CORPORATE PROPERTY ASSOCIATES 18 GLOBAL INC - FORM 10-Q - August 19, 2015

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EX-32.0 - EXHIBIT 32.0 - CORPORATE PROPERTY ASSOCIATES 18 GLOBAL INCcpa182015q210-qexh32.htm
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UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
þ
 
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 
 
 
 
 
For the quarterly period ended June 30, 2015
 
 
 
or
 
 
 
o
 
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 
 
 
 
 
For the transition period from                     to                       

Commission File Number: 000-54970
CORPORATE PROPERTY ASSOCIATES 18 – GLOBAL INCORPORATED
(Exact name of registrant as specified in its charter)
Maryland
 
90-0885534
(State of incorporation)
 
(I.R.S. Employer Identification No.)
 
 
 
50 Rockefeller Plaza
 
 
New York, New York
 
10020
(Address of principal executive offices)
 
(Zip Code)
Investor Relations (212) 492-8920
(212) 492-1100
(Registrant’s telephone numbers, including area code)

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes þ No o

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes þ No o

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.
Large accelerated filer o
Accelerated filer o
Non-accelerated filer þ
Smaller reporting company o
 
(Do not check if a smaller reporting company)

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes o No þ

Registrant has 102,438,810 shares of Class A common stock, $0.001 par value, and 29,323,616 shares of Class C common stock, $0.001 par value, outstanding at August 13, 2015.




INDEX

Forward-Looking Statements

This Quarterly Report on Form 10-Q, or this Report, including Management’s Discussion and Analysis of Financial Condition and Results of Operations in Item 2 of Part I of this Report, contains forward-looking statements within the meaning of the federal securities laws. These forward-looking statements generally are identified by the words “believe,” “project,” “expect,” “anticipate,” “estimate,” “intend,” “strategy,” “plan,” “may,” “should,” “will,” “would,” “will be,” “will continue,” “will likely result,” and similar expressions. It is important to note that our actual results could be materially different from those projected in such forward-looking statements. You should exercise caution in relying on forward-looking statements as they involve known and unknown risks, uncertainties, and other factors that may materially affect our future results, performance, achievements, or transactions. Information on factors that could impact actual results and cause them to differ from what is anticipated in the forward-looking statements contained herein is included in this Report as well as in our other filings with the Securities and Exchange Commission, or the SEC, including but not limited to those described in Item 1A. Risk Factors in our Annual Report on Form 10-K for the year ended December 31, 2014 as filed with the SEC on March 27, 2015, or the 2014 Annual Report. Except as required by federal securities laws and the rules and regulations of the SEC, we do not undertake to revise or update any forward-looking statements.

All references to “Notes” throughout the document refer to the footnotes to the consolidated financial statements of the registrant in Part I, Item 1. Financial Statements (Unaudited).





CPA®:18 – Global 6/30/2015 10-Q – 1

PART I
Item 1. Financial Statements.

CORPORATE PROPERTY ASSOCIATES 18 – GLOBAL INCORPORATED
CONSOLIDATED BALANCE SHEETS (UNAUDITED)
(in thousands, except share and per share amounts)
 
June 30, 2015
 
December 31, 2014
Assets
 
 
 
Investments in real estate:
 
 
 
Real estate, at cost
$
861,532

 
$
743,735

Operating real estate, at cost
359,615

 
133,596

Accumulated depreciation
(24,803
)
 
(11,814
)
Net investments in properties
1,196,344

 
865,517

Real estate under construction (inclusive of $76,551 and $0, respectively, attributable to variable interest entities, or VIEs)
109,510

 
2,258

Net investments in direct financing leases
59,029

 
45,582

Note receivable
28,000

 
28,000

Net investments in real estate
1,392,883

 
941,357

Cash and cash equivalents (inclusive of $30 and $0, respectively, attributable to VIEs)
359,258

 
429,548

In-place lease intangible assets, net
186,807

 
167,635

Other intangible assets, net
23,720

 
25,667

Goodwill
21,450

 
9,692

Other assets, net (inclusive of $6,632 and $0, respectively, attributable to VIEs)
48,078

 
41,985

Total assets
$
2,032,196

 
$
1,615,884

Liabilities and Equity
 
 
 
Liabilities:
 
 
 
Non-recourse debt
$
711,223

 
$
430,462

Bonds payable
150,475

 
91,250

Deferred income taxes
43,433

 
28,753

Accounts payable, accrued expenses and other liabilities (inclusive of $2,236 and $0, respectively, attributable to VIEs)
48,517

 
26,911

Due to affiliate
34,497

 
20,651

Distributions payable
19,710

 
17,629

Total liabilities
1,007,855

 
615,656

Commitments and contingencies (Note 11)

 

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

 
—

Class A common stock, $0.001 par value; 320,000,000 shares authorized; 102,038,627 and 100,079,255 shares issued, respectively; and 101,555,642 and 99,924,009 shares outstanding, respectively
102

 
100

Class C common stock, $0.001 par value; 80,000,000 shares authorized; 29,071,366 and 18,026,013 shares issued, respectively; and 29,056,019 and 18,026,013 shares outstanding, respectively
29

 
18

Additional paid-in capital
1,173,973

 
1,056,862

Distributions and accumulated losses
(182,377
)
 
(111,878
)
Accumulated other comprehensive loss
(35,961
)
 
(20,941
)
Less: treasury stock at cost, 498,332 and 155,246 shares, respectively
(4,788
)
 
(1,520
)
Total CPA®:18 – Global stockholders’ equity
950,978

 
922,641

Noncontrolling interests
73,363

 
77,587

Total equity
1,024,341

 
1,000,228

Total liabilities and equity
$
2,032,196

 
$
1,615,884

See Notes to Consolidated Financial Statements.



CPA®:18 – Global 6/30/2015 10-Q – 2

CORPORATE PROPERTY ASSOCIATES 18 – GLOBAL INCORPORATED
CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)
(in thousands, except share and per share amounts) 
 
 
Three Months Ended June 30,
 
Six Months Ended June 30,
 
 
2015

2014
 
2015
 
2014
Revenues
 
 
 
 
 
 
 
 
Lease revenues:
 
 
 
 
 
 
 
 
Rental income
 
$
18,338

 
$
10,471

 
$
35,427

 
$
16,130

Interest income from direct financing leases
 
1,012

 
873

 
2,031

 
1,425

Total lease revenues
 
19,350

 
11,344

 
37,458

 
17,555

Other real estate income
 
8,891

 
515

 
15,024

 
936

Other operating income
 
1,521

 
788

 
3,753

 
851

Other interest income
 
710

 
—

 
1,410

 
—

 
 
30,472


12,647

 
57,645

 
19,342

Operating Expenses
 
 
 
 
 
 
 
 
Acquisition expenses (inclusive of $13,219, $3,021, $18,681, and $18,893, respectively, to a related party)
 
17,180

 
3,972

 
23,780

 
22,966

Depreciation and amortization
 
14,532

 
5,123

 
26,651

 
7,838

Property expenses (inclusive of $1,729, $603, $3,146, and $934, respectively, to a related party)
 
4,174

 
1,674

 
8,091

 
2,301

Other real estate expenses
 
3,687

 
160

 
6,280

 
277

General and administrative (inclusive of $949, $155, $1,608, and $259, respectively, to a related party)
 
