than fifty percent (50%) of the aggregate Percentage Interests of all Partners, which Consent shall be obtained prior to the taking of any action for which it is required by this Agreement and may be given or withheld by such Partners, in their sole and absolute discretion.
“Constructively Own” means ownership under the constructive ownership rules described in the Charter.
“Contributed Property” means each property or other asset, in such form as may be permitted by the Act, but excluding cash, contributed or deemed contributed to the Partnership.
“Debt” means, as to any Person, as of any date of determination, (i) all indebtedness of such Person for borrowed money or for the deferred purchase price of property or services; (ii) all amounts owed by such Person to banks or other Persons in respect of reimbursement obligations under letters of credit, surety bonds, guarantees and other similar instruments guaranteeing payment or other performance of obligations by such Person; (iii) all indebtedness for borrowed money or for the deferred purchase

 
5
 


price of property or services secured by any lien on any property owned by such Person, to the extent attributable to such Person’s interest in such property, even though such Person has not assumed or become liable for the payment thereof; and (iv) lease obligations of such Person which, in accordance with generally accepted accounting principles, should be capitalized.
“Deemed Partnership Interest Value” means, as of any date with respect to any class of Partnership Interests, the Deemed Value of the Partnership Interests of such class multiplied by the Partner’s relative Percentage Interest of such class.
“Deemed Value of the Partnership Interests” means, as of any date with respect to any class or series of Partnership Interests, (i) the total number of OP Units of the General Partner issued and outstanding as of the close of business on such date multiplied by the Fair Market Value determined as of such date of a share of common stock of the General Partner which corresponds to such Partnership Interest, as adjusted (x) pursuant to Section 7.5 (in the event the General Partner acquires material assets, other than on behalf of the Partnership) and (y) for stock dividends and distributions, stock splits and subdivisions, reverse stock splits and combinations, distribution of warrants or options and distributions of evidences of indebtedness or assets not received by the General Partner pursuant to a pro rata distribution by the Partnership; (ii) divided by the Percentage Interest of the General Partner on such date; provided , that if no outstanding shares of capital stock of the General Partner correspond to a class or series of Partnership Interests, the Deemed Value of the Partnership Interests with respect to such class or series shall be equal to an amount reasonably determined by the General Partner.
“Depreciation” means, for each fiscal year or other period, an amount equal to the depreciation, amortization or other cost recovery deduction allowable with respect to an asset for such year or other period, except that if the Gross Asset Value of an asset differs from its adjusted basis for federal income tax purposes at the beginning of such year or other period, Depreciation shall be an amount which bears the same ratio to such beginning Gross Asset Value as the federal income tax depreciation, amortization or other cost recovery deduction for such year or other period bears to such beginning adjusted tax basis; provided, however , that if the federal income tax depreciation, amortization or other cost recovery deduction for such year is zero, Depreciation shall be determined with reference to such beginning Gross Asset Value using any reasonable method selected by the General Partner.
“ERISA” means the Employee Retirement Income Security Act of 1974, as amended.
“Exchange Act” means the Securities Exchange Act of 1934, as amended, and the rules and regulations of the Securities and Exchange Commission promulgated thereunder and any successor statute thereto.
“Fair Market Value” means, with respect to any share of capital stock of the General Partner, (i) if such shares are listed or admitted to trading on any securities exchange or automated quotation system, the average of the daily market price for the ten (10) consecutive trading days immediately preceding the date with respect to which “Fair Market Value” must be determined hereunder or, if such date is not a Business Day, the immediately preceding Business Day, using as the market price for each such trading day the closing price, regular way, on such day, or if no such sale takes place on such day, the average of the closing bid and asked prices on such day, or (ii) if such shares are not listed or admitted to trading on any securities exchange or automated quotation system, the price at which such shares are then being offered to the public pursuant to any public offering of the General Partner or pursuant to its distribution reinvestment plan (before giving effect to any discounts in effect and made available to participants in such plan); provided that, if there is no ongoing public offering or if the General Partner is not then

 
6
 


offering its shares pursuant to a distribution reinvestment plan, the Fair Market Value of such shares shall be determined by the General Partner acting in good faith on the basis of the most recent, publicly reported net asset value of the General Partner and other information as it considers, in its reasonable judgment, appropriate. In the event the REIT Shares Amount for such shares includes rights that a holder of such shares would be entitled to receive, then the Fair Market Value of such rights shall be determined by the General Partner acting in good faith on the basis of such quotations and other information as it considers, in its reasonable judgment, appropriate; and provided, further that, in connection with determining the Deemed Value of the Partnership Interests for purposes of determining the number of additional OP Units issuable upon a Capital Contribution funded by an underwritten public offering of shares of capital stock of the General Partner, the Fair Market Value of such shares shall be the public offering price per share of such class of capital stock sold. Notwithstanding the foregoing, the General Partner in its reasonable discretion may use a different “Fair Market Value” for purposes of making the determinations under subparagraph (b) of the definition of “Gross Asset Value” and Section 4.4.D in connection with the contribution of Property or cash to the Partnership by a third party, provided such value shall be based upon the value per REIT Share (or per OP Unit) agreed upon by the General Partner and such third party for purposes of such contribution.
“General Partner Interest” means a Partnership Interest held by the General Partner. A General Partner Interest may be expressed as a number of OP Units.
“General Partner Net Current Investment” means the General Partner’s total Capital Contributions then paid to the Partnership, plus the amount of any Partnership liabilities assumed by the General Partner (or which are secured by Partnership property distributed to the General Partner), less (i) the amount of any liabilities of the General Partner assumed by the Partnership (or which are secured by property contributed by the General Partner to the Partnership), (ii) all amounts actually distributed to the General Partner pursuant to Section 5.1.B(2), and (iii) all amounts representing a return of capital to the General Partner, including, but not limited to, the portion of any redemption proceeds distributed to the General Partner pursuant to Section 11.8 which represents a return of capital to the General Partner.
“General Partner Priority Return” means an amount equal to six percent (6%) per annum of the Weighted Average General Partner Net Current Investment, payable to the General Partner annually on a cumulative basis.
“General Partner Unpaid Priority Return” means the excess, if any, of the General Partner Priority Return over all amounts previously paid to the General Partner under Section 5.1.A, or paid in respect of the General Partner Priority Return under Section 5.1.B(1) as of the time in question.
“Gross Asset Value” means, with respect to any asset, the asset’s adjusted basis for federal income tax purposes, except as follows:
(a)    The initial Gross Asset Value of any asset contributed by a Partner to the Partnership shall be the gross fair market value of such asset, as determined by the contributing Partner and the General Partner (as set forth on Exhibit A attached hereto, as such Exhibit may be amended from time to time); provided , that if the contributing Partner is the General Partner, then, except with respect to the General Partner’s initial Capital Contribution which shall be determined as set forth on Exhibit A, the determination of the fair market value of the contributed asset shall be determined (i) by the price paid by the General Partner if the asset is acquired by the General Partner contemporaneously with its contribution to the Partnership, (ii) by Appraisal, if otherwise acquired by the General Partner, (iii) by the

 
7
 


amount of cash if the asset is cash, and (iv) as reasonably determined by the General Partner if the asset is REIT Shares or other shares of capital stock of the General Partner.
(b)    The Gross Asset Values of all Partnership assets shall be adjusted to equal their respective gross fair market values, as determined by the General Partner using such reasonable method of valuation as it may adopt, provided, however, that for such purpose, the net value of all of the Partnership assets, in the aggregate, shall be equal to the Deemed Value of the Partnership Interests of all classes of Partnership Interests then outstanding, regardless of the method of valuation adopted by the General Partner, immediately prior to the times listed below:
(i)    the acquisition of an additional interest in the Partnership by a new or existing Partner in exchange for more than a de minimis Capital Contribution, if the General Partner reasonably determines that such adjustment is necessary or appropriate to reflect the relative economic interests of the Partners in the Partnership;
(ii)    the distribution by the Partnership to a Partner of more than a de minimis amount of Partnership property as consideration for an interest in the Partnership if the General Partner reasonably determines that such adjustment is necessary or appropriate to reflect the relative economic interests of the Partners in the Partnership;
(iii)    the liquidation of the Partnership within the meaning of Regulations Section 1.704-1(b)(2)(ii)(g);
(iv)    at such other times as the General Partner shall reasonably determine necessary or advisable in order to comply with Regulations Sections 1.704-1(b) and 1.704-2; and
(v)    in connection with the grant of an interest in the Partnership (other than a de minimis interest) as consideration for the provision of services to or for the benefit of the Partnership by an existing Partner acting in a partner capacity or by a new Partner acting in a partner capacity or in anticipation of becoming a Partner.
(c)    The Gross Asset Value of any Partnership asset distributed to a Partner shall be the gross fair market value of such asset on the date of distribution as determined by the distributee and the General Partner, or if the distributee and the General Partner cannot agree on such a determination, by Appraisal.
(d)    The Gross Asset Values of Partnership assets shall be increased (or decreased) to reflect any adjustments to the adjusted basis of such assets pursuant to Code Section 734(b) or Code Section 743(b), but only to the extent that such adjustments are taken into account in determining Capital Accounts pursuant to Regulations Section 1.704-1(b)(2)(iv)(m); provided, however , that Gross Asset Values shall not be adjusted pursuant to this subparagraph (d) to the extent that the General Partner reasonably determines that an adjustment pursuant to subparagraph (b) is necessary or appropriate in connection with a transaction that would otherwise result in an adjustment pursuant to this subparagraph (d).
(e)    If the Gross Asset Value of a Partnership asset has been determined or adjusted pursuant to subparagraph (a), (b) or (d), such Gross Asset Value shall thereafter be adjusted by the Depreciation taken into account with respect to such asset for purposes of computing Net Income and Net Loss.
“Immediate Family Member” means, with respect to any natural Person, such natural Person’s estate or heirs or current spouse or former spouse, parents, parents-in-law, children (whether natural, adopted or by marriage), siblings and grandchildren and any trust or estate, all of the beneficiaries of

 
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which consist of such Person or such Person’s spouse or former spouse, parents, parents-in-law, children, siblings or grandchildren.
“Incapacity” or “Incapacitated” means, (i) as to any individual Partner, death, total physical disability or entry by a court of competent jurisdiction adjudicating him or her incompetent to manage his or her Person or his or her estate; (ii) as to any corporation which is a Partner, the filing of a certificate of dissolution, or its equivalent, for the corporation or the revocation of its charter; (iii) as to any partnership which is a Partner, the dissolution and commencement of winding up of the partnership; (iv) as to any estate which is a Partner, the distribution by the fiduciary of the estate’s entire interest in the Partnership; (v) as to any trustee of a trust which is a Partner, the termination of the trust (but not the substitution of a new trustee); or (vi) as to any Partner, the bankruptcy of such Partner. For purposes of this definition, bankruptcy of a Partner shall be deemed to have occurred when (a) the Partner commences a voluntary proceeding seeking liquidation, reorganization or other relief under any bankruptcy, insolvency or other similar law now or hereafter in effect, (b) the Partner is adjudged as bankrupt or insolvent, or a final and nonappealable order for relief under any bankruptcy, insolvency or similar law now or hereafter in effect has been entered against the Partner, (c) the Partner executes and delivers a general assignment for the benefit of the Partner’s creditors, (d) the Partner files an answer or other pleading admitting or failing to contest the material allegations of a petition filed against the Partner in any proceeding of the nature described in clause (b) above, (e) the Partner seeks, consents to or acquiesces in the appointment of a trustee, receiver or liquidator for the Partner or for all or any substantial part of the Partner’s properties, (f) any proceeding seeking liquidation, reorganization or other relief under any bankruptcy, insolvency or other similar law now or hereafter in effect has not been dismissed within 120 days after the commencement thereof, (g) the appointment without the Partner’s consent or acquiescence of a trustee, receiver or liquidator has not been vacated or stayed within 90 days of such appointment, or (h) an appointment referred to in clause (g) is not vacated within 90 days after the expiration of any such stay.
“Indemnitee” means (i) any Person subject to a claim or demand or made or threatened to be made a party to, or involved or threatened to be involved in, an action, suit or proceeding by reason of his or her status as (A) the General Partner or (B) a director, officer or employee of the Partnership or the General Partner, and (ii) such other Persons (including Affiliates of the General Partner or the Partnership) as the General Partner may designate from time to time (whether before or after the event giving rise to potential liability), in its sole and absolute discretion.
“Investments” means investments made by the Partnership, directly or indirectly, in a Property, Loan or Other Permitted Investment Asset.
“IRS” means the United States Internal Revenue Service.
“Limited Partner” means any Person named as a Limited Partner in Exhibit A attached hereto, as such Exhibit may be amended from time to time, or any Substituted Limited Partner or Additional Limited Partner, in such Person’s capacity as a Limited Partner in the Partnership.
“Limited Partner Interest” means a Partnership Interest of a Limited Partner representing a fractional part of the Partnership Interests of all Limited Partners and includes any and all benefits to which the holder of such a Partnership Interest may be entitled as provided in this Agreement, together with all obligations of such Person to comply with the terms and provisions of this Agreement. A Limited Partner Interest may be expressed as a number of OP Units.
“Liquidating Event” shall have the meaning set forth in Section 13.1.

 
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“Liquidator” shall have the meaning set forth in Section 13.2.A.
“Listing Event” means the date on which the REIT Shares are first listed on a national securities exchange or admitted for trading in an automated quotation system.
“Listed Market Value” means the average closing price of the REIT Shares as reported by the primary securities exchange or automated quotations system in which such securities are then listed or admitted to trading for the thirty (30) trading days beginning with the first trading day after the one hundred and eightieth (180 th ) day after such securities are first listed or admitted to trading; provided, however , that if no sales take place on any of such thirty (30) days, the average of the closing bid and asked prices on such day shall be used.
“Loans” means notes and other evidences of indebtedness or obligations acquired, originated or entered into, directly or indirectly, by the Partnership 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, 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. Loans shall not include leases which are not recognized as leases for federal income tax reporting purposes.
“Majority in Interest of the Limited Partners” means Limited Partners holding in the aggregate Percentage Interests that are greater than fifty percent (50%) of the aggregate Percentage Interests of all Limited Partners.
“Net Income” or “Net Loss” means for each fiscal year of the Partnership, an amount equal to the Partnership’s taxable income or loss for such fiscal year, determined in accordance with Code Section 703(a) (for this purpose, all items of income, gain, loss, or deduction required to be stated separately pursuant to Code Section 703(a)(1) shall be included in taxable income or loss), with the following adjustments:
(a)    Any income of the Partnership that is exempt from federal income tax and not otherwise taken into account in computing Net Income or Net Loss pursuant to this definition of Net Income or Net Loss shall be added to such taxable income or loss;
(b)    Any expenditures of the Partnership described in Code Section 705(a)(2)(B) or treated as Code Section 705(a)(2)(B) expenditures pursuant to Regulations Section 1.704-1(b)(2)(iv)(i), and not otherwise taken into account in computing Net Income or Net Loss pursuant to this definition of Net Income or Net Loss shall be subtracted from such taxable income or loss;
(c)    In the event the Gross Asset Value of any Partnership asset is adjusted pursuant to subparagraph (b) or subparagraph (c) of the definition of Gross Asset Value, the amount of such adjustment shall be taken into account as gain or loss from the disposition of such asset for purposes of computing Net Income or Net Loss;
(d)    Gain or loss resulting from any disposition of property with respect to which gain or loss is recognized for federal income tax purposes shall be computed by reference to the Gross Asset Value of the property disposed of, notwithstanding that the adjusted tax basis of such property differs from its Gross Asset Value;

 
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(e)    In lieu of the depreciation, amortization, and other cost recovery deductions taken into account in computing such taxable income or loss, there shall be taken into account Depreciation for such fiscal year;
(f)    To the extent an adjustment to the adjusted tax basis of any Partnership asset pursuant to Code Section 734(b) or Code Section 743(b) is required pursuant to Regulations Section 1.704-1(b)(2)(iv)(m)(4) to be taken into account in determining Capital Accounts as a result of a distribution other than in liquidation of a Partner’s interest in the Partnership, the amount of such adjustment shall be treated as an item of gain (if the adjustment increases the basis of the asset) or loss (if the adjustment decreases the basis of the asset) from the disposition of the asset and shall be taken into account for purposes of computing Net Income or Net Loss; and
(g)    Notwithstanding any other provision of this definition of Net Income or Net Loss, any items which are specially allocated pursuant to Section 6.3 shall not be taken into account in computing Net Income or Net Loss. The amounts of the items of Partnership income, gain, loss, or deduction available to be specially allocated pursuant to Section 6.3 shall be determined by applying rules analogous to those set forth in this definition of Net Income or Net Loss.
“Net Income from a Capital Transaction” means that portion of Net Income attributable to a Capital Transaction.
“Net Income from Investments” means that portion of Net Income attributable to Investments (other than Net Income from Real Estate Securities), as determined by the General Partner in its reasonable discretion.
“Net Income from Real Estate Securities” means that portion of Net Income attributable to the Partnership’s investments in readily marketable real estate securities, as determined by the General Partner in its reasonable discretion.
“Net Loss from a Capital Transaction” means that portion of Net Loss attributable to a Capital Transaction.
“New Securities” means (i) any rights, options, warrants or convertible or exchangeable securities having the right to subscribe for or purchase REIT Shares or other shares of common stock of the General Partner, or (ii) any Debt issued by the General Partner that provides any of the rights described in clause (i).
“Nonrecourse Deductions” shall have the meaning set forth in Regulations Section 1.704-2(b)(1), and the amount of Nonrecourse Deductions for a Partnership Year shall be determined in accordance with the rules of Regulations Section 1.704-2(c).
“Nonrecourse Liability” shall have the meaning set forth in Regulations Section 1.752-1(a)(2).
“Notice of Redemption” means the Notice of Redemption substantially in the form of Exhibit B to this Agreement.
“OP Unit” means a fractional share of the Partnership Interests of all Partners issued pursuant to Article 4,  including Class A OP Units and Class C OP Units. The allocation of OP Units of each Class among the Partners shall be as set forth on Exhibit A, as such Exhibit may be amended from time to time.

 
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“Other Permitted Investment Asset” means assets, other than cash, cash equivalents, short term bonds, auction rate securities and similar short term investments, acquired by the Partnership for investment purposes that is not a Loan or a Property and is consistent with the investment objectives and policies of the Partnership.
“Partner” means a General Partner, a Special General Partner, or a Limited Partner, and “Partners” means the General Partner, the Special General Partner and the Limited Partners.
“Partner Minimum Gain” means an amount, with respect to each Partner Nonrecourse Debt, equal to the Partnership Minimum Gain that would result if such Partner Nonrecourse Debt were treated as a Nonrecourse Liability, determined in accordance with Regulations Section 1.704-2(i)(3).
“Partner Nonrecourse Debt” shall have the meaning set forth in Regulations Section 1.704-2(b)(4).
“Partner Nonrecourse Deductions” shall have the meaning set forth in Regulations Section 1.704-2(i)(2), and the amount of Partner Nonrecourse Deductions with respect to a Partner Nonrecourse Debt for a Partnership Year shall be determined in accordance with the rules of Regulations Section 1.704-2(i)(2).
“Partnership” means the limited partnership formed under the Act and pursuant to this Agreement, and any successor thereto.
“Partnership Interest” means, an ownership interest in the Partnership of either a Limited Partner, the Special General Partner, or the General Partner and includes any and all benefits to which the holder of such a Partnership Interest may be entitled as provided in this Agreement, together with all obligations of such Person to comply with the terms and provisions of this Agreement. There may be one or more classes or series of Partnership Interests as provided in Section 4.4. Except as otherwise provided for in this Agreement, a Partnership Interest may be expressed as a number of OP Units.
“Partnership Minimum Gain” shall have the meaning set forth in Regulations Section 1.704-2(b)(2), and the amount of Partnership Minimum Gain, as well as any net increase or decrease in Partnership Minimum Gain, for a Partnership Year shall be determined in accordance with the rules of Regulations Section 1.704-2(d).
“Partnership Record Date” means the record date established by the General Partner for the distribution of Available Cash pursuant to Section 5.1 which record date shall be the same as the record date established by the General Partner for a distribution to its stockholders of some or all of its portion of such distribution.
“Partnership Year” means the fiscal year of the Partnership, which shall be the calendar year.
“Percentage Interest” means, as to a Partner holding a class or series of Partnership Interests, its interest as determined, as of the first day of each Partnership Year, by dividing such Partner’s Adjusted Capital Account Balance by aggregate Adjusted Capital Account Balances of all Partners. For purposes of the preceding sentence, the Adjusted Capital Account Balances of the Partners shall be determined after giving effect to all allocations of Net Income and Net Loss for all preceding Partnership Years, including allocations of Net Income and Net Loss resulting from adjustments to the Gross Asset Value of the Partnership’s assets pursuant to the definition of Gross Asset Value.

