Attached files
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8-K/A - FORM 8-K/A - CORPORATE PROPERTY ASSOCIATES 16 GLOBAL INC | c20030e8vkza.htm |
EX-23.1 - EXHIBIT 23.1 - CORPORATE PROPERTY ASSOCIATES 16 GLOBAL INC | c20030exv23w1.htm |
Exhibit 99.1
CORPORATE PROPERTY ASSOCIATES 16 GLOBAL INCORPORATED
The pro forma consolidated financial statements of Corporate Property Associates 16 Global
Incorporated (CPA®:16 Global), which are unaudited, have been prepared based on the
historical financial statements of CPA®:16 Global. The pro forma consolidated balance
sheet of CPA®:16 Global as of December 31, 2010 has been prepared as if its
acquisition of Corporate Property Associates 14 Incorporated (CPA®:14) in exchange for
cash and CPA®:16 Globals shares (the Merger) had occurred on December 31, 2010.
The pro forma consolidated balance sheet also includes pro forma adjustments for events subsequent
to December 31, 2010, including CPA®:14s special dividend, certain debt transactions
and the disposition of certain properties prior to CPA®:14s acquisition by
CPA®:16 Global.
The pro forma consolidated statement of operations for the year ended December 31, 2010 has
been prepared as if the acquisition of CPA®:14 had occurred on January 1, 2010. The pro
forma consolidated statement of operations also gives effect to events subsequent to December 31,
2010, as described above, as though such activity had occurred as of January 1, 2010 and to the
impact of the Merger on revenues and expenses. Pro forma adjustments are intended to reflect what
the effect would have been had CPA®:16 Global acquired CPA®:14 as of
January 1, 2010, less amounts that have been recorded in the historical consolidated statements of
operations; however, certain information, such as fair value, is still preliminary and subject to
further revision. In managements opinion, all material adjustments necessary to reflect the
effects of the acquisition of CPA®:14 by CPA®:16 Global have been
presented.
The pro forma consolidated financial statements should be read in conjunction with the
historical consolidated financial statements and notes thereto of CPA®:16 Global
included in its Report on Form 10-K for the year ended December 31, 2010 and filed on March 31,
2011. The pro forma information is unaudited and is not necessarily indicative of the financial
condition or results of operations had the acquisition of CPA®:14 occurred on January 1,
2010 or on any particular date in the future, nor is it necessarily indicative of the financial
position, cash flows or results of operations of future periods.
CORPORATE PROPERTY ASSOCIATES 16 GLOBAL INCORPORATED
PRO FORMA CONSOLIDATED BALANCE SHEET (Unaudited)
As of December 31, 2010
PRO FORMA CONSOLIDATED BALANCE SHEET (Unaudited)
As of December 31, 2010
(In thousands)
Pro Forma | ||||||||||||||||||||||||||||||||||||||||||||||||||||
CPA®: 16 - Global | CPA®: 14 | Adjustments | ||||||||||||||||||||||||||||||||||||||||||||||||||
Pro Forma | ||||||||||||||||||||||||||||||||||||||||||||||||||||
Adjustments | Pro Forma Adjustments | |||||||||||||||||||||||||||||||||||||||||||||||||||
CPA®: 16 - | ||||||||||||||||||||||||||||||||||||||||||||||||||||
Transaction | Transaction | Global Pro | ||||||||||||||||||||||||||||||||||||||||||||||||||
Costs and | Debt | Special | Fair Value | Costs and | Forma | |||||||||||||||||||||||||||||||||||||||||||||||
Historical(1) | Other(6) | As Adjusted | Historical(1) | Transactions(2) | Dispositions(3) | Dividend(4) | Adjustments(5) | Other(6) | As Adjusted | Equity(7) | Line of Credit(8) | Consolidated | ||||||||||||||||||||||||||||||||||||||||
Assets |
||||||||||||||||||||||||||||||||||||||||||||||||||||
Investments in real estate: |
||||||||||||||||||||||||||||||||||||||||||||||||||||
Real estate, at cost |
$ | 1,730,421 | $ | 1,730,421 | $ | 1,161,139 | $ | (159,816 | ) | $ | (297,808 | ) | $ | 703,515 | $ | 2,433,936 | ||||||||||||||||||||||||||||||||||||
Operating real estate, at cost |
84,772 | 84,772 | 84,772 | |||||||||||||||||||||||||||||||||||||||||||||||||
Accumulated depreciation |
(155,580 | ) | (155,580 | ) | (221,824 | ) | 45,689 | 176,135 | | (155,580 | ) | |||||||||||||||||||||||||||||||||||||||||
Net investments in properties |
1,659,613 | 1,659,613 | 939,315 | (114,127 | ) | (121,673 | ) | 703,515 | 2,363,128 | |||||||||||||||||||||||||||||||||||||||||||
