W. P. Carey Inc. Announces Second Quarter 2014 Financial Results

NEW YORK, Aug. 5, 2014 /PRNewswire/ -- W. P. Carey Inc. (NYSE: WPC) (W. P. Carey or the Company), a global net-lease real estate investment trust, today reported its financial results for the second quarter ended June 30, 2014.

Financial Update Second Quarter 2014

  • Revenues of $252.9 million and revenues, excluding reimbursable expenses, of $205.2 million
  • AFFO of $122.2 million, equivalent to $1.21 per diluted share
  • Quarterly dividend of $0.90, equivalent to an annualized dividend rate of $3.60 per share
  • Full year 2014 AFFO guidance range raised to $4.62 to $4.82 per diluted share

Business Update Second Quarter 2014

  • Acquired one property for $47.2 million
  • Disposed of 15 properties for total proceeds of $170.6 million
  • Owned portfolio occupancy of 98.5%
  • Structured $559.3 million of investments on behalf of the Managed REITs
  • Raised $492.4 million on behalf of the Managed REITs

MANAGEMENT COMMENTARY

"We have better clarity on our earnings capacity now that we have completed our first full quarter following the merger with CPA®:16 – Global and also have enhanced our supplemental disclosure," said W. P. Carey President and CEO, Trevor Bond. "We continued to be an active capital recycler in the second quarter, disposing of several smaller properties with relatively short lease terms while focusing on building an opportunity pipeline containing longer-duration assets. Also, our investment management business generated strong revenues as a result of robust fundraising and transaction volumes on behalf of the Managed REITs.

"Given the AFFO generated during the first six months and with greater visibility into the second half of the year, we are pleased to announce that we are raising our full year AFFO guidance range to $4.62 to $4.82 per diluted share."

FINANCIAL RESULTS

Revenues

  • Total Company: Revenues, excluding reimbursable costs, for the 2014 second quarter totaled $205.2 million, up 25.7% from $163.3 million for the 2014 first quarter, and up 119.0% from $93.7 million for the 2013 second quarter. In each case, the increase was due primarily to additional real estate revenues from properties acquired in the Company's merger with CPA®:16 – Global, which closed on January 31, 2014 (the CPA®:16 Merger).
  • Real Estate Ownership: Real estate revenues, excluding reimbursable tenant costs, for the 2014 second quarter were $171.0 million, up 32.5% from $129.1 million for the 2014 first quarter, and up 129.2% from $74.6 million for the 2013 second quarter. In each case, the increase was due primarily to additional lease revenues from properties acquired in the CPA®:16 Merger.
  • Investment Management: Revenues from the Managed REITs, excluding reimbursable costs, for the 2014 second quarter were $34.2 million, virtually unchanged from the 2014 first quarter as higher dealer manager fees were principally offset by the cessation of asset management revenue from CPA®:16 – Global upon completion of the CPA®:16 Merger. Compared to the 2013 second quarter, revenues from the Managed REITs, excluding reimbursable costs, increased 79.1% from $19.1 million, due primarily to higher structuring revenue and higher dealer manager fees resulting from increased activity on behalf of the Managed REITs.

Adjusted Funds from Operations (AFFO)

  • AFFO for the 2014 second quarter was $122.2 million, which included the impact of properties acquired in the CPA®:16 Merger for three months, versus two months for the 2014 first quarter. This compares to AFFO of $118.2 million for the 2014 first quarter, which also included the impact of a tax benefit in connection with the payment of annual incentive compensation.
  • AFFO per diluted share for the 2014 second quarter was $1.21, which included the impact of: (i) properties acquired in the CPA®:16 Merger for three months, versus two months for the 2014 first quarter; and (ii) 30.7 million shares issued in connection with the CPA®:16 Merger in weighted average shares outstanding for three months, versus two months for the 2014 first quarter. This compares to AFFO per diluted share for the 2014 first quarter of $1.31, which also included the impact of a tax benefit in connection with the payment of annual incentive compensation.
  • Compared to the 2013 second quarter, AFFO and AFFO per diluted share increased 68.3% and 15.2%, respectively, from $72.6 million, or $1.05 per diluted share, due primarily to additional real estate revenues from properties acquired in the CPA®:16 Merger.
  • Note: Further information concerning AFFO, a non-GAAP supplemental performance metric, is presented in the accompanying tables and related notes.