 
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“Person” means an individual, corporation, partnership, limited liability company, trust, unincorporated organization, association or other entity.
“Plan Asset Regulation” means the regulations promulgated by the United States Department of Labor in Title 29, Code of Federal Regulations, Part 2510, Section 101.3, and any successor regulations thereto.
“Pledge” shall have the meaning set forth in Section 11.3.A.
“Property” or “Properties” means a partial or entire interest in real property (including leasehold interests) and personal or mixed property connected therewith. An Investment which obligates the Partnership to acquire a Property will be treated as a Property for purposes of this Agreement.
“Qualifying Party” means (a) an Additional Limited Partner; (b) an Immediate Family Member, or a lending institution as the pledgee of a Pledge, who is the transferee in a permitted transfer pursuant to Section 11.3; or (c) a Substituted Limited Partner succeeding to all or part of the Limited Partner Interest of (i) an Additional Limited Partner or (ii) an Immediate Family Member, or a lending institution who is the pledgee of a Pledge, who is the transferee in a permitted transfer pursuant to Section 11.3.
“Qualified REIT Subsidiary” means any Subsidiary of the General Partner that is a “qualified REIT subsidiary” within the meaning of Section 856(i) of the Code.
“Qualified Transferee” means an “Accredited Investor” as such term is defined in Rule 501 promulgated under the Securities Act.
“Redemption” shall have the meaning set forth in Section 8.6.A.
“Regulations” means the Treasury Regulations promulgated under the Code, as such regulations may be amended from time to time (including corresponding provisions of succeeding regulations).
“Regulatory Allocations” shall have the meaning set forth in Section 6.3.
“REIT” means a real estate investment trust, as defined under Sections 856 through 860 of the Code.
“REIT Requirements” shall have the meaning set forth in Section 5.1.
“REIT Share” means a share of common stock, par value $0.001 per share, of the General Partner, including Class A REIT Shares and Class C REIT Shares.
“REIT Shares Amount” means, with respect to Tendered Units of a Class, as of any date, an aggregate number of the corresponding Class of REIT Shares equal to the number of Tendered Units of such Class, as adjusted (x) pursuant to Section 7.5 (in the event the General Partner acquires material assets, other than on behalf of the Partnership) and (y) for stock dividends and distributions, stock splits and subdivisions, reverse stock splits and combinations, distributions of rights, warrants or options, and distributions of evidences of indebtedness or assets relating to assets not received by the General Partner pursuant to a pro rata distribution by the Partnership.
“Securities Act” means the Securities Act of 1933, as amended, and the rules and regulations of the Securities and Exchange Commission promulgated thereunder and any successor statute thereto.

 
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“Special Fees” means fees or expenses that are required or intended to be borne entirely or disproportionately by one or more particular Classes of OP Units, including but not limited to, selling commissions, dealer manager fees and distribution and shareholder servicing fees.
“Special General Partner Interest” means a Partnership Interest held by the Special General Partner. A Special General Partner Interest may be expressed as a number of OP Units, but only to the extent that the Special General Partner makes Capital Contributions to the Partnership.

“Special GP Value” means, as of any date of determination, the value of the Special General Partner Interest for purposes of Section 11.7, which shall be equal to the lesser of : (i) 5.0 times the total distributions of Available Cash paid by the Partnership to the Special General Partner pursuant to Section 5.1.A. in respect of the last completed fiscal year of the Partnership immediately preceding the date of determination; and (ii) the discounted value of expected future distributions of Available Cash payable to the Special General Partner pursuant to Section 5.1.A., based on projections prepared by the General Partner’s Advisor using reasonable assumptions, for the period from the date of determination until March 27, 2025, using as the discount rate for such calculation the weighted average discount rate used by the independent third-party valuation firm retained by the General Partner to determine the fair value of the General Partner’s investment portfolio for purposes of the General Partner’s most recently published estimated asset value per share prior to the date of determination, as adjusted to reflect any dispositions of assets that have occurred after the date as of which such estimated net asset value per share was determined to the date of determination.
“Specified Redemption Date” means the day of receipt by the General Partner of a Notice of Redemption.
“Subsidiary” means, with respect to any Person, any corporation, partnership, limited liability company, joint venture or other entity of which a majority of (i) the voting power of the voting equity securities or (ii) the outstanding equity interests is owned, directly or indirectly, by such Person.
“Subsidiary Partnership” means any partnership or limited liability company that is a Subsidiary of the Partnership.
“Substituted Limited Partner” means a Person who is admitted as a Limited Partner to the Partnership pursuant to Section 11.4.
“Tax Items” shall have the meaning set forth in Section 6.4.A.
“Tenant” means any tenant from which the General Partner derives rent either directly or indirectly through partnerships, including the Partnership, or Qualified REIT Subsidiaries.
“Tendered Units” shall have the meaning set forth in Section 8.6.A.
“Tendering Partner” shall have the meaning set forth in Section 8.6.A.
“Weighted Average General Partner Net Current Investment” means the annual average balance of the General Partner Net Current Investment computed on a daily basis.

 
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ARTICLE 2     
ORGANIZATIONAL MATTERS
Section 2.1      Organization.
The Partnership is a limited partnership formed pursuant to the provisions of the Act and upon the terms and conditions set forth in this Agreement. Except as expressly provided herein, the rights and obligations of the Partners and the administration and termination of the Partnership shall be governed by the Act. The Partnership Interest of each Partner shall be personal property for all purposes.
Section 2.2      Name.
The name of the Partnership is CPA:18 Limited Partnership. The Partnership’s business may be conducted under any other name or names deemed advisable by the General Partner, including the name of the General Partner or any Affiliate thereof. The words “Limited Partnership,” “L.P.,” “Ltd.” or similar words or letters shall be included in the Partnership’s name where necessary for the purposes of complying with the laws of any jurisdiction that so requires. The General Partner in its sole and absolute discretion may change the name of the Partnership at any time and from time to time and shall notify the Limited Partners of such change in the next regular communication to the Limited Partners.
Section 2.3      Registered Office and Agent; Principal Office.
The name and address of the registered office and registered agent of the Partnership is Corporation Service Company, 2711 Centerville Road, Suite 400, Wilmington, DE 19808. The principal office of the Partnership is located at 50 Rockefeller Plaza, New York, New York 10020, or such other place as the General Partner may from time to time designate by notice to the other Partners. The Partnership may maintain offices at such other place or places within or outside the State of Delaware as the General Partner deems advisable.
Section 2.4      Power of Attorney.
A.      Each Limited Partner and each Assignee constitutes and appoints the General Partner, any Liquidator, and authorized officers and attorneys-in-fact of each, and each of those acting singly, in each case with full power of substitution, as its true and lawful agent and attorney-in-fact, with full power and authority in its name, place and stead to:
(1)      execute, swear to, acknowledge, deliver, file and record in the appropriate public offices (a) all certificates, documents and other instruments (including, without limitation, this Agreement and the Certificate and all amendments or restatements thereof) that the General Partner or the Liquidator deems appropriate or necessary to form, qualify or continue the existence or qualification of the Partnership as a limited partnership (or a partnership in which the Limited Partners have limited liability) in the State of Delaware and in all other jurisdictions in which the Partnership may conduct business or own property; (b) all instruments that the General Partner or any Liquidator deems appropriate or necessary to reflect any amendment, change, modification or restatement of this Agreement in accordance with its terms; (c) all conveyances and other instruments or documents that the General Partner or any Liquidator deems appropriate or necessary to reflect the dissolution and liquidation of the Partnership pursuant to the terms of this Agreement, including, without limitation, a certificate of cancellation; (d) all instruments relating to the admission, withdrawal, removal or substitution of any Partner pursuant to, or other events described in, Articles 11, 12 or 13 or the Capital

 
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Contribution of any Partner; and (e) all certificates, documents and other instruments relating to the determination of the rights, preferences and privileges of Partnership Interests; and
(2)      execute, swear to, acknowledge and file all ballots, consents, approvals, waivers, certificates and other instruments appropriate or necessary, in the sole and absolute discretion of the General Partner or any Liquidator, to make, evidence, give, confirm or ratify any vote, consent, approval, agreement or other action which is made or given by the Partners hereunder or is consistent with the terms of this Agreement or appropriate or necessary, in the sole discretion of the General Partner or any Liquidator, to effectuate the terms or intent of this Agreement. Nothing contained herein shall be construed as authorizing the General Partner or any Liquidator to amend this Agreement except in accordance with Article 14 or as may be otherwise expressly provided for in this Agreement.
B.      The foregoing power of attorney is hereby declared to be irrevocable and a power coupled with an interest, in recognition of the fact that each of the Partners will be relying upon the power of the General Partner and any Liquidator to act as contemplated by this Agreement in any filing or other action by it on behalf of the Partnership, and it shall survive and not be affected by the subsequent Incapacity of any Limited Partner or Assignee and the transfer of all or any portion of such Limited Partner’s or Assignee’s OP Units and shall extend to such Limited Partner’s or Assignee’s heirs, successors, assigns and personal representatives. Each such Limited Partner or Assignee hereby agrees to be bound by any representation made by the General Partner or any Liquidator, acting in good faith pursuant to such power of attorney; and each such Limited Partner or Assignee hereby waives any and all defenses which may be available to contest, negate or disaffirm the action of the General Partner or any Liquidator, taken in good faith under such power of attorney. Each Limited Partner or Assignee shall execute and deliver to the General Partner or any Liquidator, within 15 days after receipt of the General Partner’s or Liquidator’s request therefor, such further designation, powers of attorney and other instruments as the General Partner or the Liquidator, as the case may be, deems necessary to effectuate this Agreement and the purposes of the Partnership.
Section 2.5      Term.
The term of the Partnership commenced on the date of its formation and the Partnership shall have a perpetual existence unless it is dissolved pursuant to the provisions of Article 13 or as otherwise provided by law.
ARTICLE 3     
PURPOSE
Section 3.1      Purpose and Business.
The purpose and nature of the business to be conducted by the Partnership is to (i) conduct any business that may be lawfully conducted by a limited partnership organized pursuant to the Act, (ii) enter into any partnership, joint venture or other similar arrangement to engage in any business described in the foregoing clause (i) or to own interests in any entity engaged, directly or indirectly, in any such business and (iii) do anything necessary or incidental to the foregoing, provided, however, that such business shall be limited to and conducted in such a manner as to permit the General Partner at all times to be classified as a REIT for federal income tax purposes, unless the General Partner ceases to qualify as a REIT for reasons other than the conduct of the business of the Partnership. In connection with the foregoing, and without limiting the General Partner’s right in its sole discretion to cease qualifying as a REIT, the

 
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Limited Partners acknowledge that the General Partner’s current status as a REIT inures to the benefit of all the Limited Partners and not solely the General Partner.
Section 3.2      Powers.
The Partnership is empowered to do any and all acts and things necessary, appropriate, proper, advisable, incidental to or convenient for the furtherance and accomplishment of the purposes and business described herein and for the protection and benefit of the Partnership, including, without limitation, full power and authority, directly or through its ownership interest in other entities, to enter into, perform and carry out contracts of any kind, borrow money and issue evidences of indebtedness, whether or not secured by mortgage, deed of trust, pledge or other lien, grant guarantees and/or indemnities, acquire, own, manage, improve and develop real property, and lease, sell, transfer and dispose of real property; provided, however , notwithstanding anything to the contrary in this Agreement, the Partnership shall not take, or refrain from taking, any action which, in the judgment of the General Partner, in its sole and absolute discretion, (i) could adversely affect the ability of the General Partner to continue to qualify as a REIT, (ii) absent the consent of the General Partner, which may be given or withheld in its sole and absolute discretion, could subject the General Partner to any taxes under Section 857 or Section 4981 of the Code, or (iii) could violate any law or regulation of any governmental body or agency having jurisdiction over the General Partner or its securities, unless any such action (or inaction) under the foregoing clauses (i), (ii) or (iii) shall have been specifically consented to by the General Partner in writing.
Section 3.3      Partnership only for Purposes Specified.
The Partnership shall be a partnership only for the purposes specified in Section 3.1, and this Agreement shall not be deemed to create a partnership among the Partners with respect to any activities whatsoever other than the activities within the purposes of the Partnership as specified in Section 3.1. Except as otherwise provided in this Agreement, no Partner shall have any authority to act for, bind, commit or assume any obligation or responsibility on behalf of the Partnership, its properties or any other Partner. No Partner, in its capacity as a Partner under this Agreement, shall be responsible or liable for any indebtedness or obligation of another Partner, nor shall the Partnership be responsible or liable for any indebtedness or obligation of any Partner, incurred either before or after the execution and delivery of this Agreement by such Partner, except as to those responsibilities, liabilities, indebtedness or obligations incurred pursuant to and as limited by the terms of this Agreement and the Act.
Section 3.4      Representations and Warranties by the Parties.
A.      Each Partner that is an individual represents and warrants to each other Partner that (i) such Partner has the legal capacity to enter into this Agreement and perform such Partner’s obligations hereunder, (ii) the consummation of the transactions contemplated by this Agreement to be performed by such Partner will not result in a breach or violation of, or a default under, any agreement by which such Partner or any of such Partner’s property is or are bound, or any statute, regulation, order or other law to which such Partner is subject, (iii) such Partner is a “United States person” within the meaning of Section 7701(a)(30) of the Code, and (iv) this Agreement is binding upon, and enforceable against, such Partner in accordance with its terms.
B.      Each Partner that is not an individual represents and warrants to each other Partner that (i) its execution and delivery of this Agreement and all transactions contemplated by this Agreement to be performed by it have been duly authorized by all necessary action, including without limitation, that of its general partner(s), committee(s), trustee(s), beneficiaries, directors and/or

 
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stockholder(s), as the case may be, as required, (ii) the consummation of such transactions shall not result in a breach or violation of, or a default under, its certificate of limited partnership, partnership agreement, trust agreement, limited liability company operating agreement, charter or bylaws, as the case may be, any agreement by which such Partner or any of such Partner’s properties or any of its partners, beneficiaries, trustees or stockholders, as the case may be, is or are bound, or any statute, regulation, order or other law to which such Partner or any of such Partner’s properties or any of its partners, trustees, beneficiaries or stockholders, as the case may be, is or are subject, (iii) such Partner is a “United States person” within the meaning of Section 7701(a)(30) of the Code and (iv) this Agreement is binding upon, and enforceable against, such Partner in accordance with its terms.
C.      Each Partner represents, warrants, and agrees that it has acquired and continues to hold its interest in the Partnership for its own account for investment only and not for the purpose of, or with a view toward, the resale or distribution of all or any part thereof, nor with a view toward selling or otherwise distributing such interest or any part thereof at any particular time or under any predetermined circumstances. Each Partner further represents and warrants that it is a sophisticated investor, able and accustomed to handling sophisticated financial matters for itself, particularly real estate investments, and that it has a sufficiently high net worth that it does not anticipate a need for the funds it has invested in the Partnership in what it understands to be a highly speculative and illiquid investment. Each Partner represents, warrants and agrees that such Partner is an “accredited investor” (as such term is defined in Rule 501(a) of Regulation D under the Securities Act).
D.      Each Partner acknowledges that (i) the OP Units (and any REIT Shares that might be exchanged therefor) have not been registered under the Securities Act and may not be transferred unless they are subsequently registered under the Securities Act or an exemption from such registration is available (it being understood that the Partnership has no intention of so registering the OP Units), (ii) a restrictive legend in the form set forth in Exhibit C shall be placed on the certificates representing the OP Units, and (iii) a notation shall be made in the appropriate records of the Partnership indicating that the OP Units are subject to restrictions on transfer.
E.      Each Limited Partner further represents, warrants, covenants and agrees as follows:
(1)      Except as provided in Exhibit D, at any time such Partner actually or Constructively Owns a 25% or greater capital interest or profits interest in the Partnership, it does not and will not, without the prior written consent of the General Partner, actually own or Constructively Own (a) with respect to any Tenant that is a corporation, any stock of such Tenant, and (b) with respect to any Tenant that is not a corporation, any interests in either the assets or net profits of such Tenant.
(2)      Except as provided in Exhibit E, at any time such Partner actually or Constructively Owns a 25% or greater capital interest or profits interest in the Partnership, it does not, and agrees that it will not without the prior written consent of the General Partner, actually own or Constructively Own, any stock in the General Partner, other than any REIT Shares or other shares of capital stock of the General Partner such Partner may acquire as a result of an exchange of Tendered Units pursuant to Section 8.6, subject to the ownership limitations set forth in the General Partner’s Charter.
(3)      Upon request of the General Partner, it will disclose to the General Partner the amount of REIT Shares or other shares of capital stock of the General Partner that it actually owns or Constructively Owns.

 
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(4)      It understands that if, for any reason, (a) the representations, warranties or agreements set forth in E(1) or (2) above are violated, or (b) the Partnership’s actual or Constructive Ownership of REIT Shares or other shares of capital stock of the General Partner violates the limitations set forth in the Charter, then (x) some or all of the Redemption rights of the Partners may become non-exercisable, and (y) some or all of the REIT Shares owned by the Partners may be automatically transferred to a trust for the benefit of a charitable beneficiary, as provided in the Charter.
(5)      Without the consent of the General Partner, which may be given or withheld in its sole discretion, no Partner shall take any action that would cause the Partnership at any time to have more than 100 partners (including as partners those persons indirectly owning an interest in the Partnership through a partnership, limited liability company, S corporation or grantor trust (such entity, a “flow through entity”), but only if substantially all of the value of such person’s interest in the flow through entity is attributable to the flow through entity’s interest (direct or indirect) in the Partnership).
F.      The representations and warranties contained in Section 3.4 shall survive the execution and delivery of this Agreement by each Partner and the dissolution and winding-up of the Partnership.
G.      Each Partner hereby acknowledges that no representations as to potential profit, cash flows, funds from operations or yield, if any, in respect of the Partnership or the General Partner have been made by any Partner or any employee or representative or Affiliate of any Partner, and that projections and any other information, including, without limitation, financial and descriptive information and documentation, which may have been in any manner submitted to such Partner shall not constitute any representation or warranty of any kind or nature, express or implied.
Section 3.5      Certain ERISA Matters.
Each Partner acknowledges that the Partnership is intended to qualify as a “real estate operating company” (as such term is defined in the Plan Asset Regulation). The General Partner may structure investments in, relationships with and conduct with respect to Investments and any other assets of the Partnership so that the Partnership will be a “real estate operating company” (as such term is defined in the Plan Asset Regulation).
ARTICLE 4     
CAPITAL CONTRIBUTIONS
Section 4.1      Capital Contributions of the Partners.
At the time of their respective execution of this Agreement, the Partners shall make or shall have made Capital Contributions as set forth in Exhibit A to this Agreement. The Partners shall own OP Units of the class or series and in the amounts set forth in Exhibit A and shall have a Percentage Interest in the Partnership as set forth in Exhibit A, which Percentage Interest shall be adjusted in Exhibit A from time to time by the General Partner to the extent necessary to reflect accurately exchanges, redemptions, Capital Contributions, the issuance of additional OP Units or similar events having an effect on a Partner’s Percentage Interest. Except as required by law, as otherwise provided in Sections 4.4, 4.5 and 10.5, or as otherwise agreed to by a Partner and the Partnership, no Partner shall be required or permitted to make any additional Capital Contributions or loans to the Partnership.

 
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Section 4.2      Classes of OP Units. The General Partner is hereby authorized to cause the Partnership to issue OP Units designated as Class A OP Units and Class C OP Units. Each such Class shall have the rights and obligations attributed to that Class under this Agreement.
Section 4.3      Loans by Third Parties.
Subject to Section 4.4, the Partnership may incur Debt, or enter into other similar credit, guarantee, financing or refinancing arrangements for any purpose (including, without limitation, in connection with any further acquisition of Investments) with any Person that is not the General Partner upon such terms as the General Partner determines appropriate; provided that, the Partnership shall not incur any Debt that is recourse to the General Partner, except to the extent otherwise agreed to by the General Partner in its sole discretion.
Section 4.4      Additional Funding and Capital Contributions.
A.      General . The General Partner may, at any time and from time to time determine that the Partnership requires additional funds (“Additional Funds”) for the acquisition of additional Investments or for such other Partnership purposes as the General Partner may determine. Additional Funds may be raised by the Partnership, at the election of the General Partner, in any manner provided in, and in accordance with, the terms of this Section 4.4. No Person shall have any preemptive, preferential or similar right or rights to subscribe for or acquire any Partnership Interest, except as set forth in this Section 4.4.
B.      Issuance of Additional Partnership Interests . The General Partner, in its sole and absolute discretion, may raise all or any portion of the Additional Funds by accepting additional Capital Contributions of cash. The General Partner may also accept additional Capital Contributions of real property or any other non-cash assets. In connection with any such additional Capital Contributions (of cash or property), the General Partner is hereby authorized to cause the Partnership from time to time to issue to Partners (including the General Partner) or other Persons (including, without limitation, in connection with the contribution of property to the Partnership) additional OP Units or other Partnership Interests in one or more classes, or one or more series of any of such classes, with such designations, preferences and relative, participating, optional or other special rights, powers, and duties, including rights, powers, and duties senior to then existing Limited Partner Interests, all as shall be determined by the General Partner in its sole and absolute discretion subject to Delaware law, and as set forth by amendment to this Agreement, including without limitation, (i) the allocations of items of Partnership income, gain, loss, deduction, and credit to such class or series of Partnership Interests; (ii) the right of each such class or series of Partnership Interests to share in Partnership distributions; (iii) the rights of each such class or series of Partnership Interests upon dissolution and liquidation of the Partnership; and (iv) the right to vote, including, without limitation, the Limited Partner approval rights set forth in Section 11.2.A; provided , that no such additional OP Units or other Partnership Interests shall be issued to the General Partner unless either (a)(1) the additional Partnership Interests are issued in connection with the grant, award, or issuance of shares of the General Partner pursuant to Section 4.4.C below, which shares have designations, preferences, and other rights (except voting rights) such that the economic interests attributable to such shares are substantially similar to the designations, preferences and other rights of the additional Partnership Interests issued to the General Partner in accordance with this Section 4.4.B, and (2) the General Partner shall make a Capital Contribution to the Partnership in an amount equal to the net proceeds raised in connection with such issuance, or (b) the additional Partnership Interests are issued to all Partners holding Partnership Interests in the same class in proportion to their respective Percentage Interests in such class. The General Partner’s determination that consideration is

