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
 
Operating Properties
 
 
 
 
May 28, 2015 through
June 30, 2015
 
Respective Acquisition Dates through
June 30, 2015
 
Respective Acquisition Dates through
June 30, 2015
 
Total
Revenues
 
$
557

 
$
887

 
$
6,825

 
$
8,269

 
 
 
 
 
 
 
 
 
Net loss
 
$
(5,973
)
 
$
(3,395
)
 
$
(13,201
)
 
$
(22,569
)
Net loss attributable to noncontrolling interests
 
145

 
—

 
20

 
165

Net loss attributable to CPA®:18 – Global stockholders
 
$
(5,828
)
 
$
(3,395
)
 
$
(13,181
)
 
$
(22,404
)
___________

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




CPA®:18 – Global 6/30/2015 10-Q – 18

Notes to Consolidated Financial Statements (Unaudited)



Pro Forma Financial Information

The following unaudited consolidated pro forma financial information presents our financial results as if the significant acquisitions deemed business combinations that we completed during the three and six months ended June 30, 2015 and 2014, and any new financings related to these acquisitions, had occurred on January 1, 2014 and 2013, respectively. The pro forma financial information is not necessarily indicative of what the actual results would have been had the acquisitions actually occurred on January 1, 2014 and 2013, nor does it purport to represent the results of operations for future periods.

(in thousands, except share and per share amounts)
 
 
Three Months Ended June 30,
 
Six Months Ended June 30,
 
 
2015
 
2014
 
2015
 
2014
Pro forma total revenues (a)
 
$
32,598

 
$
20,023

 
$
64,355

 
$
39,034

 
 
 
 
 
 
 
 
 
Pro forma net loss (b)
 
$
(3,365
)
 
$
(3,239
)
 
$
(10,164
)
 
$
(24,801
)
Pro forma net income attributable to noncontrolling interests
 
(2,329
)
 
(1,011
)
 
(3,799
)
 
(623
)
Pro forma net loss attributable to CPA®:18 – Global
 
$
(5,694
)
 
$
(4,250
)
 
$
(13,963
)
 
$
(25,424
)
 
 
 
 
 
 
 
 
 
Pro forma loss per Class A share:
 
 
 
 
 
 
 
 
Net loss attributable to CPA®:18 – Global
 
$
(3,920
)
 
$
(3,683
)
 
$
(10,226
)
 
$
(23,162
)
Pro forma basic and diluted weighted-average shares outstanding (c)
 
102,602,467

 
80,411,245

 
102,307,465

 
65,209,335

Pro forma basic and diluted loss per share
 
$
(0.04
)
 
$
(0.05
)
 
$
(0.10
)
 
$
(0.36
)
 

 
 
 
 
 
 
 
Pro forma loss per Class C share:
 
 
 
 
 
 
 
 
Net loss attributable to CPA®:18 – Global
 
$
(1,774
)
 
$
(567
)
 
$
(3,737
)
 
$
(2,262
)
Pro forma basic and diluted weighted-average shares outstanding (c)
 
29,033,036

 
6,224,784

 
25,729,488

 
5,078,363

Pro forma basic and diluted loss per share
 
$
(0.06
)
 
$
(0.09
)
 
$
(0.15
)
 
$
(0.45
)
___________

(a)
Pro forma total revenues includes revenues from lease contracts based on the terms in place at June 30, 2015 and do not include adjustments to contingent rental amounts.
(b)
The pro forma table above presents acquisition expenses related to our significant business combinations that we completed during the six months ended June 30, 2015 and 2014, as if they were incurred on January 1, 2014 and 2013, respectively.
(c)
The pro forma basic and diluted weighted-average shares outstanding were determined as if the number of shares issued in our initial public offering in order to raise the funds used for our business combinations that we completed during the six months ended June 30, 2015 and 2014, were issued on January 1, 2014 and 2013, respectively. We assumed that we would have issued Class A shares to raise such funds.




CPA®:18 – Global 6/30/2015 10-Q – 19

Notes to Consolidated Financial Statements (Unaudited)


Real Estate Under Construction

The following table provides the activity of our Real estate under construction (in thousands):
 
Six Months Ended June 30, 2015
 
Year Ended
December 31, 2014
Beginning balance
$
2,258

 
$
—

Capitalized funds
106,303

 
20,617

Foreign currency translation adjustments and other
1,029

 
—

Capitalized interest
650

 
143

Placed into service
(730
)
 
(18,502
)
Ending balance
$
109,510

 
$
2,258


Capitalized Funds — During the six months ended June 30, 2015, total capitalized funds related to our build-to-suit projects were comprised primarily of initial funding of $98.5 million and construction draws of $7.8 million.

Placed into Service — During the six months ended June 30, 2015, we placed $0.7 million into service related to one build-to-suit project.

Ending Balance — At June 30, 2015 and December 31, 2014, we had seven and two open build-to-suit projects, respectively, with aggregate unfunded commitments totaling approximately $201.7 million and $9.7 million, respectively.

Acquisitions

During the six months ended June 30, 2015, we entered into four build-to-suit investments, which were deemed to be asset acquisitions because we acquired the sellers’ properties and simultaneously entered into new leases in connection with the acquisitions, at a total cost of $96.9 million, including acquisition-related costs and fees of $12.6 million, which were capitalized.

Melia — On June 22, 2015, we invested in a build-to-suit joint venture with a third party to fund the completion of a hotel located in Hamburg, Germany for $7.2 million, which is based on the exchange rate of the euro on the date of investment. This hotel is currently under construction and is expected to be completed in early 2017. Upon completion of this hotel, our total investment is expected to be approximately $31.6 million. The hotel will be leased to Melia Hotels International, S. A. upon completion.

Marriott — On May 8, 2015, we invested in a build-to-suit joint venture with a third party to finance the completion of a Marriott hotel located in Munich, Germany for $50.7 million, which is based on the exchange rate of the euro on the date of acquisition. This hotel is currently under construction and is expected to be completed in early 2016. Upon completion of this hotel, our total investment is expected to be approximately $81.6 million. Since the joint-venture partner does not have any equity at risk and we, a non-equity holder, will fully fund and control this development project, this joint venture is considered to be a VIE that we will consolidate.

Rabobank — On March 20, 2015, we invested in and funded the first draw of a build-to-suit joint venture with a third party on a site located in Eindhoven, the Netherlands for $21.7 million, which is based on the exchange rate of the euro on the date of acquisition. Upon completion of this project, our total investment is expected to be approximately $91.1 million. This acquisition includes the development of an office building (including parking spaces) in two phases that are due for completion in April 2017 and March 2019. We will acquire additional equity in the entity developing the building in stages throughout the construction period. We consolidate this joint venture as we are expected to fund and control all of the construction and related activities, and will fully own this property upon completion.



CPA®:18 – Global 6/30/2015 10-Q – 20

Notes to Consolidated Financial Statements (Unaudited)



Reading — On February 19, 2015, we invested in a build-to-suit joint venture with a third party on a student housing development site located in Reading, United Kingdom for $17.3 million, which is based on the exchange rate of the British pound sterling on the date of acquisition. We acquired 96% of the equity of this investment at closing. This acquisition includes an existing office building and its redevelopment into a student housing facility, which is due for completion in August 2016. Upon completion of this project, our total investment is expected to be approximately $45.6 million.

A portion of the transaction fees capitalized include current and deferred acquisition fees paid and payable, respectively, to our advisor (Note 4).

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

Net Investments in Direct Financing Leases

Net investments in direct financing leases is summarized as follows (in thousands):
 
 
June 30, 2015
 
December 31, 2014
Minimum lease payments receivable
 
$
94,435

 
$
86,338

Unguaranteed residual value
 
58,908

 
45,473

 
 
153,343

 
131,811

Less: unearned income
 
(94,314
)
 
(86,229
)
 
 
$
59,029

 
$
45,582


Cardiff — On June 16, 2015, we invested in a joint venture with a third party for an office building located in Cardiff, United Kingdom for $13.2 million, which is based on the exchange rate of the British pound sterling on the date of acquisition. We acquired 94.5% of the equity of this investment at closing, which we consolidate. This property is currently occupied by a single tenant and will be redeveloped into a student housing facility upon the existing tenant vacating the building.

Interest income from direct financing leases, which was included in Lease revenues in the consolidated financial statements, was $1.0 million and $0.9 million for the three months ended June 30, 2015 and 2014, respectively, and $2.0 million and $1.4 million for the six months ended June 30, 2015 and 2014, respectively. At June 30, 2015, Other assets, net included $0.1 million of accounts receivable related to amounts billed under our direct financing leases. We did not have any outstanding receivables related to direct financing leases at December 31, 2014.

Note Receivable

On July 21, 2014, we acquired a $28.0 million mezzanine tranche of 10-year commercial mortgage-backed securities originated by Cantor Fitzgerald on the Cipriani banquet halls in New York, New York. The mezzanine tranche is subordinated to a $60.0 million senior loan on the properties. We will receive interest-only payments at a rate of 10% per annum. At both June 30, 2015 and December 31, 2014, the balance for this note receivable remained $28.0 million.

Credit Quality of Finance Receivables
 
We generally seek investments in facilities that we believe are critical to a tenant’s business and that we believe have a low risk of tenant default. At both June 30, 2015 and December 31, 2014, none of the balances of our finance receivables were past due and we had not established any allowances for credit losses. Additionally, there were no modifications of finance receivables during the six months ended June 30, 2015 or the year ended December 31, 2014. We evaluate the credit quality of our finance receivables utilizing an internal five-point credit rating scale, with one representing the highest credit quality and five representing the lowest. The credit quality evaluation of our finance receivables was last updated in the second quarter of 2015.




CPA®:18 – Global 6/30/2015 10-Q – 21

Notes to Consolidated Financial Statements (Unaudited)


A summary of our finance receivables by internal credit quality rating is as follows (dollars in thousands):
 
 
Number of Tenants/Obligors at
 
Carrying Value at
Internal Credit Quality Indicator
 
June 30, 2015
 
December 31, 2014
 
June 30, 2015
 
December 31, 2014
1
 
1
 
—
 
$
13,434

 
$
—

2
 
1
 
1
 
9,015

 
8,962

3
 
4
 
4
 
64,580

 
64,620

4
 
—
 
—
 
—

 
—

5
 
—
 
—
 
—

 
—

 
 
0
 
 
 
$
87,029

 
$
73,582


Note 7. Intangible Assets and Liabilities

In connection with our acquisitions of properties (Note 5), we have recorded net lease intangibles that are being amortized over periods ranging from one year to 30 years. In addition, we have ground lease intangibles that are being amortized over periods of up to 99 years. In-place lease intangibles are included in In-place lease intangible assets, net in the consolidated financial statements. Below-market ground lease intangibles and above-market rent intangibles are included in Other intangible assets, net in the consolidated financial statements. Below-market rent intangibles and above-market ground lease intangibles are included in Accounts payable, accrued expenses and other liabilities in the consolidated financial statements.

In connection with our investment activity during the six months ended June 30, 2015, we recorded net lease intangibles comprised as follows (life in years, dollars in thousands):
 
Weighted-Average Life
 
Amount
Amortizable Intangible Assets
 
 
 
In-place lease
6.4
 
$
38,911

Above-market rent
7.9
 
242

 
 
 
$
39,153

Amortizable Intangible Liabilities
 
 
 
Below-market rent
11.2
 
$
(7,965
)

Goodwill is included in the consolidated financial statements. The following table presents a reconciliation of our goodwill (in thousands):
 
 
Six Months Ended
June 30, 2015
Balance at January 1, 2015
 
$
9,692

Acquisition of investment accounted for as business combination
 
12,906

Foreign currency translation
 
(1,148
)
Balance at June 30, 2015
 
$
21,450





CPA®:18 – Global 6/30/2015 10-Q – 22

Notes to Consolidated Financial Statements (Unaudited)


Intangible assets and liabilities are summarized as follows (in thousands):
 
June 30, 2015
 
December 31, 2014
 
Gross Carrying Amount
 
Accumulated Amortization
 
Net Carrying Amount
 
Gross Carrying Amount
 
Accumulated Amortization
 
Net Carrying Amount
Amortizable Intangible Assets
 
 
 
 
 
 
 
 
 
 
 
In-place lease
$
210,105

 
$
(23,298
)
 
$
186,807

 
$
177,970

 
$
(10,335
)
 
$
167,635

Below-market ground lease
14,548

 
(244
)
 
14,304

 
15,790

 
(167
)
 
15,623

Above-market rent
10,208

 
(792
)
 
9,416

 
10,424

 
(380
)
 
10,044

 
234,861

 
(24,334
)
 
210,527

 
204,184

 
(10,882
)
 
193,302

Unamortizable Intangible Assets
 
 
 
 
 
 
 
 
 
 
 
Goodwill
21,450

 
—

 
21,450

 
9,692

 
—

 
9,692

Total intangible assets
$
256,311

 
$
(24,334
)
 
$
231,977

 
$
213,876

 
$
(10,882
)
 
$
202,994

 
 
 
 
 
 
 
 
 
 
 
 
Amortizable Intangible Liabilities
 
 
 
 
 
 
 
 
 
 
 
Below-market rent
$
(14,280
)
 
$
698

 
$
(13,582
)
 
$
(6,276
)
 
$
347

 
$
(5,929
)
Above-market ground lease
(129
)
 
1

 
(128
)
 
(127
)
 
—

 
(127
)
Total intangible liabilities
$
(14,409
)
 
$
699

 
$
(13,710
)
 
$
(6,403
)
 
$
347

 
$
(6,056
)

Net amortization of intangibles, including the effect of foreign currency translation, was $7.2 million and $2.4 million for the three months ended June 30, 2015 and 2014, respectively, and $13.3 million and $3.7 million for the six months ended June 30, 2015 and 2014, respectively. Amortization of below-market and above-market rent intangibles is recorded as an adjustment to Rental income; amortization of below-market and above-market ground lease intangibles is included in Property expenses; and amortization of in-place lease intangibles is included in Depreciation and amortization expense.

