UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
FORM 10-K
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þ |
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ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the fiscal year ended December 31, 2010
or
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TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the transition period from to .
Commission file number: 001-32162
CORPORATE PROPERTY ASSOCIATES 16 GLOBAL INCORPORATED
(Exact name of registrant as specified in its charter)
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Maryland
(State or other jurisdiction of incorporation or organization)
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80-0067704
(I.R.S. Employer Identification No.) |
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50 Rockefeller Plaza
New York, New York
(Address of principal executive offices)
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10020
(Zip code) |
Registrants telephone numbers, including area code:
Investor Relations (212) 492-8920
(212) 492-1100
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
o 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
registrants 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.
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Large accelerated filer o
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Accelerated filer o
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Non-accelerated filer þ
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Smaller reporting company o |
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(Do not check if a smaller reporting company) |
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Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the
Act). Yes o No þ
Registrant has no active market for its common stock. Non-affiliates held 117,718,145 shares of
common stock at June 30, 2010.
At March 18, 2011, there were 126,977,682 shares of common stock of registrant outstanding.
DOCUMENTS INCORPORATED BY REFERENCE
The registrant incorporates by reference its definitive Proxy Statement with respect to its 2011
Annual Meeting of Shareholders, 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.
TABLE OF CONTENTS
Forward-Looking Statements
This Annual Report on Form 10-K, including Managements 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 which could impact actual results and cause
them to differ from what is anticipated in the forward-looking statements contained herein is
included in this Report as well as in our other filings with the Securities and Exchange Commission
(the SEC), including but not limited to those described below in Item 1A. Risk Factors of this
Report. We do not undertake to revise or update any forward-looking statements. Additionally, a
description of our critical accounting estimates is included in the Managements Discussion and
Analysis of Financial Condition and Results of Operations section of this Report.
CPA®:16 2010 10-K 1
PART I
(a) General Development of Business
Overview:
Corporate Property Associates 16 Global Incorporated (together with its consolidated
subsidiaries and predecessors, we, us or our) is a publicly owned, non-listed real estate
investment trust (REIT) that primarily invests in commercial properties leased to companies
domestically and internationally. As a REIT, we are required, among other things, to distribute at
least 90% of our REIT net taxable income to our shareholders and meet certain tests regarding the
nature of our income and assets, and we are not subject to United States (U.S.) federal income
tax with respect to the portion of our income that meets certain criteria and is distributed
annually to shareholders.
Our core investment strategy is to own and manage a portfolio of properties leased to a diversified
group of companies on a single tenant net lease basis. Our net 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. Leases of this
type are referred to as triple-net leases. We generally seek to include in our leases:
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clauses providing for mandated rent increases or periodic rent increases over the term of
the lease tied to increases in the Consumer Price Index (CPI) or other similar index for
the jurisdiction in which the property is located or, when appropriate, increases tied to
the volume of sales at the property; |
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indemnification for environmental and other liabilities; |
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operational or financial covenants of the tenant; and |
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guarantees of lease obligations from parent companies or letters of credit. |
We have in the past and may in the future invest in mortgage loans that are collateralized by real
estate.
We are managed by W. P. Carey & Co. LLC (WPC) through certain of its wholly-owned subsidiaries
(collectively, the advisor). WPC is a publicly traded company listed on the New York Stock
Exchange under the symbol WPC.
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. The advisor also currently serves in this capacity for other REITs that it formed
under the Corporate Property Associates brand: Corporate Property Associates 14 Incorporated
(CPA®:14), Corporate Property Associates 15 Incorporated (CPA®:15) and
Corporate Property Associates 17 Global Incorporated (CPA®:17), collectively,
including us, the CPA® REITs. The advisor also serves as the advisor to Carey
Watermark Investors Incorporated, which was formed in March 2008 for the purpose of acquiring
interests in lodging and lodging-related properties.
We were formed as a Maryland corporation in June 2003. We commenced our initial public offering in
December 2003. Through two public offerings we sold a total of 110,331,881 shares of our common
stock for a total of $1.1 billion in gross offering proceeds. We completed our second public
offering in December 2006. Through December 31, 2010, we have also issued 16,372,617 shares ($169.7
million) through our distribution reinvestment and stock purchase plan. We have repurchased
8,952,317 shares ($81.1 million) of our common stock under a redemption plan from inception through
December 31, 2010.
Our principal executive offices are located at 50 Rockefeller Plaza, New York, NY 10020 and our
telephone number is (212) 492-1100. We have no employees. At December 31, 2010, the advisor
employed 170 individuals who are available to perform services for us.
CPA®:16 2010 10-K 2
Significant Developments during 2010:
Proposed Merger On December 13, 2010, we and CPA®:14 entered into a definitive
agreement pursuant to which CPA®:14 will merge with and into one of our subsidiaries
(the Proposed Merger). In connection with the Proposed Merger, we filed a registration statement
with the SEC, which was declared effective by the SEC on March 8, 2011. Special shareholder
meetings for both us and CPA®:14 are currently scheduled to be held on April 26, 2011 to
obtain the approval of CPA®:14s shareholders of the Proposed Merger and the alternate
merger described below and the approval of our shareholders of the alternate merger, the UPREIT
reorganization described below and a charter amendment to increase our number of authorized shares
in order to ensure that we will have sufficient shares to issue in the future. The alternate merger
is intended to provide an alternate tax-efficient transaction if the amount of cash elected to be
received by CPA®:14s shareholders in the Proposed Merger could cause the Proposed
Merger to be a taxable transaction. The closing of the Proposed Merger is also subject to customary
closing conditions. If the Proposed Merger is approved and the other closing conditions are met, we
currently expect that the closing will occur in the second quarter of 2011, although there can be
no assurance of such timing.
We have also agreed to use our reasonable best efforts to obtain a $300.0 million senior credit
facility in order to pay for cash elections in the Proposed Merger. We entered into commitment
letters with five lenders in connection with this potential debt financing; however, the commitment
letters are subject to a number of closing conditions, including the lenders satisfactory
completion of due diligence and determination that no material adverse change in us has occurred,
and there can be no assurance that we will be able to obtain the senior credit facility on
acceptable terms or at all.
In the Proposed Merger, CPA®:14 shareholders will be entitled to receive $11.50 per
share, the Merger Consideration, which is equal to the estimated net asset value (NAV) per
share of CPA®:14 as of September 30, 2010. The Merger Consideration will be paid to
shareholders of CPA®:14, at their election, in either cash or a combination of a $1.00
per share special cash distribution and 1.1932 shares of our common stock, which equates to $10.50
based on our $8.80 per share NAV as of September 30, 2010. The advisor computed these NAVs
internally, relying in part upon a third-party valuation of each companys real estate portfolio
and indebtedness as of September 30, 2010. Our board of directors and the board of directors of
CPA®:14 each have the ability, but not the obligation, to terminate the transaction if
more than 50% of the shareholders of CPA®:14 elect to receive cash in the Proposed
Merger. Assuming that holders of 50% of CPA®:14s outstanding stock elect to receive
cash in the Proposed Merger, then the maximum cash required by us to purchase these shares would be
approximately $416.1 million, based on the total shares of CPA®:14 outstanding at
December 31, 2010. If the cash on hand and available to us and CPA®:14, including the
expected proceeds from the sales of certain assets by CPA®:14 (the Asset Sales) and a
new $300.0 million senior credit facility, is not sufficient to enable us to fulfill cash elections
in the Proposed Merger by CPA®:14 shareholders, WPC has agreed to purchase a sufficient
number of shares of our common stock to enable us to pay such amounts to CPA®:14
shareholders.
In connection with the Proposed Merger, we propose to implement an UPREIT reorganization. The
proposed UPREIT reorganization is an internal reorganization of our corporate structure into an
umbrella partnership real estate investment trust, known as an UPREIT, to hold substantially all of
our assets in an operating partnership.
Financing Activity During 2010, we obtained mortgage financing totaling $36.9 million, inclusive
of amounts attributable to noncontrolling interests of $14.5 million, primarily consisting of
refinancing of debt.
Impairment Charges During 2010, we incurred impairment charges totaling $10.9 million, inclusive
of amounts attributable to noncontrolling interests totaling $2.5 million (Note 10).
Net Asset Values In connection with the Proposed Merger, our advisor calculated an interim NAV
for us as of September 30, 2010. This interim valuation resulted in an estimated NAV of $8.80 per
share, representing a 4.3% decline from our December 31, 2009 NAV of $9.20 per share.
(b) Financial Information About Segments
We operate in one industry segment, real estate ownership, with domestic and foreign investments.
Refer to Note 17 in the accompanying consolidated financial statements for financial information
about this segment.
(c) Narrative Description of Business
CPA®:16 2010 10-K 3
Business Objectives and Strategy
We invest primarily in income-producing commercial real estate properties that are, upon
acquisition, improved or developed or that will be developed within a reasonable time after
acquisition.
Our objectives are to:
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own a diversified portfolio of triple-net leased real estate and other real estate
related investments; |
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fund distributions to shareholders; and |
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increase our equity in our real estate by making regular principal payments on mortgage
loans for our properties. |
We seek to achieve these objectives by investing in and holding commercial properties that are
generally triple-net leased to a single corporate tenant. We intend our portfolio to be diversified
by tenant, facility type, geographic location and tenant industry.
Our Portfolio
At December 31, 2010, our portfolio was comprised of our full or partial ownership interests in 384
properties, substantially all of which were triple-net leased to 79 tenants, and totaled
approximately 27 million square feet (on a pro rata basis) with an occupancy rate of 99%. Our
portfolio had the following property and lease characteristics:
Geographic Diversification
Information regarding the geographic diversification of our properties at December 31, 2010 is set
forth below (dollars in thousands):
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Consolidated Investments |
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Equity Investments in Real Estate(b) |
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Annualized |
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% of Annualized |
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Annualized |
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% of Annualized |
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Contractual |
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Contractual |
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Contractual |
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Contractual |
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Minimum |
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Minimum |
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Minimum |
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Minimum |
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Region |
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Base Rent (a) |
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Base Rent |
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Base Rent (a) |
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Base Rent |
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United States |
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East |
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$ |
35,623 |
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19 |
% |
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$ |
10,786 |
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24 |
% |
South |
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30,819 |
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16 |
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4,672 |
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11 |
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Midwest |
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24,972 |
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13 |
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1,415 |
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3 |
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West |
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20,727 |
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11 |
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2,332 |
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5 |
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Total U.S. |
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112,141 |
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59 |
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19,205 |
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43 |
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International |
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Europe (c) |
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71,257 |
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37 |
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25,181 |
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57 |
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Asia |
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4,263 |
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2 |
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Canada |
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2,674 |
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2 |
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Mexico |
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386 |
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Total Non-U.S. |
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78,580 |
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41 |
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25,181 |
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57 |
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Total |
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$ |
190,721 |
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100 |
% |
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$ |
44,386 |
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100 |
% |
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(a) |
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Reflects annualized contractual minimum base rent for the fourth quarter of 2010. |
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(b) |
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Reflects our pro rata share of annualized contractual minimum base rent for the fourth
quarter of 2010 from equity investments in real estate. |
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(c) |
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Reflects investments in Finland, France, Germany, Hungary, Poland, Sweden, and the United
Kingdom. |
CPA®:16 2010 10-K 4
Property Diversification
Information regarding our property diversification at December 31, 2010 is set forth below (dollars
in thousands):
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Consolidated Investments |
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Equity Investments in Real Estate(b) |
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Annualized |
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% of Annualized |
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Annualized |
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% of Annualized |
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Contractual |
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Contractual |
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Contractual |
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Contractual |
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Minimum |
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Minimum |
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Minimum |
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Minimum |
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Property Type |
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Base Rent(a) |
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Base Rent |
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Base Rent(a) |
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Base Rent |
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Industrial |
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$ |
75,223 |
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39 |
% |
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$ |
6,125 |
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14 |
% |
Retail |
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43,016 |
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23 |
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7,569 |
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17 |
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Warehouse/Distribution |
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36,666 |
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19 |
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627 |
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1 |
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Office |
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23,839 |
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13 |
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20,063 |
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45 |
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Other Properties (c) |
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11,977 |
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6 |
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10,002 |
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23 |
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Total |
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$ |
190,721 |
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100 |
% |
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$ |
44,386 |
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100 |
% |
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(a) |
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Reflects annualized contractual minimum base rent for the fourth quarter of 2010. |
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(b) |
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Reflects our pro rata share of annualized contractual minimum base rent for the fourth
quarter of 2010 from equity investments in real estate. |
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(c) |
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Other properties include hospitality properties, residential, and self-storage facilities as
well as undeveloped land. |
CPA®:16 2010 10-K 5
Tenant Diversification
Information regarding our tenant diversification at December 31, 2010 is set forth below (dollars
in thousands):
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Consolidated Investments |
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Equity Investments in Real Estate(c) |
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Annualized |
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% of Annualized |
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Annualized |
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% of Annualized |
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Contractual |
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Contractual |
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Contractual |
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Contractual |
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Minimum |
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Minimum |
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Minimum |
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Minimum |
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Tenant Industry(a ) |
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Base Rent(b) |
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Base Rent |
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Base Rent(b) |
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Base Rent |
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Retail trade |
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$ |
52,102 |
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27 |
% |
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$ |
7,612 |
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17 |
% |
Chemicals, plastics, rubber, and
glass |
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19,556 |
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10 |
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Automotive |
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13,903 |
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7 |
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314 |
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1 |
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Transportation cargo |
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13,620 |
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7 |
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111 |
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Healthcare, education and childcare |
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11,954 |
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6 |
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Telecommunications |
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10,135 |
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5 |
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Consumer non-durable goods |
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9,760 |
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5 |
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Construction and building |
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9,587 |
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5 |
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Beverages, food, and tobacco |
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8,557 |
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5 |
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Electronics |
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8,203 |
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4 |
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5,555 |
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13 |
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Business and commercial services |
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6,916 |
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4 |
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Hotels and gaming |
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6,549 |
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4 |
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Machinery |
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4,019 |
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2 |
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2,273 |
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5 |
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Grocery |
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3,653 |
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2 |
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Media: printing and publishing |
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2,116 |
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1 |
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6,690 |
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15 |
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Textiles, leather, and apparel |
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1,992 |
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1 |
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1,887 |
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4 |
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Aerospace and defense |
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1,405 |
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1 |
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1,455 |
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3 |
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Insurance |
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1,313 |
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1 |
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3,447 |
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8 |
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Buildings and real estate |
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6,497 |
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15 |
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Federal, state and local government |
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4,414 |
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10 |
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Transportation personal |
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3,499 |
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8 |
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Other (d) |
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5,381 |
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3 |
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632 |
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1 |
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Total |
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$ |
190,721 |
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100 |
% |
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$ |
44,386 |
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100 |
% |
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(a) |
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Based on the Moodys Investors Service, Inc. classification system and information provided
by the tenant. |
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(b) |
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Reflects annualized contractual minimum base rent for the fourth quarter of 2010. |
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(c) |
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Reflects our pro rata share of annualized contractual minimum base rent for the fourth
quarter of 2010 from equity investments in real estate. |
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(d) |
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Includes annualized contractual minimum base rent from tenants in our consolidated
investments in the following industries: consumer services (1%), mining, metals and primary
metal (1%) and utilities (1%). For our equity investments in real estate, Other consists of
revenue from tenants in the mining, metals and primary metal industry. |
CPA®:16 2010 10-K 6
Lease Expirations
At December 31, 2010, lease expirations of our properties were as follows (dollars in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Consolidated Investments |
|
|
Equity Investments in Real Estate(b) |
|
|
|
Annualized |
|
|
% of Annualized |
|
|
Annualized |
|
|
% of Annualized |
|
|
|
Contractual |
|
|
Contractual |
|
|
Contractual |
|
|
Contractual |
|
|
|
Minimum |
|
|
Minimum |
|
|
Minimum |
|
|
Minimum |
|
Year of Lease Expiration |
|
Base Rent(a) |
|
|
Base Rent |
|
|
Base Rent(a) |
|
|
Base Rent |
|
2011 - 2014 |
|
$ |
|
|
|
|
|
% |
|
$ |
4,954 |
|
|
|
11 |
% |
2015 |
|
|
498 |
|
|
|
|
|
|
|
3,447 |
|
|
|
8 |
|
2016 |
|
|
2,485 |
|
|
|
1 |
|
|
|
3,305 |
|
|
|
8 |
|
2017 - 2018 |
|
|
2,000 |
|
|
|
1 |
|
|
|
111 |
|
|
|
|
|
2019 |
|
|
5,217 |
|
|
|
3 |
|
|
|
4,414 |
|
|
|
10 |
|
2020 - 2023 |
|
|
48,667 |
|
|
|
26 |
|
|
|
1,041 |
|
|
|
2 |
|
2024 - 2026 |
|
|
37,798 |
|
|
|
20 |
|
|
|
18,981 |
|
|
|
43 |
|
2027 - 2029 |
|
|
40,980 |
|
|
|
21 |
|
|
|
4,475 |
|
|
|
10 |
|
2030 and thereafter |
|
|
53,076 |
|
|
|
28 |
|
|
|
3,658 |
|
|
|
8 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
$ |
190,721 |
|
|
|
100 |
% |
|
$ |
44,386 |
|
|
|
100 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(a) |
|
Reflects annualized contractual minimum base rent for the fourth quarter of 2010. |
|
(b) |
|
Reflects our pro rata share of annualized contractual minimum base rent for the fourth
quarter of 2010 from equity investments in real estate. |
Asset Management
We believe that effective management of our assets is essential to maintain and enhance property
values. Important aspects of asset management include restructuring transactions to meet the
evolving needs of current tenants, re-leasing properties, refinancing debt, selling assets and
knowledge of the bankruptcy process.
The advisor monitors, on an ongoing basis, 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. For international compliance, the advisor also utilizes third-party asset
managers for certain investments. The advisor reviews financial statements of our tenants and
undertakes regular physical inspections of the condition and maintenance of our properties.
Additionally, the advisor periodically analyzes each tenants financial condition, the industry in
which each tenant operates and each tenants relative strength in its industry.
Holding Period
We intend to hold each property we invest in for an extended period. The determination of whether a
particular property should be sold or otherwise disposed of will be made after consideration of
relevant factors, including prevailing economic conditions, with a view to achieving maximum
capital appreciation for our shareholders or avoiding increases in risk. No assurance can be given
that this objective will be realized.
Our intention is to consider alternatives for providing liquidity for our shareholders generally
commencing eight years following the investment of substantially all of the net proceeds from our
initial public offering. We completed the investment of substantially all of the net proceeds of
our initial public offering during 2006. While we have substantially invested the proceeds of our
offerings, we expect to continue to participate in future investments with our affiliates to the
extent we have funds available for investment. We may provide liquidity for our shareholders
through sales of assets, either on a portfolio basis or individually, a listing of our shares on a
stock exchange, a merger (which may include a merger with one or more of our affiliated
CPA® REITs, such as the Proposed Merger, and/or with the advisor) or another transaction
approved by our board of directors. We are under no obligation to liquidate our portfolio within
any particular period since the precise timing will depend on real estate and financial markets,
economic conditions of the areas in which the properties are located and tax effects on
shareholders that may prevail in the future. Furthermore, there can be no assurance that we will be
able to consummate a liquidity event. In the most recent instances in which CPA® REIT
shareholders were provided with liquidity, the liquidating entity merged with another, later-formed
CPA® REIT. In each of these transactions, shareholders of the liquidating entity were
offered the opportunity to exchange their shares for shares of the merged entity, cash or a
short-term note.
CPA®:16 2010 10-K 7
On December 13, 2010, we and CPA®:14 entered into a definitive agreement pursuant to
which CPA®:14 will merge with and into one of our subsidiaries, subject to the approval
of the shareholders. If the Proposed Merger is approved and the other closing
conditions are satisfied, we currently expect that the closing will occur in the second quarter of
2011, although there can be no assurance of such timing.
Financing Strategies
Consistent with our investment policies, we use leverage when available on favorable terms. We
generally borrow in the same currency that is used to pay rent on the property. This enables us to
mitigate a portion of our currency risk on international investments. Substantially all of our
mortgage loans are non-recourse and provide for monthly or quarterly installments, which include
scheduled payments of principal. At December 31, 2010, 97% of our mortgage financing bore interest
at fixed rates. At December 31, 2010, substantially all of our variable-rate debt currently bears
interest at fixed rates but will reset in the future, pursuant to the terms of the mortgage
contracts. Accordingly, our near-term cash flow should not be adversely affected by increases in
interest rates. The advisor may refinance properties or defease a loan when a decline in interest
rates makes it profitable to prepay an existing mortgage loan, when an existing mortgage loan
matures or if an attractive investment becomes available and the proceeds from the refinancing can
be used to purchase the investment. There is no assurance that existing debt will be refinanced at
lower rates of interest as the debt matures. The benefits of the refinancing may include an
increased cash flow resulting from reduced debt service requirements, an increase in distributions
from proceeds of the refinancing, if any, and/or an increase in property ownership if some
refinancing proceeds are reinvested in real estate. The prepayment of loans may require us to pay a
yield maintenance premium to the lender in order to pay off a loan prior to its maturity.
A lender on non-recourse mortgage debt generally has recourse only to the property collateralizing
such debt and not to any of our other assets, while unsecured financing would give a lender
recourse to all of our assets. The use of non-recourse debt, therefore, helps us to limit the
exposure of our assets to any one debt obligation. Lenders may, however, have recourse to our other
assets in limited circumstances not related to the repayment of the indebtedness, such as under an
environmental indemnity or in the case of fraud. Lenders may also seek to include in the terms of
mortgage loans provisions making the termination or replacement of the advisor an event of default
or an event requiring the immediate repayment of the full outstanding balance of the loan. We will
attempt to negotiate loan terms allowing us to replace or terminate the advisor. Even if we are
successful in negotiating such provisions, the replacement or termination of the advisor may
require the prior consent of the mortgage lenders.
A majority of our financing requires us to make a lump-sum or balloon payment at maturity. At
December 31, 2010, scheduled balloon payments for the next five years were as follows (in
thousands):
|
|
|
|
|
2011 |
|
$ |
|
(a) |
2012 |
|
|
|
|
2013 |
|
|
|
|
2014 |
|
|
61,589 |
(a) |
2015 |
|
|
92,443 |
(a) |
|
|
|
(a) |
|
Excludes our pro rata share of mortgage obligations of equity investments in real estate
totaling $7.9 million in 2011, $102.5 million in 2014, and $47.9 million in 2015. |
Investment Strategies
We invest primarily in income-producing properties that are, upon acquisition, improved or being
developed or that are to be developed within a reasonable period after acquisition. While we are
not currently seeking to make new significant investments, we may do so if attractive opportunities
arise.
CPA®:16 2010 10-K 8
Most of our properties are subject to long-term net leases and were acquired 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 its stock.
Our sale-leaseback transactions may occur 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 back to the seller or
its successor in interest (the lessee).
In analyzing potential net lease investment opportunities, the advisor reviews all aspects of a
transaction, including the creditworthiness of the tenant or borrower and the underlying real
estate fundamentals, to determine whether a potential acquisition satisfies our investment
criteria. The advisor generally considers, among other things, the following aspects of each
transaction:
Tenant/Borrower Evaluation The advisor evaluates each potential tenant or borrower for their
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 seeks opportunities in which it believes the
tenant may have a stable or improving credit profile or the credit profile has not been recognized
by the market. In evaluating a possible investment, the creditworthiness of a tenant or borrower
often is 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 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 advisors investment department and its investment committee, as described below.
Creditworthy does not mean investment grade.
Properties Important to Tenant/Borrower Operations The advisor generally focuses on properties
that it believes are essential or important to the ongoing operations of the tenant. The advisor
believes that these properties provide better protection generally as well as in the event of a
bankruptcy, since a tenant/borrower is less likely to risk the loss of a critically important lease
or property in a bankruptcy proceeding or otherwise.
Diversification The advisor attempts to diversify our portfolio to avoid dependence on any one
particular tenant, borrower, collateral type, geographic location or tenant/borrower industry. By
diversifying our portfolio, the advisor seeks to reduce the adverse effect of a single
under-performing investment or a downturn in any particular industry or geographic region.
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 generally seeks 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 to increases in indices such as the 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. Further, in some jurisdictions (notably Germany), these
clauses must provide for rent adjustments based on increases or decreases in the relevant index. 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.
Collateral Evaluation The advisor reviews the physical condition of the property and conducts a
market evaluation to determine the likelihood of replacing the rental stream if the tenant defaults
or of a sale of the property in such circumstances. The advisor will also generally engage third
parties to conduct, or require the seller to conduct, Phase I or similar environmental site
assessments (including a visual inspection for the potential presence of asbestos) in an attempt to
identify potential environmental liabilities associated with a property prior to its acquisition.
If potential environmental liabilities are identified, the advisor generally requires that
identified environmental issues be resolved by the seller prior to property acquisition or, where
such issues cannot be resolved prior to acquisition, requires tenants contractually to assume
responsibility for resolving identified environmental issues post-closing and provide
indemnification protections against any potential claims, losses or expenses arising from such
matters. Although the advisor generally relies on its own analysis in determining whether to make
an investment, each real property to be purchased by us will be appraised by an independent
appraiser. The contractual purchase price (plus acquisition fees, but excluding acquisition
expenses, payable to the advisor) for a real property we acquire will not exceed its appraised
value, unless approved by our independent directors. The appraisals may take into consideration,
among other things, the terms and conditions of the particular lease transaction, the quality of
the lessees credit and the conditions of the credit markets at the time the lease transaction is
negotiated. The appraised value may be greater than the construction cost or the replacement cost
of a property, and the actual sale price of a property if sold by us may be greater or less than
the appraised value. In cases of special purpose real estate, a property is examined in light of
the prospects for the tenant/borrowers enterprise and the financial strength and the role of that
asset in the context of the tenant/borrowers overall viability. Operating results of properties
and other collateral may be examined to determine whether or not projected income levels are likely
to be met.
CPA®:16 2010 10-K 9
Transaction Provisions to Enhance and Protect Value The advisor attempts to include provisions
in our leases it believes 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, such as requiring our consent to specified
tenant activity, requiring the tenant to provide indemnification protections, and requiring the
tenant to satisfy specific operating tests. The advisor may also seek to enhance the likelihood of
a tenants lease obligations being satisfied through a guaranty of obligations from the tenants
corporate parent or other entity or 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 negotiate. In addition,
in some circumstances, tenants may retain the right to repurchase the property leased by the
tenant. The option purchase price is generally the greater of the contract purchase price or 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.
Investment Decisions The advisors 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. Before an investment is made, the
transaction is reviewed by the advisors investment committee, except under the limited
circumstances described below. The 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. The advisor will not invest in a transaction on our behalf unless it is
approved by the investment committee, except that investments with a total purchase price of $10.0
million or less may be approved by either the chairman of the investment committee or the advisors
chief investment officer (up to, in the case of investments other than long-term net leases, a cap
of $30.0 million or 5% of our NAV, whichever is greater, provided that such investments may not
have a credit rating of less than BBB-). For transactions that meet the investment criteria of more
than one CPA® REIT, the chief investment officer has discretion to allocate the
investment to or among the CPA® REITs. In cases where two or more CPA® REITs
(or one or more of the CPA® REITs and the advisor) will hold the investment, a majority
of the independent directors of each CPA® REIT investing in the property must also
approve the transaction.
The following people currently serve on the investment committee:
|
|
|
Nathaniel S. Coolidge, Chairman Former senior vice president and head of the bond and
corporate finance department of John Hancock Mutual Life Insurance (currently known as John
Hancock Life Insurance Company). Mr. Coolidges responsibilities included overseeing its
entire portfolio of fixed income investments. |
|
|
|
Axel K.A. Hansing Currently serving as a senior partner at Coller Capital, Ltd., a
global leader in the private equity secondary market, and responsible for investment
activity in parts of Europe, Turkey and South Africa. |
|
|
|
Frank J. Hoenemeyer Former vice chairman and chief investment officer of the
Prudential Insurance Company of America. As chief investment officer, he was responsible for
all of Prudential Insurance Company of Americas investments including stocks, bonds and
real estate. |
|
|
|
Jean Hoysradt Currently serving as the chief investment officer of Mousse Partners
Limited, an investment office based in New York. |
|
|
|
Dr. Lawrence R. Klein Currently serving as professor emeritus of economics and finance
at the University of Pennsylvania and its Wharton School. Recipient of the 1980 Nobel Prize
in economic sciences and former consultant to both the Federal Reserve Board and the
Presidents Council of Economic Advisors. |
|
|
|
Richard C. Marston Currently the James R.F. Guy professor of economics and finance at
the University of Pennsylvania and its Wharton School. |
CPA®:16 2010 10-K 10
|
|
|
Nick J.M. van Ommen Former chief executive officer of the European Public Real Estate
Association (EPRA), currently serves on the supervisory boards of several companies,
including Babis Vovos International Construction SA, a listed real estate company in Greece,
Intervest Retail and Intervest Offices, listed real estate companies in Belgium, BUWOG /
ESG, a residential leasing and development company in Austria and IMMOFINANZ, a listed real
estate company in Austria. |
|
|
|
Dr. Karsten von Köller Currently chairman of Lone Star Germany GMBH, a U.S. private
equity firm (Lone Star), Chairman of the Supervisory Board of Düsseldorfer Hypothekenbank
AG, a subsidiary of Lone Star, and Vice Chairman of the Supervisory Boards of IKB Deutsche
Industriebank AG, Corealcredit Bank AG and MHB Bank AG. |
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.
Segments
We operate in one industry segment, real estate ownership with domestic and foreign investments.
For 2010, Hellweg Die Profi-Baumarkte GmbH & Co. KG (Hellweg 2) represented 19% of our total
lease revenues, inclusive of noncontrolling interest.
NYT Real Estate Company, LLC is the tenant of a property pursuant to a net lease with our
subsidiary, 620 Eighth NYT (NY) Limited Partnership, which was deemed to be a material equity
investment for the year ended at December 31, 2009. Separate summarized combined financial
information of 620 Eighth NYT (NY) Limited Partnership and 620 Eighth Lender NYT (NY) Limited
Partnership is included in Note 6 to the consolidated financial statements in this Report.
Competition
We face active competition from many sources for investment opportunities in commercial properties
net leased to major corporations both domestically and internationally. In general, we believe the
advisors experience in real estate, credit underwriting and transaction structuring should allow
us to compete effectively for commercial properties. However, competitors may be willing to accept
rates of returns, lease terms, other transaction terms or levels of risk that we may find
unacceptable.
Environmental Matters
Our properties generally are or have been used for commercial purposes, including 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 obtain contractual protection
(indemnities, cash reserves, letters of credit or other instruments) from property sellers,
tenants, a tenants parent company or another third party to address known or potential
environmental issues.
Transactions with Affiliates
We enter into transactions with our affiliates, including the other CPA® REITs and our
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 jointly-owned ventures, direct purchases of assets, mergers or another type of transaction.
As discussed in Item 1, Significant Developments during 2010, on December 13, 2010, we and
CPA®:14 entered into a definitive agreement regarding the Proposed Merger, pursuant to
which CPA®:14 will merge with and into one of our subsidiaries, subject to the approval
of the shareholders of CPA®:14. The closing of the Proposed Merger is also subject to
customary closing conditions, as well as the closing of the Asset Sales. The Asset Sales are
contingent upon the satisfaction of all the closing conditions regarding the Proposed Merger.
CPA®:16 2010 10-K 11
Types of Investments
Substantially all of our investments to date are and will continue to be income-producing
properties which are, upon acquisition, improved or being developed or which will be developed
within a reasonable period of time after their acquisition. These investments have primarily been
through sale-leaseback transactions, in which we invest in properties from companies that
simultaneously lease the properties back from us subject to long-term leases. We have also invested
in domestic hotel properties. Investments are not restricted as to geographical areas.
Other Investments We may invest up to 10% of our net equity in unimproved or
non-income-producing real property and in equity interests. Investment in equity interests in the
aggregate will not exceed five percent of our net equity. Such equity interests are defined
generally to mean stock, warrants or other rights to purchase the stock of, or other interests in,
a tenant of a property, an entity to which we lend money or a parent or controlling person of a
borrower or tenant. We may invest in unimproved or non-income-producing property that the advisor
believes will appreciate in value or increase the value of adjoining or neighboring properties we
own. There can be no assurance that these expectations will be realized. Often, equity interests
will be restricted securities, as defined in Rule 144 under the Securities Act of 1933 (the
Securities Act), which means that the securities have not been registered with the SEC and are
subject to restrictions on sale or transfer. Under this rule, we may be prohibited from reselling
the equity securities until we have fully paid for and held the securities for a period between six
months to one year. It is possible that the issuer of equity interests in which we invest may never
register the interests under the Securities Act. Whether an issuer registers its securities under
the Securities Act may depend on many factors, including the success of its operations.
We will exercise warrants or other rights to purchase stock generally if the value of the stock at
the time the rights are exercised exceeds the exercise price. Payment of the exercise price will
not be deemed an investment subject to the above described limitations. We may borrow funds to pay
the exercise price on warrants or other rights or may pay the exercise price from funds held for
working capital and then repay the loan or replenish the working capital upon the sale of the
securities or interests purchased. We will not consider paying distributions out of the proceeds of
the sale of these interests until any funds borrowed to purchase the interest have been fully
repaid.
We will not invest in real estate contracts of sale unless the contracts are in recordable form and
are appropriately recorded in the applicable chain of title.
Cash resources 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. To
maintain our REIT qualification, we also may invest in securities that qualify as real estate
assets and produce qualifying income under the REIT provisions of the Internal Revenue Code. Any
investments in other REITs in which the advisor or any director is an affiliate must be approved as
being fair and reasonable by a majority of the directors (which must include a majority of the
independent directors) who are not otherwise interested in the transaction.
If at any time the character of our investments would cause us to be deemed an investment company
for purposes of the Investment Company Act of 1940 (the Investment Company Act), we will take the
necessary action to ensure that we are not deemed to be an investment company. The advisor will
continually review our investment activity, including monitoring the proportion of our portfolio
that is placed in various investments, to attempt to ensure that we do not come within the
application of the Investment Company Act.
Our reserves, if any, will be invested in permitted temporary investments. The advisor will
evaluate the relative risks and rate of return, our cash needs and other appropriate considerations
when making short-term investments on our behalf. The rate of return of permitted temporary
investments may be less than would be obtainable from real estate investments.
(d) Financial Information About Geographic Areas
See Our Portfolio above and Note 17 of the consolidated financial statements for financial
information pertaining to our geographic operations.
(e) Available Information
All filings we make with the SEC, including our Annual Report on Form 10-K, 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.cpa16.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
SECs 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 SECs Internet site at http://www.sec.gov. We are
providing our website address solely for the information of investors. We do not intend our website
to be an active link or to otherwise incorporate the information contained on our website into this
report or other filings with the SEC.
CPA®:16 2010 10-K 12
We will supply to any shareholder, upon written request and without charge, a copy of this Annual
Report on Form 10-K for the year ended December 31, 2010 as filed with the SEC.
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
the conditions 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 our
expectations as expressed 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.
The recent financial and economic crisis adversely affected our business, and the continued
uncertainty in the global economic environment may adversely affect our business in the future.
Although we have seen signs of modest improvement in the global economy following the significant
distress in 2008 and 2009, the economic recovery remains weak, and our business is still dependent
on the speed and strength of that recovery, which cannot be predicted at the present time. To date,
its effects on our business have primarily been that a number of tenants have experienced increased
levels of financial distress, with several having filed for bankruptcy protection, although our
experience in 2010 reflected an improvement from 2008 and 2009.
Depending on the strength of the recovery, we could in the future experience a number of additional
effects on our business, including higher levels of default in the payment of rent by our tenants,
additional bankruptcies and impairments in the value of our property investments, as well as
difficulties in refinancing existing loans as they come due. Any of these conditions may negatively
affect our earnings, as well as our cash flow and, consequently, our ability to sustain the payment
of dividends at current levels.
We are subject to the risks of real estate ownership, which could reduce the value of our
properties.
Our performance and asset value are subject, in part, to risks incident to the ownership and
operation of real estate, including:
|
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changes in the general economic climate; |
|
|
|
changes in local conditions such as an oversupply of space or reduction in demand for
commercial 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. |
International investments involve additional risks.
We have invested in and may continue to invest in properties located outside the U.S. At December
31, 2010, our directly owned real estate properties located outside of the U.S. represented 41% of
current annualized contractual minimum base rent. These investments may be affected by factors
particular to the laws of the jurisdiction in which the property is located. These investments may
expose us to risks that are different from and in addition to those commonly found in the U.S.,
including:
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|
changing governmental rules and policies; |
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|
|
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 U.S.; |
CPA®:16 2010 10-K 13
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legal systems under which the ability to enforce contractual rights and remedies may be
more limited than would be the case under U.S. law; |
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the 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; |
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adverse market conditions caused by changes in national or local economic or political
conditions; |
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changes in relative interest rates; |
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changes in the availability, cost and terms of mortgage funds resulting from varying
national economic policies; |
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restrictions and/or significant costs in repatriating cash and cash equivalents held in
foreign bank accounts; and |
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changes in real estate and other tax rates and other operating expenses in particular
countries. |
In addition, the lack of publicly available information in accordance with accounting principles
generally accepted in the United States of America (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 advisors expertise to
date is primarily in the U.S. and Europe, and the advisor has little or no expertise in other
international markets. The advisor may not be as familiar with the potential risks to our
investments outside the U.S. and Europe and we may incur losses as a result.
Also, we may rely on third-party asset managers in international jurisdictions to monitor
compliance with legal requirements and lending agreements with respect to our properties. Failure
to comply with applicable requirements may expose us or our operating subsidiaries to additional
liabilities.
Moreover, we are subject to foreign currency risk due to potential fluctuations in exchange rates
between foreign currencies and the U.S. dollar. Our principal currency exposure is to the Euro. We
are also currently exposed to the British Pound Sterling, the Swedish krona, Canadian dollar, Thai
baht and Malaysian ringgit. 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 tenants rental obligation to us in the same currency, our results of foreign operations
benefit from a weaker U.S. dollar and are adversely affected by a stronger U.S. dollar relative to
foreign currencies; that is, 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.
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. Although we attempt to do so,
we are not required to meet any diversification standards, including geographic diversification
standards. Therefore, our investments may become concentrated in type or geographic location, which
could subject us to significant concentration of risk with potentially adverse effects on our
investment objectives.
We may have difficulty selling or re-leasing our properties.
Real estate investments generally lack liquidity compared to other financial assets, and this lack
of liquidity will limit our ability to quickly change our portfolio in response to changes in
economic or other conditions. The triple-net leases we own, enter into, or acquire may be for
properties that are specially suited to the particular needs of the 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 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 or re-lease properties without adversely affecting returns to our
shareholders. See Item 1 Business Our Portfolio for scheduled lease expirations.
CPA®:16 2010 10-K 14
We have recognized, and may in the future recognize, substantial impairment charges on our
properties.
We have incurred, and may in the future 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 property has experienced a decline in its carrying value (or, for direct financing leases,
that the unguaranteed residual value of the underlying property has declined). By their nature, the
timing and extent of impairment charges are not predictable. Impairment charges reduce our net
income, although they do not necessarily affect our cash flow from operations.
The inability of a tenant in a single tenant property to pay rent will reduce our revenues and
increase our expenses.
Most of our properties are occupied by a single tenant, and therefore the success of our
investments is materially dependent on the financial stability of these tenants. Our five largest
tenants/guarantors represented approximately 36%, 36% and 33% of total lease revenues in 2010, 2009
and 2008, respectively. Lease payment defaults by tenants could cause us to reduce the amount of
distributions to our shareholders. A default of a tenant on its lease payment to us could cause us
to lose the revenue from the property and cause us to have to find an alternative source of revenue
to meet any mortgage payment and prevent foreclosure if the property is subject to a mortgage. 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 revenue.
Bankruptcy or insolvency of a tenant or borrower could cause:
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the loss of lease or interest payments; |
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an increase in the costs incurred to carry the property; |
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a reduction in the value of our shares; and |
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a decrease in distributions to our shareholders. |
Under U.S. bankruptcy law, a tenant who 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 years 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 U.S. may not be as favorable to reorganization or to the protection
of a debtors rights as tenants under a lease as are the laws in the U.S. Our rights to terminate a
lease for default may be more likely to be enforceable in countries other than the U.S., 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 U.S. are considered to be more favorable
to debtors and to their reorganization, entities that are not ordinarily perceived as U.S. entities
may seek to take advantage of the U.S. bankruptcy laws if they are eligible. An entity would be
eligible to be a debtor under the U.S. bankruptcy laws if it had a domicile (state of incorporation
or registration), place of business or assets in the U.S. 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®:16 2010 10-K 15
We and the other CPA® REITs managed by the advisor have had tenants file for bankruptcy
protection and are involved in bankruptcy-related litigation (including several international
tenants). Four prior CPA® REITs reduced the rate of distributions to their investors as
a result of adverse developments involving tenants.