 
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adequate shall be conclusive insofar as the adequacy of consideration relates to whether the Partnership Interests are validly issued and paid. In the event that the Partnership issues additional Partnership Interests pursuant to this Section 4.4.B, the General Partner shall make such revisions to this Agreement (including but not limited to the revisions described in Section 5.4 and Section 8.6) as it determines are necessary to reflect the issuance of such additional Partnership Interests. Without limiting the foregoing, the General Partner is expressly authorized to cause the Partnership to issue OP Units for less than fair market value, so long as the General Partner concludes in good faith that such issuance of Partnership Interests is in the best interests of the Partnership.
C.      Issuance of REIT Shares or Other Securities by the General Partner . The General Partner shall not issue any additional REIT Shares, other shares of capital stock of the General Partner or New Securities (other than REIT Shares issued pursuant to Section 8.6 or such shares, stock or securities pursuant to a dividend or distribution (including any stock split) to all of its stockholders or all of its stockholders who hold a particular class of stock of the General Partner) unless (i) the General Partner shall cause the Partnership to issue to the General Partner, Partnership Interests or rights, options, warrants or convertible or exchangeable securities of the Partnership having designations, preferences and other rights, all such that the economic interests thereof are substantially similar to those of the REIT Shares, other shares of capital stock of the General Partner or New Securities issued by the General Partner and (ii) the General Partner shall make a Capital Contribution of the net proceeds from the issuance of such additional REIT Shares, other shares of capital stock or New Securities, as the case may be, and from the exercise of the rights contained in such additional New Securities, as the case may be. Without limiting the foregoing, the General Partner is expressly authorized to issue REIT Shares of any Class (or combination of any Class), other shares of capital stock of the General Partner or New Securities for no tangible value or for less than fair market value, and the General Partner is expressly authorized to cause the Partnership to issue to the General Partner Partnership Interests of the corresponding Class, so long as (x) the General Partner concludes in good faith that such issuance of Partnership Interests is in the interests of the Partnership; and (y) the General Partner contributes all proceeds, if any, from such issuance and exercise to the Partnership. In connection with the General Partner’s initial offering of REIT Shares, any other issuance of REIT Shares, other capital stock of the General Partner or New Securities, the General Partner shall contribute to the Partnership, any net proceeds raised in connection with such issuance; provided , that the General Partner may use a portion of the net proceeds from any offering to acquire OP Units or other assets (provided such other assets are contributed to the Partnership pursuant to the terms of this Agreement; and provided further that if the net proceeds actually received by the General Partner are less than the gross proceeds of such issuance as a result of any underwriter’s discount or other expenses paid or incurred in connection with such issuance then, except to the extent such net proceeds are used to acquire OP Units, the General Partner shall be deemed to have made a Capital Contribution to the Partnership in the amount equal to the sum of the net proceeds of such issuance plus the amount of such underwriter’s discount and other expenses paid by the General Partner (which discount and expense shall be treated as an expense for the benefit of the Partnership for purposes of Section 7.4)).
D.      Percentage Interest Adjustments in the Case of Capital Contributions for OP Units . Upon the acceptance of additional Capital Contributions in exchange for OP Units, the Percentage Interest in such OP Units shall be equal to a fraction, the numerator of which is equal to the amount of cash and the Agreed Value of the Property contributed as of the time such additional Capital Contributions are made (i.e., the Adjustment Date) and the denominator of which is equal to the sum of (i) the Deemed Value of the Partnership Interests of such class or series (computed as of the Business Day immediately preceding the Adjustment Date) and (ii) the aggregate Agreed Value of additional Capital Contributions contributed by all Partners and/or third parties to the Partnership on such Adjustment Date in such class or series of Partnership Interests. The Percentage Interest of each other Partner holding Partnership Interests

 
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of such class or series not making a full pro rata Capital Contribution shall be adjusted to equal a fraction, the numerator of which is equal to the sum of (i) the Deemed Partnership Interest Value of such Limited Partner in respect of such class or series (computed as of the Business Day immediately preceding the Adjustment Date) and (ii) the Agreed Value of additional Capital Contributions, if any, made by such Partner to the Partnership in such class or series of Partnership Interests as of such Adjustment Date, and the denominator of which is equal to the sum of (i) the Deemed Value of the Partnership Interests of such class or series (computed as of the Business Day immediately preceding the Adjustment Date), plus (ii) the aggregate Agreed Value of additional Capital Contributions contributed by all Partners and/or third parties to the Partnership on such Adjustment Date in such class or series. Provided, however, solely for purposes of calculating a Partner’s Percentage Interest pursuant to this Section 4.4.D, (i) in the case of cash Capital Contributions by the General Partner funded by an offering of REIT Shares or other shares of capital stock of the General Partner and (ii) in the case of the contribution of properties by the General Partner which were acquired by the General Partner in exchange for REIT Shares or other shares of capital stock of the General Partner immediately prior to such contribution, the General Partner shall be issued a number of OP Units equal and corresponding to the number of such shares issued by the General Partner in exchange for such cash or Investments, the OP Units held by the other Partners shall not be adjusted, and the Partners’ Percentage Interests shall be adjusted accordingly. The General Partner shall promptly give each Partner written notice of its Percentage Interest, as adjusted.
E.      Reinvestment of Special General Partner Distributions . The Special General Partner, in its sole and absolute discretion, may elect, on an annual basis, to reinvest all, or any portion, of the distributions of Available Cash and Capital Proceeds it receives under Section 5.1 in the Partnership in exchange for the issuance of OP Units. If the Special General Partner elects to reinvest any portion of Available Cash and Capital Proceeds distributed to the Special General Partner under this Agreement, the Special General Partner shall be treated no differently than any Limited Partner making a Capital Contribution to the Partnership under Section 4.4.
Section 4.5      Other Contribution Provisions.
With the consent of the General Partner, in its sole discretion, one or more Limited Partners may enter into agreements with the Partnership, in the form of a guarantee or contribution agreement, which have the effect of providing a guarantee of certain obligations of the Partnership.
Section 4.6      No Preemptive Rights.
Except to the extent expressly granted by the Partnership pursuant to another agreement, no Person shall have any preemptive, preferential or other similar right with respect to (i) providing funds to the Partnership or (ii) issuance or sale of any OP Units or other Partnership Interests.
Section 4.7      No Interest; No Return.
No Partner shall be entitled to interest on its Capital Contribution or on such Partner’s Capital Account. Except as provided herein or by law, no Partner shall have any right to demand or receive the return of its Capital Contribution from the Partnership.
Section 4.8      Profits Interest of Special General Partner.
To the extent that the Special General Partner receives a Partnership Interest with a disproportionate interest in Partnership Net Income or Net Loss, such Partnership Interest shall be treated

 
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as a “profits interest” received for services rendered, or to be rendered, within the meaning of IRS Rev. Proc. 93-27, 1993-2 C.B. 343.
Section 4.9      Special Fees.
The Partners acknowledge and agree that the following Special Fees shall be borne by the Classes of OP Units as follows:
7.00% selling commission for each Class A OP Unit
1.50% selling commission for each Class C OP Unit
3.00% dealer manager fee for each Class A OP Unit
2.25% dealer manager fee for each Class C OP Unit
1.00% annual distribution and shareholder servicing fee for each Class C OP Unit (other than Class C OP Units issued in connection with Class C REIT Shares purchased through the General Partner’s distribution and reinvestment plan)

ARTICLE 5     
DISTRIBUTIONS
Section 5.1      Requirement and Characterization of Distributions.
The General Partner shall cause the Partnership to distribute at least quarterly all, or such portion as the General Partner may in its discretion determine, Available Cash and Capital Proceeds generated by the Partnership to the Partners who are Partners on the applicable Partnership Record Date with respect to such distribution, in the following order and priority:
C.      Available Cash .
(1)      First, Available Cash from Investments shall be distributed ten percent (10%) to the Special General Partner, and ninety percent (90%) to the Partners in proportion to their respective Percentage Interests; and
(2)      Second, Available Cash from Real Estate Securities shall be distributed one hundred percent (100%) to the Partners in proportion to their respective Percentage Interests.
D.      Distribution of Capital Proceeds . Subject to Section 5.1.C, Section 5.1.D and Section 13.2, distributions of Capital Proceeds shall be made as follows:
(1)      First, Capital Proceeds shall be distributed one hundred percent (100%) to the General Partner until the General Partner has received distributions under this Section 5.1.B(1) equal to the General Partner Unpaid Priority Return;
(2)      Second, Capital Proceeds shall be distributed one hundred percent (100%) to the General Partner until the General Partner Net Current Investment has been reduced to zero; and

 
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(3)      Third, any remaining Capital Proceeds shall be distributed fifteen percent (15%) to the Special General Partner and eighty-five percent (85%) to the Partners in proportion to their respective Percentage Interests.
Notwithstanding any other provision of this Article 5 to the contrary, the General Partner shall take such reasonable efforts, as determined by it in its sole and absolute discretion and consistent with its qualification as a REIT, to cause the Partnership to distribute sufficient amounts to enable the General Partner, for so long as the General Partner has determined to qualify as a REIT, to pay stockholder dividends that will (a) satisfy the requirements for qualifying as a REIT under the Code and Regulations (“REIT Requirements”), and (b) except to the extent otherwise determined by the General Partner, avoid the imposition of any federal income or excise tax liability on the General Partner.
E.      Distribution of Capital Proceeds – Listing Event . As soon as possible following the determination of the Listed Market Value following a Listing Event, the General Partner shall cause the Partnership to make a special distribution of Capital Proceeds to the Special General Partner in an amount equal to the Capital Proceeds distributable solely to the Special General Partner under Section 5.1.B if the Partnership sold all of its assets on the date of the Listing Event for its Listed Market Value and distributed the net proceeds from such sale to the Partners pursuant to Section 5.1.B. To avoid duplicating distributions to the Special General Partner, the General Partner shall take into account distributions made to the Special General Partner pursuant to this Section 5.1.C in determining the appropriate amount of any subsequent distributions of Capital Proceeds to the Special General Partner under Section 5.1.B(3) and Section 5.1.D.
F.      Distribution of Capital Proceeds – Change of Control Event . As soon as possible following the occurrence of a Change of Control Event, the General Partner, or its successor in interest, shall cause the Partnership, or its successor in interest, to make a special distribution of Capital Proceeds to the Special General Partner in an amount equal to the Capital Proceeds distributable solely to the Special General Partner under Section 5.1.B if the Partnership sold all of its assets for their fair value (less the amount of all indebtedness secured by such assets and less any fees payable to the Advisor under the Advisory Agreement) immediately prior to the Change of Control Event and distributed the net proceeds from such sale to the Partners pursuant to Section 5.1.B. The fair value of any Property shall be its value as determined by an Appraisal. To avoid duplicating distributions made to the Special General Partner, the General Partner shall take into account distributions made to the Special General Partner pursuant to this Section 5.1.D in determining the appropriate amount of any subsequent distributions of Capital Proceeds to the Special General Partner under Section 5.1.B(3) and Section 5.1.C.
G.      Special Fees . Consistent with Section 4.9, if the Partnership directly or indirectly incurs Special Fees, (i) Available Cash or Capital Proceeds, as the case may be, available for distribution under this Section 5.1 shall be increased by the Special Fees to the extent that Available Cash or Capital Proceeds have been previously reduced by such fees; and (ii) the amounts otherwise distributable among the Classes of OP Units shall then be reduced to reflect their appropriate shares of the Special Fees.  For example, if the Partnership has Available Cash of $1,000 after taking into account a distribution and shareholder servicing fee of $200 that is required to be borne entirely by the Partners holding Class C OP Units, Available Cash shall be increased to $1,200 for purposes of this Section 5.1 and the amounts otherwise distributable to the Class C OP Units under this Section 5.1 shall be reduced by $200.

 
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Section 5.2      Distributions in Kind.
Except as expressly provided herein, no right is given to any Partner to demand and receive property other than cash. The General Partner may determine, in its sole and absolute discretion, to make a distribution in-kind to the Partners of Partnership assets, and such assets shall be distributed in such a fashion as to ensure that the fair market value is distributed and allocated in accordance with Articles 5, 6 and 10.
Section 5.3      Distributions upon Liquidation.
Notwithstanding Section 5.1, proceeds from a Liquidating Event shall be distributed to the Partners in accordance with Section 13.2.
Section 5.4      Distributions to Reflect Issuance of Additional Partnership Interests.
In the event that the Partnership issues additional Partnership Interests to the General Partner, the Special General Partner, or any Additional Limited Partner pursuant to Section 4.4.B, 4.4.C, or 4.4.E, the General Partner shall make such revisions to this Article 5 as it determines are necessary to reflect the issuance of such additional Partnership Interests. In the absence of any agreement to the contrary, an Additional Limited Partner shall be entitled to the distributions set forth in Section 5.1 (without regard to this Section 5.4) with respect to the period during which the closing of its contribution to the Partnership occurs, multiplied by a fraction the numerator of which is the number of days from and after the date of such closing through the end of the applicable period, and the denominator of which is the total number of days in such period.
Section 5.5      Distribution Limitation.
Notwithstanding any other provision in this Article 5, the General Partner shall have the power, in its reasonable discretion, to adjust the distributions to the Special General Partner to the extent necessary to avoid violations of the “2%/25% Guidelines” as described in the Advisory Agreement.
ARTICLE 6     
ALLOCATIONS
Section 6.1      Timing and Amount of Allocations of Net Income and Net Loss.
Net Income and Net Loss of the Partnership shall be determined and allocated with respect to each Partnership Year of the Partnership as of the end of each such year. Subject to the other provisions of this Article 6, an allocation to a Partner of a share of Net Income or Net Loss shall be treated as an allocation of the same share of each item of income, gain, loss or deduction that is taken into account in computing Net Income or Net Loss.

 
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Section 6.2      General Allocations.
F.      Allocation of Net Income and Net Loss Other Than From a Capital Transaction .
(1)      Net Income other than from a Capital Transaction . Except as otherwise provided in Section 6.3, Net Income other than from a Capital Transaction for any Partnership Year shall be allocated to the Partners in the following manner and order of priority:
(a)      First, Net Income from Investments shall be allocated ten percent (10%) to the Special General Partner, and ninety percent (90%) to the Partners in proportion to their respective Percentage Interests; and
(b)      Second, Net Income from Real Estate Securities shall be allocated one hundred percent (100%) to the Partners in proportion to their respective Percentage Interests.
(2)      Net Loss other than from a Capital Transaction . Except as otherwise provided in Section 6.3, Net Loss other than from a Capital Transaction for any Partnership Year shall be allocated to the Partners in the following manner and order of priority:
(a)      First, to the Partners, in proportion to their relative allocations of Net Income other than from a Capital Transaction pursuant to Section 6.2.A(1) until the aggregate allocations of Net Loss other than from a Capital Transaction pursuant to this Section 6.2.A(2) for all Partnership Years equal the aggregate allocations of Net Income other than from a Capital Transaction pursuant to Section 6.2.A(1) for all prior Partnership Years;
(b)      Second, to the Partners in proportion to their respective Adjusted Capital Account Balances until the Adjusted Capital Account Balance of each such Partner is zero; and
(c)      Third, to each of the Partners in proportion to their respective Percentage Interests.
G.      Allocation of Net Income and Net Loss From a Capital Transaction .
(1)      Net Income from a Capital Transaction . Except as otherwise provided in Section 6.2.D and Section 6.3, Net Income from a Capital Transaction for any Partnership Year shall be allocated to the Partners in the following manner and order of priority:
(d)      First, to the Partners, in proportion to their relative allocations of Net Loss from a Capital Transaction pursuant to Section 6.2.B(2)(b) and (c) until the aggregate allocations of Net Income from a Capital Transaction pursuant to this Section 6.2.B(1)(a) for all Partnership Years equal the aggregate allocations of Net Loss from a Capital Transaction pursuant to Section 6.2.B(2)(b) and (c) for all prior Partnership Years;
(e)      Second, one hundred percent (100%) to the General Partner until the Adjusted Capital Account Balance of the General Partner equals the sum of the General Partner Net Current Investment and the General Partner Unpaid Priority Return; and

 
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(f)      Third, fifteen percent (15%) to the Special General Partner, and eighty-five percent (85%) to the Partners in proportion to their respective Percentage Interests.
(2)      Net Loss from a Capital Transaction . Except as otherwise provided in Section 6.3, Net Loss from a Capital Transaction for any Partnership Year shall be allocated to the Partners in the following manner and order of priority:
(a)      First, to the Partners, in proportion to their relative allocations of Net Income from a Capital Transaction pursuant to Section 6.2.B(1)(c) until the aggregate allocations of Net Loss from a Capital Transaction pursuant to this Section 6.2.B(2)(a) for all Partnership Years equal the aggregate allocations of Net Income from a Capital Transaction pursuant to Section 6.2.B(1)(c) for all prior Partnership Years;
(b)      Second, to the Partners in proportion to their respective Adjusted Capital Account Balances until the Adjusted Capital Account Balance of each such Partner is zero; and
(c)      Third, to the Partners in proportion to their respective Percentage Interests.
H.      Allocations to Reflect Issuance of Additional Partnership Interests . In the event that the Partnership issues additional Partnership Interests to the General Partner, the Special General Partner, a Limited Partner or any Additional Limited Partner pursuant to Section 4.4, the General Partner shall make such revisions to this Section 6.2 as it determines are necessary to reflect the terms of the issuance of such additional Partnership Interests, including making preferential allocations to certain classes of Partnership Interests, in accordance with any method selected by the General Partner.
I.      Allocations Related to a Listing Event . If a Listing Event occurs, the Partnership shall allocate Net Income from a Capital Transaction first to the Special General Partner in an amount equal to the Net Income from a Capital Transaction allocable to the Special General Partner under Section 6.2.B(1) if the Partnership sold all of its assets on the date of the Listing Event for its Listed Market Value and allocated the gain from such sale to the Partners pursuant to Section 6.2.B(1). To avoid duplicating allocations to the Special General Partner, the General Partner shall take into account allocations made to the Special General Partner pursuant to this Section 6.2.D in determining the appropriate amount of any subsequent allocations of Net Income from a Capital Transaction to the Special General Partner under Section 6.2.B(1) and Section 6.2.E.
J.      Allocations Related to a Change of Control Event . If a Change of Control Event occurs, the Partnership shall allocate Net Income from a Capital Transaction first to the Special General Partner in an amount equal to the Net Income from a Capital Transaction allocable to the Special General Partner under Section 6.2.B(1) if the Partnership sold all of its assets on the date of the Change of Control Event for their fair value (less the amount of all indebtedness secured by such assets and less any fees payable to the Advisor under the Advisory Agreement) immediately prior to the Change of Control Event and allocated the gain from such sale to the Partners pursuant to Section 6.2.B(1). To avoid duplicating allocations to the Special General Partner, the General Partner shall take into account allocations made to the Special General Partner pursuant to this Section 6.2.E in determining the appropriate amount of any subsequent allocations of Net Income from a Capital Transaction to the Special General Partner under Section 6.2.B(1) and Section 6.2.D.

 
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Section 6.3      Regulatory Allocations.
Notwithstanding the foregoing provisions of this Article 6:
(i)     Minimum Gain Chargeback . Except as otherwise provided in Regulations Section 1.704-2(f), notwithstanding the provisions of Section 6.2, or any other provision of this Article 6, if there is a net decrease in Partnership Minimum Gain during any Partnership Year, each Partner shall be specially allocated items of Partnership income and gain for such year (and, if necessary, subsequent years) in an amount equal to such Partner’s share of the net decrease in Partnership Minimum Gain, as determined under Regulations Section 1.704-2(g). Allocations pursuant to the previous sentence shall be made in proportion to the respective amounts required to be allocated to each Partner pursuant thereto. The items to be allocated shall be determined in accordance with Regulations Sections 1.704-2(f)(6) and 1.704-2(j)(2). This Section 6.3(i) is intended to qualify as a “minimum gain chargeback” within the meaning of Regulation Section 1.704-2(f) which shall be controlling in the event of a conflict between such Regulation and this Section 6.3(i).
(ii)     Partner Minimum Gain Chargeback . Except as otherwise provided in Regulations Section 1.704-2(i)(4), and notwithstanding the provisions of Section 6.2, or any other provision of this Article 6 (except Section 6.3(i)), if there is a net decrease in Partner Minimum Gain attributable to a Partner Nonrecourse Debt during any Partnership Year, each Partner who has a share of the Partner Minimum Gain attributable to such Partner Nonrecourse Debt, determined in accordance with Regulations Section 1.704-2(i)(5), shall be specially allocated items of Partnership income and gain for such year (and, if necessary, subsequent years) in an amount equal to such Partner’s share of the net decrease in Partner Minimum Gain attributable to such Partner Nonrecourse Debt, determined in accordance with Regulations Section 1.704-2(i)(4). Allocations pursuant to the previous sentence shall be made in proportion to the respective amounts required to be allocated to each Partner pursuant thereto. The items to be so allocated shall be determined in accordance with Regulations Sections 1.704-2(i)(4) and 1.704-2(j)(2). This Section 6.3(ii) is intended to qualify as a “chargeback of partner nonrecourse debt minimum gain” within the meaning of Regulation Section 1.704-2(i) which shall be controlling in the event of a conflict between such Regulation and this Section 6.3(ii).
(iii)     Nonrecourse Deductions and Partner Nonrecourse Deductions . Any Nonrecourse Deductions for any Partnership Year shall be specially allocated to the Partners in accordance with their respective Percentage Interests. Any Partner Nonrecourse Deductions for any Partnership Year shall be specially allocated to the Partner(s) who bears the economic risk of loss with respect to the Partner Nonrecourse Debt to which such Partner Nonrecourse Deductions are attributable, in accordance with Regulations Sections 1.704-2(b)(4) and 1.704-2(i).
(iv)     Qualified Income Offset . If any Partner unexpectedly receives an adjustment, allocation or distribution described in Regulations Section 1.704-1(b)(2)(ii)(d)(4), (5) or (6), items of Partnership income and gain shall be allocated, in accordance with Regulations Section 1.704-1(b)(2)(ii)(d), to the Partner in an amount and manner sufficient to eliminate, to the extent required by such Regulations, the Adjusted Capital Account Deficit of the Partner as quickly as possible provided that an allocation pursuant to this Section 6.3(iv) shall be made if and only to the extent that such Partner would have an Adjusted Capital Account Deficit after all other allocations provided in this Article 6 have been tentatively made as if this Section 6.3(iv) were not in this Agreement. It is intended that this Section 6.3(iv) qualify and be construed as a “qualified income offset” within the meaning of Regulations 1.704-1(b)(2)(ii)(d), which shall be controlling in the event of a conflict between such Regulations and this Section 6.3(iv).