Based on the intangible assets and liabilities recorded at June 30, 2015, scheduled annual net amortization of intangibles for the remainder of 2015, each of the next four calendar years following December 31, 2015, and thereafter is as follows (in thousands):
Years Ending December 31,
 
Net Increase in Rental Income
 
Increase to Amortization/Property Expenses
 
Net
2015 (remaining)
 
$
(157
)
 
$
15,759

 
$
15,602

2016
 
(325
)
 
26,370

 
26,045

2017
 
(370
)
 
17,138

 
16,768

2018
 
(418
)
 
15,068

 
14,650

2019
 
(428
)
 
14,562

 
14,134

Thereafter
 
(2,468
)
 
112,086

 
109,618

 
 
$
(4,166
)
 
$
200,983

 
$
196,817


Note 8. Fair Value Measurements
 
The fair value of an asset is defined as the exit price, which is the amount that would either be received when an asset is sold or paid to transfer a liability in an orderly transaction between market participants at the measurement date. The guidance establishes a three-tier fair value hierarchy based on the inputs used in measuring fair value. These tiers are: Level 1, for which quoted market prices for identical instruments are available in active markets, such as money market funds, equity securities, and U.S. Treasury securities; Level 2, for which there are inputs other than quoted prices included within Level 1 that are observable for the instrument, such as certain derivative instruments including interest rate swaps and foreign currency forward contracts; and Level 3, for securities and other derivative assets that do not fall into Level 1 or Level 2 and for which little or no market data exists, therefore requiring us to develop our own assumptions.




CPA®:18 – Global 6/30/2015 10-Q – 23

Notes to Consolidated Financial Statements (Unaudited)


Items Measured at Fair Value on a Recurring Basis

The methods and assumptions described below were used to estimate the fair value of each class of financial instrument.

Derivative Assets — Our derivative assets, which are included in Other assets, net in the consolidated financial statements, are comprised of foreign currency forward contracts, an interest rate cap, and foreign currency collars (Note 9). These derivatives were measured at fair value using readily observable market inputs, such as quotations on interest rates, and were classified as Level 2 as these instruments are custom, over-the-counter contracts with various bank counterparties that are not traded in an active market.

Derivative Liabilities — Our derivative liabilities, which are included in Accounts payable, accrued expenses and other liabilities in the consolidated financial statements, are comprised of interest rate swaps (Note 9). These derivatives were measured at fair value using readily observable market inputs, such as quotations on interest rates, and were classified as Level 2 because they are custom, over-the-counter contracts with various bank counterparties that are not traded in an active market.
 
We did not have any transfers into or out of Level 1, Level 2, and Level 3 measurements during the three and six months ended June 30, 2015 and 2014. Gains and losses (realized and unrealized) included in earnings are reported in Other income and (expenses) in the consolidated financial statements.
 
Our other financial instruments had the following carrying values and fair values as of the dates shown (dollars in thousands):
 
 
 
June 30, 2015
 
December 31, 2014
 
Level
 
Carrying Value
 
Fair Value
 
Carrying Value
 
Fair Value
Debt (a)
3
 
$
861,698

 
$
874,424

 
$
521,712

 
$
540,577

Note receivable (b)
3
 
28,000

 
28,000

 
28,000

 
28,000

Deferred acquisition fees payable (c)
3
 
26,115

 
25,264

 
17,525

 
17,520

___________
(a)
We determined the estimated fair value of these financial instruments using a discounted cash flow model with rates that take into account the credit of the tenant/obligor and interest rate risk. We also considered the value of the underlying collateral, taking into account the quality of the collateral, the credit quality of the tenant/obligor, the time until maturity, and the current market interest rate.
(b)
We estimated that the fair value of the note receivable approximated its carrying value.
(c)
We determined the estimated fair value of our deferred acquisition fees based on an estimate of discounted cash flows using two significant unobservable inputs, which are the leverage adjusted unsecured spread of 205 basis points and an illiquidity adjustment of 75 basis points. Significant increases or decreases to these inputs in isolation would result in a significant change in the fair value measurement.

We estimated that our other financial assets and liabilities (excluding net investments in direct financing leases) had fair values that approximated their carrying values at both June 30, 2015 and December 31, 2014.

Note 9. Risk Management and Use of Derivative Financial Instruments
 
Risk Management
 
In the normal course of our ongoing business operations, we encounter economic risk. There are four main components of economic risk that impact us: interest rate risk, credit risk, market risk, and foreign currency risk. We are primarily subject to interest rate risk on our interest-bearing assets and liabilities. Credit risk is the risk of default on our operations and our tenants’ inability or unwillingness to make contractually required payments. Market risk includes changes in the value of our properties and related loans, as well as changes in the value of our other investments due to changes in interest rates or other market factors. We own international investments primarily in Europe and are subject to risks associated with fluctuating foreign currency exchange rates.
 



CPA®:18 – Global 6/30/2015 10-Q – 24

Notes to Consolidated Financial Statements (Unaudited)


Derivative Financial Instruments
 
When we use derivative instruments, it is generally to reduce our exposure to fluctuations in interest rates and foreign currency exchange rate movements. We have not entered into, and do not plan to enter into financial instruments for trading or speculative purposes. In addition to derivative instruments that we entered into on our own behalf, we may also be a party to derivative instruments that are embedded in other contracts, and we may own common stock warrants, granted to us by lessees when structuring lease transactions, which are considered to be derivative instruments. The primary risks related to our use of derivative instruments include default by a counterparty to a hedging arrangement on its obligation and a downgrade in the credit quality of a counterparty to such an extent that our ability to sell or assign our side of the hedging transaction is impaired. While we seek to mitigate these risks by entering into hedging arrangements with counterparties that are large financial institutions that we deem to be creditworthy, it is possible that our hedging transactions, which are intended to limit losses, could adversely affect our earnings. Furthermore, if we terminate a hedging arrangement, we may be obligated to pay certain costs, such as transaction or breakage fees. We have established policies and procedures for risk assessment and the approval, reporting, and monitoring of derivative financial instrument activities.
 
We measure derivative instruments at fair value and record them as assets or liabilities, depending on our rights or obligations under the applicable derivative contract. Derivatives that are not designated as hedges must be adjusted to fair value through earnings. For a derivative designated and that qualified as a cash flow hedge, the effective portion of the change in fair value of the derivative is recognized in Other comprehensive income (loss) until the hedged item is recognized in earnings. For a derivative designated and that qualified as a net investment hedge, the effective portion of the change in its fair value and/or the net settlement of the derivative are reported in Other comprehensive income (loss) as part of the cumulative foreign currency translation adjustment. Amounts are reclassified out of Other comprehensive income (loss) into earnings when the hedged investment is either sold or substantially liquidated. The ineffective portion of the change in fair value of any derivative is immediately recognized in earnings.

All derivative transactions with an individual counterparty are governed by a master International Swap and Derivatives Association agreement, which can be considered as a master netting arrangement; however, we report all our derivative instruments on a gross basis on our consolidated financial statements. At both June 30, 2015 and December 31, 2014, no cash collateral had been posted or received for any of our derivative positions.

The following table sets forth certain information regarding our derivative instruments (in thousands):
Derivatives Designated as Hedging Instruments
 
Balance Sheet Location
 
Asset Derivatives Fair Value at
 
Liability Derivatives Fair Value at
 
 
June 30, 2015
 
December 31, 2014
 
June 30, 2015
 
December 31, 2014
Foreign currency forward contracts and collars
 
Other assets, net
 
$
5,580

 
$
3,664

 
$
—

 
$
—

Interest rate cap
 
Other assets, net
 
31

 
—

 
—

 
—

Foreign currency collars
 
Accounts payable, accrued expenses and other liabilities
 
—

 
—

 
(37
)
 
—

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

 
—

 
(1,999
)
 
(2,501
)
 
 
 
 
$
5,611

 
$
3,664

 
$
(2,036
)
 
$
(2,501
)




CPA®:18 – Global 6/30/2015 10-Q – 25

Notes to Consolidated Financial Statements (Unaudited)


The following table presents the impact of our derivative instruments in the consolidated financial statements (in thousands):
 
 
Amount of Gain (Loss) Recognized on Derivatives in
Other Comprehensive Income (Loss) (Effective Portion)
 
 
Three Months Ended June 30,
 
Six Months Ended June 30,
Derivatives in Cash Flow Hedging Relationships 
 
2015
 
2014 (a)
 
2015
 
2014 (a)
Interest rate swaps
 
$
1,284

 
$
(647
)
 
$
502

 
$
(1,019
)
Foreign currency forward contracts and collars
 
(1,019
)
 
178

 
1,789

 
(113
)
Interest rate cap
 
(13
)
 
—

 
(13
)
 
—

Derivatives in Net Investment Hedging Relationship (b)
 
 
 
 
 
 
 
 
Foreign currency forward contracts
 
10

 
—

 
90

 
—

Total
 
$
262

 
$
(469
)
 
$
2,368

 
$
(1,132
)
___________
(a)
When originally filed, the amounts included in these columns for the three and six months ended June 30, 2014 included amounts with the signs reversed. These amounts are revised to present the correct sign designation.
(b)
The effective portion of the change in fair value and the settlement of these contracts are reported in the foreign currency translation adjustment section of Other comprehensive income (loss) until the underlying investment is sold, at which time we reclassify the gain or loss to earnings.

The following table presents the impact of our derivative instruments in the consolidated financial statements (in thousands):
 
 
 
 
Amount of Gain (Loss) Reclassified from
Other Comprehensive Income (Loss) on 
Derivatives into Income (Effective Portion)
 
 
 
 
Three Months Ended June 30,
 
Six Months Ended June 30,
Derivatives in Cash Flow 
Hedging Relationships 
 
Location of Gain (Loss)
 Recognized in Income
 
2015
 
2014
 
2015
 
2014
Foreign currency forward contracts
 
Other income and (expenses)
 
$
306

 
$
—

 
$
562

 
$
—

Interest rate swaps
 
Interest expense
 
(299
)
 
(177
)
 
(600
)
 
(288
)
Total
 
 
 
$
7

 
$
(177
)
 
$
(38
)
 
$
(288
)

Interest Rate Swaps

We are exposed to the impact of interest rate changes primarily through our borrowing activities. To limit this exposure, we attempt to obtain mortgage financing on a long-term, fixed-rate basis. However, from time to time, we or our investment partners may obtain non-recourse variable-rate mortgage loans and, as a result, may enter into interest rate swap agreements with counterparties. Interest rate swaps, which effectively convert the variable-rate debt service obligations of a loan to a fixed rate, are agreements in which one party exchanges a stream of interest payments for a counterparty’s stream of cash flow over a specific period. The notional, or face, amount on which the swaps are based is not exchanged.
 
The interest rate swaps and cap that our consolidated subsidiaries had outstanding at June 30, 2015 are summarized as follows (currency in thousands):
Interest Rate Derivatives
 
Number of Instruments
 
Notional
Amount
 
Fair Value at
June 30, 2015 (a)
Interest rate swaps
 
6
 
42,907

USD
 
$
(1,955
)
Interest rate swaps
 
1
 
5,505

GBP
 
(44
)
Interest rate cap
 
1
 
16,400

USD
 
31

 
 
 
 
 
 
 
$
(1,968
)
___________
(a)
Fair value amount is based on the exchange rate of the British pound sterling at June 30, 2015, as applicable.




CPA®:18 – Global 6/30/2015 10-Q – 26

Notes to Consolidated Financial Statements (Unaudited)


Foreign Currency Contracts
 
We are exposed to foreign currency exchange rate movements, primarily in the euro and, to a lesser extent, the Norwegian krone and the British pound sterling. We manage foreign currency exchange rate movements by generally placing our debt service obligation on an investment in the same currency as the tenant’s rental obligation to us. This reduces our overall exposure to the net cash flow from that investment. However, we are subject to foreign currency exchange rate movements to the extent that there is a difference in the timing and amount of the rental obligation and the debt service. Realized and unrealized gains and losses recognized in earnings related to foreign currency transactions are included in Other income and (expenses) in the consolidated financial statements.

In order to hedge certain of our foreign currency cash flow exposures, we enter into foreign currency forward contracts. A foreign currency forward contract is a commitment to deliver a certain amount of currency at a certain price on a specific date in the future. By entering into forward contracts and holding them to maturity, we are locked into a future currency exchange rate for the term of the contract. This instrument locks the range in which the foreign currency exchange rate may fluctuate.

The following table presents the foreign currency derivative contracts we had outstanding and their designations at June 30, 2015 (currency in thousands):
Foreign Currency Derivatives
 
Number of Instruments
 
Notional
Amount
 
Fair Value at
June 30, 2015 (a)
Designated as Cash Flow Hedging Instruments
 
 
 
 
 
 
 
Foreign currency forward contracts and collars
 
62
 
26,648

EUR
 
$
3,894

Foreign currency forward contracts and collars
 
58
 
124,333

NOK
 
1,581

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

NOK
 
68

 
 
 
 
 
 
 
$
5,543

___________
(a)
Fair value amounts are based on the exchange rate of the euro or the Norwegian krone, as applicable, at June 30, 2015.

Credit Risk-Related Contingent Features

Amounts reported in Other comprehensive income (loss) related to our interest rate swaps will be reclassified to Interest expense as interest payments are made on our variable-rate debt. Amounts reported in Other comprehensive income (loss) related to foreign currency derivative contracts will be reclassified to Other income and (expenses) when the hedged foreign currency contracts are settled. At June 30, 2015, we estimated that an additional $1.0 million and $1.1 million will be reclassified as Interest expense and other income, respectively, during the next 12 months.

We measure our credit exposure on a counterparty basis as the positive aggregate estimated fair value of our derivatives, net of any collateral received. No collateral was received as of June 30, 2015. At June 30, 2015, our total credit exposure was $5.6 million and the maximum exposure to any single counterparty was $3.8 million.

