CORPORATE PROPERTY ASSOCIATES 18 GLOBAL INC - FORM 10-Q - November 16, 2015

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EX-32.0 - EXHIBIT 32.0 - CORPORATE PROPERTY ASSOCIATES 18 GLOBAL INCcpa182015q310-qexh32.htm
EX-31.1 - EXHIBIT 31.1 - CORPORATE PROPERTY ASSOCIATES 18 GLOBAL INCcpa182015q310-qexh311.htm
EX-31.2 - EXHIBIT 31.2 - CORPORATE PROPERTY ASSOCIATES 18 GLOBAL INCcpa182015q310-qexh312.htm


 

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 September 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 103,246,075 shares of Class A common stock, $0.001 par value, and 29,568,217 shares of Class C common stock, $0.001 par value, outstanding at November 9, 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 9/30/2015 10-Q – 1

PART I — FINANCIAL INFORMATION
Item 1. Financial Statements.

CORPORATE PROPERTY ASSOCIATES 18 – GLOBAL INCORPORATED
CONSOLIDATED BALANCE SHEETS (UNAUDITED)
(in thousands, except share and per share amounts)
 
September 30, 2015
 
December 31, 2014
Assets
 
 
 
Investments in real estate:
 
 
 
Real estate, at cost
$
928,142

 
$
743,735

Operating real estate, at cost
417,978

 
133,596

Accumulated depreciation
(33,054
)
 
(11,814
)
Net investments in properties
1,313,066

 
865,517

Real estate under construction (inclusive of $80,992 and $0, respectively, attributable to variable interest entities, or VIEs)
108,739

 
2,258

Net investments in direct financing leases
28,449

 
45,582

Note receivable
28,000

 
28,000

Net investments in real estate
1,478,254

 
941,357

Cash and cash equivalents (inclusive of $601 and $0, respectively, attributable to VIEs)
269,861

 
429,548

In-place lease intangible assets, net
202,353

 
167,635

Other intangible assets, net
25,659

 
25,667

Goodwill
20,325

 
9,692

Other assets, net (inclusive of $26,530 and $0, respectively, attributable to VIEs)
100,040

 
41,985

Total assets
$
2,096,492

 
$
1,615,884

Liabilities and Equity
 
 
 
Liabilities:
 
 
 
Non-recourse debt
$
804,758

 
$
430,462

Bonds payable
139,247

 
91,250

Deferred income taxes
41,601

 
28,753

Accounts payable, accrued expenses and other liabilities (inclusive of $3,397 and $0, respectively, attributable to VIEs)
60,773

 
26,911

Due to affiliate
29,365

 
20,651

Distributions payable
19,924

 
17,629

Total liabilities
1,095,668

 
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; 103,059,924 and 100,079,255 shares issued, respectively; and 102,360,384 and 99,924,009 shares outstanding, respectively
103

 
100

Class C common stock, $0.001 par value; 80,000,000 shares authorized; 29,338,963 and 18,026,013 shares issued, respectively; and 29,294,278 and 18,026,013 shares outstanding, respectively
29

 
18

Additional paid-in capital
1,186,583

 
1,056,862

Distributions and accumulated losses
(212,083
)
 
(111,878
)
Accumulated other comprehensive loss
(40,548
)
 
(20,941
)
Less: treasury stock at cost, 744,225 and 155,246 shares, respectively
(7,141
)
 
(1,520
)
Total CPA®:18 – Global stockholders’ equity
926,943

 
922,641

Noncontrolling interests
73,881

 
77,587

Total equity
1,000,824

 
1,000,228

Total liabilities and equity
$
2,096,492

 
$
1,615,884

See Notes to Consolidated Financial Statements.


CPA®:18 – Global 9/30/2015 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 September 30,
 
Nine Months Ended September 30,
 
 
2015

2014
 
2015
 
2014
Revenues
 
 
 
 
 
 
 
 
Lease revenues:
 
 
 
 
 
 
 
 
Rental income
 
$
20,628

 
$
11,163

 
$
56,054

 
$
27,293

Interest income from direct financing leases
 
1,047

 
1,012

 
3,079

 
2,437

Total lease revenues
 
21,675

 
12,175

 
59,133

 
29,730

Other real estate income
 
12,308

 
1,052

 
27,332

 
1,988

Other operating income
 
2,376

 
1,103

 
6,128

 
1,954

Other interest income
 
710

 
552

 
2,120

 
552

 
 
37,069


14,882

 
94,713

 
34,224

Operating Expenses
 
 
 
 
 
 
 
 
Depreciation and amortization
 
17,652

 
5,647

 
44,303

 
13,485

Acquisition expenses (inclusive of $6,851, $4,915, $25,532, and $23,808, respectively, to a related party)
 
10,795

 
8,861

 
34,575

 
31,827

Property expenses (inclusive of $2,098, $713, $5,244, and $1,647, respectively, to a related party)
 
5,612

 
2,166

 
13,703

 
4,463

Other real estate expenses
 
5,380

 
389

 
11,660

 
666

General and administrative (inclusive of $1,180, $386, $2,788, and $645, respectively, to a related party)
 
2,735

 
1,517

 
6,459

 
3,329

 
 
42,174

 
18,580

 
110,700

 
53,770

Other Income and Expenses
 
 
 
 
 
 
 
 
Interest expense (inclusive of $101, $43, $274, and $97, respectively, to a related party)
 
(7,970
)
 
(4,311
)
 
(24,065
)
 
(10,163
)
Other income and (expenses)
 
(2,324
)
 
(2,100
)
 
(4,256
)
 
(1,731
)
 
 
(10,294
)
 
(6,411
)
 
(28,321
)
 
(11,894
)
Loss before income taxes
 
(15,399
)
 
(10,109
)
 
(44,308
)
 
(31,440
)
Benefit from income taxes
 
1,062

 
644

 
854

 
422

Loss before gain on sale of real estate
 
(14,337
)
 
(9,465
)
 
(43,454
)
 
(31,018
)
Gain on sale of real estate, net of tax
 
6,654

 
—

 
6,654

 
—

Net Loss
 
(7,683
)
 
(9,465
)
 
(36,800
)
 
(31,018
)
Net (income) loss attributable to noncontrolling interests (inclusive of Available Cash Distributions to a related party of $1,705, $590, $4,021, and $1,196, respectively)
 
(2,092
)
 
(1,136
)
 
(5,096
)
 
1,389

Net Loss Attributable to CPA®:18 – Global
 
$
(9,775
)

$
(10,601
)
 
$
(41,896
)
 
$
(29,629
)
 
 
 
 
 
 
 
 
 
Class A Common Stock
 
 
 
 
 
 
 
 
Net loss attributable to CPA®:18 – Global
 
$
(7,078
)
 
$
(9,426
)
 
$
(31,659
)
 
$
(26,695
)
Basic and diluted weighted-average shares outstanding
 
102,293,880

 
99,007,256

 
101,471,695

 
71,680,784

Basic and diluted loss per share
 
$
(0.07
)
 
$
(0.10
)
 
$
(0.31
)
 
$
(0.37
)
Distributions Declared Per Share
 
$
0.1563

 
$
0.1562

 
$
0.4687

 
$
0.4686

 
 
 
 
 
 
 
 
 
Class C Common Stock
 
 
 
 
 
 
 
 
Net loss attributable to CPA®:18 – Global
 
$
(2,697
)
 
$
(1,175
)
 
$
(10,237
)
 
$
(2,934
)
Basic and diluted weighted-average shares outstanding
 
29,279,706

 
9,925,481

 
26,925,898

 
6,646,337

Basic and diluted loss per share
 
$
(0.09
)
 
$
(0.12
)
 
$
(0.38
)
 
$
(0.44
)
Distributions Declared Per Share
 
$
0.1340

 
$
0.1329

 
$
0.3998

 
$
0.3987



See Notes to Consolidated Financial Statements.


CPA®:18 – Global 9/30/2015 10-Q – 3

CORPORATE PROPERTY ASSOCIATES 18 – GLOBAL INCORPORATED
CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSS (UNAUDITED)
(in thousands) 
 
 
Three Months Ended September 30,
 
Nine Months Ended September 30,
 
 
2015
 
2014
 
2015
 
2014
Net Loss
 
$
(7,683
)
 
$
(9,465
)
 
$
(36,800
)
 
$
(31,018
)
Other Comprehensive Loss
 
 
 
 
 
 
 
 
Foreign currency translation adjustments
 
(6,724
)
 
(11,443
)
 
(28,202
)
 
(13,143
)
Change in net unrealized gain on derivative instruments
 
837

 
1,888

 
3,115

 
756

 
 
(5,887
)
 
(9,555
)
 
(25,087
)
 
(12,387
)
Comprehensive Loss
 
(13,570
)
 
(19,020
)
 
(61,887
)
 
(43,405
)
 
 
 
 
 
 
 
 
 
Amounts Attributable to Noncontrolling Interests
 
 
 
 
 
 
 
 
Net (income) loss
 
(2,092
)
 
(1,136
)
 
(5,096
)
 
1,389

Foreign currency translation adjustments
 
1,300

 
3,252

 
5,480

 
3,751

Comprehensive (income) loss attributable to noncontrolling interests
 
(792
)
 
2,116

 
384

 
5,140

Comprehensive Loss Attributable to CPA®:18 – Global
 
$
(14,362
)
 
$
(16,904
)
 
$
(61,503
)
 
$
(38,265
)
 
See Notes to Consolidated Financial Statements.



CPA®:18 – Global 9/30/2015 10-Q – 4

CORPORATE PROPERTY ASSOCIATES 18 – GLOBAL INCORPORATED
CONSOLIDATED STATEMENTS OF EQUITY (UNAUDITED)
Nine Months Ended September 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
2,478,960

 
2

 
11,312,950

 
11

 
124,715

 
 
 
 
 
 
 
124,728

 

 
124,728

Shares issued to affiliate
490,598

 
1

 
—

 
—

 
4,906

 
 
 
 
 
 
 
4,907

 

 
4,907

Stock-based compensation
11,111

 
—

 
 
 
 
 
100

 
 
 
 
 
 
 
100

 
 
 
100

Contributions from noncontrolling interests
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
—

 
4,132

 
4,132

Distributions to noncontrolling interests
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
—

 
(7,454
)
 
(7,454
)
Distributions declared ($0.4687 and $0.3998 per share to Class A and Class C, respectively)
 
 
 
 
 
 
 
 
 
 
(58,309
)
 
 
 
 
 
(58,309
)
 
 
 
(58,309
)
Net loss
 
 
 
 
 
 
 
 
 
 
(41,896
)
 
 
 
 
 
(41,896
)
 
5,096

 
(36,800
)
Other comprehensive loss:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 

 
 
 

Foreign currency translation adjustments
 
 
 
 
 
 
 
 
 
 
 
 
(22,722
)
 
 
 
(22,722
)
 
(5,480
)
 
(28,202
)
Change in net unrealized gain on derivative instruments
 
 
 
 
 
 
 
 
 
 
 
 
3,115

 
 
 
3,115

 
 
 
3,115

Repurchase of shares
(544,294
)
 
 
 
(44,685
)
 
 
 
 
 
 
 
 
 
(5,621
)
 
(5,621
)
 
 
 
(5,621
)
Balance at September 30, 2015
102,360,384

 
$
103

 
29,294,278

 
$
29

 
$
1,186,583

 
$
(212,083
)
 
$
(40,548
)
 
$
(7,141
)
 
$
926,943

 
$
73,881

 
$
1,000,824

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
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
77,725,349

 
78

 
9,466,047

 
9

 
779,817

 
 
 
 
 
 
 
779,904

 
 
 
779,904

Shares issued to affiliate
143,482

 
 
 
 
 
 
 
1,435

 
 
 
 
 
 
 
1,435

 
 
 
1,435

Stock-based compensation
11,110

 
 
 
 
 
 
 
99

 
 
 
 
 
 
 
99

 
 
 
99

Contributions from noncontrolling interests
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
—

 
95,889

 
95,889

Distributions to noncontrolling interests
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
—

 
(67,385
)
 
(67,385
)
Distributions declared ($0.4686 and $0.3987 per share to Class A and Class C, respectively)
 
 
 
 
 
 
 
 
 
 
(35,816
)
 
 
 
 
 
(35,816
)
 
 
 
(35,816
)
Net loss
 
 
 
 
 
 
 
 
 
 
(29,629
)
 
 
 
 
 
(29,629
)
 
(1,389
)
 
(31,018
)
Other comprehensive loss:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 

 
 
 

Foreign currency translation adjustments
 
 
 
 
 
 
 
 
 
 
 
 
(9,392
)
 
 
 
(9,392
)
 
(3,751
)
 
(13,143
)
Change in net unrealized gain on derivative instruments
 
 
 
 
 
 
 
 
 
 
 
 
756

 
 
 
756

 
 
 
756

Repurchase of shares
(37,160
)
 
 
 
 
 
 
 
 
 
 
 
 
 
(371
)
 
(371
)
 
 
 
(371
)
Balance at September 30, 2014
99,132,878

 
$
99

 
12,242,048

 
$
12

 
$
996,722

 
$
(68,012
)
 
$
(8,730
)
 
$
(371
)
 
$
919,720

 
$
61,101

 
$
980,821


See Notes to Consolidated Financial Statements.


