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

o		TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

Commission File Number: 000-50249

CORPORATE PROPERTY ASSOCIATES 15 INCORPORATED

(Exact name of registrant as specified in its charter)

Maryland		52-2298116
(State of incorporation)		(I.R.S. Employer Identification No.)
50 Rockefeller Plaza
New York, New York		10020
(Address of principal executive office)		(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 o 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 129,895,892 shares of common stock, $0.001 par value, outstanding at May 9, 2011.

 

 

INDEX

		Page No.
PART I — FINANCIAL INFORMATION
Item 1. Financial Statements (Unaudited)
Consolidated Balance Sheets			2
Consolidated Statements of Income			3
Consolidated Statements of Comprehensive Income (Loss)			4
Consolidated Statements of Cash Flows			5
Notes to Consolidated Financial Statements			7
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations			21
Item 3. Quantitative and Qualitative Disclosures About Market Risk			34
Item 4. Controls and Procedures			36
PART II — OTHER INFORMATION
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds			37
Item 6. Exhibits			37
Signatures			38
Exhibit 31.1
Exhibit 31.2
Exhibit 32

Forward-Looking Statements

This Quarterly Report on Form 10-Q (the “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 which 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 (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, 2010 as filed with the SEC on March 31, 2011 (the “2010 Annual Report”). We do not undertake to revise or update any forward-looking statements. Additionally, a description of our critical accounting estimates is included in the Management’s Discussion and Analysis of Financial Condition and Results of Operations section of our 2010 Annual Report. There has been no significant change in our critical accounting estimates.

CPA^®:15 3/31/2011 10-Q — 1

PART I

Item 1.		Financial Statements

CORPORATE PROPERTY ASSOCIATES 15 INCORPORATED

CONSOLIDATED BALANCE SHEETS (UNAUDITED)

(in thousands, except share amounts)

		March 31, 2011				December 31, 2010
Assets
Investments in real estate:
Real estate, at cost (inclusive of amounts attributable to consolidated variable interest entities (“VIEs”) of $7,861 and $7,861, respectively)		$	2,125,784			$	2,091,380
Accumulated depreciation (inclusive of amounts attributable to consolidated VIEs of $1,210 and $1,167, respectively)			(315,777	)			(298,531	)
Net investments in properties			1,810,007				1,792,849
Net investments in direct financing leases			331,790				323,166
Equity investments in real estate			204,935				181,000
Assets held for sale			—				739
Net investments in real estate			2,346,732				2,297,754
Cash and cash equivalents (inclusive of amounts attributable to consolidated VIEs of $688 and $561, respectively)			84,143				104,673
Intangible assets, net (inclusive of amounts attributable to consolidated VIEs of $632 and $645, respectively)			160,895				163,610
Other assets, net (inclusive of amounts attributable to consolidated VIEs of $834 and $833, respectively)			131,663				128,018
Total assets		$	2,723,433			$	2,694,055
Liabilities and Equity
Liabilities:
Non-recourse debt (inclusive of amounts attributable to consolidated VIEs of $4,429 and $4,480, respectively)		$	1,512,569			$	1,494,600
Accounts payable, accrued expenses and other liabilities (inclusive of amounts attributable to consolidated VIEs of $271 and $271, respectively)			39,249				40,587
Prepaid and deferred rental income and security deposits (inclusive of amounts attributable to consolidated VIEs of $69 and $63, respectively)			67,149				65,443
Due to affiliates			12,612				16,003
Distributions payable			23,504				23,333
Total liabilities			1,655,083				1,639,966
Commitments and contingencies (Note 10)
Equity:
CPA®:15 shareholders’ equity:
Common stock $0.001 par value; authorized 240,000,000 shares; issued and outstanding, 145,415,566 and 144,680,751 shares, respectively			145				145
Additional paid-in capital			1,353,830				1,346,230
Distributions in excess of accumulated earnings			(341,357	)			(330,380	)
Accumulated other comprehensive income (loss)			3,874				(10,099	)
Less, treasury stock at cost, 16,191,899 and 16,191,899 shares, respectively			(170,580	)			(170,580	)
Total CPA®:15 shareholders’ equity			845,912				835,316
Noncontrolling interests			222,438				218,773
Total equity			1,068,350				1,054,089
Total liabilities and equity		$	2,723,433			$	2,694,055

See Notes to Consolidated Financial Statements.

CPA^®:15 3/31/2011 10-Q — 2

CORPORATE PROPERTY ASSOCIATES 15 INCORPORATED

CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED)

(in thousands, except share and per share amounts)

		Three Months Ended March 31,
		2011				2010
Revenues
Rental income		$	55,202			$	58,567
Interest income from direct financing leases			7,386				7,982
Other operating income			1,904				1,713
			64,492				68,262
Operating Expenses
General and administrative			(2,124	)			(2,175	)
Depreciation and amortization			(14,535	)			(15,113	)
Property expenses			(9,340	)			(10,014	)
Impairment charges			(8,562	)			—
Allowance for credit losses			(1,357	)			—
			(35,918	)			(27,302	)
Other Income and Expenses
Other interest income			446				384
Income from equity investments in real estate			3,689				2,546
Other income and (expenses)			1,658				(774	)
Interest expense			(21,870	)			(23,414	)
			(16,077	)			(21,258	)
Income from continuing operations before income taxes			12,497				19,702
Provision for income taxes			(1,370	)			(1,314	)
Income from continuing operations			11,127				18,388
Discontinued Operations
Loss from operations of discontinued properties			(166	)			(300	)
Gain on deconsolidation of a subsidiary			4,501				—
Gain (loss) on sale of real estate			658				(162	)
Income (loss) from discontinued operations			4,993				(462	)
Net Income			16,120				17,926
Less: Net income attributable to noncontrolling interests			(3,592	)			(7,826	)
Net Income Attributable to CPA®:15 Shareholders		$	12,528			$	10,100
Earnings Per Share
Income from continuing operations attributable to CPA®:15 shareholders		$	0.06			$	0.09
Income (loss) from discontinued operations attributable to CPA®:15 shareholders			0.04				(0.01	)
Net income attributable to CPA®:15 shareholders		$	0.10			$	0.08
Weighted Average Shares Outstanding			128,943,711				126,250,242
Amounts Attributable to CPA®:15 shareholders
Income from continuing operations, net of tax		$	7,529			$	10,943
Income (loss) from discontinued operations, net of tax			4,999				(843	)
Net income		$	12,528			$	10,100
Distributions Declared Per Share		$	0.1819			$	0.1807

See Notes to Consolidated Financial Statements.

CPA^®:15 3/31/2011 10-Q — 3

CORPORATE PROPERTY ASSOCIATES 15 INCORPORATED

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS) (UNAUDITED)

(in thousands)

		Three Months Ended March 31,
		2011				2010
Net Income		$	16,120			$	17,926
Other Comprehensive Income (Loss):
Foreign currency translation adjustments			13,847				(12,798	)
Change in unrealized appreciation on marketable securities			28				162
Change in unrealized gain (loss) on derivative instruments			4,498				(3,528	)
			18,373				(16,164	)
Comprehensive income			34,493				1,762
Amounts Attributable to Noncontrolling Interests:
Net income			(3,592	)			(7,826	)
Foreign currency translation adjustments			(3,279	)			3,626
Change in unrealized (gain) loss on derivative instruments			(1,121	)			974
Comprehensive income attributable to noncontrolling interests			(7,992	)			(3,226	)
Comprehensive Income (Loss) Attributable to CPA®:15 Shareholders		$	26,501			$	(1,464	)

See Notes to Consolidated Financial Statements.

