UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
|
|
|
þ |
|
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the quarterly period ended March 31, 2011
or
|
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|
o |
|
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the transition period from to
Commission File Number: 001-32162
CORPORATE PROPERTY ASSOCIATES 16 GLOBAL INCORPORATED
(Exact name of registrant as specified in its charter)
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|
Maryland
(State of incorporation)
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80-0067704
(I.R.S. Employer Identification No.) |
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50 Rockefeller Plaza
New York, New York
(Address of principal executive office)
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10020
(Zip Code) |
Investor Relations (212) 492-8920
(212) 492-1100
(Registrants 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.
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Large accelerated filer o
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Accelerated filer o
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Non-accelerated filer þ
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Smaller reporting company o |
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(Do not check if a smaller reporting company) |
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|
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 198,971,517 shares of common stock, $0.001 par value, outstanding at May 10, 2011.
INDEX
Forward-Looking Statements
This Quarterly Report on Form 10-Q (the Report), including Managements 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 30, 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 Managements
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®:16 Global 3/31/2011 10-Q 1
PART I
|
|
|
Item 1. |
|
Financial Statements |
CORPORATE PROPERTY ASSOCIATES 16 GLOBAL INCORPORATED
CONSOLIDATED BALANCE SHEETS
(UNAUDITED)
(in thousands, except share amounts)
|
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|
|
|
|
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|
|
|
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 $454,117 and $428,061, respectively) |
|
$ |
1,903,866 |
|
|
$ |
1,730,421 |
|
Operating real estate, at cost (inclusive of amounts attributable to consolidated
VIEs of $29,219 and $29,219, respectively) |
|
|
84,826 |
|
|
|
84,772 |
|
Accumulated depreciation (inclusive of amounts attributable to consolidated VIEs of
$43,994 and $38,981, respectively) |
|
|
(202,734 |
) |
|
|
(155,580 |
) |
|
|
|
|
|
|
|
Net investments in properties |
|
|
1,785,958 |
|
|
|
1,659,613 |
|
Net investments in direct financing leases (inclusive of amounts attributable to consolidated VIEs of
$51,221 and $49,705, respectively) |
|
|
328,997 |
|
|
|
318,233 |
|
Equity investments in real estate |
|
|
152,447 |
|
|
|
149,614 |
|
Assets held for sale |
|
|
468 |
|
|
|
440 |
|
|
|
|
|
|
|
|
Net investments in real estate |
|
|
2,267,870 |
|
|
|
2,127,900 |
|
Notes receivable (inclusive of amounts attributable to consolidated VIEs of
$23,196 and $21,805, respectively) |
|
|
56,858 |
|
|
|
55,504 |
|
Cash and cash equivalents (inclusive of amounts attributable to consolidated
VIEs of $15,389 and $17,195, respectively) |
|
|
68,257 |
|
|
|
59,012 |
|
Intangible assets, net (inclusive of amounts attributable to consolidated VIEs of
$27,204 and $25,900, respectively) |
|
|
198,093 |
|
|
|
149,082 |
|
Funds in escrow (inclusive of amounts attributable to consolidated VIEs of
$8,321 and $7,840, respectively) |
|
|
16,833 |
|
|
|
15,962 |
|
Other assets, net (inclusive of amounts attributable to consolidated VIEs of
$4,374 and $3,506, respectively) |