Similarly, if a borrower under one of our loan transactions declares bankruptcy, there may not be
sufficient funds to satisfy its payment obligations to us, which may adversely affect our revenue
and distributions to our shareholders. The mortgage loans in which we may invest and the mortgage
loans underlying the mortgage-backed securities in which we may invest may be subject to
delinquency, foreclosure and loss, which could result in losses to us.
Our distributions may exceed our adjusted cash flow from operating activities and our earnings in
accordance with GAAP.
Over the life of our company, the regular quarterly cash distributions we pay are expected to be
principally sourced by adjusted cash flow from operating activities. Adjusted cash flow from
operating activities represents GAAP cash flow from operating activities, adjusted primarily to
reflect timing differences between the period an expense is incurred and paid, to add cash
distributions we receive from equity investments in real estate in excess of equity income and to
subtract cash distributions we pay to our noncontrolling partners in real estate joint ventures
that we consolidate. However, there can be no assurance that our adjusted cash flow from operating
activities will be sufficient to cover our future distributions, and we may use other sources of
funds, such as proceeds from borrowings and asset sales, to fund portions of our future
distributions. In addition, our distributions in 2009 exceeded, and future distributions may
exceed, our GAAP earnings primarily because our GAAP earnings are affected by non-cash charges such
as depreciation and impairments.
For U.S. federal income tax purposes, portions of the distributions we make may represent return of
capital to our shareholders if they exceed our earnings and profits.
We do not fully control the management for our properties.
The tenants or managers of net lease properties are responsible for maintenance and other
day-to-day management of the properties. If a property is not adequately maintained in accordance
with the terms of the applicable lease, we may incur expenses for deferred maintenance expenditures
or other liabilities once the property becomes free of the lease. While our leases generally
provide for recourse against the tenant in these instances, a bankrupt or financially troubled
tenant may be more likely to defer maintenance and it may be more difficult to enforce remedies
against such a tenant. In addition, to the extent tenants are unable to conduct their operation of
the property on a financially successful basis, their ability to pay rent may be adversely
affected. Although we endeavor to monitor, on an ongoing basis, compliance by tenants with their
lease obligations and other factors that could affect the financial performance of our properties,
such monitoring may not in all circumstances ascertain or forestall deterioration either in the
condition of a property or the financial circumstances of a tenant.
Our leases may permit tenants to purchase a property at a predetermined price, which could limit
our realization of any appreciation or result in a loss.
In some circumstances, we grant tenants a right to repurchase the property they lease from us. The
purchase price may be a fixed price or it may be based on a formula or the market value at the time
of exercise. If a tenant exercises its right to purchase the property and the propertys market
value has increased beyond that price, we could be limited in fully realizing the appreciation on
that property. Additionally, if the price at which the tenant can purchase the property is less
than our purchase price or carrying value (for example, where the purchase price is based on an
appraised value), we may incur a loss.
Our success is dependent on the performance of the advisor.
Our ability to achieve our investment objectives and to pay distributions is largely dependent upon
the performance of the advisor in the acquisition of investments, the selection of tenants, the
determination of any financing arrangements, and the management of our assets. The advisory
agreement has a one year term and may be renewed at our option upon expiration. The past
performance of partnerships and CPA® REITs managed by the advisor may not be indicative
of the advisors performance with respect to us. We cannot guarantee that the advisor will be able
to successfully manage and achieve liquidity for our shareholders to the same extent that it has
done so for prior programs.
CPA®:16 2010 10-K 16
The advisor may be subject to conflicts of interest.
The advisor manages our business and selects our investments. The advisor has some conflicts of
interest in its management of us, which arise primarily from the involvement of the advisor in
other activities that may conflict with us and the payment of fees by us to the advisor. Unless the
advisor elects to receive our common stock in lieu of cash compensation, we will pay the advisor
substantial
cash fees for the services it provides, which will reduce the amount of cash available for
investment in properties or distribution to our shareholders. Circumstances under which a conflict
could arise between us and the advisor include:
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the receipt of compensation by the advisor for property purchases, 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; |
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agreements between us and the advisor, including agreements regarding compensation, will
not be negotiated on an arms- length basis as would occur if the agreements were with
unaffiliated third parties; |
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acquisitions of single properties or portfolios of properties from affiliates, including
the CPA® REITs, 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; |
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competition with certain affiliates for property acquisitions, which may cause the
advisor and its affiliates to direct properties suitable for us to other related entities; |
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a decision by the advisor (on our behalf) of whether to hold or sell a property could
impact the timing and amount of fees payable to the advisor because it receives asset
management fees and may decide not to sell a property; |
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disposition, incentive and termination fees, which are based on the sale price of
properties or the terms of a liquidity transaction, may cause a conflict between the
advisors desire to sell a property or engage in a liquidity transaction and our interests;
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whether a particular entity has been formed by the advisor specifically for the purpose
of making particular types of investments (in which case it will generally receive
preference in the allocation of those types of investments). |
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.
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 typically 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. While we will attempt to negotiate not to include such provisions, lenders may
require such provisions. If an event of default or repayment event occurs with respect to any of
our assets, our revenues and distributions to our shareholders may be adversely affected.
Our NAV is computed by the advisor relying in part on information that the advisor provides to a
third party.
The asset management and performance compensation paid to the advisor are based on our NAV, which
is computed by the advisor relying in part upon an annual third-party valuation of our real estate.
Any valuation includes the use of estimates and our valuation may be influenced by the information
provided by the advisor. Because NAV is an estimate and can change as interest rate and real estate
markets fluctuate, there is no assurance that a shareholder will realize NAV in connection with any
liquidity event.
CPA®:16 2010 10-K 17
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 values of the properties when
the properties are leased. If the leases on the properties terminate, the values of the properties
may fall significantly below the appraised value.
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. Although we attempt to do so,
we are not required to meet any diversification standards, including geographic diversification
standards. Therefore, our investments may become concentrated in type or geographic location, which
could subject us to significant concentration of risk with potentially adverse effects on our
investment objectives.
Our use of debt to finance investments could adversely affect our cash flow and distributions to
shareholders.
Most of our investments have been made by borrowing a portion of the purchase price of our
investments and securing the loan with a mortgage on the property. We generally borrow on a
non-recourse basis to limit our exposure on any property to the amount of equity invested in the
property. However, if we are unable to make our debt payments as required, a lender could foreclose
on the property or properties securing its debt. Additionally, lenders for our international
mortgage loan transactions typically incorporate provisions that can cause a loan default and over
which we have limited control, including a loan to value ratio, a debt service coverage ratio and a
material adverse change in the borrowers or tenants business, so if real estate values decline or
a tenant defaults, the lender would have the right to foreclose on its security. If any of these
events were to occur, it could cause us to lose part or all of our investment, which in turn could
cause the value of our portfolio, and revenues available for distributions to our shareholders, to
be reduced.
A majority of our financing also requires us to make a lump-sum or balloon payment at maturity.
Our ability to make any balloon payments on debt will depend upon our ability either to refinance
the obligation when due, invest additional equity in the property or sell the property. When the
balloon payment is due, we may be unable to refinance the balloon payment on terms as favorable as
the original loan or sell the property at a price sufficient to make the balloon payment. Our
ability to accomplish these goals will be affected by various factors existing at the relevant
time, such as the state of the national and regional economies, local real estate conditions,
available mortgage rates, our equity in the mortgaged properties, our financial condition, the
operating history of the mortgaged properties and tax laws. A refinancing or sale could affect the
rate of return to shareholders and the projected time of disposition of our assets.
Mortgage loans in which we may invest may 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 borrowers 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:
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success of tenant businesses; |
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property management decisions; |
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property location and condition; |
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competition from comparable types of properties; |
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changes in specific industry segments; |
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declines in regional or local real estate values, or rental or occupancy rates; and |
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increases in interest rates, real estate tax rates and other operating expenses. |
CPA®:16 2010 10-K 18
In the event of any default under 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, the 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 can be an expensive and lengthy process that could have a
substantial negative effect on our anticipated return on the foreclosed mortgage loan.
Loans collateralized by non-real estate assets create additional risk and may adversely affect our
REIT qualification.
We may in the future 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 right in bankruptcy will be different for these loans than typical net lease
transactions. To the extent that loans are collateralized by 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.
Failure 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 lose our REIT qualification.
Losing our REIT qualification would reduce our net earnings available for investment or
distribution to shareholders 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 Internal Revenue
Code provisions 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 shareholders aggregating annually at least 90% of our net taxable
income, excluding net capital gains. Because we have investments in foreign real property, we are
subject to foreign currency gains and losses. Foreign currency gains are qualifying income for
purposes of the REIT income requirements provided that the underlying income satisfies the REIT
income requirements. To reduce the risk of foreign currency gains adversely affecting our REIT
qualification, we may be required to defer the repatriation of cash from foreign jurisdictions or
to employ other structures that could affect the timing, character or amount of income we receive
from our foreign investments. No assurance can be given that we will be able to manage our foreign
currency gains in a manner that enables us to qualify as a REIT or to avoid U.S. federal and other
taxes on our income. 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 take the position that specific sale-leaseback transactions 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.
We may elect to treat one or more of our corporate subsidiaries as a taxable REIT subsidiary
(TRS). 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. We have elected to treat two of our
corporate subsidiaries as TRSs.
CPA®:16 2010 10-K 19
We do not operate our hotels and, as a result, we do not have complete control over implementation
of our strategic decisions.
In order for us to satisfy certain REIT qualification rules, we cannot directly operate any of our
hotels. Instead, we must engage an independent management company to operate our hotels. Our TRSs
engage independent management companies as the property managers for our hotels, as required by the
REIT qualification rules. The management companies operating our hotels make and implement
strategic business decisions with respect to these hotels, such as decisions with respect to the
repositioning of a franchise or food and beverage operations and other similar decisions. Decisions
made by the management companies operating the hotels may not be in the best interests of a
particular hotel or of our company. Accordingly, we cannot assure you that the management companies
operating our hotels will operate them in a manner that is in our best interests.
Dividends 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 net income.
The maximum U.S. federal income tax rate for dividends payable by domestic corporations to taxable
U.S. shareholders is 15%. Dividends payable by REITs, however, are generally not eligible for the
reduced rates, except to the extent that they are attributable to dividends paid by a taxable REIT
subsidiary or 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
net income. As a result, the more favorable rates applicable to regular corporate dividends could
cause shareholders who are individuals to perceive investments in REITs to be relatively less
attractive than investments in the stocks of non-REIT corporations that pay dividends, 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 dividends, which could negatively affect the value
of our properties.
The ability of our board of directors to change our investment policies or revoke our REIT election
without shareholder approval may cause adverse consequences to our shareholders.
Our bylaws require 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 shareholders. These
policies may change over time. The methods of implementing our investment policies may also vary as
new investment techniques are developed. Except as otherwise provided in our bylaws, 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 shareholders. As a result, the nature of your investment
could change without your consent. A change in 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.
In addition, our organizational documents permit our board of directors to revoke or otherwise
terminate our REIT election, without the approval of our shareholders, 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 shareholders, which may have adverse consequences on the
total return to our shareholders.
Potential liability for environmental matters could adversely affect our financial condition.
We have invested and in the future may invest in properties historically used for industrial,
manufacturing and other commercial purposes. We therefore own and may in the future acquire
properties that have known or potential environmental contamination as a result of historical
operations. Buildings and structures on the properties we own and purchase also may have known or
suspected asbestos-containing building materials. Our properties currently are used for industrial,
manufacturing, and other commercial purposes, and some of our tenants may handle hazardous or toxic
substances, generate hazardous wastes, or discharge regulated pollutants to the environment. 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 U.S., which may
pose a greater risk that releases of hazardous or toxic substances have occurred to the
environment. Leasing properties to tenants that engage in these activities, and owning properties
historically and currently used for industrial, manufacturing, and other 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:
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responsibility and liability for the cost of investigation, removal or remediation of
hazardous or toxic substances released on or from our property, generally without regard to
our knowledge of, or responsibility for, the presence of these contaminants; |
CPA®:16 2010 10-K 20
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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 |
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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
at any of our properties, or the failure to properly remediate a contaminated property, could give
rise to a lien in favor of the government for costs it may incur to address the contamination or
otherwise adversely affect our ability to sell or lease the property or to borrow using the
property as collateral. While we attempt to mitigate identified environmental risks by requiring
tenants contractually to acknowledge their responsibility for complying with environmental laws and
to assume liability for environmental matters, circumstances may arise in which a tenant fails, or
is unable, to fulfill its contractual obligations. In addition, environmental liabilities, or costs
or operating limitations imposed on a tenant to comply with environmental laws, could affect its
ability to make rental payments to us.
The returns on our investments in net leased properties may not be as great as returns on equity
investments in real properties during strong real estate markets.
As an investor in single tenant, long-term net leased properties, the returns on our investments
are based primarily on the terms of the lease. Payments to us under our leases do not rise and fall
based upon the market value of the underlying properties. In addition, we generally lease each
property to one tenant on a long-term basis, which means that we cannot seek to improve current
returns at a particular property through an active, multi-tenant leasing strategy. While we will
sell assets from time to time and may recognize gains or losses on the sales based on then-current
market values, we generally intend to hold our properties on a long-term basis. We view our leases
as fixed income investments through which we seek to achieve attractive risk-adjusted returns that
will support a steady dividend. The value of our assets will likely not appreciate to the same
extent as equity investments in real estate during periods when real estate markets are very
strong. Conversely, in weak markets, the existence of a long-term lease may positively affect the
value of the property, although it is nonetheless possible that, as a result of property declines
generally, we may recognize impairment charges on some properties.
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.
Under current authoritative accounting guidance for leases, 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-cancellable 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 propertys 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 tenants 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 tenants 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 (FASB) and the
International Accounting Standards Board conducted a joint project to re-evaluate lease accounting.
In August 2010, the FASB issued a Proposed Accounting Standards Update titled Leases, providing
its views on accounting for leases by both lessees and lessors. The FASBs proposed guidance may
require significant changes in how leases are accounted for by both lessees and lessors. As of the
date of this Report, the FASB has not finalized its views on accounting for leases. Changes to the
accounting guidance could affect both our accounting for leases as well as that of our tenants.
These changes may affect how the real estate leasing business is conducted both domestically and
internationally. For example, if the accounting standards regarding the financial statement
classification of operating leases are revised, then companies may be less willing to enter into
leases in general or desire to enter into leases with shorter terms because the apparent benefits
to their balance sheets could be reduced or eliminated. This in turn could make it more difficult
for us to enter leases on terms we find favorable.
CPA®:16 2010 10-K 21
Our net tangible book value may be adversely affected if we are required to adopt certain fair
value accounting provisions.
In June 2007, the Accounting Standards Executive Committee of the American Institute of Certified
Public Accountants (AICPA) issued accounting guidance that addresses when the accounting
principles of the AICPA Audit and Accounting Guide Investment Companies must be applied by an
entity and whether investment company accounting must be retained by a parent company in
consolidation or by an investor in the application of the equity method of accounting. In addition,
this guidance includes certain disclosure requirements for parent companies and equity method
investors in investment companies that retain investment company accounting in the parent companys
consolidated financial statements or the financial statements of an equity method investor. In
February 2008, the effective date of this guidance was indefinitely delayed, and adoption of the
guidance was prohibited for any entity that had not previously adopted it. Additionally, in its
investment properties project, the FASB is currently considering whether certain entities should
measure investment property at fair value. As currently proposed, an entity would need to meet
certain criteria related to its business purpose, activities, and capital structure to be within
the scope of the guidance. Entities within the scope of the guidance would report all their
investment properties at fair value on a recurring basis. We will assess the potential impact the
adoption of these standards would have on our financial position and results of operations if we
are required to adopt them.
While we maintain an exemption from the Investment Company Act, and are therefore not regulated as
an investment company, we may be required to adopt fair value accounting provisions. Under these
provisions, our investments would be recorded at fair value with changes in value reflected in our
earnings, which may result in significant fluctuations in our results of operations and net
tangible book value. Net tangible book value per share may be reduced by any declines in the fair
value of our investments.
Your investment return may be reduced if we are required to register as an investment company under
the Investment Company Act.
We do not intend to register as an investment company under the Investment Company Act. If we were
obligated to register as an investment company, we would have to comply with a variety of
substantive requirements under the Investment Company Act that impose, among other things:
|
|
|
limitations on capital structure; |
|
|
|
restrictions on specified investments; |
|
|
|
prohibitions on certain transactions with affiliates; and |
|
|
|
compliance with reporting, record keeping, voting, proxy disclosure and other rules and
regulations that would significantly increase our operating expenses. |
In general, we expect to be able to rely on the exemption from registration provided by Section
3(c)(5)(C) of the Investment Company Act. In order to qualify for this exemption, at least 55% of
our portfolio must be comprised of real property and mortgages and other liens on an interest in
real estate (collectively, qualifying assets) and at least 80% of our portfolio must be comprised
of real estate-related assets. Qualifying assets include mortgage loans, mortgage-backed securities
that represent the entire ownership in a pool of mortgage loans, and other interests in real
estate. In order to maintain our exemption from regulation under the Investment Company Act, we
must continue to engage primarily in the business of buying real estate.
To maintain compliance with the Investment Company Act exemption, 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 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. Criminal and
civil actions could also be brought against us if we failed to comply with the Investment Company
Act. In addition, our contracts would 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.
Our board of directors has approved and recommended that our shareholders vote in favor of our
Proposed Merger with CPA®:14; however, our board identified several potentially negative
factors of the Proposed Merger.
If the Proposed Merger is consummated, a number of potentially negative factors may impact us,
including the following:
|
|
|
The average lease maturity of our portfolio will be lowered from approximately 14.0
years to 11.6 years; |
|
|
|
We will be more highly leveraged as a result of assuming CPA®:14s
outstanding debt and entering into a new $300.0 million senior credit facility; |
CPA®:16 2010 10-K 22
|
|
|
A new tenant, Carrefour France SAS, will represent approximately 5.6% our annualized
lease revenue on a pro forma basis; |
|
|
|
Adverse changes to CPA®:14s portfolio subsequent to when the exchange ratio
was set on September 30, 2010 could alter the value of CPA®:14s assets but will
not result in an adjustment of the fixed merger exchange ratio agreed between the parties; |
|
|
|
If 50% of CPA®:14 shareholders elect to receive cash in the Proposed Merger,
our annual interest expense would increase by approximately $8.7 million as a result of
drawing down proceeds from the new senior credit facility; |
|
|
|
|
If 50% or fewer of CPA®:14 shareholders elect to receive cash, the advisor
might be required to purchase shares of our common stock to fund payment of such cash
elections, which could result in the advisor owning approximately 14% of our outstanding
common stock; |
|
|
|
The greater the number of CPA®:14 shareholders who elect to receive our
common stock, the more dilutive the Proposed Merger will be to our adjusted funds from
operations; and |
|
|
|
The advisor will earn significant fees and will continue to benefit from future
significant asset management fees, incentive fees and termination fees, based on any
appreciation in value, from the properties we acquire. |
While we believe that the benefits of the Proposed Merger outweigh the potentially negative
factors, if the benefits do not materialize as anticipated, the factors described above could
adversely affect our results of operations, our NAV and our ability to pay future distributions.
There is not, and may never be, an active public trading market for our shares, so it will be
difficult for shareholders to sell shares quickly.
There is no active public trading market for our shares. Our articles of incorporation also
prohibit the ownership of more than 9.8% of our stock by one person or affiliated group, unless
exempted by our board of directors, which may inhibit large investors from desiring to purchase
your shares and may also discourage a takeover. Moreover, 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 the plan. Therefore, it will 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.
Maryland law could restrict change in control.
Provisions of Maryland law applicable to us prohibit business combinations with:
|
|
|
any person who beneficially owns 10% or more of the voting power of outstanding shares,
referred to as an interested shareholder; |
|
|
|
an affiliate 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 shares, also
referred to as an interested shareholder; or |
|
|
|
an affiliate of an interested shareholder. |
These prohibitions last for five years after the most recent date on which the interested
shareholder became an interested shareholder. 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 shares and two-thirds of the votes entitled
to be cast by holders of our shares other than shares held by the interested shareholder or by an
affiliate or associate of the interested shareholder. These requirements could have the effect of
inhibiting a change in control even if a change in control was in our shareholders 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
shareholder. In addition, a person is not an interested shareholder if the board of directors
approved in advance the transaction by which he or she otherwise would have become an interested
shareholder. However, in approving a transaction, 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.
CPA®:16 2010 10-K 23
Our articles of incorporation restrict beneficial ownership of more than 9.8% of the outstanding
shares by one person or affiliated group in order to assist us in meeting the REIT qualification
rules. These requirements could have the effect of inhibiting a change in control even if a change
in control were in our shareholders interest.
Shareholders equity interests may be diluted.
Our shareholders 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 plan or in the Proposed Merger to CPA®:14
shareholders and, in certain circumstances, to WPC, (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 the advisor for payment of fees in lieu of
cash, then shareholders will experience dilution of their percentage ownership in us. Depending on
the terms of such transactions, most notably the offer price per share and the value of our
properties and our other investments, existing shareholders might also experience a dilution in the
book value per share of their investment in us.
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Item 1B. |
|
Unresolved Staff Comments. |
None.
Our principal corporate offices are located at 50 Rockefeller Plaza, New York, NY 10020. The
advisor also has its primary international investment offices located in London and Amsterdam. The
advisor also has office space domestically in Dallas, Texas and internationally in 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 Supplemental Data Schedule III Real
Estate and Accumulated Depreciation for a detailed listing of such properties.
|
|
|
Item 3. |
|
Legal Proceedings. |
Various claims and lawsuits arising in the normal course of business are pending against us. The
results of these proceedings are not expected to have a material adverse effect on our consolidated
financial position or results of operations.
|
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|
Item 4. |
|
Removed and Reserved. |
CPA®:16 2010 10-K 24
PART II
|
|
|
Item 5. |
|
Market for Registrants 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 18, 2011, there were 34,688
holders of record of our shares.
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 declared by us for the past two years are as
follows:
|
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|
|
|
|
|
|
|
|
Years ended December 31, |
|
|
|
2010 |
|
|
2009 |
|
First quarter |
|
$ |
0.1656 |
|
|
$ |
0.1653 |
|
Second quarter |
|
|
0.1656 |
|
|
|
0.1656 |
|
Third quarter |
|
|
0.1656 |
|
|
|
0.1656 |
|
Fourth quarter |
|
|
0.1656 |
|
|
|
0.1656 |
|
|
|
|
|
|
|
|
|
|
$ |
0.6624 |
|
|
$ |
0.6621 |
|
|
|
|
|
|
|
|
Unregistered Sales of Equity Securities
For the three months ended December 31, 2010, we issued 319,978 restricted shares of common stock
to the advisor as consideration for performance fees. These shares were issued at $9.20 per share,
which was our most recently published NAV per share as approved by our board of directors at the
date of issuance. Since none of these transactions were considered to have involved a public
offering within the meaning of Section 4(2) of the Securities Act, 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.
Issuer Purchases of Equity Securities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Maximum number (or |
|
|
|
|
|
|
|
|
|
|
|
Total number of shares |
|
|
approximate dollar value) |
|
|
|
|
|
|
|
|
|
|
|
purchased as part of |
|
|
of shares that may yet be |
|
|
|
Total number of |
|
|
Average price |
|
|
publicly announced |
|
|
purchased under the |
|
2010 Period |
|
shares purchased(a) |
|
|
paid per share |
|
|
plans or programs(a) |
|
|
plans or programs(a) |
|
October |
|
|
|
|
|
|
|
|
|
|
N/A |
|
|
|
N/A |
|
November |
|
|
|
|
|
|
|
|
|
|
N/A |
|
|
|
N/A |
|
December |
|
|
311,374 |
|
|
$ |
8.18 |
|
|
|
N/A |
|
|
|
N/A |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
|
311,374 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(a) |
|
Represents shares of our common stock purchased by us through our redemption plan, pursuant
to which we may elect to redeem shares at the request of our shareholders, subject to certain
conditions and limitations. The maximum amount of shares purchasable by us in any period
depends on the availability of funds generated by our dividend reinvestment and share purchase
plan and other factors and is at the discretion of our board of directors. The redemption plan
will terminate if and when our shares are listed on a national securities market. |
CPA®:16 2010 10-K 25
|
|
|
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):
|
|
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years ended December 31, |
|
|
|
2010 |
|
|
2009 |
|
|
2008 |
|
|
2007 |
|
|
2006 |
|
Operating Data (a) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total revenues |
|
$ |
234,759 |
|
|
$ |
232,904 |
|
|
$ |
231,808 |
|
|
$ |
160,452 |
|
|
$ |
66,748 |
|
Income from continuing operations |
|
|
51,702 |
|
|
|
29,596 |
|
|
|
46,648 |
|
|
|
56,867 |
|
|
|
29,803 |
|
Net income (b) |
|
|
59,238 |
|
|
|
12,959 |
|
|
|
47,360 |
|
|
|
58,598 |
|
|
|
31,970 |
|
Add: Net (income) loss attributable to noncontrolling interests |
|
|
(4,905 |
) |
|
|
8,050 |
|
|
|
(339 |
) |
|
|
(6,048 |
) |
|
|
(1,865 |
) |
Less: Net income attributable to redeemable noncontrolling
interests |
|
|
(22,326 |
) |
|
|
(23,549 |
) |
|
|
(26,774 |
) |
|
|
(18,346 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss) attributable to CPA®16 - Global shareholders |
|
|
32,007 |
|
|
|
(2,540 |
) |
|
|
20,247 |
|
|
|
34,204 |
|
|
|
30,105 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings (loss) per share: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income from continuing operations attributable to
CPA®:16 - Global shareholders |
|
|
0.23 |
|
|
|
0.03 |
|
|
|
0.16 |
|
|
|
0.28 |
|
|
|
0.37 |
|
Net income (loss) attributable to CPA®:16 - Global shareholders |
|
|
0.26 |
|
|
|
(0.02 |
) |
|
|
0.17 |
|
|
|
0.29 |
|
|
|
0.40 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash distributions declared per share |
|
|
0.6624 |
|
|
|
0.6621 |
|
|
|
0.6576 |
|
|
|
0.6498 |
|
|
|
0.6373 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance Sheet Data |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total assets |
|
$ |
2,437,959 |
|
|
$ |
2,889,005 |
|
|
$ |
2,967,203 |
|
|
$ |
3,081,869 |
|
|
$ |
1,775,640 |
|
Net investments in real estate (c) |
|
|
2,127,900 |
|
|
|
2,223,549 |
|
|
|
2,190,625 |
|
|
|
2,169,979 |
|
|
|
1,143,908 |
|
Long-term obligations (d) |
|
|
1,371,948 |
|
|
|
1,454,851 |
|
|
|
1,453,901 |
|
|
|
1,445,734 |
|
|
|
662,762 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other Information |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash provided by operating activities |
|
$ |
121,340 |
|
|
$ |
119,879 |
|
|
$ |
117,435 |
|
|
$ |
120,985 |
|
|
$ |
52,255 |
|
Cash distributions paid |
|
|
82,013 |
|
|
|
80,778 |
|
|
|
79,011 |
|
|
|
72,551 |
|
|
|
41,227 |
|
Payment of mortgage principal (e) |
|
|
21,613 |
|
|
|
18,747 |
|
|
|
15,487 |
|
|
|
18,053 |
|
|
|
6,397 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(a) |
|
Certain prior year amounts have been reclassified from continuing operations to discontinued
operations. |
|
(b) |
|
Net income in 2010, 2009 and 2008 reflected impairment charges totaling $10.9 million,
inclusive of amounts attributable to noncontrolling interests totaling $2.5 million, $59.6
million, inclusive of amounts attributable to noncontrolling interests totaling $12.8 million,
and $4.0 million, respectively. |
|
(c) |
|
Net investments in real estate consists of net investments in properties, net investment in
direct financing leases, equity investments in real estate, real estate under construction and
assets held for sale, as applicable. |
|
(d) |
|
Represents non-recourse mortgage obligations and deferred acquisition fee installments. |
|
(e) |
|
Represents scheduled mortgage principal payments. |
CPA®:16 2010 10-K 26
|
|
|
Item 7. |
|
Managements Discussion and Analysis of Financial Condition and Results of Operations. |
Managements discussion and analysis of financial condition and results of operations (MD&A) 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. MD&A 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.
Business Overview
As described in more detail in Item 1 of this Report, we are a publicly owned, non-listed REIT that
invests primarily in commercial properties leased to companies domestically and internationally. 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 and sales of properties. We were formed in 2003 and
are managed by the advisor. In addition, as discussed in Item 1, Significant Developments during
2010, on December 13, 2010, we and CPA®:14 entered into a definitive agreement pursuant
to which CPA®:14 will merge with and into one of our subsidiaries, subject to the
approval of the shareholders of CPA®:14. The closing of the Proposed Merger is also
subject to customary closing conditions, among other things.
Financial Highlights
(In thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years ended December 31, |
|
|
|
2010 |
|
|
2009 |
|
|
2008 |
|
Total revenues |
|
$ |
234,759 |
|
|
$ |
232,904 |
|
|
$ |
231,808 |
|
Net income (loss) attributable to
CPA®:16 - Global shareholders |
|
|
32,007 |
|
|
|
(2,540 |
) |
|
|
20,247 |
|
Cash flow from operating activities |
|
|
121,340 |
|
|
|
119,879 |
|
|
|
117,435 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Distributions paid |
|
|
82,013 |
|
|
|
80,778 |
|
|
|
79,011 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Supplemental financial measures: |
|
|
|
|
|
|
|
|
|
|
|
|
Funds from operations - as adjusted (AFFO) |
|
$ |
78,349 |
|
|
$ |
77,009 |
|
|
$ |
75,762 |
|
Adjusted cash flow from operating activities |
|
|
114,583 |
|
|
|
114,225 |
|
|
|
115,875 |
|
We consider the performance metrics listed above, including certain supplemental metrics that
are not defined by GAAP (non-GAAP) such as Funds from operations as adjusted, or AFFO, and
Adjusted cash flow from operating activities, to be important measures in the evaluation of our
results of operations, liquidity and capital resources. We evaluate our results of operations with
a primary focus on the ability to generate cash flow necessary to meet our objectives of funding
distributions to shareholders. Please see Supplemental Financial Measures below for our definition
of these measures and reconciliations to their most directly comparable GAAP measure.
Total revenues increased slightly in 2010 as compared to 2009. The increase in lease revenue, which
was primarily the result of the full year impact of our investment in Tesco plc, as well as the
increase in revenue from our domestic hotel ventures, was substantially offset by a decrease in
interest income on notes receivable on Hellweg 2 due to the exercise of a purchase option.
Net income attributable to CPA®:16 Global shareholders for the year ended December
31, 2010 reflected a reduction in the level of impairment charges recognized as compared to 2009.
During 2010, we recognized impairment charges of $10.9 million, inclusive of amounts attributable
to noncontrolling interests of $2.5 million, while in 2009 we recognized impairment charges of
$59.6 million, inclusive of amounts attributable to noncontrolling interests of $12.8 million.
Our quarterly cash distribution remained at $0.1656 per share for the fourth quarter of 2010, or
$0.66 per share on an annualized basis.
CPA®:16 2010 10-K 27
Our AFFO supplemental measure for the year ended December 31, 2010, as compared to 2009, increased
by $1.3 million, primarily as a result of the full year impact of our 2009 investment activity. For
the year ended December 31, 2010 as compared to 2009, our adjusted cash flow from operating
activities supplemental measure remained relatively unchanged.
Current Trends
General Economic Environment
We are impacted by macro-economic environmental factors, the capital markets, and general
conditions in the commercial real estate market, both in the U.S. and globally. As of the date of
this Report, we have seen signs of modest improvement in the global economy following the
significant distress experienced in 2008 and 2009. While these factors reflect favorably on our
business, the economic recovery remains weak, and our business remains dependent on the speed and
strength of the recovery, which cannot be predicted at this time. Nevertheless, as of the date of
this Report, the impact of current financial and economic trends on our business, and our response
to those trends, is presented below.
Foreign Exchange Rates
We have foreign investments and, as a result, are subject to risk from the effects of exchange rate
movements. Our results of foreign operations benefit from a weaker U.S. dollar and are adversely
affected by a stronger U.S. dollar relative to foreign currencies. During 2010, the Euro weakened
primarily as a result of sovereign debt issues in several European countries. Investments
denominated in the Euro accounted for approximately 35% of our annualized contractual minimum base
rent for 2010. During 2010, the U.S. dollar strengthened against the Euro, as the average
conversion rate for the U.S. dollar in relation to the Euro decreased by 5% in comparison to 2009.
Additionally, the end-of-period conversion rate of the Euro at December 31, 2010 decreased 8% to
$1.3253 from $1.4333 at December 31, 2009. This strengthening had a negative impact on our balance
sheet at December 31, 2010 as compared to our balance sheet at December 31, 2009. While we actively
manage our foreign exchange risk, a significant unhedged decline in the value of the Euro could
have a material negative impact on our net asset values, future results, financial position and
cash flows.
Capital Markets
We have recently seen evidence of a gradual improvement in capital market conditions including new
issuances of commercial mortgage-backed securities debt. Capital inflows to both commercial real
estate debt and equity markets have helped increase the availability of mortgage financing and
asset prices have begun to recover from their credit crisis lows. Over the past few quarters, there
has been continued improvement in the availability of financing; however, lenders remain cautious
and continue to employ more conservative underwriting standards. We have seen commercial real
estate capitalization rates begin to narrow from credit crisis highs, especially for higher-quality
assets or assets leased to tenants with strong credit.
Financing Conditions
We have recently seen a gradual improvement in both the credit and real estate financing markets.
During the year ended December 31, 2010, we saw an increase in the number of lenders for both
domestic and international investments as market conditions improved. However, during the fourth
quarter of 2010, the cost of debt rose, but we anticipate that this may be recoverable either
through deal pricing or if lenders adjust their spreads, which had been unusually high during the
crisis. The increase was primarily a result of a rise in the 10-year treasury rates for domestic
deals and due to the impact of the sovereign debt issues in Europe.
Real Estate Sector
As noted above, the commercial real estate market is impacted by a variety of macro-economic
factors, including but not limited to growth in gross domestic product, unemployment, interest
rates, inflation, and demographics. Since the beginning of the credit crisis, these macro-economic
factors have persisted, negatively impacting commercial real estate market fundamentals, which has
resulted in higher vacancies, lower rental rates, and lower demand for vacant space. While more
recently there have been some indications of stabilization in asset values and slight improvements
in occupancy rates, general uncertainty surrounding commercial real estate fundamentals and
property valuations continues. We are chiefly affected by changes in the appraised values of our
properties, tenant defaults, inflation, lease expirations, and occupancy rates.
CPA®:16 2010 10-K 28
Net Asset Values
The advisor generally calculates our NAV per share on an annual basis. To make this calculation the
advisor relies in part on an estimate of the fair market value of our real estate provided by a
third party, adjusted to give effect to the estimated fair value of mortgages encumbering our
assets (also provided by a third party) as well as other adjustments. There are a number of
variables that comprise this calculation, including individual tenant credits, lease terms, lending
credit spreads, foreign currency exchange rates, and tenant defaults, among others. We do not
control these variables and, as such, cannot predict how they will change in the future.
As a result of continued weakness in the economy and a strengthening of the dollar versus the Euro
during 2010 and 2009, our NAV per share at September 30, 2010, which was calculated in connection
with the Proposed Merger, decreased to $8.80, a 4.3% decline from our December 31, 2009 NAV per
share of $9.20.
Tenant Defaults
As a net lease investor, we are exposed to credit risk within our tenant portfolio, which can
reduce our results of operations and cash flow from operations if our tenants are unable to pay
their rent. Tenants experiencing financial difficulties may become delinquent on their rent and/or
default on their leases and, if they file for bankruptcy protection, may reject our lease in
bankruptcy court, resulting in reduced cash flow, which may negatively impact net asset values and
require us to incur impairment charges. Even where a default has not occurred and a tenant is
continuing to make the required lease payments, we may restructure or renew leases on less
favorable terms, or the tenants credit profile may deteriorate, which could affect the value of
the leased asset and could in turn require us to incur impairment charges.
As of the date of this Report, we have no tenants operating under bankruptcy protection. Our
experience for the year ended December 31, 2010 reflects an improvement from the unusually high
level of tenant defaults during 2008 and 2009, when companies across many industries experienced
financial distress due to the economic downturn and the seizure in the credit markets. We have
observed that many of our tenants have benefited from continued improvements in general business
conditions, which we anticipate will result in reduced tenant defaults going forward; however, it
is possible that additional tenants may file for bankruptcy or default on their leases during 2011
and that economic conditions may again deteriorate.
To mitigate these risks, we have historically looked to invest in assets that we believe are
critically important to a tenants operations and have attempted to diversify our portfolio by
tenant, tenant industry and geography. We also monitor tenant performance through review of rent
delinquencies as a precursor to a potential default, meetings with tenant management and review of
tenants financial statements and compliance with any financial covenants. When necessary, our
asset management process includes restructuring transactions to meet the evolving needs of tenants,
re-leasing properties, refinancing debt and selling properties, as well as protecting our rights
when tenants default or enter into bankruptcy.
Inflation
Our leases generally have rent adjustments that are either fixed or based on formulas indexed to
changes in the CPI or other similar index for the jurisdiction in which the property is located.
Because these rent adjustments may be calculated based on changes in the CPI over a multi-year
period, changes in inflation rates can have a delayed impact on our results of operations. Rent
adjustments during 2009 and, to a lesser extent, 2010 generally benefited from increases in
inflation rates during the years prior to the scheduled rent adjustment date. However, despite
recent signs of inflationary pressure, we continue to expect that rent increases will be
significantly lower in coming years as a result of the current historically low inflation rates in
the U.S. and the Euro zone.
Lease Expirations and Occupancy
At December 31, 2010, we had no significant leases scheduled to expire or renew in the next twelve
months. The advisor actively manages our real estate portfolio and begins discussing options with
tenants in advance of the scheduled lease expiration. In certain cases, we obtain lease renewals
from our tenants; however, tenants may elect to move out at the end of their term, or may elect to
exercise purchase options, if any, in their leases. In cases where tenants elect not to renew, we
may seek replacement tenants or try to sell the property. Our occupancy was 99% at December 31,
2010, unchanged from December 31, 2009.
CPA®:16 2010 10-K 29
Proposed Accounting Changes
The International Accounting Standards Board and FASB 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 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 enter into the type of sale-leaseback transactions in which we specialize. At
this time, the proposed guidance has not been finalized and as such we are unable to determine
whether the proposal will have a material impact on our business.
The Emerging Issues Task Force (EITF) of the FASB discussed the accounting treatment for
deconsolidating subsidiaries in situations other than a sale or transfer at its September 2010
meeting. While the EITF did not reach a consensus for exposure, the EITF determined that further
research was necessary to more fully understand the scope and implications of the matter, prior to
issuing a consensus for exposure. If the EITF reaches a consensus for exposure, we will evaluate
the impact of such conclusion on our financial statements. During 2010, we deconsolidated a
subsidiary that leased property to Goertz & Schiele Corp. which had total assets and liabilities of
$7.5 million and $14.5 million, respectively, and recognized a gain in the amount of $7.1 million.
How We Evaluate Results of Operations
We evaluate our results of operations with a primary focus on our ability to generate cash flow
necessary to meet our objectives of funding distributions to shareholders and increasing our equity
in our real estate. As a result, our assessment of operating results gives less emphasis to the
effect of unrealized gains and losses, which may cause fluctuations in net income for comparable
periods but have no impact on cash flows, and to other non-cash charges, such as depreciation and
impairment charges.
We consider cash flows from operating activities, cash flows from investing activities, cash flows
from financing activities and certain non-GAAP performance metrics to be important measures in the
evaluation of our results of operations, liquidity and capital resources. Cash flows from operating
activities are sourced primarily from long-term lease contracts. These leases are generally triple
net and mitigate, to an extent, our exposure to certain property operating expenses. Our evaluation
of the amount and expected fluctuation of cash flows from operating activities is essential in
evaluating our ability to fund operating expenses, service debt and fund distributions to
shareholders.
We consider cash flows from operating activities plus cash distributions from equity investments in
real estate in excess of equity income, less cash distributions paid to consolidated joint venture
partners, as a supplemental measure of liquidity in evaluating our ability to sustain distributions
to shareholders. We consider this measure useful as a supplemental measure to the extent the source
of distributions in excess of equity income in real estate is the result of non-cash charges, such
as depreciation and amortization, because it allows us to evaluate the cash flows from consolidated
and unconsolidated investments in a comparable manner. In deriving this measure, we exclude cash
distributions from equity investments in real estate that are sourced from the sales of the equity
investees assets or refinancing of debt because we deem them to be returns of investment and not
returns on investment.