 
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(v)     Gross Income Allocation . In the event any Partner has a deficit Capital Account at the end of any Partnership Year which is in excess of the sum of (1) the amount (if any) such Partner is obligated to restore to the Partnership, and (2) the amount such Partner is deemed to be obligated to restore pursuant to Regulations Section 1.704-1(b)(2)(ii)(c) or the penultimate sentences of Regulations Sections 1.704-2(g)(1) and 1.704-2(i)(5), each such Partner shall be specially allocated items of Partnership income and gain in the amount of such excess as quickly as possible, provided, that an allocation pursuant to this Section 6.3(v) shall be made if and only to the extent that such Partner would have a deficit Capital Account in excess of such sum after all other allocations provided in this Article 6 have been tentatively made as if this Section 6.3(v) and Section 6.3(iv) were not in this Agreement.
(vi)     Limitation on Allocation of Net Loss . To the extent any allocation of Net Loss would cause or increase an Adjusted Capital Account Deficit as to any Partner, such allocation of Net Loss shall be reallocated among the other Partners in accordance with their respective Percentage Interests, subject to the limitations of this Section 6.3(vi).
(vii)     Section 754 Adjustment . To the extent an adjustment to the adjusted tax basis of any Partnership asset pursuant to Code Section 734(b) or Code Section 743(b) is required, pursuant to Regulations Section 1.704-1(b)(2)(iv)(m)(2) or Regulations Section 1.704-1(b)(2)(iv)(m)(4), to be taken into account in determining Capital Accounts as the result of a distribution to a Partner in complete liquidation of his interest in the Partnership, the amount of such adjustment to the Capital Accounts shall be treated as an item of gain (if the adjustment increases the basis of the asset) or loss (if the adjustment decreases such basis) and such gain or loss shall be specially allocated to the Partners in accordance with their interests in the Partnership in the event that Regulations Section 1.704-1(b)(2)(iv)(m)(2) applies, or to the Partners to whom such distribution was made in the event that Regulations Section 1.704-1(b)(2)(iv)(m)(4) applies.
(viii)     Curative Allocation . The allocations set forth in Sections 6.3(i), (ii), (iii), (iv), (v), (vi), and (vii) (the “Regulatory Allocations”) are intended to comply with certain regulatory requirements, including the requirements of Regulations Sections 1.704-1(b) and 1.704-2. Notwithstanding the provisions of Sections 6.1 and 6.2, the Regulatory Allocations shall be taken into account in allocating other items of income, gain, loss and deduction among the Partners so that, to the extent possible, the net amount of such allocations of other items and the Regulatory Allocations to each Partner shall be equal to the net amount that would have been allocated to each such Partner if the Regulatory Allocations had not occurred. For purposes of determining a Partner’s proportional share of the “excess nonrecourse liabilities” of the Partnership within the meaning of Regulations Section 1.752-3(a)(3), each Partner’s interest in Partnership profits shall be such Partner’s Percentage Interest.
(ix)     Special Allocation of Special Fees . Consistent with Section 4.9, if the Partnership directly or indirectly incurs Special Fees, such Special Fees shall be specially allocated among the Classes of OP Units to correspond with their appropriate shares of such fees and then proportionately allocated among the Units within each burdened Class.  For example, if the Partnership incurs a distribution and shareholder servicing fee of $200 that is required to be borne entirely by the Partners holding Class C OP Units, the $200 servicing fee shall be specially allocated to the holders of Class C OP Units in proportion to their Class C OP Units.  To the extent that an allocation of Special Fees under this Section 6.3(ix) would create or increase an Adjusted Capital Account Deficit for a Partner, such allocation instead shall be made proportionately to the other Partners within the burdened Class who do not have Adjusted Capital Account Deficits.

 
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Section 6.4      Tax Allocations.
A.      In General . Except as otherwise provided in this Section 6.4, for income tax purposes each item of income, gain, loss and deduction (collectively, “Tax Items”) shall be allocated among the Partners in the same manner as its correlative item of “book” income, gain, loss or deduction is allocated pursuant to Sections 6.2 and 6.3.
B.      Allocations Respecting Section 704(c) Revaluations . Notwithstanding Section 6.4.A, Tax Items with respect to Partnership property that is contributed to the Partnership by a Partner with a Gross Asset Value that differs from its adjusted tax basis in the hands of the Contributing Partner immediately preceding the date of contribution shall be allocated among the Partners for income tax purposes pursuant to Regulations promulgated under Section 704(c) of the Code, so as to take into account the variation between book Capital Accounts and tax capital accounts. The Partnership shall account for such variation under the “traditional method” under Regulations Section 1.704-3(b) with respect to Partnership property that is contributed to the Partnership in connection with the General Partner’s initial offering. With respect to other properties contributed to the Partnership, the Partnership shall account for such variation under any reasonable method consistent with Section 704(c) of the Code and the applicable regulations as chosen by the General Partner. In the event the Gross Asset Value of any Partnership asset is adjusted pursuant to subparagraph (b) of the definition of Gross Asset Value (provided in Article 1), subsequent allocations of Tax Items with respect to such asset shall take account of the variation, if any, between the adjusted basis of such asset and its Gross Asset Value in the same manner as under Section 704(c) of the Code and the applicable regulations consistent with the requirements of Regulations Section 1.704-1(b)(2)(iv)(g) using any method approved under Section 704(c) of the Code and the applicable regulations as chosen by the General Partner.
ARTICLE 7     
MANAGEMENT AND OPERATIONS OF BUSINESS
Section 7.1      Management.
K.      Except as otherwise expressly provided in this Agreement, all management powers over the business and affairs of the Partnership are and shall be exclusively vested in the General Partner, and no Limited Partner shall have any right to participate in or exercise control or management power over the business and affairs of the Partnership. The General Partner may not be removed by the Limited Partners with or without cause, except with the consent of the General Partner. In addition to the powers now or hereafter granted a general partner of a limited partnership under applicable law or which are granted to the General Partner under any other provision of this Agreement, the General Partner, subject to the other provisions hereof including Sections 7.3 and 11.2, shall have full power and authority to do all things deemed necessary or desirable by it to conduct the business of the Partnership (including, without limitation, all actions consistent with allowing the General Partner at all times to qualify as a REIT unless the General Partner voluntarily terminates its REIT status), to exercise all powers set forth in Section 3.2 and to effectuate the purposes set forth in Section 3.1, including, without limitation:
(1)      the making of any expenditures, the lending or borrowing of money (including, without limitation, making prepayments on loans and borrowing money to permit the Partnership to make distributions to its Partners in such amounts as will permit the General Partner (so long as the General Partner has determined to qualify as a REIT) to avoid the payment of any federal income tax (including, for this purpose, any excise tax pursuant to Section 4981 of the Code) and to make distributions to its stockholders sufficient to permit the General Partner to maintain REIT status), the

 
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assumption or guarantee of, or other contracting for, indebtedness and other liabilities, the issuance of evidences of indebtedness (including the securing of same by mortgage, deed of trust or other lien or encumbrance on all or any of the Partnership’s assets) and the incurring of any obligations it deems necessary for the conduct of the activities of the Partnership;
(2)      the making of tax, regulatory and other filings, or rendering of periodic or other reports to governmental or other agencies having jurisdiction over the business or assets of the Partnership, the registration of any class of securities of the Partnership under the Exchange Act, and the listing of any debt securities of the Partnership on any exchange;
(3)      subject to the provisions of Section 11.2, the acquisition, disposition, mortgage, pledge, encumbrance, hypothecation or exchange of any assets of the Partnership or the merger or other combination of the Partnership with or into another entity;
(4)      the acquisition, disposition, mortgage, pledge, encumbrance or hypothecation of all or any assets of the Partnership, and the use of the assets of the Partnership (including, without limitation, cash on hand) for any purpose consistent with the terms of this Agreement and on any terms it sees fit, including, without limitation, the financing of the conduct or the operations of the General Partner or the Partnership, the lending of funds to other Persons (including, without limitation, the General Partner or any Subsidiaries of the Partnership) and the repayment of obligations of the Partnership, any of its Subsidiaries and any other Person in which it has an equity investment, and the making of capital contributions to its Subsidiaries;
(5)      the management, operation, leasing, landscaping, repair, alteration, demolition or improvement of any real property or improvements owned by the Partnership or any Subsidiary of the Partnership;
(6)      the negotiation, execution, and performance of any contracts, leases, conveyances or other instruments that the General Partner considers useful or necessary to the conduct of the Partnership’s operations or the implementation of the General Partner’s powers under this Agreement, including contracting with contractors, developers, consultants, accountants, legal counsel, other professional advisors and other agents and the payment of their expenses and compensation out of the Partnership’s assets;
(7)      the distribution of Partnership cash or other Partnership assets in accordance with this Agreement;
(8)      the establishment of one or more divisions of the Partnership, the selection and dismissal of employees of the Partnership (including, without limitation, employees having titles such as “president,” “vice president,” “secretary” and “treasurer”), and agents, outside attorneys, accountants, consultants and contractors of the Partnership, the determination of their compensation and other terms of employment or hiring, including waivers of conflicts of interest and the payment of their expenses and compensation out of the Partnership’s assets;
(9)      the maintenance of such insurance for the benefit of the Partnership and the Partners and directors and officers of the Partnership or the General Partner as it deems necessary or appropriate;
(10)      the formation of, or acquisition of an interest in, and the contribution of property to, any further limited or general partnerships, limited liability companies, joint ventures,

 
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corporations or other relationships that it deems desirable (including, without limitation, the acquisition of interests in, and the contributions of property to any Subsidiary and any other Person in which it has an equity investment from time to time); provided , that, as long as the General Partner has determined to continue to qualify as a REIT, the Partnership may not engage in any such formation, acquisition or contribution that could cause the General Partner to fail to qualify as a REIT;
(11)      the control of any matters affecting the rights and obligations of the Partnership, including the settlement, compromise, submission to arbitration or any other form of dispute resolution, or abandonment of, any claim, cause of action, liability, debt or damages, due or owing to or from the Partnership, the commencement or defense of suits, legal proceedings, administrative proceedings, arbitration or other forms of dispute resolution, and the representation of the Partnership in all suits or legal proceedings, administrative proceedings, arbitrations or other forms of dispute resolution, the incurring of legal expense, and the indemnification of any Person against liabilities and contingencies to the extent permitted by law;
(12)      the undertaking of any action in connection with the Partnership’s direct or indirect investment in any Person (including, without limitation, contributing or loaning Partnership funds to, incurring indebtedness on behalf of, or guarantying the obligations of any such Persons);
(13)      subject to the other provisions in this Agreement, the determination of the fair market value of any Partnership property distributed in kind using such reasonable method of valuation as it may adopt, provided, that such methods are otherwise consistent with requirements of this Agreement;
(14)      the management, operation, leasing, landscaping, repair, alteration, demolition or improvement of any real property or improvements owned by the Partnership or any Subsidiary of the Partnership or any Person in which the Partnership has made a direct or indirect equity investment;
(15)      holding, managing, investing and reinvesting cash and other assets of the Partnership;
(16)      the collection and receipt of revenues and income of the Partnership;
(17)      the exercise, directly or indirectly through any attorney-in-fact acting under a general or limited power of attorney, of any right, including the right to vote, appurtenant to any asset or investment held by the Partnership;
(18)      the exercise of any of the powers of the General Partner enumerated in this Agreement on behalf of or in connection with any Subsidiary of the Partnership or any other Person in which the Partnership has a direct or indirect interest, or jointly with any such Subsidiary or other Person;
(19)      the exercise of any of the powers of the General Partner enumerated in this Agreement on behalf of any Person in which the Partnership does not have an interest pursuant to contractual or other arrangements with such Person;
(20)      the making, execution and delivery of any and all deeds, leases, notes, deeds to secure debt, mortgages, deeds of trust, security agreements, conveyances, contracts, guarantees, warranties, indemnities, waivers, releases or legal instruments or agreements in writing necessary or

 
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appropriate in the judgment of the General Partner for the accomplishment of any of the powers of the General Partner enumerated in this Agreement;
(21)      the issuance of additional Partnership Interests, as appropriate, in connection with the contribution of Additional Funds pursuant to Section 4.4;
(22)      the distribution of cash to acquire OP Units held by a Limited Partner in connection with a Limited Partner’s exercise of its Redemption Right under Section 8.6 hereof;
(23)      the amendment and restatement of Exhibit A hereto to reflect accurately at all times the Capital Contributions and Percentage Interests of the Partners as the same are adjusted from time to time to the extent necessary to reflect redemptions, Capital Contributions, the issuance of OP Units, the admission of any Additional Limited Partner or any Substituted Limited Partner or otherwise, which amendment and restatement, notwithstanding anything in this Agreement to the contrary, shall not be deemed an amendment to this Agreement, as long as the matter or event being reflected in Exhibit A hereto otherwise is authorized by this Agreement;
(24)      the taking of any and all acts and things necessary or prudent to ensure that the Partnership will not be classified as a “publicly traded partnership” under Section 7704 of the Code; and
(25)      the delegation to another Person of any powers now or hereafter granted to the General Partner.
L.      Each of the Limited Partners agrees that the General Partner is authorized to execute, deliver and perform the above-mentioned agreements and transactions on behalf of the Partnership without any further act, approval or vote of the Partners, notwithstanding any other provisions of this Agreement (except as provided in Section 7.3 or 11.2), the Act or any applicable law, rule or regulation to the fullest extent permitted under the Act or other applicable law, rule or regulation. The execution, delivery or performance by the General Partner or the Partnership of any agreement authorized or permitted under this Agreement shall not constitute a breach by the General Partner of any duty that the General Partner may owe the Partnership or the Limited Partners or any other Persons under this Agreement or of any duty stated or implied by law or equity.
M.      At all times from and after the date hereof, the General Partner may cause the Partnership to obtain and maintain (i) casualty, liability and other insurance on the Investments and (ii) liability insurance for the Indemnities hereunder.
N.      At all times from and after the date hereof, the General Partner may cause the Partnership to establish and maintain working capital and other reserves in such amounts as the General Partner, in its sole and absolute discretion, deems appropriate and reasonable from time to time.
O.      Each of the Limited Partners acknowledges that, in exercising its authority under this Agreement, the General Partner may, but shall be under no obligation to, take into account the tax consequences to any Partner (including the General Partner) of any action taken (or not taken) by the General Partner. The General Partner and the Partnership shall not have liability to a Partner under this Agreement as a result of any income tax liability incurred by a Limited Partner as a result of an action (or inaction) by the General Partner pursuant to its authority under this Agreement. There may be circumstances in which the fiduciary duties that the General Partner owes to the Limited Partners conflicts with any duties that the officers and directors of General Partner owe to its stockholders. For so

 
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long as the General Partner owns a controlling interest in the Partnership, any such conflict that cannot be resolved in a manner not adverse to either the stockholders or the Limited Partners shall be resolved in favor of the General Partner’s stockholders.
P.      Except as otherwise provided herein, to the extent the duties of the General Partner require expenditures of funds to be paid to third parties, the General Partner shall not have any obligations hereunder except to the extent that Partnership funds are reasonably available to it for the performance of such duties, and nothing herein contained shall be deemed to authorize or require the General Partner, in its capacity as such, to expend its individual funds for payment to third parties or to undertake any individual liability or obligation on behalf of the Partnership.
Section 7.2      Certificate of Limited Partnership.
To the extent that such action is determined by the General Partner to be reasonable and necessary or appropriate, the General Partner shall file amendments to and restatements of the Certificate and do all the things to maintain the Partnership as a limited partnership (or a partnership in which the limited partners have limited liability) under the laws of the State of Delaware and to maintain the Partnership’s qualification to do business as a foreign limited partnership in each other state, the District of Columbia or other jurisdiction, in which the Partnership may elect to do business or own property. Subject to the terms of Section 8.5.A(4), the General Partner shall not be required, before or after filing, to deliver or mail a copy of the Certificate or any amendment thereto to any Limited Partner. The General Partner shall use all reasonable efforts to cause to be filed such other certificates or documents as may be reasonable and necessary or appropriate for the formation, continuation, qualification and operation of a limited partnership (or a partnership in which the limited partners have limited liability) in the State of Delaware, any other state, or the District of Columbia or other jurisdiction, in which the Partnership may elect to do business or own property.
Section 7.3      Restrictions on General Partner’s Authority.
C.      The General Partner may not take any action in contravention of an express prohibition or limitation of this Agreement without the written Consent of the Limited Partners and the Special General Partner, and may not (i) perform any act that would subject a Limited Partner to liability as a general partner in any jurisdiction or any other liability except as provided herein or under the Act; or (ii) enter into any contract, mortgage, loan or other agreement that prohibits or restricts, or has the effect of prohibiting or restricting, the ability of a Limited Partner to exercise its rights to a Redemption in full, except in each case with the written consent of such Limited Partner.
D.      The General Partner shall not, without the prior Consent of the Partners (in addition to any Consent of the Limited Partners required by any other provision hereof), or except as provided in Section 7.3.D, amend, modify or terminate this Agreement.
E.      The General Partner may not cause the Partnership to take any action which the General Partner would be prohibited from taking directly under the General Partner’s bylaws as in effect from time to time.

 
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F.      Notwithstanding Section 7.3.B, the General Partner shall have the exclusive power to amend this Agreement as may be required to facilitate or implement any of the following purposes:
(1)      to add to the obligations of the General Partner or surrender any right or power granted to the General Partner or any Affiliate of the General Partner for the benefit of the Limited Partners;
(2)      to reflect the issuance of additional Partnership Interests pursuant to Sections 4.4.B, 5.4 and 6.2.B. or the admission, substitution, termination, or withdrawal of Partners in accordance with this Agreement (which may be effected through the replacement of Exhibit A with an amended Exhibit A);
(3)      to set forth or amend the designations, rights, powers, duties and preferences of the holders of any additional Partnership Interests issued pursuant to Article 4;
(4)      to reflect a change that is of an inconsequential nature and does not adversely affect the Limited Partners in any material respect, or to cure any ambiguity, correct or supplement any provision in this Agreement not inconsistent with law or with other provisions, or make other changes with respect to matters arising under this Agreement that will not be inconsistent with law or with the provisions of this Agreement;
(5)      to satisfy any requirements, conditions, or guidelines contained in any order, directive, opinion, ruling or regulation of a federal or state agency or contained in federal or state law;
(6)      to reflect such changes as are reasonably necessary for the General Partner to maintain its status as a REIT, including changes which may be necessitated due to a change in applicable law (or an authoritative interpretation thereof) or a ruling of the IRS;
(7)      to modify, as set forth in the definition of “Capital Account,” the manner in which Capital Accounts are computed; and
(8)      to amend or modify any provision of this Agreement to reflect a statutory or regulatory change regarding the federal income tax treatment of the “profits interest” of the Special General Partner or to ensure that the receipt of the Special General Partner’s profits interest will not result in taxation to the Special General Partner.
The General Partner will provide notice to the Limited Partners when any action under this Section 7.3.D is taken.
G.      Notwithstanding Sections 7.3.B and 7.3.D, this Agreement shall not be amended with respect to any Partner adversely affected, and no action may be taken by the General Partner, without the Consent of such Partner adversely affected if such amendment or action would (i) convert a Limited Partner’s interest in the Partnership into a general partner’s interest (except as the result of the General Partner acquiring such interest), (ii) modify the limited liability of a Limited Partner, (iii) alter rights of the Partner to receive distributions pursuant to Article 5 or Section 13.2.A(4), or the allocations specified in Article 6 (except as permitted pursuant to Sections 4.4, 5.4, 6.2.C and Section 7.3.D(2)), (iv) materially alter or modify the rights to a Redemption or the REIT Shares Amount as set forth in Section 8.6, and related definitions hereof, or (v) amend this Section 7.3.E. Further, no amendment may alter the

 
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restrictions on the General Partner’s authority set forth elsewhere in this Section 7.3 or in Section 11.2.A without the Consent specified in such section. This Section 7.3.E does not require unanimous consent of all Partners adversely affected unless the amendment is to be effective against all partners adversely affected.
Section 7.4      Reimbursement of the General Partner.
A.      Except as provided in this Section 7.4 and elsewhere in this Agreement (including the provisions of Articles 5 and 6 regarding distributions, payments and allocations to which it may be entitled), the General Partner shall not be compensated for its services as general partner of the Partnership.
B.      The Partnership shall be responsible for and shall pay all expenses relating to the Partnership’s and the General Partner’s organization, the ownership of its assets and its operations. The General Partner is hereby authorized to pay compensation for accounting, administrative, legal, technical, management and other services rendered to the Partnership. Except to the extent provided in this Agreement, the General Partner and its Affiliates shall be reimbursed on a monthly basis, or such other basis as the General Partner may determine in its sole and absolute discretion, for all expenses that the General Partner and its Affiliates incur relating to the ownership and operation of, or for the benefit of, the Partnership (including, without limitation, administrative expenses); provided , that the amount of any such reimbursement shall be reduced by any interest earned by the General Partner with respect to bank accounts or other instruments or accounts held by it on behalf of the Partnership. The Partners acknowledge that all such expenses of the General Partner are deemed to be for the benefit of the Partnership. Such reimbursement shall be in addition to any reimbursement made as a result of indemnification pursuant to Section 7.7 hereof. In the event that certain expenses are incurred for the benefit of the Partnership and other entities (including the General Partner), such expenses will be allocated to the Partnership and such other entities in such a manner as the General Partner in its sole and absolute discretion deems fair and reasonable. All payments and reimbursements hereunder shall be characterized for federal income tax purposes as expenses of the Partnership incurred on its behalf, and not as expenses of the General Partner.
C.      If the General Partner shall elect to purchase from its stockholders REIT Shares for the purpose of delivering such REIT Shares to satisfy an obligation under any dividend reinvestment program adopted by the General Partner, any employee stock purchase plan adopted by the General Partner, or any similar obligation or arrangement undertaken by the General Partner in the future or for the purpose of retiring such REIT Shares, the purchase price paid by the General Partner for such REIT Shares and any other expenses incurred by the General Partner in connection with such purchase shall be considered expenses of the Partnership and shall be advanced to the General Partner or reimbursed to the General Partner, subject to the condition that: (i) if such REIT Shares subsequently are sold by the General Partner, the General Partner shall pay to the Partnership any proceeds received by the General Partner for such REIT Shares (which sales proceeds shall include the amount of dividends reinvested under any dividend reinvestment or similar program; provided , that a transfer of REIT Shares for OP Units pursuant to Section 8.6 would not be considered a sale for such purposes); and (ii) if such REIT Shares are not retransferred by the General Partner within thirty (30) days after the purchase thereof, or the General Partner otherwise determines not to retransfer such REIT Shares, the General Partner, shall cause the Partnership to redeem a number of OP Units held by the General Partner equal to the number of such REIT Shares, as adjusted (x) pursuant to Section 7.5 (in the event the General Partner acquires material assets, other than on behalf of the Partnership) and (y) for stock dividends and distributions, stock splits and subdivisions, reverse stock splits and combinations, distributions of rights, warrants or