Assets held for sale |
440 | 440 | 18,913 | (18,913 | ) | | 440 | |||||||||||||||||||||||||||||||||||||||||||||
Net investment in direct financing leases |
318,233 | 318,233 | 107,352 | 54,057 | 161,409 | 479,642 | ||||||||||||||||||||||||||||||||||||||||||||||
Equity investments in real estate |
149,614 | 149,614 | 105,767 | $ | 4,908 | (26,132 | ) | 49,352 | 133,895 | 283,509 | ||||||||||||||||||||||||||||||||||||||||||
Net investments in real estate |
2,127,900 | 2,127,900 | 1,171,347 | 4,908 | (159,172 | ) | (18,264 | ) | 998,819 | 3,126,719 | ||||||||||||||||||||||||||||||||||||||||||
Notes receivable |
55,504 | 55,504 | 55,504 | |||||||||||||||||||||||||||||||||||||||||||||||||
Cash and cash equivalents |
59,012 | $ | (8,842 | ) | 50,170 | 124,693 | (36,582 | ) | 126,670 | $ | (90,367 | ) | $ | (22,431 | ) | 101,983 | $ | (322,996 | ) | $ | 227,144 | 56,301 | ||||||||||||||||||||||||||||||
Intangible assets, net |
149,082 | 149,082 | 56,912 | (5,486 | ) | 423,510 | 474,936 | 624,018 | ||||||||||||||||||||||||||||||||||||||||||||
Other assets, net |
46,461 | 46,461 | 69,029 | (5,939 | ) | (29,875 | ) | 9 | 33,224 | 3,534 | 83,219 | |||||||||||||||||||||||||||||||||||||||||
Total assets |
$ | 2,437,959 | $ | (8,842 | ) | $ | 2,429,117 | $ | 1,421,981 | $ | (31,674 | ) | $ | (43,927 | ) | $ | (90,367 | ) | $ | 375,371 | $ | (22,422 | ) | $ | 1,608,962 | $ | (322,996 | ) | $ | 230,678 | $ | 3,945,761 | ||||||||||||||||||||
Liabilities and Equity |
||||||||||||||||||||||||||||||||||||||||||||||||||||
Liabilities: |
||||||||||||||||||||||||||||||||||||||||||||||||||||
Non-recourse debt |
$ | 1,369,248 | $ | 1,369,248 | $ | 689,264 | $ | (31,674 | ) | $ | (116,221 | ) | $ | 2,643 | $ | 544,012 | $ | (68,510 | ) | $ | 1,844,750 | |||||||||||||||||||||||||||||||
Line of credit |
302,000 | 302,000 | ||||||||||||||||||||||||||||||||||||||||||||||||||
Accounts payable, accrued expenses and
other liabilities |
30,875 | 30,875 | 14,048 | (1,871 | ) | 12,177 | 43,052 | |||||||||||||||||||||||||||||||||||||||||||||
Prepaid and deferred rental income and
security deposits |
57,095 | 57,095 | 26,764 | (2,948 | ) | 18,174 | 41,990 | 99,085 | ||||||||||||||||||||||||||||||||||||||||||||
Due to affiliates |
7,759 | 7,759 | 13,183 | $ | (6,070 | ) | 7,113 | 14,872 | ||||||||||||||||||||||||||||||||||||||||||||
Distributions payable |
20,826 | 20,826 | 17,463 | 17,463 | 38,289 | |||||||||||||||||||||||||||||||||||||||||||||||
Total liabilities |
1,485,803 | 1,485,803 | 760,722 | (31,674 | ) | (121,040 | ) | 20,817 | (6,070 | ) | 622,755 | 233,490 | 2,342,048 | |||||||||||||||||||||||||||||||||||||||
Redeemable noncontrolling interests |
21,805 | 21,805 | 21,805 | |||||||||||||||||||||||||||||||||||||||||||||||||
Equity: |
||||||||||||||||||||||||||||||||||||||||||||||||||||
Common stock |
135 | 135 | 96 | 3 | 99 | $ | (28 | ) | 206 | |||||||||||||||||||||||||||||||||||||||||||
Additional paid-in capital |
1,216,565 | 1,216,565 | 949,791 | 35,556 | 985,347 | (348,082 | ) | 1,853,830 | ||||||||||||||||||||||||||||||||||||||||||||
Distributions in excess of accumulated
earnings |
(275,948 | ) | $ | (8,842 | ) | (284,790 | ) | (192,995 | ) | 73,352 | $ | (90,367 | ) | 345,922 | (51,911 | ) | 84,001 | (77,784 | ) | (2,812 | ) | (281,385 | ) | |||||||||||||||||||||||||||||
Accumulated other comprehensive income |
(8,460 | ) | (8,460 | ) | 4,515 | 4,515 | (4,515 | ) | (8,460 | ) | ||||||||||||||||||||||||||||||||||||||||||
Less, treasury stock at cost |
(81,080 | ) | (81,080 | ) | (107,413 | ) | (107,413 | ) | 107,413 | (81,080 | ) | |||||||||||||||||||||||||||||||||||||||||
Total shareholders equity |
851,212 | (8,842 | ) | 842,370 | 653,994 | 73,352 | (90,367 | ) | 345,922 | (16,352 | ) | 966,549 | (322,996 | ) | (2,812 | ) | 1,483,111 | |||||||||||||||||||||||||||||||||||
Noncontrolling interests |
79,139 | 79,139 | 7,265 | 3,761 | 8,632 | 19,658 | 98,797 | |||||||||||||||||||||||||||||||||||||||||||||
Total equity |
930,351 | (8,842 | ) | 921,509 | 661,259 | 77,113 | (90,367 | ) | 354,554 | (16,352 | ) | 986,207 | (322,996 | ) | (2,812 | ) | 1,581,908 | |||||||||||||||||||||||||||||||||||
Total liabilities and equity |
$ | 2,437,959 | $ | (8,842 | ) | $ | 2,429,117 | $ | 1,421,981 | $ | (31,674 | ) | $ | (43,927 | ) | $ | (90,367 | ) | $ | 375,371 | $ | (22,422 | ) | $ | 1,608,962 | $ | (322,996 | ) | $ | 230,678 | $ | 3,945,761 | ||||||||||||||||||||