Some of our agreements with derivative counterparties contain certain credit contingent provisions that could result in a declaration of default against us regarding our derivative obligations if we either default or are capable of being declared in default on certain of our indebtedness. At June 30, 2015, we had not been declared in default on any of our derivative obligations. The estimated fair value of our derivatives that were in a net liability position was $2.1 million and $2.6 million at June 30, 2015 and December 31, 2014, respectively, which included accrued interest and any adjustment for nonperformance risk. If we had breached any of these provisions at June 30, 2015 or December 31, 2014, we could have been required to settle our obligations under these agreements at their aggregate termination value of $2.2 million and $2.7 million, respectively.




CPA®:18 – Global 6/30/2015 10-Q – 27

Notes to Consolidated Financial Statements (Unaudited)


Note 10. Non-Recourse Debt and Bonds Payable

Debt consists of mortgage notes and bonds payable, which are collateralized by the assignment of real estate properties with an aggregate carrying value of $1.2 billion and $752.6 million at June 30, 2015 and December 31, 2014, respectively. The following table presents a summary of the non-recourse mortgage loans and bonds payable on our real estate property investments (dollars in thousands):
 
 
 
 
 
 
 
 
Carrying Amount at
Tenant/Property
 
Interest Rate
 
Rate Type
 
Maturity Date
 
June 30, 2015
 
December 31, 2014
Non-Recourse Debt:
 
 
 
 
 
 
 
 
 
 
Infineon Technologies AG
 
3.1%
 
Fixed
 
2/28/2017
 
$
12,498

 
$
13,756

Self-storage – Multiple properties (a) (b) (c)
 
1.8%
 
Variable
 
5/1/2018
 
16,400

 
—

Truffle Portfolio/Oakbank Portfolio (b)
 
3.9%
 
Variable
 
12/11/2019
 
11,544

 
11,401

Club Med Albion Resorts, or Albion Resorts (d)
 
4.0%
 
Fixed
 
2/26/2020
 
26,854

 
19,264

Konzum d.d.
 
5.8%
 
Fixed
 
12/31/2020
 
33,654

 
37,038

Bank Pekao S.A.
 
3.3%
 
Fixed
 
3/10/2021
 
59,693

 
64,852

Dupont Place Apartments (c)
 
3.8%
 
Fixed
 
11/1/2021
 
14,140

 
14,140

Gentry’s Walk (c)
 
3.8%
 
Fixed
 
11/1/2021
 
15,330

 
15,330

Brantley Pines (a)
 
3.8%
 
Fixed
 
2/1/2022
 
19,040

 
—

Pinnacle Ridge (a)
 
3.2%
 
Fixed
 
2/1/2022
 
24,045

 
—

Royal Vopak NV
 
2.2%
 
Fixed
 
2/9/2022
 
38,186

 
—

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

 
72,800

Crowne Group Inc. (b)
 
5.5%
 
Variable
 
12/30/2023
 
15,762

 
15,967

Self-storage – Multiple properties (e)
 
4.9%
 
Fixed
 
2/1/2024
 
14,500

 
14,500

Automobile Protection Corporation (b)
 
5.1%
 
Variable
 
2/5/2024
 
3,703

 
3,752

Solo Cup Operating Company (c)
 
5.1%
 
Fixed
 
2/6/2024
 
47,250

 
47,250

Swift Spinning Inc.
 
5.0%
 
Fixed
 
5/1/2024
 
7,682

 
7,738

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

 
11,538

Bell Telephone Company
 
4.6%
 
Fixed
 
6/11/2024
 
8,000

 
8,000

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

 
23,000

Cooper Tire & Rubber Company (b)
 
4.7%
 
Variable
 
10/31/2024
 
6,704

 
6,704

Barnsco Inc. (b)
 
4.5%
 
Variable
 
11/14/2024
 
5,200

 
5,200

Alliant Techsystems Inc.
 
4.2%
 
Fixed
 
1/6/2025
 
27,650

 
27,650

Belk Inc.
 
4.3%
 
Fixed
 
2/10/2025
 
28,225

 
—

Self-storage – Multiple properties (a) (g)
 
4.3%
 
Fixed
 
3/11/2025
 
48,139

 
—

Self-storage – Multiple properties (a) (h)
 
4.3%
 
Fixed
 
6/11/2025
 
37,246

 
—

Core-Mark (a) (c)
 
4.4%
 
Fixed
 
6/11/2025
 
10,500

 
—

Grand Estates (a)
 
4.1%
 
Fixed
 
7/1/2025
 
29,750

 
—

Midcontinent Independent System Operator, Inc. 
 
4.0%
 
Fixed
 
3/6/2026
 
9,750

 
—

North American Lighting Inc.
 
4.8%
 
Fixed
 
5/6/2026
 
7,317

 
7,325

Intuit Inc. (a) (c)
 
4.0%
 
Fixed
 
7/6/2026
 
21,900

 
—

Air Enterprises
 
5.3%
 
Fixed
 
4/1/2039
 
3,223

 
3,257

 
 
 
 
 
 
 
 
$
711,223

 
$
430,462

Bonds Payable:
 
 
 
 
 
 
 
 
 
 
Apply Sorco AS
 
4.4%
 
Fixed
 
10/31/2021
 
$
45,565

 
$
48,151

COOP (a) (c) (i)
 
4.2%
 
Fixed
 
5/28/2025
 
63,639

 
—

Siemens AS (j)
 
3.5%
 
Variable
 
12/15/2025
 
41,271

 
43,099

 
 
 
 
 
 
 
 
$
150,475

 
$
91,250




CPA®:18 – Global 6/30/2015 10-Q – 28

Notes to Consolidated Financial Statements (Unaudited)


_________
(a)
These mortgage loans and bonds payable were entered into or assumed in conjunction with the 2015 Acquisitions as described in Note 5. During the six months ended June 30, 2015, we capitalized $3.7 million of deferred financing costs related to these loans and bonds payable. We amortize deferred financing costs over the term of the related mortgage loan and bonds payable using a method that approximates the effective interest method.
(b)
These mortgage loans have variable interest rates, which have been effectively converted to fixed rates through the use of interest rate swaps or a cap (Note 9). The interest rates presented for these mortgage loans reflect the interest rate swaps or cap in effect at June 30, 2015.
(c)
These mortgage loans have payments that are interest-only until their respective maturity dates.
(d)
On February 27, 2015, we completed the refinancing of our Albion Resorts mortgage loans and consolidated them into one mortgage loan.
(e)
This mortgage loan is allocated between our St. Petersburg Self Storage and Kissimmee Self Storage investments, which are jointly and severally liable for any possible defaults on the loan.
(f)
This mortgage loan is allocated to the six self-storage properties purchased from July 22, 2014 through October 9, 2014.
(g)
On February 18, 2015, we obtained a mortgage loan for $48.1 million, which was allocated to nine self-storage properties purchased from October 28, 2014 through February 18, 2015.
(h)
On May 27, 2015, we obtained a mortgage loan for $37.2 million, which was allocated to several of the self-storage properties purchased from February 4, 2015 through May 26, 2015.
(i)
In conjunction with our COOP investment (Note 5), on May 28, 2015, we issued privately-placed bonds totaling $64.2 million, which is based on the exchange rate of the Norwegian krone at that date. These bonds are collateralized by the COOP property; have a fixed coupon of 4.2% and a maturity date of May 28, 2025.
(j)
This bond is inflation-linked to the consumer price index, or CPI, of Norway, and the annual principal balance will increase as that inflation index increases.

Scheduled Debt Principal Payments
 
Scheduled debt principal payments during the remainder of 2015, each of the next four calendar years following December 31, 2015, and thereafter are as follows (in thousands):
Years Ending December 31,
 
Total
2015 (remainder)
 
$
1,207

2016
 
2,878

2017
 
15,404

2018
 
20,024

2019
 
15,436

Thereafter through 2039
 
805,571

 
 
860,520

Unamortized premium
 
1,178

Total
 
$
861,698


Certain amounts in the table above are based on the applicable foreign currency exchange rate at June 30, 2015. The carrying value of our Non-recourse debt and Bonds payable decreased $18.8 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.

Note 11. Commitments and Contingencies

At June 30, 2015, we were not involved in any material litigation. Various claims and lawsuits arising in the normal course of business are pending against us. The results of these proceedings are not expected to have a material adverse effect on our consolidated financial position or results of operations. See Note 5 for unfunded construction commitments.




CPA®:18 – Global 6/30/2015 10-Q – 29

Notes to Consolidated Financial Statements (Unaudited)


Note 12. Loss Per Share and Equity

Basic and Diluted Loss Per Share

The following table presents loss per share (in thousands, except share and per share amounts):
 
Three Months Ended June 30, 2015
 
Three Months Ended June 30, 2014
 
Basic and Diluted Weighted-Average
Shares Outstanding 
 
Allocation of Loss
 
Basic and Diluted Loss
Per Share 
 
Basic and Diluted Weighted-Average
Shares Outstanding 
 
Allocation of Loss
 
Basic and Diluted Loss
Per Share 
Class A common stock
101,460,830

 
$
(14,961
)
 
$
(0.15
)
 
77,300,223

 
$
(3,907
)
 
$
(0.05
)
Class C common stock
29,033,036

 
(4,946
)
 
(0.17
)
 
6,126,012

 
(451
)
 
(0.07
)
Net loss attributable to CPA®:18 – Global
 
 
$
(19,907
)
 
 
 
 
 
$
(4,358
)
 
 

 
Six Months Ended June 30, 2015
 
Six Months Ended June 30, 2014
 
Basic and Diluted Weighted-Average
Shares Outstanding 
 
Allocation of Loss
 
Basic and Diluted Loss
Per Share 
 
Basic and Diluted Weighted-Average
Shares Outstanding 
 
Allocation of Loss
 
Basic and Diluted Loss
Per Share 
Class A common stock
101,053,789

 
$
(24,673
)
 
$
(0.24
)
 
57,778,351

 
$
(17,307
)
 
$
(0.30
)
Class C common stock
25,729,488

 
(7,447
)
 
(0.29
)
 
4,979,591

 
(1,721
)
 
(0.35
)
Net loss attributable to CPA®:18 – Global
 
 
$
(32,120
)
 
 
 
 
 
$
(19,028
)
 
 

The allocation of Net loss attributable to CPA®:18 – Global is calculated based on the basic and diluted weighted-average shares outstanding for Class A and Class C common stock for each respective period. For the three and six months ended June 30, 2015, the allocation for Class A common stock excludes shareholder servicing fees of $0.7 million and $1.2 million, respectively, which is only applicable to Class C common stock (Note 4). For the three and six months ended June 30, 2014, the allocation for Class A common stock excludes shareholder servicing fees of $0.1 million and $0.2 million, respectively.

Distributions

During the first quarter of 2015, our board of directors declared distributions at a daily rate of $0.0017170 per share for our Class A common stock and $0.0014601 per share for our Class C common stock for the quarter ending June 30, 2015. The distributions in the amount of $19.7 million were paid on July 15, 2015 to stockholders of record on each day during the period. As a result of the completion of our initial public offering, beginning with the third quarter of 2015 we will no longer calculate our distributions based upon daily record and distribution declaration dates, but upon quarterly record and distribution declaration dates.

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




CPA®:18 – Global 6/30/2015 10-Q – 30

Notes to Consolidated Financial Statements (Unaudited)


Reclassifications Out of Accumulated Other Comprehensive Loss

The following tables present a reconciliation of changes in Accumulated other comprehensive loss by component for the periods presented (in thousands):
 
Three Months Ended June 30, 2015
 
Gains and Losses
on Derivative Instruments
 
Foreign Currency Translation Adjustments
 
Total
Beginning balance
$
3,178

 
$
(49,654
)
 
$
(46,476
)
Other comprehensive income (loss) before reclassifications
259

 
12,152

 
12,411

Amounts reclassified from accumulated other comprehensive loss to:
 
 
 
 
 
Interest expense
299

 
—

 
299

Other income and (expenses)
(306
)
 
—

 
(306
)
Net current-period Other comprehensive income (loss)
252

 
12,152

 
12,404

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

 
(1,889
)
 
(1,889
)
Ending balance
$
3,430

 
$
(39,391
)
 
$
(35,961
)

 
Three Months Ended June 30, 2014
 
Gains and Losses
on Derivative Instruments
 
Foreign Currency Translation Adjustments
 
Total
Beginning balance
$
(882
)
 
$
164

 
$
(718
)
Other comprehensive income (loss) before reclassifications
(646
)
 
(1,415
)
 
(2,061
)
Amounts reclassified from accumulated other comprehensive loss to:
 
 
 
 
 
Interest expense
177

 
—

 
177

Net current-period Other comprehensive income (loss)
(469
)
 
(1,415
)
 
(1,884
)
Net current-period Other comprehensive (income) loss attributable to noncontrolling interests
—

 
175

 
175

Ending balance
$
(1,351
)
 
$
(1,076
)
 
$
(2,427
)





CPA®:18 – Global 6/30/2015 10-Q – 31

Notes to Consolidated Financial Statements (Unaudited)


 
Six Months Ended June 30, 2015
 
Gains and Losses
on Derivative Instruments
 
Foreign Currency Translation Adjustments
 
Total
Beginning balance
$
1,152

 
$
(22,093
)
 
$
(20,941
)
Other comprehensive income (loss) before reclassifications
2,240

 
(21,478
)
 
(19,238
)
Amounts reclassified from accumulated other comprehensive loss to:
 
 
 
 
 
Interest expense
600

 
—

 
600

Other income and (expenses)
(562
)
 
—

 
(562
)
Net current-period Other comprehensive income (loss)
2,278

 
(21,478
)
 
(19,200
)
Net current-period Other comprehensive (income) loss attributable to noncontrolling interests
—

 
4,180

 
4,180

Ending balance
$
3,430

 
$
(39,391
)
 
$
(35,961
)

 
Six Months Ended June 30, 2014
 
Gains and Losses
on Derivative Instruments
 
Foreign Currency Translation Adjustments
 
Total
Beginning balance
$
(219
)
 
$
125

 
$
(94
)
Other comprehensive income (loss) before reclassifications
(1,420
)
 
(1,700
)
 
(3,120
)
Amounts reclassified from accumulated other comprehensive loss to:
 
 
 
 
 
Interest expense
288

 
—

 
288

Net current-period Other comprehensive income (loss)
(1,132
)
 
(1,700
)
 
(2,832
)
Net current-period Other comprehensive (income) loss attributable to noncontrolling interests
—

 
499

 
499

Ending balance
$
(1,351
)
 
$
(1,076
)
 
$
(2,427
)

Note 13. Subsequent Events

Subsequent to June 30, 2015 and through August 19, 2015, we purchased six additional properties totaling approximately $109.8 million (excluding acquisition costs) and obtained $116.2 million of new financing. Of these six properties, three are self-storage facilities, two are office buildings, and one is a multi-family property.