We focus on measures of cash flows from investing activities and cash flows from financing
activities in our evaluation of our capital resources. Investing activities typically consist of
the acquisition or disposition of investments in real property and the funding of capital
expenditures with respect to real properties. Financing activities primarily consist of the payment
of distributions to shareholders, obtaining non-recourse mortgage financing, generally in
connection with the acquisition or refinancing of properties, and making mortgage principal
payments. Our financing strategy has been to purchase substantially all of our properties with a
combination of equity and non-recourse mortgage debt. A lender on a non-recourse mortgage loan
generally has recourse only to the property collateralizing such debt and not to any of our other
assets. This strategy has allowed us to diversify our portfolio of properties and, thereby, limit
our risk. In the event that a balloon payment comes due, we may seek to refinance the loan,
restructure the debt with existing lenders, or evaluate our ability to pay the balloon payment from
our cash reserves or sell the property and use the proceeds to satisfy the mortgage debt.
CPA®:16 2010 10-K 30
Results of Operations
Our results of operations continue to be significantly impacted by a transaction from April 2007
(the Hellweg 2 transaction) in which we and our affiliates acquired a venture (the property
venture) that in turn acquired a 24.7% ownership interest in a limited partnership owning 37
properties throughout Germany. We and our affiliates also acquired a second venture (the lending
venture), which made a loan (the note receivable) to the holder of the remaining 75.3% interests
in the limited partnership (the partner). In connection with the acquisition, the property
venture agreed to three option agreements that give the property venture the right to purchase,
from our partner, the remaining 75.3% (direct and indirect) interest in the limited partnership at
a price equal to the principal amount of the note receivable at the time of purchase. In November
2010, the property venture exercised the first of its three options and acquired from our partner a
70% direct interest in the limited partnership for $297.3 million, thus owning a (direct and
indirect) 94.7% interest in the limited partnership. The property venture has assignable option
agreements to acquire the remaining (direct and indirect) 5.3% interest in the limited partnership
by October 2012. If the property venture does not exercise its option agreements, our partner has
option agreements to put its remaining interests in the limited partnership to the property venture
during 2014 at a price equal to the principal amount of the note receivable at the time of
purchase. Currently, under the terms of the note receivable, the lending venture will receive
interest income that approximates 5.3% of all income earned by the limited partnership, less
adjustments. The note receivable has a principal balance of $21.8 million, inclusive of our
affiliates noncontrolling interest of $16.2 million at December 31, 2010. Our total effective
ownership interest in the ventures is 26%. We consolidate the ventures in our financial statements
under current accounting guidance. The total cost of the interests in these ventures was $446.4
million, inclusive of our affiliates noncontrolling interest of $330.4 million. In connection with
these transactions, the ventures obtained combined non-recourse mortgage financing of $378.6
million, inclusive of our affiliates noncontrolling interest of $280.2 million, having a fixed
annual interest rate of 5.5% and a term of 10 years.
Although we consolidate the results of operations of the Hellweg 2 transaction, because our
effective ownership interest is 26%, a significant portion of the results of operations from this
transaction is reduced by our affiliates noncontrolling interests. As a result of obtaining
non-recourse mortgage debt to finance a significant portion of the purchase price and
depreciating/amortizing assets over their estimated useful lives, we do not expect this transaction
to have a significant impact on our results of operations. However, the transaction has a
significant impact on many of the components of our results of operations, as described below.
Based on the exchange rate of the Euro at December 31, 2010, this transaction generated property
level cash flow from operations (revenues less interest expense) of $11.9 million, inclusive of
amounts attributable to noncontrolling interests of $8.8 million, during 2010.
The following table presents the components of our lease revenue (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years ended December 31, |
|
|
|
2010 |
|
|
2009 |
|
|
2008 |
|
Rental income |
|
$ |
153,755 |
|
|
$ |
149,839 |
|
|
$ |
146,963 |
|
Interest income from direct financing
leases |
|
|
27,101 |
|
|
|
27,448 |
|
|
|
28,864 |
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
180,856 |
|
|
$ |
177,287 |
|
|
$ |
175,827 |
|
|
|
|
|
|
|
|
|
|
|
CPA®:16 2010 10-K 31
The following table sets forth the net lease revenues (i.e., rental income and interest income
from direct financing leases) that we earned from lease obligations through our direct ownership of
real estate (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years ended December 31, |
|
Lessee |
|
2010 |
|
|
2009 |
|
|
2008 |
|
Hellweg 2 (a) (b) |
|
$ |
34,408 |
|
|
$ |
35,889 |
|
|
$ |
37,128 |
|
Telcordia Technologies, Inc. |
|
|
9,799 |
|
|
|
9,371 |
|
|
|
9,311 |
|
Tesco plc (a)(b)(c) |
|
|
7,337 |
|
|
|
3,420 |
|
|
|
|
|
Nordic Cold Storage LLC (d) |
|
|
6,923 |
|
|
|
6,830 |
|
|
|
6,257 |
|
Berry Plastics Corporation (b) |
|
|
6,666 |
|
|
|
6,641 |
|
|
|
6,651 |
|
The Talaria Company (Hinckley) (b) (e) |
|
|
5,506 |
|
|
|
4,133 |
|
|
|
4,984 |
|
Fraikin SAS (a) (f) |
|
|
5,340 |
|
|
|
5,935 |
|
|
|
5,888 |
|
MetoKote Corp., MetoKote Canada Limited and MetoKote de Mexico (a) (g) |
|
|
4,853 |
|
|
|
4,715 |
|
|
|
6,365 |
|
International Aluminum Corp. and United States Aluminum of Canada, Ltd.
(a) |
|
|
4,574 |
|
|
|
4,518 |
|
|
|
4,454 |
|
LFD Manufacturing Ltd., IDS Logistics (Thailand) Ltd. and IDS
Manufacturing SDN BHD (a) |
|
|
4,342 |
|
|
|
3,903 |
|
|
|
4,109 |
|
Huntsman International, LLC |
|
|
4,027 |
|
|
|
4,027 |
|
|
|
4,027 |
|
Best Brands Corp.(h) |
|
|
4,027 |
|
|
|
3,995 |
|
|
|
3,129 |
|
Ply Gem Industries, Inc. (a) |
|
|
3,947 |
|
|
|
3,884 |
|
|
|
3,834 |
|
Bobs Discount Furniture, LLC |
|
|
3,629 |
|
|
|
3,564 |
|
|
|
3,538 |
|
TRW Vehicle Safety Systems Inc. |
|
|
3,568 |
|
|
|
3,568 |
|
|
|
3,568 |
|
Kings Super Markets Inc. |
|
|
3,544 |
|
|
|
3,416 |
|
|
|
3,416 |
|
Universal Technical Institute of California, Inc. |
|
|
3,506 |
|
|
|
3,418 |
|
|
|
3,418 |
|
Finisar Corporation |
|
|
3,287 |
|
|
|
3,287 |
|
|
|
3,224 |
|
Performance Fibers GmbH (a) |
|
|
3,204 |
|
|
|
3,408 |
|
|
|
3,531 |
|
Dicks Sporting Goods, Inc. (b) |
|
|
3,141 |
|
|
|
3,141 |
|
|
|
3,141 |
|
Other (a) (b) |
|
|
55,228 |
|
|
|
56,224 |
|
|
|
55,854 |
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
180,856 |
|
|
$ |
177,287 |
|
|
$ |
175,827 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(a) |
|
Amounts are subject to fluctuations in foreign currency exchange rates. The average rate for
the U.S. dollar in relation to the Euro during both 2010 and 2009 strengthened by
approximately 5% in comparison to the respective prior year periods, resulting in a negative
impact on lease revenues for our Euro-denominated investments in 2010 and 2009. |
|
(b) |
|
These revenues are generated in consolidated ventures, generally with our affiliates, and on
a combined basis, include revenues applicable to noncontrolling interests totaling $42.4
million, $41.8 million and $38.8 million for the years ended December 31, 2010, 2009 and 2008,
respectively. |
|
(c) |
|
This investment was acquired in July 2009. |
|
(d) |
|
The increase from 2008 to 2009 was due to a CPI-based (or equivalent) rent increase. |
|
(e) |
|
During the second half of 2009, we entered into a lease amendment with the tenant to defer
certain rental payments, which resulted in a decrease to lease revenue for 2009 as compared to
2008. This deferral period extended through August 2010, however rental payments were
gradually increased throughout 2010 which resulted in an increase to lease revenue for 2010 as
compared to 2009. |
|
(f) |
|
The decrease in 2010 was due to a CPI-based (or equivalent) rent decrease. |
|
(g) |
|
Inclusive of an out-of-period adjustment of $1.8 million in 2008 (Note 2). |
|
(h) |
|
We acquired our interest in this investment in March 2008. |
CPA®:16 2010 10-K 32
We recognize income from equity investments in real estate, of which lease revenues are a
significant component. The following table sets forth the net lease revenues earned by these
ventures. Amounts provided are the total amounts attributable to the ventures and do not represent
our proportionate share (dollars in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ownership |
|
|
|
|
|
|
Interest at |
|
|
Years ended December 31, |
|
Lessee |
|
December 31, 2010 |
|
|
2010 |
|
|
2009 |
|
|
2008 |
|
U-Haul Moving Partners, Inc. and Mercury Partners, L.P. (a) |
|
|
31 |
% |
|
$ |
32,486 |
|
|
$ |
30,589 |
|
|
$ |
28,541 |
|
The New York Times Company (b) |
|
|
27 |
% |
|
|
26,768 |
|
|
|
21,751 |
|
|
|
|
|
OBI A.G. (c) |
|
|
25 |
% |
|
|
16,006 |
|
|
|
16,637 |
|
|
|
17,317 |
|
Hellweg Die Profi-Baumarkte GmbH & Co. KG (Hellweg 1)(c) |
|
|
25 |
% |
|
|
14,272 |
|
|
|
14,881 |
|
|
|
15,155 |
|
Pohjola Non-life Insurance Company (c) |
|
|
40 |
% |
|
|
8,797 |
|
|
|
9,240 |
|
|
|
9,343 |
|
TietoEnator Plc (c) |
|
|
40 |
% |
|
|
8,223 |
|
|
|
8,636 |
|
|
|
8,790 |
|
Police Prefecture, French Government (c) |
|
|
50 |
% |
|
|
8,029 |
|
|
|
8,272 |
|
|
|
8,109 |
|
Schuler A.G. (c) |
|
|
33 |
% |
|
|
6,208 |
|
|
|
6,568 |
|
|
|
6,802 |
|
Frontier Spinning Mills, Inc. (b) |
|
|
40 |
% |
|
|
4,464 |
|
|
|
4,469 |
|
|
|
12 |
|
Thales S.A. (c) (d) |
|
|
35 |
% |
|
|
4,165 |
|
|
|
9,357 |
|
|
|
14,240 |
|
Actebis Peacock GmbH. (b) (c) |
|
|
30 |
% |
|
|
3,968 |
|
|
|
4,143 |
|
|
|
2,065 |
|
Consolidated Systems, Inc. |
|
|
40 |
% |
|
|
1,831 |
|
|
|
1,831 |
|
|
|
1,831 |
|
Actuant Corporation (c) |
|
|
50 |
% |
|
|
1,745 |
|
|
|
1,856 |
|
|
|
1,905 |
|
Barth Europa Transporte e.K/MSR Technologies GmbH
(formerly Lindenmaier A.G.) (c) (e) |
|
|
33 |
% |
|
|
1,347 |
|
|
|
2,000 |
|
|
|
2,703 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
138,309 |
|
|
$ |
140,230 |
|
|
$ |
116,813 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(a) |
|
The increase was due to a CPI-based (or equivalent) rent increase. |
|
(b) |
|
We acquired our interest in the New York Times Company venture in March 2009, our interest in
the Frontier Spinning Mills venture in December 2008 and our interest in the Actebis Peacock
venture in July 2008. |
|
(c) |
|
Amounts are subject to fluctuations in foreign currency exchange rates. The average rate for
the U.S. dollar in relation to the Euro during both 2010 and 2009 strengthened by
approximately 5% in comparison to the respective prior year periods, resulting in a negative
impact on lease revenues for our Euro-denominated investments in 2010 and 2009. |
|
(d) |
|
The venture sold four of the five properties leased to Thales in July 2009. |
|
(e) |
|
The venture formerly leased two properties to Lindenmaier. In July 2009, the venture entered
into an interim lease agreement with Lindenmaier that provided for substantially lower rental
income. In April 2010, the venture entered into a lease agreement with a new tenant, Barth
Europa, at a vacant property formerly leased to Lindenmaier, and in August 2010, MSR
Technologies GmbH took over the Lindenmaier business and entered into a new lease with the
venture. |
Lease Revenues
Our net leases generally have rent adjustments based on formulas indexed to changes in the CPI or
other similar index for the jurisdiction in which the property is located, sales overrides or other
periodic increases, which are designed to increase lease revenues in the future. We own
international investments and, therefore, lease revenues from these investments are subject to
fluctuations in foreign currency exchange rates. In certain cases, although we recognize lease
revenue in connection with our tenants obligation to pay rent, we may also increase our
uncollected rent expense if tenants are experiencing financial distress and have not paid the rent
to us that they owe.
2010 vs. 2009 For the year ended December 31, 2010 as compared to 2009, lease revenue increased
by $3.6 million. Lease revenues increased by $3.9 million as a result of the full-year impact of our
investment in Tesco plc entered into during July 2009 and $1.5 million due to build-to-suit
transactions placed into service during 2009 and 2010. Scheduled rent increases and financing lease
adjustments also resulted in a net increase of $1.3 million. These increases were partially offset
by fluctuations in foreign currency exchange rates (primarily the Euro), which had a negative
impact on lease revenues of $2.6 million, as well as lower rental income recognized from a lease we
entered into in the first quarter of 2010 with SaarOTEC, a successor tenant to Görtz & Schiele GmbH
& Co., which resulted in a decrease to lease revenue of $0.8 million.
CPA®:16 2010 10-K 33
2009 vs. 2008 For the year ended December 31, 2009 as compared to 2008, lease revenues increased
by $1.5 million. Lease revenues increased by $6.3 million from investments entered into during 2009
and 2008 and by $3.8 million as a result of scheduled rent increases at several properties during
the same periods. These increases were substantially offset by the negative impact of fluctuations
in foreign currency exchange rates (primarily the Euro), which reduced lease revenues by $4.7
million, as well as sales of properties and lease restructurings during 2009, which reduced lease
revenues by $2.0 million. In addition, lease revenues in 2008 included an out-of-period adjustment
of $1.8 million (Note 2).
Interest Income on Notes Receivable
The Hellweg 2 transaction contributed interest income of $24.2 million and $27.1 million in 2010
and 2009, respectively, inclusive of noncontrolling interests of $18.0 million and $20.2 million,
respectively. For the year ended December 31, 2010 as compared to 2009, interest income on notes
receivable decreased $2.8 million as a result of the decrease in our investment in the Hellweg 2
note receivable resulting from the exercise of a purchase option in November 2010. See Note 5.
Depreciation and Amortization
2010 vs. 2009 For the year ended December 31, 2010 as compared to 2009, depreciation and
amortization increased by $1.5 million, primarily from depreciation of $2.4 million related to the
July 2009 Tesco investment and build-to-suit investments placed into service during 2010 and 2009.
This increase was partially offset by the impact of fluctuations in foreign currency exchange rates
of $0.4 million and the full amortization of certain intangible assets of $0.3 million.
2009 vs. 2008 For the year ended December 31, 2009 as compared to 2008, depreciation and
amortization expense increased by $2.2 million, primarily due to investments entered into or placed
into service during 2009 and 2008.
Property Expenses
2010 vs. 2009 For the year ended December 31, 2010 as compared to 2009, property expenses
decreased by $3.0 million, primarily due to a decrease in uncollected rent expense as a result of
improved financial conditions of certain tenants in the automotive industry.
2009 vs. 2008 For the year ended December 31, 2009 as compared to 2008, property expenses
increased by $0.7 million, primarily due to an increase in uncollected rent expense as a result of
a higher number of tenants experiencing financial difficulties.
General and Administrative
2010 vs. 2009 For the year ended December 31, 2010 as compared to 2009, general and
administrative expenses increased by $1.4 million, primarily due to an increase in business
development costs. The increase in business development costs is largely a result of charges
incurred in connection with the Proposed Merger.
2009 vs. 2008 For the year ended December 31, 2009 as compared to 2008, general and
administrative expenses decreased by $3.5 million primarily due to a reduction in business
development costs of $2.0 million, as well as a decrease in professional services fees of $1.4
million. Business development costs are costs incurred in connection with potential investments
that ultimately were not consummated.
CPA®:16 2010 10-K 34
Impairment Charges
For the years ended December 31, 2010, 2009 and 2008, we incurred impairment charges in our
continuing real estate assets totaling $9.8 million, $30.3 million and $0.9 million, respectively.
The table below summarizes these impairment charges (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years ended December 31, |
|
|
|
Lessee |
|
2010 |
|
|
2009 |
|
|
2008 |
|
|
Reason |
The Talaria Company (Hinckley) |
|
$ |
8,238 |
|
|
$ |
|
|
|
$ |
|
|
|
Potential sale |
Foss Manufacturing |
|
|
|
|
|
|
15,985 |
|
|
|
|
|
|
Tenant experiencing financial difficulties |
SaarOTEC (formerly Görtz & Schiele GmbH) |
|
|
|
|
|
|
6,779 |
|
|
|
|
|
|
Tenant filed for bankruptcy |
John McGavigan Ltd. |
|
|
|
|
|
|
5,294 |
|
|
|
|
|
|
Tenant filed for bankruptcy |
Various lessees |
|
|
1,570 |
|
|
|
2,279 |
|
|
|
890 |
|
|
Decline in guaranteed residual values |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Impairment charges included in expenses |
|
$ |
9,808 |
|
|
$ |
30,337 |
|
|
$ |
890 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
See Income from Equity Investments in Real Estate and Discontinued Operations below for
additional impairment charges incurred.
Income from Equity Investments in Real Estate
Income from equity investments in real estate represents our proportionate share of net income
(revenue less expenses) from investments entered into with affiliates or third parties in which we
have a noncontrolling interest but over which we exercise significant influence. Under current
accounting guidance for investments in unconsolidated ventures, we are required to periodically
compare an investments carrying value to its estimated fair value and recognize an impairment
charge to the extent that carrying value exceeds fair value.
2010 vs. 2009 For the year ended December 31, 2010 as compared to 2009, income from equity
investments in real estate increased by $3.7 million. Our loss from Barth Europa Transporte e.K/MSR
Technologies GmbH (formerly Lindenmaier A.G.) decreased $2.9 million, primarily as a result of a
reduction of $2.4 million in other-than-temporary impairment charges recognized during 2010 as
compared to 2009. Our share of income from the U-Haul Moving Partners, Inc. and Mercury Partners,
LP venture increased $0.7 million, primarily due to a CPI-based rent increase.
2009 vs. 2008 For the year ended December 31, 2009 as compared to 2008, income from equity
investments in real estate increased by $5.1 million. Our investment in The New York Times
transaction in March 2009 contributed income of $5.4 million and our investment in the Frontier
Spinning Mills transaction in December 2008 contributed income of $1.4 million during 2009. This
income was partially offset by net other-than-temporary impairment charges totaling $3.6 million on
two equity investments, including $2.6 million recorded during 2009 on our Lindenmaier A.G. (now
Barth Europa Transporte e.K/MSR Technologies GmbH) investment as a result of the tenant filing for
bankruptcy.
Other Interest Income
2009 vs. 2008 For the year ended December 31, 2009 as compared to 2008, other interest income
decreased by $3.9 million, primarily due to lower average cash balances as a result of our real
estate investment activity during 2008 and 2009 and lower rates of return earned on our cash
balances during 2009, reflecting market conditions.
Gain on Extinguishment of Debt
In February 2009, Berry Plastics Corporation, a venture in which we and an affiliate each hold 50%
interests, and which we consolidate, repaid its existing non-recourse debt from the lender at a
discount and recognized a gain on extinguishment of debt of $6.5 million, inclusive of
noncontrolling interests of $3.2 million.
Income
(Loss) from Discontinued Operations
2010 During 2010, we recognized income from discontinued operations of $7.5 million, primarily
due to the recognition of a $7.1 million gain on the deconsolidation of Goertz & Schiele Corp.
recognized during the first quarter of 2010.
CPA®:16 2010 10-K 35
2009 During 2009, we recognized a loss from discontinued operations of $16.6 million, primarily
due to impairment charges recognized of $15.7 million on the Goertz & Schiele Corp. property, $5.1
million on the Metals America property, $2.9 million on a Görtz & Schiele GmbH property and $1.9
million on the Valley Diagnostic property. These charges were partially offset by a net gain
on property sales of $7.6 million on the Metals America and Holopack properties and a gain on
extinguishment of debt of $2.3 million on the Metals America property.
Net Income (Loss) Attributable to CPA®:16 Global Shareholders
2010 vs. 2009 For the year ended December 31, 2010, the resulting net income attributable to
CPA®:16 Global shareholders was $32.0 million as compared to a net loss of $2.5
million for 2009.
2009 vs. 2008 For the year ended December 31, 2009, the resulting net loss attributable to
CPA®:16 Global shareholders was $2.5 million as compared to net income of $20.2
million for 2008.
Funds from Operations as Adjusted (AFFO)
AFFO is a non-GAAP measure we use to evaluate our business. For a definition of AFFO and
reconciliation to net income attributable to CPA®:16 Global shareholders, see
Supplemental Financial Measures below.
2010 vs. 2009 For the year ended December 31, 2010 as compared to 2009, AFFO increased by $1.3
million, primarily as a result of the full year impact of our 2009 investment activity.
2009 vs. 2008 For the year ended December 31, 2009 as compared to 2008, AFFO increased by $1.2
million, primarily as a result of the aforementioned increases in results of operations as
generated from our investment activity.
Financial Condition
Sources and Uses of Cash During the Year
We use the cash flow generated from net leases to meet our operating expenses, service debt and
fund distributions to shareholders. Our cash flows fluctuate period to period due to a number of
factors, which may include, among other things, the timing of purchases and sales of real estate,
the timing of proceeds from non-recourse mortgage loans and receipt of lease revenues, the
advisors annual election to receive fees in restricted shares of our common stock or cash, the
timing and characterization of distributions from equity investments in real estate, payment to the
advisor of the annual installment of deferred acquisition fees and interest thereon in the first
quarter and changes in foreign currency exchange rates. Despite this fluctuation, we believe that
we will generate sufficient cash from operations and from equity distributions in excess of equity
income in real estate to meet our short-term and long-term liquidity needs. We may also use
existing cash resources, the proceeds of non-recourse mortgage loans and the issuance of additional
equity securities to meet these needs. We assess our ability to access capital on an ongoing basis.
Our sources and uses of cash during the year are described below.
Operating Activities
During 2010, we used cash flows from operating activities of $121.3 million, primarily to fund
distributions to shareholders of $51.4 million, excluding $30.6 million in dividends that were
reinvested by shareholders of our common stock through our dividend reinvestment and stock purchase
plan. We also made scheduled mortgage principal payments of $21.6 million and paid distributions to
noncontrolling interests partners of $37.6 million. We also used cash distributions received from
equity investments in real estate in excess of equity income of $5.2 million (see Investing
Activities below) and our existing cash resources to fund these payments. For 2010, the advisor
elected to continue to receive its performance fees in restricted shares of our common stock, and
as a result, we paid performance fees of $11.8 million through the issuance of restricted stock
rather than in cash.
Investing Activities
Our investing activities are generally comprised of real estate-related transactions (purchases and
sales), payment of our annual installment of deferred acquisition fees to the advisor and
capitalized property-related costs. During 2010, we used $24.3 million primarily to fund
construction costs for a build-to-suit project and an expansion project. The build-to-suit project
was placed into service in September 2010. We also used $7.8 million to provide financing to the
developer of a domestic build-to-suit project. In January 2010, we paid our annual installment of
deferred acquisition fees to the advisor, which totaled $6.3 million.
CPA®:16 2010 10-K 36
Financing Activities
In addition to making scheduled mortgage principal payments and paying distributions to
shareholders and noncontrolling interests during 2010, we used $29.0 million to prepay a
non-recourse mortgage loan with a variable interest rate, which we refinanced with new non-recourse
debt of $29.0 million at a fixed interest rate and a term of ten years. We also obtained mortgage
financing of $7.9 million on an international property, which bears interest at a fixed rate but
has an interest rate reset feature and a term of 10 years. Also, we used $15.4 million to
repurchase our shares through a redemption plan that allows shareholders to sell shares back to us,
subject to certain limitations as described below.
We maintain a quarterly redemption plan pursuant to which we may, at the discretion of our board of
directors, redeem shares of our common stock from shareholders seeking liquidity. The terms of the
plan limit the number of shares we may redeem so that the shares we redeem in any quarter, together
with the aggregate number of shares redeemed in the preceding three fiscal quarters, does not
exceed a maximum of 5% of our total shares outstanding as of the last day of the immediately
preceding quarter. At December 31, 2010, redemptions totaled approximately 1.5% of total shares
outstanding. In addition, our ability to effect redemptions is subject to our having available cash
to do so. If we have sufficient funds to purchase some but not all of the shares offered to us for
redemption in a particular quarter, or if the shares offered for redemption in a quarter would
exceed the 5% limitation, shares will be redeemed on a pro rata basis, subject in all cases to the
discretion of our board of directors. Requests not fulfilled in a quarter and not revoked by the
shareholder will automatically be carried forward to the next quarter, unless our board of
directors determines otherwise, and will receive priority over requests made in the relevant
quarter.
For the year ended December 31, 2010, we received requests to redeem 1,818,246 shares of our common
stock pursuant to our redemption plan, and we redeemed these requests at an average price per share
of $8.49. We funded share redemptions during 2010 from the proceeds of the sale of shares of our
common stock pursuant to our distribution reinvestment and share purchase plan.
Adjusted Cash Flow from Operating Activities
Adjusted cash flow from operating activities is a non-GAAP financial measure we use to evaluate our
business. For a definition of adjusted cash flow from operating activities and reconciliation to
cash flow from operating activities, see Supplemental Financial Measures below.
Our adjusted cash flow from
operating activities was relatively unchanged in 2010 compared to 2009,
increasing $0.4 million from $114.2 million for the year ended
December 31, 2009 as compared to
$114.6 million for 2010.
CPA®:16 2010 10-K 37
Summary of Financing
The table below summarizes our non-recourse long-term debt (dollars in thousands):
|
|
|
|
|
|
|
|
|
|
|
December 31, |
|
|
|
2010 |
|
|
2009 |
|
Balance |
|
|
|
|
|
|
|
|
Fixed rate |
|
$ |
1,331,869 |
|
|
$ |
1,385,550 |
|
Variable rate (a) |
|
|
37,379 |
|
|
|
60,339 |
|
|
|
|
|
|
|
|
Total |
|
$ |
1,369,248 |
|
|
$ |
1,445,889 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Percent of total debt |
|
|
|
|
|
|
|
|
Fixed rate |
|
|
97 |
% |
|
|
96 |
% |
Variable rate (a) |
|
|
3 |
% |
|
|
4 |
% |
|
|
|
|
|
|
|
|
|
|
100 |
% |
|
|
100 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average interest rate at end of year |
|
|
|
|
|
|
|
|
Fixed rate |
|
|
5.9 |
% |
|
|
5.9 |
% |
Variable rate (a) |
|
|
5.6 |
% |
|
|
6.0 |
% |
|
|
|
(a) |
|
Variable-rate debt at December 31, 2010 included (i) $3.8 million that has been effectively
converted to a fixed rate through an interest rate swap derivative instrument and (ii) $33.6
million in non-recourse mortgage loan obligations that bore interest at fixed
rates but that have interest rate reset features that may change the interest rates to
then-prevailing market fixed rates (subject to specific caps) at certain points during their
term. At December 31, 2010, we have one non-recourse mortgage loan obligation with an interest
reset feature that is scheduled to reset to 5.32% in the first quarter of 2011. No other
interest rate resets or expirations of interest rate swaps or caps are scheduled to occur during
the next twelve months. |
Cash Resources
At December 31, 2010, our cash resources consisted of cash and cash equivalents of $59.0 million.
Of this amount, $40.0 million, at then-current exchange rates, was held in foreign bank accounts,
and 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 $190.9 million
although there can be no assurance that we would be able to obtain financing for these properties.
Our cash resources can be used to fund future investments as well as for working capital needs and
other commitments.
Cash Requirements
During 2011, we expect that cash requirements will include paying distributions to shareholders and
to our affiliates who hold noncontrolling interests in entities we control, making scheduled
mortgage principal payments and funding expansion commitments that we currently estimate to total
$3.6 million, as well as other normal recurring operating expenses. We have no balloon payments due
on our consolidated investments until 2014; however, our share of balloon payments due in 2011 on
our unconsolidated ventures totals $7.9 million. See below for cash requirements related to the
Proposed Merger.
Expected Impact of Proposed Merger
If approved, we currently expect the Proposed Merger to have the following impact on our liquidity
and results of operations beginning in the second quarter of 2011; however there can be no
assurance that these transactions will be completed during this time frame or at all.
Our board of directors and the board of directors of CPA®:14 each have the ability, but
not the obligation, to terminate the transaction if more than 50% of the shareholders of
CPA®:14 elect to receive cash in the Proposed Merger. Assuming that holders of 50% of
CPA®:14s outstanding stock elect to receive cash in the Proposed Merger, then the
maximum cash required by us to purchase these shares would be approximately $416.1 million, based
on the total shares of CPA®:14 outstanding at December 31, 2010. If the cash on hand and
available to us and CPA®:14, including the expected proceeds from the sale of certain
assets by CPA®:14 and a new $300.0 million senior credit facility, is not sufficient to
enable us to fulfill cash elections in the Proposed Merger by CPA®:14 shareholders, WPC
has agreed to purchase a sufficient number of shares of our stock from us to enable us to pay such
amounts to CPA®:14 shareholders.
CPA®:16 2010 10-K 38
Off-Balance Sheet Arrangements and Contractual Obligations
The table below summarizes our debt, off-balance sheet arrangements and other contractual
obligations at December 31, 2010 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):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Less than |
|
|
|
|
|
|
|
|
|
|
More than |
|
|
|
Total |
|
|
1 Year |
|
|
1-3 Years |
|
|
3-5 Years |
|
|
5 years |
|
Non-recourse debt Principal (a) |
|
$ |
1,369,248 |
|
|
$ |
25,685 |
|
|
$ |
58,927 |
|
|
$ |
218,080 |
|
|
$ |
1,066,556 |
|
Deferred acquisition fees Principal |
|
|
2,700 |
|
|
|
1,911 |
|
|
|
789 |
|
|
|
|
|
|
|
|
|
Interest on borrowings and deferred acquisition
fees (b) |
|
|
530,317 |
|
|
|
80,178 |
|
|
|
156,047 |
|
|
|
141,109 |
|
|
|
152,983 |
|
Subordinated disposition fees (c) |
|
|
1,013 |
|
|
|
|
|
|
|
|
|
|
|
1,013 |
|
|
|
|
|
Build-to-suit commitments (d) |
|
|
3,622 |
|
|
|
3,622 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating and other lease commitments (e) |
|
|
54,422 |
|
|
|
1,744 |
|
|
|
3,508 |
|
|
|
3,490 |
|
|
|
45,680 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
1,961,322 |
|
|
$ |
113,140 |
|
|
$ |
219,271 |
|
|
$ |
363,692 |
|
|
$ |
1,265,219 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(a) |
|
Excludes $2.0 million of unamortized discount on a non-recourse loan that we purchased back
from the lender. |
|
(b) |
|
Interest on an unhedged variable-rate debt obligation was calculated using the variable
interest rate and balance outstanding at December 31, 2010. |
|
(c) |
|
Payable to the advisor, subject to meeting contingencies, in connection with any liquidity
event. There can be no assurance that any liquidity event will be achieved in this time frame. |
|
(d) |
|
Represents the remaining commitment on two expansion projects. |
|
(e) |
|
Operating and other lease commitments consist primarily of rent obligations under ground
leases and our share of future minimum rents payable under an office cost-sharing agreement
with certain affiliates for the purpose of leasing office space used for the administration of
real estate entities. Amounts under the cost-sharing agreement are allocated among the
entities based on gross revenues and are adjusted quarterly. Rental obligations under ground
leases are inclusive of noncontrolling interests of approximately $8.5 million. |
Amounts in the table above related to our foreign operations are based on the exchange rate of the
local currencies at December 31, 2010. At December 31, 2010, we had no material capital lease
obligations for which we are the lessee, either individually or in the aggregate.
Proposed Merger
On December 13, 2010, we and CPA®:14 entered into a definitive agreement regarding the
Proposed Merger. We have also agreed to use our reasonable best efforts to obtain a $300.0 million
senior credit facility in order to pay for cash elections in the Proposed Merger. We entered into
commitment letters with five lenders in connection with this potential debt financing; however, the
commitment letters are subject to a number of closing conditions, including the lenders
satisfactory completion of due diligence and determination that no material adverse change in us
has occurred, and there can be no assurance that we will be able to obtain the credit facility on
acceptable terms or at all.
In the Proposed Merger, CPA®:14 shareholders will be entitled to receive $11.50 per
share, the Merger Consideration, which is equal to the NAV per share of CPA®:14 as of
September 30, 2010. The Merger Consideration will be paid to shareholders of CPA®:14, at
their election, in either cash or a combination of a $1.00 per share special cash distribution and
1.1932 shares of our common stock, which equates to $10.50 based on our $8.80 per share NAV as of
September 30, 2010. The advisor computed these NAVs internally, relying in part upon a third-party
valuation of each companys real estate portfolio and indebtedness as of September 30, 2010. Our
board of directors and the board of directors of CPA®:14 each have the ability, but not
the obligation, to terminate the transaction if more than 50% of the shareholders of
CPA®:14 elect to receive cash in the Proposed Merger. Assuming that holders of 50% of
CPA®:14s outstanding stock elect to receive cash in the Proposed Merger, then the
maximum cash required by us to purchase these shares would be approximately $416.1 million, based
on the total shares of CPA®:14 outstanding at December 31, 2010. If the cash on hand and
available to us and CPA®:14, including the expected proceeds from the sales of certain
assets by CPA®:14 and a new $300.0 million senior credit facility, is not sufficient to
enable us to fulfill cash elections in the Proposed Merger by CPA®:14 shareholders, WPC
has agreed to purchase a sufficient number of shares of our common stock to enable us to pay such
amounts to CPA®:14 shareholders.
CPA®:16 2010 10-K 39
Hellweg 2 Transaction
As noted in Results of Operations above, we, together with our advisor and certain of our
affiliates, acquired two related investments in 2007 in which we have a total effective ownership
interest of 26% and that we consolidate, as we are the managing member of the ventures (the Hellweg
2 transaction). The primary purpose of these investments was to ultimately acquire an interest in
the underlying properties and as such was structured to effectively transfer the economics of
ownership to us and our affiliates while still monetizing the sales value by transferring the legal
ownership in the underlying properties over time.
In connection with the acquisition, the property venture agreed to three option agreements that
give the property venture the right to purchase, from our partner, the remaining 75.3% (direct and
indirect) interest in the limited partnership at a price equal to the principal amount of the note
receivable at the time of purchase. In November 2010, the property venture exercised the first of
its three options and acquired from our partner a 70% direct interest in the limited partnership
for $297.3 million, thus owning a (direct and indirect) 94.7% interest in the limited partnership.
The property venture has assignable option agreements to acquire the remaining (direct and
indirect) 5.3% interest in the limited partnership by October 2012. If the property venture does
not exercise its option agreements, our partner has option agreements to put its remaining
interests in the limited partnership to the property venture during 2014 at a price equal to the
principal amount of the note receivable at the time of purchase. As of the date of this Report,
under the terms of the note receivable, the lending venture will receive interest income that
approximates 5.3% of all income earned by the limited partnership less adjustments. At December 31,
2010, our total effective ownership interest in the ventures was 26%.
Upon exercise of the relevant purchase option or the put, in order to avoid circular transfers of
cash, the seller and the lending venture and the property venture agreed that the lending venture
or the seller may elect, upon exercise of the respective purchase option or put option, to have the
loan from the lending venture to the seller repaid by a deemed transfer of cash. The deemed
transfer will be in amounts necessary to fully satisfy the sellers obligations to the lending
venture, and the lending venture will be deemed to have
transferred such funds up to us and our affiliates as if they had been recontributed down
into the property venture based on their pro rata ownership. Accordingly, at December 31, 2010
(based on the exchange rate of the Euro at that date), the only additional cash required by us to
fund the exercise of the purchase option or the put would be the pro rata amounts necessary to
redeem the advisors interest, the aggregate of which would be approximately $0.5 million, with our
share approximating $0.1 million.
CPA®:16 2010 10-K 40
Equity Investments in Real Estate
We have investments in unconsolidated ventures that own single-tenant properties net leased to
corporations. Generally, the underlying investments are jointly-owned with our affiliates.
Summarized financial information for these ventures and our ownership interest in the ventures at
December 31, 2010 is presented below. Summarized financial information provided represents the
total amount attributable to the ventures and does not represent our proportionate share (dollars
in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ownership |
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest at |
|
|
|
|
|
|
Total Third- |
|
|
Debt |
|
Lessee |
|
December 31, 2010 |
|
|
Total Assets |
|
|
Party Debt |
|
|
Maturity Date |
|
Thales S.A. (a) |
|
|
35 |
% |
|
$ |
22,977 |
|
|
$ |
23,604 |
|
|
|
7/2011 |
|
U-Haul Moving Partners, Inc. and Mercury Partners, LP |
|
|
31 |
% |
|
|
286,824 |
|
|
|
160,191 |
|
|
|
5/2014 |
|
Actuant Corporation (a) |
|
|
50 |
% |
|
|
16,716 |
|
|
|
10,855 |
|
|
|
5/2014 |
|
TietoEnator Plc (a) |
|
|
40 |
% |
|
|
88,018 |
|
|
|
68,321 |
|
|
|
7/2014 |
|
The New York Times Company |
|
|
27 |
% |
|
|
241,845 |
|
|
|
116,684 |
|
|
|
9/2014 |
|
Pohjola Non-life Insurance Company (a) |
|
|
40 |
% |
|
|
93,439 |
|
|
|
78,068 |
|
|
|
1/2015 |
|
Hellweg Die Profi-Baumarkte GmbH & Co. KG (Hellweg
1) (a) |
|
|
25 |
% |
|
|
179,610 |
|
|
|
94,381 |
|
|
|
5/2015 |
|
Actebis Peacock GmbH. (a) |
|
|
30 |
% |
|
|
47,354 |
|
|
|
29,095 |
|
|
|
7/2015 |
|
Frontier Spinning Mills, Inc. |
|
|
40 |
% |
|
|
39,267 |
|
|
|
22,986 |
|
|
|
8/2016 |
|
Consolidated Systems, Inc. |
|
|
40 |
% |
|
|
16,794 |
|
|
|
11,369 |
|
|
|
11/2016 |
|
Barth Europa Transporte e.K/MSR Technologies GmbH
(formerly Lindenmaier A.G.) (a) |
|
|
33 |
% |
|
|
17,081 |
|
|
|
11,583 |
|
|
|
10/2017 |
|
OBI A.G. (a) |
|
|
25 |
% |
|
|
189,520 |
|
|
|
155,356 |
|
|
|
3/2018 |
|
Police Prefecture, French Government (a) |
|
|
50 |
% |
|
|
98,406 |
|
|
|
82,882 |
|
|
|
8/2020 |
|
Schuler A.G. (a) |
|
|
33 |
% |
|
|
68,198 |
|
|
|
|
|
|
|
N/A |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
1,406,049 |
|
|
$ |
865,375 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(a) |
|
Dollar amounts shown are based on the applicable exchange rate of the foreign currency at
December 31, 2010. |
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 and state 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.
Tenants are generally subject to environmental statutes and regulations regarding the discharge of
hazardous materials and any related remediation obligations. In addition, our leases generally
require tenants to indemnify us from all liabilities and losses related to the leased properties
with provisions of such indemnification specifically addressing 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. Accordingly, we believe that the ultimate
resolution of environmental matters should not have a material adverse effect on our financial
condition, liquidity or results of operations.
Critical Accounting Estimates
Our significant accounting policies are described in Note 2 to the consolidated financial
statements. 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.