CORPORATE
PROPERTY ASSOCIATES 16 GLOBAL INCORPORATED
PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS (Unaudited)
For the year ended December 31, 2010
PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS (Unaudited)
For the year ended December 31, 2010
(In thousands, except share and per share amounts)
CPA®:14 | Pro Forma Adjustments | |||||||||||||||||||||||||||||||||||
Pro Forma Adjustments | ||||||||||||||||||||||||||||||||||||
CPA®:16 - | Fair Value and | Asset | CPA ®:16 - Global | |||||||||||||||||||||||||||||||||
Global | Debt | Other | CPA®:14 | Management | Pro Forma | |||||||||||||||||||||||||||||||
Historical(1) | Historical(1) | Transactions(2) | Dispositions(3) | Adjustments(4) | As Adjusted | Line of Credit(5) | Fees(6) | Consolidated | ||||||||||||||||||||||||||||
Revenues |
||||||||||||||||||||||||||||||||||||
Rental income |
$ | 153,755 | $ | 133,779 | $ | (16,812 | ) | $ | (16,815) | (a) | $ | 100,152 | $ | 253,907 | ||||||||||||||||||||||
Interest income from direct
financing leases |
27,101 | 13,744 | (1,837) | (b) | 11,907 | 39,008 | ||||||||||||||||||||||||||||||
Interest income on notes
receivable |
25,955 | | 25,955 | |||||||||||||||||||||||||||||||||
Other real estate income |
24,815 | | 24,815 | |||||||||||||||||||||||||||||||||
Other operating income |
3,133 | 9,753 | (163 | ) | 9,590 | 12,723 | ||||||||||||||||||||||||||||||
234,759 | 157,276 | | (16,975 | ) | (18,652 | ) | 121,649 | | | 356,408 | ||||||||||||||||||||||||||
Operating expenses |
||||||||||||||||||||||||||||||||||||
Depreciation and amortization |
(48,706 | ) | (30,118 | ) | 4,761 | (36,172) | (c) | (61,529 | ) | (110,235 | ) | |||||||||||||||||||||||||
Property expenses |
(29,280 | ) | (31,658 | ) | 4,610 | (27,048 | ) | $ | 20,853 | (35,475 | ) | |||||||||||||||||||||||||
Other real estate expenses |
(18,697 | ) | | (18,697 | ) | |||||||||||||||||||||||||||||||
General and administrative |
(10,423 | ) | (8,105 | ) | 20 | 1,319 | (d) | (6,766 | ) | (17,189 | ) | |||||||||||||||||||||||||
Impairment charges |
(9,808 | ) | (8,460 | ) | 4,725 | 3,735 | (e) | (9,808 | ) | |||||||||||||||||||||||||||
(116,914 | ) | (78,341 | ) | | 14,116 | (31,118 | ) | (95,343 | ) | | 20,853 | (191,404 | ) | |||||||||||||||||||||||
Other Income and Expenses |
||||||||||||||||||||||||||||||||||||
Income from equity investments in
real estate |
17,573 | 20,616 | $ | 425 | (3,767 | ) | (3,183) | (f) | 14,091 | 31,664 | ||||||||||||||||||||||||||
Other interest income |
268 | 1,738 | 1,738 | 2,006 | ||||||||||||||||||||||||||||||||
Gain on sale of real estate |
| 351 | 351 | 351 | ||||||||||||||||||||||||||||||||
Other income and (expenses) |
88 | (1,777 | ) | (1,777 | ) | (1,689 | ) | |||||||||||||||||||||||||||||
Interest expense |
(79,225 | ) | (50,998 | ) | $ | 2,656 | 7,259 | 1,106 | (g) | (39,977 | ) | $ | (5,817 | ) | (125,019 | ) | ||||||||||||||||||||
(61,296 | ) | (30,070 | ) | 3,081 | 3,492 | (2,077 | ) | (25,574 | ) | (5,817 | ) | | (92,687 | ) | ||||||||||||||||||||||
Income before income taxes |
56,549 | 48,865 | 3,081 | 633 | (51,847 | ) | 732 | (5,817 | ) | 20,853 | 72,317 | |||||||||||||||||||||||||
Provision for income taxes |
(4,847 | ) | (3,084 | ) | 241 | | (2,843 | ) | (7,690 | ) | ||||||||||||||||||||||||||
Income from continuing
operations |
51,702 | 45,781 | 3,081 | 874 | (51,847 | ) | (2,111 | ) | (5,817 | ) | 20,853 | 64,627 | ||||||||||||||||||||||||
(Income) loss from continuing
operations attributable to
noncontrolling interests |
(23,701 | ) | (2,832 | ) | 897 | 1,263 | (h) | (672 | ) | (24,373 | ) | |||||||||||||||||||||||||
Income (loss) from continuing
operations attributable to
shareholders |
$ | 28,001 | $ | 42,949 | $ | 3,081 | $ | 1,771 | $ | (50,584 | ) | $ | (2,783 | ) | $ | (5,817 | ) | $ | 20,853 | $ | 40,254 | |||||||||||||||
Basic earnings per share (7): |
||||||||||||||||||||||||||||||||||||
Income from continuing
operations attributable to
shareholders |
$ | 0.23 | $ | 0.49 | $ | 0.21 | ||||||||||||||||||||||||||||||
Weighted average shares
outstanding basic |
124,631,975 | 86,757,502 | 195,752,659 | |||||||||||||||||||||||||||||||||
CORPORATE
PROPERTY ASSOCIATES 16 GLOBAL INCORPORATED
NOTES TO PRO FORMA CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)