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





CPA®:18 – Global 6/30/2015 10-Q – 32



Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations.
 
Management’s Discussion and Analysis of Financial Condition and Results of Operations is intended to provide the reader with information that will assist in understanding our financial statements and the reasons for changes in certain key components of our financial statements from period to period. Management’s Discussion and Analysis of Financial Condition and Results of Operations also provides the reader with our perspective on our financial position and liquidity, as well as certain other factors that may affect our future results. Our Management’s Discussion and Analysis of Financial Condition and Results of Operations should be read in conjunction with the 2014 Annual Report.

Business Overview

As described in more detail in Item 1 of the 2014 Annual Report, we are a publicly-owned, non-listed REIT that invests primarily in commercial properties net-leased to companies domestically and internationally. On May 7, 2013, our Registration Statement was declared effective by the SEC and we commenced our initial public offering of up to $1.4 billion of common stock, in any combination of Class A and Class C shares, including $150.0 million in shares of common stock pursuant to 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. The per share amount of distributions on shares of Class A and Class C common stock will likely differ because of different allocations of class-specific expenses. Specifically, distributions on shares of Class C common stock will be lower than distributions on shares of Class A common stock because shares of Class C common stock are subject to ongoing distribution and shareholder servicing fees (Note 4). 

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

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

Significant Developments

Closing of Offering

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.

Investment and Financing Activity

Subsequent to June 30, 2015 through August 19, 2015, we purchased six additional properties totaling approximately $109.8 million excluding acquisition costs and obtained $116.2 million of new financing. Of these six properties, three are self-storage facilities, two are office buildings, and one is a multi-family property.

Foreign Currency Fluctuation

We own investments outside the United States, primarily in Europe, and as a result, we are subject to the risk from the effects of exchange rate movements in various foreign currencies, primarily the euro. The average exchange rate of the U.S. dollar in relation to the euro decreased by approximately 19.0% and 18.6% during the three and six months ended June 30, 2015, respectively, as compared to the same periods in 2014, resulting in a negative impact on the results of operations for our euro-denominated investments during the three and six months ended June 30, 2015, as compared to the same periods in 2014. We try to manage our exposure related to fluctuations in exchange rates of the U.S. dollar relative to the respective currencies of our foreign operations by entering into hedging arrangements utilizing derivative instruments such as foreign currency forward contracts. We also try to manage our exposure related to fluctuations in exchange rates of the U.S. dollar relative to the euro by incurring debt denominated in the euro, including euro-denominated non-recourse debt (Note 9).




CPA®:18 – Global 6/30/2015 10-Q – 33



Portfolio Overview

We intend to continue to acquire a diversified portfolio of income-producing commercial properties and other real estate-related assets. We expect to make these investments both domestically and outside of the United States. See below for more details regarding our portfolio at June 30, 2015. Portfolio information is provided on a consolidated basis to facilitate the review of our accompanying consolidated financial statements. In addition, we provide such information on a pro rata basis to better illustrate the economic impact of our various net-leased, jointly-owned investments.

Portfolio Summary
 
 
June 30, 2015
 
December 31, 2014
Number of net-leased properties
 
56

 
47

Number of operating properties (a)
 
43

 
16

Number of tenants (b)
 
88

 
73

Total square footage (in thousands) (c)
 
12,475

 
8,942

Occupancy — Single-tenant (b) (c)
 
100.0
%
 
100.0
%
Occupancy — Multi-tenant (c) (d)
 
91.4
%
 
91.0
%
Weighted-average lease term — Single-tenant properties (in years) (b) (c)
 
13.2

 
13.2

Weighted-average lease term — Multi-tenant properties (in years) (c) (d)
 
7.6

 
8.3

Number of countries
 
9

 
8

Total assets (in thousands)
 
$
2,032,196

 
$
1,615,884

Net investments in real estate (in thousands)
 
1,392,883

 
941,357

Funds raised — cumulative to date (in thousands)
 
1,243,518

 
1,143,111

 
 
Six Months Ended June 30,
(dollars in thousands, except exchange rate)
 
2015
 
2014
Acquisition volume — consolidated (e) (f)
 
$
686,258

 
$
468,484

Acquisition volume — pro rata (c) (e) (f)
 
690,641

 
390,343

Financing obtained — consolidated
 
371,777

 
275,710

Financing obtained — pro rata (c)
 
363,176

 
230,574

Average U.S. dollar/euro exchange rate (g)
 
1.1162

 
1.3712

Increase in the U.S. CPI (h)
 
1.6
%
 
2.3
%
Increase in the Harmonized Index of Consumer Prices (h)
 
0.7
%
 
0.3
%
Increase in the Norwegian CPI (h)
 
1.5
%
 
1.0
%
__________
(a)
At June 30, 2015, our operating portfolio consisted of 37 wholly-owned self-storage properties, five multi-family properties, and one student housing development.
(b)
Represents our single-tenant and multi-tenant properties within our net-leased portfolio and, accordingly, excludes all operating properties. We consider a property to be multi-tenant if it does not have a single tenant that comprises more than 75% of the contractual minimum annualized base rent, or ABR, for the property.
(c)
Represents pro rata basis. See Terms and Definitions below for a description of pro rata metrics.
(d)
Represents our multi-tenant properties within our net-leased portfolio and, accordingly, excludes all operating properties.
(e)
Includes build-to-suit transactions, which are reflected as the total commitment for the build-to-suit funding.
(f)
Amount includes acquisition-related expenses, which were included in Acquisition expenses in the consolidated financial statements.
(g)
The average conversion rate for the U.S. dollar in relation to the euro decreased during the six months ended June 30, 2015 as compared to the same period in 2014, resulting in a negative impact on earnings in 2015 from our euro-denominated investments.
(h)
Many of our lease agreements include contractual increases indexed to changes in the U.S. CPI or other similar indices.




CPA®:18 – Global 6/30/2015 10-Q – 34



Net-Leased Portfolio

The tables below represent information about our net-leased portfolio on a consolidated and pro rata basis and, accordingly, exclude all operating properties at June 30, 2015. See Terms and Definitions below for a description of pro rata metrics and ABR.

Top Ten Tenants by ABR
(in thousands, except percentages)
 
 
Consolidated
 
Pro Rata
Tenant/Lease Guarantor
 
ABR
 
Percent
 
ABR
 
Percent
Bank Pekao S.A. (a)
 
$
8,413

 
10
%
 
$
4,206

 
6
%
State Farm Automobile Co.
 
7,097

 
9
%
 
3,549

 
5
%
Konzum d.d. (a)
 
6,325

 
8
%
 
5,060

 
7
%
Solo Cup Operating Company
 
5,646

 
7
%
 
5,646

 
8
%
Apply Sorco AS (a)
 
5,599

 
7
%
 
2,855

 
4
%
Albion Resorts (a)
 
4,873

 
6
%
 
4,873

 
7
%
Siemens AS (a)
 
4,560

 
6
%
 
4,560

 
7
%
Royal Vopak NV (a)
 
3,774

 
5
%
 
3,774

 
5
%
COOP Ost AS (a)
 
3,595

 
4
%
 
3,595

 
5
%
Alliant Techsystems Inc.
 
3,199

 
3
%
 
3,199

 
5
%
Total
 
$
53,081

 
65
%
 
$
41,317

 
59
%
__________
(a)
ABR amounts are subject to fluctuations in foreign currency exchange rates.

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

Pro Rata
Region
 
ABR

Percent

ABR

Percent
United States
 
 
 
 
 
 
 
 
Midwest (a)
 
$
16,036

 
20
%
 
$
16,036

 
23
%
South (b)
 
13,228

 
16
%
 
9,679

 
14
%
East
 
4,159

 
5
%
 
4,159

 
6
%
West
 
404

 
1
%
 
404

 
1
%
U.S. Total
 
33,827

 
42
%
 
30,278

 
44
%
 
 
 
 
 
 
 
 
 
International
 
 
 
 
 
 
 
 
Norway (c)
 
16,371

 
20
%
 
13,627

 
20
%
Poland (d)
 
8,544

 
10
%
 
4,272

 
6
%
Croatia (e)
 
6,325

 
8
%
 
5,061

 
7
%
United Kingdom
 
5,145

 
6
%
 
5,145

 
7
%
The Netherlands (f)
 
4,930

 
6
%
 
4,930

 
7
%
Mauritius (g)
 
4,873

 
6
%
 
4,873

 
7
%
Germany
 
1,476

 
2
%
 
1,476

 
2
%
International Total
 
47,664

 
58
%
 
39,384

 
56
%
 
 
 
 
 
 
 
 
 
Total
 
$
81,491

 
100
%
 
$
69,662

 
100
%



CPA®:18 – Global 6/30/2015 10-Q – 35



__________
(a)
Pro rata ABR for the Midwest region contains a concentration of 8% for our Solo Cup Operating Company property located in Illinois.
(b)
Pro rata ABR for the South region contains a concentration of 5% for our State Farm Automobile Co. property located in Texas.
(c)
Pro rata ABR for Norway contains a concentration of 7% for our Siemens AS property and 5% for our COOP Ost AS property.
(d)
Pro rata ABR for Poland contains a concentration of 6% for our Bank Pekao S.A. property.
(e)
Pro rata ABR for Croatia contains a concentration of 7% for our Konzum d.d. properties.
(f)
Pro rata ABR for the Netherlands contains a concentration of 5% for our Royal Vopak NV property.
(g)
Pro rata ABR for Mauritius contains a concentration of 7% for our Albion Resorts property.

Portfolio Diversification by Property Type
(in thousands, except percentages)
 
 
Consolidated
 
Pro Rata
Property Type
 
ABR
 
Percent
 
ABR
 
Percent
Office
 
$
41,057

 
50
%
 
$
30,493

 
44
%
Retail
 
12,249

 
15
%
 
10,984

 
16
%
Industrial
 
11,875

 
15
%
 
11,875

 
17
%
Warehouse
 
11,437

 
14
%
 
11,437

 
16
%
Hotel
 
4,873

 
6
%
 
4,873

 
7
%
Total
 
$
81,491

 
100
%
 
$
69,662

 
100
%




CPA®:18 – Global 6/30/2015 10-Q – 36



Portfolio Diversification by Tenant Industry
(in thousands, except percentages)
 
 
Consolidated
 
Pro Rata
Industry Type
 
ABR
 
Percent
 
ABR
 
Percent
Grocery
 
$
9,920

 
12
%
 
$
8,655

 
12
%
Banking
 
8,413

 
10
%
 
4,206

 
6
%
Insurance
 
7,590

 
9
%
 
4,041

 
6
%
Business Services
 
6,833

 
8
%
 
4,090

 
6
%
Containers, Packaging, and Glass
 
5,646

 
7
%
 
5,646

 
8
%
Capital Equipment
 
5,416

 
7
%
 
5,416

 
8
%
Hotel, Gaming, and Leisure
 
4,954

 
6
%
 
4,914

 
7
%
Retail Stores
 
4,836

 
6
%
 
4,836

 
7
%
Construction and Building
 
4,537

 
6
%
 
4,537

 
7
%
Oil and Gas
 
4,497

 
6
%
 
4,497

 
6
%
Metals and Mining
 
3,199

 
4
%
 
3,199

 
5
%
High Tech Industries
 
3,027

 
4
%
 
3,027

 
4
%
Consumer Services
 
1,962

 
2
%
 
1,962

 
3
%
Automotive
 
1,891

 
2
%
 
1,891

 
3
%
Utilities: Electric
 
1,476

 
2
%
 
1,476

 
2
%
Consumer Goods: Non-Durable
 
1,264

 
2
%
 
1,264

 
2
%
Sovereign and Public Finance
 
1,116

 
2
%
 
1,116

 
2
%
Wholesale
 
1,101

 
1
%
 
1,101

 
2
%
Telecommunications
 
1,021

 
1
%
 
996

 
1
%
Energy: Electricity
 
997

 
1
%
 
997

 
1
%
Transportation: Cargo
 
914

 
1
%
 
914

 
1
%
Other (a)
 
881

 
1
%
 
881

 
1
%
Total
 
$
81,491

 
100
%
 
$
69,662

 
100
%
__________
(a)
Includes ABR from tenants in the following industries: environmental industries; consumer goods: durable; and media: advertising, printing, and publishing.