|
|
43,062 |
|
|
|
30,499 |
|
|
|
|
|
|
|
|
Total assets |
|
$ |
2,650,973 |
|
|
$ |
2,437,959 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities and Equity |
|
|
|
|
|
|
|
|
Liabilities: |
|
|
|
|
|
|
|
|
Non-recourse debt (inclusive of amounts attributable to consolidated VIEs of
$450,555 and $426,783, respectively) |
|
$ |
1,487,355 |
|
|
$ |
1,369,248 |
|
Accounts payable, accrued expenses and other liabilities (inclusive of amounts
attributable to consolidated VIEs of $11,963 and $10,241, respectively) |
|
|
36,068 |
|
|
|
30,875 |
|
Prepaid and deferred rental income and security deposits (inclusive of amounts
attributable to consolidated VIEs of $11,748 and $11,137, respectively) |
|
|
58,036 |
|
|
|
57,095 |
|
Due to affiliates |
|
|
5,528 |
|
|
|
7,759 |
|
Distributions payable |
|
|
20,976 |
|
|
|
20,826 |
|
|
|
|
|
|
|
|
Total liabilities |
|
|
1,607,963 |
|
|
|
1,485,803 |
|
|
|
|
|
|
|
|
Redeemable noncontrolling interest |
|
|
23,196 |
|
|
|
21,805 |
|
|
|
|
|
|
|
|
Commitments and contingencies (Note 9) |
|
|
|
|
|
|
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|
|
|
|
|
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|
Equity: |
|
|
|
|
|
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|
CPA®:16 Global shareholders equity: |
|
|
|
|
|
|
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|
Common stock $0.001 par value; authorized 250,000,000 shares;
issued and outstanding, 135,951,106 and 134,708,674 shares, respectively |
|
|
136 |
|
|
|
135 |
|
Additional paid-in capital |
|
|
1,226,980 |
|
|
|
1,216,565 |
|
Distributions in excess of accumulated earnings |
|
|
(291,521 |
) |
|
|
(275,948 |
) |
Accumulated other comprehensive income (loss) |
|
|
3,112 |
|
|
|
(8,460 |
) |
Less, treasury stock at cost, 9,285,322 and 8,952,317 shares, respectively |
|
|
(83,805 |
) |
|
|
(81,080 |
) |
|
|
|
|
|
|
|
Total CPA®:16 Global shareholders equity |
|
|
854,902 |
|
|
|
851,212 |
|
Noncontrolling interests |
|
|
164,912 |
|
|
|
79,139 |
|
|
|
|
|
|
|
|
Total equity |
|
|
1,019,814 |
|
|
|
930,351 |
|
|
|
|
|
|
|
|
Total liabilities and equity |
|
$ |
2,650,973 |
|
|
$ |
2,437,959 |
|
|
|
|
|
|
|
|
See Notes to Consolidated Financial Statements.
CPA®:16 Global 3/31/2011 10-Q 2
CORPORATE PROPERTY ASSOCIATES 16 GLOBAL INCORPORATED
CONSOLIDATED STATEMENTS OF INCOME
(UNAUDITED)
(in thousands, except share and per share amounts)
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended March 31, |
|
|
|
2011 |
|
|
2010 |
|
Revenues |
|
|
|
|
|
|
|
|
Rental Income |
|
$ |
44,762 |
|
|
$ |
38,468 |
|
Interest income from direct financing leases |
|
|
6,789 |
|
|
|
6,727 |
|
Other operating income |
|
|
1,391 |
|
|
|
606 |
|
Interest income on notes receivable |
|
|
745 |
|
|
|
7,142 |
|
Other real estate income |
|
|
6,088 |
|
|
|
5,953 |
|
|
|
|
|
|
|
|
|
|
|
59,775 |
|
|
|
58,896 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating Expenses |
|
|
|
|
|
|
|
|
General and administrative |
|
|
(4,783 |
) |
|
|
(2,263 |
) |
Depreciation and amortization |
|
|
(15,320 |
) |
|
|
(12,189 |
) |
Property expenses |
|
|
(8,183 |
) |
|
|
(7,983 |
) |
Other real estate expenses |
|
|
(4,521 |
) |
|
|
(4,431 |
) |
Impairment charges |
|
|
|
|
|
|
(8,030 |
) |
|
|
|
|
|
|
|
|
|
|
(32,807 |
) |
|
|
(34,896 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other Income and Expenses |
|
|
|
|
|
|
|
|
Other interest income |
|
|
28 |
|
|
|
22 |
|
Income from equity investments in real estate |
|
|
4,317 |
|
|
|
4,781 |
|
Other income and (expenses) |
|
|
765 |
|
|
|
(741 |
) |
Interest expense |
|
|
(21,363 |
) |
|
|
(19,709 |
) |
|
|
|
|
|
|
|
|
|
|
(16,253 |
) |
|
|
(15,647 |
) |
|
|
|
|
|
|
|
Income from continuing operations before income taxes |
|
|
10,715 |