1,840

 
1,170

 
3,724

 
1,808

 
 
41,413

 
12,099

 
68,526

 
35,190

Other Income and Expenses
 
 
 
 
 
 
 
 
Interest expense (inclusive of $96, $34, $173, and $54, respectively, to a related party)
 
(8,009
)
 
(3,776
)
 
(16,095
)
 
(5,852
)
Other income and (expenses)
 
568

 
316

 
(1,931
)
 
369

 
 
(7,441
)
 
(3,460
)
 
(18,026
)
 
(5,483
)
Loss before income taxes
 
(18,382
)
 
(2,912
)
 
(28,907
)
 
(21,331
)
Benefit from (provision for) income taxes
 
119

 
(198
)
 
(208
)
 
(222
)
Net Loss
 
(18,263
)
 
(3,110
)
 
(29,115
)
 
(21,553
)
Net (income) loss attributable to noncontrolling interests (inclusive of Available Cash Distributions to a related party of $1,422, $537, $2,316, and $606, respectively)
 
(1,644
)
 
(1,248
)
 
(3,005
)
 
2,525

Net Loss Attributable to CPA®:18 – Global
 
$
(19,907
)

$
(4,358
)
 
$
(32,120
)
 
$
(19,028
)
 
 
 
 
 
 
 
 
 
Class A Common Stock
 
 
 
 
 
 
 
 
Net loss attributable to CPA®:18 – Global
 
$
(14,961
)
 
$
(3,907
)
 
$
(24,673
)
 
$
(17,307
)
Basic and diluted weighted-average shares outstanding
 
101,460,830

 
77,300,223

 
101,053,789

 
57,778,351

Basic and diluted loss per share
 
$
(0.15
)
 
$
(0.05
)
 
$
(0.24
)
 
$
(0.30
)
Distributions Declared Per Share
 
$
0.1562

 
$
0.1562

 
$
0.3124

 
$
0.3124

 
 
 
 
 
 
 
 
 
Class C Common Stock
 
 
 
 
 
 
 
 
Net loss attributable to CPA®:18 – Global
 
$
(4,946
)
 
$
(451
)
 
$
(7,447
)
 
$
(1,721
)
Basic and diluted weighted-average shares outstanding
 
29,033,036

 
6,126,012

 
25,729,488

 
4,979,591

Basic and diluted loss per share
 
$
(0.17
)
 
$
(0.07
)
 
$
(0.29
)
 
$
(0.35
)
Distributions Declared Per Share
 
$
0.1329

 
$
0.1329

 
$
0.2658

 
$
0.2658


See Notes to Consolidated Financial Statements.



CPA®:18 – Global 6/30/2015 10-Q – 3

CORPORATE PROPERTY ASSOCIATES 18 – GLOBAL INCORPORATED
CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSS (UNAUDITED)
(in thousands) 
 
 
Three Months Ended June 30,
 
Six Months Ended June 30,
 
 
2015
 
2014
 
2015
 
2014
Net Loss
 
$
(18,263
)
 
$
(3,110
)
 
$
(29,115
)
 
$
(21,553
)
Other Comprehensive Income (Loss)
 
 
 
 
 
 
 
 
Foreign currency translation adjustments
 
12,152

 
(1,415
)
 
(21,478
)
 
(1,700
)
Change in net unrealized gain (loss) on derivative instruments
 
252

 
(469
)
 
2,278

 
(1,132
)
 
 
12,404

 
(1,884
)
 
(19,200
)
 
(2,832
)
Comprehensive Loss
 
(5,859
)
 
(4,994
)
 
(48,315
)
 
(24,385
)
 
 
 
 
 
 
 
 
 
Amounts Attributable to Noncontrolling Interests
 
 
 
 
 
 
 
 
Net (income) loss
 
(1,644
)
 
(1,248
)
 
(3,005
)
 
2,525

Foreign currency translation adjustments
 
(1,888
)
 
175

 
4,180

 
499

Comprehensive (income) loss attributable to noncontrolling interests
 
(3,532
)
 
(1,073
)
 
1,175

 
3,024

Comprehensive Loss Attributable to CPA®:18 – Global
 
$
(9,391
)
 
$
(6,067
)
 
$
(47,140
)
 
$
(21,361
)
 
See Notes to Consolidated Financial Statements.




CPA®:18 – Global 6/30/2015 10-Q – 4

CORPORATE PROPERTY ASSOCIATES 18 – GLOBAL INCORPORATED
CONSOLIDATED STATEMENTS OF EQUITY (UNAUDITED)
Six Months Ended June 30, 2015 and 2014
(in thousands, except share and per share amounts) 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
CPA®:18 – Global Stockholders
 
 
 
 
 
 
 
 
 
 
 
 
 
Additional Paid-In Capital
 
Distributions
and
Accumulated
Losses
 
Accumulated
Other Comprehensive Loss
 
Treasury Stock
 
Total CPA®:18 – Global Stockholders
 
Noncontrolling Interests
 
 
 
Common Stock
 
 
 
 
 
 
 
 
 
Class A
 
Class C
 
 
 
 
 
 
 
 
 
Shares
 
Amount
 
Shares
 
Amount
 
 
 
 
 
 
 
Total
Balance at January 1, 2015
99,924,009

 
$
100

 
18,026,013

 
$
18

 
$
1,056,862

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

 
$
77,587

 
$
1,000,228

Shares issued, net of offering costs
1,671,421

 
2

 
11,045,353

 
11

 
114,232

 
 
 
 
 
 
 
114,245

 

 
114,245

Shares issued to affiliate
287,951

 
—

 
—

 
—

 
2,879

 
 
 
 
 
 
 
2,879

 

 
2,879

Contributions from noncontrolling interests
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 

 
2,300

 
2,300

Distributions to noncontrolling interests
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 

 
(5,349
)
 
(5,349
)
Distributions declared ($0.3124 and $0.2658 per share to Class A and Class C, respectively)
 
 
 
 
 
 
 
 
 
 
(38,379
)
 
 
 
 
 
(38,379
)
 
 
 
(38,379
)
Net loss
 
 
 
 
 
 
 
 
 
 
(32,120
)
 
 
 
 
 
(32,120
)
 
3,005

 
(29,115
)
Other comprehensive loss:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 

 
 
 

Foreign currency translation adjustments
 
 
 
 
 
 
 
 
 
 
 
 
(17,298
)
 
 
 
(17,298
)
 
(4,180
)
 
(21,478
)
Change in net unrealized gain on derivative instruments
 
 
 
 
 
 
 
 
 
 
 
 
2,278

 
 
 
2,278

 
 
 
2,278

Repurchase of shares
(327,739
)
 
 
 
(15,347
)
 
 
 
 
 
 
 
 
 
(3,268
)
 
(3,268
)
 
 
 
(3,268
)
Balance at June 30, 2015
101,555,642

 
$
102

 
29,056,019

 
$
29

 
$
1,173,973

 
$
(182,377
)
 
$
(35,961
)
 
$
(4,788
)
 
$
950,978

 
$
73,363

 
$
1,024,341

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Balance at January 1, 2014
21,290,097