CPA®:16 2010 10-K 41
Classification of Real Estate Leases
We classify our leases for financial reporting purposes at the inception of a lease, or when
significant lease terms are amended, as either real estate leased under operating leases or net
investment in direct financing leases. This classification is based on several criteria, including,
but not limited to, estimates of the remaining economic life of the leased assets and the
calculation of the present
value of future minimum rents. We estimate remaining economic life relying in part upon third-party
appraisals of the leased assets. We calculate the present value of future minimum rents using the
leases implicit interest rate, which requires an estimate of the residual value of the leased
assets as of the end of the non-cancelable lease term. Estimates of residual values are generally
determined by us relying in part upon third-party appraisals. Different estimates of residual value
result in different implicit interest rates and could possibly affect the financial reporting
classification of leased assets. The contractual terms of our leases are not necessarily different
for operating and direct financing leases; however, the classification is based on accounting
pronouncements that are intended to indicate whether the risks and rewards of ownership are
retained by the lessor or substantially transferred to the lessee. We believe that we retain
certain risks of ownership regardless of accounting classification. Assets related to leases
classified as net investment in direct financing leases are not depreciated but are written down to
expected residual value over the lease term. Therefore, the classification of leases may have a
significant impact on net income even though it has no effect on cash flows.
Identification of Tangible and Intangible Assets in Connection with Real Estate Acquisitions
In connection with our acquisition of properties accounted for as operating leases, we allocate
purchase costs to tangible and intangible assets and liabilities acquired based on their estimated
fair values. We determine the value of tangible assets, consisting of land and buildings, as if
vacant, and record intangible assets, including the above- and below-market value of leases, the
value of in-place leases and the value of tenant relationships, at their relative estimated fair
values.
We determine the value attributed to tangible assets in part using a discounted cash flow model
that is intended to approximate both what a third party would pay to purchase the vacant property
and rent at current estimated market rates. In applying the model, we assume that the disinterested
party would sell the property at the end of an estimated market lease term. 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 a discount rate or internal rate of return, marketing period necessary to put
a lease in place, carrying costs during the marketing period, leasing commissions and tenant
improvements allowances, market rents and growth factors of these rents, market lease term and a
cap rate to be applied to an estimate of market rent at the end of the market lease term.
We acquire properties subject to net leases and determine the value of above-market and
below-market lease intangibles based on 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 market lease term. 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 brokers.
We evaluate the specific characteristics of each tenants lease and any pre-existing relationship
with each tenant in determining the value of in-place lease and tenant relationship intangibles. To
determine the value of in-place lease intangibles, we consider estimated market rent, estimated
carrying costs of the property during a hypothetical expected lease-up period, current market
conditions and costs to execute similar leases. Estimated carrying costs include real estate taxes,
insurance, other property operating costs and estimates of lost rentals at market rates during the
hypothetical expected lease-up periods, based on assessments of specific market conditions. In
determining the value of tenant relationship intangibles, we consider the expectation of lease
renewals, the nature and extent of our existing relationship with the tenant, prospects for
developing new business with the tenant and the tenants credit profile. We also consider estimated
costs to execute a new lease, including estimated leasing commissions and legal costs, as well as
estimated carrying costs of the property during a hypothetical expected lease-up period. We
determine these values using our estimates or by relying in part upon third-party appraisals.
CPA®:16 2010 10-K 42
Basis of Consolidation
When we obtain an economic interest in an entity, we evaluate the entity to determine if it is
deemed a variable interest entity (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 under current authoritative accounting guidance, 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.
For an entity that is not considered to be a VIE, 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.
When we obtain an economic interest in an entity that is structured at the date of acquisition as a
tenant-in-common interest, we evaluate the tenancy-in-common agreements or other relevant documents
to ensure that the entity does not qualify as a VIE and does not meet the control requirement
required for consolidation. We also use judgment in determining whether the shared decision-making
involved in a tenant-in-common interest investment creates an opportunity for us to have
significant influence on the operating and financial decisions of these investments and thereby
creates some responsibility by us for a return on our investment. We account for tenancy-in-common
interests under the equity method of accounting.
Impairments
On a quarterly basis, we assess whether there are any indicators that the value of our long-lived
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, direct financing leases, assets held for sale
and equity investments in real estate. We may also incur impairment charges on marketable
securities. Estimates and judgments used when evaluating whether these assets are impaired are
presented below.
Real Estate
For real estate 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 to the future net undiscounted cash flow that we expect
the property will generate, including any estimated proceeds from the eventual sale of the
property. 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 generally range from five to ten years. Depending on the
assumptions made and estimates used, the future cash flow projected in the evaluation of long-lived
assets can vary within a range of outcomes. We consider the likelihood of possible outcomes in
determining the best possible estimate of future cash flows. If the future net undiscounted cash
flow of the property is less than the carrying value, the property is considered to be impaired. We
then measure the loss as the excess of the carrying value of the property over its estimated fair
value. The propertys estimated fair value is primarily determined using market information from
outside sources such as broker quotes or recent comparable sales.
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 from outside sources such as broker quotes or recent
comparable sales. If this review indicates that a decline in residual value has occurred that is
other-than-temporary, we recognize an impairment charge and revise the accounting for the direct
financing lease to reflect a portion of the future cash flow from the lessee as a return of
principal rather than as revenue. While we evaluate direct financing leases, if there are any
indicators that the residual value may be impaired, the evaluation of a direct financing lease can
be affected by changes in long-term market conditions even though the obligations of the lessee are
being met.
CPA®:16 2010 10-K 43
Assets Held for Sale
We classify real estate assets that are accounted for as operating leases as held for sale when we
have entered into a contract to sell the property, all material due diligence requirements have
been satisfied and we believe it is probable that the disposition will occur within one year. When
we classify an asset as held for sale, we calculate its estimated fair value as the expected sale
price, less expected selling costs. We base the expected sale price on the contract and the
expected selling costs on information provided by brokers and legal counsel. We then compare the
assets estimated fair value to its carrying value, and if the estimated fair value is less than
the propertys carrying value, we reduce the carrying value to the estimated fair value. We will
continue to review the property for subsequent changes in the estimated fair value, and may
recognize an additional impairment charge if warranted.
If circumstances arise that we previously considered unlikely and, as a result, we decide not to
sell a property previously classified as held for sale, we reclassify the property as held and
used. We measure and record a property that is reclassified as held and used at the lower of (i)
its carrying amount before the property was classified as held for sale, adjusted for any
depreciation expense that would have been recognized had the property been continuously classified
as held and used, or (ii) the estimated fair value at the date of the subsequent decision not to
sell.
Equity Investments in Real Estate
We evaluate our equity investments in real estate on a periodic basis to determine if there are any
indicators that the value of our equity investment may be impaired and to establish whether or not
that impairment is other-than-temporary. To the extent impairment has occurred, we measure the
charge as the excess of the carrying value of our investment over its estimated fair value, which
is determined by multiplying the estimated fair value of the underlying ventures net assets by our
ownership interest percentage. For our unconsolidated ventures in real estate, we calculate the
estimated fair value of the underlying ventures real estate or net investment in direct financing
lease as described in Real Estate and Direct Financing Leases above. The fair value of the
underlying ventures debt, if any, is calculated based on market interest rates and other market
information. The fair value of the underlying ventures other financial assets and liabilities
(excluding net investment in direct financing leases) have fair values that approximate their
carrying values.
Marketable Securities
We evaluate our marketable securities for impairment if a decline in estimated fair value below
cost basis is considered other-than-temporary. In determining whether the decline is
other-than-temporary, we consider the underlying cause of the decline in value, the estimated
recovery period, the severity and duration of the decline, as well as whether we plan to sell the
security or will more likely than not be required to sell the security before recovery of its cost
basis. If we determine that the decline is other-than-temporary, we record an impairment charge to
reduce our cost basis to the estimated fair value of the security. Beginning in 2009, the credit
component of an other-than-temporary impairment is recognized in earnings while the non-credit
component is recognized in Other comprehensive income (OCI). Prior to 2009, all portions of
other-than-temporary impairments were recorded in earnings.
Provision for Uncollected Amounts from Lessees
On an ongoing basis, we assess our ability to collect rent and other tenant-based receivables and
determine an appropriate allowance for uncollected amounts. Because we have a limited number of
lessees (20 lessees represented 69% of lease revenues during 2010), we believe that it is necessary
to evaluate the collectability of these receivables based on the facts and circumstances of each
situation rather than solely using statistical methods. Therefore, in recognizing our provision for
uncollected rents and other tenant receivables, we evaluate actual past due amounts and make
subjective judgments as to the collectability of those amounts based on factors including, but not
limited to, our knowledge of a lessees circumstances, the age of the receivables, the tenants
credit profile and prior experience with the tenant. Even if a lessee has been making payments, we
may reserve for the entire receivable amount from the lessee if we believe there has been
significant or continuing deterioration in the lessees ability to meet its lease obligations.
CPA®:16 2010 10-K 44
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 are capitalized. Interest capitalized in 2010, 2009 and 2008 was $2.8
million, $2.4 million and $2.4 million, respectively. We consider a build-to-suit project as
substantially completed upon the completion of improvements. If 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 do not have a credit facility and
determine an interest rate to be applied for capitalizing interest based on an average rate on our
outstanding non-recourse mortgage debt.
Income Taxes
We have elected to be treated 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 to, among other things,
distribute at least 90% of our REIT net taxable income to our shareholders (excluding net capital
gains) and meet certain tests regarding the nature of our income and assets. As a REIT, we are not
subject to U.S. federal income tax with respect to the portion of our income that meets certain
criteria and is distributed annually to shareholders. Accordingly, no provision for U.S. federal
income taxes is included in the consolidated financial statements with respect to these operations.
We believe we have operated, and we intend to continue to operate, in a manner that allows us to
continue to meet the requirements for taxation as a REIT. Many of these requirements, however, are
highly technical and complex. If we were to fail to meet these requirements, we would be subject to
U.S. federal income tax.
We conduct business in various states and municipalities within the U.S. and internationally 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 state, local and foreign taxes and a provision for such taxes is included in the
consolidated financial statements.
Significant judgment is required in determining our tax provision and in evaluating our tax
positions. We establish tax reserves in accordance using 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. The tax position must be derecognized when it
is no longer more likely than not of being sustained.
We have elected to treat certain of our corporate subsidiaries as a TRS. 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. Our TRS subsidiaries own hotels that are managed on our
behalf by third-party hotel management companies.
Our earnings and profits, which determine the taxability of dividends to shareholders, differ from
net income reported for financial reporting purposes due primarily to differences in depreciation,
including hotel properties, for federal income tax purposes. Deferred income taxes relate primarily
to our TRSs and are accounted for using the asset and liability method. Under this method, deferred
income taxes are recognized for temporary differences between the financial reporting bases of
assets and liabilities of our TRSs and their respective tax bases and for their operating loss and
tax credit carry forwards based on enacted tax rates expected to be in effect when such amounts are
realized or settled. However, deferred tax assets are recognized only to the extent that it is more
likely than not that they will be realized based on consideration of available evidence, including
tax planning strategies and other factors.
Although our TRSs may operate at a profit for federal income tax purposes in future periods, we
cannot quantify the value of our deferred tax assets with certainty. Therefore, any deferred tax
assets have been reserved as we have not concluded that it is more likely than not that these
deferred tax assets will be realizable.
Supplemental Financial Measures
In the real estate industry, analysts and investors employ certain supplemental non-GAAP 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 employ the use of supplemental non-GAAP measures, which are uniquely defined by our
management. We believe these measures are useful to investors to consider because they may assist
them to better understand and measure the performance of our business over time and against similar
companies. A description of these non-GAAP financial measures and reconciliations to the most
directly comparable GAAP measures are provided below.
CPA®:16 2010 10-K 45
Funds from Operations as Adjusted
Funds from Operations (FFO) is a non-GAAP measure defined by the National Association of Real
Estate Investment Trusts (NAREIT). NAREIT defines FFO as net income or loss as computed in
accordance with GAAP excluding depreciation and amortization expense from real estate assets, gains
or losses from sales of depreciated real estate assets and extraordinary items;
however, FFO related to assets held for sale, sold or otherwise transferred and included in the
results of discontinued operations are included. These adjustments also incorporate the pro rata
share of unconsolidated subsidiaries. FFO is used by management, investors and analysts to
facilitate meaningful comparisons of operating performance between periods and among our peers.
Although NAREIT has published this definition of FFO, real estate companies often modify this
definition as they seek to provide financial measures that meaningfully reflect their distinctive
operations.
We modify the NAREIT computation of FFO to include other adjustments to GAAP net income for certain
non-cash charges, where applicable, such as gains or losses on extinguishment of debt and
deconsolidation of subsidiaries, amortization of intangibles, straight-line rents, impairment
charges on real estate and unrealized foreign currency exchange gains and losses. We refer to our
modified definition of FFO as Funds from Operations as Adjusted, or AFFO, and we employ it as
one measure of our operating performance when we formulate corporate goals and evaluate the
effectiveness of our strategies. We exclude these items from GAAP net income, as they are not the
primary drivers in our decision-making process. Our assessment of our operations is focused on
long-term sustainability and not on such non-cash items, which may cause short-term fluctuations in
net income but have no impact on cash flows. As a result, we believe that AFFO is a useful
supplemental measure for investors to consider because it will help them to better understand and
measure the performance of our business over time without the potentially distorting impact of
these short-term fluctuations.
CPA®:16 2010 10-K 46
FFO and AFFO for the years ended December 31, 2010, 2009 and 2008 are presented below (in
thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years ended December 31, |
|
|
|
2010 |
|
|
2009 |
|
|
2008 |
|
|
Net income (loss) attributable to CPA®:16 - Global shareholders |
|
$ |
32,007 |
|
|
$ |
(2,540 |
) |
|
$ |
20,247 |
|
Adjustments: |
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation and amortization of real property |
|
|
48,368 |
|
|
|
48,206 |
|
|
|
45,757 |
|
Loss (gain) on sale of real estate |
|
|
78 |
|
|
|
(7,634 |
) |
|
|
(136 |
) |
Proportionate share of adjustments to equity in net income of partially
owned entities to arrive at FFO: |
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation and amortization of real property |
|
|
8,563 |
|
|
|
9,470 |
|
|
|
10,292 |
|
Gain on sale of real estate |
|
|
|
|
|
|
(3,958 |
) |
|
|
|
|
Proportionate share of adjustments for noncontrolling interests to
arrive at
FFO |
|
|
(10,457 |
) |
|
|
(10,413 |
) |
|
|
(9,102 |
) |
|
|
|
|
|
|
|
|
|
|
Total adjustments |
|
|
46,552 |
|
|
|
35,671 |
|
|
|
46,811 |
|
|
|
|
|
|
|
|
|
|
|
FFO as defined by NAREIT |
|
|
78,559 |
|
|
|
33,131 |
|
|
|
67,058 |
|
|
|
|
|
|
|
|
|
|
|
Adjustments: |
|
|
|
|
|
|
|
|
|
|
|
|
Gain on deconsolidation of subsidiary |
|
|
(7,082 |
) |
|
|
|
|
|
|
|
|
Gain on extinguishment of debt |
|
|
(879 |
) |
|
|
(8,825 |
) |
|
|
|
|
Other depreciation, amortization and non-cash charges |
|
|
237 |
|
|
|
413 |
|
|
|
3,368 |
|
Straight-line and other rent adjustments |
|
|
(260 |
) |
|
|
1,227 |
|
|
|
(1,732 |
) |
Impairment charges |
|
|
9,808 |
|
|
|
55,958 |
|
|
|
890 |
|
Proportionate share of adjustments to equity in net income of partially owned
entities to arrive at AFFO: |
|
|
|
|
|
|
|
|
|
|
|
|
Other depreciation, amortization and non-cash charges |
|
|
|
|
|
|
(163 |
) |
|
|
117 |
|
Straight-line and other rent adjustments |
|
|
(247 |
) |
|
|
(178 |
) |
|
|
457 |
|
Impairment charges |
|
|
1,046 |
|
|
|
5,065 |
|
|
|
3,071 |
|
Loss on extinguishment of debt |
|
|
|
|
|
|
726 |
|
|
|
|
|
Proportionate share of adjustments for noncontrolling interests to arrive
at AFFO |
|
|
(2,833 |
) |
|
|
(10,345 |
) |
|
|
2,533 |
|
|
|
|
|
|
|
|
|
|
|
Total adjustments |
|
|
(210 |
) |
|
|
43,878 |
|
|
|
8,704 |
|
|
|
|
|
|
|
|
|
|
|
AFFO |
|
$ |
78,349 |
|
|
$ |
77,009 |
|
|
$ |
75,762 |
|
|
|
|
|
|
|
|
|
|
|
Adjusted Cash Flow from Operating Activities
Adjusted cash flow from operating activities refers to our cash flow from operating activities (as
computed in accordance with GAAP) adjusted, where applicable, primarily to: add cash distributions
that we receive from our investments in unconsolidated real estate joint ventures in excess of our
equity income; subtract cash distributions that we make to our noncontrolling partners in real
estate joint ventures that we consolidate; and eliminate changes in working capital. We hold a
number of interests in real estate joint ventures, and we believe that adjusting our GAAP cash flow
provided by operating activities to reflect these actual cash receipts and cash payments as well as
eliminating the effect of timing differences between the payment of certain liabilities and the
receipt of certain receivables in a period other than that in which the item is recognized, may
give investors additional information about our actual cash flow that is not incorporated in cash
flow from operating activities as defined by GAAP.
We believe that adjusted cash flow from operating activities is a useful supplemental measure for
assessing the cash flow generated from our core operations as it gives investors important
information about our liquidity that is not provided within cash flow from operations as defined by
GAAP, and we use this measure when evaluating distributions to shareholders.
CPA®:16 2010 10-K 47
Adjusted cash flow from operating activities for the years ended December 31, 2010, 2009 and 2008
is presented below (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years ended December 31, |
|
|
|
2010 |
|
|
2009 |
|
|
2008 |
|
Cash flow provided by operating activities |
|
$ |
121,340 |
|
|
$ |
119,879 |
|
|
$ |
117,435 |
|
Adjustments: |
|
|
|
|
|
|
|
|
|
|
|
|
Distributions received from equity investments in
real estate in excess of equity
income, net |
|
|
5,245 |
|
|
|
8,645 |
|
|
|
10,721 |
|
Distributions paid to noncontrolling interests, net |
|
|
(11,755 |
) |
|
|
(15,585 |
) |
|
|
(5,980 |
) |
Changes in working capital(a) |
|
|
(247 |
) |
|
|
1,286 |
|
|
|
(6,301 |
) |
|
|
|
|
|
|
|
|
|
|
Adjusted cash flow from operating activities |
|
$ |
114,583 |
|
|
$ |
114,225 |
|
|
$ |
115,875 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Distributions declared |
|
$ |
82,556 |
|
|
$ |
81,322 |
|
|
$ |
79,776 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(a) |
|
In 2009, an adjustment to exclude the impact of escrow funds was introduced to our adjusted cash flow from operating activities
supplemental measure, as more often than not these funds are released to the lender. |
While we believe our FFO, AFFO and Adjusted cash flow from operating activities are important
supplemental measures, they should not be considered as alternatives to net income as an indication
of a companys operating performance or to cash flow from operating activities as a measure of
liquidity. These non-GAAP measures should be used in conjunction with net income and cash flow from
operating activities as defined by GAAP. FFO, AFFO and Adjusted cash flow from operating
activities, or similarly titled measures disclosed by other REITs may not be comparable to our FFO,
AFFO and Adjusted cash flow from operating activities measures.
CPA®:16 2010 10-K 48
|
|
|
Item 7A. |
|
Quantitative and Qualitative Disclosures about Market Risk. |
Market Risks
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 market risk as a result of
concentrations in certain tenant industries.
We do not generally use derivative instruments to manage foreign currency exchange rate risk
exposure and 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 value of our real estate and related fixed-rate debt obligations is 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. 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 value of our owned assets
to decrease. Increases in interest rates may also have an impact on the credit profile of certain
tenants.
Although we have not experienced any credit losses on investments in loan participations, in the
event of a significant rising interest rate environment, loan defaults could occur and result in
our recognition of credit losses, which could adversely affect our liquidity and operating results.
Further, such defaults could have an adverse effect on the spreads between interest earning assets
and interest bearing liabilities.
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 venture partners may obtain variable-rate non-recourse
mortgage loans and, as a result, may enter into interest rate swap agreements or interest rate cap
agreements with lenders that effectively convert the variable-rate debt service obligations of the
loan to a fixed rate. Interest rate swaps are agreements in which one party exchanges a stream of
interest payments for a counterpartys stream of cash flow over a specific period, and interest
rate caps limit the 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 notional, or 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. We
estimate that the net fair value of our interest rate swap, which is included in Accounts payable,
accrued expenses and other liabilities in the consolidated financial statements, was a liability of
$0.4 million at December 31, 2010. In addition, two unconsolidated ventures in which we have
interests ranging from 25% to 27.25% had an interest rate swap and an interest rate cap with a net
estimated fair value liability of $9.5 million in the aggregate, representing the total amount
attributable to the ventures, not our proportionate share, at December 31, 2010.
In connection with the Hellweg 2 transaction, two ventures in which we have a total effective
ownership interest of 26%, which we consolidate, obtained participation rights in two interest rate
swaps obtained by the lender of the non-recourse mortgage financing on the transaction. The
participation rights are deemed to be embedded credit derivatives. For the years ended December 31,
2010, 2009 and 2008, the embedded credit derivatives generated unrealized losses of $0.8 million,
$1.1 million and $3.4 million, inclusive of noncontrolling interest of $0.6 million, $0.8 million
and $2.7 million, respectively. Because of current market volatility, we are experiencing
significant fluctuation in the unrealized gains or losses generated from these derivatives and
expect this trend to continue until market conditions stabilize.
CPA®:16 2010 10-K 49
At December 31, 2010, substantially all of our non-recourse debt either bore interest at fixed
rates or bore interest at fixed rates that were scheduled to convert to then-prevailing market
fixed rates at certain future points during their term. The estimated fair value of these
instruments is affected by changes in market interest rates. The annual interest rates on our
fixed-rate debt at December 31, 2010 ranged from 4.4% to 7.7%. The annual interest rates on our
variable-rate debt at December 31, 2010 ranged from 5.2% to 6.7%. Our debt obligations are more
fully described in Financial Condition in Item 7 above. The following table presents principal cash
flows based upon expected maturity dates of our debt obligations outstanding at December 31, 2010
(in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2011 |
|
|
2012 |
|
|
2013 |
|
|
2014 |
|
|
2015 |
|
|
Thereafter |
|
|
Total |
|
|
Fair value |
|
Fixed rate debt |
|
$ |
25,069 |
|
|
$ |
27,191 |
|
|
$ |
30,275 |
|
|
$ |
93,534 |
|
|
$ |
122,779 |
|
|
$ |
1,033,021 |
|
|
$ |
1,331,869 |
|
|
$ |
1,278,751 |
|
Variable rate debt |
|
$ |
616 |
|
|
$ |
706 |
|
|
$ |
755 |
|
|
$ |
848 |
|
|
$ |
919 |
|
|
$ |
33,535 |
|
|
$ |
37,379 |
|
|
$ |
36,017 |
|
The estimated fair value of our fixed-rate debt and our variable-rate debt that currently
bears interest at fixed rates or has effectively been converted to a fixed rate through the use of
interest rate swaps or caps is affected by changes in interest rates. A decrease or increase in
interest rates of 1% would change the estimated fair value of such debt at December 31, 2010 by an
aggregate increase of $70.1 million or an aggregate decrease of $65.6 million, respectively. This
debt is generally not subject to short-term fluctuations in interest rates. As more fully described
in Summary of Financing in Item 7 above, a portion of the debt classified as variable-rate debt in
the tables above bore interest at fixed rates at December 31, 2010 but has interest rate reset
features that will change the fixed interest rates to then-prevailing market fixed rates at certain
points in their term.
Foreign Currency Exchange Rate Risk
We own investments in the European Union and other foreign countries, and as a result we are
subject to risk from the effects of exchange rate movements of foreign currencies, primarily the
Euro and British Pound Sterling and to a lesser extent, certain other currencies, which may affect
future costs and cash flows. We manage foreign currency exchange rate movements by generally
placing both our debt obligations to the lender and the tenants rental obligations to us in the
same currency. For 2010, Hellweg 2, which leases properties in Germany, contributed 19% of lease
revenues, inclusive of noncontrolling interests. We are generally a net receiver of these
currencies (we receive more cash than we pay out), and therefore our foreign operations benefit
from a weaker U.S. dollar, and are adversely affected by a stronger U.S. dollar, relative to the
foreign currency. For 2010, we recognized net realized foreign currency gains of $0.4 million and
net unrealized foreign currency losses of less than $0.1 million. These gains and losses are included in
Other income and expenses in the consolidated financial statements and were primarily due to
changes in the value of the foreign currency on deposits held for new investments and accrued
interest receivable on notes receivable from wholly-owned subsidiaries.
We enter into foreign currency forward contracts and collars to hedge certain of our foreign
currency cash flow exposures. 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. A foreign currency
collar consists of a purchased call option to buy and a written put option to sell the foreign
currency. By entering into these instruments, we are locked into a future currency exchange rate,
which limits our exposure to the movement in foreign currency exchange rates. The estimated fair
value of our foreign currency collar, which is included in Accounts payable, accrued expenses and
other liabilities in the consolidated financial statements, was $0.1 million at December 31, 2010.
We have obtained non-recourse mortgage financing in the local currency. To the extent that currency
fluctuations increase or decrease rental revenues as translated to dollars, the change in debt
service, as translated to dollars, will partially offset the effect of fluctuations in revenue,
and, to some extent, mitigate the risk from changes in foreign currency rates.
Scheduled future minimum rents, exclusive of renewals, under non-cancelable operating leases for
our foreign operations during each of the next five years and thereafter, are as follows (in
thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Lease Revenues(a) |
|
2011 |
|
|
2012 |
|
|
2013 |
|
|
2014 |
|
|
2015 |
|
|
Thereafter |
|
|
Total |
|
Euro |
|
$ |
65,990 |
|
|
$ |
66,062 |
|
|
$ |
66,147 |
|
|
$ |
66,147 |
|
|
$ |
66,143 |
|
|
$ |
772,618 |
|
|
$ |
1,103,107 |
|
British pound sterling |
|
|
4,726 |
|
|
|
4,783 |
|
|
|
4,851 |
|
|
|
4,919 |
|
|
|
4,667 |
|
|
|
69,841 |
|
|
|
93,787 |
|
Other foreign currencies
(b) |
|
|
7,692 |
|
|
|
7,695 |
|
|
|
7,694 |
|
|
|
7,694 |
|
|
|
7,692 |
|
|
|
53,584 |
|
|
|
92,051 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
78,408 |
|
|
$ |
78,540 |
|
|
$ |
78,692 |
|
|
$ |
78,760 |
|
|
$ |
78,502 |
|
|
$ |
896,043 |
|
|
$ |
1,288,945 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
CPA®:16 2010 10-K 50
Scheduled debt service payments (principal and interest) for mortgage notes payable for our
foreign operations during each of the next five years and thereafter, are as follows (in
thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Debt service(a) |
|
2011 |
|
|
2012 |
|
|
2013 |
|
|
2014 |
|
|
2015 |
|
|
Thereafter |
|
|
Total |
|
Euro |
|
$ |
40,444 |
|
|
$ |
40,618 |
|
|
$ |
41,515 |
|
|
$ |
81,581 |
|
|
$ |
43,931 |
|
|
$ |
512,836 |
|
|
$ |
760,925 |
|
British pound sterling |
|
|
2,825 |
|
|
|
2,835 |
|
|
|
2,838 |
|
|
|
15,348 |
|
|
|
7,045 |
|
|
|
19,223 |
|
|
|
50,114 |
|
Other foreign
currencies
(b) |
|
|
4,761 |
|
|
|
4,818 |
|
|
|
4,768 |
|
|
|
12,892 |
|
|
|
9,577 |
|
|
|
29,459 |
|
|
|
66,275 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
48,030 |
|
|
$ |
48,271 |
|
|
$ |
49,121 |
|
|
$ |
109,821 |
|
|
$ |
60,553 |
|
|
$ |
561,518 |
|
|
$ |
877,314 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(a) |
|
Based on the applicable exchange rate at December 31, 2010. Contractual rents and debt
obligations are denominated in the functional currency of the country of each property. |
|
(b) |
|
Other currencies consist of the Canadian dollar, the Malaysian ringgit, the Swedish krona and
the Thai baht. |
As a result of scheduled balloon payments on non-recourse mortgage loans, projected debt service
obligations exceed projected lease revenues in 2014. In 2014, balloon payments totaling $61.6
million are due on several non-recourse mortgage loans. We anticipate that, by 2014, we will seek
to refinance certain of these loans or will use existing cash resources to make these payments, if
necessary.
Other
We own stock warrants that were granted to us by lessees in connection with structuring initial
lease transactions and that are defined as derivative instruments because they are readily
convertible to cash or provide for net settlement upon conversion. Changes in the fair value of
these derivative instruments are determined using an option pricing model and are recognized
currently in earnings as gains or losses. At December 31, 2010, warrants issued to us were
classified as derivative instruments and had an aggregate estimated fair value of $1.3 million.
CPA®:16 2010 10-K 51
|
|
|
Item 8. |
|
Financial Statements and Supplementary Data. |
The following financial statements and schedules are filed as a part of this Report:
|
|
|
|
|
|
|
|
53 |
|
|
|
|
|
|
|
|
|
54 |
|
|
|
|
|
|
|
|
|
55 |
|
|
|
|
|
|
|
|
|
56 |
|
|
|
|
|
|
|
|
|
57 |
|
|
|
|
|
|
|
|
|
58 |
|
|
|
|
|
|
|
|
|
60 |
|
|
|
|
|
|
|
|
|
89 |
|
|
|
|
|
|
|
|
|
92 |
|
|
|
|
|
|
|
|
|
93 |
|
|
|
|
|
|
|
|
|
93 |
|
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®:16 2010 10-K 52
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Board of Directors and Shareholders of Corporate Property Associates 16 Global
Incorporated:
In our opinion, the consolidated financial statements listed in the accompanying index present
fairly, in all material respects, the financial position of Corporate Property Associates 16 -
Global Incorporated and its subsidiaries (the Company) at December 31, 2010 and 2009, and the
results of their operations and their cash flows for each of the three years in the period ended
December 31, 2010 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
accompanying index 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 Companys 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
New York, New York
March 30, 2011
CPA®:16 2010 10-K 53
CORPORATE PROPERTY ASSOCIATES 16 GLOBAL INCORPORATED
CONSOLIDATED BALANCE SHEETS
(in thousands, except share amounts)
|
|
|
|
|
|
|
|
|
|
|
December 31, |
|
|
|
2010 |
|
|
2009 |
|
Assets |
|
|
|
|
|
|
|
|
Investments in real estate: |
|
|
|
|
|
|
|
|
Real estate, at cost (inclusive of amounts attributable to consolidated variable interest
entities (VIEs) of $428,061 and $454,311, respectively) |
|
$ |
1,730,421 |
|
|
$ |
1,696,872 |
|
Operating real estate, at cost (inclusive of amounts attributable to consolidated
VIEs of $29,219 for both periods presented) |
|
|
84,772 |
|
|
|
83,718 |
|
Accumulated depreciation (inclusive of amounts attributable to consolidated
VIEs of $38,981 and $30,292, respectively) |
|
|
(155,580 |
) |
|
|
(118,833 |
) |
|
|
|
|
|
|
|
Net investments in properties |
|
|
1,659,613 |
|
|
|
1,661,757 |
|
Real estate under construction |
|
|
|
|
|
|
61,588 |
|
Net investment in direct financing leases (inclusive of amounts attributable to consolidated
VIEs of $49,705 and $52,521, respectively) |
|
|
318,233 |
|
|
|
342,055 |
|
Assets held for sale |
|
|
440 |
|
|
|
|
|
Equity investments in real estate and other |
|
|
149,614 |
|
|
|
158,149 |
|
|
|
|
|
|
|
|
Net investments in real estate |
|
|
2,127,900 |
|
|
|
2,223,549 |
|
Notes receivable (inclusive of amounts attributable to consolidated
VIEs of $21,805 and $337,397, respectively) |
|
|
55,504 |
|
|
|
362,707 |
|
Cash and cash equivalents (inclusive of amounts attributable to consolidated
VIEs of $17,195 and $14,199, respectively) |
|
|
59,012 |
|
|
|
83,985 |
|
Intangible assets, net (inclusive of amounts attributable to consolidated
VIEs of $25,900 and $29,209, respectively) |
|
|
149,082 |
|
|
|
162,432 |
|
Funds in escrow (inclusive of amounts attributable to consolidated
VIEs of $7,840 and $12,339, respectively) |
|
|
15,962 |
|
|
|
21,586 |
|
Other assets, net (inclusive of amounts attributable to consolidated
VIEs of $3,506 and $7,908, respectively) |
|
|
30,499 |
|
|
|
34,746 |
|
|
|
|
|
|
|
|
Total assets |
|
$ |
2,437,959 |
|
|
$ |
2,889,005 |
|
|
|
|
|
|
|
|
Liabilities and Equity |
|
|
|
|
|
|
|
|
Liabilities: |
|
|
|
|
|
|
|
|
Non-recourse debt (inclusive of amounts attributable to consolidated
VIEs of $426,783 and $463,309, respectively) |
|
$ |
1,369,248 |
|
|
$ |
1,445,889 |
|
Accounts payable, accrued expenses and other liabilities (inclusive of amounts
attributable to consolidated VIEs of $10,241 and $14,189, respectively) |
|
|
30,875 |
|
|
|
36,290 |
|
Prepaid and deferred rental income and security deposits (inclusive of amounts
attributable to consolidated VIEs of $11,137 and $12,476, respectively) |
|
|
57,095 |
|
|
|
58,063 |
|
Due to affiliates |
|
|
7,759 |
|
|
|
14,193 |
|
Distributions payable |
|
|
20,826 |
|
|
|
20,346 |
|
|
|
|
|
|
|
|
Total liabilities |
|
|
1,485,803 |
|
|
|
1,574,781 |
|
|
|
|
|
|
|
|
Redeemable noncontrolling interests |
|
|
21,805 |
|
|
|
337,397 |
|
|
|
|
|
|
|
|
Commitments and contingencies (Note 12) |
|
|
|
|
|
|
|
|
Equity: |
|
|
|
|
|
|
|
|
CPA®:16 Global shareholders equity: |
|
|
|
|
|
|
|
|
Common stock, $.001 par value; 250,000,000 shares authorized; 134,708,674 and 129,995,172
shares issued, respectively |
|
|
135 |
|
|
|
130 |
|
Additional paid-in capital |
|
|
1,216,565 |
|
|
|
1,174,230 |
|
Distributions in excess of accumulated earnings |
|
|
(275,948 |
) |
|
|
(225,462 |
) |
Accumulated other comprehensive income |
|
|
(8,460 |
) |
|
|
5,397 |
|
|
|
|
|
|
|
|
|
|
|
932,292 |
|
|
|
954,295 |
|
Less, treasury stock at cost, 8,952,317 and 7,134,071 shares, respectively |
|
|
(81,080 |
) |
|
|
(65,636 |
) |
|
|
|
|
|
|
|
Total CPA ® :16 Global shareholders equity |
|
|
851,212 |
|
|
|
888,659 |
|
|
|
|
|
|
|
|
Noncontrolling interests |
|
|
79,139 |
|
|
|
88,168 |
|
|
|
|
|
|
|
|
Total equity |
|
|
930,351 |
|
|
|
976,827 |
|
|
|
|
|
|
|
|
Total liabilities and equity |
|
$ |
2,437,959 |
|
|
$ |
2,889,005 |
|
|
|
|
|
|
|
|
See Notes to Consolidated Financial Statements.
CPA®:16 2010 10-K 54
CORPORATE PROPERTY ASSOCIATES 16 GLOBAL INCORPORATED
CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands, except share and per share amounts)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the years ended December 31, |
|
|
|
2010 |
|
|
2009 |
|
|
2008 |
|
Revenues |
|
|
|
|
|
|
|
|
|
|
|
|
Rental income |
|
$ |
153,755 |
|
|
$ |
149,839 |
|
|
$ |
146,963 |
|
Interest income from direct financing leases |
|
|
27,101 |
|
|
|
27,448 |
|
|
|
28,864 |
|
Interest income on notes receivable |
|
|
25,955 |
|
|
|
28,796 |
|
|
|
29,478 |
|
Other real estate income |
|
|
24,815 |
|
|
|
23,660 |
|
|
|
23,375 |
|
Other operating income |
|
|
3,133 |
|
|
|
3,161 |
|
|
|
3,128 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
234,759 |
|
|
|
232,904 |
|
|
|
231,808 |
|
|
|
|
|
|
|
|
|
|
|
Operating Expenses |
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation and amortization |
|
|
(48,706 |
) |
|
|
(47,213 |
) |
|
|
(45,011 |
) |
Property expenses |
|
|
(29,280 |
) |
|
|
(32,317 |
) |
|
|
(31,586 |
) |
Other real estate expenses |
|
|
(18,697 |
) |
|
|
(18,064 |
) |
|
|
(19,377 |
) |
General and administrative |
|
|
(10,423 |
) |
|
|
(9,057 |
) |
|
|
(12,521 |
) |
Impairment charges |
|
|
(9,808 |
) |
|
|
(30,337 |
) |
|
|
(890 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
(116,914 |
) |
|
|
(136,988 |
) |
|
|
(109,385 |
) |
|
|
|
|
|
|
|
|
|
|
Other Income and Expenses |
|
|
|
|
|
|
|
|
|
|
|
|
Income from equity investments in real estate |
|
|
17,573 |
|
|
|
13,837 |
|
|
|
8,769 |
|
Other interest income |
|
|
268 |
|
|
|
217 |
|
|
|
4,083 |
|
Gain on extinguishment of debt |
|
|
|
|
|
|
6,512 |
|
|
|
|
|
Other income and (expenses) |
|
|
88 |
|
|
|
(734 |
) |
|
|
(1,822 |
) |
Interest expense |
|
|
(79,225 |
) |
|
|
(80,358 |
) |
|
|
(82,636 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
(61,296 |
) |
|
|
(60,526 |
) |
|
|
(71,606 |
) |
|
|
|
|
|
|
|
|
|
|
Income before income taxes |
|
|
56,549 |
|
|
|
35,390 |
|
|
|
50,817 |
|
Provision for income taxes |
|
|
(4,847 |
) |
|
|
(5,794 |
) |
|
|
(4,169 |
) |
|
|
|
|
|
|
|
|
|
|
Income from continuing operations |
|
|
51,702 |
|
|
|
29,596 |
|
|
|
46,648 |
|
|
|
|
|
|
|
|
|
|
|
Discontinued Operations |
|
|
|
|
|
|
|
|
|
|
|
|
Income from operations of discontinued properties |
|
|
(425 |
) |
|
|
(963 |
) |
|
|
712 |
|
Gain on deconsolidation of a subsidiary |
|
|
7,082 |
|
|
|
|
|
|
|
|
|
Gain on sale of real estate |
|
|
|
|
|
|
7,634 |
|
|
|
|
|
Gain on extinguishment of debt |
|
|
879 |
|
|
|
2,313 |
|
|
|
|
|
Impairment charges |
|
|
|
|
|
|
(25,621 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) from discontinued operations |
|
|
7,536 |
|
|
|
(16,637 |
) |
|
|
712 |
|
|
|
|
|
|
|
|
|
|
|
Net Income |
|
|
59,238 |
|
|
|
12,959 |
|
|
|
47,360 |
|
|
|
|
|
|
|
|
|
|
|
Add: Net (income) loss attributable to noncontrolling interests |
|
|
(4,905 |
) |
|
|
8,050 |
|
|
|
(339 |
) |
Less: Net income attributable to redeemable noncontrolling interests |
|
|
(22,326 |
) |
|
|
(23,549 |
) |
|
|
(26,774 |
) |
|
|
|
|
|
|
|
|
|
|
Net Income (Loss) Attributable to CPA®16
Global Shareholders |
|
$ |
32,007 |
|
|
$ |
(2,540 |
) |
|
$ |
20,247 |
|
|
|
|
|
|
|
|
|
|
|
Earnings (Loss) Per Share |
|
|
|
|
|
|
|
|
|
|
|
|
Income from continuing operations attributable to CPA®16 Global
shareholders |
|
$ |
0.23 |
|
|
$ |
0.03 |
|
|
$ |
0.16 |
|
Income (loss) from discontinued operations attributable to CPA®16 Global
shareholders |
|
|
0.03 |
|
|
|
(0.05 |
) |
|
|
0.01 |
|
|
|
|
|
|
|
|
|
|
|
Net income (loss) attributable to CPA®16 Global shareholders |
|
$ |
0.26 |
|
|
$ |
(0.02 |
) |
|
$ |
0.17 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted Average Shares Outstanding |
|
|
124,631,975 |
|
|
|
122,824,957 |
|
|
|
121,314,180 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amounts Attributable to CPA®16 Global
Shareholders |
|
|
|
|
|
|
|
|
|
|
|
|
Income from continuing operations, net of tax |
|
|
28,001 |
|
|
|
4,055 |
|
|
|
19,095 |
|
Income (loss) from discontinued operations, net of tax |
|
|
4,006 |
|
|
|
(6,595 |
) |
|
|
1,152 |
|
|
|
|
|
|
|
|
|
|
|
Net income (loss) |
|
$ |
32,007 |
|
|
$ |
(2,540 |
) |
|
$ |
20,247 |
|
|
|
|
|
|
|
|
|
|
|
See Notes to Consolidated Financial Statements.