NOTES TO PRO FORMA CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)
Pro Forma Consolidated Balance Sheet
1. | Historical These amounts are derived from the historical audited consolidated
balance sheets of CPA®:16 Global and CPA®:14 as of December 31,
2010, included in their respective Reports on Form 10-K for the year ended December 31,
2010. |
2. | Debt Transactions Subsequent to December 31, 2010 and prior to the Merger,
CPA®:14 paid off non-recourse mortgage debt totaling $51.7 million, all of
which had matured or was scheduled to mature during 2011 and 2012. CPA®:14
refinanced $7.3 million of this debt with new non-recourse mortgage financing totaling
$10.0 million and obtained non-recourse mortgage financing of $10.0 million on a
previously unencumbered property. The new financings were assumed by CPA®:16
Global and bear interest at a weighted average fixed rate of 6.4% and have terms ranging
from 8.6 years to 10 years. In addition, CPA®:14 contributed $4.9 million to
an unconsolidated venture in which CPA®:14 holds a 50% interest to pay off the
ventures maturing debt. |
3. | Dispositions Immediately prior to consummation of the Merger, CPA®:14
sold (i) selected properties, including an equity interest in a property accounted for
under the equity method for $32.1 million (net of debt assumed totaling $89.2 million), to
W. P. Carey & Co. LLC (W. P. Carey), which, together with certain of its affiliates, is
the advisor of CPA®:14 and CPA®:16 Global, and (ii) a portfolio
of its interests in properties accounted for under the equity method for $57.5 million to
Corporate Property Associates 17 Global Incorporated (CPA®:17 Global),
an affiliate of CPA®:14 and CPA®:16 Global. In addition,
subsequent to December 31, 2010 and prior to the consummation of the Merger,
CPA®:14 sold certain properties for an aggregate of $37.1 million (net of debt
assumed totaling $27.0 million) to unrelated third parties. In connection with these
dispositions, CPA®:14 recognized, for pro forma purposes, a net gain totaling
$73.4 million derived as follows (in thousands): |
Disposition of Assets to: | ||||||||||||||||
W. P. Carey | CPA ®:17 - Global | Third Parties | Total | |||||||||||||
Real estate |
$ | 152,190 | $ | 205,985 | $ | 64,150 | $ | 422,325 | ||||||||
Debt assumed |
(101,879 | ) | (148,522 | ) | (27,024 | ) | (277,425 | ) | ||||||||
Cash consideration paid for real estate |
50,311 | 57,463 | 37,126 | 144,900 | ||||||||||||
Less: amounts attributable to noncontrolling interests |
(18,230 | ) | (18,230 | ) | ||||||||||||
32,081 | 57,463 | 37,126 | 126,670 | |||||||||||||
Historical carrying basis of assets and liabilities: |
||||||||||||||||
Real estate assets |
(76,015 | ) | (38,112 | ) | (114,127 | ) | ||||||||||
Assets held for sale |
(18,913 | ) | (18,913 | ) | ||||||||||||
Interest in equity investments |
(1,159 | ) | (24,973 | ) | | (26,132 | ) | |||||||||
Net other assets acquired or written off |
(5,273 | ) | (6,151 | ) | (11,424 | ) | ||||||||||
Mortgage notes payable assumed |
89,197 | 27,024 | 116,221 | |||||||||||||
Net other liabilities assumed or written off |
1,209 | 3,609 | 4,818 | |||||||||||||
Noncontrolling interest obligations assumed |
(3,761 | ) | (3,761 | ) | ||||||||||||
4,198 | (24,973 | ) | (32,543 | ) | (53,318 | ) | ||||||||||
Pro forma net gain on disposition of real estate based on
selling price |
$ | 36,279 | $ | 32,490 | $ | 4,583 | $ | 73,352 | ||||||||
Consideration paid includes the pro rata share of equity
investments sold as follows: |
||||||||||||||||
Appraised value of real estate |
$ | 22,130 | $ | 205,985 | $ | 228,115 | ||||||||||
Fair value of debt assumed |
(16,620 | ) | (148,522 | ) | (165,142 | ) | ||||||||||
Cash consideration |
$ | 5,510 | $ | 57,463 | $ | | $ | 62,973 | ||||||||
Other amounts recognized in connection with the
dispositions include: |
||||||||||||||||
Other assets written off |
$ | 4,011 | $ | 3,218 | $ | 7,229 | ||||||||||
Intangible liabilities written off |
(443 | ) | (443 | ) | ||||||||||||
$ | 3,568 | $ | | $ | 3,218 | $ | 6,786 | |||||||||
4. | Special Dividend In connection with the Merger, CPA®:14s board of
directors declared a $1.00 per share special cash distribution, or $90.4 million in the
aggregate, based on pro forma shares outstanding of 90,366,732 as of December 31, 2010.