 
$
21

 
2,776,001

 
$
3

 
$
215,371

 
$
(2,567
)
 
$
(94
)
 
$
—

 
$
212,734

 
$
37,737

 
$
250,471

Shares issued, net of offering costs
76,009,975

 
76

 
4,800,488

 
5

 
722,848

 
 
 
 
 
 
 
722,929

 
 
 
722,929

Shares issued to affiliate
75,656

 
—

 
—

 
—

 
756

 
 
 
 
 
 
 
756

 
 
 
756

Contributions from noncontrolling interests
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
—

 
95,889

 
95,889

Distributions to noncontrolling interests
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
—

 
(64,077
)
 
(64,077
)
Distributions declared ($0.3124 and $0.2658 per share to Class A and Class C, respectively)
 
 
 
 
 
 
 
 
 
 
(19,032
)
 
 
 
 
 
(19,032
)
 
 
 
(19,032
)
Net loss
 
 
 
 
 
 
 
 
 
 
(19,028
)
 
 
 
 
 
(19,028
)
 
(2,525
)
 
(21,553
)
Other comprehensive loss:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 

 
 
 

Foreign currency translation adjustments
 
 
 
 
 
 
 
 
 
 
 
 
(1,201
)
 
 
 
(1,201
)
 
(499
)
 
(1,700
)
Change in net unrealized loss on derivative instruments
 
 
 
 
 
 
 
 
 
 
 
 
(1,132
)
 
 
 
(1,132
)
 
 
 
(1,132
)
Repurchase of shares
(4,004
)
 
 
 
 
 
 
 
 
 
 
 
 
 
(40
)
 
(40
)
 
 
 
(40
)
Balance at June 30, 2014
97,371,724

 
$
97

 
7,576,489

 
$
8

 
$
938,975

 
$
(40,627
)
 
$
(2,427
)
 
$
(40
)
 
$
895,986

 
$
66,525

 
$
962,511


See Notes to Consolidated Financial Statements.



CPA®:18 – Global 6/30/2015 10-Q – 5

CORPORATE PROPERTY ASSOCIATES 18 – GLOBAL INCORPORATED
CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
(in thousands)
 
 
Six Months Ended June 30,
 
 
2015
 
2014
Cash Flows — Operating Activities
 

 
 
Net Cash Provided by (Used in) Operating Activities
 
$
15,303

 
$
(2,945
)
Cash Flows — Investing Activities
 
 
 
 
Acquisitions of real estate and direct financing leases, net of cash acquired
 
(499,659
)
 
(421,900
)
Funding for build-to-suit projects
 
(8,865
)
 
—

Change in investing restricted cash
 
6,051

 
(5,206
)
Acquisition of equity investment
 
(5,222
)
 
—

Value added taxes paid in connection with acquisition of real estate
 
(2,931
)
 
(34,844
)
Payment of deferred acquisition fees to an affiliate
 
(2,107
)
 
(782
)
Value added taxes refunded in connection with the acquisition of real estate
 
—

 
36,472

Net Cash Used in Investing Activities
 
(512,733
)
 
(426,260
)
Cash Flows — Financing Activities
 
 
 
 
Proceeds from mortgage financing
 
338,267

 
223,651

Proceeds from issuance of shares, net of issuance costs
 
114,677

 
715,293

Proceeds from bond financing
 
66,293

 
52,066

Scheduled payments and prepayments of mortgage principal
 
(43,143
)
 
(738
)
Distributions paid
 
(36,298
)
 
(8,080
)
Distributions to noncontrolling interests
 
(5,349
)
 
(64,077
)
Purchase of treasury stock
 
(3,268
)
 
(40
)
Payment of deferred financing costs and mortgage deposits
 
(2,919
)
 
(2,919
)
Contributions from noncontrolling interests
 
2,300

 
95,889

Receipt of tenant security deposits
 
—

 
4,072

Net Cash Provided by Financing Activities
 
430,560

 
1,015,117

Change in Cash and Cash Equivalents During the Period
 
 
 
 
Effect of exchange rate changes on cash and cash equivalents
 
(3,420
)
 
113

Net (decrease) increase in cash and cash equivalents
 
(70,290
)
 
586,025

Cash and cash equivalents, beginning of period
 
429,548

 
109,061

Cash and cash equivalents, end of period
 
$
359,258

 
$
695,086


See Notes to Consolidated Financial Statements.



CPA®:18 – Global 6/30/2015 10-Q – 6

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

Note 1. Organization and Offering

Organization

Corporate Property Associates 18 – Global Incorporated, or CPA®:18 – Global, and, together with its consolidated subsidiaries, we, us, or our, is a publicly-owned, non-listed real estate investment trust, or REIT, formed in 2012 for the purpose of investing primarily in a diversified portfolio of income-producing commercial real estate properties and other real estate related assets, both domestically and outside the United States. As a REIT, we are not subject to U.S. federal income taxation as long as we satisfy certain requirements, principally relating to the nature of our income, the level of our distributions, and other factors. We earn revenue principally by leasing the properties we own to single corporate tenants, primarily on a triple-net lease basis, which generally requires the tenant to pay substantially all of the costs associated with operating and maintaining the property. Revenue is subject to fluctuation because of the timing of new lease transactions, lease terminations, lease expirations, contractual rent adjustments, tenant defaults, sales of properties, and changes in foreign currency exchange rates.

Substantially all of our assets and liabilities are held by CPA:18 Limited Partnership, a Delaware limited partnership, which is our Operating Partnership, and at June 30, 2015 we owned 99.97% of general and limited partnership interests in the Operating Partnership. The remaining interest in the Operating Partnership is held by WPC–CPA®:18 Holdings, LLC, or CPA®:18 Holdings, a subsidiary of our sponsor, W. P. Carey Inc., or WPC.

At June 30, 2015, the majority of our portfolio was comprised of full or partial ownership interests in 56 properties, the majority of which were fully-occupied and triple-net leased to 88 tenants totaling 8.7 million square feet. The remainder of our portfolio was comprised of our full or partial ownership interests in 37 self-storage properties, five multi-family properties, and one student housing development totaling 3.8 million square feet.

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

Public Offering

On May 7, 2013, we commenced our initial public offering of up to $1.4 billion in shares of our common stock, in any combination of Class A and Class C shares, including $150.0 million in shares of common stock through our distribution reinvestment plan at a price of $9.60 per share of Class A common stock and $8.98 per share of Class C common stock.

We ceased accepting new orders for shares of Class A and Class C common stock on June 30, 2014 and March 27, 2015, respectively. We closed our offering on April 2, 2015. Through the termination of our initial public offering on April 2, 2015, we raised gross offering proceeds for our Class A common stock and Class C common stock of $977.4 million and $266.1 million, respectively. The gross offering proceeds raised exclude reinvested distributions through our distribution reinvestment plan of $33.9 million and $5.4 million for our Class A and Class C common stock, respectively.