CPA^®:15 3/31/2011 10-Q — 4

CORPORATE PROPERTY ASSOCIATES 15 INCORPORATED

CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)

(in thousands)

		Three Months Ended March 31,
		2011				2010
Cash Flows — Operating Activities
Net income		$	16,120			$	17,926
Adjustments to net income:
Depreciation and amortization including intangible assets and deferred financing costs			14,783				15,736
Income from equity investments in real estate in excess of distributions received			(1,260	)			(246	)
Issuance of shares to affiliate in satisfaction of fees due			2,766				2,834
Straight-line rent and financing lease adjustments			1,315				1,994
Gain on deconsolidation of a subsidiary			(4,501	)			—
(Gain) loss on sale of real estate			(658	)			162
Unrealized (gain) loss on foreign currency transactions and others			(1,157	)			741
Realized (gain) loss on foreign currency transactions and others			(172	)			33
Impairment charges			8,562				—
Allowance for credit losses			1,357				—
Increase in cash held in escrow for operating activities			(34	)			(34	)
Net changes in other operating assets and liabilities			(2,558	)			1,043
Net cash provided by operating activities			34,563				40,189
Cash Flows — Investing Activities
Distributions received from equity investments in real estate in excess of equity income			17,061				1,582
Capital contributions to equity investments			(35,329	)			—
VAT paid in connection with acquisition of real estate			(625	)			—
Capital expenditures			(14	)			(70	)
Proceeds from sale of real estate			2,358				6,154
Funds placed in escrow			(8,032	)			(20,985	)
Funds released from escrow			6,399				10,192
Payment of deferred acquisition fees to an affiliate			(2,212	)			(3,530	)
Net cash used in investing activities			(20,394	)			(6,657	)
Cash Flows — Financing Activities
Distributions paid			(23,334	)			(22,698	)
Contributions from noncontrolling interests			2,858				621
Distributions to noncontrolling interests			(7,185	)			(7,908	)
Scheduled payments of mortgage principal			(39,327	)			(18,030	)
Proceeds from mortgage financing			20,000				—
Funds placed in escrow			(9,485	)			(9,865	)
Funds released from escrow			15,166				15,072
Deferred financing costs and mortgage deposits			(86	)			—
Proceeds from issuance of shares, net of issuance costs			4,834				4,927
Purchase of treasury stock			—				(649	)
Net cash used in financing activities			(36,559	)			(38,530	)
Change in Cash and Cash Equivalents During the Period
Effect of exchange rate changes on cash			1,860				(1,537	)
Net decrease in cash and cash equivalents			(20,530	)			(6,535	)
Cash and cash equivalents, beginning of period			104,673				69,379
Cash and cash equivalents, end of period		$	84,143			$	62,844

(Continued)

CPA^®:15 3/31/2011 10-Q — 5

CORPORATE PROPERTY ASSOCIATES 15 INCORPORATED

CONSOLIDATED STATEMENTS OF CASH FLOWS CONTINUED (UNAUDITED)

Supplemental noncash investing activities (in thousands):

During the three months ended March 31, 2011, we deconsolidated a wholly-owned subsidiary as a result of losing control over the activities that most significantly impact its economic performance following possession of the property by the receiver (Note 14). The following table presents the assets and liabilities of the subsidiary on the date of deconsolidation:

Assets:
Net investments in properties		$	2,721
Other assets, net			200
Total		$	2,921
Liabilities:
Non-recourse debt		$	(6,143	)
Accounts payable, accrued expenses and other liabilities			(272	)
Prepaid and deferred rental income and security deposits			(1,007	)
Total		$	(7,422	)

See Notes to Consolidated Financial Statements.

CPA^®:15 3/31/2011 10-Q — 6

CORPORATE PROPERTY ASSOCIATES 15 INCORPORATED

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

Note 1. Business and Organization

Corporate Property Associates 15 Incorporated (“CPA^®:15” and, together with its consolidated subsidiaries and predecessors, “we”, “us” or “our”) is a publicly owned, non-listed real estate investment trust (“REIT”) that invests primarily in commercial properties leased to companies domestically and internationally. As a REIT, we are not subject to United States (“U.S.”) federal income taxation as long as we satisfy certain requirements, principally relating to the nature of our income, the level of our distributions and other factors. We earn revenue principally by leasing the properties we own to single corporate tenants, primarily on a triple-net leased basis, which requires the tenant to pay substantially all of the costs associated with operating and maintaining the property. Revenue is subject to fluctuation because of the timing of new lease transactions, lease terminations, lease expirations, contractual rent adjustments, tenant defaults and sales of properties. At March 31, 2011, our portfolio was comprised of our full or partial ownership interests in 351 properties, substantially all of which were triple-net leased to 80 tenants, and totaled approximately 30 million square feet (on a pro rata basis), with an occupancy rate of approximately 97%. We were formed in 2001 and are managed by W. P. Carey & Co. LLC (“WPC”) and its subsidiaries (collectively, the “advisor”).

Note 2. Basis of Presentation

Our interim consolidated financial statements have been prepared, without audit, 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 U.S. (“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 results of operations, financial position 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, 2010, which are included in our 2010 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 fiscal 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. Certain prior year amounts have been reclassified to conform to the current year presentation.

Basis of Consolidation

The consolidated financial statements reflect all of our accounts, including those of our majority-owned and/or controlled subsidiaries. The portion of equity in a subsidiary that is not attributable, directly or indirectly, to us is presented as noncontrolling interests. All significant intercompany accounts and transactions have been eliminated.

Information about International Geographic Areas

At March 31, 2011, our international investments were comprised of investments in the European Union. The following tables present information about these investments (in thousands):

		Three Months Ended March 31,
		2011				2010
Revenues		$	25,318			$	25,402
		March 31, 2011				December 31, 2010
Net investments in real estate		$	975,320			$	908,543

CPA^®:15 3/31/2011 10-Q — 7

Notes to Consolidated Financial Statements

Out-of-Period Adjustment

During the first quarter of 2010, we identified an error in the consolidated financial statements for the third and fourth quarters of 2009. This error related to the recognition of cash received on a note receivable of $0.3 million in both the third and fourth quarters of 2009. As a result of this error, net loss was understated by $0.6 million for the year ended 2009. We concluded this adjustment was not material to our results for the year ended December 31, 2009 or the quarter ended March 31, 2010, and as such, this cumulative change was recorded in the statement of operations in the first quarter of 2010 as an out-of-period adjustment.