Pro forma shares outstanding reflect 87,270,235 shares outstanding as of December 31,
2010, plus (i) termination fees
paid to the advisor in the form of 2,717,138 shares of CPA®:14, as provided for in
the Merger agreement between CPA®:14 and CPA®:16 Global, and (ii)
performance fees paid to the advisor in the form of 379,359 shares of CPA®:14 in
the ordinary course of business subsequent to December 31, 2010. |
5. | Fair Value Adjustments CPA®:16 Global has allocated the purchase
price to the preliminary fair value of the net assets acquired and liabilities assumed as
follows (in thousands): |
Total value
of
CPA®:14
shares exchanged and acquired |
$ | 966,549 | ||
Historical as | ||||||||||||
Adjusted (i) | Adjustments | Acquired | ||||||||||
Assets acquired: |
||||||||||||
Investments in real estate (ii) |
$ | 825,188 | $ | (121,673 | ) | $ | 703,515 | |||||
Net investment in direct financing leases (ii) |
107,352 | 54,057 | 161,409 | |||||||||
Equity investments in real estate (ii) |
84,543 | 49,352 | 133,895 | |||||||||
Cash and cash equivalents |
101,983 | 101,983 | ||||||||||
Intangible assets, net (iii) |
51,426 | 423,510 | 474,936 | |||||||||
Other assets, net (iv) |
63,099 | (29,875 | ) | 33,224 | ||||||||
1,233,591 | 375,371 | 1,608,962 | ||||||||||
Liabilities assumed: |
||||||||||||
Non-recourse debt (v) |
541,369 | 2,643 | 544,012 | |||||||||
Accounts payable, accrued expenses and other liabilities |
12,177 | 12,177 | ||||||||||
Prepaid and deferred rental income and security deposits (iv) |
23,816 | 18,174 | 41,990 | |||||||||
Due to affiliates |
7,113 | 7,113 | ||||||||||
Distributions payable |
17,463 | 17,463 | ||||||||||
601,938 | 20,817 | 622,755 | ||||||||||
631,653 | 354,554 | 986,207 | ||||||||||
Less: amounts attributable to noncontrolling interests |
(11,026 | ) | (8,632 | ) | (19,658 | ) | ||||||
Net assets acquired |
$ | 620,627 | $ | 345,922 | $ | 966,549 | ||||||
(i) | Historical as Adjusted amounts include the Historical balance sheet of
CPA®:14 and all pro forma adjustments related to the Debt
Transactions, Dispositions, Special Dividend and Transaction Costs discussed in Notes
1-4 and Note 6. |
|
(ii) | Acquired amounts reflect adjustments to record assets acquired and liabilities
assumed by CPA®:16 Global at their preliminary estimated fair
value. The pro forma fair value of the real estate assets of
CPA®:14 were determined by management, based in part on appraisals
from an independent third-party valuation firm. The carrying values of non-real estate
assets and liabilities, other than mortgage notes payable, are deemed to approximate
their fair values. |
|
(iii) | Intangible assets identified in the transaction have been allocated as follows
(in thousands): |
Fair Value | Historical Cost | Net Adjustment | ||||||||||
Intangible assets |
||||||||||||
In-place lease |
$ | 283,183 | $ | 27,464 | $ | 255,719 | ||||||
Above-market lease |
191,753 | 23,962 | 167,791 | |||||||||
474,936 | 51,426 | 423,510 | ||||||||||
Below-market lease |
(28,564 | ) | (4,804 | ) | (23,760 | ) |
Below-market leases are included in Prepaid and deferred rental income and security
deposits on the pro forma consolidated balance sheet. |
||
(iv) | Acquired amounts also reflect an adjustment to eliminate
CPA®:14s unamortized straight-line rents, deferred financing
costs and liability for deferred rent. CPA®:14 leases that provide
for non-contingent stated rent increases are required to be recast at the date of the
transaction. |
|
(v) | Acquired amounts also reflect an adjustment to reflect CPA®:14s
mortgage notes, which were assumed by CPA®:16 Global in the Merger at
their estimated fair value. The estimated fair value of fixed-rate debt instruments was
evaluated
using a discounted cash flow model with discount rates that take into account the credit
of the tenants and changes in interest rates. |
6. | Transaction Costs and Other All transaction costs in connection with the Merger
have been expensed. Transaction costs are comprised as follows (in thousands): |
CPA®:16 - | ||||||||||||
Global | CPA®:14 | Total | ||||||||||
Subordinated termination fee payable to W. P. Carey (i) |
$ | 31,247 | $ | 31,247 | ||||||||
Subordinated disposition fee payable to W. P. Carey (ii) |
21,270 | 21,270 | ||||||||||
Subordinated performance fees paid to W. P. Carey (iii) |
4,312 | 4,312 | ||||||||||
Other transaction costs payable to third parties (iv) |
$ | 8,842 | 1,161 | 10,003 | ||||||||
$ | 8,842 | $ | 57,990 | $ | 66,832 | |||||||
(i) | A subordinated termination fee equal to 15% of the amount by which (i) the value of
the properties on the date of the Merger (based on the most current valuation subject to
certain adjustments), less the amount of all indebtedness collateralized by such
properties, exceeded (ii) the total of the initial investor capital on the final closing
date reduced by any redemptions and distributions plus an amount equal to the preferred
return of 7% through the Merger date reduced by the total dividends paid by
CPA®:14 from its inception through the Merger date, was paid upon
consummation of the Merger. This fee was paid to the advisor in the form of 2,717,138
shares of CPA®:14, as provided for in the Merger agreement. |
|
(ii) | The subordinated disposition fee included $6.1 million from sales of properties
since inception but prior to the acquisition of properties by CPA®:16
Global and, therefore, $6.1 million of such fees have been reflected in the historical
balance sheet as a liability. |
|
(iii) | Reflects the payment of performance fees to W. P. Carey for the period from
January 1, 2011 to April 30, 2011, which were paid in the form of shares of
CPA®:14 in lieu of cash. |
|
(iv) | Includes legal, accounting and other transaction related costs. |