CPA®:16 2010 10-K 55
CORPORATE PROPERTY ASSOCIATES 16 GLOBAL INCORPORATED
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)
(in thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the years ended December 31, |
|
|
|
2010 |
|
|
2009 |
|
|
2008 |
|
Net Income |
|
$ |
59,238 |
|
|
$ |
12,959 |
|
|
$ |
47,360 |
|
Other Comprehensive (Loss) Income: |
|
|
|
|
|
|
|
|
|
|
|
|
Foreign currency translation adjustment |
|
|
(34,540 |
) |
|
|
11,613 |
|
|
|
(44,188 |
) |
Change in unrealized loss on derivative instruments |
|
|
(1,316 |
) |
|
|
(900 |
) |
|
|
(3,968 |
) |
Change in unrealized gain (loss) on marketable securities |
|
|
29 |
|
|
|
(28 |
) |
|
|
55 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(35,827 |
) |
|
|
10,685 |
|
|
|
(48,101 |
) |
|
|
|
|
|
|
|
|
|
|
Comprehensive income (loss) |
|
|
23,411 |
|
|
|
23,644 |
|
|
|
(741 |
) |
|
|
|
|
|
|
|
|
|
|
Amounts Attributable to Noncontrolling Interests: |
|
|
|
|
|
|
|
|
|
|
|
|
Net (income) loss |
|
|
(4,905 |
) |
|
|
8,050 |
|
|
|
(339 |
) |
Foreign currency translation adjustment |
|
|
3,628 |
|
|
|
(1,860 |
) |
|
|
3,459 |
|
Change in unrealized gain on derivative instruments |
|
|
13 |
|
|
|
(13 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Comprehensive (income) loss attributable to noncontrolling interests |
|
|
(1,264 |
) |
|
|
6,177 |
|
|
|
3,120 |
|
|
|
|
|
|
|
|
|
|
|
Amounts Attributable to Redeemable Noncontrolling Interests: |
|
|
|
|
|
|
|
|
|
|
|
|
Net income |
|
|
(22,326 |
) |
|
|
(23,549 |
) |
|
|
(26,774 |
) |
Foreign currency translation adjustment |
|
|
18,329 |
|
|
|
(5,555 |
) |
|
|
14,877 |
|
|
|
|
|
|
|
|
|
|
|
Comprehensive income attributable to redeemable noncontrolling interests |
|
|
(3,997 |
) |
|
|
(29,104 |
) |
|
|
(11,897 |
) |
|
|
|
|
|
|
|
|
|
|
Comprehensive Income (Loss) Attributable to CPA®16
Global
Shareholders |
|
$ |
18,150 |
|
|
$ |
717 |
|
|
$ |
(9,518 |
) |
|
|
|
|
|
|
|
|
|
|
See Notes to Consolidated Financial Statements.
CPA®:16 2010 10-K 56
CORPORATE PROPERTY ASSOCIATES 16 GLOBAL INCORPORATED
CONSOLIDATED STATEMENTS OF EQUITY
For the years ended December 31, 2010, 2009 and 2008
(in thousands, except share and per share amounts)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Distributions |
|
|
Accumulated |
|
|
|
|
|
|
Total |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Additional |
|
|
in Excess of |
|
|
Other |
|
|
|
|
|
|
CPA®:16 - |
|
|
|
|
|
|
|
|
|
|
|
|
|
Common |
|
|
Paid-in |
|
|
Accumulated |
|
|
Comprehensive |
|
|
Treasury |
|
|
Global |
|
|
Noncontrolling |
|
|
|
|
|
|
Shares |
|
|
Stock |
|
|
Capital |
|
|
Earnings |
|
|
Income (Loss) |
|
|
Stock |
|
|
Shareholders |
|
|
Interests |
|
|
Total |
|
Balance at January 1, 2008 |
|
|
119,067,110 |
|
|
$ |
121 |
|
|
$ |
1,085,506 |
|
|
$ |
(82,481 |
) |
|
$ |
31,905 |
|
|
$ |
(13,954 |
) |
|
$ |
1,021,097 |
|
|
$ |
73,555 |
|
|
$ |
1,094,652 |
|
Shares issued $.001 par, at $10 per share, net of offering costs |
|
|
3,543,833 |
|
|
|
3 |
|
|
|
32,220 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
32,223 |
|
|
|
|
|
|
|
32,223 |
|
Shares, $.001 par, issued to the advisor at $10 per share |
|
|
1,240,982 |
|
|
|
1 |
|
|
|
12,409 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
12,410 |
|
|
|
|
|
|
|
12,410 |
|
Distributions declared ($0.6576 per share) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(79,704 |
) |
|
|
|
|
|
|
|
|
|
|
(79,704 |
) |
|
|
|
|
|
|
(79,704 |
) |
Contributions |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
24,396 |
|
|
|
24,396 |
|
Distributions to noncontrolling interests |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(8,122 |
) |
|
|
(8,122 |
) |
Net income |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
20,247 |
|
|
|
|
|
|
|
|
|
|
|
20,247 |
|
|
|
339 |
|
|
|
20,586 |
|
Other comprehensive income (loss): |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign currency translation adjustment |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(25,852 |
) |
|
|
|
|
|
|
(25,852 |
) |
|
|
(3,459 |
) |
|
|
(29,311 |
) |
Change in unrealized loss on derivative instruments |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(3,968 |
) |
|
|
|
|
|
|
(3,968 |
) |
|
|
|
|
|
|
(3,968 |
) |
Change in unrealized gain (loss) on marketable securities |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
55 |
|
|
|
|
|
|
|
55 |
|
|
|
|
|
|
|
55 |
|
Repurchase of shares |
|
|
(1,786,275 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(16,612 |
) |
|
|
(16,612 |
) |
|
|
|
|
|
|
(16,612 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at December 31, 2008 |
|
|
122,065,650 |
|
|
|
125 |
|
|
|
1,130,135 |
|
|
|
(141,938 |
) |
|
|
2,140 |
|
|
|
(30,566 |
) |
|
|
959,896 |
|
|
|
86,709 |
|
|
|
1,046,605 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Shares issued $.001 par, at $9.80 and $10.00 per share, net of offering costs |
|
|
3,440,053 |
|
|
|
4 |
|
|
|
32,257 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
32,261 |
|
|
|
|
|
|
|
32,261 |
|
Shares, $.001 par, issued to the advisor at $9.80 per share |
|
|
1,202,996 |
|
|
|
1 |
|
|
|
11,838 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
11,839 |
|
|
|
|
|
|
|
11,839 |
|
Distributions declared ($0.6621 per share) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(80,984 |
) |
|
|
|
|
|
|
|
|
|
|
(80,984 |
) |
|
|
|
|
|
|
(80,984 |
) |
Contributions |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
24,884 |
|
|
|
24,884 |
|
Distributions to noncontrolling interests |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(17,248 |
) |
|
|
(17,248 |
) |
Net income |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(2,540 |
) |
|
|
|
|
|
|
|
|
|
|
(2,540 |
) |
|
|
(8,050 |
) |
|
|
(10,590 |
) |
Other comprehensive income (loss): |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign currency translation adjustment |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
4,198 |
|
|
|
|
|
|
|
4,198 |
|
|
|
1,860 |
|
|
|
6,058 |
|
Change in unrealized loss on derivative instruments |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(913 |
) |
|
|
|
|
|
|
(913 |
) |
|
|
13 |
|
|
|
(900 |
) |
Change in unrealized gain (loss) on marketable securities |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(28 |
) |
|
|
|
|
|
|
(28 |
) |
|
|
|
|
|
|
(28 |
) |
Repurchase of shares |
|
|
(3,847,598 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(35,070 |
) |
|
|
(35,070 |
) |
|
|
|
|
|
|
(35,070 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at December 31, 2009 |
|
|
122,861,101 |
|
|
|
130 |
|
|
|
1,174,230 |
|
|
|
(225,462 |
) |
|
|
5,397 |
|
|
|
(65,636 |
) |
|
|
888,659 |
|
|
|
88,168 |
|
|
|
976,827 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Shares issued $.001 par, at $9.80 and $9.20 per share, net of offering costs |
|
|
3,435,991 |
|
|
|
4 |
|
|
|
30,583 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
30,587 |
|
|
|
|
|
|
|
30,587 |
|
Shares, $.001 par, issued to the advisor at $9.20 per share |
|
|
1,277,511 |
|
|
|
1 |
|
|
|
11,752 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
11,753 |
|
|
|
|
|
|
|
11,753 |
|
Distributions declared ($0.6624 per share) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(82,493 |
) |
|
|
|
|
|
|
|
|
|
|
(82,493 |
) |
|
|
|
|
|
|
(82,493 |
) |
Contributions |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
417,458 |
|
|
|
417,458 |
|
Distributions to noncontrolling interests |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(427,751 |
) |
|
|
(427,751 |
) |
Net income |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
32,007 |
|
|
|
|
|
|
|
|
|
|
|
32,007 |
|
|
|
4,905 |
|
|
|
36,912 |
|
Other comprehensive income (loss): |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign currency translation adjustment |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(12,583 |
) |
|
|
|
|
|
|
(12,583 |
) |
|
|
(3,628 |
) |
|
|
(16,211 |
) |
Change in unrealized loss on derivative instruments |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1,303 |
) |
|
|
|
|
|
|
(1,303 |
) |
|
|
(13 |
) |
|
|
(1,316 |
) |
Change in unrealized gain (loss) on marketable securities |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
29 |
|
|
|
|
|
|
|
29 |
|
|
|
|
|
|
|
29 |
|
Repurchase of shares |
|
|
(1,818,246 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(15,444 |
) |
|
|
(15,444 |
) |
|
|
|
|
|
|
(15,444 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at December 31, 2010 |
|
|
125,756,357 |
|
|
$ |
135 |
|
|
$ |
1,216,565 |
|
|
$ |
(275,948 |
) |
|
$ |
(8,460 |
) |
|
$ |
(81,080 |
) |
|
$ |
851,212 |
|
|
$ |
79,139 |
|
|
$ |
930,351 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
See Notes to Consolidated Financial Statements.
CPA®:16 2010 10-K 57
CORPORATE PROPERTY ASSOCIATES 16 GLOBAL INCORPORATED
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the years ended December 31, |
|
|
|
2010 |
|
|
2009 |
|
|
2008 |
|
Cash Flows Operating Activities |
|
|
|
|
|
|
|
|
|
|
|
|
Net income |
|
$ |
59,238 |
|
|
$ |
12,959 |
|
|
$ |
47,360 |
|
Adjustments to net income: |
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation and amortization including intangible assets
and deferred financing costs |
|
|
49,664 |
|
|
|
49,348 |
|
|
|
47,800 |
|
Straight-line rent adjustments, amortization of rent-related intangibles
and financing lease adjustments |
|
|
594 |
|
|
|
3,007 |
|
|
|
821 |
|
(Income) loss from equity investments in real estate in excess of distributions |
|
|
(1,660 |
) |
|
|
1,788 |
|
|
|
3,987 |
|
Issuance of shares to affiliate in satisfaction of fees due |
|
|
11,753 |
|
|
|
11,839 |
|
|
|
12,410 |
|
Realized (gain) loss on foreign currency transactions and other, net |
|
|
(856 |
) |
|
|
400 |
|
|
|
(1,407 |
) |
Unrealized loss on foreign currency and derivative transactions, net |
|
|
768 |
|
|
|
378 |
|
|
|
3,365 |
|
Gain on sale of real estate |
|
|
|
|
|
|
(7,634 |
) |
|
|
(136 |
) |
Gain on deconsolidation of a subsidiary |
|
|
(7,082 |
) |
|
|
|
|
|
|
|
|
Gain on extinguishment of debt |
|
|
(879 |
) |
|
|
(8,825 |
) |
|
|
|
|
Impairment charges |
|
|
9,808 |
|
|
|
55,958 |
|
|
|
890 |
|
Change in other operating assets and liabilities, net |
|
|
(8 |
) |
|
|
661 |
|
|
|
2,345 |
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by operating activities |
|
|
121,340 |
|
|
|
119,879 |
|
|
|
117,435 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash Flows Investing Activities |
|
|
|
|
|
|
|
|
|
|
|
|
Distributions received from equity investments in real estate in excess of equity income |
|
|
5,245 |
|
|
|
46,959 |
|
|
|
12,064 |
|
Contributions to equity investments in real estate |
|
|
|
|
|
|
(62,448 |
) |
|
|
(8,274 |
) |
Acquisition of real estate and other capital expenditures (a) |
|
|
(24,285 |
) |
|
|
(137,380 |
) |
|
|
(150,219 |
) |
Funding/purchases of note receivable |
|
|
(7,794 |
) |
|
|
(5,978 |
) |
|
|
(7,291 |
) |
Funds placed in escrow for future acquisition and construction of real estate |
|
|
(485 |
) |
|
|
|
|
|
|
(18,843 |
) |
Release of funds held in escrow for acquisition and construction of real estate |
|
|
1,553 |
|
|
|
11,122 |
|
|
|
39,072 |
|
Proceeds from sale of real estate |
|
|
1 |
|
|
|
28,185 |
|
|
|
22,886 |
|
Payment of deferred acquisition fees to affiliate |
|
|
(6,261 |
) |
|
|
(9,082 |
) |
|
|
(29,546 |
) |
VAT taxes recovered in connection with acquisition of real estate |
|
|
|
|
|
|
|
|
|
|
3,711 |
|
Receipt of principal payment of mortgage note receivable (b) |
|
|
|
|
|
|
|
|
|
|
301 |
|
|
|
|
|
|
|
|
|
|
|
Net cash used in investing activities |
|
|
(32,026 |
) |
|
|
(128,622 |
) |
|
|
(136,139 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash Flows Financing Activities |
|
|
|
|
|
|
|
|
|
|
|
|
Distributions paid |
|
|
(82,013 |
) |
|
|
(80,778 |
) |
|
|
(79,011 |
) |
Distributions paid to noncontrolling interests (b) |
|
|
(37,593 |
) |
|
|
(44,447 |
) |
|
|
(36,349 |
) |
Contributions from noncontrolling interests |
|
|
3,534 |
|
|
|
24,884 |
|
|
|
747 |
|
Proceeds from non-recourse debt financing |
|
|
36,946 |
|
|
|
78,516 |
|
|
|
102,124 |
|
Scheduled payments of non-recourse debt |
|
|
(21,613 |
) |
|
|
(18,747 |
) |
|
|
(15,487 |
) |
Prepayment of non-recourse debt financing |
|
|
(29,000 |
) |
|
|
(34,781 |
) |
|
|
(4,312 |
) |
Deferred financing costs and mortgage deposits, net of deposits refunded |
|
|
(41 |
) |
|
|
(386 |
) |
|
|
(688 |
) |
Proceeds from issuance of shares, net of costs of raising capital |
|
|
30,587 |
|
|
|
32,261 |
|
|
|
32,223 |
|
Purchase of treasury stock |
|
|
(15,444 |
) |
|
|
(35,070 |
) |
|
|
(16,612 |
) |
|
|
|
|
|
|
|
|
|
|
Net cash used in financing activities |
|
|
(114,637 |
) |
|
|
(78,548 |
) |
|
|
(17,365 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Change in Cash and Cash Equivalents During the Year |
|
|
|
|
|
|
|
|
|
|
|
|
Effect of exchange rate changes on cash |
|
|
350 |
|
|
|
(2,933 |
) |
|
|
(1,481 |
) |
|
|
|
|
|
|
|
|
|
|
Net decrease in cash and cash equivalents |
|
|
(24,973 |
) |
|
|
(90,224 |
) |
|
|
(37,550 |
) |
Cash and cash equivalents, beginning of year |
|
|
83,985 |
|
|
|
174,209 |
|
|
|
211,759 |
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents, end of year |
|
$ |
59,012 |
|
|
$ |
83,985 |
|
|
$ |
174,209 |
|
|
|
|
|
|
|
|
|
|
|
(Continued)
CPA®:16 2010 10-K 58
CORPORATE PROPERTY ASSOCIATES 16 GLOBAL INCORPORATED
CONSOLIDATED STATEMENTS OF CASH FLOWS, CONTINUED
Non-cash investing and financing activities
|
|
|
(a) |
|
Included in the cost basis of real estate investments acquired in 2009 and 2008 are deferred
acquisition fees payable of $2.4 million and $3.4 million, respectively. No investments were
acquired in 2010. |
|
(b) |
|
During 2010, we and our affiliates exercised an option to acquire an additional interest in a
venture from an unaffiliated third party. In this non-cash option exercise, we reduced the
third partys note receivable with us by $297.3 million (investing activities) and
simultaneously reduced the noncontrolling interest held by the third party by $297.3 million
(financing activities). See Note 5. |
Supplemental cash flow information (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years ended December 31, |
|
|
|
2010 |
|
|
2009 |
|
|
2008 |
|
Interest paid, net of amounts capitalized |
|
$ |
78,462 |
|
|
$ |
81,620 |
|
|
$ |
86,044 |
|
|
|
|
|
|
|
|
|
|
|
Interest capitalized |
|
$ |
2,793 |
|
|
$ |
2,446 |
|
|
$ |
2,419 |
|
|
|
|
|
|
|
|
|
|
|
Income taxes paid |
|
$ |
4,871 |
|
|
$ |
3,880 |
|
|
$ |
5,717 |
|
|
|
|
|
|
|
|
|
|
|
Supplemental
noncash investing activities (in thousands):
During the first quarter of 2010, we deconsolidated a subsidiary following possession by a receiver
in January 2010 (Note 16). The following table presents the assets and liabilities of the venture
on the date of consolidation.
|
|
|
|
|
Assets: |
|
|
|
|
Net investments in properties |
|
$ |
5,897 |
|
Cash and cash equivalents |
|
|
43 |
|
Intangible assets, net |
|
|
762 |
|
Other assets, net |
|
|
759 |
|
|
|
|
|
Total |
|
$ |
7,461 |
|
|
|
|
|
|
|
|
|
|
Liabilities: |
|
|
|
|
Non-recourse debt |
|
$ |
(13,336 |
) |
Accounts payable, accrued expenses and other liabilities |
|
|
(1,207 |
) |
|
|
|
|
Total |
|
$ |
(14,543 |
) |
|
|
|
|
See Notes to Consolidated Financial Statements.
CPA®:16 2010 10-K 59
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 1. Business and Organization
Corporate Property Associates 16 Global Incorporated is a publicly owned, non-listed REIT that
invests in commercial properties leased to companies domestically and internationally. 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 leased 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
increases, tenant defaults and sales of properties. At December 31, 2010, our portfolio was
comprised of our full or partial ownership interests in 384 properties, substantially all of which
were triple-net leased to 79 tenants, and totaled approximately 27 million square feet (on a pro
rata basis) with an occupancy rate of 99% (occupancy rate and square footage are unaudited). We
were formed as a Maryland corporation in June 2003 and are managed by the advisor.
Note 2. Summary of Significant Accounting Policies
Basis of Consolidation
The consolidated financial statements reflect all of our accounts, including those of our
majority-owned and/or controlled subsidiaries. The portion of equity in a subsidiary that is not
attributable, directly or indirectly, to us is presented as noncontrolling interests. All
significant intercompany accounts and transactions have been eliminated.
In June 2009, the FASB issued amended guidance related to the consolidation of VIEs. The amended
guidance affects the overall consolidation analysis, changing the approach taken by companies in
identifying which entities are VIEs and in determining which party is the primary beneficiary, and
requires an enterprise to qualitatively assess the determination of 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. The amended
guidance changes the consideration of kick-out rights in determining if an entity is a VIE, which
may cause certain additional entities to now be considered VIEs. Additionally, the guidance
requires an ongoing reconsideration of the primary beneficiary and provides a framework for the
events that trigger a reassessment of whether an entity is a VIE. We adopted this amended guidance
on January 1, 2010, which did not require consolidation of any additional VIEs, but we have
disclosed the assets and liabilities related to previously consolidated VIEs, of which we are the
primary beneficiary and which we consolidate, separately in our consolidated balance sheets for all
periods presented. The adoption of this amended guidance did not have a material impact on our
financial position and results of operations.
In connection with the adoption of the amended guidance on the consolidation of VIEs, we performed
an analysis of all of our subsidiary entities, including our venture entities with other parties
and our stake in The Talaria Company (Hinckley), 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 quantitative and qualitative assessment to determine whether these
entities are VIEs, we identified six entities that were deemed to be VIEs. These entities were
deemed VIEs as either: the third-party tenant that leases property from each entity has the right
to repurchase the property during the term of their lease at a fixed price, our venture partners to
the entity were not deemed to have sufficient equity at risk, a third party was deemed to have the
power to direct matters that most significantly impact the entity, or a third party was deemed to
have the right to receive the expected residual returns of the entity. The nature of operations and
organizational structure of these VIEs are consistent with our other entities (Note 1) except for
the repurchase and residual returns rights of these entities.
After making the determination that these entities were VIEs, we performed an assessment as to
which party would be considered the primary beneficiary of each entity and would be required to
consolidate each entitys balance sheet and results of operations. This assessment was based upon
which party (i) had the power to direct activities that most significantly impact the entitys
economic performance and (ii) had the obligation to absorb the expected losses of or right to
receive benefits from the VIE that could potentially be significant to the VIE. Based on our
assessment, it was determined that we would continue to consolidate six of the VIEs. During the
first quarter of 2010, one of the VIEs was deconsolidated and reclassified as an asset held for
sale in connection with the property being placed into receivership (Note 16). Activities that we
considered significant in our assessment included which entity had control over financing
decisions, leasing decisions and ability to sell the entitys assets.
CPA®:16 2010 10-K 60
Notes to Consolidated Financial Statements
Because we generally utilize non-recourse debt, our maximum exposure to any VIE is limited to the
equity we have invested in each VIE. We have not provided financial or other support to any VIE,
and there were no guarantees or other commitments from third parties that would affect the value of
or risk related to our interest in such entities.
We have investments in tenant-in-common interests in various domestic and international properties.
Consolidation of these investments is not required as they do not qualify as VIEs and do not meet
the control requirement required for consolidation. Accordingly, we account for these investments
using the equity method of accounting. We use the equity method of accounting because the shared
decision-making involved in a tenant-in-common interest investment creates an opportunity for us to
have significant influence on the operating and financial decisions of these investments and
thereby creates some responsibility by us for a return on our investment. Additionally, we own
interests in single-tenant net leased properties leased to corporations through noncontrolling
interests in partnerships and limited liability companies that we do not control but over which we
exercise significant influences. We account for these investments under the equity method of
accounting. At times the carrying value of our equity investments may fall to below zero for
certain investments. We are obligated to fund future operating losses for these investments.
Out-of-Period Adjustments
During the fourth quarter of 2008, we identified errors in the consolidated financial statements
for the years ended December 31, 2005 through 2008. These errors related to accounting for
pre-operating activities of certain hotel investments (aggregating $0.5 million in 2007 and $0.7
million for the nine months ended September 30, 2008) and minimum rent increases for a lessee
(aggregating $1.8 million over the period from 2005-2007 and $0.1 million in each of the first
three quarters of 2008). In addition, during the first quarter of 2007, we identified errors in the
consolidated financial statements for the years ended December 31, 2005 and 2006 related to
accounting for foreign income taxes (aggregating $0.4 million over the period from 2005-2006).
We concluded that these adjustments were not material to any prior periods consolidated financial
statements. We also concluded that the cumulative adjustment was not material to the year ended
December 31, 2008, nor was it material to the years ended 2007, 2006 and 2005. As such, this
cumulative effect was recorded in the consolidated statements of operations as out-of-period
adjustments in the periods the issues were identified. The effect of these adjustments was to
increase net income by $1.3 million for 2008 and decrease net income by $0.1 million, $0.4 million
and $0.4 million for the years ended December 31, 2007, 2006 and 2005, respectively.
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.
Reclassifications and Revisions
Certain prior year amounts have been reclassified to conform to the current year presentation. The
consolidated financial statements included in this Report have been retrospectively adjusted to
reflect the disposition (or planned disposition) of certain properties as discontinued operations
for all periods presented.
Purchase Price Allocation
When we acquire properties accounted for as operating leases, we allocate the purchase costs to the
tangible and intangible assets and liabilities acquired based on their estimated fair values. We
determine the value of the tangible assets, consisting of land and buildings, as if vacant, and
record intangible assets, including the above-market and below-market value of leases, the value of
in-place leases and the value of tenant relationships, at their relative estimated fair values. See
Real Estate Leased to Others and Depreciation below for a discussion of our significant accounting
policies related to tangible assets. We include the value of below-market leases in Prepaid and
deferred rental income and security deposits in the consolidated financial statements.
We record above-market and below-market lease values for owned properties based on the present
value (using an interest rate reflecting the risks associated with the leases acquired) of the
difference between (i) the contractual amounts to be paid pursuant to the leases negotiated and in
place at the time of acquisition of the properties and (ii) our estimate of fair market lease rates
for the property or equivalent property, both of which are measured over a period equal to the
estimated market lease term. We amortize the
capitalized above-market lease value as a reduction of rental income over the estimated market
lease term. We amortize the capitalized below-market lease value as an increase to rental income
over the initial term and any fixed-rate renewal periods in the respective leases.
CPA®:16 2010 10-K 61
Notes to Consolidated Financial Statements
We allocate the total amount of other intangibles to in-place lease values and tenant relationship
intangible values based on our evaluation of the specific characteristics of each tenants lease
and our overall relationship with each tenant. The characteristics we consider in allocating these
values include estimated market rent, the nature and extent of the existing relationship with the
tenant, the expectation of lease renewals, estimated carrying costs of the property if vacant and
estimated costs to execute a new lease, among other factors. We determine these values using our
estimates or relying in part upon third-party appraisals. We amortize the capitalized value of
in-place lease intangibles to expense over the remaining initial term of each lease. We amortize
the capitalized value of tenant relationships to expense over the initial and expected renewal
terms of the lease. No amortization period for intangibles will exceed the remaining depreciable
life of the building.
If a lease is terminated, we charge the unamortized portion of each intangible, including
above-market and below-market lease values, in-place lease values and tenant relationship values,
to expense.
Real Estate and Operating Real Estate
We carry land and buildings and personal property at cost less accumulated depreciation. We
capitalize renewals and improvements, 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, including 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.
Notes Receivable
For investments in mortgage notes and loan participations, the loans are initially reflected at
acquisition cost which consists of the outstanding balance, net of the acquisition discount or
premium. We amortize any discount or premium as an adjustment to increase or decrease,
respectively, the yield realized on these loans using the effective interest method. 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.
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.
Marketable Securities
Marketable securities, which consist of an interest-only participation in a mortgage note
receivable, are classified as available for sale securities and reported at fair value, with any
unrealized gains and losses on these securities reported as a component of OCI until realized.
Other Assets and Other Liabilities
We include accounts receivable, stock warrants, marketable securities, deferred charges and
deferred rental income in Other assets. We include derivatives and miscellaneous 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 rental income is
the aggregate cumulative difference for operating leases between scheduled rents that vary during
the lease term, and rent recognized on a straight-line basis.
CPA®:16 2010 10-K 62
Notes to 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. A portion of these fees is payable in
equal annual installments each January of the three calendar years following the date on which a
property was purchased. Payment of such fees is subject to the performance criterion (Note 3).
Treasury Stock
Treasury stock is recorded at cost.
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 all operating expenses relating to the property, including property
taxes, insurance, maintenance, repairs, renewals and improvements. We charge expenditures for
maintenance and repairs, including routine betterments, to operations as incurred. We capitalize
significant renovations that increase the useful life of the properties. For the years ended
December 31, 2010, 2009 and 2008, although we are legally obligated for the payment, pursuant to
our lease agreements with our tenants, lessees were responsible for the direct payment to the
taxing authorities of real estate taxes of $14.5 million, $14.7 million and $14.0 million,
respectively.
We diversify our real estate investments among various corporate tenants engaged in different
industries, by property type and by geographic area (Note 9). 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 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.
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 term of the related leases and
charge expenses (including depreciation) to operations as incurred (Note 4).
Direct financing leases We record leases accounted for under the direct financing method at
their net investment (Note 5). 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.
On an ongoing basis, we assess our ability to collect rent and other tenant-based receivables and
determine an appropriate allowance for uncollected amounts. Because we have a limited number of
lessees (20 lessees represented 69% of lease revenues during 2010), we believe that it is necessary
to evaluate the collectability of these receivables based on the facts and circumstances of each
situation rather than solely using statistical methods. Therefore, in recognizing our provision for
uncollected rents and other tenant receivables, we evaluate actual past due amounts and make
subjective judgments as to the collectability of those amounts based on factors including, but not
limited to, our knowledge of a lessees circumstances, the age of the receivables, the tenants
credit profile and prior experience with the tenant. Even if a lessee has been making payments, we
may reserve for the entire receivable amount if we believe there has been significant or continuing
deterioration in the lessees ability to meet its lease obligations.
Acquisition Costs
In accordance with the FASBs revised guidance for business combinations, which we adopted on
January 1, 2009, we immediately expense all acquisition costs and fees associated with transactions
deemed to be business combinations, but we capitalize these costs for transactions deemed to be
acquisitions of an asset. To the extent we make investments for our owned portfolio that are deemed
to be business combinations, our results of operations will be negatively impacted by the immediate
expensing of acquisition costs and fees incurred in accordance with the revised guidance, whereas
in the past such costs and fees would generally have been capitalized and allocated to the cost
basis of the acquisition. Subsequent to the acquisition, there will be a positive impact on our
results of operations through a reduction in depreciation expense over the estimated life of the
properties. Historically, we have not acquired investments that would be deemed business
combinations under the revised guidance.
CPA®:16 2010 10-K 63
Notes to Consolidated Financial Statements
Depreciation
We compute depreciation of building and related improvements using the straight-line method over
the estimated useful lives of the properties, or improvements, which range from 3 to 40 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
On a quarterly basis, we assess whether there are any indicators that the value of our long-lived
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, direct financing leases, assets held for sale
and equity investments in real estate. We may also incur impairment charges on marketable
securities. Our policies for evaluating whether these assets are impaired are presented below.
Real Estate
For real estate 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 to the future net undiscounted cash flow that we expect
the property will generate, including any estimated proceeds from the eventual sale of the
property. The undiscounted cash flow analysis requires us to make our best estimate of market
rents, residual values and holding periods. Depending on the assumptions made and estimates used,
the future cash flow projected in the evaluation of long-lived assets can vary within a range of
outcomes. We consider the likelihood of possible outcomes in determining the best possible estimate
of future cash flows. If the future net undiscounted cash flow of the property is less than the
carrying value, the property is considered to be impaired. We then measure the loss as the excess
of the carrying value of the property 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. If this review indicates that a decline in residual
value has occurred that is other-than-temporary, we recognize an impairment charge and revise the
accounting for the direct financing lease to reflect a portion of the future cash flow from the
lessee as a return of principal rather than as revenue. While we evaluate direct financing leases
if there are any indicators that the residual value may be impaired, the evaluation of a direct
financing lease can be affected by changes in projected long-term market conditions even though the
obligations of the lessee are being met.
Assets Held for Sale
We classify real estate assets that are accounted for as operating leases as held for sale when we
have entered into a contract to sell the property, all material due diligence requirements have
been satisfied and we believe it is probable that the disposition will occur within one year. When
we classify an asset as held for sale, we calculate its estimated fair value as the expected sale
price, less expected selling costs. We then compare the assets estimated fair value to its
carrying value, and if the estimated fair value is less than the propertys carrying value, we
reduce the carrying value to the estimated fair value. We will continue to review the property for
subsequent changes in the estimated fair value, and may recognize an additional impairment charge
if warranted.
Equity Investments in Real Estate
We evaluate our equity investments in real estate on a periodic basis to determine if there are any
indicators that the value of our equity investment may be impaired and whether or not that
impairment is other-than-temporary. To the extent impairment has occurred, we measure the charge as
the excess of the carrying value of our investment over its estimated fair value, which is
determined by multiplying the estimated fair value of the underlying ventures net assets by our
ownership interest percentage.
CPA®:16 2010 10-K 64
Notes to Consolidated Financial Statements
Marketable Securities
We evaluate our marketable securities for impairment if a decline in estimated fair value below
cost basis is considered other-than-temporary. In determining whether the decline is
other-than-temporary, we consider the underlying cause of the decline in value, the
estimated recovery period, the severity and duration of the decline, as well as whether we plan to
sell the security or will more likely than not be required to sell the security before recovery of
its cost basis. If we determine that the decline is other-than-temporary, we record an impairment
charge to reduce our cost basis to the estimated fair value of the security. Beginning in 2009, the
credit component of an other-than-temporary impairment is recognized in earnings while the
non-credit component is recognized in OCI. Prior to 2009, all portions of other-than-temporary
impairments were recorded in earnings.
Assets Held for Sale
We classify assets that are accounted for as operating leases as held for sale when we have entered
into a contract to sell the property, all material due diligence requirements have been satisfied
and we believe it is probable that the disposition will occur within one year. Assets held for sale
are recorded at the lower of carrying value or estimated fair value, which is generally calculated
as the expected sale price, less expected selling costs. The results of operations and the related
gain or loss on sale of properties that have been sold or that are classified as held for sale are
included in discontinued operations (Note 16).
If circumstances arise that we previously considered unlikely and, as a result, we decide not to
sell a property previously classified as held for sale, we reclassify the property as held and
used. We record a property that is reclassified as held and used at the lower of (i) its carrying
amount before the property was classified as held for sale, adjusted for any depreciation expense
that would have been recognized had the property been continuously classified as held and used or
(ii) the estimated fair value at the date of the subsequent decision not to sell.
We recognize gains and losses on the sale of properties when, among other criteria, the parties are
bound by the terms of the contract, all consideration has been exchanged and all conditions
precedent to closing have been performed. At the time the sale is consummated, a gain or loss is
recognized as the difference between the sale price, less any selling costs, and the carrying value
of the property.
Foreign Currency Translation
We have interests in real estate investments in the European Union, Canada, Malaysia, Mexico and
Thailand and own interests in properties in the European Union. The functional currencies for these
investments are primarily the Euro and the British Pound Sterling and, to a lesser extent, the
Swedish krona, the Canadian dollar, the Thai baht, and the Malaysian ringgit. We perform the
translation from these 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 period. We report the gains and losses resulting from
this translation as a component of OCI in equity. At December 31, 2010 and 2009, the cumulative
foreign currency translation adjustment was a loss of $4.7 million and gain of $7.8 million,
respectively.
Foreign currency transactions may produce receivables or payables that are fixed in terms of the
amount of foreign currency that will be received or paid. A change in the exchange rates between
the functional currency and the currency in which a transaction is denominated increases or
decreases the expected amount of functional currency cash flows upon settlement of that
transaction. That increase or decrease in the expected functional currency cash flows is an
unrealized foreign currency transaction gain or loss that generally will be included in determining
net income for the period in which the exchange rate changes. Likewise, a transaction gain or loss
(measured from the transaction date or the most recent intervening balance sheet date, whichever is
later), realized upon settlement of a foreign currency transaction generally will be included in
net income for the period in which the transaction is settled. Foreign currency transactions that
are (i) designated as, and are effective as, economic hedges of a net investment and (ii)
intercompany foreign currency transactions that are of a long-term nature (that is, settlement is
not planned or anticipated in the foreseeable future), when the entities to the transactions are
consolidated or accounted for by the equity method in our financial statements are not included in
determining net income are accounted for in the same manner as foreign currency translation
adjustments and reported as a component of OCI in equity. International equity investments in real
estate were funded in part through subordinated intercompany debt.
Foreign currency intercompany transactions that are scheduled for settlement, consisting primarily
of accrued interest and the translation to the reporting currency of subordinated intercompany debt
with scheduled principal payments, are included in the determination of net income. We recorded an
unrealized loss of less than $0.1 million, an unrealized gain of $0.4 million and an unrealized loss of $0.2
million from such transactions for the years ended December 31, 2010, 2009 and 2008, respectively.
For the years ended December 31, 2010, 2009, and 2008, we recognized a realized gain of $0.4
million, a realized loss of $0.4 million and a realized gain of $1.4 million, respectively, on
foreign currency transactions in connection with the transfer of cash from foreign operations of
subsidiaries to the parent company.
CPA®:16 2010 10-K 65
Notes to Consolidated Financial Statements
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. Derivative instruments that
are designated as hedges and are used to hedge the exposure to changes in the fair value of an
asset, liability, or firm commitment attributable to a particular risk, such as interest rate risk,
are considered fair value hedges. For fair value hedges, changes in the fair value of the
derivative are offset against the change in fair value of the hedged asset, liability, or firm
commitment through earnings. Derivatives that are designated as hedges and are used to hedge the
exposure to variability in expected future cash flows, or other types of forecasted transactions,
are considered cash flow hedges. For cash flow hedges, the effective portion of a derivative
instrument is recognized in Other comprehensive income or loss in equity until the hedged item is
recognized in earnings. For cash flow hedges, the ineffective portion of a derivatives change in
fair value is immediately recognized in earnings.
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 shareholders and meet certain tests
regarding the nature of our income and assets. As a REIT, we are not subject to federal income tax
with respect to the portion of our income that meets certain criteria and is distributed annually
to shareholders. Accordingly, no provision for federal income taxes is included in the consolidated
financial statements with respect to these operations. We believe we have operated, and we intend
to continue to operate, in a manner that allows us to continue to meet the requirements for
taxation as a REIT.
We conduct business in various states and municipalities within the U.S. and the European Union
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.
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.
We elected to treat certain of our corporate subsidiaries as a TRS. 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. Our TRS subsidiaries own hotels that are managed on our
behalf by third-party hotel management companies.
Our earnings and profits, which determine the taxability of dividends to shareholders, differ from
net income reported for financial reporting purposes due primarily to differences in depreciation,
including hotel properties, for federal income tax purposes. Deferred income taxes relate primarily
to our TRSs and are accounted for using the asset and liability method. Under this method, deferred
income taxes are recognized for temporary differences between the financial reporting bases of
assets and liabilities of our TRSs and their respective tax bases and for their operating loss and
tax credit carry forwards based on enacted tax rates expected to be in effect when such amounts are
realized or settled. However, deferred tax assets are recognized only to the extent that it is more
likely than not that they will be realized based on consideration of available evidence, including
tax planning strategies and other factors.
Although our TRSs may operate at a profit for federal income tax purposes in future periods, we
cannot quantify the value of our deferred tax assets with certainty. Therefore, any deferred tax
assets have been reserved, as we have not concluded that it is more likely than not that these
deferred tax assets will be realizable.
Earnings (Loss) Per Share
We have a simple equity capital structure with only common stock outstanding. As a result, earnings
(loss) per share, as presented, represents both basic and dilutive per share amounts for all
periods presented in the consolidated financial statements.
CPA®:16 2010 10-K 66
Notes to Consolidated Financial Statements
Note 3. Agreements and Transactions with Related Parties
We have an advisory agreement with the advisor whereby the advisor performs certain services for us
for a fee. The agreement that is currently in effect was recently renewed for an additional year
pursuant to its terms effective October 1, 2010. Under the terms of this agreement, the advisor
structures and negotiates the purchase and sale of investments and debt placement transactions for
us, for which we pay the advisor structuring and subordinated disposition fees, and manages our
day-to-day operations, for which we pay the advisor asset management and performance fees. In
addition, we reimburse the advisor for certain administrative duties performed on our behalf. We
also have certain agreements with joint ventures. These transactions are described below.
Asset Management and Performance Fees
We pay the advisor asset management and performance fees, each of which are 1/2 of 1% per annum of
our average invested assets and are computed as provided for in the advisory agreement. The
performance fees are subordinated to the performance criterion, a non-compounded cumulative annual
distribution return of 6% per annum. The asset management and performance fees are payable in cash
or restricted shares of our common stock at the advisors option. If the advisor elects to receive
all or a portion of its fees in restricted shares, the number of restricted shares issued is
determined by dividing the dollar amount of fees by our most recently published NAV per share as
approved by our board of directors. For 2010, 2009 and 2008, the advisor elected to receive its
asset management fees in cash and its performance fees in restricted shares. We incurred base asset
management fees of $11.7 million, $11.7 million and $12.0 million in 2010, 2009 and 2008,
respectively, with performance fees in like amounts, both of which are included in Property
expenses in the consolidated financial statements. At December 31, 2010, the advisor owned
6,984,627 shares (5.6%) of our common stock.