CPA®:18 – Global 6/30/2015 10-Q – 37



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

 
$
166

 
—
%
 
5

 
$
164

 
—
%
2016
 
3

 
112

 
—
%
 
3

 
72

 
—
%
2017
 
4

 
415

 
1
%
 
4

 
415

 
1
%
2018
 
7

 
296

 
—
%
 
7

 
273

 
—
%
2019
 
8

 
1,100

 
1
%
 
8

 
1,100

 
2
%
2020
 
8

 
2,298

 
3
%
 
8

 
2,298

 
3
%
2021
 
3

 
1,359

 
2
%
 
3

 
1,359

 
2
%
2022
 
3

 
196

 
—
%
 
3

 
196

 
—
%
2023
 
8

 
18,894

 
23
%
 
8

 
14,688

 
21
%
2024
 
9

 
4,707

 
6
%
 
9

 
4,707

 
7
%
2025
 
5

 
5,088

 
6
%
 
5

 
5,088

 
7
%
2026
 
3

 
3,756

 
5
%
 
3

 
3,756

 
5
%
2027
 
7

 
4,726

 
6
%
 
7

 
4,726

 
7
%
2028
 
5

 
14,234

 
17
%
 
5

 
7,942

 
11
%
Thereafter
 
21

 
24,144

 
30
%
 
21

 
22,878

 
34
%
Total
 
99

 
$
81,491

 
100
%
 
99

 
$
69,662

 
100
%
__________
(a)
Assumes tenant does not exercise renewal option.
(b)
These maturities also include our multi-tenant properties, which generally have a shorter duration than our single-tenant properties, and on a combined basis represent both consolidated and pro rata ABR of $4.0 million. All the years listed above include multi-tenant properties, except 2026.




CPA®:18 – Global 6/30/2015 10-Q – 38



Operating Properties

At June 30, 2015, our operating portfolio consisted of 37 self-storage properties, which had an average occupancy rate of 87.4%, five multi-family properties, which had an average occupancy rate of 94.8%, and one student housing development. At June 30, 2015, our operating portfolio was comprised as follows (square footage in thousands):
Location
 
Number of Properties
 
Square Footage
Florida
 
15

 
1,458

California
 
9

 
797

Georgia
 
5

 
593

Texas
 
4

 
236

Hawaii
 
2

 
95

North Carolina
 
1

 
283

Kentucky
 
1

 
121

Nevada
 
1

 
74

South Carolina
 
1

 
63

Illinois
 
1

 
58

Missouri
 
1

 
41

Canada (a)
 
1

 
—

United Kingdom (b)
 
1

 
—

Total
 
43

 
3,819

__________
(a)
Represents a build-to-suit project for a self-storage facility.
(b)
Represents a build-to-suit project for a student housing development (Note 5).

Terms and Definitions

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

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

Financial Highlights

(in thousands)
 
 
Three Months Ended June 30,
 
Six Months Ended June 30,
 
 
2015
 
2014 (a)
 
2015
 
2014 (a)
Total revenues
 
$
30,472

 
$
12,647

 
$
57,645

 
$
19,342

Net loss attributable to CPA®:18 – Global
 
(19,907
)
 
(4,358
)
 
(32,120
)
 
(19,028
)
 
 
 
 
 
 
 
 
 
Cash distributions paid
 
18,667

 
6,259

 
36,298

 
8,080

 
 
 
 
 
 
 
 
 
Net cash provided by (used in) operating activities
 
 
 
 
 
15,303

 
(2,945
)
Net cash used in investing activities
 
 
 
 
 
(512,733
)
 
(426,260
)
Net cash provided by financing activities
 
 
 
 
 
430,560

 
1,015,117

 
 
 
 
 
 
 
 
 
Supplemental financial measures:
 
 
 
 
 
 
 
 
FFO attributable to CPA®:18 – Global (b)
 
(6,911
)
 
(471
)
 
(8,422
)
 
(13,000
)
MFFO attributable to CPA®:18 – Global (b)
 
9,791

 
3,707

 
18,052

 
5,971

__________
(a)
In the course of preparing our 2014 consolidated financial statements, we discovered an error related to our accounting for a subsidiary’s functional currency. We corrected this error 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 (Note 2).
(b)
We consider the performance metrics listed above, including Funds used in operations, or FFO, and Modified funds from operations, or MFFO, which are supplemental measures that are not defined by GAAP, both referred to as non-GAAP measures, to be important measures in the evaluation of our results of operations and capital resources. We evaluate our results of operations with a primary focus on the ability to generate cash flow necessary to meet our objective of funding distributions to stockholders. See Supplemental Financial Measures below for our definitions of these non-GAAP measures and reconciliations to their most directly comparable GAAP measures.

Total revenues and MFFO improved for the three and six months ended June 30, 2015, compared to the same periods in 2014, primarily reflecting the increase in the number of our investments during 2015 and 2014.




CPA®:18 – Global 6/30/2015 10-Q – 39



Results of Operations

We evaluate our results of operations with a primary focus on our ability to generate cash flow necessary to meet our objectives of funding distributions to stockholders and increasing our equity in our real estate. As a result, our assessment of operating results gives less emphasis to the effect of unrealized gains and losses, which may cause fluctuations in net income for comparable periods but have no impact on cash flows, and to other non-cash charges, such as depreciation and impairment charges.

The following table presents the comparative results of operations (in thousands):
 
 
Three Months Ended June 30,
 
Six Months Ended June 30,
 
 
2015
 
2014
 
Change
 
2015
 
2014
 
Change
Revenues
 
 
 
 
 
 
 
 
 
 
 
 
Lease revenues
 
$
19,350

 
$
11,344

 
$
8,006

 
$
37,458

 
$
17,555

 
$
19,903

Other real estate income - operating property revenues
 
8,891

 
515

 
8,376

 
15,024

 
936

 
14,088

Reimbursable tenant costs
 
1,554

 
775

 
779

 
3,747

 
828

 
2,919

Interest income and other
 
677

 
13

 
664

 
1,416

 
23

 
1,393

 
 
30,472

 
12,647

 
17,825

 
57,645

 
19,342

 
38,303

Operating Expenses
 
 
 
 
 
 
 
 
 
 
 
 
Depreciation and amortization:
 
 
 
 
 

 
 
 
 
 
 
Net-leased properties
 
8,636

 
4,820

 
3,816

 
16,517

 
7,310

 
9,207

Operating properties
 
5,896

 
303

 
5,593

 
10,134

 
528

 
9,606

 
 
14,532

 
5,123

 
9,409

 
26,651

 
7,838

 
18,813

Property expenses:
 
 
 
 
 
 
 
 
 
 
 
 
Operating properties
 
3,687

 
160

 
3,527

 
6,280

 
277

 
6,003

Asset management fees
 
1,729

 
603

 
1,126

 
3,146

 
934

 
2,212

Reimbursable tenant costs
 
1,554

 
775

 
779

 
3,747

 
828

 
2,919

Net-leased properties
 
891

 
296

 
595

 
1,198

 
539

 
659

 
 
7,861

 
1,834

 
6,027

 
14,371

 
2,578

 
11,793

Acquisition expenses
 
17,180

 
3,972

 
13,208

 
23,780

 
22,966

 
814

General and administrative
 
1,840

 
1,170

 
670

 
3,724

 
1,808

 
1,916

 
 
41,413

 
12,099

 
29,314

 
68,526

 
35,190

 
33,336

Operating (Loss) Income
 
(10,941
)
 
548

 
(11,489
)
 
(10,881
)
 
(15,848
)
 
4,967

Other Income and Expenses
 
 
 
 
 

 
 
 
 
 
 
Interest expense
 
(8,009
)
 
(3,776
)
 
(4,233
)
 
(16,095
)
 
(5,852
)
 
(10,243
)
Other income and (expense)
 
568

 
316

 
252

 
(1,931
)
 
369

 
(2,300
)
 
 
(7,441
)
 
(3,460
)
 
(3,981
)
 
(18,026
)
 
(5,483
)
 
(12,543
)
Loss before income taxes
 
(18,382
)
 
(2,912
)
 
(15,470
)
 
(28,907
)
 
(21,331
)
 
(7,576
)
Benefit from (provision for) income taxes
 
119

 
(198
)
 
317

 
(208
)
 
(222
)
 
14

Net Loss
 
(18,263
)
 
(3,110
)
 
(15,153
)
 
(29,115
)
 
(21,553
)
 
(7,562
)
Net (income) loss attributable to noncontrolling interests
 
(1,644
)
 
(1,248
)
 
(396
)
 
(3,005
)
 
2,525

 
(5,530
)
Net Loss Attributable to CPA®:18 – Global
 
$
(19,907
)
 
$
(4,358
)
 
$
(15,549
)
 
$
(32,120
)
 
$
(19,028
)
 
$
(13,092
)
MFFO Attributable to CPA®:18 – Global
 
$
9,791

 
$
3,707

 
$
6,084

 
$
18,052

 
$
5,971

 
$
12,081





CPA®:18 – Global 6/30/2015 10-Q – 40




Lease Composition and Leasing Activities

As of June 30, 2015, approximately 59.2% of our net leases, based on consolidated ABR, provide for adjustments based on formulas indexed to changes in the U.S. CPI, or other similar indices for the jurisdiction in which the property is located, some of which have caps and/or floors. In addition, 37.9% of our net leases on that same basis have fixed rent adjustments, for which consolidated ABR is scheduled to increase by an average of 1.4% in the next 12 months. We own international investments and, therefore, lease revenues from these investments are subject to exchange rate fluctuations in the euro and the Norwegian krone, and, to a lesser extent, the British pound sterling.

During the three and six months ended June 30, 2015, we did not modify any leases.




CPA®:18 – Global 6/30/2015 10-Q – 41



Property Level Contribution

Property level contribution includes lease and operating property revenues, less property expenses and depreciation and amortization. When a property is leased on a net-lease basis, reimbursable tenant costs are recorded as both income and property expense and, therefore, have no impact on the property level contribution. The following table presents the property level contribution for our consolidated leased and operating properties, as well as a reconciliation to our net operating income (in thousands):
 
Three Months Ended June 30,
 
Six Months Ended June 30,
 
2015
 
2014
 
Change
 
2015
 
2014
 
Change
Existing Net-Leased Properties
 
 
 
 
 
 
 
 
 
 
 
Lease revenues
$
4,110

 
$
4,471

 
$
(361
)
 
$
8,247

 
$
8,940

 
$
(693
)
Depreciation and amortization
(1,463
)
 
(1,620
)
 
157

 
(2,939
)
 
(3,241
)
 
302

Property expenses
(405
)
 
(309
)
 
(96
)
 
(270
)
 
(504
)
 
234

Property level contribution
2,242

 
2,542

 
(300
)
 
5,038

 
5,195

 
(157
)
Recently Acquired Net-Leased Properties
 
 
 
 
 
 
 
 
 
 
 
Lease revenues
15,240

 
6,873

 
8,367

 
29,211

 
8,615

 
20,596

Depreciation and amortization
(7,172
)
 
(3,199
)
 
(3,973
)
 
(13,578
)
 
(4,070
)
 
(9,508
)
Property expenses
(486
)
 
13

 
(499
)
 
(928
)
 
(35
)
 
(893
)
Property level contribution
7,582

 
3,687

 
3,895

 
14,705

 
4,510

 
10,195

Operating Properties
 
 
 
 
 
 
 
 
 
 
 
Revenues
8,891

 
515

 
8,376

 
15,024

 
936

 
14,088

Depreciation and amortization
(5,897
)
 
(304
)
 
(5,593
)
 
(10,134
)
 
(527
)
 
(9,607
)
Property expenses
(3,687
)
 
(160
)
 
(3,527
)
 
(6,280
)
 
(277
)
 
(6,003
)
Property level contribution
(693
)
 
51

 
(744
)
 
(1,390
)
 
132

 
(1,522
)
Total Property Level Contribution
 
 
 
 
 
 
 
 
 
 
 
Lease revenues
19,350

 
11,344

 
8,006

 
37,458

 
17,555

 
19,903

Property expenses
(891
)
 
(296
)
 
(595
)
 
(1,198
)
 
(539
)
 
(659
)
Operating property revenues
8,891

 
515

 
8,376

 
15,024

 
936

 
14,088

Operating property expenses
(3,687
)
 
(160
)
 
(3,527
)
 
(6,280
)
 
(277
)
 
(6,003
)
Depreciation and amortization
(14,532
)
 
(5,123
)
 
(9,409
)
 
(26,651
)
 
(7,838
)
 
(18,813
)
Property Level Contribution
9,131

 
6,280

 
2,851

 
18,353

 
9,837

 
8,516

Add other income:
 
 
 
 
 
 
 
 
 
 
 
Interest income and other
677

 
13

 
664

 
1,419

 
23

 
1,396

Less other expenses:
 
 
 
 
 
 
 
 
 
 
 
Acquisition expenses
(17,180
)
 
(3,972
)
 
(13,208
)
 
(23,780
)
 
(22,966
)
 
(814
)
General and administrative
(1,840
)
 
(1,170
)
 
(670
)
 
(3,724
)
 
(1,808
)
 
(1,916
)
Asset management fees
(1,729
)
 
(603
)
 
(1,126
)
 
(3,149
)
 
(934
)
 
(2,215
)
Operating (Loss) Income
$
(10,941
)
 
$
548

 
$
(11,489
)
 
$
(10,881
)
 
$
(15,848
)
 
$
4,967


Existing Net-Leased Properties

Existing net-leased properties are those we acquired prior to January 1, 2014. At June 30, 2015, there were nine existing net-leased properties.

For the three and six months ended June 30, 2015, compared to the same periods in 2014, property level contribution for existing net-leased properties decreased by $0.3 million and $0.2 million, respectively, primarily as a result of the strengthening of the U.S. dollar relative to foreign currencies.




CPA®:18 – Global 6/30/2015 10-Q – 42



Recently Acquired Net-Leased Properties

Recently acquired net-leased properties are those that we acquired subsequent to December 31, 2013.

For the three and six months ended June 30, 2015, compared to the same periods in 2014, property level contribution from recently acquired leased properties increased by $3.9 million and $10.2 million, respectively, as a result of 32 properties acquired after June 30, 2014.

Operating Properties

Other real estate operations represent primarily the results of operations, or revenues and operating expenses, of our 37 self-storage and five multi-family properties. The changes below were primarily a result of the 35 self-storage and five multi-family properties we acquired after June 30, 2014.