Note 2. Revisions of Previously-Issued Financial Statements

2015 Revisions

Description of the Errors and Revisions

During the second quarter of 2015, we identified errors in the interim consolidated financial statements for the three months ended March 31, 2015 related to the classification of certain activities within the statement of cash flows and one error related to the capitalization of financing costs associated with the refinancing of a mortgage loan. We evaluated the impact of these errors on the previously-issued financial statements and concluded that these errors were not material to our consolidated financial statements as of and for the three months ended March 31, 2015. However, in order to correctly present the aforementioned errors, we will revise the consolidated statements of operations and cash flows for the three months ended March 31, 2015 when such statements are presented in our future public filings. The revisions described below had no effect on



CPA®:18 – Global 6/30/2015 10-Q – 7

Notes to Consolidated Financial Statements (Unaudited)


our cash balances or liquidity as of March 31, 2015. The interim consolidated financial statements as of and for the three and six months ended June 30, 2015 are not impacted by these adjustments.
Errors Associated with Cash Flow Classification
We identified errors in our consolidated statement of cash flows for the three months ended March 31, 2015 as follows (in thousands):
 
 
Three Months Ended March 31, 2015
 
 
As Reported
 
Revisions
 
As Revised
 
 
 
 
 
 
 
Net Cash Provided by Operating Activities
 
$
9,586

 
$
3,085

(a) (b) (c) (d) 
$
12,671

 
 
 
 
 
 
 
Net Cash Used in Investing Activities
 
(145,309
)
 
536

(a) 
(144,773
)
 
 
 
 
 
 
 
 
 
 
 
(1,923
)
(b) 
 
 
 
 
 
948

(c) 
 
Net Cash Provided by Financing Activities
 
248,240

 
(975
)
 
247,265

 
 
 
 
 
 
 
Change in Cash and Cash Equivalents During the Period
 
 
 
 
 
 
Effect of exchange rate changes on cash and cash equivalents
 
(2,971
)
 
(2,646
)
(a) (d) 
(5,617
)
Net increase in cash and cash equivalents
 
109,546

 
—


109,546

Cash and cash equivalents, beginning of period
 
429,548

 
—

 
429,548

Cash and cash equivalents, end of period
 
$
539,094

 
$
—


$
539,094

___________
(a)
These items relate to an error in classification of cash flows for an acquisition of real estate; whereby Net cash provided by operating activities was overstated by $1.0 million, Net cash used in investing activities was overstated by $0.5 million and the Effect of exchange rate changes on cash and cash equivalents should have been increased by $0.5 million.
(b)
These items relate to an error of classification of cash flows related to the settlement of proceeds from the sale of shares and an error in the classification of cash flows for offering costs, whereby Net cash provided by operating activities was understated by $1.9 million and Net cash provided by financing activities was overstated by the same amount.
(c)
These items relate to an error in the capitalization of financing costs as described below, whereby Net cash provided by operating activities was overstated by $0.9 million and Net cash provided by financing activities was understated by the same amount.
(d)
These items relate to an error in the classification of the remeasurement of foreign cash balances held in U.S. dollar functional currency subsidiaries, whereby Net cash provided by operating activities was understated by $3.1 million and the Effect of exchange rate changes on cash and cash equivalents should have been decreased by the same amount.

In summary, if these cash flow classification items had been properly presented within the consolidated statement of cash flows for the three months ended March 31, 2015, Net cash provided by operating activities would have increased by $3.1 million, Net cash used in investing activities would have decreased by $0.5 million, Net cash provided by financing activities would have decreased by $1.0 million and the Effect of exchange rate changes on cash and cash equivalents would have decreased by $2.6 million, with no change in the Net increase in cash and cash equivalents.
Error Associated with Financing Costs
In addition to the classification errors described above, we identified an error related to the capitalization of financing costs associated with the refinancing of a mortgage loan, which should have been recorded as Interest expense within our consolidated statement of operations for the three months ended March 31, 2015. If interest expense had been recorded correctly on the consolidated statement of operations, Interest expense, Loss before income taxes, Net loss, and Net loss attributable to CPA®:18 – Global each would have been higher by $0.9 million and Net loss per share for Class A and Class C common stock would have been higher by $0.01 on the consolidated statement of operations. This also would have resulted in a corresponding decrease of $0.9 million to Other assets, Total assets, Distributions and accumulated losses, and Total equity



CPA®:18 – Global 6/30/2015 10-Q – 8

Notes to Consolidated Financial Statements (Unaudited)


within the consolidated balance sheet and, where applicable, within the consolidated statement of equity. In addition, the amounts for Net loss, Comprehensive loss and Comprehensive loss attributable to CPA®:18 – Global on the consolidated statement of comprehensive loss for the three months ended March 31, 2015 each would have increased by $0.9 million.

2014 Revisions

Description of the Errors and Revisions

In the course of preparing our consolidated financial statements for the 2014 Annual Report, we discovered an error related to our accounting for a subsidiary’s functional currency, which was incorrectly designated as the euro instead of the U.S. dollar, and as a result, the applicable financial results of this entity were being translated when they should have been remeasured. The correction of this error resulted in an increase of foreign currency losses within the consolidated statement of operations and a decrease of foreign currency losses in the consolidated statements of comprehensive loss for the same amounts. We concluded that these revision adjustments, summarized in the tables below, were not material to our financial position or results of operations for the prior periods presented and revised the prior periods presented herein to reflect the correction of this error.

We corrected this error, and one other error previously recorded as an out-of-period adjustment, and revised our consolidated financial statements for all prior periods impacted. Accordingly, our financial results for the prior periods presented herein have been revised for the correction of such errors as follows (in thousands, except share and per share amounts):

Consolidated Statements of Operations
 
 
Three Months Ended June 30, 2014
 
Six Months Ended June 30, 2014
 
 
As Reported
 
Revisions
 
As Revised
 
As Reported
 
Revisions
 
As Revised
Revenues
 
 
 
 
 
 
 
 
 
 
 
 
Total revenues
 
$
12,647

 
$
—

 
$
12,647

 
$
19,342

 
$
—

 
$
19,342

Operating Expenses
 
 
 
 
 
 
 
 
 
 
 
 
Total operating expenses
 
12,099

 
—

 
12,099

 
35,190

 
—

 
35,190

Other Income and Expenses
 
 
 
 
 
 
 
 
 
 
 
 
Interest expense
 
(3,776
)
 
—

 
(3,776
)
 
(5,852
)
 
—

 
(5,852
)
Other income and (expenses) (a)
 
733

 
(417
)
 
316

 
962

 
(593
)
 
369

 
 
(3,043
)
 
(417
)
 
(3,460
)
 
(4,890
)
 
(593
)
 
(5,483
)
Loss before income taxes
 
(2,495
)
 
(417
)
 
(2,912
)
 
(20,738
)
 
(593
)
 
(21,331
)
Provision for income taxes (b)
 
(486
)
 
288

 
(198
)
 
(222
)
 
—

 
(222
)
Net Loss
 
(2,981
)
 
(129
)
 
(3,110
)
 
(20,960
)
 
(593
)
 
(21,553
)
Net (income) loss attributable to noncontrolling interests (b)
 
(1,218
)
 
(30
)
 
(1,248
)
 
2,525

 
—

 
2,525

Net Loss Attributable to CPA®:18 – Global
 
$
(4,199
)
 
$
(159
)
 
$
(4,358
)
 
$
(18,435
)
 
$
(593
)
 
$
(19,028
)
 
 
 
 
 
 
 
 
 
 
 
 
 