CPA®:18 – Global 9/30/2015 10-Q – 5

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

 
 
Net Cash Provided by (Used in) Operating Activities
 
$
24,380

 
$
(411
)
Cash Flows — Investing Activities
 
 
 
 
Acquisitions of real estate and direct financing leases, net of cash acquired
 
(662,565
)
 
(481,947
)
Proceeds from sale of real estate
 
35,674

 
—

Funding and advances for build-to-suit projects
 
(34,978
)
 
(5,725
)
Change in investing restricted cash
 
(7,208
)
 
(4,897
)
Acquisition of equity investment
 
(5,517
)
 
—

Deposits for investments
 
(4,000
)
 
—

Value added taxes paid in connection with acquisition of real estate
 
(3,407
)
 
(35,136
)
Payment of deferred acquisition fees to an affiliate
 
(2,995
)
 
(978
)
Value added taxes refunded in connection with the acquisition of real estate
 
—

 
36,472

Investment in note receivable
 
—

 
(28,000
)
Net Cash Used in Investing Activities
 
(684,996
)
 
(520,211
)
Cash Flows — Financing Activities
 
 
 
 
Proceeds from mortgage financing
 
436,656

 
223,651

Proceeds from issuance of shares, net of issuance costs
 
125,243

 
785,518

Proceeds from bond financing
 
66,328

 
52,066

Distributions paid
 
(56,014
)
 
(20,852
)
Scheduled payments and prepayments of mortgage principal
 
(49,082
)
 
(1,163
)
Payment of deferred financing costs and mortgage deposits
 
(8,313
)
 
(2,954
)
Distributions to noncontrolling interests
 
(7,454
)
 
(67,385
)
Purchase of treasury stock
 
(5,621
)
 
(371
)
Contributions from noncontrolling interests
 
2,692

 
95,889

Receipt of tenant security deposits
 
(65
)
 
4,072

Net Cash Provided by Financing Activities
 
504,370

 
1,068,471

Change in Cash and Cash Equivalents During the Period
 
 
 
 
Effect of exchange rate changes on cash and cash equivalents
 
(3,441
)
 
(4,782
)
Net (decrease) increase in cash and cash equivalents
 
(159,687
)
 
543,067

Cash and cash equivalents, beginning of period
 
429,548

 
109,061

Cash and cash equivalents, end of period
 
$
269,861

 
$
652,128


See Notes to Consolidated Financial Statements.


CPA®:18 – Global 9/30/2015 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, that invests primarily in a diversified portfolio of income-producing commercial real estate properties leased to companies and other real estate related assets, both domestically and outside the United States. We were formed in 2012 and are managed by W. P. Carey Inc., or WPC, through one of its subsidiaries, or collectively our advisor. 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 and the level of our distributions, among other factors. We earn revenue primarily by leasing the properties we own to single corporate tenants, predominantly on a triple-net lease basis, which requires the tenant to pay substantially all of the costs associated with operating and maintaining the property. Revenue is subject to fluctuation due to 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 September 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, WPC.

At September 30, 2015, the majority of our portfolio was comprised of full or partial ownership interests in 54 properties, the majority of which were fully-occupied and triple-net leased to 94 tenants totaling 8.2 million square feet. The remainder of our portfolio was comprised of our full or partial ownership interests in 44 self-storage properties, six multi-family properties, and one student housing development totaling 5.0 million square feet.

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. Through the closing 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, which excludes reinvested distributions through our distribution reinvestment plan. Through September 30, 2015, proceeds from our distribution reinvestment plan were $42.0 million and $7.9 million for our Class A and Class C common stock, respectively.



CPA®:18 – Global 9/30/2015 10-Q – 7

Notes to Consolidated Financial Statements (Unaudited)


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 our cash balances or liquidity as of March 31, 2015. The interim consolidated financial statements as of and for the three and nine months ended September 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.



CPA®:18 – Global 9/30/2015 10-Q – 8

Notes to Consolidated Financial Statements (Unaudited)


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 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 Error and Revision

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.



CPA®:18 – Global 9/30/2015 10-Q – 9

Notes to Consolidated Financial Statements (Unaudited)


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 September 30, 2014
 
Nine Months Ended September 30, 2014
 
 
As Reported
 
Revisions
 
As Revised
 
As Reported
 
Revisions
 
As Revised
Revenues
 
 
 
 
 
 
 
 
 
 
 
 
Total revenues
 
$
14,882

 
$
—

 
$
14,882

 
$
34,224

 
$
—

 
$
34,224

Operating Expenses
 
 
 
 
 
 
 
 
 
 
 
 
Total operating expenses
 
18,580

 
—

 
18,580

 
53,770

 
—

 
53,770

Other Income and Expenses
 
 
 
 
 
 
 
 
 
 
 
 
Interest expense
 
(4,311
)
 
—

 
(4,311
)
 
(10,163
)
 
—

 
(10,163
)
Other income and (expenses) (a)
 
852

 
(2,952
)
 
(2,100
)
 
1,814

 
(3,545
)
 
(1,731
)
 
 
(3,459
)
 
(2,952
)
 
(6,411
)
 
(8,349
)
 
(3,545
)
 
(11,894
)
Loss before income taxes
 
(7,157
)
 
(2,952
)
 
(10,109
)
 
(27,895
)
 
(3,545
)
 
(31,440
)
Benefit from income taxes
 
644

 
—

 
644

 
422

 
—

 
422

Net Loss
 
(6,513
)
 
(2,952
)
 
(9,465
)
 
(27,473
)
 
(3,545
)
 
(31,018
)
Net (income) loss attributable to noncontrolling interests
 
(1,136
)
 
—

 
(1,136
)
 
1,389

 
—

 
1,389

Net Loss Attributable to CPA®:18 – Global
 
$
(7,649
)
 
$
(2,952
)
 
$
(10,601
)
 
$
(26,084
)
 
$
(3,545
)
 
$
(29,629
)
 
 
 
 
 
 
 
 
 
 
 
 
 
Class A Common Stock
 
 
 
 
 
 
 
 
 
 
 
 
Net loss attributable to CPA®:18 – Global
 
$
(6,743
)
 
$
(2,683
)
 
$
(9,426
)
 
$
(23,451
)
 
$
(3,244
)
 
$
(26,695
)
Basic and diluted weighted-average shares outstanding
 
99,007,256

 
—

 
99,007,256

 
71,680,784

 
—

 
71,680,784

Basic and diluted loss per share
 
$
(0.07
)
 
$
(0.03
)
 
$
(0.10
)
 
$
(0.33
)
 
$
(0.04
)
 
$
(0.37
)
 
 
 
 
 
 
 
 
 
 
 
 
 
Class C Common Stock
 
 
 
 
 
 
 
 
 
 
 
 
Net loss attributable to CPA®:18 – Global
 
$
(906
)
 
$
(269
)
 
$
(1,175
)
 
$
(2,633
)
 
$
(301
)
 
$
(2,934
)
Basic and diluted weighted-average shares outstanding
 
9,925,481

 
—

 
9,925,481

 
6,646,337

 
—

 
6,646,337

Basic and diluted loss per share
 
$
(0.09
)
 
$
(0.03
)
 
$
(0.12
)
 
$
(0.40
)
 
$
(0.04
)
 
$
(0.44
)

Consolidated Statements of Comprehensive Loss
 
 
Three Months Ended September 30, 2014
 
Nine Months Ended September 30, 2014
 
 
As Reported
 
Revisions
 
As Revised
 
As Reported
 
Revisions
 
As Revised
Net Loss (a)
 
$
(6,513
)
 
$
(2,952
)
 
$
(9,465
)
 
$
(27,473
)
 
$
(3,545
)
 
$
(31,018
)
Other Comprehensive Loss
 
 
 
 
 
 
 
 
 
 
 
 
Foreign currency translation adjustments (a)
 
(14,395
)
 
2,952

 
(11,443
)
 
(16,688
)
 
3,545

 
(13,143
)
Change in net unrealized gain on derivative instruments
 
1,888

 
—

 
1,888

 
756

 
—

 
756

 
 
(12,507
)
 
2,952

 
(9,555
)
 
(15,932
)
 
3,545

 
(12,387
)
Comprehensive Loss
 
(19,020
)
 
—

 
(19,020
)
 
(43,405
)
 
—

 
(43,405
)
 
 
 
 
 
 
 
 
 
 
 
 
 
Amounts Attributable to Noncontrolling Interests
 
 
 
 
 
 
 
 
 
 
 
 
Net (income) loss
 
(1,136
)
 
—

 
(1,136
)
 
1,389

 
—

 
1,389

Foreign currency translation adjustments
 
3,252

 
—

 
3,252

 
3,751

 
—

 
3,751

Comprehensive loss attributable to noncontrolling interests
 
2,116

 
—

 
2,116

 
5,140

 
—

 
5,140

Comprehensive Loss Attributable to CPA®:18 – Global
 
$
(16,904
)
 
$
—

 
$
(16,904
)
 
$
(38,265
)
 
$
—

 
$
(38,265
)



CPA®:18 – Global 9/30/2015 10-Q – 10

Notes to Consolidated Financial Statements (Unaudited)


Consolidated Statement of Equity
 
CPA®:18 – Global Stockholders
 
 
 
 
 
 
 
 
 
 
 
 
 
Additional Paid-In Capital
 
Distributions
and
Accumulated
Losses (a)
 
Accumulated
Other Comprehensive Loss (a)
 
 
 
Total CPA®:18 – Global Stockholders
 
Noncontrolling Interests
 
 
 
Common Stock
 
 
 
 
 
 
 
 
 
 
Class A
 
Class C
 
 
 
 
 
 
 
 
 
Balance at September 30, 2014
Shares
 
Amount
 
Shares
 
Amount
 
 
 
 
Treasury Stock
 
 
 
Total
As Reported
99,132,878

 
$
99

 
12,242,048

 
$
12

 
$
996,722

 
$
(64,467
)
 
$
(12,275
)
 
$
(371
)
 
$
919,720

 
$
61,101

 
$
980,821

Revisions
—

 
—

 
—

 
—

 
—

 
(3,545
)
 
3,545

 
—

 
—

 
—

 
—

As Revised
99,132,878

 
$
99

 
12,242,048

 
$
12

 
$
996,722

 
$
(68,012
)
 
$
(8,730
)
 
$
(371
)
 
$
919,720

 
$
61,101

 
$
980,821

___________
(a)
These adjustments are the result of the error we identified related to foreign currency matters, as discussed above.

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 nine months ended September 30, 2014.

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 should be deemed to be a VIE, and, if so, whether we should be 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 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 the 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


CPA®:18 – Global 9/30/2015 10-Q – 11

Notes to Consolidated Financial Statements (Unaudited)


right to receive benefits of the VIE that could potentially be significant to the VIE. We performed this 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 September 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 September 30, 2015, our sole equity investment did not have a carrying value below zero.
Recent Accounting Requirements

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

ASU 2015-16, Business Combinations (Topic 805) — ASU 2015-16  requires that an acquirer recognize adjustments identified during the business combination measurement period in the reporting period in which the adjustment amounts are determined. The effects on earnings due to changes in depreciation, amortization, or other income effects as a result of the change are also recognized in the same period’s financial statements.  ASU 2015-16 also requires that acquirers present separately on the face of the income statement or disclose in the notes to the financial statements the portion of the amount recorded in current-period earnings that would have been recorded in previous reporting periods if the adjustment had been recognized as of the acquisition date.  ASU 2015-16 is effective for fiscal years beginning after December 15, 2015, including interim periods within those fiscal years, early adoption is permitted and prospective application is required for adjustments that are identified after the effective date of this update. We elected to early adopt ASU 2015-16 and implemented the standard prospectively beginning July 1, 2015. The adoption and implementation of the standard did not have a material impact on our financial statements.

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 August 2015, the Financial Accounting Standards Board issued ASU 2015-14, which defers the effective date of ASU 2014-09 for all entities by one year, until years beginning in 2018, with early adoption 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.



CPA®:18 – Global 9/30/2015 10-Q – 12

Notes to Consolidated Financial Statements (Unaudited)


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.

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 September 30,
 
Nine Months Ended September 30,
 
 
2015
 
2014
 
2015
 
2014
Amounts Included in the Consolidated Statements of Operations
 
 
 
 
 
 
 
 
Acquisition expenses
 
$
6,851

 
$
4,915

 
$
25,532

 
$
23,808

Asset management fees
 
2,098

 
713

 
5,244

 
1,647

Available Cash Distributions
 
1,705

 
590

 
4,021

 
1,196

Shareholder servicing fee
 
671

 
230

 
1,836

 
459

Personnel and overhead reimbursements
 
409

 
57

 
852

 
87

Interest expense on deferred acquisition fees
 
101

 
43

 
274

 
97

Stock-based compensation
 
100

 
99

 
100

 
99

 
 
$
11,935

 
$
6,647

 
$
37,859

 
$
27,393

 
 
 
 
 
 
 
 
 
Other Transaction Fees Incurred
 
 
 
 
 
 
 
 
Current acquisition fees
 
$
677

 
$
—

 
$
7,052

 
$
1,251

Deferred acquisition fees
 
542

 
—

 
5,641

 
1,000

Offering costs
 
48

 
640

 
613

 
2,626

Selling commissions and dealer manager fees
 
—

 
2,695

 
3,746

 
79,926

 
 
$
1,267

 
$
3,335

 
$
17,052

 
$
84,803


The following table presents a summary of amounts included in Due to affiliate in the consolidated financial statements (in thousands):
 
 
September 30, 2015
 
December 31, 2014
Due to Affiliate
 
 
 
 
Deferred acquisition fees, including interest
 
$
24,180

 
$
17,525

Accounts payable
 
2,858

 
2,702

Current acquisition fees
 
1,355

 
—

Asset management fees payable
 
716

 
378

Reimbursable costs
 
256

 
46

 
 
$
29,365

 
$
20,651


Organization and Offering Costs

Pursuant to the advisory agreement with our advisor, we were liable for certain expenses related to our initial public offering, which include filing, legal, accounting, printing, advertising, transfer agent, and escrow fees, and were deducted from the gross proceeds of the offering. We reimbursed 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 were 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


CPA®:18 – Global 9/30/2015 10-Q – 13

Notes to Consolidated Financial Statements (Unaudited)


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 September 30, 2015, our advisor incurred organization and offering costs of $8.7 million on our behalf, which we have fully repaid and charged to stockholders’ equity.