 
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options, and distributions of evidences of indebtedness or assets relating to assets not received by the General Partner pursuant to a pro rata distribution by the Partnership (in which case such advancement or reimbursement of expenses shall be treated as having been made as a distribution in redemption of such number of OP Units held by the General Partner).
D.      As set forth in Section 4.4, the General Partner shall be treated as having made a Capital Contribution in the amount of all expenses that it incurs relating to the General Partner’s offering of REIT Shares, other shares of capital stock of the General Partner or New Securities.
E.      If and to the extent any reimbursements to the General Partner pursuant to this Section 7.4 constitute gross income of the General Partner (as opposed to the repayment of advances made by the General Partner on behalf of the Partnership), such amounts shall constitute guaranteed payments within the meaning of Section 707(c) of the Code, shall be treated consistently therewith by the Partnership and all Partners, and shall not be treated as distributions for purposes of computing the Partners’ Capital Accounts.
Section 7.5      Outside Activities of the General Partner.
A.      Except in connection with a transaction authorized in Section 11.2, without the Consent of the Limited Partners, the General Partner shall not, directly or indirectly, enter into or conduct any business, other than in connection with the ownership, acquisition and disposition of Partnership Interests as a General Partner and the management of the business of the Partnership, its operation as a public reporting company with a class (or classes) of securities registered under the Exchange Act, its operation as a REIT and such activities as are incidental to the same. Without the Consent of the Limited Partners, the General Partner shall not, directly or indirectly, participate in or otherwise acquire any interest in any real or personal property, except its General Partner Interest, its minority interest in any Subsidiary Partnership(s) that the General Partner holds in order to maintain such Subsidiary Partnership’s status as a partnership, and such bank accounts, similar instruments or other short term investments as it deems necessary to carry out its responsibilities contemplated under this Agreement and the Charter. In the event the General Partner desires to contribute cash to any Subsidiary Partnership to acquire or maintain an interest of 1% or less in the capital of such partnership, the General Partner may acquire or maintain an interest of 1% or less in the capital of such partnership, and the General Partner may acquire such cash from the Partnership as a loan or in exchange for a reduction in the General Partner’s OP Units, in an amount equal to the amount of such cash divided by the Fair Market Value of a REIT Share on the day such cash is received by the General Partner. Notwithstanding the foregoing, the General Partner may acquire Investments or other assets in exchange for REIT Shares or cash, to the extent such Investments or other assets are immediately contributed by the General Partner to the Partnership, pursuant to the terms described in Section 4.4.D. Any Limited Partner Interests acquired by the General Partner, whether pursuant to exercise by a Limited Partner of its right of Redemption, or otherwise, shall be automatically converted into a General Partner Interest comprised of an identical number of OP Units with the same rights, priorities and preferences as the class or series so acquired. The General Partner may also own one hundred percent (100%) of the stock or interests of one or more Qualified REIT Subsidiaries or limited liability companies, respectively, provided that any such entity shall be subject to the limitations of this Section 7.5.A. If, at any time, the General Partner acquires material assets (other than Partnership Interests or other assets on behalf of the Partnership) the definition of “REIT Shares Amount” and the definition of “Deemed Value of Partnership Interests” shall be adjusted, as reasonably determined by the General Partner, to reflect the relative Fair Market Value of a share of capital stock of the General Partner relative to the Deemed Partnership Interest Value of the related Partnership Unit. The General Partner’s General Partner Interest in the Partnership, its minority

 
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interest in any Subsidiary Partnership(s) (held directly or indirectly through a Qualified REIT Subsidiary) that the General Partner holds in order to maintain such Subsidiary Partnership’s status as a partnership, and interests in such short-term liquid investments, bank accounts or similar instruments as the General Partner deems necessary to carry out its responsibilities contemplated under this Agreement and the Charter are interests which the General Partner is permitted to acquire and hold for purposes of this Section 7.5.A.
B.      In the event the General Partner exercises its rights under the Charter to purchase REIT Shares, other common stock of the General Partner or New Securities, as the case may be, then the General Partner shall cause the Partnership to purchase from it a number of OP Units equal to the number of REIT Shares, other capital stock of the General Partner or New Securities, as the case may be, so purchased on the same terms that the General Partner purchased such REIT Shares, other capital stock of the General Partner or New Securities, as the case may be.
Section 7.6      Contracts with Affiliates.
A.      The Partnership may lend or contribute to Persons in which it has an equity investment, and such Persons may borrow funds from the Partnership, on terms and conditions established in the sole and absolute discretion of the General Partner. The foregoing authority shall not create any right or benefit in favor of any Person.
B.      Except as provided in Section 7.5.A, the Partnership may transfer assets to joint ventures, other partnerships, corporations or other business entities in which it is or thereby becomes a participant upon such terms and subject to such conditions consistent with this Agreement and applicable law as the General Partner in its sole discretion deems advisable.
C.      The General Partner, in its sole and absolute discretion and without the approval of the Limited Partners, may propose and adopt on behalf of the Partnership employee benefit plans funded by the Partnership for the benefit of employees of the General Partner, the Partnership, Subsidiaries of the Partnership or any Affiliate of any of them in respect of services performed, directly or indirectly, for the benefit of the Partnership, the General Partner, or any of the Partnership’s Subsidiaries.
D.      Except as expressly permitted by this Agreement, neither the General Partner nor any of its Affiliates shall sell, transfer or convey any property to, or purchase any property from, the Partnership, directly or indirectly, except pursuant to transactions that are determined by the General Partner in good faith to be fair and reasonable.
E.      The General Partner is expressly authorized to enter into, in the name and on behalf of the Partnership, a right of first opportunity arrangement and other conflict avoidance agreements with various Affiliates of the Partnership and the General Partner, on such terms as the General Partner, in its sole and absolute discretion, believes are advisable.
Section 7.7      Indemnification.
A.      To the fullest extent permitted by law, the Partnership shall indemnify an Indemnitee from and against any and all losses, claims, damages, liabilities, joint or several, expenses (including legal fees and expenses), judgments, fines, settlements, and other amounts arising from any and all claims, demands, actions, suits or proceedings, civil, criminal, administrative or investigative, that relate to the operations of the Partnership as set forth in this Agreement in which any Indemnitee may be involved, or is threatened to be involved, as a party or otherwise, unless (1) Section 12.2.2 of the Charter

 
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of the General Partner prohibits the corporation from indemnifying the Indemnitee for a tax matter, in which case the Partnership shall likewise be prohibited from indemnifying the Indemnitee for the matter, or (2) it is established that: (i) the act or omission of the Indemnitee was material to the matter giving rise to the proceeding and either was committed in bad faith, fraud or was the result of active and deliberate dishonesty; (ii) the Indemnitee actually received an improper personal benefit in money, property or services; or (iii) in the case of any criminal proceeding, the Indemnitee had reasonable cause to believe that the act or omission was unlawful. Without limitation, the foregoing indemnity shall extend to any liability of any Indemnitee, pursuant to a loan guaranty or otherwise, for any indebtedness of the Partnership or any Subsidiary of the Partnership (including, without limitation, any indebtedness which the Partnership or any Subsidiary of the Partnership has assumed or taken subject to), and the General Partner is hereby authorized and empowered, on behalf of the Partnership, to enter into one or more indemnity agreements consistent with the provisions of this Section 7.7 in favor of any Indemnitee having or potentially having liability for any such indebtedness. The termination of any proceeding by judgment, order, settlement, conviction or upon a plea of nolo contendere or its equivalent, or any entry of an order of probation prior to judgment, does not create a presumption that the Indemnitee did not meet the requisite standard of conduct set forth in this Section 7.7.A. Any indemnification pursuant to this Section 7.7 shall be made only out of the assets of the Partnership, and any insurance proceeds from the liability policy covering the General Partner and any Indemnitee, and neither the General Partner nor any Limited Partner shall have any obligation to contribute to the capital of the Partnership or otherwise provide funds to enable the Partnership to fund its obligations under this Section 7.7, except to the extent otherwise expressly agreed to by such Partner and the Partnership.
B.      Reasonable expenses incurred by an Indemnitee who is a party to a proceeding may be paid or reimbursed by the Partnership in advance of the final disposition of the proceeding upon receipt by the Partnership of (i) a written affirmation by the Indemnitee of the Indemnitee’s good faith belief that the standard of conduct necessary for indemnification by the Partnership as authorized in this Section 7.7 has been met, and (ii) a written undertaking by or on behalf of the Indemnitee to repay the amount if it shall ultimately be determined that the standard of conduct has not been met.
C.      The indemnification provided by this Section 7.7 shall be in addition to any other rights to which an Indemnitee or any other Person may be entitled under any agreement, pursuant to any vote of the Partners, as a matter of law or otherwise, and shall continue as to an Indemnitee who has ceased to serve in such capacity unless otherwise provided in a written agreement pursuant to which such Indemnitee is indemnified.
D.      The Partnership may, but shall not be obligated to, purchase and maintain insurance, on behalf of the Indemnitees and such other Persons as the General Partner shall determine, against any liability that may be asserted against or expenses that may be incurred by such Person in connection with the Partnership’s activities, regardless of whether the Partnership would have the power to indemnify such Person against such liability under the provisions of this Agreement.
E.      For purposes of this Section 7.7, the Partnership shall be deemed to have requested an Indemnitee to serve as fiduciary of an employee benefit plan whenever the performance by it of its duties to the Partnership also imposes duties on, or otherwise involves services by, it to the plan or participants or beneficiaries of the plan; excise taxes assessed on an Indemnitee with respect to an employee benefit plan pursuant to applicable law shall constitute fines within the meaning of Section 7.7; and actions taken or omitted by the Indemnitee with respect to an employee benefit plan in the performance of its duties for a purpose reasonably believed by it to be in the interest of the participants

 
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and beneficiaries of the plan shall be deemed to be for a purpose which is not opposed to the best interests of the Partnership.
F.      In no event may an Indemnitee subject the Limited Partners to personal liability by reason of the indemnification provisions set forth in this Agreement.
G.      An Indemnitee shall not be denied indemnification in whole or in part under this Section 7.7 because the Indemnitee had an interest in the transaction with respect to which the indemnification applies if the transaction was otherwise permitted by the terms of this Agreement.
H.      The provisions of this Section 7.7 are for the benefit of the Indemnitees, their heirs, successors, assigns and administrators and shall not be deemed to create any rights for the benefit of any other Persons. Any amendment, modification or repeal of this Section 7.7 or any provision hereof shall be prospective only and shall not in any way affect the limitations on the Partnership’s liability to any Indemnitee under this Section 7.7 as in effect immediately prior to such amendment, modification or repeal with respect to claims arising from or relating to matters occurring, in whole or in part, prior to such amendment, modification or repeal, regardless of when such claims may arise or be asserted.
I.      If and to the extent any reimbursements to the General Partner pursuant to this Section 7.7 constitute gross income of the General Partner (as opposed to the repayment of advances made by the General Partner on behalf of the Partnership) such amounts shall constitute guaranteed payments within the meaning of Section 707(c) of the Code, shall be treated consistently therewith by the Partnership and all Partners, and shall not be treated as distributions for purposes of computing the Partners’ Capital Accounts.
J.      Any indemnification hereunder is subject to, and limited by, the provisions of Section 17-108 of the Act and Section 12.2.2 of the Charter.
K.      In the event the Partnership is made a party to any litigation or otherwise incurs any loss or expense as a result of or in connection with any Partner’s personal obligations or liabilities unrelated to Partnership business, such Partner shall indemnify and reimburse the Partnership for all such loss and expense incurred, including legal fees, and the Partnership interest of such Partner may be charged therefor. The liability of a Partner under this Section 7.7.K shall not be limited to such Partner’s Partnership Interest, but shall be enforceable against such Partner personally.
Section 7.8      Liability of the General Partner.
A.      Notwithstanding anything to the contrary set forth in this Agreement, none of the General Partner nor any of its officers, directors, agents or employees shall be liable or accountable in damages or otherwise to the Partnership, any Partners or any Assignees, or their successors or assigns, for losses sustained, liabilities incurred or benefits not derived as a result of errors in judgment or mistakes of fact or law or any act or omission if the General Partner acted in good faith.
B.      The Limited Partners expressly acknowledge that the General Partner is acting for the benefit of the Partnership, the Limited Partners and the General Partner’s stockholders collectively. The General Partner is under no obligation to give priority to the separate interests of the Limited Partners or the General Partner’s stockholders (including, without limitation, the tax consequences to Limited Partners or Assignees or to stockholders) in deciding whether to cause the Partnership to take (or decline to take) any actions. If there is a conflict between the interests of the stockholders of the General Partner on one hand and the Limited Partners on the other, the General Partner shall endeavor in good faith to

 
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resolve the conflict in a manner not adverse to either the stockholders of the General Partner or the Limited Partners; provided, however , that for so long as the General Partner, owns a controlling interest in the Partnership, any such conflict that cannot be resolved in a manner not adverse to either the stockholders of the General Partner or the Limited Partners shall be resolved in favor of the stockholders. The General Partner shall not be liable under this Agreement to the Partnership or to any Partner for monetary damages for losses sustained, liabilities incurred, or benefits not derived by Limited Partners in connection with such decisions; provided, that the General Partner has acted in good faith.
C.      Subject to its obligations and duties as General Partner set forth in Section 7.1.A, the General Partner may exercise any of the powers granted to it by this Agreement and perform any of the duties imposed upon it hereunder either directly or by or through its agents. The General Partner shall not be responsible for any misconduct or negligence on the part of any such agent appointed by it in good faith.
D.      Any amendment, modification or repeal of this Section 7.8 or any provision hereof shall be prospective only and shall not in any way affect the limitations on the liability of the General Partner and any of its officers, directors, agents and employee’s liability to the Partnership and the Limited Partners under this Section 7.8 as in effect immediately prior to such amendment, modification or repeal with respect to claims arising from or relating to matters occurring, in whole or in part, prior to such amendment, modification or repeal, regardless of when such claims may arise or be asserted.
Section 7.9      Other Matters Concerning the General Partner.
A.      The General Partner may rely and shall be protected in acting or refraining from acting upon any resolution, certificate, statement, instrument, opinion, report, notice, request, consent, order, bond, debenture, or other paper or document believed by it to be genuine and to have been signed or presented by the proper party or parties.
B.      The General Partner may consult with legal counsel, accountants, appraisers, management consultants, investment bankers and other consultants and advisers selected by it, and any act taken or omitted to be taken in reliance upon the opinion of such Persons as to matters which such General Partner reasonably believes to be within such Person’s professional or expert competence shall be conclusively presumed to have been done or omitted in good faith and in accordance with such opinion.
C.      The General Partner shall have the right, in respect of any of its powers or obligations hereunder, to act through any of its duly authorized officers and a duly appointed attorney or attorneys-in-fact. Each such attorney shall, to the extent provided by the General Partner in the power of attorney, have full power and authority to do and perform all and every act and duty which is permitted or required to be done by the General Partner hereunder.
D.      Notwithstanding any other provisions of this Agreement or any non-mandatory provision of the Act, any action of the General Partner on behalf of the Partnership or any decision of the General Partner to refrain from acting on behalf of the Partnership, undertaken in the good faith belief that such action or omission is necessary or advisable in order to protect the ability of the General Partner, for so long as the General Partner has determined to qualify as a REIT, to (i) continue to qualify as a REIT or (ii) avoid the General Partner incurring any taxes under Section 857 or Section 4981 of the Code, is expressly authorized under this Agreement and is deemed approved by all of the Limited Partners.

 
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Section 7.10      Title to Partnership Assets .
Title to Partnership assets, whether real, personal or mixed and whether tangible or intangible, shall be deemed to be owned by the Partnership as an entity, and no Partners, individually or collectively, shall have any ownership interest in such Partnership assets or any portion thereof. Title to any or all of the Partnership assets may be held in the name of the Partnership, the General Partner or one or more subsidiaries or nominees, as the General Partner may determine, including Affiliates of the General Partner. The General Partner hereby declares and warrants that any Partnership assets for which legal title is held in the name of the General Partner or any nominee or Affiliate of the General Partner shall be held by the General Partner for the use and benefit of the Partnership in accordance with the provisions of this Agreement; provided, however , that the General Partner shall use its best efforts to cause beneficial and record title to such assets to be vested in the Partnership, a subsidiary or a nominee thereof, as soon as reasonably practicable. All Partnership assets shall be recorded as the property of the Partnership in its books and records, irrespective of the name in which legal title to such Partnership assets is held.
Section 7.11      Reliance by Third Parties.
Notwithstanding anything to the contrary in this Agreement, any Person dealing with the Partnership shall be entitled to assume that the General Partner has full power and authority to encumber, sell or otherwise use in any manner any and all assets of the Partnership and to enter into any contracts on behalf of the Partnership, and such Person shall be entitled to deal with the General Partner as if it were the Partnership’s sole party in interest, both legally and beneficially. Each Limited Partner hereby waives any and all defenses or other remedies which may be available against such Person to contest, negate or disaffirm any action of the General Partner in connection with any such dealing. In no event shall any Person dealing with the General Partner or its representatives be obligated to ascertain that the terms of this Agreement have been complied with or to inquire into the necessity or expedience of any act or action of the General Partner or its representatives. Each and every certificate, document or other instrument executed on behalf of the Partnership by the General Partner or its representatives shall be conclusive evidence in favor of any and every Person relying thereon or claiming thereunder that (i) at the time of the execution and delivery of such certificate, document or instrument, this Agreement was in full force and effect, (ii) the Person executing and delivering such certificate, document or instrument was duly authorized and empowered to do so for and on behalf of the Partnership and (iii) such certificate, document or instrument was duly executed and delivered in accordance with the terms and provisions of this Agreement and is binding upon the Partnership.
Section 7.12      Management Assistance Provided by Special General Partner.
In addition to the requirement to obtain the Consent of the Special General Partner with respect to certain matters as provided for in this Agreement, the Special General Partner shall provide consulting services and assistance to the Partnership at various times, in conjunction with the Advisor, for no additional consideration, on matters relating to the following:
(1)    the strategic planning of the Partnership;
(2)    the creation of business plans of the Partnership;
(3)    the sale, merger, or the sale of substantially all of the assets, of the Partnership; and
(4)    any other matters concerning the Partnership as determined appropriate by the General Partner and the Special General Partner.