Transaction Fees
We also pay the advisor acquisition fees for structuring and negotiating investments and related
mortgage financing on our behalf. Acquisition fees average 4.5% or less of the aggregate cost of
investments acquired and are comprised of a current portion of 2.5%, which is paid at the date the
property is purchased, and a deferred portion of 2%, which is payable in equal annual installments
each January of the three calendar years following the date on which a property was purchased,
subject to satisfying the 6% performance criterion. Interest on unpaid installments is 5% per year.
We did not incur any current or deferred acquisitions fees during 2010. During 2009 and 2008, we
incurred current acquisition fees of $3.0 million and $4.2 million, respectively, and deferred
acquisition fees of $2.4 million and $3.4 million, respectively. In addition, in May 2008,
CPA®:17 Global purchased from us an additional interest in a venture as described
below. In connection with this purchase, CPA®:17 Global assumed from us deferred
acquisition fees payable totaling $0.6 million. Unpaid installments of deferred acquisition fees
totaled $2.7 million and $9.0 million at December 31, 2010 and 2009, respectively, and are included
in Due to affiliates in the consolidated financial statements. We paid annual deferred acquisition
fee installments of $6.3 million, $9.1 million and $29.5 million in cash to the advisor in January
2010, 2009, and 2008, respectively. We also pay the advisor mortgage refinancing fees, which
totaled $0.1 million during the year ended December 31, 2010. No such mortgage refinancing fees
were paid during the years ended December 31, 2009 or December 31, 2008.
We also pay fees to the advisor for services provided to us in connection with the disposition of
investments. These fees, which are subordinated to the performance criterion and certain other
provisions included in the advisory agreement, are deferred and are payable to the advisor only in
connection with a liquidity event. Subordinated disposition fees totaled $1.0 million at both
December 31, 2010 and 2009.
Other Expenses
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 providing
management of our day-to-day operations, including accounting services, shareholder 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, dispositions and refinancings. We incurred
personnel reimbursements of $3.4 million, $3.1 million and $3.1 million for 2010, 2009 and 2008,
respectively, which are included in General and administrative expenses in the consolidated
financial statements.
CPA®:16 2010 10-K 67
Notes to Consolidated Financial Statements
The advisor is obligated to reimburse us for the amount by which our operating expenses exceeds the
2%/25% guidelines (the greater of 2% of average invested assets or 25% of net income) as defined in
the advisory agreement for any twelve-month period. If in any
year our operating expenses exceed the 2%/25% guidelines, the advisor will have an obligation to
reimburse us for such excess, subject to certain conditions. If our independent directors find that
the excess expenses were justified based on any unusual and nonrecurring factors that they deem
sufficient, the advisor may be paid in future years for the full amount or any portion of such
excess expenses, but only to the extent that the reimbursement would not cause our operating
expenses to exceed this limit in any such year. We will record any reimbursement of operating
expenses as a liability until any contingencies are resolved and will record the reimbursement as a
reduction of asset management and performance fees at such time that a reimbursement is fixed,
determinable and irrevocable. Our operating expenses have not exceeded the amount that would
require the advisor to reimburse us.
Proposed Merger
On December 13, 2010, we and CPA®:14 entered into a definitive agreement pursuant to
which CPA®:14 will merge with and into one of our subsidiaries, subject to the approval
of CPA®:14s shareholders. In connection with this merger, we filed a registration
statement with the SEC, which was declared effective by the SEC on March 8, 2011. Special
shareholder meetings for both us and CPA®:14 are currently expected to be held on April
26, 2011 to obtain the approval of CPA®:14s shareholders of the Proposed Merger and the
alternate merger and the approval of our shareholders of the alternate merger, the UPREIT
reorganization and a charter amendment to increase our number of authorized shares. The closing of
the Proposed Merger is also subject to customary closing conditions. If the Proposed Merger is
approved and the other closing conditions are satisfied, we currently expect that the closing will
occur in the second quarter of 2011, although there can be no assurance of such timing.
If the Proposed Merger is consummated, based on their ownership of 8,018,456 shares of
CPA®:14 at December 31, 2010, the advisor will receive approximately $8.0 million as a
result of the $1.00 per share special cash distribution to be paid by CPA®:14 to its
shareholders, in part from the proceeds of the sale of certain assets by CPA®:14,
immediately prior to the Proposed Merger. The advisor has agreed to elect to receive our stock in
respect of the shares of CPA®:14 it owns if the Proposed Merger is consummated.
In the Proposed Merger, CPA®:14 shareholders will be entitled to receive $11.50 per
share, which is equal to the NAV per share of CPA®:14 as of September 30, 2010. The
Merger Consideration will be paid to shareholders of CPA®:14, at their election, in
either cash or a combination of the $1.00 per share special cash distribution and 1.1932 shares of
our common stock, which equates to $10.50 based on our $8.80 per share NAV as of September 30,
2010. The advisor computed these NAVs internally, relying in part upon a third-party valuation of
each companys real estate portfolio and indebtedness as of September 30, 2010. Our board of
directors and the board of directors of CPA®:14 each have the ability, but not the
obligation, to terminate the transaction if more than 50% of the shareholders of CPA®:14
elect to receive cash in the Proposed Merger. Assuming that holders of 50% of CPA®:14s
outstanding stock elect to receive cash in the Proposed Merger, then the maximum cash required by
us to purchase these shares would be approximately $416.1 million, based on the total shares of
CPA®:14 outstanding at December 31, 2010. If the cash on hand and available to us and
CPA®:14, including the expected proceeds from the sales of certain assets by
CPA®:14 and a new $300.0 million senior credit facility, is not sufficient to enable us
to fulfill cash elections in the Proposed Merger by CPA®:14 shareholders, WPC has agreed
to purchase a sufficient number of shares of our common stock to enable us to pay such amounts to
CPA®:14 shareholders.
In connection with the Proposed Merger, the advisor has agreed to indemnify us if we suffer certain
losses arising out of a breach by CPA®:14 of its representations and
warranties under the merger agreement and having a material adverse effect on us after the Proposed
Merger, up to the amount of fees received by the advisor in connection with the Proposed Merger.
The advisor also agreed to pay our out-of-pocket expenses if the merger agreement is terminated
under certain circumstances up to a maximum of $5.0 million.
Joint Ventures and Other Transactions with Affiliates
Together with certain affiliates, we participate in an entity that leases office space used for the
administration of real estate entities. This entity does not have any significant assets,
liabilities or operations other than its interest in the office lease. Under the terms of an office
cost-sharing agreement among the participants in this entity, rental, occupancy and leasehold
improvement costs are allocated among the participants based on gross revenues and are adjusted
quarterly. Our share of expenses incurred was $0.7 million, $0.8 million and $0.8 million in 2010,
2009 and 2008, respectively. Based on gross revenues through December 31, 2010, our current share
of future annual minimum lease payments under this agreement would be $0.7 million annually through
2016.
In December 2010, as part of a restructuring of our lease with The Talaria Company (Hinckley), we
received a 27% interest in Hinckley in the form of class B common shares. We recorded this
investment at fair value on the date of the lease amendment which was $1.4 million. We account for
this investment under the equity method of accounting (Note 7).
CPA®:16 2010 10-K 68
Notes to Consolidated Financial Statements
We own interests in entities ranging from 25% to 70%, as well as a jointly-controlled
tenant-in-common interest in a property, with the remaining interests held by affiliates. We
consolidate certain of these entities (Note 2) and account for the remainder under the equity
method of accounting (Note 6).
In June 2008, our affiliate, CPA®:17 Global, exercised its option to purchase an
additional 49.99% interest in a domestic venture in which we and CPA®:17 Global
previously held 99.99% and 0.01% interests, respectively. In connection with this transaction, we
recognized a gain of $0.1 million as a result of the sale of our interest in the venture. We
continue to consolidate this investment because, in our capacity as the managing member, we have
the right to control operations as well as the ability to dissolve the venture or otherwise
purchase the interest of the other member.
In June 2007, we met our performance criterion, and as a result, $45.9 million, consisting of
performance fees of $11.9 million, deferred acquisition fees of $31.7 million and interest thereon
of $2.3 million, became payable to the advisor. We paid the previously deferred performance fees
totaling $11.9 million to the advisor in July 2007 in the form of 1,194,549 restricted shares of
our common stock. The deferred acquisition fees of $31.7 million and interest thereon of $2.3
million were payable to the advisor in cash beginning in January 2008. We paid installments of
$28.3 million and $4.7 million in January 2008 and 2009, respectively, and paid the remaining
installment of $1.1 million in January 2010. These amounts are exclusive of deferred acquisition
fees and interest thereon incurred in connection with transactions completed subsequent to meeting
the performance criterion.
Note 4. Net Investments in Properties
Real Estate
Real estate, which consists of land and buildings leased to others under operating leases, at cost,
is summarized as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
December 31, |
|
|
|
2010 |
|
|
2009 |
|
Land |
|
$ |
338,979 |
|
|
$ |
345,347 |
|
Buildings |
|
|
1,391,442 |
|
|
|
1,351,525 |
|
Less: Accumulated depreciation |
|
|
(145,957 |
) |
|
|
(112,385 |
) |
|
|
|
|
|
|
|
|
|
$ |
1,584,464 |
|
|
$ |
1,584,487 |
|
|
|
|
|
|
|
|
Operating Real Estate
Operating real estate, which consists primarily of our hotel operations, at cost, is summarized as
follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
December 31, |
|
|
|
2010 |
|
|
2009 |
|
Land |
|
$ |
8,296 |
|
|
$ |
8,296 |
|
Buildings |
|
|
76,476 |
|
|
|
75,422 |
|
Less: Accumulated depreciation |
|
|
(9,623 |
) |
|
|
(6,448 |
) |
|
|
|
|
|
|
|
|
|
$ |
75,149 |
|
|
$ |
77,270 |
|
|
|
|
|
|
|
|
Acquisitions of Real Estate
2010 We did not acquire any consolidated real estate investments during 2010. However, during
2010, we completed and placed into service a build-to-suit project and we reclassified $82.5
million from Real estate under construction to Real estate. The effects of this reclassification
were partially offset by the adverse impact of fluctuations in foreign currency exchange rates on
the carrying amount of our asset base as of December 31, 2010 as compared to December 31, 2009,
representing a decrease of $39.0 million to Real Estate. The U.S. dollar strengthened against the
Euro, as the end-of-period rate for the U.S. dollar in relation to the Euro at December 31, 2010
decreased 8% to $1.3253 from $1.4333 at December 31, 2009. In addition, real estate was reduced by
$5.9 million in connection with the deconsolidation of a subsidiary in the first quarter of 2010 as
described in Note 16.
2009 In July 2009, a venture in which we and an affiliate hold 51% and 49% interests,
respectively, and which we consolidate, entered into an investment in Hungary for a total cost of
approximately $93.6 million, inclusive of noncontrolling interest of $45.9 million and acquisition
fees payable to the advisor. In connection with this investment, which was deemed to be a real
estate asset
acquisition, we capitalized acquisition-related costs and fees totaling $4.6 million, inclusive of
amounts attributable to noncontrolling interests of $2.3 million.
CPA®:16 2010 10-K 69
Notes to Consolidated Financial Statements
Real Estate Under Construction
2009 During 2009, we consolidated a domestic build-to-suit project that was previously accounted
for under the equity method of accounting (Note 6). Costs incurred on this project through December
31, 2009 of $61.6 million have been presented as Real estate under construction in the consolidated
balance sheet.
Additionally, during 2009, we entered into and completed a domestic expansion project for an
existing tenant totaling $4.5 million. Capitalized acquisition-related costs and fees related to
this project totaled $0.2 million. Upon completion of this expansion, we sold the property to an
affiliate of our tenant for $50.6 million, net of selling costs (Note 16).
Scheduled future minimum rents, exclusive of renewals and expenses paid by tenants and future CPI
based adjustments, under non-cancelable operating leases are as follows (in thousands):
|
|
|
|
|
Years ending December 31, |
|
|
|
|
2011 |
|
$ |
159,724 |
|
2012 |
|
|
162,260 |
|
2013 |
|
|
162,827 |
|
2014 |
|
|
163,404 |
|
2015 |
|
|
163,716 |
|
Thereafter through 2032 |
|
|
1,638,505 |
|
There were no percentage rents for operating leases in 2010, 2009 and 2008.
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 receivable portfolios consist of direct financing
leases and notes receivable. Operating leases are not included in finance receivables as such
amounts are not recognized as an asset in the consolidated balance sheets.
Net Investment in Direct Financing Leases
Net investment in direct financing leases is summarized as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
December 31, |
|
|
|
2010 |
|
|
2009 |
|
Minimum lease payments receivable |
|
$ |
526,832 |
|
|
$ |
546,606 |
|
Unguaranteed residual value |
|
|
243,120 |
|
|
|
263,380 |
|
|
|
|
|
|
|
|
|
|
|
769,952 |
|
|
|
809,986 |
|
Less: unearned income |
|
|
(451,719 |
) |
|
|
(467,931 |
) |
|
|
|
|
|
|
|
|
|
$ |
318,233 |
|
|
$ |
342,055 |
|
|
|
|
|
|
|
|
During the years ended December 31, 2010, 2009 and 2008, in connection with our annual reviews
of our estimated residual values of our properties, we recorded impairment charges related to
several direct financing leases of $7.0 million, $2.3 million and $0.9 million, respectively.
Impairment charges relate primarily to other-than-temporary declines in the estimated residual
values of the underlying properties due to market conditions (Note 10). At December 31, 2010 and
2009, Other assets included $1.1 million and $4.1 million, respectively, of accounts receivable
related to amounts billed under these direct financing leases.
CPA®:16 2010 10-K 70
Notes to Consolidated Financial Statements
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, 2010 are as
follows (in thousands):
|
|
|
|
|
Years ending December 31, |
|
|
|
|
2011 |
|
$ |
31,154 |
|
2012 |
|
|
31,116 |
|
2013 |
|
|
31,169 |
|
2014 |
|
|
31,512 |
|
2015 |
|
|
32,016 |
|
Thereafter through 2031 |
|
|
369,865 |
|
There were no percentage rents for direct financing leases in 2010, 2009 and 2008.
Notes Receivable
Hellweg 2
In April 2007, we and our affiliates acquired a property venture that in turn acquired a 24.7%
ownership interest in a limited partnership. We and our affiliates also acquired a lending venture,
which made a loan, the note receivable, to the holder of the remaining 75.3% interests in the
limited partnership. We refer to this transaction as the Hellweg 2 transaction.
In connection with the acquisition, the property venture agreed to three option agreements that
give the property venture the right to purchase, from our partner, the remaining 75.3% (direct and
indirect) interest in the limited partnership at a price equal to the principal amount of the note
receivable at the time of purchase. In November 2010, the property venture exercised the first of
its three options and acquired from our partner a 70% direct interest in the limited partnership
for $297.3 million, thus owning a (direct and indirect) 94.7% interest in the limited partnership.
The property venture has assignable option agreements to acquire the remaining (direct and
indirect) 5.3% interest in the limited partnership by October 2012. If the property venture does
not exercise its option agreements, our partner has option agreements to put its remaining
interests in the limited partnership to the property venture during 2014 at a price equal to the
principal amount of the note receivable at the time of purchase. Currently, under the terms of the
note receivable, the lending venture will receive interest income that approximates 5.3% of all
income earned by the limited partnership less adjustments. Under the terms of the note receivable,
the lending venture will receive interest at a fixed annual rate of 8%. The note receivable matures
in April 2017. The note receivable has a principal balance of $21.8 million and $337.3 million,
inclusive of our affiliates noncontrolling interest of $16.2 million and $250.9 million at
December 31, 2010 and 2009, respectively.
Other
In June 2007, we entered into an agreement to provide a developer with a construction loan of up to
$14.8 million that provides for a variable annual interest rate of LIBOR plus 2.5% and matures in
April 2010. This agreement was subsequently amended to provide for two notes for loans of up to
$19.0 million and $4.9 million, respectively, with a variable annual interest rate of LIBOR plus
2.5% and a fixed interest rate of 8%, respectively, and maturity dates of December 2011. At
December 31, 2010 and 2009, the balances of the construction notes receivable were $24.0 million
and $15.6 million, respectively, inclusive of construction interest, which included amounts funded
of $23.9 million and $14.8 million, respectively.
In addition, we had a note receivable which totaled $9.7 million and $9.6 million at December 31,
2010 and 2009, respectively, with a fixed annual interest rate of 6.3% and a maturity date of
February 2015.
Credit Quality of Finance Receivables
We generally seek investments in facilities that we believe are critical to the tenants business
and that we believe have a low risk of tenant defaults. At December 31, 2010, our allowance for
uncollected accounts of $0.2 million pertained to disputed property-related charges in connection
with four tenants. All rents are current at December 31, 2010 for our finance receivables.
Additionally, there have been no modifications of finance receivables. We evaluate the credit
quality of our tenant receivables utilizing an internal 5-point credit rating scale, with 1
representing the highest credit quality and 5 representing the lowest. The credit quality of our
tenant receivables was last updated in the fourth quarter of 2010.
CPA®:16 2010 10-K 71
Notes to Consolidated Financial Statements
A summary of our tenant receivables by internal credit quality rating at December 31, 2010 is as
follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Investment in |
|
|
|
|
|
|
|
|
|
|
Internal Credit |
|
|
|
|
|
Direct Financing |
|
|
Number of |
|
|
|
|
|
|
|
Quality Indicator |
|
Number of Tenants |
|
|
Leases |
|
|
Obligors |
|
|
Note Receivable |
|
|
Total |
|
1 |
|
|
2 |
|
|
$ |
39,505 |
|
|
|
|
|
|
$ |
|
|
|
$ |
39,505 |
|
2 |
|
|
3 |
|
|
|
49,639 |
|
|
|
1 |
|
|
|
9,738 |
|
|
|
59,377 |
|
3 |
|
|
3 |
|
|
|
26,015 |
|
|
|
2 |
|
|
|
45,766 |
|
|
|
71,781 |
|
4 |
|
|
10 |
|
|
|
203,074 |
|
|
|
|
|
|
|
|
|
|
|
203,074 |
|
5 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
318,233 |
|
|
|
|
|
|
$ |
55,504 |
|
|
$ |
373,737 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Note 6. Equity Investments in Real Estate and Other
We generally own interests in single-tenant net leased properties leased to corporations through
noncontrolling interests in (i) partnerships and limited liability companies in which our ownership
interests are 50% or less but over which we exercise significant influence, and (ii) as
tenants-in-common subject to common control (Note 2). All of the underlying investments are owned
with affiliates. We account for these investments under the equity method of accounting (i.e., at
cost, increased or decreased by our share of earnings or losses, less distributions, plus
fundings).
The following table sets forth our ownership interests in our equity investments in real estate and
other and their respective carrying values (dollars in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ownership |
|
|
Carrying Value at |
|
|
|
Interest at |
|
|
December 31, |
|
Lessee |
|
December 31, 2010 |
|
|
2010 |
|
|
2009 |
|
The New York Times Company |
|
|
27 |
% |
|
$ |
33,888 |
|
|
$ |
33,195 |
|
U-Haul Moving Partners, Inc. and Mercury Partners, LP |
|
|
31 |
% |
|
|
32,808 |
|
|
|
33,834 |
|
Schuler A.G. (a) (b) |
|
|
33 |
% |
|
|
21,892 |
|
|
|
23,469 |
|
Hellweg Die Profi-Baumarkte GmbH & Co. KG (Hellweg 1) |
|
|
25 |
% |
|
|
18,493 |
|
|
|
18,934 |
|
TietoEnator Plc (a)(c) |
|
|
40 |
% |
|
|
6,921 |
|
|
|
8,488 |
|
Police Prefecture, French Government (a) (c) |
|
|
50 |
% |
|
|
6,636 |
|
|
|
8,268 |
|
Frontier Spinning Mills, Inc. |
|
|
40 |
% |
|
|
6,249 |
|
|
|
6,077 |
|
Pohjola Non-life Insurance Company (a) (c) |
|
|
40 |
% |
|
|
5,419 |
|
|
|
6,632 |
|
Actebis Peacock GmbH. (a) (c) |
|
|
30 |
% |
|
|
5,043 |
|
|
|
5,644 |
|
OBI A.G. (a) (c) (d) |
|
|
25 |
% |
|
|
4,907 |
|
|
|
6,794 |
|
Actuant Corporation (a) |
|
|
50 |
% |
|
|
2,670 |
|
|
|
2,758 |
|
Consolidated Systems, Inc. (b) |
|
|
40 |
% |
|
|
2,109 |
|
|
|
2,131 |
|
Talaria Holdings, LLC (e) |
|
|
27 |
% |
|
|
1,400 |
|
|
|
|
|
Barth Europa Transporte e.K/MSR Technologies GmbH
(formerly Lindenmaier A.G.) (a) (f) |
|
|
33 |
% |
|
|
1,179 |
|
|
|
1,569 |
|
Thales S.A. (a) (g) |
|
|
35 |
% |
|
|
|
|
|
|
356 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
149,614 |
|
|
$ |
158,149 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(a) |
|
The carrying value of this investment is affected by the impact of fluctuations in the
exchange rate of the Euro. |
|
(b) |
|
Represents tenant-in-common interest. |
|
(c) |
|
The decrease in carrying value was primarily due to cash distributions made to us by the
venture. |
|
(d) |
|
The carrying value of this investment included our share of the net loss on interest rate
swap derivative instruments recognized by the venture. |
|
(e) |
|
In connection with the restructuring of our lease with The Talaria Company (Hinckley), we
received a 27% interest in Hinckley. This represents the fair market value of the interest
received. |
|
(f) |
|
During 2010, we recognized an other-than-temporary impairment charge of $0.2 million to
reduce the carrying value of this venture to its estimated fair value (Note 10). |
|
(g) |
|
During 2010, we recognized an other-than-temporary impairment charge of $0.8 million to
reduce the carrying value of this venture to its estimated fair value (Note 10). |
CPA®:16 2010 10-K 72
Notes to Consolidated Financial Statements
As discussed in Note 2, we adopted the FASBs amended guidance on the consolidation of VIEs
effective January 1, 2010. Upon adoption of the amended guidance, we re-evaluated our existing
interests in unconsolidated entities and determined that we should continue to account for our
interest in The New York Times Company venture using the equity method of accounting. Carrying
amounts related to this VIE are noted in the table above. Because we generally utilize non-recourse
debt, our maximum exposure to this VIE is limited to the equity we have in the VIE. We have not
provided financial or other support to this VIE, and there are no guarantees or other commitments
from third parties that would affect the value of or risk related to our interest in this entity.
The following tables present combined summarized financial information of our venture properties.
Amounts provided are the total amounts attributable to the venture properties and do not represent
our proportionate share (in thousands):
|
|
|
|
|
|
|
|
|
|
|
December 31, |
|
|
|
2010 |
|
|
2009 |
|
Assets |
|
$ |
1,406,049 |
|
|
$ |
1,504,377 |
|
Liabilities |
|
|
(936,691 |
) |
|
|
(1,003,312 |
) |
|
|
|
|
|
|
|
Partners/members equity |
|
$ |
469,358 |
|
|
$ |
501,065 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years ended December 31, |
|
|
|
2010 |
|
|
2009 |
|
|
2008 |
|
Revenues |
|
$ |
142,918 |
|
|
$ |
141,324 |
|
|
$ |
123,666 |
|
Expenses |
|
|
(82,338 |
) |
|
|
(85,123 |
) |
|
|
(90,592 |
) |
Impairment charges (a) |
|
|
(4,145 |
) |
|
|
(13,119 |
) |
|
|
(35,422 |
) |
Gain on sale of real estate (b) |
|
|
|
|
|
|
11,084 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss) |
|
$ |
56,435 |
|
|
$ |
54,166 |
|
|
$ |
(2,348 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
(a) |
|
The years ended December 31, 2010 and 2009, reflect impairment charges incurred by a venture
that leases property to Thales S.A. to reduce the carrying value of the property to its
estimated fair value. The year ended December 31, 2009 also reflects impairment charges
incurred by a venture that formerly leased properties to Lindenmaier A.G. as a result of the
tenants bankruptcy filing. The year ended December 31, 2008 reflects impairment charges
incurred by a venture on two vacant French properties to reduce the carrying values to their
estimated fair values. See Note 10 for a discussion of other-than-temporary impairment charges
incurred on our equity investments in real estate during the years ended December 31, 2010,
2009 and 2008. |
|
(b) |
|
In July 2009, a venture sold four of its five properties back to the tenant for $46.6 million
and recognized a gain on sale of $11.1 million. |
We recognized income from these equity investments in real estate of $17.6 million, $13.8 million
and $8.8 million for the years ended December 31, 2010, 2009 and 2008, respectively. Income from
equity investments in real estate represents our proportionate share of the income or losses of
these ventures as well as certain depreciation and amortization adjustments related to purchase
accounting and other-than-temporary impairment charges.
CPA®:16 2010 10-K 73
Notes to Consolidated Financial Statements
NYT Real Estate Company, LLC is the tenant of a property pursuant to a net lease with our
subsidiary, 620 Eighth NYT (NY) Limited Partnership, which was deemed to be a material equity
investment during 2009 primarily because of impairment charges included in Income from continuing
operations totaling $33.9 million on several of our consolidated investments in that year. The
following tables present summarized combined balance sheet, income statement and cash flow
information each for the period from March 6, 2009 (inception) through December 31, 2009 and the
year ended December 31, 2010, as well as scheduled debt principal payments during each of the five
years following December 31, 2010 of 620 Eighth NYT (NY) Limited Partnership and 620 Eighth Lender
NYT (NY) Limited Partnership, collectively the New York Times venture. Amounts provided are the
total amounts attributable to the New York Times venture and do not represent our proportionate
share (in thousands):
|
|
|
|
|
|
|
|
|
|
|
620 Eighth NYT (NY) LP & |
|
|
|
620 Eighth Lender NYT LP |
|
|
|
December 31, |
|
|
December 31, |
|
|
|
2010 |
|
|
2009 |
|
Assets |
|
|
|
|
|
|
|
|
Net investment in direct financing lease |
|
$ |
237,916 |
|
|
$ |
235,608 |
|
Note receivable |
|
|
49,560 |
|
|
|
|
|
Other assets, net (a) |
|
|
6,526 |
|
|
|
9,041 |
|
|
|
|
|
|
|
|
Total assets |
|
$ |
294,002 |
|
|
$ |
244,649 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities and Equity |
|
|
|
|
|
|
|
|
Debt |
|
$ |
116,684 |
|
|
$ |
119,154 |
|
Other liabilities (b) |
|
|
5,200 |
|
|
|
5,509 |
|
|
|
|
|
|
|
|
Total liabilities |
|
|
121,884 |
|
|
|
124,663 |
|
|
|
|
|
|
|
|
Capital |
|
|
172,118 |
|
|
|
119,986 |
|
|
|
|
|
|
|
|
Total liabilities and capital |
|
$ |
294,002 |
|
|
$ |
244,649 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
620 Eighth NYT (NY) LP & |
|
|
|
620 Eighth Lender NYT LP |
|
|
|
Year Ended |
|
|
Inception through |
|
|
|
December 31, 2010 |
|
|
December 31, 2009 |
|
Revenues |
|
|
|
|
|
|
|
|
Interest income from direct financing lease |
|
$ |
27,094 |
|
|
$ |
21,860 |
|
Interest income from note receivable |
|
|
1,276 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
28,370 |
|
|
|
21,860 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating Expenses |
|
|
|
|
|
|
|
|
General and administrative expenses |
|
|
(9 |
) |
|
|
(24 |
) |
|
|
|
|
|
|
|
|
|
|
(9 |
) |
|
|
(24 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other Income and Expenses |
|
|
|
|
|
|
|
|
Other interest income |
|
|
3 |
|
|
|
1 |
|
Interest expense |
|
|
(6,675 |
) |
|
|
(2,248 |
) |
|
|
|
|
|
|
|
|
|
|
(6,672 |
) |
|
|
(2,247 |
) |
|
|
|
|
|
|
|
Net Income |
|
$ |
21,689 |
|
|
$ |
19,589 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
620 Eighth NYT (NY) LP & |
|
|
|
620 Eighth Lender NYT LP |
|
|
|
Year Ended |
|
|
Inception through |
|
|
|
December 31, 2010 |
|
|
December 31, 2009 |
|
Net cash provided by (used in): |
|
|
|
|
|
|
|
|
Operating activities |
|
$ |
19,510 |
|
|
$ |
17,213 |
|
Investing activities |
|
|
(49,693 |
) |
|
|
(233,720 |
) |
Financing activities |
|
|
30,181 |
|
|
|
216,566 |
|
|
|
|
|
|
|
|
Net increase in cash and cash equivalents |
|
|
(2 |
) |
|
|
59 |
|
Cash and cash equivalents, beginning of year |
|
|
59 |
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents, end of year |
|
$ |
57 |
|
|
$ |
59 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
620 Eighth NYT |
|
|
|
(NY) LP & 620 |
|
|
|
Eighth Lender |
|
Years ending December 31, |
|
NYT LP |
|
2011 |
|
$ |
2,613 |
|
2012 |
|
|
2,747 |
|
2013 |
|
|
2,889 |
|
2014 |
|
|
108,435 |
|
|
|
|
|
Total |
|
$ |
116,684 |
|
|
|
|
|
|
|
|
(a) |
|
Other assets, net consist of cash and cash equivalents, escrow and restricted cash,
deferred financing costs, derivative instruments, accrued interest, and other amounts
receivable from the tenant. |
|
(b) |
|
Other liabilities consist of prepaid rent and deferred rental income, accounts payable
and accrued expenses. |
CPA®:16 2010 10-K 74
Notes to Consolidated Financial Statements
Note 7. Intangible Assets and Liabilities
In connection with our acquisition of properties, we have recorded net lease intangibles of $147.2
million, which are being amortized over periods ranging from 10 years to 40 years. In-place lease,
tenant relationship, above-market rent, management contract and franchise agreement intangibles are
included in Intangible assets, net in the consolidated financial statements. Below-market rent
intangibles are included in Prepaid and deferred rental income and security deposits in the
consolidated financial statements.
Intangible assets and liabilities are summarized as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
December 31, |
|
|
|
2010 |
|
|
2009 |
|
Amortized Intangible Assets |
|
|
|
|
|
|
|
|
Management contract |
|
$ |
874 |
|
|
$ |
874 |
|
Franchise agreement |
|
|
2,240 |
|
|
|
2,240 |
|
Less: accumulated amortization |
|
|
(1,134 |
) |
|
|
(785 |
) |
|
|
|
|
|
|
|
|
|
|
1,980 |
|
|
|
2,329 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Lease intangibles: |
|
|
|
|
|
|
|
|
In-place lease |
|
|
114,544 |
|
|
|
115,437 |
|
Tenant relationship |
|
|
33,934 |
|
|
|
34,674 |
|
Above-market rent |
|
|
41,769 |
|
|
|
44,433 |
|
Less: accumulated amortization |
|
|
(43,145 |
) |
|
|
(34,441 |
) |
|
|
|
|
|
|
|
Total intangible assets |
|
|
147,102 |
|
|
|
160,103 |
|
|
|
|
|
|
|
|
|
|
$ |
149,082 |
|
|
$ |
162,432 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amortized Below-Market Rent Intangible Liabilities |
|
|
|
|
|
|
|
|
Below-market rent |
|
|
(43,037 |
) |
|
|
(43,541 |
) |
Less: accumulated amortization |
|
|
6,963 |
|
|
|
5,331 |
|
|
|
|
|
|
|
|
|
|
$ |
(36,074 |
) |
|
$ |
(38,210 |
) |
|
|
|
|
|
|
|
Net amortization of intangibles, including the effect of foreign currency translation, was
$8.0 million, $8.5 million and $8.4 million for 2010, 2009 and 2008, respectively. Amortization of
below-market and above-market rent intangibles is recorded as an adjustment to lease revenue, while
amortization of in-place lease and tenant relationship intangibles is included in depreciation and
amortization. Based on the intangibles recorded at December 31, 2010, scheduled net annual
amortization of intangibles for each of the next five years is expected to be $8.0 million annually
between 2011 and 2015.
Note 8. Fair Value Measurements
Under current authoritative accounting guidance for fair value measurements, the fair value of an
asset is defined as the exit price, which is the amount that would either be received when an asset
is sold or paid to transfer a liability in an orderly transaction between market participants at
the measurement date. The guidance establishes a three-tier fair value hierarchy based on the
inputs used in measuring fair value. These tiers are: Level 1, for which quoted market prices for
identical instruments are available in active markets, such as money market funds, equity
securities and U.S. Treasury securities; Level 2, for which there are inputs other than quoted
prices included within Level 1 that are observable for the instrument, such as certain derivative
instruments including interest rate caps and swaps; and Level 3, for which little or no market data
exists, therefore requiring us to develop our own assumptions, such as certain securities.
Items Measured at Fair Value on a Recurring Basis
The following methods and assumptions were used to estimate the fair value of each class of
financial instrument:
Money Market Funds Our money market funds consisted of government securities and treasury bills.
These funds were classified as Level 1 as we used quoted prices from active markets to determine
their fair values.
Derivative Liabilities Our derivative liabilities are comprised of an interest rate swap and a
foreign currency zero-cost collar. These derivative instruments were measured at fair value using
readily observable market inputs, such as quotations on interest rates. Our derivative instruments
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.
CPA®:16 2010 10-K 75
Notes to Consolidated Financial Statements
Marketable Securities and Derivative Assets Our marketable securities are comprised of our
interest in an interest-only senior note. Our derivative assets are comprised of an embedded credit
derivative and of stock warrants that were granted to us by lessees in connection with structuring
initial lease transactions. These assets are not traded in an active market. We estimated the fair
value of these assets using internal valuation models that incorporate market inputs and our own
assumptions about future cash flows. We classified these assets as Level 3.
The following tables set forth our assets and liabilities that were accounted for at fair value on
a recurring basis at December 31, 2010 and 2009 (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair Value Measurements at Reporting Date Using: |
|
|
|
|
|
|
|
Quoted Prices in |
|
|
|
|
|
|
|
|
|
|
|
|
|
Active Markets for |
|
|
Significant Other |
|
|
Unobservable |
|
|
|
|
|
|
|
Identical Assets |
|
|
Observable Inputs |
|
|
Inputs |
|
Description |
|
December 31, 2010 |
|
|
(Level 1) |
|
|
(Level 2) |
|
|
(Level 3) |
|
Assets: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Money market funds |
|
$ |
6,769 |
|
|
$ |
6,769 |
|
|
$ |
|
|
|
$ |
|
|
Marketable securities |
|
|
1,553 |
|
|
|
|
|
|
|
|
|
|
|
1,553 |
|
Derivative assets |
|
|
1,369 |
|
|
|
|
|
|
|
|
|
|
|
1,369 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
9,691 |
|
|
$ |
6,769 |
|
|
$ |
|
|
|
$ |
2,922 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Derivative liabilities |
|
$ |
(504 |
) |
|
$ |
|
|
|
$ |
(504 |
) |
|
$ |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair Value Measurements at Reporting Date Using: |
|
|
|
|
|
|
|
Quoted Prices in |
|
|
|
|
|
|
|
|
|
|
|
|
|
Active Markets for |
|
|
Significant Other |
|
|
Unobservable |
|
|
|
|
|
|
|
Identical Assets |
|
|
Observable Inputs |
|
|
Inputs |
|
Description |
|
December 31, 2009 |
|
|
(Level 1) |
|
|
(Level 2) |
|
|
(Level 3) |
|
Assets: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Money market funds |
|
$ |
49,261 |
|
|
$ |
49,261 |
|
|
$ |
|
|
|
$ |
|
|
Marketable securities |
|
|
1,851 |
|
|
|
|
|
|
|
|
|
|
|
1,851 |
|
Derivative assets |
|
|
2,228 |
|
|
|
|
|
|
|
50 |
|
|
|
2,178 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
53,340 |
|
|
$ |
49,261 |
|
|
$ |
50 |
|
|
$ |
4,029 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Derivative liabilities |
|
$ |
(380 |
) |
|
$ |
|
|
|
$ |
(380 |
) |
|
$ |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Assets and liabilities presented above exclude assets and liabilities owned by unconsolidated
ventures.
CPA®:16 2010 10-K 76
Notes to Consolidated Financial Statements
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair Value Measurements Using Significant |
|
|
|
|
|
|
|
Unobservable Inputs (Level 3 only) |
|
|
|
Year ended December 31, 2010 |
|
|
Year ended December 31, 2009 |
|
|
|
Marketable |
|
|
Derivative |
|
|
|
|
|
|
Marketable |
|
|
Derivative |
|
|
|
|
|
|
Securities |
|
|
Assets |
|
|
Total Assets |
|
|
Securities |
|
|
Assets |
|
|
Total Assets |
|
Beginning balance |
|
$ |
1,851 |
|
|
$ |
2,178 |
|
|
$ |
4,029 |
|
|
$ |
2,192 |
|
|
$ |
2,973 |
|
|
$ |
5,165 |
|
Total gains or losses (realized and
unrealized): |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Included in earnings |
|
|
|
|
|
|
(738 |
) |
|
|
(738 |
) |
|
|
|
|
|
|
(799 |
) |
|
|
(799 |
) |
Included in other comprehensive income |
|
|
29 |
|
|
|
(71 |
) |
|
|
(42 |
) |
|
|
(28 |
) |
|
|
4 |
|
|
|
(24 |
) |
Amortization and accretion |
|
|
(327 |
) |
|
|
|
|
|
|
(327 |
) |
|
|
(313 |
) |
|
|
|
|
|
|
(313 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ending balance |
|
$ |
1,553 |
|
|
$ |
1,369 |
|
|
$ |
2,922 |
|
|
$ |
1,851 |
|
|
$ |
2,178 |
|
|
$ |
4,029 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The amount of total gains or losses for the
period included in earnings attributable to the
change in unrealized gains or losses relating to
assets still held at the reporting date |
|
$ |
|
|
|
$ |
(738 |
) |
|
$ |
(738 |
) |
|
$ |
|
|
|
$ |
(799 |
) |
|
$ |
(799 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
We did not have any transfers into or out of Level 1, Level 2 and Level 3 measurements during
the years ended December 31, 2010 and 2009. Gains and losses (realized and unrealized) included in
earnings are reported in Other income and expenses in the consolidated financial statements.
Our other financial instruments had the following carrying value and fair value (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2010 |
|
|
December 31, 2009 |
|
|
|
Carrying Value |
|
|
Fair Value |
|
|
Carrying Value |
|
|
Fair Value |
|
Non-recourse debt |
|
$ |
1,369,248 |
|
|
$ |
1,314,768 |
|
|
$ |
1,445,889 |
|
|
$ |
1,286,300 |
|
Notes receivable |
|
|
55,504 |
|
|
|
55,682 |
|
|
|
362,707 |
|
|
|
363,389 |
|
|
|
|
(a) |
|
Carrying value represents historical cost for marketable securities. |
We determine the estimated fair value of our debt instruments and notes receivable using a
discounted cash flow model with rates that take into account the credit of the tenants and interest
rate risk. We estimate 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, 2010 and 2009.
Items Measured at Fair Value on a Non-Recurring Basis
We perform an assessment, when required, of the value of certain of our real estate investments in
accordance with current authoritative accounting guidance. As part of that assessment, we
determined the valuation of these assets using widely accepted valuation techniques, including
expected discounted cash flows or an income capitalization approach, which considers prevailing
market capitalization rates. We reviewed each investment based on the highest and best use of the
investment and market participation assumptions. We determined that the significant inputs used to
value these investments fall within Level 3. We calculated the impairment charges recorded during
the years ended December 31, 2010 and 2009 based on market conditions and assumptions that existed
at the time. The valuation of real estate is subject to significant judgment and actual results may
differ materially if market conditions or the underlying assumptions change.