Note 3. Agreements and Transactions with Related Parties

Transactions with the Advisor

We have an advisory agreement with the advisor whereby the advisor performs certain services for us for a fee. The agreement that is currently in effect was recently renewed for an additional year pursuant to its terms effective October 1, 2010. Under the terms of this agreement, the advisor manages our day-to-day operations, for which we pay the advisor asset management and performance fees, and structures and negotiates the purchase and sale of investments and debt placement transactions for us, for which we pay the advisor structuring and subordinated disposition fees. In addition, we reimburse the advisor for certain administrative duties performed on our behalf. We also have certain agreements with joint ventures. The following tables present a summary of fees we paid and expenses we reimbursed to the advisor in accordance with the advisory agreement (in thousands):

		Three Months Ended March 31,
		2011				2010
Amounts included in operating expenses:
Asset management fees (a)		$	3,186			$	3,466
Performance fees (a)			3,186				3,466
Personnel reimbursements (b)			902				859
Office rent reimbursements (b)			194				215
		$	7,468			$	8,006
Transaction fees incurred:
Current acquisition fees (c)		$	797			$	—
Deferred acquisition fees (c)(d)			622				—
Mortgage refinancing fees (e)			156				28
		$	1,575			$	28

		March 31, 2011				December 31, 2010
Unpaid transaction fees:
Unpaid deferred acquisition fees		$	2,107			$	3,696
Subordinated disposition fees (f)			7,249				7,249
		$	9,356			$	10,945

CPA^®:15 3/31/2011 10-Q — 8

Notes to Consolidated Financial Statements

Joint Ventures and Other Transactions with Affiliates

We own interests in entities ranging from 15% to 75%, as well as jointly-controlled tenant-in-common interests in properties, with the remaining interests generally held by affiliates. We consolidate certain of these investments and account for the remainder under the equity method of accounting.

Note 4. Net Investments in Properties

Net Investments in Properties

Net Investments in Properties, which consists of land and buildings leased to others, at cost, and accounted for as operating leases, is summarized as follows (in thousands):

		March 31, 2011				December 31, 2010
Land		$	468,917			$	461,495
Buildings			1,656,867				1,629,885
Less: Accumulated depreciation			(315,777	)			(298,531	)
		$	1,810,007			$	1,792,849

We did not acquire real estate assets during the three months ended March 31, 2011. Assets disposed of during the current year period are discussed in Note 14. The U.S. dollar weakened against the Euro, as the end-of-period rate for the U.S. dollar in relation to the Euro at March 31, 2011 increased 6% to $1.4099 from $1.3253 at December 31, 2010. The impact of this weakening was a $39.4 million increase in net investments in properties from December 31, 2010 to March 31, 2011.

Other

In connection with our acquisition of properties, we have recorded net lease intangibles of $275.4 million, which are being amortized over periods ranging from eight to 40 years. In-place lease, tenant relationship and above-market rent intangibles are included in Intangible assets, net in the consolidated financial statements. Below-market rent intangibles are included in Prepaid and deferred rental income and security deposits in the consolidated financial statements. Amortization of below-market and above-market rent intangibles is recorded as an adjustment to Lease revenues, while amortization of in-place lease and tenant relationship intangibles is included in Depreciation and amortization. Net amortization of intangibles, including the effect of foreign currency translation, was $5.0 million and $5.4 million for the three months ended March 31, 2011 and 2010, respectively.

Note 5. Finance Receivables

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

Credit Quality of Finance Receivables

We generally seek investments in facilities that we believe are critical to the tenant’s business and that we believe have a low risk of tenant defaults. At December 31, 2010, none of the balances of our finance receivables were past due and we had not established any allowances for credit losses. At March 31, 2011, we established an allowance of $1.4 million for credit losses on a direct financing lease as a result of tenant experiencing financial difficulties. Additionally, there have been no modifications of finance receivables. We evaluate the credit quality of our tenant receivables utilizing an internal 5-point credit rating scale, with 1 representing the highest credit quality and 5 representing the lowest. The credit quality evaluation of our tenant receivables was last updated in the first quarter of 2011.

CPA^®:15 3/31/2011 10-Q — 9

Notes to Consolidated Financial Statements

A summary of our finance receivables by internal credit quality rating is as follows (dollars in thousands):

		Number of Tenants								Net Investments in Direct Financing Leases
Internal Credit Quality Rating		March 31, 2011				December 31, 2010				March 31, 2011				December 31, 2010
1			2				2			$	36,733			$	36,605
2			6				8				51,767				58,653
3			7				5				231,781				214,908
4			3				3				11,509				13,000
5			—				—				—				—
										$	331,790			$	323,166

Note 6. Equity Investments in Real Estate

We own interests in single-tenant net leased properties leased to corporations through noncontrolling interests in (i) partnerships and limited liability companies that we do not control but over which we exercise significant influence, and (ii) as tenants-in-common subject to common control. Generally, the underlying investments are jointly-owned with affiliates. We account for these investments under the equity method of accounting (i.e., at cost, increased or decreased by our share of earnings or losses, less distributions, plus contributions and other adjustments required by equity method accounting, such as basis differences from other-than-temporary impairments).

The following table sets forth our ownership interests in our equity investments in real estate and their respective carrying values (dollars in thousands):

		Ownership Interest				Carrying Value at
Lessee		at March 31, 2011				March 31, 2011				December 31, 2010
Marriott International, Inc.			47	%		$	64,520			$	65,081
Schuler A.G. (a)			34	%			44,701				42,365
C1000 B.V. (a) (b)			15	%			17,919				—
Hellweg Die Profi-Baumarkte GmbH & Co. KG (a)			38	%			15,961				16,104
Advanced Micro Devices			33	%			14,783				15,296
The Upper Deck Company (c)			50	%			11,092				6,656
PETsMART, Inc.			30	%			8,386				8,241
Hologic, Inc.			64	%			8,207				8,391
Waldaschaff Automotive GmbH and Wagon Automotive Nagold GmbH (a)			33	%			6,723				6,214
The Talaria Company (Hinckley)			30	%			5,682				5,568
Del Monte Corporation			50	%			5,353				5,481
Builders FirstSource, Inc.			40	%			1,561				1,568
SaarOTEC and Goertz & Schiele Corp. (a)			50	%			47				35
						$	204,935			$	181,000

CPA^®:15 3/31/2011 10-Q — 10

Notes to Consolidated Financial Statements

The following tables present combined summarized financial information of our venture properties. Amounts provided are the total amounts attributable to the venture properties and do not represent our proportionate share (in thousands):

		March 31, 2011				December 31, 2010
Assets		$	1,228,398			$	979,051
Liabilities			(719,481	)			(606,385	)
Partners’/members’ equity		$	508,917			$	372,666

		Three Months Ended March 31,
		2011				2010
Revenues		$	27,478			$	28,709
Expenses			(15,574	)			(14,694	)
Impairment charges (a)			—				(8,030	)
Net income		$	11,904			$	5,985

We recognized income from equity investments in real estate of $3.7 million and $2.5 million for the three months ended March 31, 2011 and 2010, respectively. Income from equity investments in real estate represents our proportionate share of the income or losses of these ventures as well as certain depreciation and amortization adjustments related to other-than-temporary impairment charges.

Equity Investment in Real Estate Acquired

In January 2011, we and our affiliate, Corporate Property Associates 17 — Global Incorporated (“CPA^®:17”), acquired a venture as a tenancy-in-common in which we and CPA^®:17 hold interests of 15% and 85%, respectively, and account for under the equity method of accounting. The venture purchased properties from C1000 B.V. (“C1000”), a leading Dutch supermarket chain, for $207.6 million. Our share of the purchase price was $31.1 million, which was funded with our existing cash resources. In connection with this transaction, the venture capitalized acquisition-related costs and fees totaling $12.5 million, of which our share was approximately $1.9 million. In March 2011, the venture obtained non-recourse financing totaling $98.3 million, which bears interest at a variable rate of three-month Euro inter-bank offered rate (“Euribor”) plus 2% and matures in March 2013. Amounts above are based upon the exchange rate of the Euro at the dates of acquisition and financing.