Dividend

  • As previously announced, on June 19, 2014 the Company's Board of Directors declared a quarterly cash dividend of $0.90 per share, equivalent to an annualized dividend rate of $3.60 per share, which was paid on July 15, 2014 to stockholders of record as of the close of business on June 30, 2014. The dividend represented a 0.6% increase over the 2014 first quarter and was the Company's 53rd consecutive quarterly increase.

AFFO GUIDANCE

  • The Company has raised its 2014 full year AFFO guidance range to $4.62 to $4.82 per diluted share, up from its previously announced range of $4.40 to $4.65 per diluted share, based on assumed full year 2014 total acquisition volume of approximately $1.9 billion to $2.6 billion, including approximately $1.4 billion to $2.0 billion on behalf of the Managed REITs.

BALANCE SHEET AND CAPITALIZATION

Mortgage Prepayments

  • During the 2014 second quarter, in connection with its long-term plan to become a primarily unsecured borrower, the Company prepaid non-recourse mortgage loans with an aggregate outstanding principal balance of $85.0 million, which was in addition to scheduled mortgage loan principal payments totaling $44.9 million.
  • As a result, for the six months ended June 30, 2014, principal prepayments on non-recourse mortgage loans totaled $201.8 million and scheduled mortgage loan principal payments totaled $61.6 million.

OWNED REAL ESTATE PORTFOLIO

Acquisitions and Dispositions

  • During the 2014 second quarter, the Company completed one investment for $47.2 million and disposed of 15 properties for total gross proceeds of $170.6 million as part of its active capital recycling program, intended to extend the portfolio's average lease term, improve overall portfolio credit quality and increase asset criticality within the portfolio.
  • Transactions during the 2014 second quarter brought total acquisitions and dispositions for the six months ended June 30, 2014 to $89.1 million and $298.3 million, respectively.

Composition

  • As of June 30, 2014, the Company's owned portfolio consisted of 686 net-leased properties, comprising 81.8 million square feet leased to 216 tenants, and four operating properties. As of that date, the average lease term of the net-leased portfolio was 8.6 years and the occupancy rate was 98.5%.

INVESTMENT MANAGEMENT

  • W. P. Carey is the advisor to CPA®:17 – Global, CPA®:18 – Global (together the CPA® REITs) and Carey Watermark Investors Incorporated (CWI) (together the Managed REITs). At June 30, 2014, the Managed REITs, in aggregate, had total assets under management of approximately $8.2 billion.

Acquisitions

  • During the 2014 second quarter, the Company structured ten new investments totaling $151.9 million on behalf of the CPA® REITs, bringing total acquisitions for the six months ended June 30, 2014 to $526.8 million. In addition, during the 2014 second quarter the Company structured new investments in five hotels totaling $407.4 million on behalf of CWI.

Fundraising

  • During the 2014 second quarter, the Company raised $492.4 million on behalf of the Managed REITs, comprised of $398.7 million on behalf of CPA®:18 – Global in its initial public offering and $93.7 million on behalf of CWI in its follow-on offering, bringing the total raised on behalf of the Managed REITs during the six months ended June 30, 2014 to $909.0 million.
  • In May 2014, the board of directors of CPA®:18 – Global approved the discontinuation of sales of its Class A common stock through June 30, 2014 in order to moderate the pace of its fundraising. In order to facilitate the final sales of Class A shares as of June 30, 2014 and the continued sale of Class C shares, the board of directors of CPA®:18 – Global also approved the reallocation to its initial public offering of up to $250.0 million of the shares that were initially allocated to sales of its stock through its dividend reinvestment plan.

Supplemental Information

The Company has provided supplemental unaudited financial and operating information regarding the 2014 second quarter, including a description of non-GAAP financial measures and reconciliations to GAAP measures, in a Current Report on Form 8-K filed with the SEC on August 5, 2014.

Live Conference Call and Audio Webcast Scheduled for 11:00 a.m. Eastern Time
Please call to register at least 15 minutes prior to the start time.

Date/Time: Tuesday, August 5, 2014 at 11:00 a.m. Eastern Time
Call-in Number: +1-877-317-6789 (US) or +1-412-317-6789 (international)
Audio Webcast: www.wpcarey.com/earnings 

Audio Webcast Replay

An audio replay of the call will be available at www.wpcarey.com/earnings.