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 nine months ended September 30, 2015 and 2014, nor did we have any amounts outstanding at September 30, 2015 or 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. For 2014, the asset management fees were payable in cash or shares of our Class A common stock at the option of our advisor. We amended the advisory agreement for 2015, so that the asset management fees are payable in cash or shares of our Class A common stock at our option, after consultation with 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 sold in our initial public offering. For 2015 and 2014, we paid our advisor in shares of our Class A common stock. For both the three and nine months ended September 30, 2015 and 2014, our advisor received its asset management fees in shares of our Class A common stock. At September 30, 2015, our advisor owned 751,111 shares, or 0.7%, of our outstanding Class A common stock. Asset management fees are included in Property expenses in the consolidated financial statements.

Broker Dealer Fees

Pursuant to our dealer manager agreement, Carey Financial received a selling commission in connection with our initial public offering 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. Our initial public offering terminated on April 2, 2015. 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 for the Class C common stock in our initial public offering, or, once published, the amount of our net asset value. 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.



CPA®:18 – Global 9/30/2015 10-Q – 14

Notes to Consolidated Financial Statements (Unaudited)


Acquisition and Disposition Fees

Our advisor receives acquisition fees, a portion of which is payable upon acquisition, while 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 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 and other entities managed by WPC and its affiliates.

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 currently in place, 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 this 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.



CPA®:18 – Global 9/30/2015 10-Q – 15

Notes to Consolidated Financial Statements (Unaudited)


Jointly-Owned Investments and Other Transactions with our Affiliate

At September 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:

•
$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.

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):
 
September 30, 2015
 
December 31, 2014
Land
$
173,505

 
$
104,604

Buildings
754,637

 
639,131

Less: Accumulated depreciation
(25,810
)
 
(10,875
)
 
$
902,332

 
$
732,860


The carrying value of our Real estate decreased by $49.9 million from December 31, 2014 to September 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):
 
September 30, 2015
 
December 31, 2014
Land
$
74,811

 
$
28,040

Buildings
343,167

 
105,556

Less: Accumulated depreciation
(7,244
)
 
(939
)
 
$
410,734

 
$
132,657


During the nine months ended September 30, 2015, we acquired 38 new investments. Of these investments, five were deemed to be asset acquisitions, 31 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 method investment. We refer to these investments as our 2015 Acquisitions.



CPA®:18 – Global 9/30/2015 10-Q – 16

Notes to Consolidated Financial Statements (Unaudited)


Asset Acquisitions

Acosta — On July 10, 2015, we acquired an office building in Jacksonville, Florida from a party affiliated with the tenant for $16.5 million. The facility is leased to Acosta, Inc. On August 4, 2015, we entered into a mortgage loan in the amount of $10.7 million for this property (Note 10).

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

Business Combinations

Business Combinations — Net-Leased Properties

During the nine months ended September 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 $17.0 million.

The purchase prices for each of our business combination 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.

Exelon — On September 1, 2015, we acquired the regional headquarters and nuclear power plant monitoring facility of Exelon Generation Company, or Exelon, located in Warrenville, Illinois from an unaffiliated third-party for $32.9 million. We simultaneously entered into a mortgage loan in the amount of $22.6 million (Note 10).

Jacobsweerd — On July 30, 2015, we acquired an office building located in Utrecht, Netherlands from an unaffiliated third party for $46.2 million, which is based on the exchange rate of the euro on the date of acquisition. The facility, which we refer to as Jacobsweerd, is leased to four Dutch government agencies. We simultaneously entered into a mortgage loan in the amount of $30.1 million for the building (Note 10), which is based on the exchange rate of the euro on the date of acquisition. The purchase consideration for this investment also included a rent guarantee from the seller regarding the vacant space on this property. As a result, we recognized a contingent asset in the amount of $0.6 million, which is equal to the fair value (Note 8) of the rent guarantee, and we will mark the guarantee to market through earnings in subsequent periods.

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 Eiendom, 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 Eiendom. 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, recorded a deferred tax liability of $16.7 million and goodwill of $12.5 million (Note 7). The purchase consideration for this investment also included a rent guarantee from the seller regarding the vacant space on this property. As a result, we recognized a contingent asset in the amount of $0.8 million, which is equal to the fair value (Note 8) of the rent guarantee, and we will mark the guarantee to market through earnings in subsequent periods. In July 2015, our joint-venture partner agreed to a debt-to-equity conversion of a portion of the loan they made to the property at the acquisition date. As a result, we recognized an additional $1.4 million in Contributions from noncontrolling interests within our consolidated financial statements.

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).



CPA®:18 – Global 9/30/2015 10-Q – 17

Notes to Consolidated Financial Statements (Unaudited)


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. On July 21, 2015, we entered into a mortgage loan in the amount of $3.2 million regarding this property (Note 10).

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 nine months ended September 30, 2015, we acquired 20 self-storage investments and four multi-family investments, which are considered to be operating properties, at a total cost of $305.1 million.

Self-Storage Properties

We acquired the following 20 self-storage investments, aggregating $175.4 million, during the nine months ended September 30, 2015, which we refer to as our 2015 Self Storage Acquisitions:

•
$5.0 million for a facility in Hudson, Florida on September 30, 2015;
•
$7.0 million for two facilities in Las Vegas, Nevada on September 29, 2015;
•
$3.5 million for a facility in Ithaca, New York on September 29, 2015;
•
$7.1 million for a facility in Houston, Texas on August 11, 2015;
•
$11.0 million for a facility in Palm Bay, Florida on July 28, 2015;
•
$3.7 million for a facility in Leesburg, Florida on July 9, 2015;
•
$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 $10.4 million, which are included in Acquisition expenses in the consolidated financial statements. During the nine months ended September 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, for an aggregate of $129.7 million during the nine months ended September 30, 2015.

Cayo Grande — On July 23, 2015, we acquired a 97% controlling interest in Cayo Grande Apartments, or Cayo Grande, a 301-unit multi-family property located in Fort Walton Beach, Florida, for $25.7 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 $18.2 million (Note 10).



CPA®:18 – Global 9/30/2015 10-Q – 18

Notes to Consolidated Financial Statements (Unaudited)


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-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 $7.2 million, which are included in Acquisition expenses in the consolidated financial statements.

Summary of Assets Acquired and Liabilities Assumed

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

 
$
138,291

 
$
301,204

 
$
527,826

Assets acquired at fair value:
 
 
 
 
 
 
 
 
Land
 
$
59,595

 
$
15,767

 
$
46,773

 
$
122,135

Buildings
 
33,049

 
98,379

 
235,045

 
366,473

In-place lease intangible assets
 
4,618

 
31,681

 
24,107

 
60,406

Above-market rent intangible assets
 
—

 
105

 
137

 
242

Other assets acquired
 
5,777

 
549

 
268

 
6,594

 
 
103,039

 
146,481

 
306,330

 
555,850

Liabilities assumed at fair value:
 
 
 
 
 
 
 
 
Below-market rent intangible liabilities
 
(63
)
 
(7,888
)
 
(85
)
 
(8,036
)
Deferred tax liability
 
(16,708
)
 
—

 
—

 
(16,708
)
Other liabilities assumed
 
(715
)
 
(302
)
 
(1,150
)
 
(2,167
)
 
 
(17,486
)
 
(8,190
)
 
(1,235
)
 
(26,911
)
Total identifiable net assets
 
85,553

 
138,291

 
305,095

 
528,939

Amounts attributable to noncontrolling interests
 
(9,706
)
 
—

 
(3,891
)
 
(13,597
)
Goodwill (Note 7)
 
12,484

 
—

 
—

 
12,484

 
 
$
88,331

 
$
138,291

 
$
301,204

 
$
527,826




CPA®:18 – Global 9/30/2015 10-Q – 19

Notes to Consolidated Financial Statements (Unaudited)


 
 
COOP
 
Other Net-Leased Properties
 
Operating Properties
 
 
 
 
May 28, 2015 through
September 30, 2015
 
Respective Acquisition Dates through
September 30, 2015
 
Respective Acquisition Dates through
September 30, 2015
 
Total
Revenues
 
$
2,111

 
$
3,313

 
$
14,630

 
$
20,054

 
 
 
 
 
 
 
 
 
Net loss
 
$
(6,485
)
 
$
(9,731
)
 
$
(18,260
)
 
$
(34,476
)
Net loss attributable to noncontrolling interests
 
207

 
—

 
22

 
229

Net loss attributable to CPA®:18 – Global stockholders
 
$
(6,278
)
 
$
(9,731
)
 
$
(18,238
)
 
$
(34,247
)
___________
(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.

Pro Forma Financial Information

The following unaudited consolidated pro forma financial information presents our financial results as if all of the acquisitions deemed business combinations that we completed during the nine months ended September 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 September 30,
 
Nine Months Ended September 30,
 
 
2015
 
2014
 
2015
 
2014
Pro forma total revenues (a)
 
$
38,607

 
$
29,389

 
$
111,886

 
$
83,735

 
 
 
 
 
 
 
 
 
Pro forma net income (loss) (b)
 
$
3,937

 
$
(5,053
)
 
$
(2,688
)
 
$
(48,324
)
Pro forma net income attributable to noncontrolling interests
 
(2,091
)
 
(1,111
)
 
(5,898
)
 
(1,508
)
Pro forma net income (loss) attributable to CPA®:18 – Global
 
$
1,846

 
$
(6,164
)
 
$
(8,586
)
 
$
(49,832
)
 
 
 
 
 
 
 
 
 
Pro forma income (loss) per Class A share:
 
 
 
 
 
 
 
 
Net income (loss) attributable to CPA®:18 – Global
 
$
2,005

 
$
(5,217
)
 
$
(5,460
)
 
$
(45,328
)
Pro forma basic and diluted weighted-average shares outstanding (c)
 
114,802,620

 
111,515,996

 
113,980,435

 
84,189,524

Pro forma basic and diluted income (loss) per share
 
$
0.02

 
$
(0.05
)
 
$
(0.05
)
 
$
(0.54
)
 

 
 
 
 
 
 
 
Pro forma income (loss) per Class C share:
 
 
 
 
 
 
 
 
Net loss attributable to CPA®:18 – Global
 
$
(159
)
 
$
(947
)
 
$
(3,126
)
 
$
(4,504
)
Pro forma basic and diluted weighted-average shares outstanding (c)
 
29,279,706

 
9,925,481

 
26,925,898

 
6,646,337

Pro forma basic and diluted loss per share
 
$
(0.01
)
 
$
(0.10
)
 
$
(0.12
)
 
$
(0.68
)
___________

(a)
Pro forma total revenues include revenues from lease contracts based on the terms in place at September 30, 2015 and do not include adjustments to contingent rental amounts.


CPA®:18 – Global 9/30/2015 10-Q – 20

Notes to Consolidated Financial Statements (Unaudited)


(b)
The pro forma table above presents acquisition expenses related to all of our business combinations that we completed during the nine months ended September 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 nine months ended September 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.

Real Estate Under Construction

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

 
$
—

Capitalized funds
116,544

 
20,617

Foreign currency translation adjustments and other
707

 
—

Capitalized interest
1,680

 
143

Placed into service
(12,450
)
 
(18,502
)
Ending balance
$
108,739

 
$
2,258


Capitalized Funds — During the nine months ended September 30, 2015, total capitalized funds primarily related to five of our build-to-suit projects, which were comprised primarily of initial funding of $100.6 million and construction draws of $15.9 million.

Placed into Service — During the nine months ended September 30, 2015, we placed into service one of our build-to-suit projects that we acquired in 2014 in the amount of $12.5 million.

Ending Balance — At September 30, 2015 and December 31, 2014, we had five and one open build-to-suit projects, respectively, with aggregate unfunded commitments totaling approximately $129.3 million and $9.7 million, respectively.

Acquisitions

During the nine months ended September 30, 2015, we entered into four build-to-suit investments 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 project 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 currently 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 mid-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 (Note 2). On July 23, 2015, we advanced an additional $16.5 million, which is based on the exchange rate of the euro on that date, for the development of this property. On August 5, 2015, we entered into a fixed-rate lock agreement on a mortgage loan for this property. The loan will be available for drawdown upon the completion and opening of the hotel.