Note 7. Interest in Mortgage Loan Securitization

We account for our subordinated interest in the Carey Commercial Mortgage Trust (“CCMT”) mortgage securitization as an available-for-sale security, which is measured at fair value with all gains and losses from changes in fair value reported as a component of Other comprehensive income (“OCI”) as part of equity. The following table sets forth certain information regarding our interest in CCMT (in thousands):

		Fair Value at
Certificate Class:		March 31, 2011				December 31, 2010
Class IO		$	133			$	203
Class E			10,372				10,236
		$	10,505			$	10,439

		March 31, 2011				December 31, 2010
Aggregate unrealized gain		$	441			$	413
Cumulative net amortization		$	1,935			$	1,973

CPA^®:15 3/31/2011 10-Q — 11

Notes to Consolidated Financial Statements

We use a discounted cash flow model with assumptions of market credit spreads and the credit quality of the underlying lessees to determine the fair value of our interest in CCMT. One key variable in determining the fair value of our subordinated interest in CCMT is current interest rates. The following table presents a sensitivity analysis of the fair value of our interest at March 31, 2011 based on adverse changes in market interest rates of 1% and 2% (in thousands):

		Fair value as of				1% adverse				2% adverse
		March 31, 2011				change				change
Fair value of our interest in CCMT		$	10,505			$	10,372			$	10,240

The above sensitivity analysis is hypothetical, and changes in fair value, based on a 1% or 2% variation, should not be extrapolated because the relationship of the change in assumption to the change in fair value may not always be linear.

Note 8. Fair Value Measurements

Under current authoritative accounting guidance for 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 caps and swaps; and Level 3, for which little or no market data exists, therefore requiring us to develop our own assumptions, such as certain securities.

Items Measured at Fair Value on a Recurring Basis

The following methods and assumptions were used to estimate the fair value of each class of financial instrument:

Money Market Funds— Our money market funds consisted of government securities and U.S. treasury bills. These funds were classified as Level 1 as we used quoted prices from active markets to determine their fair values.

Derivative Liabilities — Our derivative liabilities are comprised of interest rate swaps. These derivative instruments were measured at fair value using readily observable market inputs, such as quotations on interest rates. Our derivative instruments 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.

Other Securities and Derivative Assets — Our other securities are comprised of our interest in a commercial mortgage loan securitization and our investments in equity units in Rave Reviews Cinemas, LLC. Our derivative assets consisted of stock warrants that were granted to us by lessees in connection with structuring initial lease transactions. These assets are not traded in an active market. We estimated the fair value of these assets using internal valuation models that incorporate market inputs and our own assumptions about future cash flows. We classified these assets as Level 3.

CPA^®:15 3/31/2011 10-Q — 12

Notes to Consolidated Financial Statements

The following tables set forth our assets and liabilities that were accounted for at fair value on a recurring basis at March 31, 2011 and December 31, 2010. Assets and liabilities presented below exclude assets and liabilities owned by unconsolidated ventures (in thousands):

						Fair Value Measurements at March 31, 2011 Using:
						Quoted Prices in
						Active Markets for				Significant Other
						Identical Assets				Observable Inputs				Unobservable Inputs
Description		Total				(Level 1)				(Level 2)				(Level 3)
Assets:
Money market funds		$	3,427			$	3,427			$	—			$	—
Other securities			10,580				—				—				10,580
Derivative assets			1,960				—				—				1,960
Total		$	15,967			$	3,427			$	—			$	12,540
Liabilities:
Derivative liabilities		$	(6,433	)		$	—			$	(6,433	)		$	—
Total		$	(6,433	)		$	—			$	(6,433	)		$	—
						Fair Value Measurements at December 31, 2010 Using:
						Quoted Price in
						Active Markets for				Significant Other
						Identical Assets				Observable Inputs				Unobservable Inputs
Description		Total				(Level 1)				(Level 2)				(Level 3)
Assets:
Money market funds		$	51,229			$	51,229			$	—			$	—
Other securities			10,513				—				—				10,513
Derivative assets			1,960				—				—				1,960
Total		$	63,702			$	51,229			$	—			$	12,473
Liabilities:
Derivative liabilities			(10,378	)			—				(10,378	)			—
Total		$	(10,378	)		$	—			$	(10,378	)		$	—

CPA^®:15 3/31/2011 10-Q — 13

Notes to Consolidated Financial Statements

		Fair Value Measurements Using Significant Unobservable Inputs (Level 3 Only)
		Three Months Ended March 31, 2011												Three Months Ended March 31, 2010
		Other				Derivative				Total				Other				Derivative				Total
		Securities				Assets				Assets				Securities				Assets				Assets
Beginning balance		$	10,513			$	1,960			$	12,473			$	9,865			$	1,800			$	11,665
Total gains or losses (realized and unrealized):
Included in earnings			—				—				—				—				80				80
Included in other comprehensive income			29				—				29				163				—				163
Amortization and accretion			38				—				38				(53	)			—				(53	)
Ending balance		$	10,580			$	1,960			$	12,540			$	9,975			$	1,880			$	11,855
The amount of total gains or losses for the period included in earnings attributable to the change in unrealized gains or losses relating to assets still held at the reporting date		$	—			$	—			$	—			$	—			$	80			$	80

We did not have any transfers into or out of Level 1, Level 2 and Level 3 measurements during the three months ended March 31, 2011 and 2010. 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 (in thousands):

		March 31, 2011								December 31, 2010
		Carrying Value				Fair Value				Carrying Value				Fair Value
Non-recourse debt		$	1,512,569			$	1,504,647			$	1,494,600			$	1,479,740

We determined the estimated fair value of our debt instruments using a discounted cash flow model with rates that take into account the credit of the tenants and interest rate risk. 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 March 31, 2011 and December 31, 2010.

Items Measured at Fair Value on a Non-Recurring Basis

We perform an assessment, when required, of the value of certain of our real estate investments in accordance with current authoritative accounting guidance. As part of that assessment, we determined the valuation of these assets using widely accepted valuation techniques, including expected discounted cash flows or an income capitalization approach, which considers prevailing market capitalization rates. We reviewed each investment based on the highest and best use of the investment and market participation assumptions. We determined that the significant inputs used to value these investments fall within Level 3. We calculated the impairment charges recorded during the three months ended March 31, 2011 and 2010 based on market conditions and assumptions that existed at the time. The valuation of real estate is subject to significant judgment and actual results may differ materially if market conditions or the underlying assumptions change.

CPA^®:15 3/31/2011 10-Q — 14

Notes to Consolidated Financial Statements

The following table presents information about our other assets that were measured on a fair value basis for the three months ended March 31, 2011 and 2010. All of the impairment charges and allowance for credit losses were measured using unobservable inputs (Level 3) (in thousands):

		Three Months Ended March 31, 2011								Three Months Ended March 31, 2010
						Total Impairment								Total Impairment
		Total Fair Value				Charges or Allowance				Total Fair Value				Charges or Allowance
		Measurements				for Credit Losses				Measurements				for Credit Losses
Impairment Charges and Allowance for Credit Losses From Continuing Operations:
Net investments in properties		$	4,710			$	8,562			$	—			$	—
Net investments in direct financing leases			2,000				1,357				—				—
Equity investments in real estate			—				—				7,433				570
		$	6,710			$	9,919			$	7,433			$	570

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 three main components of economic risk: interest rate risk, credit risk and market risk. We are primarily subject to interest rate risk on our interest-bearing liabilities. Credit risk is the risk of default on our operations and 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 securities due to changes in interest rates or other market factors. In addition, we own investments in the European Union and are subject to the risks associated with changing foreign currency exchange rates.