7. | Equity The changes in shareholders equity reflect the following (in thousands): |
Distributions | Accumulated | |||||||||||||||||||||||
in Excess of | Other | Total | ||||||||||||||||||||||
Common | Additional Paid- | Accumulated | Comprehensive | Treasury | Shareholders | |||||||||||||||||||
Stock | In Capital | Earnings | Income | Stock | Equity | |||||||||||||||||||
Purchase of CPA®:14 shares |
$ | (42 | ) | $ | (443,954 | ) | $ | (443,996 | ) | |||||||||||||||
Elimination of CPA®:14s remaining pro
forma equity |
(57 | ) | (541,393 | ) | $ | (77,784 | ) | $ | (4,515 | ) | $ | 107,413 | (516,336 | ) | ||||||||||
Issuance of CPA®:16 - Global shares to
merging shareholders |
57 | 516,279 | 516,336 | |||||||||||||||||||||
Issuance of CPA®:16 - Global shares to |
||||||||||||||||||||||||
W. P. Carey |
14 | 120,986 | 121,000 | |||||||||||||||||||||
Net adjustment |
$ | (28 | ) | $ | (348,082 | ) | $ | (77,784 | ) | $ | (4,515 | ) | $ | 107,413 | $ | (322,996 | ) | |||||||
Pursuant to the agreement and plan of merger, dated as of December 13, 2010, between
CPA®:14 and CPA®:16 Global, shareholders of
CPA®:14 were entitled to receive $11.50 per share, which is equal to the estimated
net asset value (NAV) of CPA®:14 as of September 30, 2010. All
CPA®:14 shareholders of record were entitled to receive a special cash
distribution of $1.00 per share, to be paid by CPA®:14 immediately prior to the
Merger, and the right to elect to receive $10.50 in merger consideration in either cash or
1.1932 shares of CPA®:16 Global common stock, which equates to $10.50 based on
the NAV per share of $8.80 as of September 30, 2010. The advisor calculated NAV per share
for CPA®:14 and CPA®:16 Global as of September 30, 2010. To make
these calculations, the advisor relied in part on an estimate of the fair market value of
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.
An aggregate of 57,370,684 shares of CPA®:16 Global common stock, having a
preliminary estimated fair value of $516.3 million as of the closing date of the Merger, were
issued in the Merger to shareholders of CPA®:14, including W. P. Carey.
Shareholders of CPA®:14 who elected to receive cash in the Merger received a total
of approximately $444.0 million in cash as merger consideration in exchange for 42,285,367
shares of CPA®:14 common stock. All shareholders of
CPA®:14 received the $1.00 per share special cash distribution,
totaling $90.4 million in the aggregate, from CPA®:14.
The pro forma adjustments described above reflect the actual CPA®:14 shares
exchanged, and CPA®:16 Global shares and cash paid as merger consideration, on
May 2, 2011, the closing date of the Merger, in accordance with the Merger agreement.
However, for purposes of this pro forma presentation and as required by accounting principles
generally accepted in the United States, preliminary estimated fair value has been computed
as of the closing date of the Merger by the advisor in a manner consistent with the
methodology described above. The pro forma change in fair value subsequent to the September
30, 2010 valuation date through the closing date of the Merger reflects increases in fair
value of the net assets of each of CPA®:14 and CPA®:16 Global during
that period, which were primarily attributable to changes in foreign exchange rates. The
increases in each entitys fair value reflected a slightly larger increase in the fair value
of CPA®:14, the acquired entity, in comparison to the fair value of
CPA®:16 Global, the acquiring entity, resulting in a pro forma gain on
acquisition of $6.2 million.
CPA ®:16 Global required additional financing sources to pay
shareholders of CPA®:14 that elected cash for their merger
consideration. The sources of funds were comprised of $302.0 million of available cash under
a new line of credit (see Note 8) and approximately $121.0 million in cash from W. P. Carey
in return for the issuance of 13,750,000 shares of CPA®:16 Global.
CPA®:14s accumulated other comprehensive income represents cumulative foreign
currency translation adjustments and unrealized gains and losses on marketable securities and
derivative instruments. These translation adjustments and unrealized gains and losses will be
eliminated in purchase accounting upon acquisition by CPA®:16 Global.
8. | Line of Credit Subsequent to the Merger, CPA ®: 16 Global
used approximately $71.3 million of its cash to defease mortgages with a fair value of
approximately $68.5 million at December 31, 2010. The remaining cash was used to fund
defeasance costs and prepayment penalties of approximately $2.8 million. CPA
®: 16 Global borrowed $302.0 million under its new $320.0 million
line of credit to redeem shareholders of CPA®:14 who elected to
receive cash in the Merger. |
CPA®:16 Global entered into a new credit agreement with a group
of lenders in connection with the Merger. The credit agreement
provides for a senior secured credit
facility in an amount of up to $320.0 million, with an option for
CPA®:16 Global to request an increase in the facility by an
aggregate principal amount of up to $30.0 million, or a total credit facility of up to $350.0
million. Loans drawn under the credit agreement will bear interest at a rate per annum equal
to the Eurodollar Rate plus 3.25%. The revolving credit facility is scheduled to mature on
May 2, 2014, with an option for CPA®:16 Global to extend the
maturity date for an additional 12 months. The credit agreement contains customary
affirmative and negative covenants and also requires CPA®:16 Global
to meet certain financial tests, including a minimum total equity value test, consolidated
leverage ratio test and a consolidated fixed charge coverage ratio test.