CPA®:18 – Global 9/30/2015 10-Q – 21

Notes to Consolidated Financial Statements (Unaudited)


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.

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 currently 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 our four direct financing lease investments is summarized as follows (in thousands):
 
 
September 30, 2015
 
December 31, 2014
Minimum lease payments receivable
 
$
29,240

 
$
86,338

Unguaranteed residual value
 
28,320

 
45,473

 
 
57,560

 
131,811

Less: unearned income
 
(29,111
)
 
(86,229
)
 
 
$
28,449

 
$
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 for both the three months ended September 30, 2015 and 2014, respectively, and $3.1 million and $2.4 million for the nine months ended September 30, 2015 and 2014, respectively. At September 30, 2015, Other assets, net included $0.3 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.



CPA®:18 – Global 9/30/2015 10-Q – 22

Notes to Consolidated Financial Statements (Unaudited)


Disposition

On December 30, 2013 and March 7, 2014, we entered into two domestic net lease financing transactions with subsidiaries of Crowne Group Inc., from whom we acquired five industrial facilities located in South Carolina, Indiana, and Michigan. In August 2015, the tenants exercised their purchase options and we sold these five industrial facilities back to the subsidiaries of Crowne Group Inc. for $35.7 million. We recognized a gain on sale of $6.7 million, which is included in Gain on sale of real estate, net of tax in our consolidated financial statements. Simultaneously, we paid off the existing mortgage loan that encumbered all of these properties (Note 10) and terminated the interest rate swap agreement that was in place. As a result, we recognized a $1.1 million loss on extinguishment of debt within Other income and (expenses) on our consolidated financial statements.

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 September 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 September 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 nine months ended September 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 third quarter of 2015.

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
 
September 30, 2015
 
December 31, 2014
 
September 30, 2015
 
December 31, 2014
1
 
1
 
—
 
$
12,953

 
$
—

2
 
1
 
1
 
9,042

 
8,962

3
 
3
 
4
 
34,454

 
64,620

4
 
—
 
—
 
—

 
—

5
 
—
 
—
 
—

 
—

 
 
0
 
 
 
$
56,449

 
$
73,582




CPA®:18 – Global 9/30/2015 10-Q – 23

Notes to Consolidated Financial Statements (Unaudited)


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 nine months ended September 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
6.9
 
$
62,891

Above-market rent
9.1
 
2,382

 
 
 
$
65,273

Amortizable Intangible Liabilities
 
 
 
Below-market rent
11.3
 
$
(8,460
)

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

Acquisition of investment accounted for as business combination
 
13,131

Foreign currency translation
 
(2,498
)
Balance at September 30, 2015
 
$
20,325


Intangible assets and liabilities are summarized as follows (in thousands):
 
September 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
$
234,569

 
$
(32,216
)
 
$
202,353

 
$
177,970

 
$
(10,335
)
 
$
167,635

Below-market ground lease
14,566

 
(289
)
 
14,277

 
15,790

 
(167
)
 
15,623

Above-market rent
12,437

 
(1,055
)
 
11,382

 
10,424

 
(380
)
 
10,044

 
261,572

 
(33,560
)
 
228,012

 
204,184

 
(10,882
)
 
193,302

Unamortizable Intangible Assets
 
 
 
 
 
 
 
 
 
 
 
Goodwill
20,325

 
—

 
20,325

 
9,692

 
—

 
9,692

Total intangible assets
$
281,897

 
$
(33,560
)
 
$
248,337

 
$
213,876

 
$
(10,882
)
 
$
202,994

 
 
 
 
 
 
 
 
 
 
 
 
Amortizable Intangible Liabilities
 
 
 
 
 
 
 
 
 
 
 
Below-market rent
$
(14,665
)
 
$
998

 
$
(13,667
)
 
$
(6,276
)
 
$
347

 
$
(5,929
)
Above-market ground lease
(124
)
 
2

 
(122
)
 
(127
)
 
—

 
(127
)
Total intangible liabilities
$
(14,789
)
 
$
1,000

 
$
(13,789
)
 
$
(6,403
)
 
$
347

 
$
(6,056
)



CPA®:18 – Global 9/30/2015 10-Q – 24

Notes to Consolidated Financial Statements (Unaudited)


Net amortization of intangibles, including the effect of foreign currency translation, was $9.0 million and $2.7 million for the three months ended September 30, 2015 and 2014, respectively, and $22.4 million and $6.4 million for the nine months ended September 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 September 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)
 
$
(24
)
 
$
9,373

 
$
9,349

2016
 
(106
)
 
30,937

 
30,831

2017
 
(149
)
 
20,494

 
20,345

2018
 
(197
)
 
17,094

 
16,897

2019
 
(207
)
 
16,592

 
16,385

Thereafter
 
(1,602
)
 
122,018

 
120,416

 
 
$
(2,285
)
 
$
216,508

 
$
214,223


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.

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.

Rent Guarantees — Our rent guarantees, which are included in Other assets, net in the consolidated financial statements, are related to two of our foreign properties that were acquired during 2015 (Note 5). These rent guarantees were measured at fair value using a discounted cash flow model, and were classified as Level 3 because the model uses unobservable inputs. At September 30, 2015, our rent guarantees had a fair value of $1.4 million. We determined the fair value of the rent guarantees based on an estimate of discounted cash flows using a discount rate that ranged from 7% to 9% from and a growth rate 2%, which are considered significant unobservable inputs. Significant increases or decreases to these inputs in isolation would result in a significant change in the fair value measurement.
 


CPA®:18 – Global 9/30/2015 10-Q – 25

Notes to Consolidated Financial Statements (Unaudited)


We did not have any transfers into or out of Level 1, Level 2, and Level 3 measurements during the three and nine months ended September 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):
 
 
 
September 30, 2015
 
December 31, 2014
 
Level
 
Carrying Value
 
Fair Value
 
Carrying Value
 
Fair Value
Debt (a)
3
 
$
944,005

 
$
957,787

 
$
521,712

 
$
540,577

Note receivable (b)
3
 
28,000

 
28,000

 
28,000

 
28,000

Deferred acquisition fees payable (c)
3
 
24,180

 
23,355

 
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 213 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 September 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.
 
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 entering into derivative instruments on our own behalf, we may also be a party to derivative instruments that are embedded in other contracts, and we may be granted common stock warrants by lessees when structuring lease transactions, which are considered to be derivative instruments. The primary risks related to our use of derivative instruments include a counterparty to a hedging arrangement defaulting 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 large financial institutions that we deem to be creditworthy, it is possible that our hedging transactions, which are intended to limit losses, could adversely affect our earnings. Furthermore, if we terminate a hedging arrangement, we may be obligated to pay certain costs, such as transaction or breakage fees. We have established policies and procedures for risk assessment and the approval, reporting, and monitoring of derivative financial instrument activities.
 


CPA®:18 – Global 9/30/2015 10-Q – 26

Notes to Consolidated Financial Statements (Unaudited)


We measure derivative instruments at fair value and record them as assets or liabilities, depending on our rights or obligations under the applicable derivative contract. Derivatives that are not designated as hedges must be adjusted to fair value through earnings. For a derivative designated and that qualified as a cash flow hedge, the effective portion of the change in fair value of the derivative is recognized in Other comprehensive loss until the hedged item is recognized in earnings. For a derivative designated and 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 loss as part of the cumulative foreign currency translation adjustment. Amounts are reclassified out of Other comprehensive loss into earnings when the hedged investment is either sold or substantially liquidated. The ineffective portion of 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 September 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
 
 
September 30, 2015
 
December 31, 2014
 
September 30, 2015
 
December 31, 2014
Foreign currency forward contracts and collars
 
Other assets, net
 
$
6,676

 
$
3,664

 
$
—

 
$
—

Interest rate cap
 
Other assets, net
 
11

 
—

 
—

 
—

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

 
—

 
(22
)
 
—

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

 
—

 
(1,977
)
 
(2,501
)
 
 
 
 
$
6,687

 
$
3,664

 
$
(1,999
)
 
$
(2,501
)

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 Loss (Effective Portion)
 
 
Three Months Ended September 30,
 
Nine Months Ended September 30,
Derivatives in Cash Flow Hedging Relationships 
 
2015
 
2014
 
2015
 
2014
Foreign currency forward contracts and collars
 
$
835

 
$
1,822

 
$
2,624

 
$
1,709

Interest rate swaps
 
22

 
66

 
524

 
(953
)
Interest rate cap
 
(20
)
 
—

 
(33
)
 
—

Derivatives in Net Investment Hedging Relationship (a)
 
 
 
 
 
 
 
 
Foreign currency forward contracts
 
276

 
—

 
366

 
—

Total
 
$
1,113

 
$
1,888

 
$
3,481

 
$
756

___________
(a)
The effective portion of the change in fair value and the settlement of these contracts are reported in the foreign currency translation adjustment section of Other comprehensive loss until the underlying investment is sold, at which time we reclassify the gain or loss to earnings.



CPA®:18 – Global 9/30/2015 10-Q – 27

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) on Derivatives Reclassified from
Other Comprehensive Loss into Income (Effective Portion)
 
 
 
 
Three Months Ended September 30,
 
Nine Months Ended September 30,
Derivatives in Cash Flow 
Hedging Relationships 
 
Location of Gain (Loss)
 Recognized in Income
 
2015
 
2014
 
2015
 
2014
Foreign currency forward contracts and collars
 
Other income and (expenses)
 
$
308

 
$
—

 
$
870

 
$
—

Interest rate swaps
 
Interest expense
 
(1,401
)
 
(212
)
 
(2,001
)
 
(500
)
Total
 
 
 
$
(1,093
)
 
$
(212
)
 
$
(1,131
)
 
$
(500
)

For both the three and nine months ended September 30, 2015, we recognized net losses on our interest rate swaps of $0.1 million, which was included in Interest expense within our consolidated financial statements.

Interest Rate Swaps and Cap

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 or interest rate cap 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. Interest rate caps limit the effective borrowing rate of variable-rate debt obligations while allowing participants to share in downward shifts in interest rates. Our objective in using these derivatives is to limit our exposure to interest rate movements.
 
The interest rate swaps and cap that our consolidated subsidiaries had outstanding at September 30, 2015 are summarized as follows (currency in thousands):
Interest Rate Derivatives
 
Number of Instruments
 
Notional
Amount
 
Fair Value at
September 30, 2015
Interest rate swaps
 
5
 
30,347

USD
 
$
(1,977
)
Interest rate cap
 
1
 
16,400

USD
 
11

 
 
 
 
 
 
 
$
(1,966
)

Foreign Currency Contracts and Collars
 
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 and collars. 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. A foreign currency collar guarantees that the exchange rate of the currency will not fluctuate beyond the range of the options’ strike prices consists of a written call option and a purchased put option to sell the foreign currency. These instruments lock the range in which the foreign currency exchange rate may fluctuate.



CPA®:18 – Global 9/30/2015 10-Q – 28

Notes to Consolidated Financial Statements (Unaudited)


The following table presents the foreign currency derivative contracts we had outstanding and their designations at September 30, 2015 (currency in thousands):
Foreign Currency Derivatives
 
Number of Instruments
 
Notional
Amount
 
Fair Value at
September 30, 2015 (a)
Designated as Cash Flow Hedging Instruments
 
 
 
 
 
 
 
Foreign currency forward contracts and collars
 
79
 
30,673

EUR
 
$
3,880

Foreign currency forward contracts and collars
 
54
 
99,623

NOK
 
2,396

Designated as Net Investment Hedging Instruments
 
 
 
 
 
 
 
Foreign currency forward contracts
 
8
 
30,560

NOK
 
378

 
 
 
 
 
 
 
$
6,654

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

Credit Risk-Related Contingent Features

Amounts reported in Other comprehensive loss related to our interest rate swaps will be reclassified to Interest expense as interest payments are made on our variable-rate debt. Amounts reported in Other comprehensive loss related to foreign currency derivative contracts will be reclassified to Other income and (expenses) when the hedged foreign currency contracts are settled. At September 30, 2015, we estimated that an additional $0.7 million and $1.3 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 September 30, 2015. At September 30, 2015, our total credit exposure was $6.7 million and the maximum exposure to any single counterparty was $3.8 million.

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



CPA®:18 – Global 9/30/2015 10-Q – 29

Notes to Consolidated Financial Statements (Unaudited)


Note 10. Non-Recourse Debt and Bonds Payable

Debt consists of non-recourse mortgage notes and bonds payable, which are collateralized by the assignment of real estate properties with an aggregate carrying value of $1.3 billion and $752.6 million at September 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
 
September 30, 2015
 
December 31, 2014
Non-Recourse Debt:
 
 
 
 
 
 
 
 
 
 
Infineon Technologies AG
 
3.1%
 
Fixed
 
2/28/2017
 
$
12,431

 
$
13,756

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

 
—

Club Med Albion Resorts, or Albion Resorts (d)
 
4.0%
 
Fixed
 
2/26/2020
 
26,887

 
19,264

Truffle Portfolio/Oakbank Portfolio (e)
 
4.0%
 
Fixed
 
7/15/2020
 
28,019

 
11,401

Jacobsweerd (a)
 
1.6%
 
Fixed
 
7/29/2020
 
30,654

 
—

Konzum d.d.
 
5.8%
 
Fixed
 
12/31/2020
 
33,478

 
37,038

Bank Pekao S.A.
 