 
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ARTICLE 8     
RIGHTS AND OBLIGATIONS OF LIMITED PARTNERS
Section 8.1      Limitation of Liability.
The Limited Partners shall have no liability under this Agreement except as expressly provided in this Agreement or under the Act.
Section 8.2      Management of Business.
No Limited Partner or Assignee (other than the General Partner, any of its Affiliates or any officer, director, employee, partner, agent or trustee of the General Partner, the Partnership or any of their Affiliates, in their capacity as such) shall take part in the operations, management or control (within the meaning of the Act) of the Partnership’s business, transact any business in the Partnership’s name or have the power to sign documents for or otherwise bind the Partnership. The transaction of any such business by the General Partner, any of its Affiliates or any officer, director, employee, partner, agent or trustee of the General Partner, the Partnership or any of their Affiliates, in their capacity as such, shall not affect, impair or eliminate the limitations on the liability of the Limited Partners or Assignees under this Agreement.
Section 8.3      Outside Activities of Limited Partners.
Subject to any agreements entered into by a Limited Partner or its Affiliates with the General Partner, Partnership or a Subsidiary, any Limited Partner and any officer, director, employee, agent, trustee, Affiliate or stockholder of any Limited Partner shall be entitled to and may have business interests and engage in business activities in addition to those relating to the Partnership, including business interests and activities in direct competition with the Partnership or that are enhanced by the activities of the Partnership. Neither the Partnership nor any Partners shall have any rights by virtue of this Agreement in any business ventures of any Limited Partner or Assignee. Subject to such agreements, none of the Limited Partners nor any other Person shall have any rights by virtue of this Agreement or the partnership relationship established hereby in any business ventures of any other Person, other than the Limited Partners benefiting from the business conducted by the General Partner, and such Person shall have no obligation pursuant to this Agreement to offer any interest in any such business ventures to the Partnership, any Limited Partner or any such other Person, even if such opportunity is of a character which, if presented to the Partnership, any Limited Partner or such other Person, could be taken by such Person.
Section 8.4      Return of Capital.
Except pursuant to the rights of Redemption set forth in Section 8.6, no Limited Partner shall be entitled to the withdrawal or return of his or her Capital Contribution, except to the extent of distributions made pursuant to this Agreement or upon termination of the Partnership as provided herein. No Limited Partner or Assignee shall have priority over any other Limited Partner or Assignee either as to the return of Capital Contributions, or as otherwise expressly provided in this Agreement, or as to profits, losses, distributions or credits.
Section 8.5      Rights of Limited Partners Relating to the Partnership.
F.      In addition to other rights provided by this Agreement or by the Act, and except as limited by Section 8.5.C, each Limited Partner shall have the right, for a purpose reasonably related to

 
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such Limited Partner’s interest as a limited partner in the Partnership, upon written demand with a statement of the purpose of such demand and at such Limited Partner’s expense:
(26)      to obtain a copy of the most recent annual and quarterly reports filed with the Securities and Exchange Commission by the General Partner pursuant to the Exchange Act, and each communication sent to the stockholders of the General Partner;
(27)      to obtain a copy of the Partnership’s federal, state and local income tax returns for each Partnership Year;
(28)      to obtain a current list of the name and last known business, residence or mailing address of each Partner;
(29)      to obtain a copy of this Agreement and the Certificate and all amendments thereto, together with executed copies of all powers of attorney pursuant to which this Agreement, the Certificate and all amendments thereto have been executed; and
(30)      to obtain true and full information regarding the amount of cash and a description and statement of any other property or services contributed by each Partner and which each Partner has agreed to contribute in the future, and the date on which each became a Partner.
G.      The Partnership shall notify each Limited Partner in writing of any adjustment made in the calculation of the REIT Shares Amount within a reasonable time after the date such change becomes effective.
H.      Notwithstanding any other provision of this Section 8.5, the General Partner may keep confidential from the Limited Partners, for such period of time as the General Partner determines in its sole and absolute discretion to be reasonable, any information that (i) the General Partner believes to be in the nature of trade secrets or other information the disclosure of which the General Partner in good faith believes is not in the best interests of the Partnership or (ii) the Partnership or the General Partner is required by law or by agreements with unaffiliated third parties to keep confidential.
Section 8.6      Redemption Rights.
L.      At any time after one year following the date of issuance of any OP Units to a Limited Partner or a Special General Partner, such Partner shall have the right (subject to the terms and conditions set forth herein and in any other such agreement, as applicable) to require the Partnership to redeem all or a portion of the OP Units held by such Partner (such OP Units being hereafter referred to as “Tendered Units”) in exchange for the Cash Amount (a “Redemption”); provided that the terms of such OP Units do not provide that such OP Units are not entitled to a right of Redemption. Unless otherwise expressly provided in this Agreement or in a separate agreement entered into between the Partnership and the holders of such OP Units, all OP Units, including Class A OP Units and Class C OP Units, shall be entitled to a right of Redemption hereunder. The Tendering Partner shall have no right, with respect to any OP Units so redeemed, to receive any distributions paid on or after the Specified Redemption Date. Any Redemption shall be exercised pursuant to a Notice of Redemption delivered to the General Partner by the Special General Partner or Limited Partner who is exercising the right (the “Tendering Partner”). The Cash Amount shall be payable to the Tendering Partner within ten (10) days of the Specified Redemption Date in accordance with the instructions set forth in the Notice of Redemption.

 
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M.      Notwithstanding Section 8.6.A above, if the Special General Partner or a Limited Partner has delivered to the General Partner a Notice of Redemption then the General Partner may, in its sole and absolute discretion (subject to the limitations on ownership and transfer of REIT Shares set forth in the Charter), elect to acquire some or all of the Tendered Units from the Tendering Partner in exchange for the REIT Shares Amount (as of the Specified Redemption Date) and, if the General Partner so elects, the Tendering Partner shall sell the Tendered Units to the General Partner in exchange for the REIT Shares Amount. In such event, the Tendering Partner shall have no right to cause the Partnership to redeem such Tendered Units. The General Partner shall promptly give such Tendering Partner written notice of its election, and the Tendering Partner may elect to withdraw its redemption request at any time prior to the acceptance of the cash or REIT Shares Amount by such Tendering Partner.
N.      The REIT Shares Amount, if applicable, shall be delivered as duly authorized, validly issued, fully paid and nonassessable REIT Shares and, if applicable, free of any pledge, lien, encumbrance or restriction, other than those provided in the Charter, the Bylaws of the General Partner, the Securities Act, relevant state securities or blue sky laws and any applicable registration rights agreement with respect to such REIT Shares entered into by the Tendering Partner. Notwithstanding any delay in such delivery (but subject to Section 8.6.E), the Tendering Partner shall be deemed the owner of such REIT Shares for all purposes, including without limitation, rights to vote or consent, and receive dividends, as of the Specified Redemption Date.
O.      The Special General Partner and each Limited Partner covenants and agrees with the General Partner that all Tendered Units shall be delivered to the General Partner free and clear of all liens, claims and encumbrances whatsoever and should any such liens, claims and/or encumbrances exist or arise with respect to such Tendered Units, the General Partner shall be under no obligation to acquire the same. The Special General Partner and each Limited Partner further agrees that, in the event any state or local property transfer tax is payable as a result of the transfer of its Tendered Units to the General Partner (or its designee), such Partner shall assume and pay such transfer tax.
P.      Notwithstanding the provisions of Section 8.6.A, 8.6.B, 8.6.C or any other provision of this Agreement, the Special General Partner or a Limited Partner (i) shall not be entitled to effect a Redemption for cash or an exchange for REIT Shares to the extent the ownership or right to acquire REIT Shares pursuant to such exchange by such Partner on the Specified Redemption Date could cause such Partner or any other Person, or, in the opinion of counsel selected by the General Partner, may cause such Partner or any other Person, to violate the restrictions on ownership and transfer of REIT Shares set forth in the Charter and (ii) shall have no rights under this Agreement to acquire REIT Shares which would otherwise be prohibited under the Charter. To the extent any attempted Redemption or exchange for REIT Shares would be in violation of this Section 8.6.E, it shall be null and void ab initio and such Partner shall not acquire any rights or economic interest in the cash otherwise payable upon such Redemption or the REIT Shares otherwise issuable upon such exchange.
Q.      Notwithstanding anything herein to the contrary (but subject to Section 8.6.E), with respect to any Redemption or exchange for REIT Shares pursuant to this Section 8.6:
(1)      All OP Units acquired by the General Partner pursuant thereto shall automatically, and without further action required, be converted into and deemed to be Limited Partner Interests comprised of the same number and class of OP Units.
(2)      The Special General Partner and each Limited Partner may not effect a Redemption for less than one thousand (1,000) OP Units or, if such Partner holds less than one thousand

 
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(1,000) OP Units, such Partner may effect a Redemption only with respect to all OP Units held by such Partner.
(3)      A Tendering Partner may not effect more than two (2) Redemptions in a single calendar year.
(4)      Without the consent of the General Partner, the Special General Partner and each Limited Partner may not effect a Redemption during the period after the Partnership Record Date with respect to a distribution and before the record date established by the General Partner for a distribution to its stockholders of some or all of its portion of such distribution.
(5)      The consummation of any Redemption or exchange for REIT Shares shall be subject to the expiration or termination of the applicable waiting period, if any, under the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended.
(6)      Each Tendering Partner shall continue to own all OP Units subject to any Redemption or exchange for REIT Shares, and be treated as a Partner with respect to such OP Units for all purposes of this Agreement, until such OP Units are transferred to the General Partner and paid for or exchanged on the Specified Redemption Date. Until a Specified Redemption Date, the Tendering Partner shall have no rights as a stockholder of the General Partner with respect to such Tendering Partner’s OP Units.
R.      In the event that the Partnership issues additional Partnership Interests to any Additional Limited Partner pursuant to Section 4.4.B, the General Partner shall make such revisions to this Section 8.6 as it determines are necessary to reflect the issuance of such additional Partnership Interests.
S.      Notwithstanding any other provision of this Agreement, the General Partner is authorized to take any action that it determines to be necessary or appropriate to cause the partnership to comply with any withholding requirements established under the Code or any other federal, state or local law that apply upon a Redemption or exchange of Tendered Units. If a Tendering Partner believes that it is exempt from withholding upon a Redemption or exchange of Tendered Units, such Partner must furnish the General Partner a FIRPTA certificate or other documentation requested by the General Partner is a form acceptable to the General Partner. If the Partnership or the General Partner is required to withhold and pay over to any taxing authority any amount upon a Redemption or exchange of Tendered Units and the Cash Amount or the REIT Shares Amount, as the case may be, equals or exceeds the amount of tax required to be withheld, the amount withheld shall be treated as an amount received by such Partner in redemption of its Tendered Units. If the Cash Amount or the REIT Shares Amount, as the case may be, is less than the amount of tax required to be withheld, the Tendering Partner shall not receive any Cash Amount or REIT Shares Amount, and the Tendering Partner shall contribute the excess of the amount of tax required to be withheld over the Cash Amount or REIT Shares Amount before such excess taxes are required to be paid to the taxing authority.
ARTICLE 9     
BOOKS, RECORDS, ACCOUNTING AND REPORTS
Section 9.1      Records and Accounting.
The General Partner shall keep, or cause to be kept, at the principal office of the Partnership appropriate books and records with respect to the Partnership’s business, including without limitation, all

 
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books and records necessary to provide to the Special General Partner and the Limited Partners any information, lists and copies of documents required to be provided pursuant to Section 9.3. Any records maintained by or on behalf of the Partnership in the regular course of its business may be kept on, or be in the form of any information storage device, provided, that the records so maintained are convertible into clearly legible written form within a reasonable period of time. The books of the Partnership shall be maintained, for financial and tax reporting purposes, on an accrual basis in accordance with generally accepted accounting principles.
Section 9.2      Fiscal Year.
The fiscal year of the Partnership shall be the calendar year.
Section 9.3      Reports.
C.      As soon as practicable, but in no event later than 105 days after the close of each Partnership Year, or such earlier date as they are filed with the Securities and Exchange Commission, the General Partner shall cause to be delivered to the Special General Partner and each Limited Partner as of the close of the Partnership Year, an annual report containing financial statements of the Partnership, or of the General Partner if such statements are prepared solely on a consolidated basis with the General Partner, for such Partnership Year, presented in accordance with generally accepted accounting principles, such statements to be audited by a nationally recognized firm of independent public accountants selected by the General Partner.
D.      As soon as practicable, but in no event later than 45 days after the close of each calendar quarter (except the last calendar quarter of each year), or such earlier date as they are filed with the Securities and Exchange Commission, the General Partner shall cause to be delivered to the Special General Partner and each Limited Partner as of the last day of the calendar quarter, a report containing unaudited financial statements of the Partnership, or of the General Partner, if such statements are prepared solely on a consolidated basis with the applicable law or regulation, or as the General Partner determines to be appropriate.
Section 9.4      Nondisclosure of Certain Information.
Notwithstanding the provisions of Sections 9.1 and 9.3, the General Partner may keep confidential from the Special General Partner and the Limited Partners any information that the General Partner believes to be in the nature of trade secrets or other information the disclosure of which the General Partner in good faith believes is not in the best interest of the Partnership or which the Partnership is required by law or by agreements with unaffiliated third parties to keep confidential.
ARTICLE 10     
TAX MATTERS
Section 10.1      Preparation of Tax Returns.
The General Partner shall arrange for the preparation and timely filing of all returns of Partnership income, gains, deductions, losses and other items required of the Partnership for federal and applicable state income tax purposes and shall use all reasonable efforts to furnish, within 90 days of the close of each taxable year, the tax information reasonably required by the Special General Partner and the Limited Partners for federal and applicable state income tax reporting purposes. The Special General Partner and each Limited Partner shall promptly provide the General Partner with any information

 
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reasonably requested by the General Partner relating to any Contributed Property contributed (directly or indirectly) by such Partner to the Partnership.
Section 10.2      Tax Elections.
Except as otherwise provided herein, the General Partner shall, in its sole and absolute discretion, determine whether to make any available election pursuant to the Code, including the election under Section 754 of the Code. The General Partner shall have the right to seek to revoke any such election (including without limitation, any election under Section 754 of the Code) upon the General Partner’s determination in its sole and absolute discretion that such revocation is the best interests of the Partners.
Section 10.3      Tax Matters Partner.
I.      The General Partner shall be the “tax matters partner” of the Partnership for federal income tax purposes. Pursuant to Section 6230(e) of the Code, upon receipt of notice from the IRS of the beginning of an administrative proceeding with respect to the Partnership, the tax matters partner shall furnish the IRS with the name, address and profit interest of the Special General Partner and each of the Limited Partners and Assignees; provided, however , that such information is provided to the Partnership by the Partners and Assignees.
J.      The tax matters partner is authorized, but not required:
(1)      to enter into any settlement with the IRS with respect to any administrative or judicial proceedings for the adjustment of Partnership items required to be taken into account by a Partner for income tax purposes (such administrative proceedings being referred to as a “tax audit” and such judicial proceedings being referred to as “judicial review”), and in the settlement agreement the tax matters partner may expressly state that such agreement shall bind all Partners, except that such settlement agreement shall not bind any Partner (i) who (within the time prescribed pursuant to the Code and Regulations) files a statement with the IRS providing that the tax matters partner shall not have the authority to enter into a settlement agreement on behalf of such Partner or (ii) who is a “notice partner” (as defined in Section 6231 of the Code) or a member of a “notice group” (as defined in Section 6223(b)(2) of the Code);
(2)      in the event that a notice of a final administrative adjustment at the Partnership level of any item required to be taken into account by a Partner for tax purposes (a “final adjustment”) is mailed to the tax matters partner, to seek judicial review of such final adjustment, including the filing of a petition for readjustment with the Tax Court or the United States Claims Court, or the filing of a complaint for refund with the District Court of the United States for the district in which the Partnership’s principal place of business is located;
(3)      to intervene in any action brought by any other Partner for judicial review of a final adjustment;
(4)      to file a request for an administrative adjustment with the IRS at any time and, if any part of such request is not allowed by the IRS, to file an appropriate pleading (petition or complaint) for judicial review with respect to such request;
(5)      to enter into an agreement with the IRS to extend the period for assessing any tax which is attributable to any item required to be taken into account by a Partner for tax purposes, or an item affected by such item; and

 
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(6)      to take any other action on behalf of the Partners of the Partnership in connection with any tax audit or judicial review proceeding to the extent permitted by applicable law or regulations.
The taking of any action and the incurring of any expense by the tax matters partner in connection with any such proceeding, except to the extent required by law, is a matter in the sole and absolute discretion of the tax matters partner and the provisions relating to indemnification of the General Partner set forth in Section 7.7 shall be fully applicable to the tax matters partner in its capacity as such.
K.      The tax matters partner shall receive no compensation for its services. All third party costs and expenses incurred by the tax matters partner in performing its duties as such (including legal and accounting fees) shall be borne by the Partnership. Nothing herein shall be construed to restrict the Partnership from engaging an accounting firm to assist the tax matters partner in discharging its duties hereunder, so long as the compensation paid by the Partnership for such services is reasonable.
Section 10.4      Organizational Expenses.
The Partnership shall elect to deduct expenses, if any, incurred by it in organizing the Partnership as provided in Section 709 of the Code.
Section 10.5      Withholding.
The Special General Partner and each Limited Partner hereby authorize the Partnership to withhold from or pay on behalf of or with respect to such Partner any amount of federal, state, local, or foreign taxes that the General Partner determines that the Partnership is required to withhold or pay with respect to any amount distributable or allocable to such Partner pursuant to this Agreement, including, without limitation, any taxes required to be withheld or paid by the Partnership pursuant to Sections 1441, 1442, 1445 or 1446 of the Code. Any amount paid on behalf of or with respect to the Special General Partner or a Limited Partner shall constitute a receivable of the Partnership from such Partner, which receivable shall be paid by such Partner within 15 days after notice from the General Partner that such payment must be made unless (i) the Partnership withholds such payment from a distribution which would otherwise be made to the Partner or (ii) the General Partner determines, in its sole and absolute discretion, that such payment may be satisfied out of the available funds of the Partnership which would, but for such payment, be distributed to the Partner. Any amounts withheld pursuant to the foregoing clauses (i) or (ii) shall be treated as having been distributed to such Partner. The Special General Partner and each Limited Partner hereby unconditionally and irrevocably grants to the Partnership a security interest in such Partner’s Partnership Interest to secure such Partner’s obligation to pay to the Partnership any amounts required to be paid pursuant to this Section 10.5. Any amounts payable by the Special General Partner or a Limited Partner hereunder shall bear interest at the base rate on corporate loans at large United States money center commercial banks, as published from time to time in the Wall Street Journal, plus two percentage points (but not higher than the maximum lawful rate) from the date such amount is due (i.e., 15 days after demand) until such amount is paid in full. The Special General Partner and each Limited Partner shall take such actions as the Partnership or the General Partner shall request in order to perfect or enforce the security interest created hereunder.
ARTICLE 11     
TRANSFERS AND WITHDRAWALS

 
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Section 11.1      Transfer.
E.      The term “transfer,” when used in this Article 11 with respect to a Partnership Interest, shall be deemed to refer to a transaction by which a Partner purports to assign its Partnership Interest to another Person and includes a sale, assignment, gift (outright or in trust), pledge, encumbrance, hypothecation, mortgage, exchange or any other disposition by law or otherwise. The term “transfer” when used in this Article 11 does not include any Redemption or exchange for REIT Shares pursuant to Section 8.6, except as otherwise provided herein. No part of the interest of a Limited Partner shall be subject to the claims of any creditor, any spouse for alimony or support, or to legal process, and may not be voluntarily or involuntarily alienated or encumbered except as may be specifically provided for in this Agreement or consented to by the General Partner and the Special General Partner.
F.      No Partnership Interest shall be transferred, in whole or in part, except in accordance with the terms and conditions set forth in this Article 11. Any transfer or purported transfer of a Partnership Interest not made in accordance with this Article 11 shall be null and void ab initio unless otherwise consented to by the General Partner and the Special General Partner in their sole and absolute discretion.
Section 11.2      Transfer of the Partnership Interest of the General Partner and the Special General Partner.
L.      The General Partner shall not (i) voluntarily withdraw from the Partnership, (ii) directly or indirectly transfer all or any portion of its interest in the Partnership (except to an entity wholly owned by the General Partner), or (iii) engage in any merger, consolidation, or other combination with or into another Person, sale of all or substantially all of its assets or any reclassification or recapitalization of its outstanding equity interests or undertake a Listing Event (an “Extraordinary Transaction”), without the Consent of the Partners, which may be given or withheld by each Partner in his, her or its sole and absolute discretion. In addition, if an Extraordinary Transaction would result in the termination of the Advisory Agreement, the Partnership must either (i) purchase the Special General Partner Interest as provided under Section 11.7, or (ii) obtain the Consent of the Special General Partner. Upon any transfer of a Partnership Interest in accordance with the provisions of this Section 11.2, the transferee shall become a Substitute General Partner for all purposes herein, and shall be vested with the powers and rights of the transferor General Partner, and shall be liable for all obligations and responsible for all duties of the General Partner, once such transferee has executed such instruments as may be necessary to effectuate such admission and to confirm the agreement of such transferee to be bound by all the terms and provisions of this Agreement with respect to the Partnership Interest so acquired. It is a condition to any transfer otherwise permitted hereunder that the transferee assumes, by operation of law or express agreement, all of the obligations of the transferor General Partner under this Agreement with respect to such transferred Partnership Interest, and no such transfer (other than pursuant to a statutory merger or consolidation wherein all obligations and liabilities of the transferor General Partner are assumed by a successor corporation by operation of law) shall relieve the transferor General Partner of its obligations under this Agreement without the Consent of the Limited Partners, in their reasonable discretion. In the event the General Partner withdraws from the Partnership in violation of this Agreement or otherwise, or otherwise dissolves or terminates, or upon the Incapacity of the General Partner, all of the remaining Partners may elect to continue the Partnership business by selecting a Substitute General Partner in accordance with the Act.
M.      Notwithstanding any other provision of this Agreement, the Special General Partner shall not transfer all or any portion of its Partnership Interest to any transferee without the consent

 
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of the General Partner, which consent may be withheld in the sole and absolute discretion of the General Partner. Notwithstanding the preceding sentence, however, the Special General Partner shall have the right, at any time, to transfer its Partnership Interest to the General Partner, an Affiliate of the General Partner, W. P. Carey Inc. or an Affiliate of W. P. Carey Inc.
Section 11.3      Limited Partners’ Rights to Transfer.
T.      Prior to the first anniversary of the Effective Date, no Limited Partner shall transfer all or any portion of its Partnership Interest to any transferee without the consent of the General Partner and the Special General Partner, which consent may be withheld in their sole and absolute discretion; provided, however , that any Limited Partner may, at any time, without the consent of the General Partner and the Special General Partner, (i) transfer all or any portion of its Partnership Interest to the General Partner, (ii) transfer all or any portion of its Partnership Interest to an Affiliate, another original Limited Partner or to an Immediate Family Member, subject to the provisions of Section 11.6, (iii) transfer all or any portion of its Partnership Interest to a trust for the benefit of a charitable beneficiary or to a charitable foundation, subject to the provisions of Section 11.6, and (iv) subject to the provisions of Section 11.6, pledge (a “Pledge”) all or any portion of its Partnership Interest to a lending institution, which is not an Affiliate of such Limited Partner, as collateral or security for a bona fide loan or other extension of credit, and transfer such pledged Partnership Interest to such lending institution in connection with the exercise of remedies under such loan or extension or credit, and the transfer of such pledged Partnership Interest by the lender to any transferee. Each Limited Partner or Assignee (resulting from a transfer made pursuant to clauses (i)-(iv) of the proviso of the preceding sentence) shall have the right to transfer all or any portion of its Partnership Interest, subject to the provisions of Section 11.6 and the satisfaction of each of the following conditions (in addition to the right of each such Limited Partner or Assignee to continue to make any such transfer permitted by clauses (i)-(iv) of such proviso without satisfying either of the following conditions):
(1)      General Partner Right of First Refusal. The transferring Partner shall give written notice of the proposed transfer to the General Partner, which notice shall state (i) the identity of the proposed transferee, and (ii) the amount and type of consideration proposed to be received for the transferred OP Units. The General Partner shall have ten (10) business days upon which to give the transferring Partner notice of its election to acquire the OP Units on the proposed terms. If it so elects, it shall purchase the OP Units on such terms within ten (10) business days after giving notice of such election. If it does not so elect, the transferring Partner may transfer such OP Units to a third party, on economic terms no more favorable to the transferee than the proposed terms, subject to the other conditions of this Section 11.3.
(2)      Qualified Transferee. Any transfer of a Partnership Interest shall be made only to Qualified Transferees. It is a condition to any transfer otherwise permitted hereunder that the transferee assumes by operation of law or express agreement all of the obligations of the transferor Limited Partner under this Agreement with respect to such transferred Partnership Interest and no such transfer (other than pursuant to a statutory merger or consolidation wherein all obligations and liabilities of the transferor Partner are assumed by a successor corporation by operation of law) shall relieve the transferor Partner of its obligations under this Agreement without the approval of the General Partner, in its reasonable discretion. Notwithstanding the foregoing, any transferee of any transferred Partnership Interest shall be subject to any and all ownership limitations contained in the Charter, which may limit or restrict such transferee’s ability to exercise its Redemption rights, and to the representations in Section 3.4.D. Any transferee, whether or not admitted as a Substituted Limited Partner, shall take subject to the obligations of the transferor hereunder. Unless admitted as a Substituted Limited Partner,