Class A Common Stock
 
 
 
 
 
 
 
 
 
 
 
 
Net loss attributable to CPA®:18 – Global
 
$
(3,760
)
 
$
(147
)
 
$
(3,907
)
 
$
(16,761
)
 
$
(546
)
 
$
(17,307
)
Basic and diluted weighted-average shares outstanding
 
77,300,223

 
—

 
77,300,223

 
57,778,351

 
—

 
57,778,351

Basic and diluted loss per share
 
$
(0.05
)
 
$
—

 
$
(0.05
)
 
$
(0.29
)
 
$
(0.01
)
 
$
(0.30
)
 
 
 
 
 
 
 
 
 
 
 
 
 
Class C Common Stock
 
 
 
 
 
 
 
 
 
 
 
 
Net loss attributable to CPA®:18 – Global
 
$
(439
)
 
$
(12
)
 
$
(451
)
 
$
(1,674
)
 
$
(47
)
 
$
(1,721
)
Basic and diluted weighted-average shares outstanding
 
6,126,012

 
—

 
6,126,012

 
4,979,591

 
—

 
4,979,591

Basic and diluted loss per share
 
$
(0.07
)
 
$
—

 
$
(0.07
)
 
$
(0.34
)
 
$
(0.01
)
 
$
(0.35
)




CPA®:18 – Global 6/30/2015 10-Q – 9

Notes to Consolidated Financial Statements (Unaudited)


Consolidated Statements of Comprehensive Loss
 
 
Three Months Ended June 30, 2014
 
Six Months Ended June 30, 2014
 
 
As Reported
 
Revisions
 
As Revised
 
As Reported
 
Revisions
 
As Revised
Net Loss (a) (b)
 
$
(2,981
)
 
$
(129
)
 
$
(3,110
)
 
$
(20,960
)
 
$
(593
)
 
$
(21,553
)
Other Comprehensive Loss
 
 
 
 
 
 
 
 
 
 
 
 
Foreign currency translation adjustments (a)
 
(1,832
)
 
417

 
(1,415
)
 
(2,293
)
 
593

 
(1,700
)
Change in net unrealized loss on derivative instruments
 
(469
)
 
—

 
(469
)
 
(1,132
)
 
—

 
(1,132
)
 
 
(2,301
)
 
417

 
(1,884
)
 
(3,425
)
 
593

 
(2,832
)
Comprehensive Loss
 
(5,282
)
 
288

 
(4,994
)
 
(24,385
)
 
—

 
(24,385
)
 
 
 
 
 
 
 
 
 
 
 
 
 
Amounts Attributable to Noncontrolling Interests
 
 
 
 
 
 
 
 
 
 
 
 
Net (income) loss (b)
 
(1,218
)
 
(30
)
 
(1,248
)
 
2,525

 
—

 
2,525

Foreign currency translation adjustments
 
175

 
—

 
175

 
499

 
—

 
499

Comprehensive (income) loss attributable to noncontrolling interests
 
(1,043
)
 
(30
)
 
(1,073
)
 
3,024

 
—

 
3,024

Comprehensive Loss Attributable to CPA®:18 – Global
 
$
(6,325
)
 
$
258

 
$
(6,067
)
 
$
(21,361
)
 
$
—

 
$
(21,361
)

Consolidated Statement of Equity
 
CPA®:18 – Global Stockholders
 
 
 
 
 
 
 
 
 
 
 
 
 
Additional Paid-In Capital
 
Distributions
and
Accumulated
Losses (a) (b)
 
Accumulated
Other Comprehensive Loss (a)
 
 
 
Total CPA®:18 – Global Stockholders
 
Noncontrolling Interests (b)
 
 
 
Common Stock
 
 
 
 
 
 
 
 
 
 
Class A
 
Class C
 
 
 
 
 
 
 
 
 
Balance at
     June 30, 2014
Shares
 
Amount
 
Shares
 
Amount
 
 
 
 
Treasury Stock
 
 
 
Total
As Reported
97,371,724

 
$
97

 
7,576,489

 
$
8

 
$
938,975

 
$
(40,034
)
 
$
(3,020
)
 
$
(40
)
 
$
895,986

 
$
66,525

 
$
962,511

Revisions
—

 
—

 
—

 
—

 
—

 
(593
)
 
593

 
—

 
—

 
—

 
—

As Revised
97,371,724

 
$
97

 
7,576,489

 
$
8

 
$
938,975

 
$
(40,627
)
 
$
(2,427
)
 
$
(40
)
 
$
895,986

 
$
66,525

 
$
962,511

___________
(a)
These adjustments are the result of the error we identified related to foreign currency matters, as discussed above.
(b)
In connection with the error identified above, we also made adjustments to reflect the correction of another out-of-period adjustment that was identified during 2014 and recorded in the prior periods presented. This adjustment related to the initial recognition of deferred tax balances related to the misinterpretation of tax requirements in the corresponding foreign jurisdictions, and as a result we did not recognize a deferred tax liability and corresponding deferred tax expense within the correct reporting period. 

Statement of Cash Flows

These revisions had no net impact on Net cash used in operating activities, Net cash used in investing activities, or Net cash provided by financing activities in the statement of cash flows for the six months ended June 30, 2014.




CPA®:18 – Global 6/30/2015 10-Q – 10

Notes to Consolidated Financial Statements (Unaudited)


Note 3. Basis of Presentation

Basis of Presentation

Our interim consolidated financial statements have been prepared in accordance with the instructions to Form 10-Q and, therefore, do not necessarily include all information and footnotes necessary for a fair statement of our consolidated financial position, results of operations, and cash flows in accordance with accounting principles generally accepted in the United States, or GAAP.
 
In the opinion of management, the unaudited financial information for the interim periods presented in this Report reflects all normal and recurring adjustments necessary for a fair statement of financial position, results of operations, and cash flows. Our interim consolidated financial statements should be read in conjunction with our audited consolidated financial statements and accompanying notes for the year ended December 31, 2014, which are included in the 2014 Annual Report, as certain disclosures that would substantially duplicate those contained in the audited consolidated financial statements have not been included in this Report. Operating results for interim periods are not necessarily indicative of operating results for an entire year.
 
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.

Basis of Consolidation

Our consolidated financial statements reflect all of our accounts, including those of our controlled subsidiaries. The portions of equity in consolidated subsidiaries that are not attributable, directly or indirectly, to us are presented as noncontrolling interests. All significant intercompany accounts and transactions have been eliminated.

When we obtain an economic interest in an entity, we evaluate the entity to determine if it is deemed to be a VIE, and, if so, whether we are deemed to be the primary beneficiary and are therefore required to consolidate the entity. We apply accounting guidance for consolidation of VIEs to certain entities in which the equity investors do not have the characteristics of a controlling financial interest or do not have sufficient equity at risk for the entity to finance its activities without additional subordinated financial support from other parties. Fixed price purchase and renewal options within a lease as well as certain decision-making rights within a loan or joint-venture agreement can cause us to consider an entity a VIE. Significant judgment is required to determine whether a VIE should be consolidated. We review the contractual arrangements provided for in the partnership agreement or other related contracts to determine whether the entity is considered a VIE, and to establish whether we have any variable interests in the VIE. We then compare our variable interests, if any, to those of the other variable interest holders to determine which party is the primary beneficiary of a VIE based on whether the entity (i) has the power to direct the activities that most significantly impact the economic performance of the VIE, and (ii) has the obligation to absorb losses or the right to receive benefits of the VIE that could potentially be significant to the VIE. We performed an analysis on all of our subsidiary entities to determine whether they qualify as VIEs and whether they should be consolidated or accounted for as equity investments in an unconsolidated venture. As a result of our assessment, at June 30, 2015 we considered three entities VIEs, two of which we consolidate and the other we account for as an equity investment.