3.3%
 
Fixed
 
3/10/2021
 
59,768

 
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) (c)
 
3.8%
 
Fixed
 
2/1/2022
 
19,040

 
—

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

 
—

Royal Vopak NV
 
2.2%
 
Fixed
 
2/9/2022
 
38,138

 
—

Cayo Grande (a)
 
4.3%
 
Fixed
 
8/1/2022
 
18,200

 
—

Exelon (a)
 
4.3%
 
Fixed
 
9/10/2022
 
22,620

 
—

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

 
72,800

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

 
14,500

Automobile Protection Corporation (b)
 
5.1%
 
Variable
 
2/5/2024
 
3,678

 
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
 
7,655

 
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 (g)
 
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) (h)
 
4.3%
 
Fixed
 
3/11/2025
 
48,138

 
—

Self-storage – Multiple properties (a) (i)
 
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

 
—

Republic Services, Inc. (a) (b)
 
4.5%
 
Variable
 
7/21/2025
 
3,227

 
—

Acosta (a)
 
4.4%
 
Fixed
 
8/6/2025
 
10,650

 
—

USF Holland
 
4.5%
 
Fixed
 
9/6/2025
 
7,750

 
—

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

 
—

North American Lighting Inc.
 
4.8%
 
Fixed
 
5/6/2026
 
7,291

 
7,325

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

 
—

Air Enterprises
 
5.3%
 
Fixed
 
4/1/2039
 
3,206

 
3,257

Crowne Group Inc. (j)
 
N/A
 
N/A
 
N/A
 
—

 
15,967

 
 
 
 
 
 
 
 
$
804,758

 
$
430,462

Bonds Payable:
 
 
 
 
 
 
 
 
 
 
Apply Sorco AS (c)
 
4.4%
 
Fixed
 
10/31/2021
 
$
42,109

 
$
48,151

COOP (a) (c) (k)
 
4.2%
 
Fixed
 
5/28/2025
 
58,811

 
—

Siemens AS (c) (l)
 
3.5%
 
Variable
 
12/15/2025
 
38,327

 
43,099

 
 
 
 
 
 
 
 
$
139,247

 
$
91,250

_________


CPA®:18 – Global 9/30/2015 10-Q – 30

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 nine months ended September 30, 2015, we capitalized $5.1 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 caps (Note 9). The interest rates presented for these mortgage loans reflect the interest rate swaps or caps in effect at September 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 these mortgage loans and consolidated them into one mortgage loan. During the nine months ended September 30, 2015, we recognized a loss on extinguishment of debt of $0.7 million related to this refinancing within Other income and (expenses) in our consolidated financial statements.
(e)
On July 1, 2015, we refinanced these mortgage loans and entered into a new credit facility for $28.9 million, which is based on the exchange rate of the British pound sterling on that date. This new credit facility now covers our entire trade counter and industrial asset portfolio located throughout the United Kingdom. During the three and nine months ended September 30, 2015, we recognized a loss on extinguishment of debt of $0.5 million related to this refinancing within Other income and (expenses) in our consolidated financial statements.
(f)
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.
(g)
This mortgage loan is allocated to the six self-storage properties purchased from July 22, 2014 through October 9, 2014.
(h)
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.
(i)
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.
(j)
In conjunction with the sale of the Crowne Group Inc. properties (Note 6), we paid off the existing mortgage loans that encumbered all of these properties. The buyer paid the prepayment penalty on our behalf due to unwinding of the related interest rate swap agreement. During the three and nine months ended September 30, 2015, we recognized a loss on extinguishment of debt of $1.1 million related to the termination of this swap within Other income and (expenses) in our consolidated financial statements.
(k)
In conjunction with this 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 and have a fixed coupon of 4.2% and a maturity date of May 28, 2025.
(l)
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)
 
$
695

2016
 
3,208

2017
 
15,756

2018
 
20,368

2019
 
4,241

Thereafter through 2039
 
898,462

 
 
942,730

Unamortized premium
 
1,275

Total
 
$
944,005


Certain amounts in the table above are based on the applicable foreign currency exchange rate at September 30, 2015. The carrying value of our Non-recourse debt and Bonds payable decreased by $30.3 million from December 31, 2014 to September 30, 2015, due to the strengthening of the U.S. dollar relative to foreign currencies during the same period.



CPA®:18 – Global 9/30/2015 10-Q – 31

Note 11. Commitments and Contingencies

At September 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.

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 September 30, 2015
 
Three Months Ended September 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
102,293,880

 
$
(7,078
)
 
$
(0.07
)
 
99,007,256

 
$
(9,426
)
 
$
(0.10
)
Class C common stock
29,279,706

 
(2,697
)
 
(0.09
)
 
9,925,481

 
(1,175
)
 
(0.12
)
Net loss attributable to CPA®:18 – Global
 
 
$
(9,775
)
 
 
 
 
 
$
(10,601
)
 
 

 
Nine Months Ended September 30, 2015
 
Nine Months Ended September 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
101,471,695

 
$
(31,659
)
 
$
(0.31
)
 
71,680,784

 
$
(26,695
)
 
$
(0.37
)
Class C common stock
26,925,898

 
(10,237
)
 
(0.38
)
 
6,646,337

 
(2,934
)
 
(0.44
)
Net loss attributable to CPA®:18 – Global
 
 
$
(41,896
)
 
 
 
 
 
$
(29,629
)
 
 

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 nine months ended September 30, 2015, the allocation for Class A common stock excludes shareholder servicing fees of $0.7 million and $1.8 million, respectively, which is only applicable to Class C common stock (Note 4). For the three and nine months ended September 30, 2014, the allocation for Class A common stock excludes shareholder servicing fees of $0.2 million and $0.5 million, respectively.

Distributions

During the third quarter of 2015, our board of directors declared quarterly distributions of $0.1563 per share for our Class A common stock and $0.1340 per share for our Class C common stock for the quarter ending September 30, 2015. Distributions in the amount of $19.9 million were paid on October 15, 2015 to stockholders of record on September 30, 2015.

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 9/30/2015 10-Q – 32

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 September 30, 2015
 
Gains and Losses
on Derivative Instruments
 
Foreign Currency Translation Adjustments
 
Total
Beginning balance
$
3,430

 
$
(39,391
)
 
$
(35,961
)
Other comprehensive loss before reclassifications
(256
)
 
(6,724
)
 
(6,980
)
Amounts reclassified from accumulated other comprehensive loss to:
 
 
 
 
 
Interest expense
1,401

 
—

 
1,401

Other income and (expenses)
(308
)
 
—

 
(308
)
Net current-period Other comprehensive income (loss)
837

 
(6,724
)
 
(5,887
)
Net current-period Other comprehensive (income) loss attributable to noncontrolling interests
—

 
1,300

 
1,300

Ending balance
$
4,267

 
$
(44,815
)
 
$
(40,548
)

 
Three Months Ended September 30, 2014
 
Gains and Losses
on Derivative Instruments
 
Foreign Currency Translation Adjustments
 
Total
Beginning balance
$
(1,351
)
 
$
(1,076
)
 
$
(2,427
)
Other comprehensive income (loss) before reclassifications
1,676

 
(11,443
)
 
(9,767
)
Amounts reclassified from accumulated other comprehensive income (loss) to:
 
 
 
 
 
Interest expense
212

 
—

 
212

Net current-period Other comprehensive income (loss)
1,888

 
(11,443
)
 
(9,555
)
Net current-period Other comprehensive (income) loss attributable to noncontrolling interests
—

 
3,252

 
3,252

Ending balance
$
537

 
$
(9,267
)
 
$
(8,730
)




CPA®:18 – Global 9/30/2015 10-Q – 33

Notes to Consolidated Financial Statements (Unaudited)


 
Nine Months Ended September 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
1,984

 
(28,202
)
 
(26,218
)
Amounts reclassified from accumulated other comprehensive income (loss) to:
 
 
 
 
 
Interest expense
2,001

 
—

 
2,001

Other income and (expenses)
(870
)
 
—

 
(870
)
Net current-period Other comprehensive income (loss)
3,115

 
(28,202
)
 
(25,087
)
Net current-period Other comprehensive (income) loss attributable to noncontrolling interests
—

 
5,480

 
5,480

Ending balance
$
4,267

 
$
(44,815
)
 
$
(40,548
)

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

 
$
(94
)
Other comprehensive income (loss) before reclassifications
256

 
(13,143
)
 
(12,887
)
Amounts reclassified from accumulated other comprehensive loss to:
 
 
 
 
 
Interest expense
500

 
—

 
500

Net current-period Other comprehensive income (loss)
756

 
(13,143
)
 
(12,387
)
Net current-period Other comprehensive (income) loss attributable to noncontrolling interests
—

 
3,751

 
3,751

Ending balance
$
537

 
$
(9,267
)
 
$
(8,730
)

Note 13. Subsequent Events

Subsequent to September 30, 2015 and through November 16, 2015, we purchased 12 additional properties totaling approximately $112.6 million (excluding acquisition costs) and obtained $75.5 million of new financing. Of these properties, ten are self-storage facilities, one is an office building, and one is a build-to-suit project for a self-storage facility.

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 9/30/2015 10-Q – 34



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 leased to companies domestically and internationally. On May 7, 2013, we commenced our initial public offering of Class A and Class C common stock and have raised aggregate gross proceeds of $1.2 billion through April 2, 2015, which is the date we closed our offering. We continue to offer 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

Investment and Financing Activity

During the nine months ended September 30, 2015, we acquired 38 new investments for an aggregate amount of $857.4 million and obtained mortgage and bond financing of $493.3 million.

Subsequent to September 30, 2015 and through November 16, 2015, we purchased 12 additional properties totaling approximately $112.6 million excluding acquisition costs and obtained $75.5 million of new financing. Of these properties, ten are self-storage facilities, one is an office building, and one is a build-to-suit project for a self-storage facility.

Disposition

In August 2015, we sold five industrial facilities that were leased to subsidiaries of Crowne Group Inc., which was the original owner, for $35.7 million (Note 6), to the tenants, pursuant to the exercise of their purchase options. Simultaneously, we paid off the existing mortgage loans that encumbered all of these properties (Note 10).



CPA®:18 – Global 9/30/2015 10-Q – 35



Foreign Currency Fluctuation

We own investments outside the United States, primarily in Europe, and as a result, are subject to risk from exchange rate fluctuations in various foreign currencies, primarily the euro. The average exchange rate of the U.S. dollar in relation to the euro decreased by approximately 16.2% and 17.8% during the three and nine months ended September 30, 2015, respectively, 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 nine months ended September 30, 2015, 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 and collars. We also try to manage our exposure related to fluctuations in the exchange rate between the U.S. dollar and the euro by incurring non-recourse debt denominated in the euro, including euro-denominated non-recourse debt (Note 9).

New Senior Management Responsibilities

On August 5, 2015, we made the following changes in senior management responsibilities:

•
Hisham A. Kader, who was the Chief Accounting Officer of CPA®:18 – Global, became our Chief Financial Officer, replacing Catherine D. Rice who remains Managing Director; and
•
ToniAnn Sanzone, who was the Global Corporate Controller of CPA®:18 – Global, became our Chief Accounting Officer.

Portfolio Overview

We intend to continue to acquire a diversified portfolio of income-producing commercial real estate properties and other real estate-related assets. We expect to make these investments both domestically and internationally. 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. See Terms and Definitions below for a description of pro rata amounts.



CPA®:18 – Global 9/30/2015 10-Q – 36



Portfolio Summary
 
 
September 30, 2015
 
December 31, 2014
Number of net-leased properties
 
54

 
47

Number of operating properties (a)
 
51

 
16

Number of tenants (b)
 
94

 
73

Total square footage (in thousands) (c)
 
13,221

 
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)
 
11.3

 
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)
 
$
2,096,492

 
$
1,615,884

Net investments in real estate (in thousands)
 
1,478,254

 
941,357

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

 
1,143,111

 
 
Nine Months Ended September 30,
(dollars in thousands, except exchange rate)
 
2015
 
2014
Acquisition volume — consolidated (e) (f)
 
$
857,379

 
$
578,932

Acquisition volume — pro rata (c) (e) (f)
 
860,901

 
500,791

Financing obtained — consolidated
 
493,265

 
290,158

Financing obtained — pro rata (c)
 
484,117

 
245,022

Average U.S. dollar/euro exchange rate (g)
 
1.1148

 
1.3566

Increase in the U.S. CPI (h)
 
1.3
%
 
2.1
%
Increase in the Harmonized Index of Consumer Prices (h)
 
0.3
%
 
0.2
%
Increase in the Norwegian CPI (h)
 
2.0
%
 
1.9
%
__________
(a)
At September 30, 2015, our operating portfolio consisted of 44 wholly-owned self-storage properties, six 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 nine months ended September 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 9/30/2015 10-Q – 37



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 September 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)
 
$
8,895

 
10
%
 
$
4,447

 
6
%
State Farm Automobile Co.
 
7,239

 
9
%
 
3,620

 
5
%
Konzum d.d. (a)
 
6,333

 
7
%
 
5,066

 
7
%
Solo Cup Operating Company
 
5,646

 
7
%
 
5,646

 
8
%
Apply Sorco AS (a)
 
5,174

 
6
%
 
2,639

 
3
%
Albion Resorts (a)
 
4,879

 
6
%
 
4,879

 
7
%
Siemens AS (a)
 
4,214

 
5
%
 
4,214

 
6
%
Royal Vopak NV (a)
 
3,778

 
4
%
 
3,778

 
5
%
COOP Ost AS (a)
 
3,507

 
4
%
 
3,507

 
5
%
Alliant Techsystems Inc.
 