Foreign Currency Exchange

We are exposed to foreign currency exchange rate movements, primarily in the Euro and, to a lesser extent, the British Pound Sterling. We manage foreign currency exchange rate movements by generally placing both our debt obligation to the lender and the tenant’s rental obligation to us in the same currency, but we are subject to foreign currency exchange rate movements to the extent of the difference in the timing and amount of the rental obligation and the debt service. We may also face challenges with repatriating cash from our foreign investments. We may encounter instances where it is difficult to repatriate cash because of jurisdictional restrictions or because repatriating cash may result in current or future tax liabilities. 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.

Use of Derivative Financial Instruments

When we use derivative instruments, it is generally to reduce our exposure to fluctuations in interest rates. We have not entered, and do not plan to enter into financial instruments for trading or speculative purposes. In addition to derivative instruments that we entered into on our own behalf, we may also be a party to derivative instruments that are embedded in other contracts, and we may own common stock warrants, granted to us by lessees when structuring lease transactions, that are considered to be derivative instruments. The primary risks related to our use of derivative instruments are that a counterparty to a hedging arrangement could default on its obligation or that the credit quality of the counterparty may be downgraded to such an extent that it impairs our ability to sell or assign our side of the hedging transaction. While we seek to mitigate these risks by entering into hedging arrangements with counterparties that are large financial institutions that we deem to be creditworthy, it is possible that our hedging transactions, which are intended to limit losses, could adversely affect our earnings. Furthermore, if we terminate a hedging arrangement, we may be obligated to pay certain costs, such as transaction or breakage fees. We have established policies and procedures for risk assessment and the approval, reporting and monitoring of derivative financial instrument activities.

We measure derivative instruments at fair value and record them as assets or liabilities, depending on our rights or obligations under the applicable derivative contract. Derivatives that are not designated as hedges must be adjusted to fair value through earnings. If a derivative is designated as a hedge, depending on the nature of the hedge, changes in the fair value of the derivative will either be offset against the change in fair value of the hedged asset, liability, or firm commitment through earnings or recognized in Other Comprehensive Income (“OCI”) until the hedged item is recognized in earnings. The ineffective portion of a derivative’s change in fair value is immediately recognized in earnings.

CPA^®:15 3/31/2011 10-Q — 15

Notes to Consolidated Financial Statements

The following table sets forth certain information regarding our derivative instruments at March 31, 2011 and December 31, 2010 (in thousands):

Derivatives Designated		Balance Sheet		Asset Derivatives Fair Value at								Liability Derivatives Fair Value at
as Hedging Instruments		Location		March 31, 2011				December 31, 2010				March 31, 2011				December 31, 2010
Interest rate swaps		Accounts payable, accrued expenses and other liabilities		$	—			$	—			$	(6,433	)		$	(10,378	)
Derivatives Not Designated as Hedging Instruments
Stock warrants		Other assets, net			1,960				1,960				—				—
Total derivatives				$	1,960			$	1,960			$	(6,433	)		$	(10,378	)

The following tables present the impact of derivative instruments on the consolidated financial statements (in thousands):

		Amount of Gain (Loss) Recognized
		in OCI on Derivatives (Effective Portion)
		Three Months Ended March 31,
Derivatives in Cash Flow Hedging Relationships		2011				2010
Interest rate cap		$	—			$	6
Interest rate swaps (a)			4,498				(3,534	)
Total		$	4,498			$	(3,528	)

During the three months ended March 31, 2011 and 2010, no gains or losses were reclassified from OCI into income related to ineffective portions of hedging relationships or to amounts excluded from effectiveness testing.

						Amount of Gain (Loss) Recognized in
						Income on Derivatives
Derivatives in Cash Flow		Location of Gain (Loss)				Three Months Ended March 31,
Hedging Relationships		Recognized in Income				2011				2010
Stock warrants		Other income and (expenses)				$	—			$	80
Total						$	—			$	80

See below for information on our purposes for entering into derivative instruments, including those not designated as hedging instruments, and for information on derivative instruments owned by unconsolidated ventures, which are excluded from the tables above.

Interest Rate Swaps and Caps

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 venture partners may obtain variable-rate non-recourse 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 the 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.

CPA^®:15 3/31/2011 10-Q — 16

Notes to Consolidated Financial Statements

The interest rate swap derivative instruments that we had outstanding at March 31, 2011 were designated as cash flow hedges and are summarized as follows (dollars in thousands):

				Notional				Effective				Effective				Expiration
		Type		Amount				Interest Rate(a)				Date				Date				Fair Value
3-Month Euribor (b) (c)		“Pay-fixed” swap		$	135,194				5.6	%			7/2006				7/2016			$	(5,218	)
3-Month Euribor (b) (c)		“Pay-fixed” swap			12,747				5.0	%			4/2007				7/2016				(492	)
3-Month Euribor (b) (c)		“Pay-fixed” swap			16,530				5.6	%			4/2008				10/2015				(638	)
1-Month LIBOR		“Pay-fixed” swap			3,266				6.5	%			8/2009				9/2012				(85	)
																				$	(6,433	)

Stock Warrants

We own stock warrants that were generally granted to us by lessees in connection with structuring initial lease transactions. These warrants are defined as derivative instruments because they are readily convertible to cash or provide for net cash settlement upon conversion.

Embedded Credit Derivative

We own interests in certain German unconsolidated ventures that obtained non-recourse mortgage financing for which the interest rate has both fixed and variable components. We account for these ventures under the equity method of accounting. In connection with providing the financing, the lenders entered into interest rate swap agreements on their own behalf through which the fixed interest rate component on the financing was converted into a variable interest rate instrument. Through the venture, we have the right, at our sole discretion, to prepay the debt at any time and to participate in any realized gain or loss on the interest rate swap at that time. These participation rights are deemed to be embedded credit derivatives. Based on valuations obtained at both March 31, 2011 and December 31, 2010 and including the effect of foreign currency translation, the embedded credit derivatives had a total fair value of less than $0.1 million. For the three months ended March 31, 2011 and 2010, these derivatives generated total unrealized losses of less than $0.1 million and $0.2 million, respectively. Amounts provided are the total amounts attributable to the venture and do not represent our proportionate share. Changes in the fair value of the embedded credit derivatives are recognized in the ventures’ earnings.

Other

Amounts reported in OCI related to derivatives will be reclassified to interest expense as interest payments are made on our non-recourse variable-rate debt. At March 31, 2011, we estimate that an additional $3.6 million will be reclassified as interest expense during the next twelve months, inclusive of amounts attributable to noncontrolling interests totaling $0.9 million.

Some of the agreements we have with our derivative counterparties contain certain credit contingent provisions that could result in a declaration of default against us regarding our derivative obligations if we either default or are capable of being declared in default on certain of our indebtedness. At March 31, 2011, we had not been declared in default on any of our derivative obligations. The estimated fair value of our derivatives that were in a net liability position was $7.2 million and $10.4 million at March 31, 2011 and December 31, 2010, respectively, which included accrued interest but excluded any adjustment for nonperformance risk. If we had breached any of these provisions at either March 31, 2011 or December 31, 2010, we could have been required to settle our obligations under these agreements at their termination value of $7.9 million or $12.3 million, inclusive of amounts attributable to noncontrolling interests totaling $1.9 million and $3.1 million, respectively.