W. P. Carey Inc.
W. P. Carey Inc. is a leading global net-lease REIT that provides long-term sale-leaseback and build-to-suit financing solutions for companies worldwide. At June 30, 2014, the Company had an enterprise value of approximately $9.9 billion. In addition to its owned portfolio of diversified global real estate, W. P. Carey manages a series of non-traded REITs with assets under management of approximately $8.2 billion. Its corporate finance-focused credit and real estate underwriting process is a constant that has been successfully leveraged across a wide variety of industries and property types. Furthermore, its portfolio of long-term leases with creditworthy tenants has an established history of generating stable cash flows, enabling it to deliver consistent and rising dividend income to investors for over four decades.
www.wpcarey.com

Cautionary Statement Concerning Forward-Looking Statements:

Certain of the matters discussed in this communication constitute forward-looking statements within the meaning of the Act and the Exchange Act, both as amended by the Private Securities Litigation Reform Act of 1995. The forward-looking statements include, among other things, statements regarding the intent, belief, or expectations of W. P. Carey and can be identified by the use of words such as "may," "will," "should," "would," "assume," "outlook," "seek," "plan," "believe," "expect," "anticipate," "intend," "estimate," "forecast," and other comparable terms. These forward-looking statements include, but are not limited to, the statements made by Mr. Bond as well as statements regarding the benefits of the CPA®:16 Merger, annualized dividends, funds from operations coverage and guidance, plans to become a primarily unsecured borrower through mortgage prepayments, and with regard to its capital recycling and intended results thereof, and anticipated future financial and operating performance and results, including estimates of growth. These statements are based on the current expectations of the management of W. P. Carey. It is important to note that W. P. Carey's actual results could be materially different from those projected in such forward-looking statements. There are a number of risks and uncertainties that could cause actual results to differ materially from the forward-looking statements. Other unknown or unpredictable factors could also have material adverse effects on future results, performance, or achievements of W. P. Carey. Discussions of some of these other important factors and assumptions are contained in W. P. Carey's filings with the SEC and are available at the SEC's website at http://www.sec.gov, including Item 1A.  Risk Factors in W. P. Carey's Annual Report on Form 10-K for the year ended December 31, 2013 as filed with the SEC on March 3, 2014. In light of these risks, uncertainties, assumptions, and factors, the forward-looking events discussed in this communication may not occur. Readers are cautioned not to place undue reliance on these forward-looking statements, which speak only as of the date of this communication, unless noted otherwise. Except as required under the federal securities laws and the rules and regulations of the SEC, W. P. Carey does not undertake any obligation to release publicly any revisions to the forward-looking statements to reflect events or circumstances after the date of this communication or to reflect the occurrence of unanticipated events.

Institutional Investors:
Peter Sands
W. P. Carey Inc.
212-492-1110
psands@wpcarey.com

Individual Investors:
W. P. Carey Inc.
212-492-8920
ir@wpcarey.com

Press Contact: 
Guy Lawrence
Ross & Lawrence
212-308-3333
gblawrence@rosslawpr.com

 

 

W. P. CAREY INC.

Consolidated Balance Sheets (Unaudited)

(in thousands)


June 30, 2014


December 31, 2013

Assets






Investments in real estate:






Real estate, at cost

$

4,497,999



$

2,516,325


Operating real estate, at cost

84,544



6,024


Accumulated depreciation

(217,155)



(168,958)


Net investments in properties

4,365,388



2,353,391


Net investments in direct financing leases

880,000



363,420


Assets held for sale



86,823


Equity investments in real estate and the Managed REITs

211,225



530,020


Net investments in real estate

5,456,613



3,333,654


Cash and cash equivalents

214,971



117,519


Due from affiliates

39,516



32,034


Goodwill

698,891



350,208


In-place lease intangible assets, net

966,406



467,127


Above-market rent intangible assets, net

570,498



241,975


Other assets, net

346,853



136,433


Total Assets

$

8,293,748



$

4,678,950








Liabilities and Equity






Liabilities:






Non-recourse debt

$

2,823,415



$

1,492,410


Senior credit facility and unsecured term loan

476,700



575,000


Senior unsecured notes

498,255




Below-market rent and other intangible liabilities, net

180,364



128,202


Accounts payable, accrued expenses and other liabilities

298,432



166,385


Deferred income taxes

87,991



39,040


Distributions payable

90,610



67,746


Total liabilities

4,455,767



2,468,783


Redeemable noncontrolling interest

6,418



7,436








Equity:






W. P. Carey stockholders' equity:






Preferred stock (None issued)