3,199

 
4
%
 
3,199

 
4
%
Total
 
$
52,864

 
62
%
 
$
40,995

 
56
%
__________
(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)
 
$
16,505

 
19
%
 
$
16,505

 
23
%
South
 
14,534

 
17
%
 
10,914

 
15
%
East
 
3,288

 
4
%
 
3,288

 
4
%
West
 
404

 
—
%
 
404

 
1
%
U.S. Total
 
34,731

 
40
%
 
31,111

 
43
%
 
 
 
 
 
 
 
 
 
International
 
 
 
 
 
 
 
 
Norway (b)
 
15,698

 
18
%
 
12,564

 
17
%
Poland (c)
 
9,027

 
11
%
 
4,513

 
6
%
The Netherlands (d)
 
8,414

 
10
%
 
8,414

 
11
%
Croatia (e)
 
6,333

 
7
%
 
5,066

 
7
%
United Kingdom
 
5,029

 
6
%
 
4,972

 
7
%
Mauritius (f)
 
4,879

 
6
%
 
4,879

 
7
%
Germany
 
1,478

 
2
%
 
1,478

 
2
%
International Total
 
50,858

 
60
%
 
41,886

 
57
%
 
 
 
 
 
 
 
 
 
Total
 
$
85,589

 
100
%
 
$
72,997

 
100
%
__________


CPA®:18 – Global 9/30/2015 10-Q – 38



(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 Norway contains a concentration of 6% for our Siemens AS property.
(c)
Pro rata ABR for Poland contains a concentration of 6% for our Bank Pekao S.A. property.
(d)
Pro rata ABR for the Netherlands contains a concentration of 5% for our Royal Vopak NV property.
(e)
Pro rata ABR for Croatia contains a concentration of 7% for our Konzum d.d. properties.
(f)
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
 
$
47,828

 
56
%
 
$
37,101

 
51
%
Retail
 
12,377

 
14
%
 
10,512

 
14
%
Warehouse
 
11,409

 
13
%
 
11,409

 
16
%
Industrial
 
9,096

 
11
%
 
9,096

 
12
%
Hotel
 
4,879

 
6
%
 
4,879

 
7
%
Total
 
$
85,589

 
100
%
 
$
72,997

 
100
%



CPA®:18 – Global 9/30/2015 10-Q – 39



Portfolio Diversification by Tenant Industry
(in thousands, except percentages)
 
 
Consolidated
 
Pro Rata
Industry Type
 
ABR
 
Percent
 
ABR
 
Percent
Grocery
 
$
10,225

 
12
%
 
$
8,573

 
12
%
Banking
 
8,895

 
10
%
 
4,447

 
6
%
Insurance
 
7,732

 
9
%
 
4,112

 
6
%
Business Services
 
6,407

 
8
%
 
3,872

 
5
%
Containers, Packaging, and Glass
 
5,646

 
7
%
 
5,646

 
8
%
Capital Equipment
 
5,060

 
6
%
 
5,060

 
7
%
Hotel, Gaming, and Leisure
 
4,961

 
6
%
 
4,920

 
7
%
Retail Stores
 
4,818

 
6
%
 
4,818

 
7
%
Sovereign and Public Finance
 
4,555

 
5
%
 
4,496

 
6
%
Oil and Gas
 
4,475

 
5
%
 
4,473

 
6
%
Utilities: Electric
 
3,826

 
5
%
 
3,826

 
5
%
Metals and Mining
 
3,199

 
4
%
 
3,199

 
4
%
High Tech Industries
 
2,942

 
3
%
 
2,840

 
4
%
Automotive
 
1,907

 
2
%
 
1,907

 
3
%
Consumer Services
 
1,887

 
2
%
 
1,812

 
2
%
Construction and Building
 
1,812

 
2
%
 
1,812

 
2
%
Consumer Goods: Non-Durable
 
1,261

 
2
%
 
1,261

 
2
%
Media: Advertising, Printing, and Publishing
 
1,190

 
1
%
 
1,190

 
2
%
Wholesale
 
1,101

 
1
%
 
1,101

 
2
%
Telecommunications
 
1,020

 
1
%
 
995

 
1
%
Electricity
 
997

 
1
%
 
997

 
1
%
Transportation: Cargo
 
866

 
1
%
 
866

 
1
%
Other (a)
 
807

 
1
%
 
774

 
1
%
Total
 
$
85,589

 
100
%
 
$
72,997

 
100
%
__________
(a)
Includes ABR from tenants in the following industries: environmental industries and consumer goods: durable.



CPA®:18 – Global 9/30/2015 10-Q – 40



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
 
2

 
$
38

 
—
%
 
2

 
$
36

 
—
%
2016
 
4

 
126

 
—
%
 
4

 
86

 
—
%
2017
 
5

 
850

 
1
%
 
5

 
848

 
1
%
2018
 
8

 
789

 
1
%
 
8

 
766

 
1
%
2019
 
8

 
1,086

 
1
%
 
8

 
1,086

 
2
%
2020
 
9

 
2,299

 
3
%
 
9

 
2,206

 
3
%
2021
 
3

 
1,265

 
1
%
 
3

 
1,163

 
2
%
2022
 
5

 
1,693

 
2
%
 
5

 
1,693

 
2
%
2023
 
9

 
19,596

 
23
%
 
9

 
14,688

 
20
%
2024
 
9

 
4,714

 
6
%
 
9

 
4,714

 
6
%
2025
 
7

 
5,778

 
7
%
 
7

 
5,778

 
8
%
2026
 
4

 
6,104

 
7
%
 
4

 
6,104

 
8
%
2027
 
8

 
5,875

 
7
%
 
8

 
5,875

 
8
%
2028
 
5

 
13,953

 
16
%
 
5

 
7,798

 
11
%
Thereafter
 
20

 
21,423

 
25
%
 
20

 
20,156

 
28
%
Total
 
106

 
$
85,589

 
100
%
 
106

 
$
72,997

 
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 9/30/2015 10-Q – 41



Operating Properties

At September 30, 2015, our operating portfolio consisted of 44 self-storage properties, which had an average occupancy rate of 88.2%, six multi-family properties, which had an average occupancy rate of 92.2%, and one student housing development. At September 30, 2015, our operating portfolio was comprised as follows (square footage in thousands):
Location
 
Number of Properties
 
Square Footage
Florida
 
19

 
1,923

California
 
9

 
797

Texas
 
5

 
695

Georgia
 
5

 
593

Nevada
 
3

 
243

Hawaii
 
2

 
95

North Carolina
 
1

 
283

Kentucky
 
1

 
121

South Carolina
 
1

 
63

New York
 
1

 
61

Illinois
 
1

 
58

Missouri
 
1

 
41

Canada (a)
 
1

 
—

United Kingdom (b)
 
1

 
—

Total
 
51

 
4,973

__________
(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, even if our ownership is less than 100%. Also, for all other jointly-owned investments, we report our net investment and our net income or loss from that investment. 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.



CPA®:18 – Global 9/30/2015 10-Q – 42

Financial Highlights

(in thousands)
 
 
Three Months Ended September 30,
 
Nine Months Ended September 30,
 
 
2015
 
2014 (a)
 
2015
 
2014 (a)
Total revenues
 
$
37,069

 
$
14,882

 
$
94,713

 
$
34,224

Net loss attributable to CPA®:18 – Global
 
(9,775
)
 
(10,601
)
 
(41,896
)
 
(29,629
)
 
 
 
 
 
 
 
 
 
Cash distributions paid
 
19,711

 
12,772

 
56,014

 
20,852

 
 
 
 
 
 
 
 
 
Net cash provided by (used in) operating activities
 
 
 
 
 
24,380

 
(411
)
Net cash used in investing activities
 
 
 
 
 
(684,996
)
 
(520,211
)
Net cash provided by financing activities
 
 
 
 
 
504,370

 
1,068,471

 
 
 
 
 
 
 
 
 
Supplemental financial measures:
 
 
 
 
 
 
 
 
FFO attributable to CPA®:18 – Global (b)
 
(293
)
 
(6,172
)
 
(8,715
)
 
(19,172
)
MFFO attributable to CPA®:18 – Global (b)
 
11,541

 
5,504

 
29,592

 
11,476

__________
(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 from (used in) operations, or FFO, and Modified funds from operations, or MFFO, which are supplemental measures that are not defined by GAAP, or 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, FFO and MFFO improved for the three and nine months ended September 30, 2015, as compared to the same periods in 2014, primarily reflecting the increase in the number of our investments during 2015 and 2014.



CPA®:18 – Global 9/30/2015 10-Q – 43



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 the value of our real estate investments. 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 September 30,
 
Nine Months Ended September 30,
 
 
2015
 
2014
 
Change
 
2015
 
2014
 
Change
Revenues
 
 
 
 
 
 
 
 
 
 
 
 
Lease revenues
 
$
21,675

 
$
12,175

 
$
9,500

 
$
59,133

 
$
29,730

 
$
29,403

Other real estate income - operating property revenues
 
12,308

 
1,052

 
11,256

 
27,332

 
1,988

 
25,344

Reimbursable tenant costs
 
2,602

 
1,065

 
1,537

 
6,348

 
1,881

 
4,467

Interest income and other
 
484

 
590

 
(106
)
 
1,900

 
625

 
1,275

 
 
37,069

 
14,882

 
22,187

 
94,713

 
34,224

 
60,489

Operating Expenses
 
 
 
 
 
 
 
 
 
 
 
 
Depreciation and amortization:
 
 
 
 
 

 
 
 
 
 
 
Net-leased properties
 
9,766

 
5,096

 
4,670

 
26,282

 
12,406

 
13,876

Operating properties
 
7,886

 
551

 
7,335

 
18,021

 
1,079

 
16,942

 
 
17,652

 
5,647

 
12,005

 
44,303

 
13,485

 
30,818

Property expenses:
 
 
 
 
 
 
 
 
 
 
 
 
Operating properties
 
5,380

 
389

 
4,991

 
11,660

 
666

 
10,994

Reimbursable tenant costs
 
2,602

 
1,065

 
1,537

 
6,348

 
1,881

 
4,467

Asset management fees
 
2,098

 
713

 
1,385

 
5,244

 
1,647

 
3,597

Net-leased properties
 
912

 
388

 
524

 
2,111

 
935

 
1,176

 
 
10,992

 
2,555

 
8,437

 
25,363

 
5,129

 
20,234

Acquisition expenses
 
10,795

 
8,861

 
1,934

 
34,575

 
31,827

 
2,748

General and administrative
 
2,735

 
1,517

 
1,218

 
6,459

 
3,329

 
3,130

 
 
42,174

 
18,580

 
23,594

 
110,700

 
53,770

 
56,930

Operating Loss
 
(5,105
)
 
(3,698
)
 
(1,407
)
 
(15,987
)
 
(19,546
)
 
3,559

Other Income and Expenses
 
 
 
 
 

 
 
 
 
 
 
Interest expense
 
(7,970
)
 
(4,311
)
 
(3,659
)
 
(24,065
)
 
(10,163
)
 
(13,902
)
Other income and (expense)
 
(2,324
)
 
(2,100
)
 
(224
)
 
(4,256
)
 
(1,731
)
 
(2,525
)
 
 
(10,294
)
 
(6,411
)
 
(3,883
)
 
(28,321
)
 
(11,894
)
 
(16,427
)
Loss before income taxes
 
(15,399
)
 
(10,109
)
 
(5,290
)
 
(44,308
)
 
(31,440
)
 
(12,868
)
Benefit from income taxes
 
1,062

 
644

 
418

 
854

 
422

 
432

Loss before gain on sale of real estate
 
(14,337
)
 
(9,465
)
 
(4,872
)
 
(43,454
)
 
(31,018
)
 
(12,436
)
Gain on sale of real estate, net of tax
 
6,654

 
—

 
6,654

 
6,654

 
—

 
6,654

Net Loss
 
(7,683
)
 
(9,465
)
 
1,782

 
(36,800
)
 
(31,018
)
 
(5,782
)
Net (income) loss attributable to noncontrolling interests
 
(2,092
)
 
(1,136
)
 
(956
)
 
(5,096
)
 
1,389

 
(6,485
)
Net Loss Attributable to CPA®:18 – Global
 
$
(9,775
)
 
$
(10,601
)
 
$
826

 
$
(41,896
)
 
$
(29,629
)
 
$
(12,267
)
MFFO Attributable to CPA®:18 – Global
 
$
11,541

 
$
5,504

 
$
6,037

 
$
29,592

 
$
11,476

 
$
18,116




CPA®:18 – Global 9/30/2015 10-Q – 44



Lease Composition and Leasing Activities

As of September 30, 2015, approximately 53.9% of our leases, based on consolidated ABR, provide for adjustments based on formulas indexed to changes in the U.S. CPI, or similar indices for the jurisdiction in which the property is located, some of which have caps and/or floors. In addition, 39.4% of our leases on that same basis have fixed rent adjustments, for which consolidated ABR is scheduled to increase by an average of 2.3% in the next 12 months. We own international investments and, therefore, lease revenues from these investments are subject to exchange rate fluctuations in various foreign currencies, primarily the euro.