CPA®:16 Globals obligations under the credit agreement are secured
by pledges of the equity of certain of its current and future subsidiaries that own a pool of
unencumbered properties. As a result of its initial $302.0 million borrowing under the credit
facility, CPA®: 16 Global incurred $3.5 million of fees associated
with arranging and establishing the facility, which are treated as deferred financing costs
for pro forma purposes and will be amortized over the three-year life of the senior secured
credit facility.
Pro Forma Consolidated Statement of Operations
1. | Historical These amounts are derived from the historical audited statements of
operations and income of CPA®:16 Global and CPA®:14,
respectively, for the year ended December 31, 2010 included in their respective Reports on
Form 10-K for the year ended December 31, 2010. |
2. | Debt Transactions Subsequent to December 31, 2010, CPA®:14 paid off
non-recourse mortgage debt totaling $51.7 million, all of which had matured or was
scheduled to mature during 2011 and 2012. CPA®:14 refinanced $7.3 million of
this debt with new non-recourse mortgage financing totaling $10.0 million and obtained
non-recourse mortgage financing of $10.0 million on a previously unencumbered property.
The new financing bears interest at a weighted average fixed rate of 6.4% and have terms
ranging from 8.6 years to 10 years. In addition, CPA®:14 contributed $4.9
million to an unconsolidated venture in which CPA®:14 holds a 50% interest to
pay off the ventures maturing debt. |
3. | Dispositions Prior to consummation of the Merger and as provided for in the Merger
agreement between CPA®:14 and CPA®:16 Global,
CPA®:14
sold three properties, including an equity interest in a property accounted for under the
equity method, to W. P. Carey and a portfolio of its interests in the three properties
accounted for under the equity method to CPA®:17 Global. In addition,
CPA®:14 sold certain properties to unrelated third parties. The adjustments
reflect the historical results of operations of these properties for the year ended
December 31, 2010. Income (loss) from continuing operations excludes gains (losses) from
the sales of properties. |
The results of operations also reflect the decrease in asset management and performance fees
as a result of the disposition of properties to W. P. Carey and CPA®:17 Global
by CPA®:14. Prior to the Merger, the advisory agreements of
CPA®:14 and CPA®:16 Global each provided for the payment
of combined asset management and performance fees of 1% per annum of average invested assets
as defined in the agreements with the advisor. In connection with the Merger,
CPA®:16 Global entered into an amended and restated advisory agreement that
provides for a reduction in the asset management fee from 1% of the property value of the
assets under management to 0.5% and a new requirement for a distribution of 10% of the
available cash of CPA®:16 Globals newly created operating partnership to an
affiliate of the advisor.
The appraised value of CPA®:14s assets acquired includes the value of
investments in real estate adjusted for CPA®:14s proportional interest in the
underlying real estate assets accounted for under the equity method and for noncontrolling
interest holders share of the value of consolidated real estate assets.
4. | Fair Value and Other Adjustments Reflects the impact on operations resulting from
the fair value adjustments to assets acquired and liabilities assumed as follows: |
(a) | Reflects the net decrease in rental income due to the amortization of
intangibles for leases acquired that have rents above or below market rates and for
the re-computation of the straight-line effect of rents, net of any such amounts
included in CPA®:14s historical results of operations.
Above-market and below-market lease intangibles represent amounts allocated from the
purchase price of properties acquired and are based on the difference between
estimates for market rents at the time of acquisition and contractual rents on the
leases assumed, discounted using the tenants bond rate. |
In connection with the acquisition of properties subject to leases, $187.3 million
of the purchase price has been allocated to reflect the value attributable to the
assumption of leases with rents in excess of market rates at acquisition. The intangible
assets related to the assumption of these above-market leases are amortized as a
reduction to rental income over the remaining initial terms of the applicable leases,
which range from 1.2 years to 16.8 years. Additionally, $28.6 million of the purchase
price has been allocated as deferred rent to reflect the value attributable to the
assumption of leases with rents that are below market rates at acquisition. Deferred
rent is amortized as an increase to rental income over the extended terms of the
applicable leases, or the initial term, if the renewal terms provide for adjustments to
market rental rates. These terms range from 2.7 years to 15.7 years. |
(b) | Reflects adjustments to recognize interest income from direct financing
leases at a constant rate of return, which is determined based on future minimum rents
and estimated residual value of the underlying leased properties. |
(c) | In connection with the acquisition of properties, costs are allocated to tangible
and intangible assets based on their estimated fair values. The value attributed to
tangible assets, consisting of land, buildings and site improvements, is determined as
if the acquired property were vacant. Intangible assets consist of above-market and
below-market lease intangibles and in-place lease values. In-place lease values are
amortized over the remaining initial, noncancellable terms of the applicable leases,
which range from 1.2 years to 16.8 years. No amortization period for intangibles will
exceed the remaining depreciable life of the building. |
(d) | The decrease in General and administrative expense represents the elimination of
transaction costs expensed by CPA®:14 and of
CPA®:14s directors compensation effective as of the date of the Merger. |
(e) | Impairment charges of $3.7 million for the year ended December 31, 2010
included in CPA®:14s historical results of operations as adjusted have
been eliminated as the underlying properties have been reflected at their fair value