CPA®:16 2010 10-K 77
Notes to Consolidated Financial Statements
The following table presents information about our nonfinancial assets that were measured on a fair
value basis for the years ended December 31, 2010, 2009 and 2008, respectively. For additional
information regarding these impairment charges, refer to Note 10 for impairment charges from
continuing operations and Note 16 for impairment changes from discontinued operations. All of the
impairment charges were measured using unobservable inputs (Level 3) (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year ended December 31, 2010 |
|
|
Year ended December 31, 2009 |
|
|
Year ended December 31, 2008 |
|
|
|
|
|
|
|
Total |
|
|
|
|
|
|
Total |
|
|
|
|
|
|
Total |
|
|
|
Total Fair Value |
|
|
Impairment |
|
|
Total Fair Value |
|
|
Impairment |
|
|
Total Fair Value |
|
|
Impairment |
|
|
|
Measurements |
|
|
Charges |
|
|
Measurements |
|
|
Charges |
|
|
Measurements |
|
|
Charges |
|
Impairment Charges from Continuing
Operations: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net investments in properties |
|
$ |
17,295 |
|
|
$ |
2,835 |
|
|
$ |
124,630 |
|
|
$ |
24,068 |
|
|
$ |
|
|
|
$ |
|
|
Net investments in direct financing leases |
|
|
39,565 |
|
|
|
6,973 |
|
|
|
167,752 |
|
|
|
2,279 |
|
|
|
55,977 |
|
|
|
890 |
|
Equity investments in real estate |
|
|
1,226 |
|
|
|
1,046 |
|
|
|
1,925 |
|
|
|
3,598 |
|
|
|
4,583 |
|
|
|
3,085 |
|
Intangible assets |
|
|
949 |
|
|
|
|
|
|
|
7,183 |
|
|
|
4,027 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
59,035 |
|
|
$ |
10,854 |
|
|
$ |
301,490 |
|
|
$ |
33,972 |
|
|
$ |
60,560 |
|
|
$ |
3,975 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Intangible liabilities |
|
$ |
|
|
|
$ |
|
|
|
$ |
(1,394 |
) |
|
$ |
(37 |
) |
|
$ |
|
|
|
$ |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Impairment Charges from Discontinued
Operations: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net investments in properties |
|
$ |
|
|
|
$ |
|
|
|
$ |
10,911 |
|
|
$ |
22,083 |
|
|
$ |
|
|
|
$ |
|
|
Intangible assets |
|
|
|
|
|
|
|
|
|
|
987 |
|
|
|
3,538 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
11,898 |
|
|
$ |
25,621 |
|
|
$ |
|
|
|
$ |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Note 9. 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
three main components of economic risk: interest rate risk, credit risk and market risk. We are
subject to interest rate risk on our interest-bearing liabilities. Credit risk is the risk of
default on our operations and 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 marketable securities due to changes in interest rates or other market
factors. In addition, we own investments in the European Union, Canada, Mexico, Malaysia and
Thailand and are subject to the risks associated with changing foreign currency exchange rates.
Foreign Currency Exchange
We are exposed to foreign currency exchange rate movements, primarily in the Euro and the British
Pound Sterling and, to a lesser extent, certain other currencies. We manage foreign currency
exchange rate movements by generally placing both our debt obligation to the lender and the
tenants rental obligation to us in the same currency, but 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. We also face challenges with repatriating cash from our foreign
investments. We may encounter instances where it is difficult to repatriate cash because of
jurisdictional restrictions or because repatriating cash may result in current or future tax
liabilities. 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.
Use of Derivative Financial Instruments
When we use derivative instruments, it is generally to reduce our exposure to fluctuations in
interest rates. We have not entered, and do not plan to enter into, financial instruments for
trading or speculative purposes. In addition to derivative instruments that we enter 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,
that are considered to be derivative instruments. The primary risks related to our use of
derivative instruments are that a counterparty to a hedging arrangement could default on its
obligation or that the credit quality of the counterparty may be downgraded to such an extent that
it impairs our ability to sell or assign our side of the hedging transaction. 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.
CPA®:16 2010 10-K 78
Notes to Consolidated Financial Statements
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. If a derivative is designated
as a hedge, depending on the nature of the hedge, changes in the fair value of the derivative will
either be offset against the change in fair value of the hedged asset, liability, or firm
commitment through earnings or recognized in OCI until the hedged item is recognized in earnings.
For cash flow hedges, the ineffective portion of a derivatives change in fair value is immediately
recognized in earnings.
The following table sets forth certain information regarding our derivative instruments at December
31, 2010 and 2009 (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Asset Derivatives |
|
|
Liability Derivatives |
|
Derivatives designated as |
|
Balance Sheet |
|
Fair Value at December 31, |
|
|
Fair Value at December 31, |
|
hedging instruments |
|
Location |
|
2010 |
|
|
2009 |
|
|
2010 |
|
|
2009 |
|
Foreign exchange contracts |
|
Accounts payable, accrued expenses and other liabilities |
|
$ |
|
|
|
$ |
|
|
|
$ |
(106 |
) |
|
$ |
(143 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest rate swaps |
|
Accounts payable, accrued expenses and other liabilities |
|
|
|
|
|
|
|
|
|
|
(398 |
) |
|
|
(237 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(504 |
) |
|
|
(380 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Derivatives not designated as
hedging instruments |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Embedded credit derivatives |
|
Other assets, net |
|
$ |
46 |
|
|
$ |
963 |
|
|
$ |
|
|
|
$ |
|
|
Stock warrants |
|
Other assets, net |
|
|
1,323 |
|
|
|
1,215 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,369 |
|
|
|
2,178 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total derivatives |
|
|
|
$ |
1,369 |
|
|
$ |
2,178 |
|
|
$ |
(504 |
) |
|
$ |
(380 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The following tables present the impact of derivative instruments on the consolidated
financial statements (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amount of Gain (Loss) |
|
|
Amount of Gain (Loss) |
|
|
|
Recognized in OCI on Derivative |
|
|
Reclassified from OCI into Income |
|
|
|
(Effective Portion) |
|
|
(Effective Portion) |
|
Derivatives in Cash Flow |
|
Years ended December 31, |
|
|
Years ended December 31, |
|
Hedging Relationships |
|
2010 |
|
|
2009 |
|
|
2008 |
|
|
2010 |
|
|
2009 |
|
|
2008 |
|
Interest rate swaps (a) |
|
$ |
(162 |
) |
|
$ |
284 |
|
|
$ |
(520 |
) |
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
Foreign currency forward contracts (a) (b) |
|
|
205 |
|
|
|
(143 |
) |
|
|
|
|
|
|
(62 |
) |
|
|
27 |
|
|
|
|
|
Foreign currency collars |
|
|
(106 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
$ |
(63 |
) |
|
$ |
141 |
|
|
$ |
(520 |
) |
|
$ |
(62 |
) |
|
$ |
27 |
|
|
$ |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(a) |
|
During the years ended December 31, 2010, 2009 and 2008, no gains or losses were reclassified
from OCI into income related to ineffective portions of hedging relationships or to amounts
excluded from effectiveness testing. |
|
(b) |
|
Gains (losses) reclassified from OCI into income for contracts which have matured are
included in Other income and expenses. |
CPA®:16 2010 10-K 79
Notes to Consolidated Financial Statements
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amount of Gain (Loss) Recognized |
|
|
|
|
|
|
|
in Income on Derivatives |
|
Derivatives not in Cash Flow |
|
Location of Gain (Loss) |
|
|
Years ended December 31, |
|
Hedging Relationships |
|
Recognized in Income |
|
|
2010 |
|
|
2009 |
|
|
2008 |
|
Embedded credit derivatives (a) |
|
Other income and (expenses) |
|
|
$ |
(846 |
) |
|
$ |
(1,136 |
) |
|
$ |
(3,406 |
) |
Stock warrants |
|
Other income and (expenses) |
|
|
|
108 |
|
|
|
338 |
|
|
|
230 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
|
|
|
|
$ |
(738 |
) |
|
$ |
(798 |
) |
|
$ |
(3,176 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(a) |
|
Includes losses attributable to noncontrolling interests totaling $0.6 million, $0.8
million and $2.7 million for the years ended December 31, 2010, 2009 and 2008, respectively. |
A venture that leases properties to Berry Plastics Corporation, and in which we hold a 50%
ownership interest, had a non-recourse mortgage loan with a total carrying value of $29.0 million
at December 31, 2009. In May 2010, the venture refinanced this loan, replacing a variable-rate loan
and a related interest rate cap with a ten-year fixed-rate loan bearing interest at an annual rate
of 5.9%. The new loan calls for a scheduled balloon payment of $21.0 million in June 2020. As a
result of this refinancing, the existing interest rate cap that had been designated as a hedge
against the loan is no longer designated as a hedge and the related unrealized loss of less than
$0.1 million included in Equity was expensed. The interest rate cap had an estimated total fair
value of less than $0.1 million at both December 31, 2010 and 2009. No gains or losses were
recognized in income related to this instrument during either the years ended December 31, 2010,
2009 or 2008.
See below for information on our purposes for entering into derivative instruments, including those
not designated as hedging instruments, and for information on derivative instruments owned by
unconsolidated ventures, which are excluded from the tables above.
Interest Rate Swaps and Caps
We are exposed to the impact of interest rate changes primarily through our borrowing activities.
To limit this exposure, we attempt to obtain mortgage financing on a long-term, fixed-rate basis.
However, from time to time, we or our venture partners may obtain variable-rate non-recourse
mortgage loans and, as a result, may enter into interest rate swap agreements or interest rate cap
agreements with counterparties. Interest rate swaps, which effectively convert the variable-rate
debt service obligations of the loan to a fixed rate, are agreements in which one party exchanges a
stream of interest payments for a counterpartys stream of cash flow over a specific period. The
notional, or face, amount on which the swaps are based is not exchanged. Interest rate caps limit
the effective borrowing rate of variable-rate debt obligations while allowing participants to share
in downward shifts in interest rates. Our objective in using these derivatives is to limit our
exposure to interest rate movements.
The interest rate swap derivative instrument that we had outstanding at December 31, 2010 was
designated as a cash flow hedge and is summarized as follows (dollars in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Effective |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Notional |
|
|
|
|
|
|
|
|
|
|
Interest |
|
|
Effective |
|
|
Expiration |
|
|
Fair Value at |
|
|
|
Type |
|
|
Amount |
|
|
Cap Rate |
|
|
Spread |
|
|
Rate |
|
|
Date |
|
|
Date |
|
|
December 31, 2010 |
|
1-Month LIBOR |
|
Pay-fixed swap |
|
|
$ |
3,807 |
|
|
|
N/A |
|
|
|
N/A |
|
|
|
6.7 |
% |
|
|
2/2008 |
|
|
|
2/2018 |
|
|
$ |
(398 |
) |
CPA®:16 2010 10-K 80
Notes to Consolidated Financial Statements
The interest rate swap and interest rate cap derivative instruments that our unconsolidated
ventures had outstanding at December 31, 2010 were designated as cash flow hedges and are
summarized as follows (dollars in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ownership |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Effective |
|
|
|
|
|
|
|
|
|
|
|
|
Interest at |
|
|
|
|
|
|
Notional |
|
|
|
|
|
|
|
|
|
|
Interest |
|
|
Effective |
|
|
Expiration |
|
|
Fair Value at |
|
|
|
December 31, 2010 |
|
|
Type |
|
|
Amount |
|
|
Cap Rate |
|
|
Spread |
|
|
Rate |
|
|
Date |
|
|
Date |
|
|
December 31, 2010 |
|
3-Month LIBOR |
|
|
25.0 |
% |
|
Pay-fixed swap |
|
$ |
155,356 |
|
|
|
N/A |
|
|
|
N/A |
|
|
|
5.0%-5.6 |
% |
|
|
7/2006-4/2008 |
|
|
|
10/2015-7/1/2016 |
|
|
$ |
(10,279 |
) |
3-Month LIBOR |
|
|
27.3 |
% |
|
Interest rate cap |
|
|
116,684 |
|
|
|
4.0 |
% |
|
|
4.8 |
% |
|
|
N/A |
|
|
|
8/2009 |
|
|
|
8/2014 |
|
|
|
733 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
(9,546 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Our share of changes in the fair value of these interest rate caps and swaps is included in
Accumulated other comprehensive income in equity and reflected unrealized losses of $1.2 million,
$1.1 million and $4.0 million for the years ended December 31, 2010, 2009 and 2008, respectively.
Foreign Currency Contracts
We enter into foreign currency forward contracts and collars to hedge certain of our foreign
currency cash flow exposures. 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. A foreign currency
collar consists of a purchased call option to buy and a written put option to sell the foreign
currency. By entering into these instruments, we are locked into a future currency exchange rate,
which limits our exposure to the movement in foreign currency exchange rates.
At December 31, 2010, we had one foreign currency zero-cost collar to hedge against a change in the
exchange rate of the Euro versus the U.S. dollar. The contract had a total notional amount of $3.0
million, based on the exchange rate of the Euro at December 31, 2010, and placed a floor on the
exchange rate of the Euro at $1.15 and a ceiling at $1.2965. This contract settled in January 2011.
Embedded Credit Derivatives
In connection with our Hellweg 2 transaction, we obtained non-recourse mortgage financing for which
the interest rate has both fixed and variable components. In connection with providing the
financing, the lender entered into an interest rate swap agreement on its own behalf through which
the fixed interest rate component on the financing was converted into a variable interest rate
instrument. Through the venture, we have the right, at our sole discretion, to prepay this debt at
any time and to participate in any realized gain or loss on the interest rate swap at that time.
These participation rights are deemed to be embedded credit derivatives.
Stock Warrants
We own stock warrants that were generally granted to us by lessees in connection with structuring
the initial lease transactions. These warrants are defined as derivative instruments because they
are readily convertible to cash or provide for net cash settlement upon conversion.
Other
Amounts reported in OCI related to derivatives will be reclassified to interest expense as interest
payments are made on our non-recourse variable-rate debt. At December 31, 2010, we estimate that an
additional $0.3 million will be reclassified as interest expense during the next twelve months.
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, 2010, 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
$0.5 million at December 31, 2010, which includes accrued interest but excludes any adjustment for
nonperformance risk. If we had breached any of these provisions at December 31, 2010, we could have
been required to settle our obligations under these agreements at their termination value of $0.6
million.
CPA®:16 2010 10-K 81
Notes to Consolidated Financial Statements
Portfolio Concentration Risk
Concentrations of credit risk arise when a group of tenants is engaged in similar business
activities or is subject to similar economic risks or conditions that could cause them to default
on their lease obligations to us. We regularly monitor our portfolio to assess potential
concentrations of credit risk. While we believe our portfolio is reasonably well diversified, it
does contain concentrations in excess of 10% of current annualized contractual annualized minimum
base rent in certain areas, as described below. The percentages in the paragraph below represent
our directly owned real estate properties and do not include the pro rata shares of our equity
investments.
At December 31, 2010, 59% of our directly-owned real estate properties were located in the U.S.,
and the majority of our directly-owned international properties were located in the European Union
(37%), with Germany (24%) representing the only significant international concentration based on
percentage of our annualized contractual minimum base rent for 2010. Within our German investments,
one tenant, Hellweg 2, represented 18% of our annualized contractual minimum base rent for 2010,
inclusive of noncontrolling interest. At December 31, 2010, our directly-owned real estate
properties contained significant concentrations in the following asset types: industrial (39%),
retail (23%), warehouse/distribution (19%) and office (12%); and in the following tenant
industries: retail (27%) and chemicals, plastics, rubber and glass (10%).
Note 10. Impairment Charges
We periodically assess whether there are any indicators that the value of our real estate
investments may be impaired or that their carrying value may not be recoverable. For investments in
real estate in which an impairment indicator is identified, we follow a two-step process to
determine whether the investment is impaired and to determine the amount of the charge. First, we
compare the carrying value of the real estate to the future net undiscounted cash flow that we
expect the real estate will generate, including any estimated proceeds from the eventual sale of
the real estate. If this amount is less than the carrying value, the real estate is considered to
be impaired, and we then measure the loss as the excess of the carrying value of the real estate
over the estimated fair value of the real estate, which is primarily determined using market
information such as recent comparable sales or broker quotes. If relevant market information is not
available or is not deemed appropriate, we then perform a future net cash flow analysis discounted
for inherent risk associated with each investment.
The following table summarizes impairment charges recognized on our consolidated and unconsolidated
real estate investments during 2010, 2009 and 2008 (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years ended December 31, |
|
|
|
2010 |
|
|
2009 |
|
|
2008 |
|
Net investments in properties (a) |
|
$ |
2,835 |
|
|
$ |
28,058 |
|
|
$ |
|
|
Net investments in direct financing leases |
|
|
6,973 |
|
|
|
2,279 |
|
|
|
890 |
|
|
|
|
|
|
|
|
|
|
|
Total impairment charges included in expenses |
|
|
9,808 |
|
|
|
30,337 |
|
|
|
890 |
|
Equity investments in real estate (b) |
|
|
1,046 |
|
|
|
3,598 |
|
|
|
3,085 |
|
|
|
|
|
|
|
|
|
|
|
Total impairment charges included in income from
continuing operations |
|
|
10,854 |
|
|
|
33,935 |
|
|
|
3,975 |
|
Impairment charges included in discontinued operations |
|
|
|
|
|
|
25,621 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total impairment charges |
|
$ |
10,854 |
|
|
$ |
59,556 |
|
|
$ |
3,975 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(a) |
|
Includes charges recognized on intangible assets and liabilities related to net
investments in properties (Note 7). |
|
(b) |
|
Impairment charges on our equity investments are included in Income from equity investments
in real estate in our consolidated statements of operations. |
2010 Impairments:
The Talaria Company (Hinckley)
During 2010, we recognized impairment charges of $8.2 million, inclusive of amounts attributable to
noncontrolling interests of $2.5 million, on a property leased to The Talaria Company (Hinckley) to
reduce the carrying value of this investment to its estimated fair value based on a potential sale
of the property. Of this impairment, $5.4 million was recognized on the building portion of the
property accounted for as Net investments in direct financing leases, with the remaining $2.8
million recognized on the land portion of the
property accounted for as Net investments in properties. At December 31, 2010, the land was
classified as Net investments in properties and the building was classified as Net investment in
direct financing leases in the consolidated financial statements.
CPA®:16 2010 10-K 82
Notes to Consolidated Financial Statements
Other
During 2010, we recognized impairment charges of $1.6 million on several properties accounted for
as Net investments in direct financing leases in connection with other-than-temporary declines in
the estimated fair value of the properties residual value. Additionally, we recognized
other-than-temporary impairment charges totaling $1.1 million on two ventures to reflect the
decline in the estimated fair value of the ventures underlying net assets in comparison with the
carrying values of our interests in these ventures.
2009 and 2008 Impairments:
Görtz & Schiele GmbH & Co. and Goertz & Schiele Corp.
During 2009, we recognized impairment charges totaling $9.7 million related to two properties
leased to Görtz & Schiele GmbH & Co., which filed for bankruptcy in November 2008 and $15.7 million
related to a property leased to Goertz & Schiele Corp., which filed for bankruptcy in September
2009. In March 2010, SaarOTEC, a successor tenant to Görtz & Schiele GmbH & Co., signed a new lease
on one of these properties with substantially the same terms. In December 2010, a purchase and sale
agreement was signed for the sale of the remaining vacant property formerly leased to Görtz &
Schiele GmbH & Co. Goertz & Schiele Corp. terminated its lease with us in bankruptcy proceedings
in January 2010 and following possession by the receiver during January 2010, the subsidiary was
deconsolidated during the first quarter of 2010 (Note 16). At December 31, 2010, the property
formerly leased to Görtz & Schiele GmbH & Co. was classified as Net investments in properties in
the consolidated financial statements. The results of operations of the properties formerly leased
to Goertz & Schiele Corp. and Görtz & Schiele GmbH & Co., including the impairment charges, are
included in Income (loss) from discontinued operations in the consolidated financial statements.
Foss Manufacturing Company, LLC
During 2009, we incurred impairment charges totaling $16.0 million in connection with a property
leased to Foss Manufacturing Company, LLC as a result of a significant deterioration in the
tenants financial outlook. We calculated the estimated fair value of this property based on a
discounted cash flow analysis. At December 31, 2010, this property was classified as Net
investments in properties in the consolidated financial statements.
John McGavigan Limited
During 2009, we incurred an impairment charge of $5.3 million in connection with a property in the
United Kingdom where the tenant, John McGavigan Limited, filed for bankruptcy in September 2009. We
calculated the estimated fair value of this property based on a discounted cash flow analysis. At
December 31, 2010, this property was classified as Net investment in properties in the consolidated
financial statements.
Lindenmaier A.G.
During 2009 and 2008, we recognized other-than-temporary impairment charges of $2.7 million and
$1.4 million, respectively, to reduce the carrying value of a venture to the estimated fair value
of its underlying net assets, which we assessed using a discounted cash flow analysis. The venture
formerly leased property to Lindenmaier A.G., which filed for bankruptcy in the second quarter of
2009. This venture was classified as Equity investment in real estate in the consolidated financial
statements at December 31, 2010.
Thales
During 2009, we recognized net other-than-temporary impairment charges of $0.9 million. In July
2009, a venture that owned a portfolio of five French properties leased to Thales S.A. sold four
properties back to Thales. The outstanding debt balance on the four properties sold was allocated
to the remaining property. An impairment charge was incurred to reduce the carrying value of the
venture to the estimated fair value of its underlying net assets, which we assessed using a
discounted cash flow analysis.
During 2008, we recognized an other-than-temporary impairment charge of $1.7 million to reduce the
carrying value of the venture to the estimated fair value of its underlying net assets, which we
assessed using a discounted cash flow analysis. At December 31, 2010, this venture is classified as
Equity investment in real estate in the consolidated financial statements.
CPA®:16 2010 10-K 83
Notes to Consolidated Financial Statements
MetalsAmerica, Inc.
During 2009, we recognized an impairment charge of $5.1 million related to a domestic property
formerly leased to MetalsAmerica, Inc., which filed for bankruptcy in July 2009. We reduced the
propertys carrying value to its estimated selling price and sold the property in August 2009. The
results of operations of this property, including the impairment charge, are included in Income
(loss) from discontinued operations in the consolidated financial statements.
Valley Diagnostic
During 2009, we incurred an impairment charge of $1.9 million in connection with a domestic
property where the tenant, Valley Diagnostic, entered liquidation proceedings. We calculated the
estimated fair value of this property using third-party broker quotes. During the fourth quarter of
2010, this property was foreclosed. The results of operations of the property formerly leased to
Valley Diagnostic, including this impairment charge, are included in Income (loss) from
discontinued operations in the consolidated financial statements.
Other
During 2009 and 2008, we recognized impairment charges totaling $2.3 million and $0.9 million on
several properties accounted for as net investments in direct financing leases in connection with
other-than-temporary declines in the estimated fair value of the properties residual value.
Note 11. Non-recourse Debt
Non-recourse debt consists of mortgage notes payable, which are collateralized by an assignment of
real property and direct financing leases with an aggregate carrying value of $1.8 billion at
December 31, 2010. Our mortgage notes payable bore interest at fixed annual rates ranging from 4.4%
to 7.7% and variable annual rates ranging from 5.2% to 6.7%, with maturity dates ranging from 2014
to 2031 at December 31, 2010.
Scheduled debt principal payments during each of the next five years following December 31, 2010
and thereafter are as follows (in thousands):
|
|
|
|
|
Years ending December 31, |
|
Total |
|
2011 |
|
$ |
25,354 |
|
2012 |
|
|
27,567 |
|
2013 |
|
|
30,700 |
|
2014 |
|
|
94,052 |
|
2015 |
|
|
123,367 |
|
Thereafter through 2031 |
|
|
1,066,171 |
|
|
|
|
|
|
|
|
1,367,211 |
|
Unamortized discount |
|
|
2,037 |
|
|
|
|
|
Total |
|
$ |
1,369,248 |
|
|
|
|
|
In May 2010, a venture that leases property to Berry Plastics Corporation, and in which we own
a 50% interest, refinanced a $29.0 million non-recourse, variable-rate loan that had been capped
through the use of an interest rate cap with a $29.0 million ten-year fixed-rate loan bearing
interest at an annual rate of 5.9%. The new loan includes a scheduled balloon payment of $21.0
million in June 2020. The $29.0 million loan, which was refinanced, was obtained in connection with
the February 2009 repayment of a $39.0 million outstanding balance on a non-recourse mortgage loan
at a discount for $32.5 million and for which the venture recognized a corresponding gain of $6.5
million.
In June 2010, we obtained non-recourse mortgage financing related to a previous acquisition in
Malaysia. This financing totaled $7.9 million and has an annual fixed interest rate and term of
6.28% and seven years, respectively.
In July 2009, we obtained non-recourse mortgage financing on a venture in which we and an affiliate
hold 51% and 49% interests, respectively, and which we consolidate, related to an investment
entered into in Hungary. This financing totaled $49.5 million, inclusive of noncontrolling interest
of $24.3 million, and has an annual fixed interest rate and term of 5.9% and seven years,
respectively.
CPA®:16 2010 10-K 84
Notes to Consolidated Financial Statements
Note 12. Commitments and Contingencies
Various claims and lawsuits arising in the normal course of business are pending against us. The
results of these proceedings are not expected to have a material adverse effect on our consolidated
financial position or results of operations.
In connection with the Proposed Merger, we have agreed to pay the Merger Consideration to
CPA®:14 shareholders if the merger is completed and to pay the expenses of
CPA®:14 incurred in connection with the Proposed Merger in certain circumstances if this
merger is not completed, up to a maximum of $4.0 million. We have also agreed to use our reasonable
best efforts to obtain a $300.0 million senior credit facility in order to pay for cash elections
by CPA®:14 shareholders in the Proposed Merger.
Note 13. Equity
Distributions
Distributions paid to shareholders consist of ordinary income, capital gains, return of capital or
a combination thereof for income tax purposes. The following table presents distributions per share
reported for tax purposes:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2010 |
|
|
2009 |
|
|
2008 |
|
Ordinary income |
|
$ |
0.13 |
|
|
$ |
0.18 |
|
|
$ |
0.16 |
|
Return of capital |
|
|
0.53 |
|
|
|
0.48 |
|
|
|
0.50 |
|
|
|
|
|
|
|
|
|
|
|
Total distributions |
|
$ |
0.66 |
|
|
$ |
0.66 |
|
|
$ |
0.66 |
|
|
|
|
|
|
|
|
|
|
|
We declared a quarterly distribution of $0.1656 per share in December 2010, which was paid in
January 2011 to shareholders of record at December 31, 2010.
Accumulated Other Comprehensive Income
The following table presents Accumulated OCI in equity. Amounts include our proportionate share of
other comprehensive income or loss from our unconsolidated investments (in thousands):
|
|
|
|
|
|
|
|
|
|
|
December 31, |
|
|
|
2010 |
|
|
2009 |
|
Unrealized gain on marketable securities |
|
$ |
39 |
|
|
$ |
10 |
|
Foreign currency translation adjustment |
|
|
(4,747 |
) |
|
|
7,836 |
|
Unrealized loss on derivative instrument |
|
|
(3,752 |
) |
|
|
(2,449 |
) |
|
|
|
|
|
|
|
Accumulated other comprehensive income |
|
$ |
(8,460 |
) |
|
$ |
5,397 |
|
|
|
|
|
|
|
|
Note 14. Noncontrolling Interests
Noncontrolling interest is the portion of equity in a subsidiary not attributable, directly or
indirectly, to a parent. There were no changes in our ownership interest in any of our consolidated
subsidiaries for the years ended December 31, 2010, 2009 and 2008.
CPA®:16 2010 10-K 85
Notes to Consolidated Financial Statements
Redeemable Noncontrolling Interests
We account for the noncontrolling interests in an entity that holds a note receivable recorded in
connection with the Hellweg 2 transaction as redeemable noncontrolling interests because the
transaction contains put options that, if exercised, would obligate the partners to settle in cash.
The partners interests are reflected at estimated redemption value for all periods presented.
|
|
|
|
|
Balance at January 1, 2008 |
|
$ |
346,719 |
|
Foreign currency translation adjustment |
|
|
(14,877 |
) |
|
|
|
|
Balance at December 31, 2008 |
|
|
331,842 |
|
Foreign currency translation adjustment |
|
|
5,555 |
|
|
|
|
|
Balance at December 31, 2009 |
|
|
337,397 |
|
Reduction in noncontrolling interest due to Hellweg 2 option
exercise (Note 5) |
|
|
(297,263 |
) |
Foreign currency translation adjustment |
|
|
(18,329 |
) |
|
|
|
|
Balance at December 31, 2010 |
|
$ |
21,805 |
|
|
|
|
|
Note 15. 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 shareholders 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.
We conduct business in various states and municipalities within the U.S. and in the European Union,
Canada, Mexico, Malaysia and Thailand 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.
We account for uncertain tax positions in accordance with current authoritative accounting
guidance. The following table presents a reconciliation of the beginning and ending amount of
unrecognized tax benefits (in thousands):
|
|
|
|
|
|
|
|
|
|
|
December 31, |
|
|
|
2010 |
|
|
2009 |
|
Balance at January 1, |
|
$ |
375 |
|
|
$ |
421 |
|
Additions based on tax positions related to the
current year |
|
|
105 |
|
|
|
29 |
|
Additions for tax positions of prior years |
|
|
71 |
|
|
|
86 |
|
Reductions for tax positions of prior years |
|
|
(60 |
) |
|
|
|
|
Reductions for expiration of statute of limitations |
|
|
|
|
|
|
(161 |
) |
|
|
|
|
|
|
|
Balance at December 31, |
|
$ |
491 |
|
|
$ |
375 |
|
|
|
|
|
|
|
|
At December 31, 2010, we had unrecognized tax benefits as presented in the table above that,
if recognized, would have a favorable impact on the effective income tax rate in future periods. We
recognize interest and penalties related to uncertain tax positions in income tax expense. At both
December 31, 2010 and 2009, we had less than $0.1 million of accrued interest related to uncertain
tax positions.
As of December 31, 2010, we had net operating losses (NOL) in foreign jurisdictions of
approximately $24.6 million, translating to a deferred tax asset before valuation allowance of $6.1
million. Our NOLs begin expiring in 2011 in certain foreign jurisdictions. The utilization of NOLs
may be subject to certain limitations under the tax laws of the relevant jurisdiction.
Management determined that as of December 31, 2010, $6.1 million of deferred tax assets related to
losses in foreign jurisdictions do not satisfy the recognition criteria set forth in accounting
guidance for income taxes. Accordingly, a valuation allowance has been recorded for this amount.
Our tax returns are subject to audit by taxing authorities. Such audits can often take years to
complete and settle. The tax years 2007 through 2010 remain open to examination by the major taxing
jurisdictions to which we are subject.
We have elected to treat two of our corporate subsidiaries, which engage in hotel operations, as
TRSs. These subsidiaries own hotels that are managed on our behalf by third-party hotel management
companies. A TRS is subject to corporate federal income taxes, and we provide for income taxes in
accordance with current authoritative accounting guidance. One of these subsidiaries has operated
at a loss since inception, and as a result, we have recorded a full valuation allowance for this
subsidiarys NOL carryforwards. The other subsidiary became profitable in the first quarter of
2009, and therefore we have recorded a tax provision for this subsidiary.
CPA®:16 2010 10-K 86
Notes to Consolidated Financial Statements
Note 16. Discontinued Operations
From time to time, tenants may vacate space due to lease buy-outs, elections not to renew their
leases, insolvency or lease rejection in the bankruptcy process. In these cases, we assess whether
we can obtain the highest value from the property by re-leasing or selling it. In addition, in
certain cases, we may try to sell a property that is occupied. When it is appropriate to do so
under current accounting guidance for the disposal of long-lived assets, we classify the property
as an asset held for sale on our consolidated balance sheet and the current and prior period
results of operations of the property are reclassified as discontinued operations.
In December 2010, we entered into an agreement for the sale of a property formerly leased to Görtz
& Schiele GmbH for $0.4 million, however, this sale has not occurred as of the date of this Report.
In November 2010, a building previously leased to Valley Diagnostic was foreclosed upon and
subsequently sold by the bank to a third party for $2.0 million. We recognized a net gain on
extinguishment of debt of $0.9 million, excluding impairment charges recognized in the prior year
totaling $1.9 million.
During the second quarter of 2009, Goertz & Schiele Corp. ceased making rent payments to us, and as
a result, we suspended the debt service payments on the related mortgage loan beginning in July
2009. Goertz & Schiele Corp. filed for bankruptcy in September 2009 and terminated its lease with
us in bankruptcy proceedings in January 2010. In January 2010, a consolidated subsidiary consented
to a court order appointing a receiver after we ceased making payments on a non-recourse debt
obligation collateralized by a property that was previously leased to Goertz & Schiele Corp. As we
no longer have control over the activities that most significantly impact the economic performance
of this subsidiary following possession by the receiver during January 2010, the subsidiary was
deconsolidated during the first quarter of 2010. At the date of deconsolidation, the property had a
carrying value of $5.9 million, reflecting the impact of impairment charges totaling $15.7 million
recognized in 2009, and the non-recourse mortgage loan had an outstanding balance of $13.3 million.
In connection with this deconsolidation, we recognized a gain of $7.1 million, inclusive of amounts
attributable to noncontrolling interest of $3.5 million. We believe that the fair value of our
retained interest in this deconsolidated entity is zero at December 31, 2010. We have recorded the
operations and gain recognized upon deconsolidation as discontinued operations.
In July and August 2009, we sold two domestic properties for $51.9 million, net of selling costs.
We recognized a net gain on the sales of these properties totaling $7.6 million, excluding an
impairment charge recognized in 2009 of $5.1 million on one of the properties (Note 10).
Additionally, we recognized a net gain on extinguishment of debt of $2.3 million as a result of the
lender releasing all liens on one of the properties in exchange for the sale proceeds.