For three and six months ended June 30, 2015, compared to the same periods in 2014, property level contribution from operating properties decreased by $0.7 million and $1.5 million, respectively. The decreases were primarily due to increases in property expenses and depreciation and amortization expenses, specifically the amortization of the in-place lease intangible assets related to our six multi-family acquisitions, which have a six-month amortization period from the date they were acquired. These increases in expenses were partially offset by increases in operating property revenues related to the properties we acquired after June 30, 2014.

Other Revenues and Expenses

Interest Income and Other

Interest income and other primarily consists of interest earned on our note receivable investment. For the three and six months ended June 30, 2015, compared to the same periods in 2014, interest income and other increased by $0.7 million and $1.4 million, respectively, which was primarily attributable to our acquisition of the note receivable in July 2014.

Acquisition Expenses

For the three and six months ended June 30, 2015, compared to the same periods in 2014, acquisition expenses increased by $13.2 million and $0.8 million, respectively, primarily due to the increase in investment volume for acquisitions that were deemed to be business combinations during the three and six months ended June 30, 2015 compared to the prior periods.

General and Administrative

For the three and six months ended June 30, 2015, compared to the same periods in 2014, general and administrative expenses increased by $0.7 million and $1.9 million, respectively, primarily due to increases in broker dealer expenses of $0.5 million and $0.9 million, respectively, and increases in personnel and overhead reimbursement costs of $0.3 million and $0.4 million, respectively. The increases in broker dealer expenses were primarily attributable to increases in the amount of our Class C shareholder servicing fees paid due to increases in the number of shares sold of our Class C common stock. The increases in personnel and overhead expenses were a result of increased revenues, which had a direct impact on the costs allocated to us by our advisor under the advisory agreement (Note 4).

Property Expenses — Asset Management Fees

For the three and six months ended June 30, 2015, compared to the same periods in 2014, asset management fees increased by $1.1 million and $2.2 million, respectively, due to investment volume growth since June 30, 2014, which increased the asset base from which our advisor earns a fee.




CPA®:18 – Global 6/30/2015 10-Q – 43



Interest Expense

For the three and six months ended June 30, 2015, compared to the same periods in 2014, interest expense increased by $4.2 million and $10.2 million, respectively, as a result of our mortgage and bond financing obtained or assumed in connection with our recently acquired properties.

Other Income and (Expenses)

Other income and (expenses) primarily consists of gains and losses on foreign currency transactions, derivative instruments, and extinguishment of debt. We and certain of our foreign consolidated subsidiaries have intercompany debt or advances that are not denominated in the functional currency of those subsidiaries. When the intercompany debt or accrued interest thereon is remeasured against the functional currency of the respective subsidiaries, an unrealized gain or loss on foreign currency translation may result. We also recognize gains or losses on foreign currency transactions when we repatriate cash from our foreign investments. The timing and amount of such gains or losses cannot always be estimated and are subject to fluctuation.

For the three months ended June 30, 2015, we recognized net other income of $0.6 million, which was primarily comprised of interest income received on our cash balances held with financial institutions of $0.7 million, and gains recognized on derivatives of $0.3 million, partially offset by realized and unrealized foreign currency transaction losses related to our international investments of $0.5 million.

For the three months ended June 30, 2014, we recognized net other income of $0.3 million, which was primarily comprised of interest income received on our cash balances held with financial institutions of $0.7 million, partially offset by realized and unrealized foreign currency transaction losses related to our international investments of $0.3 million.

For the six months ended June 30, 2015, we recognized net other expense of $1.9 million, which was primarily comprised of realized and unrealized foreign currency transaction losses related to our international investments of $3.9 million, partially offset by interest income received on our cash balances held with financial institutions of $1.1 million and gains recognized on derivatives of $0.6 million.

For the six months ended June 30, 2014, we recognized net other income of $0.4 million, which was primarily comprised of interest income received on our cash balances held with financial institutions of $0.9 million, partially offset by realized and unrealized foreign currency transaction losses related to our international investments of $0.6 million.

Net (Income) Loss Attributable to Noncontrolling Interests

For the three and six months ended June 30, 2015, compared to the same periods in 2014, net income attributable to noncontrolling interests increased by $0.4 million and $5.5 million, respectively, due to increases of $0.8 million and $1.7 million, respectively, in the Available Cash Distribution. The increase for the six months ended June 30, 2015 also reflects the impact of $4.1 million of losses related to the Bank Pekao S. A., which was allocable to CPA®:17 – Global.

Net Loss Attributable to CPA®:18 – Global

For the three and six months ended June 30, 2015, compared to the same periods in 2014, the resulting net loss attributable to CPA®:18 – Global increased by $15.5 million and $13.1 million, respectively.

Modified Funds from Operations

MFFO is a non-GAAP measure that we use to evaluate our business. For a definition of MFFO and a reconciliation to net loss attributable to CPA®:18 – Global, see Supplemental Financial Measures below.

For the three and six months ended June 30, 2015, compared to the same periods in 2014, MFFO increased by $6.1 million and $12.1 million, respectively, primarily as a result of the increase in the number of our investments subsequent to June 30, 2014.




CPA®:18 – Global 6/30/2015 10-Q – 44



Financial Condition

Sources and Uses of Cash During the Period

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

Operating Activities — Net cash provided by operating activities for the six months ended June 30, 2015 was $15.3 million, compared to net cash used in operating activities of $2.9 million for the same period in 2014. The change primarily reflects the impact of investments acquired after June 30, 2014.
 
Investing Activities — Our investing activities are generally comprised of real estate purchases, payment of deferred acquisition fees to our advisor for asset acquisitions, and capitalized property-related costs. Net cash used in investing activities totaled $512.7 million for the six months ended June 30, 2015. This was primarily the result of cash outflows related to our 2015 Acquisitions, including acquisitions of real estate and direct financing leases of $499.7 million, $8.9 million used for funding of our build-to-suit projects, and $5.2 million to acquire an equity investment, partially offset by $6.1 million of cash inflows from a change in restricted cash.

Financing Activities — Net cash provided by financing activities totaled $430.6 million for the six months ended June 30, 2015. This was primarily due to proceeds of $338.3 million from non-recourse mortgage financings, net proceeds received from our initial public offering of $114.7 million, and proceeds from a bond financing of $66.3 million. We also had cash outflows related to distributions paid totaling $36.3 million for the fourth quarter of 2014 and the first quarter of 2015, which were comprised of $17.0 million of cash distributions and $19.3 million of distributions reinvested by stockholders through our distribution reinvestment plan, scheduled payments and prepayments of mortgage principal of $43.1 million, and purchases of treasury stock totaling $3.3 million.

Distributions

Our objectives are to generate sufficient cash flow over time to provide stockholders with increasing distributions and to seek investments with potential for capital appreciation throughout varying economic cycles. Our distributions declared through June 30, 2015 have exceeded our FFO and were paid almost entirely from uninvested offering proceeds. When we have substantially invested the net proceeds from our initial public offering, we expect that future distributions will be paid in whole or in part from FFO. Until then, we expect that distributions will be paid primarily from offering proceeds. From inception through June 30, 2015, we have declared distributions to stockholders totaling $93.8 million, which were comprised of cash distributions of $43.8 million and $50.0 million reinvested by stockholders in shares of our common stock pursuant to our distribution reinvestment plan. We have determined that FFO is the most appropriate metric to evaluate our ability to fund distributions to stockholders. For a discussion of FFO, see Supplemental Financial Measures below.

Redemptions

We maintain a quarterly redemption program pursuant to which we may, at the discretion of our board of directors, redeem shares of our common stock from stockholders seeking liquidity. We limit the redemptions so that the shares we redeem in any quarter, together with the aggregate number of shares redeemed in the preceding three fiscal quarters, do not exceed 5% of our total shares outstanding as of the last day of the immediately preceding quarter. In addition, our ability to effect redemptions will be subject to our having available cash to do so. During the six months ended June 30, 2015, we received requests to redeem 327,739 and 15,347 shares of Class A and Class C common stock, respectively, pursuant to our redemption plan, all of



CPA®:18 – Global 6/30/2015 10-Q – 45



which were redeemed in the same period, at a weighted-average price of $9.55 and $8.93 per share, respectively, net of redemption fees, totaling $3.3 million for both Class A and Class C.

Liquidity and Capital Resources

Our principal demands for funds will be for the acquisition of real estate and real estate related investments and the payment of acquisition-related expenses, operating expenses, interest and principal on current and future indebtedness, and distributions to stockholders. We currently expect that, for the short-term, the aforementioned cash requirements will be funded by our cash on hand, financings, and the capital we raised in our initial public offering. We raised aggregate gross proceeds in our initial public offering of approximately $1.2 billion through April 2, 2015, which is the date we closed our offering.

We expect to meet our short-term liquidity requirements generally through existing cash balances, and, if necessary, short-term borrowings. We expect that in the future, as our portfolio grows and matures, our properties will provide sufficient cash flow to cover operating expenses and the payment of stockholder distributions.

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

Summary of Financing
 
The table below summarizes our non-recourse debt and bonds payable (dollars in thousands):
 
June 30, 2015
 
December 31, 2014
Carrying Value
 
 
 
Fixed rate
$
749,577

 
$
429,251

Variable rate:
 
 
 
Amount subject to interest rate swaps and cap
70,850

 
37,960

Amount subject to floating interest rate
41,271

 
54,501

 
112,121

 
92,461

 
$
861,698

 
$
521,712

Percent of Total Debt
 
 
 
Fixed rate
87
%
 
82
%
Variable rate
13
%
 
18
%
 
100
%
 
100
%
Weighted-Average Interest Rate at End of Period
 
 
 
Fixed rate
4.2
%
 
4.5
%
Variable rate (a)
3.9
%
 
4.2
%
___________
(a)
The impact of our derivative instruments is reflected in the weighted-average interest rates.

Cash Resources
 
At June 30, 2015, our cash resources consisted of cash and cash equivalents totaling $359.3 million. Of this amount, $41.0 million, at then-current exchange rates, was held in foreign subsidiaries, but we could be subject to restrictions or significant costs should we decide to repatriate these amounts. We also had unleveraged properties that had an aggregate carrying value of $158.2 million at June 30, 2015, although there can be no assurance that we would be able to obtain financing for these properties on satisfactory terms, if at all. Our cash resources may be used for future investments and can be used for working capital needs and other commitments. In addition, our board of directors and the board of directors of WPC have each approved unsecured loans to us from WPC of up to $100.0 million in the aggregate for the purpose of facilitating acquisitions, with any such loans made solely at the discretion of WPC’s management (Note 4). Our cash resources may be used for future investments and can be used for working capital needs, other commitments, and distributions to our stockholders.
 



CPA®:18 – Global 6/30/2015 10-Q – 46



Cash Requirements
 
During the next 12 months, we expect that our cash requirements will include acquiring new investments, funding capital commitments, paying distributions to our stockholders and to our affiliates that hold noncontrolling interests in entities we control, and making any scheduled mortgage interest and principal payments, as well as other normal recurring operating expenses. We expect to fund $45.5 million related to capital and other lease commitments during the next 12 months.

Off-Balance Sheet Arrangements and Contractual Obligations

The table below summarizes our debt, off-balance sheet arrangements, and other contractual obligations (primarily our capital commitments and lease obligations) at June 30, 2015 and the effect that these arrangements and obligations are expected to have on our liquidity and cash flow in the specified future periods (in thousands):
 
Total
 
Less than
1 year
 
1-3 years
 
3-5 years
 
More than
5 years
Debt — principal (a)
$
860,520

 
$
2,528

 
$
35,171

 
$
47,317

 
$
775,504

Interest on borrowings and deferred acquisition fees
292,589

 
36,092

 
70,638

 
68,563

 
117,296

Capital commitments (b)
203,324

 
45,229

 
158,095

 
—

 
—

Deferred acquisition fees — principal (c)
23,765

 
11,660

 
12,105

 
—

 
—

Other lease commitments (d)
5,305

 
279

 
575

 
574

 
3,877

Asset retirement obligations, net (e)
2,333

 
—

 
—

 
—

 
2,333

 
$
1,387,836

 
$
95,788

 
$
276,584

 
$
116,454

 
$
899,010

__________
(a)
Represents the non-recourse debt and bonds payable that we obtained in connection with our investments. Excludes $1.2 million of unamortized premium, which was included in Bonds payable at June 30, 2015.
(b)
Capital commitments include our current build-to-suit projects of $201.7 million (Note 5) and $1.7 million related to other construction commitments.
(c)
Represents deferred acquisition fees due to our advisor as a result of our acquisitions. These fees are scheduled to be paid in three equal annual installments from the date of each respective acquisition.
(d)
Other lease commitments consist of rental obligations under ground leases and our share of future rents payable pursuant to the advisory agreement for the purpose of leasing office space used for the administration of real estate entities. Amounts are allocated among WPC, the CPA® REITs, CWI, and CWI 2 (Note 4).
(e)
Represents the amount of future obligations estimated for the removal of asbestos and environmental waste in connection with certain of our acquisitions, payable upon the retirement or sale of the assets.

Amounts in the table above that relate to our foreign operations are based on the exchange rate of the local currencies at June 30, 2015, which consisted primarily of the euro and Norwegian krone and, to a lesser extent, the British pound sterling. At June 30, 2015, we had no material capital lease obligations for which we were the lessee, either individually or in the aggregate.

Supplemental Financial Measures

In the real estate industry, analysts and investors employ certain non-GAAP supplemental financial measures in order to facilitate meaningful comparisons between periods and among peer companies. Additionally, in the formulation of our goals and in the evaluation of the effectiveness of our strategies, we use FFO and MFFO, which are supplemental non-GAAP measures. We believe that these non-GAAP measures are useful to investors to consider because it may assist them to better understand and measure the performance of our business over time and against similar companies. A description of FFO and MFFO and reconciliations of FFO and MFFO to the most directly comparable GAAP measures are provided below.