For an entity that is not considered to be a VIE, but rather a voting interest entity, the general partners in a limited partnership (or similar entity) are presumed to control the entity regardless of the level of their ownership and, accordingly, may be required to consolidate the entity. We evaluate the partnership agreements or other relevant contracts to determine whether there are provisions in the agreements that would overcome this presumption. If the agreements provide the limited partners with either (i) the substantive ability to dissolve or liquidate the limited partnership or otherwise remove the general partners without cause or (ii) substantive participating rights, the limited partners’ rights overcome the presumption of control by a general partner of the limited partnership, and, therefore, the general partner must account for its investment in the limited partnership using the equity method of accounting.

Additionally, we own an interest in a self-storage development joint venture through a noncontrolling interest in a partnership and limited liability company that we do not control but over which we exercise significant influence. We account for this investment under the equity method of accounting. At times, the carrying value of our equity investment may fall below zero. We intend to fund our share of the jointly-owned investment’s future operating deficits should the need arise. However, we have no legal obligation to pay for any of the liabilities of such an investment nor do we have any legal obligation to fund operating deficits. At June 30, 2015, our sole equity investment did not have a carrying value below zero.



CPA®:18 – Global 6/30/2015 10-Q – 11

Notes to Consolidated Financial Statements (Unaudited)


Recent Accounting Requirements

The following Accounting Standards Updates, or ASUs, promulgated by the Financial Accounting Standards Board are applicable to us:

ASU 2015-03, Interest-Imputation of Interest (Subtopic 835-30) — ASU 2015-03 changes the presentation of debt issuance costs, which are currently recognized as a deferred charge (that is, an asset) and requires that debt issuance costs related to a recognized debt liability be presented in the balance sheet as a direct deduction from the carrying amount of that debt liability, consistent with debt discounts. ASU 2015-03 does not affect the recognition and measurement guidance for debt issuance costs. ASU 2015-03 is effective for periods beginning after December 15, 2015, early adoption is permitted and retrospective application is required. We are currently evaluating the impact of ASU 2015-03 on our consolidated financial statements.

ASU 2014-09, Revenue from Contracts with Customers (Topic 606) — ASU 2014-09 is a comprehensive new revenue recognition model requiring a company to recognize revenue to depict the transfer of goods or services to a customer at an amount reflecting the consideration it expects to receive in exchange for those goods or services. ASU 2014-09 does not apply to our lease revenues, but will apply to reimbursed tenant costs and revenues generated from our operating properties. Additionally, this guidance modifies disclosures regarding the nature, amount, timing and uncertainty of revenue and cash flows arising from contracts with customers. In April 2015, the Financial Accounting Standards Board issued a proposed ASU to defer the effective date of ASU 2014-09 by one year. In July 2015, the Financial Accounting Standards Board affirmed its proposal to defer the effective date of the new revenue standard for all entities by one year and directed the staff to draft a final ASU for vote by written ballot. Upon issuance of the final ASU deferring the effective date, ASU 2014-09 would be effective beginning in 2018, and early adoption is permitted but not before 2017, the original public company effective date. We are currently evaluating the impact of ASU 2014-09 on our consolidated financial statements and have not yet determined the method by which we will adopt the standard.

Note 4. Agreements and Transactions with Related Parties

Transactions with Our Advisor

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




CPA®:18 – Global 6/30/2015 10-Q – 12

Notes to Consolidated Financial Statements (Unaudited)


The following tables present a summary of fees we paid, expenses we reimbursed, and distributions we made to our advisor and other affiliates in accordance with the terms of the related agreements (in thousands):
 
 
Three Months Ended June 30,
 
Six Months Ended June 30,
 
 
2015
 
2014
 
2015
 
2014
Amounts Included in the Consolidated Statements of Operations
 
 
 
 
 
 
 
 
Acquisition expenses
 
$
13,219

 
$
3,021

 
$
18,681

 
$
18,893

Asset management fees
 
1,729

 
603

 
3,146

 
934

Available Cash Distributions
 
1,422

 
537

 
2,316

 
606

Shareholder servicing fee
 
665

 
141

 
1,165

 
229

Personnel and overhead reimbursements
 
284

 
14

 
443

 
30

Interest expense on deferred acquisition fees
 
96

 
34

 
173

 
54

 
 
$
17,415

 
$
4,350

 
$
25,924

 
$
20,746

 
 
 
 
 
 
 
 
 
Other Transaction Fees Incurred
 
 
 
 
 
 
 
 
Current acquisition fees
 
$
2,909

 
$
736

 
$
6,375

 
$
1,251

Deferred acquisition fees
 
2,327

 
589

 
5,100

 
1,000

Offering costs
 
112

 
1,188

 
564

 
1,986

Selling commissions and dealer manager fees
 
68

 
38,561

 
3,746

 
77,231

 
 
$
5,416

 
$
41,074

 
$
15,785

 
$
81,468


The following table presents a summary of amounts included in Due to affiliate in the consolidated financial statements (in thousands):
 
 
June 30, 2015
 
December 31, 2014
Due to Affiliate
 
 
 
 
Deferred acquisition fees, including interest
 
$
26,115

 
$
17,525

Accounts payable
 
4,887

 
2,702

Current acquisition fees
 
2,645

 
—

Asset management fees payable
 
645

 
378

Reimbursable costs
 
205

 
46

 
 
$
34,497

 
$
20,651


Organization and Offering Costs

Pursuant to the advisory agreement with our advisor, we are liable for certain expenses related to our initial public offering, which include filing, legal, accounting, printing, advertising, transfer agent, and escrow fees, and are to be deducted from the gross proceeds of the offering. We will reimburse Carey Financial LLC, or Carey Financial, our dealer manager and an affiliate of our advisor, or selected dealers for reasonable bona fide due diligence expenses incurred that are supported by a detailed and itemized invoice. The total underwriting compensation to Carey Financial and selected dealers in connection with the offering cannot exceed limitations prescribed by the Financial Industry Regulatory Authority, Inc. Our advisor has agreed to be responsible for the repayment of organization and offering expenses (excluding selling commissions and dealer manager fees paid to Carey Financial and selected dealers and fees paid and expenses reimbursed to selected dealers) that exceed, in the aggregate, 1.5% of the gross proceeds from the initial public offering. From inception and through June 30, 2015, our advisor has incurred organization and offering costs of $8.7 million on our behalf, which we have substantially repaid. From inception through June 30, 2015, we charged $8.6 million of deferred offering costs to stockholders’ equity.