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



CPA®:18 – Global 9/30/2015 10-Q – 45



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 September 30,
 
Nine Months Ended September 30,
 
2015
 
2014
 
Change
 
2015
 
2014
 
Change
Existing Net-Leased Properties
 
 
 
 
 
 
 
 
 
 
 
Lease revenues
$
3,608

 
$
3,905

 
$
(297
)
 
$
10,835

 
$
11,834

 
$
(999
)
Depreciation and amortization
(1,467
)
 
(1,595
)
 
128

 
(4,406
)
 
(4,835
)
 
429

Property expenses
7

 
(348
)
 
355

 
(263
)
 
(852
)
 
589

Property level contribution
2,148

 
1,962

 
186

 
6,166

 
6,147

 
19

Recently Acquired Net-Leased Properties
 
 
 
 
 
 
 
 
 
 
 
Lease revenues
17,662

 
7,591

 
10,071

 
46,523

 
15,986

 
30,537

Depreciation and amortization
(8,298
)
 
(3,501
)
 
(4,797
)
 
(21,876
)
 
(7,571
)
 
(14,305
)
Property expenses
(919
)
 
(40
)
 
(879
)
 
(1,847
)
 
(83
)
 
(1,764
)
Property level contribution
8,445

 
4,050

 
4,395

 
22,800

 
8,332

 
14,468

Properties Sold
 
 
 
 
 
 
 
 
 
 
 
Revenues
405

 
679

 
(274
)
 
1,775

 
1,910

 
(135
)
Depreciation and amortization
—

 
—

 
—

 
—

 
—

 
—

Property expenses
—

 
—

 
—

 
(1
)
 
—

 
(1
)
Property level contribution
405

 
679

 
(274
)
 
1,774

 
1,910

 
(136
)
Operating Properties
 
 
 
 
 
 
 
 
 
 
 
Revenues
12,308

 
1,052

 
11,256

 
27,332

 
1,988

 
25,344

Depreciation and amortization
(7,887
)
 
(551
)
 
(7,336
)
 
(18,021
)
 
(1,079
)
 
(16,942
)
Property expenses
(5,380
)
 
(389
)
 
(4,991
)
 
(11,660
)
 
(666
)
 
(10,994
)
Property level contribution
(959
)
 
112

 
(1,071
)
 
(2,349
)
 
243

 
(2,592
)
Total Property Level Contribution
 
 
 
 
 
 
 
 
 
 
 
Lease revenues
21,675

 
12,175

 
9,500

 
59,133

 
29,730

 
29,403

Property expenses
(912
)
 
(388
)
 
(524
)
 
(2,111
)
 
(935
)
 
(1,176
)
Operating property revenues
12,308

 
1,052

 
11,256

 
27,332

 
1,988

 
25,344

Operating property expenses
(5,380
)
 
(389
)
 
(4,991
)
 
(11,660
)
 
(666
)
 
(10,994
)
Depreciation and amortization
(17,652
)
 
(5,647
)
 
(12,005
)
 
(44,303
)
 
(13,485
)
 
(30,818
)
Property Level Contribution
10,039

 
6,803

 
3,236

 
28,391

 
16,632

 
11,759

Add other income:
 
 
 
 
 
 
 
 
 
 
 
Interest income and other
484

 
590

 
(106
)
 
1,900

 
625

 
1,275

Less other expenses:
 
 
 
 
 
 
 
 
 
 
 
Acquisition expenses
(10,795
)
 
(8,861
)
 
(1,934
)
 
(34,575
)
 
(31,827
)
 
(2,748
)
General and administrative
(2,735
)
 
(1,517
)
 
(1,218
)
 
(6,459
)
 
(3,329
)
 
(3,130
)
Asset management fees
(2,098
)
 
(713
)
 
(1,385
)
 
(5,244
)
 
(1,647
)
 
(3,597
)
Operating Loss
$
(5,105
)
 
$
(3,698
)
 
$
(1,407
)
 
$
(15,987
)
 
$
(19,546
)
 
$
3,559




CPA®:18 – Global 9/30/2015 10-Q – 46



Existing Net-Leased Properties

Existing net-leased properties are those we acquired prior to January 1, 2014, and that were not sold during the periods presented. For the periods presented, there were six existing net-leased properties.

For both the three and nine months ended September 30, 2015, compared to the same periods in 2014, property level contribution for existing net-leased properties were substantially the same, but the decrease in the exchange rate of the U.S. dollar relative to the euro during the current year periods compared to the prior year periods affected lease revenues, property expenses, and depreciation and amortization.

Recently Acquired Net-Leased Properties

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

For the three and nine months ended September 30, 2015, compared to the same periods in 2014, property level contribution from recently acquired net-leased properties increased by $4.4 million and $14.5 million, respectively, primarily as a result of the 22 properties acquired after September 30, 2014.

Properties Sold

In August 2015, we sold five industrial facilities back to subsidiaries of Crowne Group Inc., which were previously classified as Net investments in direct financing leases in the consolidated financial statements (Note 6). These dispositions were made as a result of the tenants exercising their purchase options.
 
Operating Properties

Other real estate operations represent primarily the results of operations, or revenues and operating expenses, of our 44 self-storage and six multi-family properties. The changes below were primarily a result of the 37 self-storage and six multi-family properties we acquired after September 30, 2014.

For three and nine months ended September 30, 2015, compared to the same periods in 2014, property level contribution from operating properties decreased by $1.1 million and $2.6 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 September 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 nine months ended September 30, 2015, compared to the same periods in 2014, interest income and other increased by $0.1 million and $1.3 million, respectively, primarily due to our acquisition of the note receivable in July 2014.

Acquisition Expenses

For the three and nine months ended September 30, 2015, compared to the same periods in 2014, acquisition expenses increased by $1.9 million and $2.7 million, respectively, primarily due to the increase in investment volume for acquisitions that were deemed to be business combinations during the three and nine months ended September 30, 2015 compared to the prior periods.

General and Administrative

For the three and nine months ended September 30, 2015, compared to the same periods in 2014, general and administrative expenses increased by $1.2 million and $3.1 million, respectively, primarily due to increases in professional fees of $0.9 million and $1.1 million, respectively. Additionally, for the nine months ended September 30, 2015, compared to the same period in 2014, personnel and overhead reimbursement costs and broker dealer expense increased by $0.8 million and $1.4 million,


CPA®:18 – Global 9/30/2015 10-Q – 47



respectively. The increases in professional fees were primarily attributable to higher growth in investment volume. The increases in broker dealer expenses were primarily attributable to a higher amount of 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 nine months ended September 30, 2015, compared to the same periods in 2014, asset management fees increased by $1.4 million and $3.6 million, respectively, due to growth in investment volume since September 30, 2014, which increased the asset base from which our advisor earns a fee.

Interest Expense

For the three and nine months ended September 30, 2015, compared to the same periods in 2014, interest expense increased by $3.7 million and $13.9 million, respectively, as a result of 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 and/or advances that are not denominated in the functional currency of those subsidiaries. When the short-term 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 September 30, 2015, we recognized net other expense of $2.3 million, which was primarily comprised of loss on extinguishment of debt of $2.6 million primarily related to our disposal of the Crowne Group Inc. properties and the refinancing of certain mortgage loans (Note 10), partially offset by interest income received on our cash balances held with financial institutions of $0.4 million.

For the three months ended September 30, 2014, we recognized net other expense of $2.1 million, which was primarily comprised of realized and unrealized foreign currency transaction losses related to our international investments of $3.3 million, partially offset by interest income received on our cash balances held with financial institutions of $1.1 million.

For the nine months ended September 30, 2015, we recognized net other expense of $4.3 million, which was primarily comprised of realized and unrealized foreign currency transaction losses related to our international investments of $4.3 million and loss on extinguishment of debt of $2.3 million, partially offset by interest income received on our cash balances held with financial institutions of $1.5 million and gains recognized on derivatives of $0.8 million.

For the nine months ended September 30, 2014, we recognized net other expense of $1.7 million, which was primarily comprised of realized and unrealized foreign currency transaction losses related to our international investments of $3.8 million, partially offset by interest income received on our cash balances held with financial institutions of $2.0 million.

Gain on Sale of Real Estate, Net of Tax

For both the three and nine months ended September 30, 2015, we recognized a gain on sale of real estate, net of tax of $6.7 million as a result of the disposition of the Crowne Group Inc. properties (Note 6).

Net (Income) Loss Attributable to Noncontrolling Interests

For the three and nine months ended September 30, 2015, compared to the same periods in 2014, net income attributable to noncontrolling interests increased by $1.0 million and $6.5 million, respectively, due to increases of $1.1 million and $2.8 million, respectively, in the Available Cash Distribution. The nine months ended September 30, 2014 also reflects the impact of $3.5 million of losses related to Bank Pekao S. A., which was allocable to CPA®:17 – Global.



CPA®:18 – Global 9/30/2015 10-Q – 48



Net Loss Attributable to CPA®:18 – Global

For the three months ended September 30, 2015, compared to the same period in 2014, the resulting net loss attributable to CPA®:18 – Global decreased by $0.8 million.

For the nine months ended September 30, 2015, compared to the same period in 2014, the resulting net loss attributable to CPA®:18 – Global increased by $12.3 million.

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 nine months ended September 30, 2015, compared to the same periods in 2014, MFFO increased by $6.0 million and $18.1 million, respectively, primarily as a result of the increase in the number of our investments subsequent to September 30, 2014.

Liquidity and Capital Resources

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 elect; 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 as we continue to invest the proceeds from our offering. Despite these fluctuations, we believe our investments will generate sufficient cash from operations to meet our normal recurring 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 nine months ended September 30, 2015 was $24.4 million, compared to net cash used in operating activities of $0.4 million for the same period in 2014. The change primarily reflects the impact of investments acquired after September 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.

During the nine months ended September 30, 2015, we used $662.6 million for our real estate and direct financing lease investments, and $35.0 million to fund construction costs of our build-to-suit projects. We also had cash outflows of $7.2 million from a change in restricted cash, $5.5 million for the acquisition of an equity investment, and $4.0 million related to deposits for investments. We had cash inflows of $35.7 million from the sale of real estate.

Financing Activities — Net cash provided by financing activities totaled $504.4 million for the nine months ended September 30, 2015. This was primarily due to proceeds of $436.7 million from non-recourse mortgage financings, net proceeds received from our initial public offering of $125.2 million, and proceeds from a bond financing of $66.3 million. We also had cash outflows related to distributions paid totaling $56.0 million for the fourth quarter of 2014 and the first and second quarter of 2015, which were comprised of $26.1 million of cash distributions and $29.9 million of distributions reinvested by stockholders through our distribution reinvestment plan, and scheduled payments and prepayments of mortgage principal of $49.1 million.



CPA®:18 – Global 9/30/2015 10-Q – 49



Distributions

Our objectives are to generate sufficient cash flow over time to provide stockholders with distributions and to seek investments with potential for capital appreciation throughout varying economic cycles. Our distributions declared through September 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 September 30, 2015, we have declared distributions to stockholders totaling $113.7 million, which were comprised of cash distributions of $53.0 million and $60.7 million reinvested by stockholders in shares of our common stock pursuant to our distribution reinvestment plan. We believe that FFO, a non-GAAP measure, 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 nine months ended September 30, 2015, we received requests to redeem 544,294 and 44,685 shares of Class A and Class C common stock, respectively, pursuant to our redemption plan, all of which were redeemed in the same period, at a weighted-average price of $9.59 and $8.98 per share, respectively, net of redemption fees, totaling $5.6 million for both Class A and Class C common stock.

Summary of Financing
 
The table below summarizes our non-recourse debt and bonds payable (dollars in thousands):
 
September 30, 2015
 
December 31, 2014
Carrying Value
 
 
 
Fixed rate
$
858,932

 
$
429,251

Variable rate:
 
 
 
Amount subject to interest rate swaps and cap
46,746

 
37,960

Amount subject to floating interest rate
38,327

 
54,501

 
85,073

 
92,461

 
$
944,005

 
$
521,712

Percent of Total Debt
 
 
 
Fixed rate
91
%
 
82
%
Variable rate
9
%
 
18
%
 
100
%
 
100
%
Weighted-Average Interest Rate at End of Period
 
 
 
Fixed rate
4.1
%
 
4.5
%
Variable rate (a)
3.6
%
 
4.2
%
___________
(a)
The impact of our derivative instruments is reflected in the weighted-average interest rates.



CPA®:18 – Global 9/30/2015 10-Q – 50



Cash Resources
 
At September 30, 2015, our cash resources consisted of cash and cash equivalents totaling $269.9 million. Of this amount, $48.2 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 $169.2 million at September 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. 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.
 
Cash Requirements
 
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 uninvested capital remaining from 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.

During the next 12 months, we expect that our cash requirements will include payments to acquire new investments, funding capital commitments such as build-to-suit projects, 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 $22.5 million related to capital and other lease commitments during the next 12 months.

Our liquidity would be adversely affected 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.