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

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



CPA®:18 – Global 6/30/2015 10-Q – 47




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

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

Changes in the accounting and reporting promulgations under GAAP (for acquisition fees and expenses from a capitalization/depreciation model to an expensed-as-incurred model) were put into effect in 2009. These other changes to GAAP accounting for real estate subsequent to the establishment of NAREIT’s definition of FFO have prompted an increase in cash-settled expenses, specifically acquisition fees and expenses for all industries as items that are expensed under GAAP, that are typically accounted for as operating expenses. Management believes these fees and expenses do not affect our overall long-term operating performance. Publicly-registered, non-listed REITs typically have a significant amount of acquisition activity and are substantially more dynamic during their initial years of investment and operation. While other start-up entities may also experience significant acquisition activity during their initial years, we believe that non-listed REITs are unique in that they have a limited life with targeted exit strategies within a relatively limited time frame after acquisition activity ceases. As disclosed in the prospectus, we intend to begin the process of achieving a liquidity event (i.e., listing of our common stock on a national exchange, a merger or sale of our assets, or another similar transaction) within seven years following the closing of our initial public offering, which occurred on April 2, 2015. Thus, we do not intend to continuously purchase assets and intend to have a limited life. Due to the above factors and other unique features of publicly-registered, non-listed REITs, the Investment Program Association, an industry trade group, has standardized a measure known as MFFO, which the Investment Program Association has recommended as a supplemental non-GAAP measure for publicly-registered non-listed REITs and which we believe to be another appropriate supplemental measure to reflect the operating performance of a non-listed REIT having the characteristics described above. MFFO is not equivalent to our net income or loss as determined under GAAP, and MFFO may not be a useful measure of the impact of long-term operating performance on value if we do not continue to operate with a limited life and targeted exit strategy, as currently intended. We believe that, because MFFO excludes costs that we consider



CPA®:18 – Global 6/30/2015 10-Q – 48



more reflective of investing activities and other non-operating items included in FFO and also excludes acquisition fees and expenses that affect our operations only in periods in which properties are acquired, MFFO can provide, on a going forward basis, an indication of the sustainability (that is, the capacity to continue to be maintained) of our operating performance after the period in which we are acquiring properties and once our portfolio is in place. By providing MFFO, we believe we are presenting useful information that assists investors and analysts to better assess the sustainability of our operating performance after our initial public offering has been completed and once essentially all of our properties have been acquired. We also believe that MFFO is a recognized measure of sustainable operating performance by the non-listed REIT industry. Further, we believe MFFO is useful in comparing the sustainability of our operating performance after our initial public offering and most of our acquisitions are completed with the sustainability of the operating performance of other real estate companies that are not as involved in acquisition activities. MFFO should only be used to assess the sustainability of a company’s operating performance after a company’s offering has been completed and properties have been acquired, as it excludes acquisition costs that have a negative effect on a company’s operating performance during the periods in which properties are acquired.

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

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

Our management uses MFFO and the adjustments used to calculate it in order to evaluate our performance against other non-listed REITs which have limited lives with short and defined acquisition periods and targeted exit strategies shortly thereafter. As noted above, MFFO may not be a useful measure of the impact of long-term operating performance on value if we do not continue to operate in this manner. We believe that our use of MFFO and the adjustments used to calculate it allow us to present our performance in a manner that reflects certain characteristics that are unique to non-listed REITs, such as their limited life, limited and defined acquisition period, and targeted exit strategy, and hence that the use of such measures is useful to investors. For example, acquisition costs are generally funded from the proceeds of our initial public offering and other financing sources and not from operations. By excluding expensed acquisition costs, the use of MFFO provides information consistent with



CPA®:18 – Global 6/30/2015 10-Q – 49



management’s analysis of the operating performance of the properties. Additionally, fair value adjustments, which are based on the impact of current market fluctuations and underlying assessments of general market conditions, but can also result from operational factors such as rental and occupancy rates, may not be directly related or attributable to our current operating performance. By excluding such changes that may reflect anticipated and unrealized gains or losses, we believe MFFO provides useful supplemental information.

Presentation of this information is intended to provide useful information to investors as they compare the operating performance of different REITs, although it should be noted that not all REITs calculate FFO and MFFO the same way, so comparisons with other REITs may not be meaningful. Furthermore, FFO and MFFO are not necessarily indicative of cash flow available to fund cash needs and should not be considered as an alternative to net income (loss) or income (loss) from continuing operations as an indication of our performance, as an alternative to cash flows from operations as an indication of our liquidity, or indicative of funds available to fund our cash needs including our ability to make distributions to our stockholders. FFO and MFFO should be reviewed in conjunction with other GAAP measurements as an indication of our performance.

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

FFO and MFFO were as follows (in thousands):
 
 
Three Months Ended June 30,
 
Six Months Ended June 30,
 
 
2015
 
2014 (a)
 
2015 (b)
 
2014 (a)
Net loss attributable to CPA®:18 – Global
 
$
(19,907
)
 
$
(4,358
)
 
$
(32,120
)
 
$
(19,028
)
Adjustments:
 
 
 
 
 
 
 
 
Depreciation and amortization of real property
 
14,570

 
5,134

 
26,730

 
7,835

Proportionate share of adjustments for noncontrolling interests to arrive at FFO
 
(1,574
)
 
(1,247
)
 
(3,032
)
 
(1,807
)
Total adjustments
 
12,996

 
3,887

 
23,698

 
6,028

FFO attributable to CPA®:18 – Global — as defined by NAREIT
 
(6,911
)
 
(471
)
 
(8,422
)
 
(13,000
)
Adjustments:
 
 
 
 
 
 
 
 
Acquisition expenses (c)
 
17,180

 
4,014

 
23,780

 
23,043

Loss on extinguishment of debt, net
 
—

 
—

 
700

 
—

Straight-line and other rent adjustments (d)
 
(788
)
 
(535
)
 
(1,793
)
 
(911
)
Unrealized losses on foreign currency, derivatives and other
 
329

 
12

 
3,859

 
9

Amortization of premium/discount on debt investments and fair market value adjustments, net
 
243

 
152

 
430

 
245

Realized (gains) losses on foreign currency, derivatives and other
 
(157
)
 
334

 
(555
)
 
545

Above- and below-market rent intangible lease amortization, net (e)
 
(21
)
 
29

 
77

 
(4
)
Proportionate share of adjustments for noncontrolling interests to arrive at MFFO
 
(84
)
 
172

 
(24
)
 
(3,956
)
Total adjustments
 
16,702

 
4,178

 
26,474

 
18,971

MFFO attributable to CPA®:18 – Global
 
$
9,791

 
$
3,707

 
$
18,052

 
$
5,971

__________
(a)
In the course of preparing our 2014 consolidated financial statements, we discovered an error related to our accounting for a subsidiary’s functional currency. We corrected this error, and one other error previously recorded as 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 (Note 2). The correction of errors for the three and six months ended June 30, 2014 resulted in an increase to Net loss attributable to CPA®:18 – Global



CPA®:18 – Global 6/30/2015 10-Q – 50



of $0.2 million and $0.6 million, respectively, a reduction in FFO of $0.2 million and $0.6 million, respectively, and an increase to MFFO of $0.3 million and no impact, respectively.
(b)
In the course of preparing our June 30, 2015 consolidated financial statements, we discovered an error related to the capitalization of financing costs associated with the refinancing of a mortgage loan related to our consolidated financial statements as of and for the three months ended March 31, 2015. We corrected this error, and several other cash flow classification error adjustments (Note 2), and will revise our consolidated financial statements as of and for the three months ended March 31, 2015, including presentation of FFO and MFFO, in future filings. This error would have resulted in a $0.9 million increase to each of Net loss attributable to CPA®:18 – Global and FFO attributable to CPA®:18 – Global and have no impact on MFFO attributable to CPA®:18 – Global for the three months ended March 31, 2015.
(c)
Includes Acquisition expenses and amortization of deferred acquisition fees prior to the first quarter of 2015. In evaluating investments in real estate, management differentiates the costs to acquire the investment from the operations derived from the investment. Such information would be comparable only for non-listed REITs that have completed their acquisition activity and have other similar operating characteristics. By excluding expensed acquisition costs and amortization of deferred acquisition fees, management believes MFFO provides useful supplemental information that is comparable for each type of real estate investment and is consistent with management’s analysis of the investing and operating performance of our properties. Acquisition fees and expenses include payments to our advisor or third parties. Acquisition fees and expenses under GAAP are considered operating expenses and as expenses included in the determination of net income (loss) and income (loss) from continuing operations, both of which are performance measures under GAAP. All paid and accrued acquisition fees and expenses will have negative effects on returns to stockholders, the potential for future distributions, and cash flows generated by us, unless earnings from operations or net sales proceeds from the disposition of properties are generated to cover the purchase price of the property, these fees and expenses and other costs related to the property.
(d)
Under GAAP, rental receipts are allocated to periods using an accrual basis. This may result in timing of income recognition that is significantly different than underlying contract terms. By adjusting for these items (to reflect such payments from a GAAP accrual basis to a cash basis of disclosing the rent and lease payments), management believes that MFFO provides useful supplemental information on the realized economic impact of lease terms and debt investments, provides insight on the contractual cash flows of such lease terms and debt investments, and aligns results with management’s analysis of operating performance.
(e)
Under GAAP, certain intangibles are accounted for at cost and reviewed at least annually for impairment, and certain intangibles are assumed to diminish predictably in value over time and amortized, similar to depreciation and amortization of other real estate related assets that are excluded from FFO. However, because real estate values and market lease rates historically rise or fall with market conditions, management believes that by excluding charges relating to amortization of these intangibles, MFFO provides useful supplemental information on the performance of the real estate.




CPA®:18 – Global 6/30/2015 10-Q – 51



Item 3. Quantitative and Qualitative Disclosures About Market Risk.

Market Risk

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

Generally, we do not use derivative instruments to hedge credit/market risks or for speculative purposes. However, from time to time, we may enter into foreign currency forward contracts to hedge our foreign currency cash flow exposures.

Interest Rate Risk
 
The values of our real estate, related fixed-rate debt obligations, and note receivable investments are subject to fluctuations based on changes in interest rates. The value of our real estate is also subject to fluctuations based on local and regional economic conditions and changes in the creditworthiness of lessees, all of which may affect our ability to refinance property-level mortgage debt when balloon payments are scheduled, if we do not choose to repay the debt when due. Interest rates are highly sensitive to many factors, including governmental monetary and tax policies, domestic and international economic and political conditions, and other factors beyond our control. An increase in interest rates would likely cause the fair value of our owned assets to decrease. Increases in interest rates may also have an impact on the credit profile of certain tenants.
 
We are exposed to the impact of interest rate changes primarily through our borrowing activities. To limit this exposure, we have historically attempted to obtain non-recourse mortgage financing on a long-term, fixed-rate basis. However, from time to time, we or our joint investment partners have obtained, and may in the future obtain, variable-rate non-recourse mortgage loans, and as a result, we have entered into, and may continue to enter into, interest rate swap agreements or interest rate cap agreements with lenders. Interest rate swap agreements effectively convert the variable-rate debt service obligations of a loan to a fixed rate, while interest rate cap agreements limit the underlying interest rate from exceeding a specified strike rate. Interest rate swaps are agreements in which one party exchanges a stream of interest payments for a counterparty’s stream of cash flows over a specific period, and interest rate caps limit the effective borrowing rate of variable-rate debt obligations while allowing participants to share in downward shifts in interest rates. These interest rate swaps and caps are derivative instruments that, where applicable, are designated as cash flow hedges on the forecasted interest payments on the debt obligation. The notional, or face, amount on which the swaps or caps are based is not exchanged. Our objective in using these derivatives is to limit our exposure to interest rate movements. At June 30, 2015, we estimated that the total fair value of our interest rate swaps and cap, which are included in Other assets, net and Accounts payable, accrued expenses and other liabilities in the consolidated financial statements, was in a net liability position of $2.0 million (Note 9).

At June 30, 2015, our outstanding debt either bore interest at fixed rates, was swapped to a fixed rate or, in the case of one our Norwegian investments, inflation-linked to the Norwegian CPI. The annual interest rates on our fixed-rate debt at June 30, 2015 ranged from 2.2% to 5.8%. The contractual annual interest rates on our variable-rate debt at June 30, 2015 ranged from 1.8% to 5.6%. Our debt obligations are more fully described in Note 10 and Financial Condition – Summary of Financing in Item 2 above. The following table presents principal cash outflows for the remainder of 2015, each of the next four calendar years following December 31, 2015, and thereafter, based upon expected maturity dates of our debt obligations outstanding at June 30, 2015 (in thousands):

2015 (Remainder)
 
2016
 
2017
 
2018
 
2019
 
Thereafter

Total

Fair value
Fixed-rate debt (a)
$
938

 
$
1,956

 
$
14,313

 
$
2,533

 
$
2,801

 
$
727,036


$
749,577


$
756,162

Variable rate debt (a)
$
269

 
$
922

 
$
1,091

 
$
17,491

 
$
12,635

 
$
78,535


$
110,943


$
118,261

__________
(a)
Amounts are based on the exchange rate at June 30, 2015, as applicable.

At June 30, 2015, the estimated fair value of our fixed-rate debt and variable-rate debt, which either have effectually been converted to a fixed rate through the use of interest rate swaps or, in the case of one our Norwegian investments, is inflation-linked to the Norwegian CPI, approximated their carrying values. A decrease or increase in interest rates of 1% would change



CPA®:18 – Global 6/30/2015 10-Q – 52



the estimated fair value of this debt at June 30, 2015 by an aggregate increase of $53.1 million or an aggregate decrease of $56.0 million, respectively. This debt is generally not subject to short-term fluctuations in interest rates.