CPA^®:15 3/31/2011 10-Q — 17

Notes to Consolidated Financial Statements

Portfolio Concentration Risk

Concentrations of credit risk arise when a group of tenants is engaged in similar business activities or is subject to similar economic risks or conditions that could cause them to default on their lease obligations to us. We regularly monitor our portfolio to assess potential concentrations of credit risk. While we believe our portfolio is reasonably well diversified, it does contain concentrations in excess of 10% of current annualized contractual minimum base rent in certain areas, as described below. The percentages in the paragraph below represent our directly-owned real estate properties and do not include our pro rata share of equity investments.

At March 31, 2011, our directly-owned real estate properties were located in the U.S. (63%), with Texas (11%) and California (10%) representing the only significant domestic concentration, and in Europe (37%), with France (14%) representing the only significant international concentration based on percentage of our annualized contractual minimum base rent for the first quarter of 2011. In addition, Mercury Partners, LP and U-Haul Moving Partners, Inc. jointly represented 12% of annualized contractual minimum base rent for the first quarter of 2011, inclusive of noncontrolling interest. At March 31, 2011, our directly-owned real estate properties contained significant concentrations in the following asset types: office (25%), warehouse/distribution (17%), retail (17%), industrial (15%), and self-storage (12%); and in the following tenant industries: retail trade (25%).

There were no significant concentrations, individually or in the aggregate, related to our unconsolidated ventures.

Note 10. Commitments and Contingencies

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.

Note 11. Impairment Charges

We periodically assess whether there are any indicators that the value of our real estate investments may be impaired or that their carrying value may not be recoverable. For investments in real estate in which an impairment indicator is identified, we follow a two-step process to determine whether the investment is impaired and to determine the amount of the charge. First, we compare the carrying value of the real estate to the future net undiscounted cash flow that we expect the real estate will generate, including any estimated proceeds from the eventual sale of the real estate. If this amount is less than the carrying value, the real estate is considered to be impaired, and we then measure the loss as the excess of the carrying value of the real estate over the estimated fair value of the real estate, which is primarily determined using market information such as recent comparable sales or broker quotes. If relevant market information is not available or is not deemed appropriate, we then perform a future net cash flow analysis discounted for inherent risk associated with each investment.

The following table summarizes impairment charges recognized on our consolidated and unconsolidated real estate investments during the three months ended March 31, 2011 and 2010 (in thousands):

		Three Months Ended March 31,
		2011				2010
Net investments in properties		$	8,562			$	—
Total impairment charges included in expenses			8,562				—
Equity investments in real estate (a)			—				570
Total impairment charges included in income from continuing operations			8,562				570
Total impairment charges		$	8,562			$	570

CPA^®:15 3/31/2011 10-Q — 18

Notes to Consolidated Financial Statements

Impairment charges recognized during the three months ended March 31, 2011 were as follows:

Symphony IRI Group, Inc.

During the three months ended March 31, 2011, we recognized an impairment charge of $8.6 million, inclusive of amounts attributable to noncontrolling interests of $2.9 million, on a property leased to Symphony IRI Group, Inc. to reduce its carrying value to its estimated fair value, which reflected the contracted selling price. However, there can be no assurance that we will be able to sell this property. At March 31, 2011, this property was classified as Net investments in properties in the consolidated financial statements because all material due diligence requirements have not been satisfied.

Impairment charges recognized during the three months ended March 31, 2010 were as follows:

The Talaria Company (Hinckley)

During the three months ended March 31, 2010, we recognized an other-than-temporary impairment charge of $0.6 million to reduce the carrying value of our interest in the venture to its estimated fair value based on a potential sale of the property. At March 31, 2010, this venture was classified as Equity investments in real estate in the consolidated financial statements.

Note 12. Noncontrolling Interests

Noncontrolling interest is the portion of equity in a subsidiary not attributable, directly or indirectly, to a parent. There were no changes in our ownership interest in any of our consolidated subsidiaries for the three months ended March 31, 2011.

The following table presents a reconciliation of total equity, the equity attributable to our shareholders and the equity attributable to noncontrolling interests (in thousands):

						CPA®:15				Noncontrolling
		Total Equity				Shareholders				Interests
Balance at January 1, 2011		$	1,054,089			$	835,316			$	218,773
Shares issued			7,600				7,600				—
Contributions			2,858				—				2,858
Net income			16,120				12,528				3,592
Distributions			(30,690	)			(23,505	)			(7,185	)
Change in other comprehensive income			18,373				13,973				4,400
Balance at March 31, 2011		$	1,068,350			$	845,912			$	222,438

						CPA®:15				Noncontrolling
		Total Equity				Shareholders				Interests
Balance at January 1, 2010		$	1,121,805			$	852,178			$	269,627
Shares issued			7,761				7,761				—
Contributions			621				—				621
Net income			17,926				10,100				7,826
Distributions			(30,762	)			(22,854	)			(7,908	)
Change in other comprehensive loss			(16,164	)			(11,564	)			(4,600	)
Shares repurchased			(649	)			(649	)			—
Balance at March 31, 2010		$	1,100,538			$	834,972			$	265,566

Note 13. Income Taxes

We have elected to be taxed as a REIT under Sections 856 through 860 of the Internal Revenue Code. We believe we have operated, and we intend to continue to operate, in a manner that allows us to continue to qualify as a REIT. Under the REIT operating structure, we are permitted to deduct distributions paid to our shareholders and generally will not be required to pay U.S. federal income taxes. Accordingly, no provision has been made for U.S. federal income taxes in the consolidated financial statements.

CPA^®:15 3/31/2011 10-Q — 19

Notes to Consolidated Financial Statements

We conduct business in the various states and municipalities within the U.S. and in the European Union, and as a result, we file income tax returns in the U.S. federal jurisdiction and various state and certain foreign jurisdictions.

We account for uncertain tax positions in accordance with current authoritative accounting guidance. At March 31, 2011 and December 31, 2010, we had unrecognized tax benefits of $0.3 million and $0.2 million, respectively, that, if recognized, would have a favorable impact on our effective income tax rate in future periods. We recognize interest and penalties related to uncertain tax positions in income tax expense. At both March 31, 2011 and December 31, 2010, we had $0.1 million of accrued interest related to uncertain tax positions.

Our tax returns are subject to audit by taxing authorities. Such audits can often take years to complete and settle. The tax years 2006 through 2011 remain open to examination by the major taxing jurisdictions to which we are subject.

Note 14. Discontinued Operations

From time to time, tenants may vacate space due to lease buy-outs, elections not to renew their leases, insolvency or lease rejection in the bankruptcy process. In these cases, we assess whether we can obtain the highest value from the property by re-leasing or selling it. In addition, in certain cases, we may try to sell a property that is occupied. When it is appropriate to do so under current accounting guidance for the disposal of long-lived assets, we classify the property as an asset held for sale and the current and prior period results of operations of the property are reclassified as discontinued operations.

The results of operations for properties that are held for sale or have been sold are reflected in the consolidated financial statements as discontinued operations for all periods presented and are summarized as follows (in thousands):

		Three Months Ended March 31,
		2011				2010
Revenues		$	44			$	800
Expenses			(210	)			(1,100	)
Gain on deconsolidation of a subsidiary			4,501				—
Gain (loss) on sale of real estate			658				(162	)
Income (loss) from discontinued operations		$	4,993			$	(462	)

2011 — For the three months ended March 31, 2011, we sold two domestic properties for $2.4 million, net of selling costs, and recognized a net gain on these sales of $0.7 million, excluding impairment charges of $0.3 million recognized in the fourth quarter of 2010.