Common stock

100



69


Additional paid-in capital

4,024,039



2,256,503


Distributions in excess of accumulated earnings

(327,460)



(318,577)


Deferred compensation obligation

30,624



11,354


Accumulated other comprehensive income

14,215



15,336


Less: treasury stock at cost

(60,948)



(60,270)


Total W. P. Carey stockholders' equity

3,680,570



1,904,415


Noncontrolling interests

150,993



298,316


Total equity

3,831,563



2,202,731


Total Liabilities and Equity

$

8,293,748



$

4,678,950


 

 

W. P. CAREY INC.

Quarterly Consolidated Statements of Income (Unaudited)

(in thousands, except share and per share amounts)


Three Months Ended


June 30, 2014


March 31, 2014


June 30, 2013

Revenues




(Revised) (a)




Real estate revenues:









     Lease revenues

$

148,253



$

123,068



$

73,984


     Reimbursable tenant costs

5,749



6,014



3,040


     Operating property revenues

8,251



4,992



231


     Lease termination income and other

14,481



1,000



402



176,734



135,074



77,657


Revenues from the Managed REITs:









     Reimbursable costs

41,925



39,732



15,467


     Structuring revenue

17,254



17,750



6,422


     Asset management revenue

9,045



9,777



10,355


     Dealer manager fees

7,949



6,676



2,320



76,173



73,935



34,564



252,907



209,009



112,221


Operating Expenses









  Depreciation and amortization

63,445



52,673



29,772


  Reimbursable tenant and affiliate costs

47,674



45,746



18,507


  General and administrative

19,133



22,671



14,545


  Property expenses, excluding 
  reimbursable tenant costs

11,209



8,418



2,282


  Stock-based compensation expense

7,957



7,043



8,429


  Dealer manager fees and expenses

6,285



5,424



3,163


  Subadvisor fees

2,451



18



985


  Impairment charges

2,066






  Merger and acquisition expenses

1,137



29,613



3,128



161,357



171,606



80,811


Other Income and Expenses









Net income from equity investments in real estate and the Managed REITs

9,452



14,262



32,541


Gain on change in control of interests (a)



104,645




Interest expense

(47,733)



(39,075)



(25,750)


Other income and (expenses)

(883)



(5,451)



2,450



(39,164)



74,381



9,241


Income from continuing operations before income taxes

52,386



111,784



40,651


(Provision for) benefit from income taxes

(8,053)



(2,240)



1,134


Income from continuing operations before (loss) gain on sale of real estate

44,333



109,544



41,785


Income from discontinued operations, net of tax

26,460



6,392



4,364


(Loss) gain on sale of real estate, net of tax

(3,821)



80



(333)


Net Income

66,972



116,016



45,816


Net income attributable to noncontrolling interests

(2,344)



(1,578)



(2,692)


Net loss (income) attributable to redeemable noncontrolling interest

111



(262)



43


Net Income Attributable to W. P. Carey

$

64,739



$

114,176



$

43,167


Basic Earnings Per Share









Income from continuing operations attributable to W. P. Carey

$

0.38



$

1.20



$

0.57


Income from discontinued operations attributable to W. P. Carey

0.26



0.07



0.06


Net Income Attributable to W. P. Carey

$

0.64



$

1.27



$

0.63


Diluted Earnings Per Share









Income from continuing operations attributable to W. P. Carey

$

0.38



$

1.19



$

0.56


Income from discontinued operations attributable to W. P. Carey

0.26



0.07



0.06


Net Income Attributable to W. P. Carey

$

0.64



$

1.26



$

0.62


Weighted Average Shares Outstanding









Basic

100,236,362



89,366,055



68,406,771


Diluted

100,995,225



90,375,311



69,493,902


Amounts Attributable to W. P. Carey









Income from continuing operations, net of tax

$

38,236



$

107,636



$

39,133


Income from discontinued operations, net of tax

26,503



6,540



4,034


Net Income

$

64,739



$

114,176



$

43,167


Distributions Declared Per Share

$

0.900



$

0.895



$

0.840


 

 


W. P. CAREY INC.

Year-to-Date Consolidated Statements of Income (Unaudited)

(in thousands, except share and per share amounts)


Six Months Ended June 30,


2014 (a)


2013


Revenues






Real estate revenues:






     Lease revenues

$

271,320



$

146,444


     Reimbursable tenant costs

11,763



6,157


     Operating property revenues

13,244



458


     Lease termination income and other

15,479



1,082



311,806



154,141


Revenues from the Managed REITs:






     Reimbursable costs

81,657



27,435


     Structuring revenue

35,005



12,764


     Asset management revenue

18,822



20,369


     Dealer manager fees

14,626



3,542



150,110



64,110



461,916



218,251


Operating Expenses






Depreciation and amortization

116,118



59,147


Reimbursable tenant and affiliate costs

93,420



33,592


General and administrative

41,802



31,596


Merger and acquisition expenses

30,751



3,249


Property expenses, excluding reimbursable tenant costs

19,627



4,047


Stock-based compensation expense

15,000



17,578


Dealer manager fees and expenses

11,710



5,126


Subadvisor fees

2,469



1,670


Impairment charges

2,066





332,963



156,005


Other Income and Expenses






Net income from equity investments in real estate and the Managed REITs

23,714



43,197


Gain on change in control of interests (a)

104,645




Interest expense

(86,808)



(51,334)


Other income and (expenses)

(6,335)



3,849



35,216



(4,288)


Income from continuing operations before income taxes

164,169



57,958


(Provision for) benefit from income taxes

(10,293)



2,341


Income from continuing operations before loss on sale of real estate

153,876



60,299


Income from discontinued operations, net of tax

32,853



1,688


Loss on sale of real estate, net of tax

(3,742)



(332)


Net Income

182,987



61,655


Net income attributable to noncontrolling interests

(3,921)



(4,400)


Net (income) loss attributable to redeemable noncontrolling interest

(151)



93


Net Income Attributable to W. P. Carey

$

178,915



$

57,348


Basic Earnings Per Share






Income from continuing operations attributable to W. P. Carey

$

1.53



$

0.81


Income from discontinued operations attributable to W. P. Carey

0.35



0.02


Net Income Attributable to W. P. Carey

$

1.88



$

0.83


Diluted Earnings Per Share






Income from continuing operations attributable to W. P. Carey

$

1.52



$

0.80


Income from discontinued operations attributable to W. P. Carey

0.34



0.01


Net Income Attributable to W. P. Carey

$

1.86



$

0.81


Weighted Average Shares Outstanding






Basic

94,855,067



68,776,108


Diluted

95,857,916



69,870,849


Amounts Attributable to W. P. Carey






Income from continuing operations, net of tax

$

145,884



$

56,268


Income from discontinued operations, net of tax

33,031



1,080


Net Income

$

178,915



$

57,348


Distributions Declared Per Share

$

1.795



$

1.660



(a) Gain on change in control of interests for the three months ended March 31, 2014 represents a gain of $74.4 million recognized on our previously-held interest in shares of CPA®:16 – Global common stock, and a gain of $30.2 million recognized on the purchase of the remaining interests in nine investments from CPA®:16 – Global, which we had previously accounted for under the equity method. During the six months ended June 30, 2014, one of these investments was sold. During the second quarter of 2014, we identified certain measurement period adjustments which increased the fair value of our previously-held interest in shares of CPA®:16 – Global common stock by $1.3 million. We did not record this adjustment during the three months ended June 30, 2014 but rather in the three months ended March 31, 2014. Consequently, amounts presented above for gain on change in control of interests and net income for the three months ended March 31, 2014 differ from amounts presented in the first quarter filings.

 

 

W. P. CAREY INC.

Quarterly Reconciliation of Net Income to Adjusted Funds From Operations (AFFO) (Unaudited)

(in thousands, except share and per share amounts)



Three Months Ended


June 30, 2014


March 31, 2014


June 30, 2013

Real Estate Ownership




(Revised) (a)




Net income from Real Estate Ownership attributable to W. P. Carey

$

61,469



$

111,691



$

43,107


Adjustments:









Depreciation and amortization of real property

62,354



51,620



30,170


Impairment charges

2,066





1,671


Gain on sale of real estate, net

(25,582)



(3,176)



(981)


Proportionate share of adjustments to equity in net income of partially-owned entities to arrive at FFO

533



1,265



(16,304)


Proportionate share of adjustments for noncontrolling interests to arrive at FFO

(2,586)



(3,492)



(4,247)


Total adjustments

36,785



46,217



10,309


FFO (as defined by NAREIT) - Real Estate Ownership

98,254



157,908



53,416


Adjustments:









Gain on change in control of interests (a)



(104,645)




Merger and acquisition expenses (b)