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 September 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)
$
942,730

 
$
3,039

 
$
35,990

 
$
93,046

 
$
810,655

Interest on borrowings and deferred acquisition fees
301,868

 
38,698

 
75,536

 
73,548

 
114,086

Capital commitments (b)
131,876

 
22,254

 
109,622

 
—

 
—

Deferred acquisition fees — principal (c)
22,846

 
12,672

 
10,174

 
—

 
—

Other lease commitments (d)
5,628

 
225

 
874

 
734

 
3,795

Asset retirement obligations (e)
2,362

 
—

 
—

 
—

 
2,362

 
$
1,407,310

 
$
76,888

 
$
232,196

 
$
167,328

 
$
930,898

__________


CPA®:18 – Global 9/30/2015 10-Q – 51



(a)
Represents the non-recourse debt and bonds payable that we obtained in connection with our investments. Excludes $1.3 million of unamortized premium, which was included in Bonds payable at September 30, 2015.
(b)
Capital commitments include our current build-to-suit projects of $129.3 million (Note 5) and $2.6 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 September 30, 2015, which consisted primarily of the euro and Norwegian krone and, to a lesser extent, the British pound sterling. At September 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 defined by our management. We believe that these non-GAAP measures are useful to investors to consider because they may assist them to better understand and measure the performance of our business over time and against similar companies. A description of FFO and MFFO and reconciliations of FFO and MFFO to the most directly comparable GAAP measures are provided below.

FFO and MFFO

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

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

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


CPA®:18 – Global 9/30/2015 10-Q – 52



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, such as acquisition fees 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. 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 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 non-GAAP measure to reflect the operating performance of a non-listed REIT having the characteristics described above. MFFO is not equivalent to our net income or loss as determined under GAAP, and MFFO may not be a useful measure of the impact of long-term operating performance on value if we do not continue to operate with a limited life and targeted exit strategy, as currently intended. We believe that, because MFFO excludes costs that we consider more reflective of investing activities and other non-operating items included in FFO, and also excludes acquisition fees and expenses that affect our operations only in periods in which properties are acquired, MFFO can provide, on a going forward basis, an indication of the sustainability (that is, the capacity to continue to be maintained) of our operating performance after the period in which we are acquiring properties and once our portfolio is in place. By providing MFFO, we believe we are presenting useful information that assists investors and analysts to better assess the sustainability of our operating performance now that our 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, 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 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


CPA®:18 – Global 9/30/2015 10-Q – 53



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 that 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. Since 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 that 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.

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 MFFO and the adjustments used to calculate it allow us to present our performance in a manner that takes into account certain characteristics unique to non-listed REITs, such as their limited life, defined acquisition period, and targeted exit strategy, and is therefore a useful measure for investors. For example, acquisition costs are generally funded from the proceeds of our offering and other financing sources and not from operations. By excluding expensed acquisition costs, the use of MFFO provides information consistent with management’s analysis of the operating performance of the properties. Additionally, fair value adjustments, which are based on the impact of current market fluctuations and underlying assessments of general market conditions, but can also result from operational factors such as rental and occupancy rates, may not be directly related or attributable to our current operating performance. By excluding such changes that may reflect anticipated and unrealized gains or losses, we believe MFFO provides useful supplemental information.

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



CPA®:18 – Global 9/30/2015 10-Q – 54



FFO and MFFO were as follows (in thousands):
 
 
Three Months Ended September 30,
 
Nine Months Ended September 30,
 
 
2015
 
2014 (a)
 
2015
 
2014 (a)
Net loss attributable to CPA®:18 – Global
 
$
(9,775
)
 
$
(10,601
)
 
$
(41,896
)
 
$
(29,629
)
Adjustments:
 
 
 
 
 
 
 
 
Depreciation and amortization of real property
 
17,689

 
5,656

 
44,419

 
13,491

Gain on sale of real estate, net of taxes
 
(6,654
)
 
—

 
(6,654
)
 
—

Proportionate share of adjustments for noncontrolling interests to arrive at FFO
 
(1,553
)
 
(1,227
)
 
(4,584
)
 
(3,034
)
Total adjustments
 
9,482

 
4,429

 
33,181

 
10,457

FFO attributable to CPA®:18 – Global — as defined by NAREIT
 
(293
)
 
(6,172
)
 
(8,715
)
 
(19,172
)
Adjustments:
 
 
 
 
 
 
 
 
Acquisition expenses (b)
 
10,795

 
8,905

 
34,575

 
31,948

Straight-line and other rent adjustments (c)
 
(1,060
)
 
(722
)
 
(2,853
)
 
(1,633
)
Loss on extinguishment of debt
 
1,635

 
—

 
2,335

 
—

Unrealized losses (gains) on foreign currency, derivatives and other
 
403

 
(3
)
 
4,261

 
6

Amortization of premium/discount on debt investments and fair market value adjustments, net
 
217

 
178

 
647

 
423

Realized (gains) losses on foreign currency, derivatives and other
 
(210
)
 
3,221

 
(765
)
 
3,767

Above- and below-market rent intangible lease amortization, net (d)
 
(32
)
 
18

 
44

 
14

Proportionate share of adjustments for noncontrolling interests to arrive at MFFO
 
86

 
79

 
63

 
(3,877
)
Total adjustments
 
11,834

 
11,676

 
38,307

 
30,648

MFFO attributable to CPA®:18 – Global
 
$
11,541

 
$
5,504

 
$
29,592

 
$
11,476

__________
(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 nine months ended September 30, 2014 resulted in an increase to Net loss attributable to CPA®:18 – Global of $3.0 million and $3.5 million, respectively, a reduction in FFO of $3.0 million and $3.5 million, respectively, and an increase to MFFO of $3.0 million and $3.5 million, respectively.
(b)
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.


CPA®:18 – Global 9/30/2015 10-Q – 55



(c)
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.
(d)
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 9/30/2015 10-Q – 56



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 that we are exposed to are interest rate risk and foreign currency exchange risk. We are also exposed to further market risk as a result of tenant concentrations in certain industries and/or geographic regions, since adverse market factors can affect the ability of tenants in a particular industry/region to meet their lease obligations. In order to manage this risk, our advisor views our collective tenant roster as a portfolio and attempts to diversify such 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, 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 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 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 September 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 September 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 September 30, 2015 ranged from 1.6% to 5.8%. The contractual annual interest rates on our variable-rate debt at September 30, 2015 ranged from 1.8% to 5.1%. Our debt obligations are more fully described in Note 10 and Liquidity and Capital Resources – 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 September 30, 2015 (in thousands):

2015 (Remainder)
 
2016
 
2017
 
2018
 
2019
 
Thereafter

Total

Fair value
Fixed-rate debt (a)
$
655

 
$
2,694

 
$
15,074

 
$
3,285

 
$
3,559

 
$
833,665


$
858,932


$
866,946

Variable rate debt (a)
$
40

 
$
514

 
$
682

 
$
17,083

 
$
682

 
$
64,797


$
83,798


$
90,841

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



CPA®:18 – Global 9/30/2015 10-Q – 57



At September 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 the estimated fair value of this debt at September 30, 2015 by an aggregate increase of $56.1 million or an aggregate decrease of $59.1 million, respectively. This debt is generally not subject to short-term fluctuations in interest rates.

As more fully described under Liquidity and Capital Resources – Summary of Financing in Item 2 above, a portion of our variable-rate debt in the table above bore interest at fixed rates at September 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 third 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 September 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)
 
$
7,468

 
$
28,732

 
$
34,832

 
$
34,756

 
$
34,927

 
$
302,686

 
$
443,401

Norwegian krone (c)
 
3,770

 
15,000

 
14,940

 
14,940

 
14,940

 
90,584

 
154,174

British pound sterling (d)
 
1,268

 
4,990

 
4,849

 
4,559

 
4,354

 
17,140

 
37,160

 
 
$
12,506

 
$
48,722

 
$
54,621

 
$
54,255

 
$
54,221

 
$
410,410

 
$
634,735


Scheduled debt service payments (principal and interest) for mortgage notes, and bonds denominated in Norwegian krone, for our foreign operations as of September 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)
 
$
2,244

 
$
8,108

 
$
19,829

 
$
7,822

 
$
7,904

 
$
188,725

 
$
234,632

Norwegian krone (c)
 
3,172

 
5,642

 
5,642

 
5,642

 
5,642

 
165,053

 
190,793

British pound sterling (d)
 
327

 
1,142

 
1,139

 
1,139

 
1,139

 
28,874

 
33,760

 
 
$
5,743

 
$
14,892

 
$
26,610

 
$
14,603

 
$
14,685

 
$
382,652

 
$
459,185

__________
(a)
Amounts are based on the applicable exchange rates at September 30, 2015. Contractual rents and debt obligations are denominated in the functional currency of the country where each property is located.
(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 September 30, 2015 of $2.1 million.


CPA®:18 – Global 9/30/2015 10-Q – 58



(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 September 30, 2015 of $0.4 million.
(d)
We estimate that, for a 1% increase or decrease in the exchange rate between the British pound sterling and the U.S. dollar, there would be no corresponding change in the projected estimated property-level cash flow at September 30, 2015.

As a result of scheduled balloon payments on certain of our international debt obligations, projected debt service obligations exceed projected lease revenues after 2019 for investments denominated in the British pound sterling and 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. Our portfolio is currently exposed to concentrations of credit risk 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 September 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 September 30, 2015) in excess of 10% in certain areas, as follows:

•
40% related to domestic properties, which included a concentration in Texas and Illinois of 12% and 10%, respectively;
•
60% related to international properties, which included concentrations in Norway of 18%, Poland of 11%, and the Netherlands of 10%;
•
56% related to office properties, 14% related to retail properties, 13% related to warehouse properties, and 11% related to industrial properties; and
•
12% related to the grocery industry and 10% related to the banking industry.



CPA®:18 – Global 9/30/2015 10-Q – 59



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 September 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 September 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 9/30/2015 10-Q – 60



PART II — OTHER INFORMATION

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

Unregistered Sales of Equity Securities

During the three months ended September 30, 2015, we issued 202,647 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 none of these transactions were 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 investment purposes and not with a view to the distribution thereof. From inception and through September 30, 2015, we have issued a total of 751,111 shares of our Class A common stock to our advisor as 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 September 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
(73,427
)
 
(5,818
)

(79,245
)
Direct or indirect payments to others
(31,258
)
 
(6,016
)

(37,274
)
Net offering proceeds to the issuer after deducting expenses
$
872,725


$
254,274


1,126,999

Purchases of real estate, net of financing and noncontrolling interest




(798,736
)
Repayment of mortgage financing
 
 
 
 
(50,750
)
Proceeds from the sale of real estate
 
 
 
 
35,674

Cash distributions paid to stockholders
 
 
 
 
(32,999
)
Repurchase of shares
 
 
 
 
(7,141
)
Working capital (c)
 
 
 
 
(3,186
)
Temporary investments in cash and cash equivalents
 
 
 
 
$
269,861

__________
(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 $93.9 million of acquisition expenses incurred since inception.



CPA®:18 – Global 9/30/2015 10-Q – 61



Issuer Purchases of Equity Securities

The following table provides information with respect to repurchases of our common stock during the three months ended September 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)
July
 
—

 
—

 
—

 
—

 
N/A
 
N/A
August
 
—

 
—

 
—

 
—

 
N/A
 
N/A
September
 
216,555

 
$
9.64

 
29,338

 
$
9.01

 
N/A
 
N/A
Total
 
216,555

 
 
 
29,338

 
 
 
 
 
 
___________
(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 September 30, 2015. We generally receive fees in connection with share redemptions.



CPA®:18 – Global 9/30/2015 10-Q – 62



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 September 30, 2015, formatted in XBRL (eXtensible Business Reporting Language): (i) Consolidated Balance Sheets at September 30, 2015 and December 31, 2014, (ii) Consolidated Statements of Operations for the three and nine months ended September 30, 2015 and 2014, (iii) Consolidated Statements of Comprehensive Loss for the three and nine months ended September 30, 2015 and 2014, (iv) Consolidated Statements of Equity for the nine months ended September 30, 2015 and 2014, (v) Consolidated Statements of Cash Flows for the nine months ended September 30, 2015 and 2014, and (vi) Notes to Consolidated Financial Statements.

Filed herewith



CPA®:18 – Global 9/30/2015 10-Q – 63

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:
November 16, 2015
 
 
 
 
By:  
/s/ Hisham A. Kader
 
 
 
Hisham A. Kader
 
 
 
Chief Financial Officer
 
 
 
(Principal Financial Officer)
 
 
 
 
Date:
November 16, 2015
 
 
 
 
By:  
/s/ ToniAnn Sanzone
 
 
 
ToniAnn Sanzone
 
 
 
Chief Accounting Officer
 
 
 
(Principal Accounting Officer)





CPA®:18 – Global 9/30/2015 10-Q – 64

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 September 30, 2015, formatted in XBRL (eXtensible Business Reporting Language): (i) Consolidated Balance Sheets at September 30, 2015 and December 31, 2014, (ii) Consolidated Statements of Operations for the three and nine months ended September 30, 2015 and 2014, (iii) Consolidated Statements of Comprehensive Loss for the three and nine months ended September 30, 2015 and 2014, (iv) Consolidated Statements of Equity for the nine months ended September 30, 2015 and 2014, (v) Consolidated Statements of Cash Flows for the nine months ended September 30, 2015 and 2014, and (vi) Notes to Consolidated Financial Statements.

Filed herewith


CORPORATE PROPERTY ASSOCIATES 18 GLOBAL INC Reports