The results of operations for properties that are held for sale or have been sold are reflected in
the consolidated financial statements as discontinued operations for all periods presented and are
summarized as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years ended December 31, |
|
|
|
2010 |
|
|
2009 |
|
|
2008 |
|
Revenues |
|
$ |
693 |
|
|
$ |
6,296 |
|
|
$ |
7,649 |
|
Expenses |
|
|
(1,118 |
) |
|
|
(7,259 |
) |
|
|
(6,937 |
) |
Gain on deconsolidation of a subsidiary |
|
|
7,082 |
|
|
|
|
|
|
|
|
|
Gain on sale of assets |
|
|
|
|
|
|
7,634 |
|
|
|
|
|
Gain on extinguishment of debt |
|
|
879 |
|
|
|
2,313 |
|
|
|
|
|
Impairment charges |
|
|
|
|
|
|
(25,621 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) from discontinued
operations |
|
$ |
7,536 |
|
|
$ |
(16,637 |
) |
|
$ |
712 |
|
|
|
|
|
|
|
|
|
|
|
Note 17. Segment Information
We have determined that we operate in one business segment, real estate ownership, with domestic
and foreign investments. Geographic information for this segment is as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
2010 |
|
Domestic |
|
|
Foreign(a) |
|
|
Total Company |
|
Revenues |
|
$ |
132,511 |
|
|
$ |
102,248 |
|
|
$ |
234,759 |
|
Total long-lived
assets
(b) |
|
|
1,214,261 |
|
|
|
913,639 |
|
|
|
2,127,900 |
|
CPA®:16 2010 10-K 87
Notes to Consolidated Financial Statements
|
|
|
|
|
|
|
|
|
|
|
|
|
2009 |
|
Domestic |
|
|
Foreign(a) |
|
|
Total Company |
|
Revenues |
|
$ |
128,957 |
|
|
$ |
103,947 |
|
|
$ |
232,904 |
|
Total long-lived
assets
(b) |
|
|
1,235,053 |
|
|
|
988,496 |
|
|
|
2,223,549 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2008 |
|
Domestic |
|
|
Foreign(a) |
|
|
Total Company |
|
Revenues |
|
$ |
128,169 |
|
|
$ |
103,639 |
|
|
$ |
231,808 |
|
Total long-lived
assets
(b) |
|
|
1,287,160 |
|
|
|
903,465 |
|
|
|
2,190,625 |
|
|
|
|
(a) |
|
Consists of operations in the European Union, Mexico, Canada and Asia. |
|
(b) |
|
Consists of real estate, net; net investment in direct financing leases; equity investments
in real estate and real estate under construction. |
Note 18. Selected Quarterly Financial Data
(unaudited)
(Dollars in thousands, except per share amounts)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three months ended |
|
|
|
March 31, 2010 |
|
|
June 30, 2010 |
|
|
September 30, 2010 |
|
|
December 31, 2010 |
|
Revenues (a) |
|
$ |
58,896 |
|
|
$ |
58,088 |
|
|
$ |
59,333 |
|
|
$ |
58,442 |
|
Operating expenses (a) |
|
|
(34,897 |
) |
|
|
(25,908 |
) |
|
|
(26,951 |
) |
|
|
(29,158 |
) |
Net income |
|
|
14,412 |
|
|
|
16,185 |
|
|
|
15,773 |
|
|
|
12,868 |
|
Less: Net income attributable to
noncontrolling interests |
|
|
(2,007 |
) |
|
|
(1,885 |
) |
|
|
(656 |
) |
|
|
(357 |
) |
Less: Net income attributable to redeemable
noncontrolling interests |
|
|
(6,445 |
) |
|
|
(6,792 |
) |
|
|
(4,208 |
) |
|
|
(4,881 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Income Attributable to CPA®16 Global
Shareholders |
|
|
5,960 |
|
|
|
7,508 |
|
|
|
10,909 |
|
|
|
7,630 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings per share attributable to
CPA®16 Global shareholders |
|
|
0.05 |
|
|
|
0.06 |
|
|
|
0.09 |
|
|
|
0.06 |
|
Distributions declared per share |
|
|
0.1656 |
|
|
|
0.1656 |
|
|
|
0.1656 |
|
|
|
0.1656 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three months ended |
|
|
|
March 31, 2009 |
|
|
June 30, 2009 |
|
|
September 30, 2009 |
|
|
December 31, 2009 |
|
Revenues (a) |
|
$ |
55,469 |
|
|
$ |
57,589 |
|
|
$ |
59,869 |
|
|
$ |
59,977 |
|
Operating expenses (a) |
|
|
(42,323 |
) |
|
|
(26,478 |
) |
|
|
(38,594 |
) |
|
|
(29,593 |
) |
Net income (loss) (b) |
|
|
2,565 |
|
|
|
12,331 |
|
|
|
(2,734 |
) |
|
|
797 |
|
Less: Net (income) loss attributable to
noncontrolling interests |
|
|
(4,183 |
) |
|
|
(1,244 |
) |
|
|
9,100 |
|
|
|
4,377 |
|
Less: Net income attributable to redeemable
noncontrolling interests |
|
|
(6,027 |
) |
|
|
(5,738 |
) |
|
|
(4,530 |
) |
|
|
(7,254 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Net (Loss) Income Attributable to CPA®16
Global
Shareholders |
|
|
(7,645 |
) |
|
|
5,349 |
|
|
|
1,836 |
|
|
|
(2,080 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
(Loss) earnings per share attributable to CPA®16
Global shareholders |
|
|
(0.06 |
) |
|
|
0.04 |
|
|
|
0.02 |
|
|
|
(0.02 |
) |
Distributions declared per share |
|
|
0.1653 |
|
|
|
0.1656 |
|
|
|
0.1656 |
|
|
|
0.1656 |
|
|
|
|
(a) |
|
Certain amounts from previous quarters have been retrospectively adjusted as discontinued
operations (Note 16). |
|
(b) |
|
Net income (loss) for the first, second, third and fourth quarters of 2009 includes net
impairment charges totaling $16.0 million, $4.2 million, $25.4 million, $14.0 million,
respectively in connection with several properties and equity investments in real estate (Note
10). |
CPA®:16 2010 10-K 88
SCHEDULE III REAL ESTATE and ACCUMULATED DEPRECIATION
at December 31, 2010
(in thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Life on which |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
in Latest |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Costs Capitalized |
|
|
Increase |
|
|
Gross Amount at which Carried |
|
|
|
|
|
|
|
|
|
|
Statement of |
|
|
|
|
|
|
|
Initial Cost to Company |
|
|
Subsequent to |
|
|
(Decrease) in Net |
|
|
at Close of Period (d) |
|
|
Accumulated |
|
|
Date |
|
|
Income is |
|
Description |
|
Encumbrances (a) |
|
|
Land |
|
|
Buildings |
|
|
Acquisition (b) |
|
|
Investments (c) |
|
|
Land |
|
|
Buildings |
|
|
Total |
|
|
Depreciation (d) |
|
|
Acquired |
|
|
Computed |
|
Real Estate Under Operating Leases: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Industrial, warehouse/distribution and office
facilities in Englewood, CA and industrial
facility in Chandler, AZ |
|
$ |
7,508 |
|
|
$ |
3,380 |
|
|
$ |
8,885 |
|
|
$ |
|
|
|
$ |
3 |
|
|
$ |
3,380 |
|
|
$ |
8,888 |
|
|
$ |
12,268 |
|
|
$ |
1,454 |
|
|
Jun. 2004 |
|
|
40 yrs. |
Industrial and office facilities in Hampton, NH |
|
|
13,849 |
|
|
|
9,800 |
|
|
|
19,960 |
|
|
|
|
|
|
|
(14,952 |
) |
|
|
4,454 |
|
|
|
10,354 |
|
|
|
14,808 |
|
|
|
2,746 |
|
|
Jul. 2004 |
|
|
40 yrs. |
Land in Alberta, Calgary, Canada |
|
|
1,477 |
|
|
|
2,247 |
|
|
|
|
|
|
|
|
|
|
|
689 |
|
|
|
2,936 |
|
|
|
|
|
|
|
2,936 |
|
|
|
|
|
|
Aug. 2004 |
|
|
|
N/A |
|
Office facility in Tinton Falls, NJ |
|
|
8,676 |
|
|
|
1,700 |
|
|
|
12,934 |
|
|
|
|
|
|
|
|
|
|
|
1,700 |
|
|
|
12,934 |
|
|
|
14,634 |
|
|
|
2,034 |
|
|
Sep. 2004 |
|
|
40 yrs. |
Industrial facility in The Woodlands, TX |
|
|
24,072 |
|
|
|
6,280 |
|
|
|
3,551 |
|
|
|
27,331 |
|
|
|
|
|
|
|
6,280 |
|
|
|
30,882 |
|
|
|
37,162 |
|
|
|
4,092 |
|
|
Sep. 2004 |
|
|
40 yrs. |
Office facility in Southfield, MI |
|
|
7,994 |
|
|
|
1,750 |
|
|
|
14,384 |
|
|
|
|
|
|
|
|
|
|
|
1,750 |
|
|
|
14,384 |
|
|
|
16,134 |
|
|
|
2,143 |
|
|
Jan. 2005 |
|
|
40 yrs. |
Industrial facility in Cynthiana, KY |
|
|
3,757 |
|
|
|
760 |
|
|
|
6,885 |
|
|
|
|
|
|
|
2 |
|
|
|
760 |
|
|
|
6,887 |
|
|
|
7,647 |
|
|
|
1,026 |
|
|
Jan. 2005 |
|
|
40 yrs. |
Industrial facility in Buffalo Grove, IL |
|
|
8,918 |
|
|
|
2,120 |
|
|
|
12,468 |
|
|
|
|
|
|
|
|
|
|
|
2,120 |
|
|
|
12,468 |
|
|
|
14,588 |
|
|
|
1,857 |
|
|
Jan. 2005 |
|
|
40 yrs. |
Office and industrial facilities in Lumlukka,
Thailand and warehouse/distribution and office
facilities in Udom Soayudh Road, Thailand |
|
|
17,705 |
|
|
|
8,942 |
|
|
|
10,547 |
|
|
|
6,174 |
|
|
|
7,216 |
|
|
|
11,387 |
|
|
|
21,492 |
|
|
|
32,879 |
|
|
|
3,043 |
|
|
Jan. 2005 |
|
|
40 yrs. |
Industrial facility in Allen, TX and office
facility in Sunnyvale, CA |
|
|
14,063 |
|
|
|
10,960 |
|
|
|
9,933 |
|
|
|
|
|
|
|
|
|
|
|
10,960 |
|
|
|
9,933 |
|
|
|
20,893 |
|
|
|
1,459 |
|
|
Feb. 2005 |
|
|
40 yrs. |
Industrial facilities in Sandersville, GA;
Fernley, NV; Erwin, TN and Gainsville, TX |
|
|
4,165 |
|
|
|
1,190 |
|
|
|
5,961 |
|
|
|
|
|
|
|
|
|
|
|
1,190 |
|
|
|
5,961 |
|
|
|
7,151 |
|
|
|
876 |
|
|
Feb. 2005 |
|
|
40 yrs. |
Office facility in Piscataway, NJ |
|
|
75,073 |
|
|
|
19,000 |
|
|
|
70,490 |
|
|
|
|
|
|
|
|
|
|
|
19,000 |
|
|
|
70,490 |
|
|
|
89,490 |
|
|
|
10,206 |
|
|
Mar. 2005 |
|
|
40 yrs. |
Land in Stuart, FL; Trenton and Southwest
Harbor, ME and Portsmouth, RI |
|
|
10,446 |
|
|
|
20,130 |
|
|
|
|
|
|
|
|
|
|
|
(2,835 |
) |
|
|
17,295 |
|
|
|
|
|
|
|
17,295 |
|
|
|
|
|
|
May. 2005 |
|
|
|
N/A |
|
Industrial facilities in Peru, IL; Huber
Heights, Lima and Sheffield, OH and Lebanon, TN
and office facility in Lima, OH |
|
|
17,084 |
|
|
|
1,720 |
|
|
|
23,439 |
|
|
|
|
|
|
|
|
|
|
|
1,720 |
|
|
|
23,439 |
|
|
|
25,159 |
|
|
|
3,296 |
|
|
May. 2005 |
|
|
40 yrs. |
Industrial facility in Cambridge, Canada |
|
|
6,619 |
|
|
|
800 |
|
|
|
8,158 |
|
|
|
|
|
|
|
2,274 |
|
|
|
1,014 |
|
|
|
10,218 |
|
|
|
11,232 |
|
|
|
1,436 |
|
|
May. 2005 |
|
|
40 yrs. |
Education facility in Nashville, TN |
|
|
6,088 |
|
|
|
200 |
|
|
|
8,485 |
|
|
|
9 |
|
|
|
|
|
|
|
200 |
|
|
|
8,494 |
|
|
|
8,694 |
|
|
|
1,177 |
|
|
Jun. 2005 |
|
|
40 yrs. |
Industrial facility in Ramos Arizpe, Mexico |
|
|
|
|
|
|
390 |
|
|
|
3,227 |
|
|
|
6 |
|
|
|
2 |
|
|
|
390 |
|
|
|
3,235 |
|
|
|
3,625 |
|
|
|
441 |
|
|
Jul. 2005 |
|
|
40 yrs. |
Warehouse/distribution facility in Norwich, CT |
|
|
14,059 |
|
|
|
1,400 |
|
|
|
6,698 |
|
|
|
28,357 |
|
|
|
2 |
|
|
|
2,600 |
|
|
|
33,857 |
|
|
|
36,457 |
|
|
|
3,927 |
|
|
Aug. 2005 |
|
|
40 yrs. |
Industrial facility in Glasgow, Scotland |
|
|
6,120 |
|
|
|
1,264 |
|
|
|
7,885 |
|
|
|
|
|
|
|
(5,284 |
) |
|
|
469 |
|
|
|
3,396 |
|
|
|
3,865 |
|
|
|
773 |
|
|
Aug. 2005 |
|
|
40 yrs. |
Industrial facility in Aurora, CO |
|
|
3,201 |
|
|
|
460 |
|
|
|
4,314 |
|
|
|
|
|
|
|
(728 |
) |
|
|
460 |
|
|
|
3,586 |
|
|
|
4,046 |
|
|
|
475 |
|
|
Sep. 2005 |
|
|
40 yrs. |
Warehouse/distribution facility in Kotka, Finland |
|
|
6,691 |
|
|
|
|
|
|
|
12,266 |
|
|
|
|
|
|
|
1,156 |
|
|
|
|
|
|
|
13,422 |
|
|
|
13,422 |
|
|
|
2,300 |
|
|
Oct. 2005 |
|
|
29 yrs. |
Warehouse/distribution facility in Plainfield, IN |
|
|
21,861 |
|
|
|
1,600 |
|
|
|
8,638 |
|
|
|
18,185 |
|
|
|
|
|
|
|
4,200 |
|
|
|
24,223 |
|
|
|
28,423 |
|
|
|
2,659 |
|
|
Nov. 2005 |
|
|
40 yrs. |
Residential facility in Blairsville, PA (e) |
|
|
15,622 |
|
|
|
648 |
|
|
|
2,896 |
|
|
|
23,295 |
|
|
|
|
|
|
|
1,046 |
|
|
|
25,793 |
|
|
|
26,839 |
|
|
|
2,325 |
|
|
Dec. 2005 |
|
|
40 yrs. |
Residential facility in Laramie, WY (e) |
|
|
16,995 |
|
|
|
1,650 |
|
|
|
1,601 |
|
|
|
21,450 |
|
|
|
|
|
|
|
1,650 |
|
|
|
23,051 |
|
|
|
24,701 |
|
|
|
2,155 |
|
|
Jan. 2006 |
|
|
40 yrs. |
Warehouse/distribution and industrial facilites
in Houston, Weimar, Conroe and Odessa, TX |
|
|
7,846 |
|
|
|
2,457 |
|
|
|
9,958 |
|
|
|
|
|
|
|
190 |
|
|
|
2,457 |
|
|
|
10,148 |
|
|
|
12,605 |
|
|
|
1,774 |
|
|
Mar. 2006 |
|
|
20 - 30 yrs. |
Office facility in Greenville, SC |
|
|
9,984 |
|
|
|
925 |
|
|
|
11,095 |
|
|
|
|
|
|
|
57 |
|
|
|
925 |
|
|
|
11,152 |
|
|
|
12,077 |
|
|
|
1,606 |
|
|
Mar. 2006 |
|
|
33 yrs. |
Retail facilities in Maplewood, Creekskill,
Morristown, Summit and Livingston, NJ |
|
|
27,408 |
|
|
|
10,750 |
|
|
|
32,292 |
|
|
|
|
|
|
|
97 |
|
|
|
10,750 |
|
|
|
32,389 |
|
|
|
43,139 |
|
|
|
4,236 |
|
|
Apr. 2006 |
|
|
35 - 39 yrs. |
Warehouse/distribution facilities in Alameda, CA
and
Ringwood, NJ |
|
|
5,706 |
|
|
|
1,900 |
|
|
|
5,882 |
|
|
|
|
|
|
|
|
|
|
|
1,900 |
|
|
|
5,882 |
|
|
|
7,782 |
|
|
|
662 |
|
|
Jun. 2006 |
|
|
40 yrs. |
Industrial facility in Amherst, NY |
|
|
9,740 |
|
|
|
500 |
|
|
|
14,651 |
|
|
|
|
|
|
|
|
|
|
|
500 |
|
|
|
14,651 |
|
|
|
15,151 |
|
|
|
2,157 |
|
|
Aug. 2006 |
|
|
30 yrs. |
Industrial facility in Shah Alam, Malaysia |
|
|
8,504 |
|
|
|
5,740 |
|
|
|
3,927 |
|
|
|
21 |
|
|
|
1,704 |
|
|
|
6,810 |
|
|
|
4,582 |
|
|
|
11,392 |
|
|
|
556 |
|
|
Sep. 2006 |
|
|
35 yrs. |
Warehouse/distribution facility in Spanish Fork,
UT |
|
|
8,336 |
|
|
|
1,100 |
|
|
|
9,448 |
|
|
|
|
|
|
|
|
|
|
|
1,100 |
|
|
|
9,448 |
|
|
|
10,548 |
|
|
|
984 |
|
|
Oct. 2006 |
|
|
40 yrs. |
Industrial facilities in Georgetown, TX and
Woodland, WA |
|
|
3,534 |
|
|
|
800 |
|
|
|
4,368 |
|
|
|
3,692 |
|
|
|
2,571 |
|
|
|
1,737 |
|
|
|
9,694 |
|
|
|
11,431 |
|
|
|
634 |
|
|
Oct. 2006 |
|
|
40 yrs. |
Office facility in Washington, MI |
|
|
29,622 |
|
|
|
7,500 |
|
|
|
38,094 |
|
|
|
|
|
|
|
|
|
|
|
7,500 |
|
|
|
38,094 |
|
|
|
45,594 |
|
|
|
3,888 |
|
|
Nov. 2006 |
|
|
40 yrs. |
Office and industrial facilities in St. Ingbert
and Puttlingen, Germany |
|
|
9,050 |
|
|
|
1,248 |
|
|
|
10,921 |
|
|
|
|
|
|
|
(6,793 |
) |
|
|
476 |
|
|
|
4,900 |
|
|
|
5,376 |
|
|
|
786 |
|
|
Dec. 2006 |
|
|
40 yrs. |
CPA®:16 2010 10-K 89
SCHEDULE III REAL ESTATE and ACCUMULATED DEPRECIATION
at December 31, 2010
(in thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Life on which |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
in Latest |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Costs Capitalized |
|
|
Increase |
|
|
Gross Amount at which Carried |
|
|
|
|
|
|
|
|
|
|
Statement of |
|
|
|
|
|
|
|
Initial Cost to Company |
|
|
Subsequent to |
|
|
(Decrease) in Net |
|
|
at Close of Period (d) |
|
|
Accumulated |
|
|
Date |
|
|
Income is |
|
Description |
|
Encumbrances (a) |
|
|
Land |
|
|
Buildings |
|
|
Acquisition (b) |
|
|
Investments (c) |
|
|
Land |
|
|
Buildings |
|
|
Total |
|
|
Depreciation (d) |
|
|
Acquired |
|
Computed |
|
Real Estate Under Operating Leases
(Continued): |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Warehouse/distribution facilities in
Flora, MS and Muskogee, OK |
|
|
3,757 |
|
|
|
335 |
|
|
|
5,816 |
|
|
|
|
|
|
|
|
|
|
|
335 |
|
|
|
5,816 |
|
|
|
6,151 |
|
|
|
594 |
|
|
Dec. 2006 |
|
40 yrs. |
Various transportation and warehouse
facilities throughout France |
|
|
31,140 |
|
|
|
4,341 |
|
|
|
6,254 |
|
|
|
4,521 |
|
|
|
25,564 |
|
|
|
32,402 |
|
|
|
8,278 |
|
|
|
40,680 |
|
|
|
961 |
|
|
Dec. 2006,
Mar. 2007 |
|
30 yrs. |
Industrial facility in Fort Collins, CO |
|
|
8,481 |
|
|
|
1,660 |
|
|
|
9,464 |
|
|
|
|
|
|
|
|
|
|
|
1,660 |
|
|
|
9,464 |
|
|
|
11,124 |
|
|
|
946 |
|
|
Dec. 2006 |
|
40 yrs. |
Industrial facility in St. Charles, MO |
|
|
13,514 |
|
|
|
2,300 |
|
|
|
15,433 |
|
|
|
|
|
|
|
|
|
|
|
2,300 |
|
|
|
15,433 |
|
|
|
17,733 |
|
|
|
1,543 |
|
|
Dec. 2006 |
|
40 yrs. |
Industrial facilities in Salt Lake
City, UT |
|
|
5,223 |
|
|
|
2,575 |
|
|
|
5,683 |
|
|
|
|
|
|
|
|
|
|
|
2,575 |
|
|
|
5,683 |
|
|
|
8,258 |
|
|
|
591 |
|
|
Dec. 2006 |
|
38 - 40 yrs. |
Warehouse/distribution facilities in
Atlanta, Doraville and Rockmart, GA |
|
|
57,537 |
|
|
|
10,060 |
|
|
|
72,000 |
|
|
|
6,816 |
|
|
|
|
|
|
|
10,060 |
|
|
|
78,816 |
|
|
|
88,876 |
|
|
|
8,116 |
|
|
Feb. 2007 |
|
30 - 40 yrs. |
Industrial facility in Tuusula, Finland |
|
|
15,400 |
|
|
|
1,000 |
|
|
|
16,779 |
|
|
|
8 |
|
|
|
(82 |
) |
|
|
994 |
|
|
|
16,711 |
|
|
|
17,705 |
|
|
|
1,933 |
|
|
Mar. 2007 |
|
32 yrs. |
36 Retail facilities throughout Germany |
|
|
365,354 |
|
|
|
83,345 |
|
|
|
313,770 |
|
|
|
27,190 |
|
|
|
(9,666 |
) |
|
|
82,845 |
|
|
|
331,794 |
|
|
|
414,639 |
|
|
|
33,791 |
|
|
Apr. 2007 |
|
30 - 40 yrs. |
Warehouse/distribution facilities in
Phoenix, AZ; Hayward,
Vernon and South Gate, CA; Bedford
Park, IL; Rock Hill, SC and Houston,
TX |
|
|
38,843 |
|
|
|
26,457 |
|
|
|
25,593 |
|
|
|
|
|
|
|
9 |
|
|
|
26,457 |
|
|
|
25,602 |
|
|
|
52,059 |
|
|
|
3,081 |
|
|
Jun. 2007 |
|
30 yrs. |
Industrial facilities in Denver, CO
and Nashville, TN |
|
|
9,964 |
|
|
|
1,872 |
|
|
|
14,665 |
|
|
|
|
|
|
|
|
|
|
|
1,872 |
|
|
|
14,665 |
|
|
|
16,537 |
|
|
|
1,650 |
|
|
Jun. 2007, Jul. 2007 |
|
28 - 35 yrs. |
Industrial facility in Sacramento, CA |
|
|
30,443 |
|
|
|
|
|
|
|
42,478 |
|
|
|
3 |
|
|
|
|
|
|
|
|
|
|
|
42,481 |
|
|
|
42,481 |
|
|
|
3,629 |
|
|
Jul. 2007 |
|
40 yrs. |
Industrial facilities in Guelph and
Lagley, Canada |
|
|
6,460 |
|
|
|
4,592 |
|
|
|
3,657 |
|
|
|
|
|
|
|
361 |
|
|
|
4,799 |
|
|
|
3,811 |
|
|
|
8,610 |
|
|
|
325 |
|
|
Jul. 2007 |
|
40 yrs. |
Retail facilities in Wichita, KS and
Oklahoma City, OK and
warehouse/distribution facility in
Wichita, KS |
|
|
7,704 |
|
|
|
2,090 |
|
|
|
9,128 |
|
|
|
8 |
|
|
|
|
|
|
|
2,090 |
|
|
|
9,136 |
|
|
|
11,226 |
|
|
|
1,040 |
|
|
Jul. 2007 |
|
30 yrs. |
Industrial facility in Beaverton, MI |
|
|
2,107 |
|
|
|
70 |
|
|
|
3,608 |
|
|
|
|
|
|
|
16 |
|
|
|
70 |
|
|
|
3,624 |
|
|
|
3,694 |
|
|
|
393 |
|
|
Oct. 2007 |
|
30 yrs. |
Industrial facilities in Evansville,
IN; Lawrence, KS and
Baltimore, MD |
|
|
28,701 |
|
|
|
4,890 |
|
|
|
78,288 |
|
|
|
|
|
|
|
(121 |
) |
|
|
4,770 |
|
|
|
78,287 |
|
|
|
83,057 |
|
|
|
7,828 |
|
|
Dec. 2007 |
|
30 yrs. |
Warehouse/distribution facility in
Suwanee, GA |
|
|
16,373 |
|
|
|
1,950 |
|
|
|
20,975 |
|
|
|
|
|
|
|
|
|
|
|
1,950 |
|
|
|
20,975 |
|
|
|
22,925 |
|
|
|
1,573 |
|
|
Dec. 2007 |
|
40 yrs. |
Industrial facilities in Colton, CA;
Bonner Springs, KS and Dallas, TX and
land in Eagan, MN |
|
|
23,439 |
|
|
|
10,430 |
|
|
|
32,063 |
|
|
|
|
|
|
|
(764 |
) |
|
|
10,430 |
|
|
|
31,299 |
|
|
|
41,729 |
|
|
|
2,420 |
|
|
Mar. 2008 |
|
30 - 40 yrs. |
Industrial facility in Ylamylly,
Finland |
|
|
9,319 |
|
|
|
58 |
|
|
|
14,220 |
|
|
|
|
|
|
|
(2,135 |
) |
|
|
49 |
|
|
|
12,094 |
|
|
|
12,143 |
|
|
|
829 |
|
|
Apr. 2008 |
|
40 yrs. |
Industrial facility in
Nurieux-Volognat, France |
|
|
|
|
|
|
1,478 |
|
|
|
15,528 |
|
|
|
|
|
|
|
(6,427 |
) |
|
|
1,259 |
|
|
|
9,320 |
|
|
|
10,579 |
|
|
|
613 |
|
|
Jun. 2008 |
|
38 yrs. |
Industrial facility in Windsor, CT |
|
|
|
|
|
|
425 |
|
|
|
1,160 |
|
|
|
|
|
|
|
(188 |
) |
|
|
425 |
|
|
|
972 |
|
|
|
1,397 |
|
|
|
62 |
|
|
Jun. 2008 |
|
39 yrs. |
Office and industrial facilities in
Wolfach, Bunde and Dransfeld, Germany |
|
|
|
|
|
|
2,554 |
|
|
|
13,492 |
|
|
|
|
|
|
|
(6,235 |
) |
|
|
2,173 |
|
|
|
7,638 |
|
|
|
9,811 |
|
|
|
636 |
|
|
Jun. 2008 |
|
30 yrs. |
Warehouse/distribution facilities in
Gyal and Herceghalom, Hungary |
|
|
45,339 |
|
|
|
12,802 |
|
|
|
68,993 |
|
|
|
|
|
|
|
(4,776 |
) |
|
|
11,948 |
|
|
|
65,071 |
|
|
|
77,019 |
|
|
|
3,744 |
|
|
Jul. 2009 |
|
25 yrs. |
Hospitality facility in Miami Beach, FL |
|
|
|
|
|
|
6,400 |
|
|
|
40,703 |
|
|
|
35,442 |
|
|
|
|
|
|
|
6,400 |
|
|
|
76,145 |
|
|
|
82,545 |
|
|
|
476 |
|
|
Sep. 2009 |
|
40 yrs. |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
1,150,871 |
|
|
$ |
312,995 |
|
|
$ |
1,233,991 |
|
|
$ |
202,508 |
|
|
$ |
(19,073 |
) |
|
$ |
338,979 |
|
|
$ |
1,391,442 |
|
|
$ |
1,730,421 |
|
|
$ |
145,957 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
CPA®:16 2010 10-K 90
SCHEDULE III REAL ESTATE and ACCUMULATED DEPRECIATION
at December 31, 2010
(in thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross Amount at |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Costs Capitalized |
|
|
Increase |
|
|
which Carried |
|
|
|
|
|
|
|
|
|
|
Initial Cost to Company |
|
|
Subsequent to |
|
|
(Decrease) in Net |
|
|
at Close of |
|
|
Date |
|
Description |
|
Encumbrances |
|
|
Land |
|
|
Buildings |
|
|
Acquisition (b) |
|
|
Investments (c) |
|
|
Period Total |
|
|
Acquired |
|
Direct Financing Method: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Office and industrial facilities in Leeds, United Kingdom |
|
$ |
14,718 |
|
|
$ |
6,908 |
|
|
$ |
21,012 |
|
|
$ |
|
|
|
$ |
(2,559 |
) |
|
$ |
25,361 |
|
|
May. 2004 |
Industrial facility in Alberta, Calgary, Canada |
|
|
2,260 |
|
|
|
|
|
|
|
3,468 |
|
|
|
41 |
|
|
|
983 |
|
|
|
4,492 |
|
|
Aug. 2004 |
Industrial facilities in Kearney, MO; Fair Bluff, NC; York, NE;
Walbridge, OH; Middlesex Township, PA; Rocky Mount, VA and Martinsburg,
WV; warehouse/distribution facility in Fair Bluff, NC |
|
|
14,387 |
|
|
|
2,980 |
|
|
|
29,191 |
|
|
|
|
|
|
|
(1,040 |
) |
|
|
31,131 |
|
|
Aug. 2004 |
Retail facilities in Vantaa, Finland and Linkoping, Sweden |
|
|
16,917 |
|
|
|
4,279 |
|
|
|
26,628 |
|
|
|
49 |
|
|
|
(2,792 |
) |
|
|
28,164 |
|
|
Dec. 2004 |
Industrial and office facilities in Stuart, FL and industrial facilities
in Trenton and Southwest Harbor, ME and Portsmouth, RI |
|
|
18,981 |
|
|
|
|
|
|
|
38,189 |
|
|
|
|
|
|
|
(6,761 |
) |
|
|
31,428 |
|
|
May. 2005 |
Warehouse/distribution and office facilities in Newbridge, United Kingdom |
|
|
13,884 |
|
|
|
3,602 |
|
|
|
21,641 |
|
|
|
2 |
|
|
|
(3,770 |
) |
|
|
21,475 |
|
|
Dec. 2005 |
Office facility in Marktheidenfeld, Germany |
|
|
14,634 |
|
|
|
1,534 |
|
|
|
22,809 |
|
|
|
|
|
|
|
(653 |
) |
|
|
23,690 |
|
|
May. 2006 |
Retail facilities in Socorro, El Paso and Fabens, TX |
|
|
14,023 |
|
|
|
3,890 |
|
|
|
19,603 |
|
|
|
31 |
|
|
|
(1,644 |
) |
|
|
21,880 |
|
|
Jul. 2006 |
Various transportation and warehouse facilities in France |
|
|
24,830 |
|
|
|
23,524 |
|
|
|
33,889 |
|
|
|
6,814 |
|
|
|
(32,556 |
) |
|
|
31,671 |
|
|
Dec. 2006 |
Industrial facility in Bad Hersfeld, Germany |
|
|
25,067 |
|
|
|
13,291 |
|
|
|
26,417 |
|
|
|
68 |
|
|
|
(2,215 |
) |
|
|
37,561 |
|
|
Dec. 2006 |
Retail facility in Gronau, Germany |
|
|
3,969 |
|
|
|
414 |
|
|
|
3,789 |
|
|
|
|
|
|
|
(68 |
) |
|
|
4,135 |
|
|
Apr. 2007 |
Industrial facility in St. Ingbert, Germany |
|
|
16,529 |
|
|
|
1,610 |
|
|
|
29,466 |
|
|
|
|
|
|
|
(1,702 |
) |
|
|
29,374 |
|
|
Aug. 2007 |
Industrial facility in Mt. Carmel, IL |
|
|
2,299 |
|
|
|
56 |
|
|
|
3,528 |
|
|
|
|
|
|
|
18 |
|
|
|
3,602 |
|
|
Oct. 2007 |
Industrial facility in Elma, WA |
|
|
3,807 |
|
|
|
1,300 |
|
|
|
5,261 |
|
|
|
|
|
|
|
(499 |
) |
|
|
6,062 |
|
|
Feb. 2008 |
Industrial facility in Eagan, MN |
|
|
4,672 |
|
|
|
|
|
|
|
8,267 |
|
|
|
|
|
|
|
(432 |
) |
|
|
7,835 |
|
|
Mar. 2008 |
Industrial facility in Monheim, Germany |
|
|
|
|
|
|
2,210 |
|
|
|
10,654 |
|
|
|
|
|
|
|
(2,492 |
) |
|
|
10,372 |
|
|
Jun. 2008 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
190,977 |
|
|
$ |
65,598 |
|
|
$ |
303,812 |
|
|
$ |
7,005 |
|
|
$ |
(58,182 |
) |
|
$ |
318,233 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Life on which |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
in Latest |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost Capitalized |
|
|
Increase |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Statement of |
|
|
|
|
|
|
|
Initial Cost to Company |
|
|
Subsequent to |
|
|
(Decrease) in Net |
|
|
Gross Amount at which Carried at Close of Period (d) |
|
|
Accumulated |
|
|
Date |
|
|
Income is |
|
Description |
|
Encumbrances |
|
|
Land |
|
|
Buildings |
|
|
Personal Property |
|
|
Acquisition (b) |
|
|
Investments (c) |
|
|
Land |
|
|
Buildings |
|
|
Personal Property |
|
|
Total |
|
|
Depreciation (d) |
|
|
Acquired |
|
|
Computed |
|
Operating Real Estate: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Hotel in
Bloomington, MN |
|
$ |
|
|
|
$ |
3,976 |
|
|
$ |
7,492 |
|
|
$ |
|
|
|
$ |
35,904 |
|
|
$ |
|
|
|
$ |
3,976 |
|
|
$ |
38,456 |
|
|
$ |
4,940 |
|
|
$ |
47,372 |
|
|
$ |
5,015 |
|
|
Sep. 2006 |
|
40 yrs. |
Hotel in Memphis, TN |
|
|
27,400 |
|
|
|
4,320 |
|
|
|
29,929 |
|
|
|
3,436 |
|
|
|
2,829 |
|
|
|
(3,114 |
) |
|
|
4,320 |
|
|
|
29,644 |
|
|
|
3,436 |
|
|
|
37,400 |
|
|
|
4,608 |
|
|
Sep. 2007 |
|
30 yrs. |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
27,400 |
|
|
$ |
8,296 |
|
|
$ |
37,421 |
|
|
$ |
3,436 |
|
|
$ |
38,733 |
|
|
$ |
(3,114 |
) |
|
$ |
8,296 |
|
|
$ |
68,100 |
|
|
$ |
8,376 |
|
|
$ |
84,772 |
|
|
$ |
9,623 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
CPA®:16 2010 10-K 91
NOTES to SCHEDULE III REAL ESTATE and ACCUMULATED DEPRECIATION
(in thousands)
|
|
|
(a) |
|
Includes unamortized discount on a mortgage note. |
|
(b) |
|
Consists of the costs 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. |
|
(c) |
|
The increase (decrease) in net investment is primarily due to (i) the amortization of
unearned income from net investment in direct financing leases, which produces a periodic rate
of return that at times may be greater or less than lease payments received, (ii) sales of
properties, (iii) impairment charges, and (iv) changes in foreign currency exchange rates. |
|
(d) |
|
Reconciliation of real estate and accumulated depreciation (see below): |
|
(e) |
|
Represents a triple-net lease to a tenant for student housing. |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Reconciliation of Real Estate Subject to |
|
|
|
Operating Leases |
|
|
|
Years ended December 31, |
|
|
|
2010 |
|
|
2009 |
|
|
2008 |
|
Balance at beginning of year |
|
$ |
1,696,872 |
|
|
$ |
1,661,160 |
|
|
$ |
1,602,512 |
|
Additions |
|
|
6,432 |
|
|
|
102,303 |
|
|
|
102,864 |
|
Reclassification from real estate under construction |
|
|
82,513 |
|
|
|
8,525 |
|
|
|
7,515 |
|
Reclassification from (to) direct financing lease,
operating real estate,
intangible or other assets |
|
|
6 |
|
|
|
1,073 |
|
|
|
(14,274 |
) |
Deconsolidation of real estate asset |
|
|
(7,271 |
) |
|
|
|
|
|
|
|
|
Reclassification to assets held for sale |
|
|
(398 |
) |
|
|
|
|
|
|
|
|
Impairment charges |
|
|
(2,835 |
) |
|
|
(46,531 |
) |
|
|
|
|
Dispositions |
|
|
(4,021 |
) |
|
|
(45,139 |
) |
|
|
|
|
Foreign currency translation adjustment |
|
|
(40,877 |
) |
|
|
15,481 |
|
|
|
(37,457 |
) |
|
|
|
|
|
|
|
|
|
|
Balance at close of year |
|
$ |
1,730,421 |
|
|
$ |
1,696,872 |
|
|
$ |
1,661,160 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Reconciliation of Accumulated Depreciation for |
|
|
|
Real Estate Subject to Operating Leases |
|
|
|
Years ended December 31, |
|
|
|
2010 |
|
|
2009 |
|
|
2008 |
|
Balance at beginning of year |
|
$ |
112,385 |
|
|
$ |
76,943 |
|
|
$ |
42,238 |
|
Depreciation expense |
|
|
37,555 |
|
|
|
36,719 |
|
|
|
36,094 |
|
Dispositions |
|
|
(369 |
) |
|
|
(2,007 |
) |
|
|
|
|
Deconsolidation of real estate asset |
|
|
(1,373 |
) |
|
|
|
|
|
|
|
|
Reclassification to assets held for sale |
|
|
(129 |
) |
|
|
|
|
|
|
|
|
Foreign currency translation adjustment |
|
|
(2,112 |
) |
|
|
730 |
|
|
|
(1,389 |
) |
|
|
|
|
|
|
|
|
|
|
Balance at close of year |
|
$ |
145,957 |
|
|
$ |
112,385 |
|
|
$ |
76,943 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Reconciliation of Operating Real Estate |
|
|
|
Years ended December 31, |
|
|
|
2010 |
|
|
2009 |
|
|
2008 |
|
Balance at beginning of year |
|
$ |
83,718 |
|
|
$ |
82,667 |
|
|
$ |
37,522 |
|
Reclassification from real estate under construction |
|
|
|
|
|
|
|
|
|
|
47,329 |
|
Reclassification to intangible assets |
|
|
|
|
|
|
|
|
|
|
(3,114 |
) |
Additions |
|
|
1,054 |
|
|
|
1,051 |
|
|
|
930 |
|
|
|
|
|
|
|
|
|
|
|
Balance at close of year |
|
$ |
84,772 |
|
|
$ |
83,718 |
|
|
$ |
82,667 |
|
|
|
|
|
|
|
|
|
|
|
CPA®:16 2010 10-K 92
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Reconciliation of Accumulated Depreciation for |
|
|
|
Operating Real Estate |
|
|
|
Years ended December 31, |
|
|
|
2010 |
|
|
2009 |
|
|
2008 |
|
Balance at beginning of year |
|
$ |
6,448 |
|
|
$ |
3,306 |
|
|
$ |
339 |
|
Depreciation expense |
|
|
3,175 |
|
|
|
3,142 |
|
|
|
2,967 |
|
|
|
|
|
|
|
|
|
|
|
Balance at close of year |
|
$ |
9,623 |
|
|
$ |
6,448 |
|
|
$ |
3,306 |
|
|
|
|
|
|
|
|
|
|
|
At December 31, 2010, the aggregate cost of real estate, net of accumulated depreciation and
accounted for as operating leases, owned by us and our consolidated subsidiaries for federal income
tax purposes was $1.8 billion.
SCHEDULE IV MORTGAGE LOANS ON REAL ESTATE
at December 31, 2010
(dollars in thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Final |
|
|
Face |
|
|
Carrying |
|
|
|
Interest |
|
|
Maturity |
|
|
Amount of |
|
|
Amount of |
|
Description |
|
Rate |
|
|
Date |
|
|
Mortgage |
|
|
Mortgage |
|
Note receivable issued to venture partner Hellweg 2 transaction
(a) (c) |
|
|
8.0 |
% |
|
Apr. 2017 |
|
$ |
311,974 |
|
|
$ |
21,805 |
|
Construction line of credit provided to Ryder Properties, LLC (b) (c) |
|
|
7.0 |
% |
|
Jun. 2010 |
|
|
23,961 |
|
|
|
23,961 |
|
Subordinated mortgage collateralized by properties occupied by
Reyes Holding, LLC (c) |
|
|
6.3 |
% |
|
Feb. 2015 |
|
|
9,504 |
|
|
|
9,738 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
345,439 |
|
|
$ |
55,504 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(a) |
|
Amounts are based on the exchange rate of the local currencies at December 31, 2010. |
|
(b) |
|
Applicable annual interest rate at December 31, 2010. Mortgage face and carrying values
represent amounts funded on total commitment of $23.9 million and interest accrued on the
outstanding balance to date. |
|
(c) |
|
Balloon payments equal to the face amount of the loan are due at maturity. |
NOTES TO SCHEDULE IV MORTGAGE LOANS ON REAL ESTATE
(in thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Reconciliation of Mortgage Loans on Real Estate |
|
|
|
Years ended December 31, |
|
|
|
2010 |
|
|
2009 |
|
|
2008 |
|
Balance at beginning of year |
|
$ |
362,707 |
|
|
$ |
351,200 |
|
|
$ |
358,079 |
|
Additions |
|
|
8,349 |
|
|
|
5,917 |
|
|
|
7,965 |
|
Accretion of principal |
|
|
40 |
|
|
|
41 |
|
|
|
39 |
|
Amortization of premium |
|
|
|
|
|
|
(6 |
) |
|
|
(6 |
) |
Reduction in Hellweg 2 note receivable
due to put option exercise
(a) |
|
|
(297,263 |
) |
|
|
|
|
|
|
|
|
Foreign currency translation adjustment |
|
|
(18,329 |
) |
|
|
5,555 |
|
|
|
(14,877 |
) |
|
|
|
|
|
|
|
|
|
|
Balance at December 31, |
|
$ |
55,504 |
|
|
$ |
362,707 |
|
|
$ |
351,200 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(a) |
|
During 2010, we and our affiliates exercised an option to acquire an additional
interest in a venture from an unaffiliated third party. In this option exercise, we reduced
the third partys note receivable with us by $297.3 million. See Note 5. |
CPA®:16 2010 10-K 93
|
|
|
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 (the Exchange Act) is recorded,
processed, summarized and reported within the required time periods specified in the SECs 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.
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, 2010, 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,
2010 at a reasonable level of assurance.
Managements 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 U.S. GAAP.
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 U.S.
GAAP, 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,
2010. In making this assessment, we used criteria set forth in Internal Control Integrated
Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO).
Based on our assessment, we concluded that, as of December 31, 2010, 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. Managements report was not
subject to attestation by our independent registered public accounting firm pursuant to temporary
rules of the SEC that permit us to provide only managements 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®:16 2010 10-K 94
PART III
|
|
|
Item 10. |
|
Directors, Executive Officers and Corporate Governance. |
This information will be contained in our definitive proxy statement for the 2011 Annual Meeting of
Shareholders, 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 2011 Annual Meeting of
Shareholders, 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 2011 Annual Meeting of
Shareholders, 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 2011 Annual Meeting of
Shareholders, to be filed within 120 days following the end of our fiscal year, and is incorporated
by reference.
|
|
|
Item 14. |
|
Principal Accountant Fees and Services. |
This information will be contained in our definitive proxy statement for the 2011 Annual Meeting of
Shareholders, to be filed within 120 days following the end of our fiscal year, and is incorporated
by reference.
CPA®:16 2010 10-K 95
PART IV
|
|
|
Item 15. |
|
Exhibits, Financial Statement Schedules. |
(a) (1) and (2) Financial statements and schedules see index to financial statements and
schedules included in Item 8.
(3) Exhibits:
The following exhibits are filed as part of this Report. Documents other than those designated as
being filed herewith are incorporated herein by reference.
|
|
|
|
|
Exhibit No. |
|
Description |
|
Method of Filing |
2.1
|
|
Agreement and Plan of Merger, dated as
of December 13, 2010, by and among
Corporate Property Associates 16
Global Incorporated, CPA 16 Acquisition
Inc., CPA 16 Holdings Inc., CPA 16
Merger Sub Inc., Corporate Property
Associates 14 Incorporated, CPA 14 Sub
Inc., W. P. Carey & Co. LLC and, for the
limited purposes set forth therein,
Carey Asset Management Corp. and W. P.
Carey & Co. B.V.
|
|
Incorporated by reference to the Current
Report on Form 8-K filed December 14, 2010 |
|
|
|
|
|
3.1
|
|
Articles of Incorporation of Registrant
|
|
Incorporated by reference to Pre-effective
Amendment No. 2 to Registration Statement on
Form S-11 (No. 333-106838) filed December
10, 2003 |
|
|
|
|
|
3.2
|
|
Amended and Restated Bylaws of Registrant
|
|
Incorporated by reference to Quarterly
Report on Form 10-Q for the quarter ended
June 30, 2009 filed August 14, 2009 |
|
|
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4.1
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Amended and Restated 2003 Distribution
Reinvestment and Stock Purchase Plan of
Registrant
|
|
Incorporated by reference to Post-Effective
Amendment No. 8 to Registration Statement on
Form S-11 (No. 333-106838) filed November 4,
2005 |
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10.1
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Amended and Restated Advisory Agreement
dated as of October 1, 2009 between
Corporate Property Associates 16
Global Incorporated and Carey Asset
Management Corp.
|
|
Incorporated by reference to Quarterly
Report on Form 10-Q for the quarter ended
September 30, 2009 filed November 13, 2009 |
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10.2
|
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Asset Management Agreement dated as of
July 1, 2008 between Corporate Property
Associates 16 Global Incorporated and
W. P. Carey & Co. B.V.
|
|
Incorporated by reference to Quarterly
Report on Form 10-Q for the quarter ended
June 30, 2008 filed August 14, 2008 |
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21.1
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Subsidiaries of Registrant
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Filed herewith |
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23.1
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Consent of PricewaterhouseCoopers LLP
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Filed herewith |
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31.1
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Certification pursuant to Section 302 of
the Sarbanes-Oxley Act of 2002
|
|
Filed herewith |
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31.2
|
|
Certification pursuant to Section 302 of
the Sarbanes-Oxley Act of 2002
|
|
Filed herewith |
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32
|
|
Certifications pursuant to Section 906
of the Sarbanes-Oxley Act of 2002
|
|
Filed herewith |
CPA®:16 2010 10-K 96
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.
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Corporate Property Associates 16 Global Incorporated
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Date 3/30/2011 |
By: |
/s/ Mark J. DeCesaris
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Mark J. DeCesaris |
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Chief Financial Officer |
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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.
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Signature |
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Title |
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Date |
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/s/ Wm. Polk Carey
Wm. Polk Carey
|
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Chairman of the Board and Director
|
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3/30/2011 |
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/s/ Trevor P. Bond
Trevor P. Bond
|
|
Chief Executive Officer
(Principal Executive Officer)
|
|
3/30/2011 |
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|
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/s/ Mark J. DeCesaris
Mark J. DeCesaris
|
|
Chief Financial Officer
(Principal Financial Officer)
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3/30/2011 |
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/s/ Thomas J. Ridings, Jr.
Thomas J. Ridings, Jr.
|
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Chief Accounting Officer
(Principal Accounting Officer)
|
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3/30/2011 |
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/s/ Elizabeth P. Munson
Elizabeth P. Munson
|
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Director
|
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3/30/2011 |
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/s/ Richard J. Pinola
Richard J. Pinola
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Director
|
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3/30/2011 |
CPA®:16 2010 10-K 97