915



29,511



218


Loss (gain) on extinguishment of debt

721



7,463



(141)


Other gains, net

(13)



(3)




Other depreciation, amortization and non-cash charges

1,719



483



(515)


Stock-based compensation

220



220



911


Deferred tax benefit

(1,246)



(5,944)



(21)


Acquisition expenses (c)

224



100



2,909


Realized losses on foreign currency, derivatives and other

156



655



102


Amortization of deferred financing costs

999



873



549


Straight-line and other rent adjustments

(8,999)



(2,669)



(2,277)


Above- and below-market rent intangible lease amortization, net

17,124



13,486



7,237


Proportionate share of adjustments to equity in net income of partially-owned entities to arrive at AFFO

(32)



5



279


AFFO adjustments to equity earnings from equity investments

935



2,936



10,718


Proportionate share of adjustments for noncontrolling interests to arrive at AFFO

259



(1,417)



(1,083)


Total adjustments

12,982



(58,946)



18,886


AFFO - Real Estate Ownership

$

111,236



$

98,962



$

72,302











Investment Management









Net income from Investment Management attributable to W. P. Carey

$

3,270



$

2,485



$

60


FFO (as defined by NAREIT) - Investment Management

3,270



2,485



60


Adjustments:









Merger-related income tax expense (b)



13,867




Other depreciation, amortization and other non-cash charges



937



253


Stock-based compensation

7,737



6,823



7,518


Deferred tax benefit



(4,986)



(7,815)


Realized losses on foreign currency

3



6



2


Amortization of deferred financing costs



152



318


Total adjustments

7,740



16,799



276


AFFO - Investment Management

$

11,010



$

19,284



$

336











Total Company









FFO (as defined by NAREIT)

$

101,524



$

160,393



$

53,476


FFO (as defined by NAREIT) per diluted share

$

1.01



$

1.77



$

0.77


AFFO

$

122,246



$

118,246



$

72,638


AFFO per diluted share

$

1.21



$

1.31



$

1.05


Diluted weighted average shares outstanding

100,995,225



90,375,311



69,493,902


 

 

W. P. CAREY INC.

Year-to-Date Reconciliation of Net Income to Adjusted Funds From Operations (AFFO) (Unaudited)

(in thousands, except share and per share amounts)



Six Months Ended June 30,


2014 (a)


2013


Real Estate Ownership






Net income from Real Estate Ownership attributable to W. P. Carey

$

173,157



$

59,799


Adjustments:






Depreciation and amortization of real property

113,974



59,857


Impairment charges

2,066



4,950


Gain on sale of real estate, net

(28,758)



(50)


Proportionate share of adjustments to equity in net income of partially-owned entities to arrive at FFO

1,798



(13,150)


Proportionate share of adjustments for noncontrolling interests to arrive at FFO

(6,078)



(8,514)


Total adjustments

83,002



43,093


FFO (as defined by NAREIT) - Real Estate Ownership

256,159



102,892


Adjustments:






Gain on change in control of interests (a)

(104,645)




Merger and acquisition expenses (b)

30,426



329


Loss (gain) on extinguishment of debt

8,184



(67)


Other gains, net

(16)



(270)


Other depreciation, amortization and non-cash charges

2,202



285


Stock-based compensation

440



1,085


Deferred tax benefit

(7,190)



(1,046)


Acquisition expenses (c)

325



2,909


Realized losses on foreign currency, derivatives and other

811



154


Amortization of deferred financing costs

1,872



1,060


Straight-line and other rent adjustments

(11,668)



(4,446)


Above- and below-market rent intangible lease amortization, net

30,610



14,493


Proportionate share of adjustments to equity in net income of partially-owned entities to arrive at AFFO

(27)



557


AFFO adjustments to equity earnings from equity investments

3,872



19,967


Proportionate share of adjustments for noncontrolling interests to arrive at AFFO

(1,158)



(2,644)


Total adjustments

(45,962)



32,366


AFFO - Real Estate Ownership

$

210,197



$

135,258








Investment Management






Net income (loss) from Investment Management attributable to W. P. Carey

$

5,758



$

(2,451)


FFO (as defined by NAREIT) - Investment Management

5,758



(2,451)


Adjustments:






Merger-related income tax expense

13,867




Other depreciation, amortization and other non-cash charges

937



515


Stock-based compensation

14,560



16,493


Deferred tax benefit

(4,986)