In February 2011, a consolidated subsidiary consented to a court order appointing a receiver when we stopped making payments on the related non-recourse debt obligation involving properties that were previously leased to Advanced Accessory Systems LLC. As we no longer had control over the activities that most significantly impact the economic performance of this subsidiary following possession of the properties by the receiver in February 2011, the subsidiary was deconsolidated during the first quarter of 2011. At the date of deconsolidation, the properties had a carrying value of $2.7 million, reflecting the impact of impairment charges of $8.4 million recognized in prior years, and the related non-recourse mortgage loan had an outstanding balance of $6.1 million. In connection with this deconsolidation, we recognized a gain of $4.5 million during the first quarter of 2011. We believe that our retained interest in this deconsolidated entity had no value at the date of deconsolidation. We have recorded income (loss) from operations and gain recognized upon deconsolidation as discontinued operations, as we have no significant influence on the entity and there are no continuing cash flows from the properties.

2010 — In March 2010, we sold a domestic property for $6.2 million, net of selling costs, and recognized a loss on the sale of $0.2 million. Prior to this sale, we repaid the non-recourse mortgage loan encumbering the property, which had an outstanding balance of $5.8 million.

CPA^®:15 3/31/2011 10-Q — 20

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 (“MD&A”) 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. MD&A 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 MD&A should be read in conjunction with our 2010 Annual Report.

Business Overview

We are a publicly owned, non-listed REIT that invests in commercial properties leased to companies domestically and internationally. As a REIT, we are not subject to U.S. federal income taxation as long as we satisfy certain requirements, principally relating to the nature of our income, the level of our distributions and other factors. We earn revenue principally by leasing the properties we own to single corporate tenants, primarily on a triple-net lease basis, which requires the tenant to pay substantially all of the costs associated with operating and maintaining the property. Revenue is subject to fluctuation because of the timing of new lease transactions, lease terminations, lease expirations, contractual rent adjustments, tenant defaults and sales of properties. We were formed in 2001 and are managed by the advisor.

Financial Highlights

(In thousands)

		Three Months Ended March 31,
		2011				2010
Total revenues		$	64,492			$	68,262
Net income attributable to CPA®: 15 Shareholders			12,528				10,100
Cash flow from operating activities			34,563				40,189
Distributions paid			23,334				22,698
Supplemental financial measures:
Funds from operations — as adjusted (AFFO)			26,164				25,285
Adjusted cash flow from operating activities			33,673				33,434

We consider the performance metrics listed above, including certain supplemental metrics that are not defined by GAAP (“non-GAAP”) such as Funds from operations — as adjusted, or AFFO, and Adjusted cash flow from operating activities, to be important measures in the evaluation of our results of operations, liquidity and capital resources. We evaluate our results of operations with a primary focus on the ability to generate cash flow necessary to meet our objectives of funding distributions to shareholders. See Supplemental Financial Measures below for our definition of these measures and reconciliations to their most directly comparable GAAP measure.

Total revenues decreased for the three months ended March 31, 2011 as compared to the same period in 2010, primarily due to the deconsolidation of a venture in the third quarter of 2010 as a result of modifying its structure in connection with a debt refinancing, as well as the effects of property sales, lease restructuring transactions, and lease expirations.

Net income attributable to CPA^®:15 shareholders increased during the three months ended March 31, 2011 as compared to the same period in the prior year. This increase was primarily due to a net gain on the deconsolidation of a subsidiary recognized in 2011, which is reflected in discontinued operations.

Cash flow from operating activities decreased in the three months ended March 31, 2011 as compared to the prior year period, primarily due to reductions in operating results related to recent property sales and lease restructuring transactions as well as changes in our working capital.

Our quarterly cash distribution increased to $0.1819 per share for the first quarter of 2011, which equates to $0.7276 per share on an annualized basis.

CPA^®:15 3/31/2011 10-Q — 21

For the three months ended March 31, 2011 as compared to the same period in 2010, our AFFO supplemental measure increased, reflecting the increase in income from our equity investments in real estate. For the three months ended March 31, 2011 as compared to the same period in 2010, our adjusted cash flow from operating activities supplemental measure was substantially the same. A reduction in distributions paid to noncontrolling interest holders and an increase in distributions received from equity investments in real estate in excess of equity income were substantially offset by a reduction in operating results related to recent property sales and lease restructuring transactions.

General Economic Environment

We are impacted by macro-economic environmental factors, the capital markets, and general conditions in the commercial real estate market, both in the U.S. and globally. As of the date of this Report, we have seen signs of modest improvement in the global economy following the significant distress experienced in 2008 and 2009. Our experience during the three months ended March 31, 2011 reflected an improved financing environment. While these factors reflect favorably on our business, the pace of the economic recovery remains slow, and our business remains dependent on the speed and strength of the recovery, which cannot be predicted at this time. Nevertheless, as of the date of this Report, the impact of current financial and economic trends on our business, and our response to those trends, is presented below.

Foreign Exchange Rates

We have foreign investments and, as a result, are subject to risk from the effects of exchange rate movements. Our results of foreign operations benefit from a weaker U.S. dollar and are adversely affected by a stronger U.S. dollar relative to foreign currencies. During the three months ended March 31, 2011, the U.S. dollar weakened in relation to the Euro as evidenced by the change in the end-of-period conversion rate of the Euro, which increased by 6% to $1.4099 at March 31, 2011 from $1.3253 at December 31, 2010. Investments denominated in the Euro accounted for approximately 37% of our annualized contractual minimum base rent for the three months ended March 31, 2011. This weakening had a favorable impact on our balance sheet at March 31, 2011 as compared to our balance sheet at December 31, 2010. During the three months ended March 31, 2011, the average conversion rate for the U.S. dollar in relation to the Euro strengthened by 1% in comparison to the same period in 2010. A significant unhedged decline in the value of the Euro could have a material negative impact on our net asset values, future results, financial position and cash flows.

Capital Markets

Capital markets conditions continue to exhibit evidence of post-crisis improvement, including new issuances of commercial mortgage-backed securities debt. Capital inflows to both commercial real estate debt and equity markets have helped increase the availability of mortgage financing and asset prices continue to recover from their credit crisis lows. The availability of financing for secured transactions has expanded; however, lenders remain cautious and continue to employ conservative underwriting standards. Commercial real estate capitalization rates remain low compared to credit crisis highs, especially for higher-quality assets or assets leased to tenants with strong credit. The improvement in financing conditions combined with a stabilization of prices for high quality assets has helped to increase transaction activity, however increased competition from both public and private investors continues.

Financing Conditions

We have recently seen a gradual improvement in both the credit and real estate financing markets. We continue to see an increase in the number of lenders for both domestic and international investments as market conditions improve compared to prior years. During the three months ended March 31, 2011, we obtained non-recourse mortgage financing totaling $29.8 million (on a pro rata basis).

Real Estate Sector

As noted above, the commercial real estate market is impacted by a variety of macro-economic factors, including but not limited to growth in gross domestic product, unemployment, interest rates, inflation, and demographics. Despite improvements in expectations since the beginning of the credit crisis, these macro-economic factors have persisted, negatively impacting commercial real estate market fundamentals, which has resulted in higher vacancies, lower rental rates, and lower demand for vacant space. However, recently there have been some indications of stabilization in asset values and slight improvements in occupancy rates. We are chiefly affected by changes in the appraised values of our properties, tenant defaults, inflation, lease expirations, and occupancy rates.