CPA®:18 – Global 6/30/2015 10-Q – 13

Notes to Consolidated Financial Statements (Unaudited)


Loans from WPC

Our board of directors and the board of directors of WPC have approved unsecured loans from WPC to us of up to $100.0 million, in the aggregate, at a rate equal to the rate at which WPC is able to borrow funds under its senior credit facility, for the purpose of facilitating acquisitions approved by our advisor’s investment committee that we would not otherwise have sufficient available funds to complete. All loans are to be made solely at the discretion of WPC’s management. We did not borrow any funds from WPC during the three and six months ended June 30, 2015 and 2014, nor did we have any amounts outstanding at June 30, 2015 and December 31, 2014.

Asset Management Fees

Pursuant to the advisory agreement, our advisor is entitled to an annual asset management fee ranging from 0.5% to 1.5%, depending on the type of investment and based on the average market value or average equity value, as applicable, of our investments. The asset management fees are payable in cash or shares of our Class A common stock at our option, after consultation with of our advisor. If our advisor receives all or a portion of its fees in shares, the number of shares issued is determined by dividing the dollar amount of fees by our most recently published estimated net asset value per share, or, if net asset values have not yet been published, as is currently the case, $10.00 per share, which is the price at which our Class A shares were being sold in our initial public offering. For 2015, we elected to pay our advisor in shares of our Class A common stock. For both the three and six months ended June 30, 2015 and 2014, our advisor received its asset management fees in shares of our Class A common stock. At June 30, 2015, our advisor owned 548,464 shares, or 0.4%, of our outstanding Class A common stock. Asset management fees are included in Property expenses in the consolidated financial statements.

Selling Commissions and Dealer Manager Fees

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

Carey Financial also receives an annual distribution and shareholder servicing fee in connection with our Class C common stock, which it may re-allow to selected dealers. The amount of the shareholder servicing fee is 1.0% of the selling price per share (or, once published, the amount of our net asset value) for the Class C common stock in our initial public offering. The shareholder servicing fee accrues daily and is payable quarterly in arrears. We will no longer incur the shareholder servicing fee beginning on the date at which, in the aggregate, underwriting compensation from all sources, including the shareholder servicing fee, any organizational and offering fee paid for underwriting and underwriting compensation paid by WPC and its affiliates, reaches 10.0% of the gross proceeds from our initial public offering, which it has not yet reached. The shareholder servicing fee is included in General and administrative expenses in the consolidated financial statements.

Acquisition and Disposition Fees

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

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

Personnel and Overhead Reimbursements

Under the terms of the advisory agreement, our advisor allocates a portion of its personnel and overhead expenses to us and the other publicly-owned, non-listed REITs that are managed by our advisor, including Corporate Property Associates 17 – Global



CPA®:18 – Global 6/30/2015 10-Q – 14

Notes to Consolidated Financial Statements (Unaudited)


Incorporated, or CPA®:17 – Global, or, together with us, the CPA® REITs, Carey Watermark Investors Incorporated, or CWI, and Carey Watermark Investors 2 Incorporated, or CWI 2. Our advisor allocates these expenses to us on the basis of our trailing four quarters of reported revenues and those of WPC, CPA®:17 – Global, CWI, and CWI 2.

We reimburse our advisor for various expenses it incurs in the course of providing services to us. We reimburse certain third-party expenses paid by our advisor on our behalf, including property-specific costs, professional fees, office expenses, and business development expenses. In addition, we reimburse our advisor for the allocated costs of personnel and overhead in managing our day-to-day operations, including accounting services, stockholder services, corporate management, and property management and operations. We do not reimburse our advisor for the cost of personnel if these personnel provide services for transactions for which our advisor receives a transaction fee, such as acquisitions and dispositions. Under the advisory agreement, the amount of applicable personnel costs allocated to us is capped at 2.4% for 2015 and 2.2% for 2016, of pro rata lease revenues for each year. Beginning in 2017, the cap decreases to 2.0% of pro rata lease revenues for that year. Costs related to our advisor’s legal transactions group are based on a schedule of expenses for different types of transactions, including 0.25% of the total investment cost of an acquisition. Personnel and overhead reimbursements are included in General and administrative expenses in the consolidated financial statements.

Excess Operating Expenses
 
The advisory agreement provides that, for any four trailing quarters (with quoted variables as defined in the advisory agreement), “operating expenses” may not exceed the greater of 2.0% of our “average invested assets” or 25.0% of our “adjusted net income.” For the most recent four trailing quarters, our operating expenses were below the 2.0%/25.0% threshold.

Available Cash Distributions

CPA®:18 Holdings’ interest in the Operating Partnership entitles it to receive distributions of 10.0% of the available cash generated by the Operating Partnership, referred to as the Available Cash Distribution, which is defined as cash generated from operations, excluding capital proceeds, as reduced by operating expenses and debt service, excluding prepayments and balloon payments. Available Cash Distributions are included in Net (income) loss attributable to noncontrolling interests in the consolidated financial statements.

Jointly-Owned Investments and Other Transactions with our Affiliate

At June 30, 2015, we owned interests in four jointly-owned investments, with the remaining interests held by our affiliate CPA®:17 – Global. The amounts listed below are the original investment amounts at the closing of each respective investment as follows:

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

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




CPA®:18 – Global 6/30/2015 10-Q – 15

Notes to Consolidated Financial Statements (Unaudited)


Note 5. Net Investments in Properties and Real Estate Under Construction

Real Estate

Real estate, which consists of land and buildings leased to others, at cost, and which are subject to operating leases, is summarized as follows (in thousands):
 
June 30, 2015
 
December 31, 2014
Land
$
170,340

 
$
104,604

Buildings
691,192

 
639,131

Less: Accumulated depreciation
(20,368
)
 
(10,875
)
 
$
841,164

 
$
732,860


The carrying value of our Real estate decreased $32.7 million from December 31, 2014 to June 30, 2015, due to the strengthening of the U.S. dollar relative to foreign currencies during the same period.

Operating Real Estate
 
Operating real estate, which consists of our self-storage and multi-family properties, at cost, is summarized as follows (in thousands):
 
June 30, 2015
 
December 31, 2014
Land
$
65,533

 
$
28,040

Buildings
294,082

 
105,556

Less: Accumulated depreciation
(4,435
)
 
(939
)
 
$
355,180

 
$
132,657


During the six months ended June 30, 2015, we acquired 28 new investments. Of these investments, four were deemed to be asset acquisitions, 22 were considered to be business combinations, one was deemed to be a direct finance lease (Note 6), and one was deemed to be an equity investment. We refer to these investments as our 2015 Acquisitions.

Asset Acquisitions

See the Real Estate Under Construction section below for more information regarding our asset acquisitions.

The purchase price for each of our asset acquisitions were allocated to the assets acquired and liabilities assumed based upon their preliminary fair values. The information for such allocation is based on the best estimates of management as of the date of this Report. We are in the process of finalizing our assessment of the fair value of the assets acquired and liabilities assumed. Accordingly, the fair value of these assets acquired and liabilities assumed are subject to change.

Business Combinations

Business Combinations — Net-Leased Properties

During the six months ended June 30, 2015, we acquired the following investments that were deemed to be business combinations because we assumed the existing leases on the properties, for which the sellers were not the lessees, and expensed aggregate acquisition costs of $23.8 million.