(5,562)


Realized losses on foreign currency

9



4


Amortization of deferred financing costs

152



636


Total adjustments

24,539



12,086


AFFO - Investment Management

$

30,297



$

9,635








Total Company






FFO (as defined by NAREIT)

$

261,917



$

100,441


FFO (as defined by NAREIT) per diluted share

$

2.73



$

1.44


AFFO

$

240,494



$

144,893


AFFO per diluted share

$

2.51



$

2.07


Diluted weighted average shares outstanding

95,857,916



69,870,849



(a) Gain on change in control of interests for the three months ended March 31, 2014 represents a gain of $74.4 million recognized on our previously-held interest in shares of CPA®:16 – Global common stock, and a gain of $30.2 million recognized on the purchase of the remaining interests in nine investments from CPA®:16 – Global, which we had previously accounted for under the equity method. During the six months ended June 30, 2014, one of these investments was sold. During the second quarter of 2014, we identified certain measurement period adjustments which increased the fair value of our previously-held interest in shares of CPA®:16 – Global common stock by $1.3 million. We did not record this adjustment during the three months ended June 30, 2014 but rather in the three months ended March 31, 2014. Consequently, amounts presented above for gain on change in control of interests and net income for the three months ended March 31, 2014 differ from amounts presented in the first quarter filings.


(b) Amount for the three months ended March 31, 2014 and the six months ended June 30, 2014 included $29.5 million and $30.4 million, respectively, of merger expenses for the Real Estate Ownership segment and $13.9 million of merger-related income tax expense for both periods for the Investment Management segment incurred in connection with the CPA®:16 Merger.


(c) Prior to the second quarter of 2013, this amount was insignificant and therefore not included in the AFFO calculation.

 

Non-GAAP Financial Disclosure

Funds from Operations, or FFO, is a non-GAAP measure defined by the National Association of Real Estate Investment Trusts, or NAREIT. NAREIT defines FFO as net income or loss (as computed in accordance with GAAP) excluding: depreciation and amortization expense from real estate assets, impairment charges on real estate, gains or losses from sales of depreciated real estate assets, and extraordinary items; however, FFO related to assets held for sale, sold, or otherwise transferred and included in the results of discontinued operations are included. These adjustments also incorporate the pro rata share of unconsolidated subsidiaries. FFO is used by management, investors, and analysts to facilitate meaningful comparisons of operating performance between periods and among our peers. Although NAREIT has published this definition of FFO, companies often modify this definition as they seek to provide financial measures that meaningfully reflect their distinctive operations.

We modify the NAREIT computation of FFO to include other adjustments to GAAP net income to adjust for certain non-cash charges such as amortization of real estate-related intangibles, deferred income tax benefits and expenses, straight-line rents, stock compensation, gains or losses from extinguishment of debt and deconsolidation of subsidiaries, and unrealized foreign currency exchange gains and losses. Our assessment of our operations is focused on long-term sustainability and not on such non-cash items, which may cause short-term fluctuations in net income but have no impact on cash flows. Additionally, we exclude acquisition expenses and non-core expenses such as merger expenses. Merger expenses are related to the CPA®:16 Merger. We also exclude realized gains or losses on foreign exchange and derivatives which are not considered fundamental attributes of our business plan and do not affect our overall long-term operating performance. We refer to our modified definition of FFO as AFFO. We exclude these items from GAAP net income as they are not the primary drivers in our decision making process and excluding those items provides investors a view of our portfolio performance over time and make it more comparable to other REITs not currently engaged in acquisitions, mergers, and restructuring, which are not part of our normal business operations. We use AFFO as one measure of our operating performance when we formulate corporate goals, evaluate the effectiveness of our strategies, and determine executive compensation.

We believe that AFFO is a useful supplemental measure for investors to consider because it will help them to better assess the sustainability of our operating performance without the potentially distorting impact of these short-term fluctuations. However, there are limits on the usefulness of AFFO to investors. For example, impairment charges and unrealized foreign currency losses that we exclude may become actual realized losses upon the ultimate disposition of the properties in the form of lower cash proceeds or other considerations. We use our FFO and AFFO measures as supplemental financial measures of operating performance. We do not use our FFO and AFFO measures as, nor should they be considered to be, alternatives to net earnings computed under GAAP or as alternatives to cash from operating activities computed under GAAP or as indicators of our ability to fund our cash needs.

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SOURCE W. P. Carey Inc.



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