 
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no transferee, whether by a voluntary transfer, by operation of law or otherwise, shall have any rights hereunder, other than the rights of an Assignee as provided in Section 11.5.
U.      If a Limited Partner is subject to Incapacity, the executor, administrator, trustee, committee, guardian, conservator, or receiver of such Limited Partner’s estate shall have all the rights of a Limited Partner, but not more rights than those enjoyed by other Limited Partners, for the purpose of settling or managing the estate, and such power as the Incapacitated Limited Partner possessed to transfer all or any part of his or its interest in the Partnership. The Incapacity of a Limited Partner, in and of itself, shall not dissolve or terminate the Partnership.
V.      The General Partner may prohibit any transfer otherwise permitted under Section 11.3 by a Limited Partner of his or her OP Units if, in the opinion of legal counsel to the Partnership, such transfer would require the filing of a registration statement under the Securities Act by the Partnership or would otherwise violate any federal or state securities laws or regulations applicable to the Partnership or the Partnership Unit.
Section 11.4      Substituted Limited Partners.
E.      No Limited Partner shall have the right to substitute a transferee as a Limited Partner in his or her place (including any transferee permitted by Section 11.3). The General Partner shall, however, have the right to consent to the admission of a transferee of the interest of a Limited Partner pursuant to this Section 11.4 as a Substituted Limited Partner, which consent may be given or withheld by the General Partner in its sole and absolute discretion. The General Partner’s failure or refusal to permit a transferee of any such interests to become a Substituted Limited Partner shall not give rise to any cause of action, whether at law or in equity, against the Partnership or any Partner.
F.      A transferee who has been admitted as a Substituted Limited Partner in accordance with this Article 11 shall have all the rights and powers and be subject to all the restrictions and liabilities of a Limited Partner under this Agreement. The admission of any transferee as a Substituted Limited Partner shall be subject to the transferee executing and delivering to the General Partner an acceptance of all of the terms and conditions of this Agreement (including without limitation, the provisions of Section 2.4 and such other documents or instruments as may be required to effect the admission), each in form and substance satisfactory to the General Partner) and the acknowledgment by such transferee that each of the representations and warranties set forth in Section 3.4 are true and correct with respect to such transferee as of the date of the transfer of the Partnership Interest to such transferee and will continue to be true to the extent required by such representations and warranties.
G.      Upon the admission of a Substituted Limited Partner, the General Partner shall amend Exhibit A to reflect the name, address, number of OP Units, and Percentage Interest of such Substituted Limited Partner and to eliminate or adjust, if necessary, the name, address and interest of the predecessor of such Substituted Limited Partner.
Section 11.5      Assignees.
If the General Partner, in its sole and absolute discretion, does not consent to the admission of any permitted transferee under Section 11.3 as a Substituted Limited Partner, as described in Section 11.4, such transferee shall be considered an Assignee for purposes of this Agreement. An Assignee shall be entitled to all the rights of an assignee of a limited partnership interest under the Act, including the right to receive distributions from the Partnership and the share of Net Income, Net Loss, gain and loss attributable to the OP Units assigned to such transferee, the rights to transfer the OP Units provided in this

 
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Article 11, the right of Redemption provided in Section 8.6, but shall not be deemed to be a holder of OP Units for any other purpose under this Agreement, and shall not be entitled to effect a Consent with respect to such OP Units on any matter presented to the Limited Partners for approval (such Consent remaining with the transferor Limited Partner). In the event any such transferee desires to make a further assignment of any such Partnership Units, such transferee shall be subject to all the provisions of this Article 11 to the same extent and in the same manner as any Limited Partner desiring to make an assignment of OP Units. Notwithstanding anything contained in this Agreement to the contrary, as a condition to becoming an Assignee, any prospective Assignee must first execute and deliver to the Partnership an acknowledgment that each of the representations and warranties set forth in Section 3.4 are true and correct with respect to such prospective Assignee as of the date of the prospective assignment of the Partnership Interest to such prospective Assignee and will continue to be true to the extent required by such representations or warranties.
Section 11.6      General Provisions.
A.      No Limited Partner may withdraw from the Partnership other than as a result of (i) a permitted transfer of all of such Limited Partner’s OP Units in accordance with this Article 11 and the transferee(s) of such Partnership Units being admitted to the Partnership as a Substituted Limited Partner or (ii) pursuant to the exercise of its right of Redemption of all of such Limited Partner’s OP Units under Section 8.6; provided that after such transfer, exchange or redemption such Limited Partner owns no Partnership Interest.
B.      Any Limited Partner who shall transfer all of such Limited Partner’s OP Units in a transfer permitted pursuant to this Article 11 where such transferee was admitted as a Substituted Limited Partner or pursuant to the exercise of its rights of Redemption of all of such Limited Partner’s OP Units under Section 8.6 shall cease to be a Limited Partner; provided that after such transfer, exchange or redemption such Limited Partner owns no Partnership Interest.
C.      Transfers pursuant to this Article 11 may only be made on the first day of a fiscal quarter of the Partnership, unless the General Partner otherwise agrees.
D.      If any Partnership Interest is transferred, assigned or redeemed during any quarterly segment of the Partnership’s Partnership Year in compliance with the provisions of this Article 11 or transferred or redeemed pursuant to Section 8.6, on any day other than the first day of a Partnership Year, then Net Income, Net Loss, each item thereof and all other items attributable to such Partnership Interest for such Partnership Year shall be divided and allocated between the transferor Partner and the transferee Partner by taking into account their varying interests during the Partnership Year using a method selected by the General Partner that is in accordance with Section 706(d) of the Code. Except as otherwise agreed by the General Partner, all distributions of Available Cash with respect to which the Partnership Record Date is before the date of such transfer, assignment, exchange or redemption shall be made to the transferor Partner, and all distributions of Available Cash thereafter, in the case of a transfer or assignment other than a redemption, shall be made to the transferee Partner.
E.      In addition to any other restrictions on transfer herein contained, including without limitation the provisions of this Article 11, in no event may any transfer or assignment of a Partnership Interest by any Partner (including pursuant to a Redemption or exchange for REIT Shares by the Partnership or the General Partner) be made (i) to any person or entity who lacks the legal right, power or capacity to own a Partnership Interest; (ii) in violation of applicable law; (iii) except with the consent of the General Partner, which may be given or withheld in its sole and absolute discretion, of any

 
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component portion of a Partnership Interest, such as the Capital Account, or rights to distributions, separate and apart from all other components of a Partnership Interest; (iv) except with the consent of the General Partner, which may be given or withheld in its sole and absolute discretion, if in the opinion of legal counsel to the Partnership such transfer could cause a termination of the Partnership for federal or state income tax purposes (except as a result of the Redemption or exchange for REIT Shares of all Partnership Interests held by all Limited Partners or pursuant to a transaction expressly permitted under Section 11.2); (v) if in the opinion of counsel to the Partnership such transfer could cause the Partnership to cease to be classified as a partnership for federal income tax purposes (except as a result of the Redemption or exchange for REIT Shares of all Partnership Interests held by all Limited Partners); (vi) if such transfer could, in the opinion of counsel to the Partnership, cause the Partnership to become, with respect to any employee benefit plan subject to Title I of ERISA, a “party-in-interest” (as defined in Section 3(14) of ERISA) or a “disqualified person” (as defined in Section 4975(c) of the Code); (vii) if such transfer could, in the opinion of counsel to the Partnership, cause any portion of the assets of the Partnership to constitute assets of any employee benefit plan pursuant to Department of Labor Regulations Section 2510.2-101; (viii) if such transfer requires the registration of such Partnership Interest pursuant to any applicable federal or state securities laws; (ix) except with the consent of the General Partner, which may be given or withheld in its sole and absolute discretion, if such transfer (1) could be treated as effectuated through an “established securities market” or a “secondary market” (or the substantial equivalent thereof) within the meaning of Section 7704 of the Code, (2) could cause the Partnership to become a “publicly traded partnership,” as such term is defined in Sections 469(k)(2) or 7704(b) of the Code, (3) could be in violation of Section 3.4.E(5), or (4) could cause the Partnership to fail one or more of the Safe Harbors (as defined below); (x) if such transfer subjects the Partnership to be regulated under the Investment Company Act of 1940, the Investment Advisors Act of 1940 or the Employee Retirement Income Security Act of 1974, each as amended; (xi) except with the consent of the General Partner, which may be given or withheld in its sole discretion, if the transferee or assignee of such Partnership Interest is unable to make the representations set forth in Section 3.4.C; (xii) if such transfer is made to a lender to the Partnership or any Person who is related (within the meaning of Section 1.752-4(b) of the Regulations) to any lender to the Partnership whose loan constitutes a Nonrecourse Liability, except with the consent of the General Partner, which may be given or withheld in its sole and absolute discretion; and provided, that, as a condition to granting such consent the lender may be required to enter into an arrangement with the Partnership and the General Partner to redeem or exchange for the REIT Shares Amount any OP Units in which a security interest is held simultaneously with the time at which such lender would be deemed to be a partner in the Partnership for purposes of allocating liabilities to such lender under Section 752 of the Code; or (xiii) if in the opinion of legal counsel for the Partnership such transfer could adversely affect the ability of the General Partner to continue to qualify as a REIT or, except with the consent of the General Partner, which may be given or withheld in its sole and absolute discretion, subject the General Partner to any additional taxes under Section 857 or Section 4981 of the Code.
F.      The General Partner shall monitor the transfers of interests in the Partnership (including any acquisition of OP Units by the Partnership or the General Partner) to determine (i) if such interests could be treated as being traded on an “established securities market” or a “secondary market (or the substantial equivalent thereof)” within the meaning of Section 7704 of the Code and (ii) whether such transfers of interests could result in the Partnership being unable to qualify for the “safe harbors” set forth in Regulations Section 1.7704-1 (or such other guidance subsequently published by the IRS setting forth safe harbors under which interests will not be treated as “readily tradable on a secondary market (or the substantial equivalent thereof)” within the meaning of Section 7704 of the Code) (the “Safe Harbors”). The General Partner shall have the authority (but shall not be required) to take any steps it determines are necessary or appropriate in its sole and absolute discretion to prevent any trading of interests which could

 
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cause the Partnership to become a “publicly traded partnership” within the meaning of Code Section 7704, or any recognition by the Partnership of such transfers, or to ensure that one or more of the Safe Harbors is met.
Section 11.7      Call Right Attributable to the Special General Partner Interest.
A.      In the event of a “Trigger Event” (as defined in Section 11.7.B hereof), the Partnership shall have the right (the “Call Right”) to redeem all, or any portion, of the Special General Partner Interest. The Partnership shall exercise the Call Right by providing the Special General Partner with written notice of its desire to exercise the Call Right within sixty (60) days of the occurrence of a Trigger Event. The purchase price to be paid by the Partnership for the portion of the Special General Partner Interest that is subject to the Call Right shall equal the Special GP Value minus any breakup fee or similar transaction termination fee payable to the Special General Partner or any of its Affiliates, in any capacity, in connection with any business combination or other extraordinary corporate transaction between the General Partner, on the one hand, and the Special General Partner and/or its Affiliates, on the other hand, giving rise to the determination of the Special GP Value. Subject to Section 11.C below, such purchase price shall be paid in cash or in REIT Shares (at the option of the Special General Partner) within one hundred twenty (120) days after the Partnership provides the written notice required under this Section 11.7.A.
B.      For purposes of this Section 11.7, a Trigger Event means at any time after the second anniversary of the Effective Date, the:
(1)      non-renewal of the Advisory Agreement upon the expiration of its then current term;
(2)      termination of the Advisory Agreement for any reason under circumstances where an Affiliate of the Advisor does not serve as the advisor under any replacement advisory agreement; or
(3)      resignation of the Advisor under the Advisory Agreement.
C.      In the event that the Partnership exercises the Call Right as a result of a termination of the Advisory Agreement for “Cause” (as defined in the Advisory Agreement), the Partnership shall have the option to redeem all or a portion of the Special General Partner Interest by issuing its promissory note with (i) a term of five (5) years; (ii) annual installments of principal payable ratably over the term of the note; and (iii) a market rate of interest.
Section 11.8      Put Right of General Partner.
The General Partner shall have the right at any time (the “GP Put Right”) to require the Partnership to redeem any portion of the General Partner Interest for the purpose of providing the General Partner with sufficient funds to enable it to make redemptions of its stock. The General Partner shall exercise the GP Put Right at any time by providing the Partnership with written notice of its desire to exercise the GP Put Right. The purchase price to be paid by the Partnership for the portion of the General Partner Interest that the General Partner desires to be redeemed shall equal the fair market value of such portion, which shall be based upon the Fair Market Value of a share of the General Partner’s common stock, and shall be paid in cash within one hundred twenty (120) days after the General Partner provides the written notice required under this Section 11.8. In the event that the General Partner exercises the GP Put Right, the OP Units held by the General Partner shall be reduced as appropriate.

 
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ARTICLE 12     
ADMISSION OF PARTNERS
Section 12.1      Admission of Successor General Partner.
A successor to all of the General Partner’s General Partner Interest pursuant to Section 11.2 who is proposed to be admitted as a successor General Partner shall be admitted to the Partnership as the General Partner, effective upon such transfer. Any such transferee shall carry on the business of the Partnership without dissolution. In each case, the admission shall be subject to the successor General Partner executing and delivering to the Partnership an acceptance of all of the terms and conditions of this Agreement and such other documents or instruments as may be required to effect the admission. In the case of such admission on any day other than the first day of a Partnership Year, all items attributable to the General Partner Interest for such Partnership Year shall be allocated between the transferring General Partner and such successor as provided in Article 11.
Section 12.2      Admission of Additional Limited Partners.
W.      After the admission to the Partnership of the initial Limited Partners on the date hereof, a Person who makes a Capital Contribution to the Partnership in accordance with this Agreement shall be admitted to the Partnership as an Additional Limited Partner only upon furnishing to the General Partner (i) evidence of acceptance in form satisfactory to the General Partner of all of the terms and conditions of this Agreement, including, without limitation, the power of attorney granted in Section 2.4 and (ii) such other documents or instruments as may be required in the discretion of the General Partner in order to effect such Person’s admission as an Additional Limited Partner.
X.      Notwithstanding anything to the contrary in this Section 12.2, no Person shall be admitted as an Additional Limited Partner without the consent of the General Partner, which consent may be given or withheld in the General Partner’s sole and absolute discretion. The admission of any Person as an Additional Limited Partner shall become effective on the date upon which the name of such Person is recorded on the books and records of the Partnership, following the receipt of the Capital Contribution in respect of such Limited Partner and the consent of the General Partner to such admission. If any Additional Limited Partner is admitted to the Partnership on any day other than the first day of a Partnership Year, then Net Income, Net Loss, each item thereof and all other items allocable among Partners and Assignees for such Partnership Year shall be allocated among such Limited Partner and all other Partners and Assignees by taking into account their varying interests during the Partnership Year using a method selected by the General Partner that is in accordance with Section 706(d) of the Code. All distributions of Available Cash with respect to which the Partnership Record Date is before the date of such admission shall be made solely to Partners and Assignees other than the Additional Limited Partner (other than in its capacity as an Assignee) and, except as otherwise agreed to by the Additional Limited Partners and the General Partner, all distributions of Available Cash thereafter shall be made to all Partners and Assignees including such Additional Limited Partner.
Section 12.3      Amendment of Agreement and Certificate of Limited Partnership.
For the admission to the Partnership of any Partner, the General Partner shall take all steps necessary and appropriate under the Act to amend the records of the Partnership and, if necessary, to prepare as soon as practical an amendment of this Agreement (including an amendment of Exhibit A) and, if required by law, shall prepare and file an amendment to the Certificate and may for this purpose exercise the power of attorney granted pursuant to Section 2.4.

 
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ARTICLE 13     
DISSOLUTION AND LIQUIDATION
Section 13.1      Dissolution.
The Partnership shall not be dissolved by the admission of Substituted Limited Partners or Additional Limited Partners or by the admission of a successor General Partner in accordance with the terms of this Agreement. Upon the withdrawal of the General Partner, any successor General Partner (selected as described in Section 13.1.B below) shall continue the business of the Partnership. The Partnership shall dissolve, and its affairs shall be wound up, upon the first to occur of any of the following (each a “Liquidating Event”):
Y.      the expiration of its term as provided in Section 2.5;
Z.      an event of withdrawal of the General Partner, as defined in the Act, unless, within 90 days after the withdrawal, all of the remaining Partners agree in writing, in their sole and absolute discretion, to continue the business of the Partnership and to the appointment, effective as of the date of withdrawal, of a substitute General Partner;
AA.      subject to compliance with Section 11.2 an election to dissolve the Partnership made by the General Partner, in its sole and absolute discretion;
BB.      entry of a decree of judicial dissolution of the Partnership pursuant to the provisions of the Act;
CC.      any sale or other disposition of all or substantially all of the assets of the Partnership or a related series of transactions that, taken together, result in the sale or other disposition of all or substantially all of the assets of the Partnership;
DD.      the Incapacity of the General Partner, unless all of the remaining Partners in their sole and absolute discretion agree in writing to continue the business of the Partnership and to the appointment, effective as of a date prior to the date of such Incapacity, of a substitute General Partner;
EE.      the redemption or exchange for REIT Shares of all Partnership Interests (other than those of the General Partner) pursuant to this Agreement; or
FF.      a final and non-appealable judgment is entered by a court of competent jurisdiction ruling that the General Partner is bankrupt or insolvent, or a final and non-appealable order for relief is entered by a court with appropriate jurisdiction against the General Partner, in each case under any federal or state bankruptcy or insolvency laws as now or hereafter in effect, unless prior to the entry of such order or judgment all of the remaining Partners agree in writing to continue the business of the Partnership and to the appointment, effective as of a date prior to the date of such order or judgment, of a substitute General Partner.
Section 13.2      Winding Up.
H.      Upon the occurrence of a Liquidating Event, the Partnership shall continue solely for the purposes of winding up its affairs in an orderly manner, liquidating its assets, and satisfying the claims of its creditors and Partners. No Partner shall take any action that is inconsistent with, or not necessary to or appropriate for, the winding up of the Partnership’s business and affairs. The General

 
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Partner (or, in the event there is no remaining General Partner, any Person elected by a Majority in Interest of the Limited Partners (the “Liquidator”)) shall be responsible for overseeing the winding up and dissolution of the Partnership and shall take full account of the Partnership’s liabilities and property and the Partnership property shall be liquidated as promptly as is consistent with obtaining the fair value thereof, and the proceeds therefrom (which may, to the extent determined by the General Partner, include shares of stock in the General Partner) shall be applied and distributed in the following order:
(7)      First, to the payment and discharge of all of the Partnership’s debts and liabilities to creditors other than the Partners;
(8)      Second, to the payment and discharge of all of the Partnership’s debts and liabilities to the General Partner;
(9)      Third, to the payment and discharge of all of the Partnership’s debts and liabilities to the other Partners; and
(10)      The balance, if any, to the General Partner, the Special General Partner and the Limited Partners in proportion to their positive Capital Account balances, determined after taking into account all Capital Account adjustments for all prior periods and the Partnership taxable year during which the liquidation occurs (other than those made as a result of the liquidating distribution set forth in this Section 13.2.A(4)).
I.      Notwithstanding the provisions of Section 13.2.A which require liquidation of the assets of the Partnership, but subject to the order of priorities set forth therein, if prior to or upon dissolution of the Partnership the Liquidator determines that an immediate sale of part or all of the Partnership’s assets would be impractical or would cause undue loss to the Partners, the Liquidator may, in its sole and absolute discretion, defer for a reasonable time the liquidation of any assets except those necessary to satisfy liabilities of the Partnership (including to those Partners as creditors) and/or distribute to the Partners, in lieu of cash, as tenants in common and in accordance with the provisions of Section 13.2.A, undivided interests in such Partnership assets as the Liquidator deems not suitable for liquidation. Any such distributions in-kind shall be made only if, in the good faith judgment of the Liquidator, such distributions in-kind are in the best interest of the Partners, and shall be subject to such conditions relating to the disposition and management of such properties as the Liquidator deems reasonable and equitable and to any agreements governing the operation of such properties at such time. The Liquidator shall determine the fair market value of any property distributed in kind using such reasonable method of valuation as it may adopt.
Section 13.3      Capital Contribution Obligation.
E.      If any Partner has a deficit balance in its Capital Account (after giving effect to all contributions, distributions and allocations for the taxable years, including the year during which such liquidation occurs), such Partner shall have no obligation to make any contribution to the capital of the Partnership with respect to such deficit, and such deficit at any time shall not be considered a debt owed to the Partnership or to any other Person for any purpose whatsoever, except to the extent otherwise expressly agreed to by such Partner and the Partnership.