COOP — On May 28, 2015, we acquired a 90% controlling interest in a jointly-owned investment with a third party that purchased a retail site located in Oslo, Norway from an unaffiliated third party, COOP Norge Eindom, for $98.0 million, which is based on the exchange rate of the Norwegian krone on the date of acquisition. This is a multi-tenant facility with the largest tenant being COOP Ost AS, or COOP, which is an affiliate of COOP Norge Eindom. Our joint-venture partner is the third-party asset manager. We incurred debt at closing through the issuance of privately-placed bonds in the amount of $64.2 million, which is based on the exchange rate of the Norwegian krone on the date of acquisition (Note 10). This investment was a share transaction, and as a result, we assumed the historical tax basis of the property owned by the entity that we purchased and, therefore, we recorded a deferred tax liability of $16.7 million and goodwill of $12.5 million (Note 7).



CPA®:18 – Global 6/30/2015 10-Q – 16

Notes to Consolidated Financial Statements (Unaudited)



Core-Mark — On May 27, 2015, we acquired a warehouse facility located in Plymouth, Minnesota from an unaffiliated third-party group of sellers for $15.0 million. The facility is leased to Minter-Weisman Co., d/b/a Core-Mark International. On May 29, 2015, we entered into a mortgage loan in the amount of $10.5 million for this property (Note 10).

Intuit Inc. — On April 28, 2015, we acquired an office facility located in Plano, Texas from an unaffiliated third party for $33.7 million. The building is leased to Intuit Inc. We simultaneously entered into a mortgage loan in the amount of $21.9 million (Note 10).

Republic — On April 17, 2015, we acquired a facility located in Freetown, Massachusetts from an unaffiliated third party for $3.7 million. The facility is leased to Republic Services Environmental Solutions LLC and guaranteed by Republic Services, Inc., which will expand and redevelop the facility into a specialized-materials recycling plant later this year.

Broadfold — On March 24, 2015, we acquired a light industrial site located in Aberdeen, United Kingdom from an unaffiliated third party for $6.8 million, which is based on the exchange rate of the British pound sterling on the date of acquisition. The site is fully occupied by three tenants. We intend to engage an unaffiliated third party to act as the asset manager for this property.

Business Combinations — Operating Properties

During the six months ended June 30, 2015, we entered into 14 self-storage investments and three multi-family investments, which are considered to be operating properties, at a total cost of $242.2 million.

Self-Storage Properties

We acquired the following self-storage properties, aggregating $138.2 million, during the six months ended June 30, 2015, which we refer to as our 2015 Self Storage Acquisitions:

•
$3.5 million for a facility in St. Peters, Missouri on June 17, 2015;
•
$13.7 million for two facilities in Sarasota, Florida on June 16, 2015;
•
$9.4 million for a facility in Panama City Beach, Florida on May 26, 2015;
•
$9.8 million for a facility in Las Vegas, Nevada on May 18, 2015;
•
$4.0 million for a facility in Crystal Lake, Illinois on May 12, 2015;
•
$10.1 million for a facility in Louisville, Kentucky on April 29, 2015;
•
$36.3 million for seven facilities in California on April 10, 2015;
•
$6.1 million for two facilities in Lilburn and Stockbridge, Georgia on April 2, 2015;
•
$4.0 million for a facility in Panama City Beach, Florida on March 10, 2015;
•
$6.0 million for a facility in Lady Lake, Florida on February 25, 2015;
•
$3.0 million for a facility in Sebastian, Florida on February 18, 2015;
•
$7.5 million for a facility in Tallahassee, Florida on February 4, 2015;
•
$9.2 million for a facility in Valrico, Florida on January 29, 2015; and
•
$15.6 million for a facility in Naples, Florida on January 28, 2015.

In connection with these self-storage property transactions, we incurred acquisition expenses totaling $8.0 million, which are included in Acquisition expenses in the consolidated financial statements. During the six months ended June 30, 2015, we obtained mortgage loans totaling $101.8 million related to our self-storage investments (Note 10).

Multi-Family Properties

We acquired the following multi-family properties, aggregating $104.0 million during the six months ended June 30, 2015.

Grand Estates — On June 8, 2015, we acquired a 97% controlling interest in Grand Estates Apartments, or Grand Estates, a 408-unit multi-family property located in San Antonio, Texas, for $42.5 million. The transaction was completed with two joint-venture partners, one of which has been engaged to be the property manager. We simultaneously entered into a mortgage loan in the amount of $29.8 million (Note 10).

Pinnacle Ridge — On January 15, 2015, we acquired a 97% controlling interest in Pinnacle Ridge Apartments, a 350-unit multi-family property located in Durham, North Carolina, for $34.3 million. The transaction was completed with two joint-



CPA®:18 – Global 6/30/2015 10-Q – 17

Notes to Consolidated Financial Statements (Unaudited)


venture partners, one of which has been engaged to be the property manager. We simultaneously entered into a mortgage loan in the amount of $24.0 million (Note 10).

Brantley Pines — On January 15, 2015, we acquired a 97% controlling interest in Brantley Pines Apartments, a 296-unit multi-family property located in Fort Myers, Florida, for $27.2 million. The transaction was completed with two joint-venture partners, one of which has been engaged to be the property manager. We simultaneously entered into a mortgage loan in the amount of $19.0 million (Note 10).

In connection with our multi-family property transactions, we incurred acquisition expenses totaling $6.0 million, which are included in Acquisition expenses in the consolidated financial statements.

The following tables present a summary of assets acquired and liabilities assumed in these business combinations at the date of acquisition, and revenues and earnings thereon since their respective dates of acquisition through June 30, 2015 (in thousands):
 
 
2015 Business Combinations (a)
 
 
COOP
 
Other Net-Leased Properties
 
Operating Properties
 
Total
Cash consideration
 
$
88,331

 
$
59,228

 
$
240,361

 
$
387,920

Assets acquired at fair value:
 
 
 
 
 
 
 
 
Land
 
$
59,595

 
$
7,900

 
$
37,495

 
$
104,990

Buildings
 
33,049

 
43,034

 
187,145

 
263,228

In-place lease intangible assets
 
4,618

 
16,033

 
18,260

 
38,911

Above-market rent intangible assets
 
—

 
105

 
137

 
242

Other assets acquired
 
5,777

 
—

 
135

 
5,912

 
 
103,039

 
67,072

 
243,172

 
413,283

Liabilities assumed at fair value:
 
 
 
 
 
 
 
 
Below-market rent intangible liabilities
 
(63
)
 
(7,817
)
 
(85
)
 
(7,965
)
Deferred tax liability
 
(16,708
)
 
—

 
—

 
(16,708
)
Other liabilities assumed
 
(715
)
 
(27
)
 
(881
)
 
(1,623
)
 
 
(17,486
)
 
(7,844
)
 
(966
)
 
(26,296
)
Total identifiable net assets
 
85,553

 
59,228

 
242,206

 
386,987

Amounts attributable to noncontrolling interests
 
(9,706
)
 
—

 
(1,845
)
 
(11,551
)
Goodwill (Note 7)
 
12,484

 
—

 
—

 
12,484

 
 
$
88,331

 
$
59,228

 
$
240,361

 
$
387,920


 
 
COOP
 
Other Net-Leased Properties