Net Asset Value

The advisor generally calculates our estimated net asset value (“NAV”) per share on an annual basis. To make this calculation, the advisor relies in part on an estimate of the fair market value of our real estate provided by a third party, adjusted to give effect to the estimated fair value of mortgages encumbering our assets (also provided by a third party) as well as other adjustments. There are a number of variables that comprise this calculation, including individual tenant credits, lease terms, lending credit spreads, foreign currency exchange rates, and tenant defaults, among others. We do not control these variables and, as such, cannot predict how they will change in the future.

CPA^®:15 3/31/2011 10-Q — 22

As a result of continued weakness in the economy and a strengthening of the dollar versus the Euro during 2010 and 2009, our NAV per share at December 31, 2010 decreased to $10.40, a 3% decline from our December 31, 2009 NAV per share of $10.70.

Credit Quality of Tenants

As a net lease investor, we are exposed to credit risk within our tenant portfolio, which can reduce our results of operations and cash flow from operations if our tenants are unable to pay their rent. Tenants experiencing financial difficulties may become delinquent on their rent and/or default on their leases and, if they file for bankruptcy protection, may reject our lease in bankruptcy court, resulting in reduced cash flow, which may negatively impact net asset values and require us to incur impairment charges. Even where a default has not occurred and a tenant is continuing to make the required lease payments, we may restructure or renew leases on less favorable terms, or the tenant’s credit profile may deteriorate, which could affect the value of the leased asset and could in turn require us to incur impairment charges.

As of the date of this Report, we have no significant exposure to tenants operating under bankruptcy protection. We have observed that many of our tenants have benefited from continued improvements in general business conditions, which we anticipate will result in reduced tenant defaults going forward; however, it is possible that tenants may file for bankruptcy or default on their leases during 2011 and that economic conditions may again deteriorate. The continued improvements in general business conditions have favorably impacted the overall credit quality of our tenants.

To mitigate credit risk, we have historically looked to invest in assets that we believe are critically important to our tenant’s operations and have attempted to diversify our portfolio by tenant, tenant industry and geography. We also monitor tenant performance through review of rent delinquencies as a precursor to a potential default, meetings with tenant management and review of tenants’ financial statements and compliance with any financial covenants. When necessary, our asset management process includes restructuring transactions to meet the evolving needs of tenants, re-leasing properties, refinancing debt and selling properties, as well as protecting our rights when tenants default or enter into bankruptcy.

Inflation

Our leases generally have rent adjustments that are either fixed or based on formulas indexed to changes in the consumer price index (“CPI”) or other similar indices for the jurisdiction in which the property is located. Because these rent adjustments may be calculated based on changes in the CPI over a multi-year period, changes in inflation rates can have a delayed impact on our results of operations. Despite recent signs of inflationary pressure, we continue to expect that rent increases will be significantly lower in coming years as a result of the current historically low inflation rates in the U.S. and the Euro zone.

Lease Expirations and Occupancy

At March 31, 2011, we had no significant leases scheduled to expire or renew in the next twelve months. The advisor actively manages our real estate portfolio and begins discussing options with tenants in advance of the scheduled lease expiration. In certain cases, we obtain lease renewals from our tenants; however, tenants may elect to move out at the end of their term, or may elect to exercise purchase options, if any, in their leases. In cases where tenants elect not to renew, we may seek replacement tenants or try to sell the property. Our occupancy was 97% at March 31, 2011, unchanged from December 31, 2010.

Proposed Accounting Changes

The International Accounting Standards Board and Financial Accounting Standards Board (“FASB”) have issued an Exposure Draft on a joint proposal that would dramatically transform lease accounting from the existing model. These changes would impact most companies but are particularly applicable to those that are significant users of real estate. The proposal outlines a completely new model for accounting by lessees, whereby their rights and obligations under all leases, existing and new, would be capitalized and recorded on the balance sheet. For some companies, the new accounting guidance may influence whether or not, or the extent to which, they enter into the type of sale-leaseback transactions in which we specialize. At this time, the proposed guidance has not been finalized, and as such we are unable to determine whether this proposal will have a material impact on our business.

CPA^®:15 3/31/2011 10-Q — 23

The Emerging Issues Task Force (“EITF”) of the FASB discussed the accounting treatment for deconsolidating subsidiaries in situations other than a sale or transfer at its September and November 2010 meetings. While the EITF did not reach a consensus for exposure, the EITF determined that further research was necessary to more fully understand the scope and implications of the matter, prior to issuing a consensus for exposure. If the EITF reaches a consensus for exposure, we will evaluate the impact on such conclusion on our financial statements. During the three months ended March 31, 2011, we deconsolidated an in-substance real estate subsidiary that leased properties to Advanced Accessory Systems LLC, which had total assets and liabilities of $2.9 million and $7.4 million, respectively, at the date of deconsolidation, and as a result we recognized a gain in the amount of $4.5 million.

Results of Operations

The following table presents the components of our lease revenues (in thousands):

		Three Months Ended March 31,
		2011				2010
Rental income		$	55,202			$	58,567
Interest income from direct financing leases			7,386				7,982
		$	62,588			$	66,549

The following table sets forth the net lease revenues (i.e., rental income and interest income from direct financing leases) that we earned from lease obligations through our direct ownership of real estate (in thousands):

		Three Months Ended March 31,
Lessee		2011				2010
U-Haul Moving Partners, Inc. and Mercury Partners, LP (a)		$	8,122			$	8,122
Carrefour France, S.A. (a) (b)			4,953				5,203
OBI A.G. (a) (b) (c)			4,184				4,060
Hellweg Die Profi-Baumarkte GmbH & Co. KG (Hellweg 1) (a) (b) (c)			3,864				3,754
True Value Company (a)			3,543				3,536
Life Time Fitness, Inc. (a)			3,512				3,473
Pohjola Non-Life Insurance Company (a) (b)			2,232				2,210
TietoEnator plc. (a) (b)			2,102				2,098
Police Prefecture, French Government (a) (b)			2,004				2,157
Universal Technical Institute (c)			1,904				1,667
Médica — France, S.A. (a) (b)			1,690				1,683
Foster Wheeler, Inc.			1,533				1,533
Thales S.A. (a) (b)			1,072				1,086
Oriental Trading Company			1,011				977
Other (a) (b)			20,862				24,990
		$	62,588			$	66,549

CPA^®:15 3/31/2011 10-Q — 24

We recognize income from equity investments in real estate, of which lease revenues are a significant component. The following table sets forth the net lease revenues earned by these ventures. Amounts provided are the total amounts attributable to the ventures and do not represent our proportionate share (dollars in thousands):

		Ownership Interest				Three Months Ended March 31,
Lessee		at March 31, 2011				2011				2010
Hellweg Die Profi-Baumarkte GmbH & Co. KG (Hellweg 2) (a) (b)			38	%		$	8,947			$	8,947
Marriott International, Inc.			47	%			4,208				4,089
C1000 B.V. (b) (c)			15	%			3,109				—
Advanced Micro Devices (d)			33	%			2,986				—
PETsMART, Inc.			30	%			2,005				2,076
Schuler A.G. (b)			34	%			1,577				1,595
The Talaria Company (Hinckley) (e)			30	%			1,314				1,120
Del Monte Corporation			50	%			882				882
Hologic, Inc.			64	%			863				863
Waldaschaff Automotive GmbH and Wagon Automotive Nagold GmbH (b)			33	%			673				729
Builders FirstSource, Inc.			40	%			404				400
SaarOTEC and Goertz & Schiele Corp. (b) (f)			50	%			122				389
The Upper Deck Company (g)			50	%			—				798
						$	27,090			$	21,888