 
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Section 13.4      Compliance with Timing Requirements of Regulations.
In the discretion of the Liquidator or the General Partner, a pro rata portion of the distributions that would otherwise be made to the General Partner and Limited Partners pursuant to this Article 13 may be:
(11)      distributed to a trust established for the benefit of the General Partner and Limited Partners for the purposes of liquidating Partnership assets, collecting amounts owed to the Partnership, and paying any contingent or unforeseen liabilities or obligations of the Partnership or of the General Partner arising out of or in connection with the Partnership. The assets of any such trust shall be distributed to the General Partner and Limited Partners from time to time, in the reasonable discretion of the Liquidator or the General Partner, in the same proportions and the amount distributed to such trust by the Partnership would otherwise have been distributed to the General Partner and Limited Partners pursuant to this Agreement; or
(12)      withheld or escrowed to provide a reasonable reserve for Partnership liabilities (contingent or otherwise) and to reflect the unrealized portion of any installment obligations owed to the Partnership, provided, that such withheld or escrowed amounts shall be distributed to the General Partner and Limited Partners in the manner and priority set forth in Section 13.2.A as soon as practicable.
Section 13.5      Deemed Distribution and Recontribution.
Notwithstanding any other provision of this Article 13, in the event the Partnership is liquidated within the meaning of Regulations Section 1.704-1(b)(2)(ii)(g) but no Liquidating Event has occurred, the Partnership’s property shall not be liquidated, the Partnership’s liabilities shall not be paid or discharged, and the Partnership’s affairs shall not be wound up. Instead, the Partnership shall be deemed to have contributed all of its assets and liabilities to a new partnership in exchange for an interest in the new partnership. Immediately thereafter, the Partnership shall be deemed to distribute interests in the new partnership to the General Partner and Limited Partners in proportion to their respective interests in the Partnership in liquidation of the Partnership.
Section 13.6      Rights of Limited Partners.
Except as otherwise provided in this Agreement, each Limited Partner shall look solely to the assets of the Partnership for the return of his Capital Contribution and shall have no right or power to demand or receive property from the General Partner. No Limited Partner shall have priority over any other Limited Partner as to the return of his Capital Contributions, distributions or allocations.
Section 13.7      Notice of Dissolution.
In the event a Liquidating Event occurs or an event occurs that would, but for provisions of Section 13.1, result in a dissolution of the Partnership, the General Partner shall, within 30 days thereafter, provide written notice thereof to each of the Partners and to all other parties with whom the Partnership regularly conducts business (as determined in the discretion of the General Partner) and shall publish notice thereof in a newspaper of general circulation in each place in which the Partnership regularly conducts business (as determined in the discretion of the General Partner).

 
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Section 13.8      Cancellation of Certificate of Limited Partnership.
Upon the completion of the liquidation of the Partnership cash and property as provided in Section 13.2, the Partnership shall be terminated and the Certificate and all qualifications of the Partnership as a foreign limited partnership in jurisdictions shall be cancelled and such other actions as may be necessary to terminate the Partnership shall be taken.
Section 13.9      Reasonable Time for Winding-Up.
A reasonable time shall be allowed for the orderly winding-up of the business and affairs of the Partnership and the liquidation of its assets pursuant to Section 13.2, in order to minimize any losses otherwise attendant upon such winding-up, and the provisions of this Agreement shall remain in effect between the Partners during the period of liquidation.
Section 13.10      Waiver of Partition.
Each Partner hereby waives any right to partition of the Partnership property.
ARTICLE 14     
AMENDMENT OF PARTNERSHIP AGREEMENT; CONSENTS
Section 14.1      Amendments.
J.      The actions requiring consent or approval of the Partners or of the Limited Partners pursuant to this Agreement, including Section 7.3, or otherwise pursuant to applicable law, are subject to the procedures in this Article 14.
K.      Amendments to this Agreement requiring the consent or approval of Limited Partners may be proposed by the General Partner or by Limited Partners holding twenty-five percent (25%) or more of the Partnership Interests held by Limited Partners. Following such proposal, the General Partner shall submit any proposed amendment to the Partners or to the Limited Partners, as applicable. The General Partner shall seek the written consent of the Limited Partners on the proposed amendment or shall call a meeting to vote thereon and to transact any other business that it may deem appropriate. For purposes of obtaining a written consent, the General Partner may require a response within a reasonable specified time, but not less than 15 days, and failure to respond in such time period shall constitute a consent which is consistent with the General Partner’s recommendation (if so recommended) with respect to the proposal; provided , that, an action shall become effective at such time as requisite consents are received even if prior to such specified time.
L.      No amendment to this Agreement that would adversely affect the rights and interests of the Special General Partner may be made without the prior written consent of the Special General Partner.
Section 14.2      Action by the Partners.
F.      Meetings of the Partners may be called by the General Partner and shall be called upon the receipt by the General Partner of a written request by Limited Partners holding twenty-five percent (25%) or more of the Partnership Interests held by Limited Partners. The notice shall state the nature of the business to be transacted. Notice of any such meeting shall be given to all Partners not less than seven days nor more than 30 days prior to the date of such meeting. Partners may vote in person or

 
60
 


by proxy at such meeting. Whenever the vote or Consent of the Limited Partners or of the Partners is permitted or required under this Agreement, such vote or Consent may be given at a meeting of Partners or may be given in accordance with the procedure prescribed in Section 14.1.
G.      Any action required or permitted to be taken at a meeting of the Partners may be taken without a meeting if a written consent setting forth the action so taken is signed by the percentage as is expressly required by this Agreement for the action in question. Such consent may be in one instrument or in several instruments, and shall have the same force and effect as a vote of the Percentage Interests of the Partners (expressly required by this Agreement). Such consent shall be filed with the General Partner. An action so taken shall be deemed to have been taken at a meeting held on the effective date so certified.
H.      Each Limited Partner may authorize any Person or Persons to act for him by proxy on all matters in which a Limited Partner is entitled to participate, including waiving notice of any meeting, or voting or participating at a meeting. Every proxy must be signed by the Limited Partner or his attorney-in-fact. No proxy shall be valid after the expiration of 11 months from the date thereof unless otherwise provided in the proxy. Every proxy shall be revocable at the pleasure of the Limited Partner executing it.
I.      Each meeting of Partners shall be conducted by the General Partner or such other Person as the General Partner may appoint pursuant to such rules for the conduct of the meeting as the General Partner or such other Person deems appropriate.
J.      On matters on which Limited Partners are entitled to vote, each Limited Partner shall have a vote equal to the number of OP Units held.
ARTICLE 15     
GENERAL PROVISIONS
Section 15.1      Addresses and Notice.
Any notice, demand, request or report required or permitted to be given or made to a Partner or Assignee under this Agreement shall be in writing and shall be deemed given or made when delivered in person or when sent by first class United States mail or by other means of written communication to the Partner or Assignee at the address set forth in Exhibit A or such other address as the Partners shall notify the General Partner in writing.
Section 15.2      Titles and Captions.
All article or section titles or captions in this Agreement are for convenience only. They shall not be deemed part of this Agreement and in no way define, limit, extend or describe the scope or intent of any provisions hereof. Except as specifically provided otherwise, references to “Articles” and “Sections” are to Articles and Sections of this Agreement.
Section 15.3      Pronouns and Plurals.
Whenever the context may require, any pronoun used in this Agreement shall include the corresponding masculine, feminine or neuter forms, and the singular form of nouns, pronouns and verbs shall include the plural and vice versa.

 
61
 


Section 15.4      Further Action.
The parties shall execute and deliver all documents, provide all information and take or refrain from taking action as may be necessary or appropriate to achieve the purposes of this Agreement.
Section 15.5      Binding Effect.
This Agreement shall be binding upon and inure to the benefit of the parties hereto and their heirs, executors, administrators, successors, legal representatives and permitted assigns.
Section 15.6      Creditors.
Other than as expressly set forth herein with respect to Indemnitees, none of the provisions of this Agreement shall be for the benefit of, or shall be enforceable by, any creditor of the Partnership.
Section 15.7      Waiver.
No failure or delay by any party to insist upon the strict performance of any covenant, duty, agreement or condition of this Agreement or to exercise any right or remedy consequent upon any breach thereof shall constitute waiver of any such breach or any other covenant, duty, agreement or condition.
Section 15.8      Counterparts.
This Agreement may be executed in counterparts, all of which together shall constitute one agreement binding on all the parties hereto, notwithstanding that all such parties are not signatories to the original or the same counterpart. Each party shall become bound by this Agreement immediately upon affixing its signature hereto.
Section 15.9      Applicable Law.
This Agreement shall be construed in accordance with and governed by the laws of the State of Delaware, without regard to the principles of conflicts of law.
Section 15.10      Invalidity of Provisions.
If any provision of this Agreement is or becomes invalid, illegal or unenforceable in any respect, the validity, legality and enforceability of the remaining provisions contained herein shall not be affected thereby.
Section 15.11      Entire Agreement.
This Agreement contains the entire understanding and agreement among the Partners with respect to the subject matter hereof and supersedes any other prior written or oral understandings or agreements among them with respect thereto.
Section 15.12      No Rights as Stockholders.
Nothing contained in this Agreement shall be construed as conferring upon the holders of OP Units any rights whatsoever as stockholders of the General Partner, including without limitation any right to receive dividends or other distributions made to stockholders of the General Partner or to vote or to

 
62
 


consent or to receive notice as stockholders in respect of any meeting of stockholders for the election of directors of the General Partner or any other matter.
[THE REMAINDER OF THIS PAGE IS INTENTIONALLY LEFT BLANK]


 
63
 



IN WITNESS WHEREOF, the parties hereto have executed this Amended and Restated Agreement of Limited Partnership as of the date first written above.
General Partner:
CORPORATE PROPERTY ASSOCIATES 18- GLOBAL INCORPORATED, a Maryland corporation
By:
/s/ Thomas E. Zacharias    
Name: Thomas E. Zacharias
Title: Chief Operating Officer
Special General Partner:
WPC-CPA:18 HOLDINGS, LLC, a Delaware limited liability company
By: WPC HOLDCO LLC, a Maryland limited liability company, as the sole member
By: W. P. CAREY INC., a Maryland corporation, as the sole member
By:
/s/ Susan C. Hyde    
Name: Susan C. Hyde
Title: Managing Director and Corporate Secretary


Signature Page to Agreement of Limited Partnership



CPA:18 LIMITED PARTNERSHIP

EXHIBIT A

PARTNERS, CAPITAL CONTRIBUTIONS, PERCENTAGE INTERESTS

As of March 25, 2014


Names and Addresses
Agreed Value of Capital Contribution
Class A OP Units

Class C
OP Units
Percentage Interest

General Partner

 
 
 
 
Corporate Property Associates 18 - Global Incorporated
50 Rockefeller Plaza
New York, New York 10020

$6,108,161 a
678,684.55 b
 
1.00000%
Special General Partner

 
 
 
 
WPC-CPA®:18 Holdings, LLC
207 E. Westminster
50 Rockefeller Plaza
New York, New York 10020

$209,000
23,222
 
0.03422%
Limited Partners

 
 
 
 
Corporate Property Associates 18 - Global Incorporated
50 Rockefeller Plaza
New York, New York 10020

$604,498,928 a
67,166,547.55 b
 
98.96578%
 
 
 
 
 
a.  
Corporate Property Associates 18 - Global Incorporated will be deemed to have contributed the entire proceeds generated by the initial offering of the REIT Shares. Of the proceeds, Corporate Property Associates 18 - Global Incorporated shall contribute a sufficient amount as a general partner to result in an initial one percent (1%) Percentage Interest. The remainder shall be contributed by Corporate Property Associates 18 - Global Incorporated in its capacity as a limited partner. Consistent with the documents underlying the initial offering of the REIT Shares, the Partnership will be deemed to have paid all costs associated with the offering.
b.  
The number of OP Units to be issued shall be equal to One (1) for each $9.00 of Capital Contributions of the Partner. Fractional OP Units shall be permitted.
c.  
The Percentage Interests of the Partners shall be determined in accordance with the definition of Percentage Interest set forth in Article 1.




CPA:18 LIMITED PARTNERSHIP

EXHIBIT B


NOTICE OF REDEMPTION


The undersigned hereby irrevocably (i) transfers ____________ [Class A][Class C] OP Units in CPA:18 Limited Partnership in accordance with the terms of the Agreement of Limited Partnership of CPA:18 Limited Partnership and the rights of Redemption referred to therein, (ii) surrenders such [Class A][Class C] OP Units and all right, title and interest therein, and (iii) directs that the cash (or, if applicable, REIT Shares of the corresponding Class of OP Units being redeemed) deliverable upon Redemption or exchange be delivered to the address specified below within ten (10) days of the receipt of this Notice of Redemption, and if applicable, that such REIT Shares of the corresponding Class of OP Units being redeemed be registered or placed in the name(s) and at the address(es) specified below.

Dated:     
Name of Partner:


    
(Signature of Partner)
    
(Street Address)
    
(City) (State) (Zip Code)


Issue REIT Shares of the corresponding Class of OP Units being redeemed to:

Please insert social security or identifying number:

Name:





CPA:18 LIMITED PARTNERSHIP

EXHIBIT C


FORM OF [CLASS A][CLASS C] OP UNIT CERTIFICATE
CERTIFICATE FOR OP UNITS OF
CPA:18 LIMITED PARTNERSHIP

No.      UNITS

Corporate Property Associates 18 - Global Incorporated, as the General Partner of CPA:18 Limited Partnership, a Delaware limited partnership (the “ Operating Partnership ”), hereby certifies that ____________________ is a Limited Partner of the Operating Partnership whose Partnership Interests therein, as set forth in the Agreement of Limited Partnership of the Operating Partnership dated [____], 2013, as amended (the “ Partnership Agreement ”), under which the Operating Partnership is existing (copies of which are on file at the Operating Partnership’s principal office at 50 Rockefeller Plaza, New York, New York 10020), represent _______ [Class A][Class C] OP Units in the Operating Partnership.

THE UNITS REPRESENTED BY THIS CERTIFICATE OR INSTRUMENT MAY NOT BE TRANSFERRED, SOLD, ASSIGNED, PLEDGED, HYPOTHECATED OR OTHERWISE DISPOSED OF UNLESS SUCH TRANSFER, SALE, ASSIGNMENT, PLEDGE, HYPOTHECATION OR OTHER DISPOSITION COMPLIES WITH THE PROVISIONS OF THE PARTNERSHIP AGREEMENT, AS IT MAY BE AMENDED FROM TIME TO TIME (A COPY OF WHICH IS ON FILE WITH THE OPERATING PARTNERSHIP). EXCEPT AS OTHERWISE PROVIDED IN THE PARTNERSHIP AGREEMENT, THE UNITS EVIDENCED HEREBY HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE “ACT”), OR THE SECURITIES LAWS OF ANY STATE AND MAY NOT BE SOLD, TRANSFERRED OR OTHERWISE DISPOSED OF IN THE ABSENCE OF SUCH REGISTRATION, UNLESS THE TRANSFEROR DELIVERS TO THE GENERAL PARTNER AN OPINION OF COUNSEL SATISFACTORY TO THE GENERAL PARTNER, TO THE EFFECT THAT THE PROPOSED SALE, TRANSFER OR OTHER DISPOSITION MAY BE EFFECTED WITHOUT REGISTRATION UNDER THE ACT AND UNDER APPLICABLE STATE SECURITIES OR “BLUE SKY” LAWS. THIS CERTIFICATE EVIDENCES AN INTEREST IN THE OPERATING PARTNERSHIP AND SHALL BE A SECURITY GOVERNED BY ARTICLE 8 OF THE UNIFORM COMMERCIAL CODE AS IN EFFECT IN THE STATE OF NEW YORK AND, TO THE EXTENT PERMITTED BY APPLICABLE LAW, EACH OTHER APPLICABLE JURISDICTION.





CPA:18 LIMITED PARTNERSHIP

EXHIBIT D


SCHEDULE OF LIMITED PARTNERS’ OWNERSHIP WITH RESPECT TO TENANTS

None.






CPA:18 LIMITED PARTNERSHIP

EXHIBIT E


SCHEDULE OF REIT SHARES ACTUALLY OR CONSTRUCTIVELY OWNED BY LIMITED PARTNER’S OTHER THAN THOSE ACQUIRED PURSUANT TO AN EXCHANGE

None.





Exhibit 21.1

CORPORATE PROPERTY ASSOCIATES 18 – GLOBAL INCORPORATED
LIST OF REGISTRANT SUBSIDIARIES
Name of Subsidiary
 
Ownership
 
State or Country of Incorporation
25th Street Storage 18 (FL) LLC
 
100
%
 
Delaware
AIR ENT (OH) LLC
 
100
%
 
Delaware
Arium Dunwoody Venture, LLC
 
97
%
 
Delaware
Arium Station 29, LLC
 
97
%
 
Delaware
ATCHI (IL) LLC
 
100
%
 
Delaware
AUTOPRO (GA) LLC
 
100
%
 
Delaware
Barn Cement (TX) LLC
 
100
%
 
Delaware
BEL BTS (SC) LLC
 
100
%
 
Delaware
Boom (MN) LLC
 
100
%
 
Delaware
C5 Eiendom AS
 
51
%
 
Norway
C5 Eiendom IS
 
50
%
 
Norway
CIP 18 (NY) MEZZ LLC
 
100
%
 
Delaware
Club Mediterrannee Albion Resorts Limited
 
100
%
 
Mauritius
CMAR 18 Investor (DE) LLC
 
100
%
 
Delaware
COOP (GA) LLC
 
100
%
 
Delaware
CPA 18 International Holding and Financing LLC
 
100
%
 
Delaware
CPA 18 Pan-European Holding Coöperatief U.A.
 
100
%
 
Netherlands
CPA:18 Limited Partnership
 
100
%
 
Delaware
CPA18 Family Investor (DE) LLC
 
100
%
 
Delaware
CRWN (IN-SC) LLC
 
100
%
 
Delaware
Cups Number One (DE) LLC
 
100
%
 
Delaware
Desert Storage 18 (CA) LP
 
100
%
 
Delaware
Desert Storage GP 18 (CA) LLC
 
100
%
 
Delaware
DKSN Storage 18 (TX) LLC
 
100
%
 
Delaware
Eleventh Storage 18 (GA) LLC
 
100
%
 
Delaware
Hulikoa Kona Storage 18 (HI) LLC
 
100
%
 
Delaware
Humble Storage 18 (TX) LLC
 
100
%
 
Delaware
IH37 Storage 18 (TX) LLX
 
100
%
 
Delaware
Jandoor (MULTI) LLC
 
100
%
 
Delaware
Jensen Beach Storage 18 (FL) LLC
 
100
%
 
Delaware
Kaloko Storage 18 (HI) LLC
 
100
%
 
Delaware
Miami Storage 18 (FL) LLC
 
100
%
 
Delaware
MIS EGN (MN) LLC
 
100
%
 
Delaware
Orlando Storage 17 (FL) LLC
 
100
%
 
Delaware
Østre Aker vei 88 AS (ØAV 88 AS)
 
100
%
 
Norway
Pleasant Hill GL 18 (FL) LLC
 
100
%
 
Delaware
Pleasant Hill Storage 18 (FL) LLC
 
100
%
 
Delaware
Pompano Storage 18 (FL) LLC
 
100
%
 
Delaware
Ring Spin (GA) LLC
 
100
%
 
Delaware
SFT INS (TX) LLC
 
50
%
 
Delaware
Storage 18 ES Account (DE) LLC
 
100
%
 
Delaware




LIST OF REGISTRANT SUBSIDIARIES (Continued)


Name of Subsidiary
 
Ownership
 
State or Country of Incorporation
Temecula Storage 18 (CA) LP
 
100
%
 
Delaware
Temecula Storage GP 18 (CA) LLC
 
100
%
 
Delaware
Two Notch Storage 18 (SC) LLC
 
100
%
 
Delaware
USHOLL (MI) LLC
 
100
%
 
Delaware
WPC Agro 5 d.o.o.
 
80
%
 
Croatia
WPC App 2 AS (f/k/a Inceptum 805 AS)
 
100
%
 
Norway
WPC APP 18-10 B.V.
 
100
%
 
Netherlands
WPC Infin 18 GmbH & Co. KG
 
100
%
 
Germany
WPC Infin 18 Verwaltungs GmbH
 
100
%
 
Germany
WPC Infin 18-4 B.V.
 
100
%
 
Netherlands
WPC KONZ 18-2 B.V.
 
100
%
 
Netherlands
WPC Lipowy Sp.z.o.o. (f/k/a Kimberley Sp.z o.o.)
 
50
%
 
Poland
WPC PEKAO 18-1 B.V.
 
100
%
 
Netherlands
WPC SIEM 1 AS
 
100
%
 
Norway
WPC Siem 18-3 B.V.
 
100
%
 
Netherlands
WPC SIEM 2 AS
 
100
%
 
Norway
WPC SIEM 3 AS
 
100
%
 
Norway
WPC Storage TRS 18-1 (DE) Inc.
 
100
%
 
Delaware
WPC Truff 18-7 B.V.
 
100
%
 
Netherlands
WPC Voam 18-6 B.V.
 
100
%
 
Netherlands





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 Corporate Property Associates 18 – Global Incorporated;
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 27, 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 Corporate Property Associates 18 – Global Incorporated;
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 27, 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 Corporate Property Associates 18 – Global Incorporated on Form 10-K for the period ended December 31, 2014 as filed with the Securities and Exchange Commission on the date hereof (the “Report”), each of the undersigned officers of Corporate Property Associates 18 – Global Incorporated, 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 Corporate Property Associates 18 – Global Incorporated.

Date: March 27, 2015

/s/ Trevor P. Bond    
Trevor P. Bond
Chief Executive Officer

Date: March 27, 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 Corporate Property Associates 18 – Global Incorporated 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 Corporate Property Associates 18 – Global Incorporated and will be retained by Corporate Property Associates 18 – Global Incorporated and furnished to the Securities and Exchange Commission or its staff upon request.