As more fully described under Financial Condition – Summary of Financing in Item 2 above, a portion of our variable-rate debt in the table above bore interest at fixed rates at June 30, 2015, but has interest rate reset features that will change the fixed interest rates to then-prevailing market fixed rates at certain points during their term. This debt is generally not subject to short-term fluctuations in interest rates.

Foreign Currency Exchange Rate Risk

We own international investments, primarily in Europe, and as a result, are subject to risk from the effects of exchange rate movements in the euro and the Norwegian krone and, to a lesser extent, the British pound sterling, which may affect future costs and cash flows. Although all of our foreign investments through the first quarter of 2015 were conducted in these currencies, we may conduct business in other currencies in the future as we seek to invest a portion of the funds from our initial public offering internationally. We manage foreign currency exchange rate movements by generally placing both our debt service obligation to the lender and the tenant’s rental obligation to us in the same currency. This reduces our overall exposure to the actual equity that we have invested and the equity portion of our cash flow. In addition, we may use currency hedging to further reduce the exposure to our equity cash flow. We are generally a net receiver of these currencies (we receive more cash than we pay out), therefore our foreign operations benefit from a weaker U.S. dollar and are adversely affected by a stronger U.S. dollar, relative to the foreign currency.

We obtain mortgage and bond financing in local currencies. To the extent that currency fluctuations increase or decrease rental revenues, as translated to U.S. dollars, the change in debt service, as translated to U.S. dollars, will partially offset the effect of fluctuations in revenue and mitigate the risk from changes in foreign currency exchange rates.

Scheduled future minimum rents, exclusive of renewals, under non-cancelable operating leases, for our consolidated foreign operations as of June 30, 2015 during the remainder of 2015, each of the next four calendar years following December 31, 2015, and thereafter, are as follows (in thousands): 
Lease Revenues (a)
 
2015 (Remainder)
 
2016
 
2017
 
2018
 
2019
 
Thereafter
 
Total
Euro (b)
 
$
13,144

 
$
25,097

 
$
31,639

 
$
31,604

 
$
31,775

 
$
290,386

 
$
423,645

Norwegian krone (c)
 
8,141

 
16,193

 
16,129

 
16,128

 
16,128

 
97,689

 
170,408

British pound sterling (d)
 
2,570

 
5,124

 
4,978

 
4,677

 
4,465

 
17,570

 
39,384

 
 
$
23,855

 
$
46,414

 
$
52,746

 
$
52,409

 
$
52,368

 
$
405,645

 
$
633,437


Scheduled debt service payments (principal and interest) for mortgage notes, and bonds denominated in Norwegian krone, for our foreign operations as of June 30, 2015 during the remainder of 2015, each of the next four calendar years following December 31, 2015, and thereafter, are as follows (in thousands):
Debt Service (a)
 
2015 (Remainder)
 
2016
 
2017
 
2018
 
2019
 
Thereafter
 
Total
Euro (b)
 
$
3,554

 
$
7,053

 
$
18,768

 
$
6,786

 
$
15,086

 
$
152,223

 
$
203,470

Norwegian krone (c)
 
3,432

 
6,105

 
6,105

 
6,105

 
6,105

 
178,601

 
206,453

British pound sterling (d)
 
227

 
453

 
452

 
452

 
11,991

 
—

 
13,575

 
 
$
7,213

 
$
13,611

 
$
25,325

 
$
13,343

 
$
33,182

 
$
330,824

 
$
423,498

__________
(a)
Amounts are based on the applicable exchange rates at June 30, 2015. Contractual rents and debt obligations are denominated in the functional currency of the country of each property.
(b)
We estimate that, for a 1% increase or decrease in the exchange rate between the euro and the U.S. dollar, there would be a corresponding change in the projected estimated property-level cash flow at June 30, 2015 of $2.2 million.
(c)
We estimate that, for a 1% increase or decrease in the exchange rate between the Norwegian krone and the U.S. dollar, there would be a corresponding change in the projected estimated property-level cash flow at June 30, 2015 of $0.4 million.



CPA®:18 – Global 6/30/2015 10-Q – 53



(d)
We estimate that, for a 1% increase or decrease in the exchange rate between the British pound sterling and the U.S. dollar, there would be a corresponding change in the projected estimated property-level cash flow at June 30, 2015 of $0.3 million.

As a result of scheduled balloon payments on certain of our international debt obligations, projected debt service obligations exceed projected lease revenues in 2019 for investments denominated in the British pound sterling and after 2019 for the Norwegian krone. We currently anticipate that, by their respective due dates, we will refinance certain of our debt obligations and/or renew the related lease, but there can be no assurance that we will be able to do so on favorable terms, if at all. If that has not occurred, we would expect to use our cash resources to make these payments, if necessary.

Concentration of Credit Risk

Concentrations of credit risk arise when a number of tenants are engaged in similar business activities or have similar economic risks or conditions that could cause them to default on their lease obligations to us. We currently have concentrations of credit risk in our portfolio as we have not yet fully invested the proceeds from our initial public offering. We regularly monitor our portfolio to assess potential concentrations of credit risk as we make additional investments. As we continue to invest the proceeds of our initial public offering, we will seek to ensure that our portfolio is reasonably well-diversified and does not contain any unusual concentration of credit risks. At June 30, 2015, our consolidated net-lease portfolio, which excludes our self-storage facilities and multi-family properties, had the following significant property and lease characteristics (percentages based on the percentage of our consolidated ABR as of June 30, 2015) in excess of 10% in certain areas, as follows:

•
42% related to domestic properties, which included a concentration in Texas of 12%;
•
58% related to international properties, which included concentrations in Norway of 20% and Poland of 10%;
•
50% related to office properties, 15% related to retail properties, 15% related to industrial properties, and 14% related to warehouse properties; and
•
12% related to the grocery industry and 10% related to the banking industry.




CPA®:18 – Global 6/30/2015 10-Q – 54



Item 4. Controls and Procedures.

Disclosure Controls and Procedures

Our disclosure controls and procedures include internal controls and other procedures designed to provide reasonable assurance that information required to be disclosed in this and other reports filed under the Securities Exchange Act of 1934, as amended, or the Exchange Act, is recorded, processed, summarized, and reported within the required time periods specified in the SEC’s rules and forms; and that such information is accumulated and communicated to management, including our chief executive officer and chief financial officer, to allow timely decisions regarding required disclosures. It should be noted that no system of controls can provide complete assurance of achieving a company’s objectives and that future events may impact the effectiveness of a system of controls.

Our chief executive officer and chief financial officer, after conducting an evaluation, together with members of our management, of the effectiveness of the design and operation of our disclosure controls and procedures as of June 30, 2015, have concluded that our disclosure controls and procedures (as defined in Rule 13a-15(e) under the Exchange Act) were effective as of June 30, 2015 at a reasonable level of assurance.

Changes in Internal Control Over Financial Reporting
 
There have been no changes in our internal control over financial reporting during our most recently completed fiscal quarter that have materially affected, or are reasonably likely to materially affect, our internal controls over financial reporting.




CPA®:18 – Global 6/30/2015 10-Q – 55



PART II

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds.

Unregistered Sales of Equity Securities

During the three months ended June 30, 2015, we issued 157,191 shares of our Class A common stock to our advisor as consideration for asset management fees. These shares were issued at $10.00 per share, which is the price at which shares of our Class A common stock were sold in our initial public offering. Since this transaction was not considered to have involved a “public offering” within the meaning of Section 4(a)(2) of the Securities Act, the shares issued were deemed to be exempt from registration. In acquiring our shares, our advisor represented that such interests were being acquired by it for the purposes of investment and not with a view to the distribution thereof. From inception and through June 30, 2015, we have issued 548,464 shares of our Class A common stock to our advisor as aggregate consideration for asset management fees.

Use of Offering Proceeds

Our Registration Statement (File No. 333-185111) for our initial public offering was declared effective by the SEC on May 7, 2013 and we closed the offering on April 2, 2015. As of June 30, 2015, the cumulative use of proceeds from our initial public offering was as follows (dollars in thousands):

Common Stock



Class A

Class C

Total
Shares registered (a)
100,000,000

 
26,737,968


126,737,968

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

 
$
250,000


$
1,250,000

Shares sold (b)
97,937

 
28,468


126,405

Aggregated offering price of amount sold
$
977,410

 
$
266,108


$
1,243,518

Direct or indirect payments to directors, officers, general partners
of the issuer or their associates; to persons owning ten percent or more
of any class of equity securities of the issuer; and to affiliates of the issuer
(72,914
)
 
(6,240
)

(79,154
)
Direct or indirect payments to others
(31,258
)
 
(6,016
)

(37,274
)
Net offering proceeds to the issuer after deducting expenses
$
873,238


$
253,852


1,127,090

Purchases of real estate, net of financing and noncontrolling interest




(682,051
)
Cash distributions paid to stockholders
 
 
 
 
(74,049
)
Repayment of mortgage financing
 
 
 
 
(44,811
)
Repurchase of shares
 
 
 
 
(4,788
)
Working capital (c)
 
 
 
 
37,867

Temporary investments in cash and cash equivalents
 
 
 
 
$
359,258

__________
(a)
These amounts are based on the assumption that the shares sold in our initial public offering were composed of 80% Class A common stock and 20% Class C common stock.
(b)
Excludes shares issued to affiliates, including our advisor, and shares issued pursuant to our distribution reinvestment plan. We ceased accepting new orders for shares of Class A and Class C common stock on June 30, 2014 and March 27, 2015, respectively.
(c)
Working capital has been reduced to reflect $76.5 million of acquisition expenses incurred since inception.




CPA®:18 – Global 6/30/2015 10-Q – 56



Issuer Purchases of Equity Securities

The following table provides information with respect to repurchases of our common stock during the three months ended June 30, 2015:
 
 
Class A
 
Class C
 
 
 
 
2015 Period
 
Total number of Class A
shares purchased (a)
 
Average price
paid per share
 
Total number of Class C
shares purchased (a)
 
Average price
paid per share
 
Total number of shares
purchased as part of
publicly announced plans or program (a)
 
Maximum number (or
approximate dollar value)of shares that may yet be
purchased under the plans or program (a)
April
 
—

 
—

 
—

 
—

 
N/A
 
N/A
May
 
—

 
—

 
—

 
—

 
N/A
 
N/A
June
 
153,474

 
$
9.59

 
10,591

 
$
8.95

 
N/A
 
N/A
Total
 
153,474

 
 
 
10,591

 
 
 
 
 
 
___________
(a)
Represents shares of our Class A and Class C common stock repurchased under our redemption plan, pursuant to which we may elect to redeem shares at the request of our stockholders who have held their shares for at least one year from the date of their issuance, subject to certain exceptions, conditions, and limitations. The maximum amount of shares purchasable by us in any period depends on a number of factors and is at the discretion of our board of directors. We satisfied all of the above redemption requests received during the three months ended June 30, 2015. We generally receive fees in connection with share redemptions.




CPA®:18 – Global 6/30/2015 10-Q – 57



Item 6. Exhibits.

The following exhibits are filed with this Report, except where indicated.
Exhibit No.
 
Description
 
Method of Filing
31.1

Certification pursuant to Section 302 of the Sarbanes-Oxley Act of 2002

Filed herewith





31.2

Certification pursuant to Section 302 of the Sarbanes-Oxley Act of 2002

Filed herewith





32

Certifications pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

Filed herewith





101

The following materials from Corporate Property Associates 18 – Global Incorporated’s Quarterly Report on Form 10-Q for the quarter ended June 30, 2015, formatted in XBRL (eXtensible Business Reporting Language): (i) Consolidated Balance Sheets at June 30, 2015 and December 31, 2014, (ii) Consolidated Statements of Operations for the three and six months ended June 30, 2015 and 2014, (iii) Consolidated Statements of Comprehensive Loss for the three and six months ended June 30, 2015 and 2014, (iv) Consolidated Statements of Equity for the six months ended June 30, 2015 and 2014, (v) Consolidated Statements of Cash Flows for the six months ended June 30, 2015 and 2014, and (vi) Notes to Consolidated Financial Statements.

Filed herewith




CPA®:18 – Global 6/30/2015 10-Q – 58

SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

 
 
 
Corporate Property Associates 18 – Global Incorporated
Date:
August 19, 2015
 
 
 
 
By:  
/s/ Hisham A. Kader
 
 
 
Hisham A. Kader
 
 
 
Chief Financial Officer
 
 
 
(Principal Financial Officer)
 
 
 
 
Date:
August 19, 2015
 
 
 
 
By:  
/s/ Toniann Sanzone
 
 
 
Toniann Sanzone
 
 
 
Chief Accounting Officer
 
 
 
(Principal Accounting Officer)






CPA®:18 – Global 6/30/2015 10-Q – 59

EXHIBIT INDEX

The following exhibits are filed with this Report, except where indicated.
Exhibit No.
 
Description
 
Method of Filing
31.1

Certification pursuant to Section 302 of the Sarbanes-Oxley Act of 2002

Filed herewith





31.2

Certification pursuant to Section 302 of the Sarbanes-Oxley Act of 2002

Filed herewith





32

Certifications pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

Filed herewith





101

The following materials from Corporate Property Associates 18 – Global Incorporated’s Quarterly Report on Form 10-Q for the quarter ended June 30, 2015, formatted in XBRL (eXtensible Business Reporting Language): (i) Consolidated Balance Sheets at June 30, 2015 and December 31, 2014, (ii) Consolidated Statements of Operations for the three and six months ended June 30, 2015 and 2014, (iii) Consolidated Statements of Comprehensive Loss for the three and six months ended June 30, 2015 and 2014, (iv) Consolidated Statements of Equity for the six months ended June 30, 2015 and 2014, (v) Consolidated Statements of Cash Flows for the six months ended June 30, 2015 and 2014, and (vi) Notes to Consolidated Financial Statements.

Filed herewith


CORPORATE PROPERTY ASSOCIATES 18 GLOBAL INC Reports