for pro forma purposes. |
(f) | Adjustments to equity income reflect proportional shares of adjustments to
rental income, interest income from direct financing leases, depreciation and
amortization and interest expense related to fair value adjustments to tangible and
intangible assets, and mortgage notes payable and changes in the constant rate of
return on direct financing leases related to the purchase adjustments on interests in
the underlying equity investees. Adjustments to equity income also reflect the
elimination of impairment charges of $4.7 million for the year ended December 31, 2010
included in CPA®:14s historical results of operations as the
interests in the underlying equity investees have been reflected at their fair value
for pro forma purposes. |
(g) | The decrease in interest expense reflects the amortization of the excess of
the fair value of the assumed mortgage notes payable over
CPA®:14s carrying value as a non-cash yield adjustment over the
remaining terms of the mortgages. |
(h) | Adjustments to amounts attributable to noncontrolling interests reflect the
noncontrolling interest holders proportional shares of adjustments to rental income,
interest income from direct financing leases, depreciation and amortization and
interest expense related to fair value adjustments to tangible and intangible assets,
and mortgage notes payable and changes in the constant rate of return on direct
financing leases related to the purchase adjustments on interests in the underlying
equity investees. |
5. | Line of Credit The increase to Interest expense is based on
CPA®:16 Globals borrowing of funds through the establishment of
its own credit facility to fund cash elections by CPA®:14
shareholders in the Merger. In accordance with the terms provided for in the credit
agreement, loans drawn under the credit agreement will bear interest at a rate per annum
equal to the Eurodollar Rate plus 3.25%. At the date of the Merger, the applicable
interest rate was 3.5%. The increase in interest expense is also partially attributable to
the adjustment of CPA®:14s mortgage notes payable assumed by
CPA®:16 Global to their estimated fair values, offset by the
elimination of charges included in CPA®:14s results of operations
in connection with amortizing financing costs over the terms of the loans, as such
unamortized financing costs are written off at acquisition. The excess of the fair value
of the assumed mortgage notes payable over CPA®:14s carrying value
is amortized as a non-cash yield adjustment over the remaining lives of the mortgages. |
The pro forma increase in interest expense as a result of the acquisition of new debt
in the Merger is calculated using the applicable interest rate at the date of the Merger, or
3.5%. A 0.125% increase in the annual interest rate assumed with respect to the debt would
have increased pro forma interest expense by approximately $0.4 million for the year ended
December 31, 2010.
The increase to interest expense is partially offset by an adjustment to eliminate
interest expense related to limited recourse mortgage notes payable that were repaid in
order to increase availability under CPA®:16 Globals line of
credit. Under the terms of the credit agreement, CPA®:16 Global may
borrow up to $320.0 million with an option to request an increase in the facility by an
aggregate principal amount of up to $30.0 million for a total credit facility of up to
$350.0 million. However, the maximum amount available under the line of credit is limited by
the value of unencumbered properties owned by the combined company. In order to increase
availability of funds under the line of credit, CPA®:16 Global repaid existing
mortgages totaling $68.5 million after December 31, 2010 but prior to the consummation of
the Merger. In addition, after December 31, 2010 but prior to consummation of the Merger,
CPA®:14 repaid non-recourse mortgage loans with an aggregate
outstanding balance of $49.3 million, including a contribution of $4.9 million to a joint
venture to repay its existing debt. Following these mortgage payoffs, the maximum amount
available under the line of credit was $312.1 million as of the date of the Merger.
6. | Asset Management Fees The reduction in asset management and performance fees
reflects the amended and restated advisory agreement between CPA®:16 Global
and the advisor, which provides for a reduction in the asset management fee from 1% of the
property value of the assets under management to 0.5% and a new requirement for a
distribution of 10% of the available cash of our operating partnership to our advisor. |
7. | Earnings per share is presented for basic pro forma earnings per share. For pro forma
purposes, there are no dilutive securities. |
8. | UPREIT Reorganization On May 2, 2011, CPA®:16 Global completed an
internal reorganization whereby CPA®:16 Global formed an umbrella
partnership real estate investment trust, or UPREIT. In connection with the formation of
the UPREIT, CPA®:16 Global contributed substantially all of its assets and
liabilities to a newly formed limited liability company (the operating partnership) in
exchange for a managing member interest and units of membership interest in the operating
partnership, which together represent a 99.985% capital interest. Carey REIT III, Inc., a
subsidiary of W. P. Carey, acquired a special membership interest (Special Interest) in
the operating partnership entitling it to receive certain profit allocations and
distributions of cash. As it has control of the operating partnership through its
managing members interest, CPA®:16 Global will consolidate the operating
partnership in its financial results. |
CPA®:16 Globals advisory agreements with affiliates of W. P. Carey were
amended to give effect to this reorganization and to reflect a revised fee structure. In
connection with the issuance of the Special Interest, CPA®:16 Global will
incur a non-cash charge equal to the fair value of the interests issued, which could be a
material amount. CPA®:16 Global has not finalized its determination of the
fair value of the Special Interest and, accordingly, such fair value has not been included
in the pro forma financial statements. CPA®:16 Global will record the Special
Interest and include related disclosures in its second quarter filing on Form 10-Q in August
2011.