|
|
|
8,353 |
|
Provision for income taxes |
|
|
(2,976 |
) |
|
|
(969 |
) |
|
|
|
|
|
|
|
Income from continuing operations |
|
|
7,739 |
|
|
|
7,384 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Discontinued Operations |
|
|
|
|
|
|
|
|
Income (loss) from operations of discontinued properties |
|
|
44 |
|
|
|
(54 |
) |
Gain on deconsolidation of a subsidiary |
|
|
|
|
|
|
7,082 |
|
|
|
|
|
|
|
|
Income from discontinued operations |
|
|
44 |
|
|
|
7,028 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Income |
|
|
7,783 |
|
|
|
14,412 |
|
Less: Net income attributable to noncontrolling interests |
|
|
(1,960 |
) |
|
|
(2,007 |
) |
Less: Net income attributable to redeemable noncontrolling interests |
|
|
(421 |
) |
|
|
(6,445 |
) |
|
|
|
|
|
|
|
Net Income Attributable to CPA®:16 Global
Shareholders |
|
$ |
5,402 |
|
|
$ |
5,960 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings Per Share |
|
|
|
|
|
|
|
|
Income from continuing operations
attributable to CPA®:16 Global shareholders |
|
$ |
0.04 |
|
|
$ |
0.02 |
|
Income from discontinued operations
attributable to CPA®:16 Global shareholders |
|
|
|
|
|
|
0.03 |
|
|
|
|
|
|
|
|
Net Income attributable to CPA®:16 Global shareholders |
|
$ |
0.04 |
|
|
$ |
0.05 |
|
|
|
|
|
|
|
|
Weighted Average Shares Outstanding |
|
|
126,546,584 |
|
|
|
123,608,911 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amounts Attributable to CPA®:16 Global
shareholders |
|
|
|
|
|
|
|
|
Income from continuing operations, net of tax |
|
$ |
5,380 |
|
|
$ |
2,506 |
|
Income from discontinued operations, net of tax |
|
|
22 |
|
|
|
3,454 |
|
|
|
|
|
|
|
|
Net Income |
|
$ |
5,402 |
|
|
$ |
5,960 |
|
|
|
|
|
|
|
|
Distributions Declared Per Share |
|
$ |
0.1656 |
|
|
$ |
0.1656 |
|
|
|
|
|
|
|
|
See Notes to Consolidated Financial Statements.
CPA®:16 Global 3/31/2011 10-Q 3
CORPORATE PROPERTY ASSOCIATES 16 GLOBAL INCORPORATED
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)
(UNAUDITED)
(in thousands)
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended March 31, |
|
|
|
2011 |
|
|
2010 |
|
|
|
|
|
|
|
|
|
|
Net Income |
|
$ |
7,783 |
|
|
$ |
14,412 |
|
Other Comprehensive Income (Loss): |
|
|
|
|
|
|
|
|
Foreign currency translation adjustments |
|
|
15,338 |
|
|
|
(35,177 |
) |
Change in unrealized appreciation on marketable securities |
|
|
(6 |
) |
|
|
3 |
|
Change in unrealized gain (loss) on derivative instruments |
|
|
1,294 |
|
|
|
(1,062 |
) |
|
|
|
|
|
|
|
|
|
|
16,626 |
|
|
|
(36,236 |
) |
|
|
|
|
|
|
|
Comprehensive income (loss) |
|
|
24,409 |
|
|
|
(21,824 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amounts Attributable to Noncontrolling Interests: |
|
|
|
|
|
|
|
|
Net income |
|
|
(1,960 |
) |
|
|
(2,007 |
) |
Foreign currency translation adjustments |
|
|
(3,662 |
) |
|
|
3,150 |
|
Change in unrealized loss on derivative instruments |
|
|
|
|
|
|
18 |
|
|
|
|
|
|
|
|
Comprehensive (income) loss attributable to noncontrolling interests |
|
|
(5,622 |
) |
|
|
1,161 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amounts Attributable to Redeemable Noncontrolling Interests: |
|
|
|
|
|
|
|
|
Net income |
|
|
(421 |
) |
|
|
(6,445 |
) |
Foreign currency translation adjustments |
|
|
(1,391 |
) |
|
|
20,668 |
|
|
|
|
|
|
|
|
Comprehensive (income) loss attributable to redeemable noncontrolling interests |
|
|
(1,812 |
) |
|
|
14,223 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Comprehensive Income (Loss) Attributable to CPA
®:16 Global Shareholders |
|
$ |
16,975 |
|
|
$ |
(6,440 |
) |
|
|
|
|
|
|
|
See Notes to Consolidated Financial Statements.
CPA®:16 Global 3/31/2011 10-Q 4
CORPORATE PROPERTY ASSOCIATES 16 GLOBAL INCORPORATED
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
(in thousands)
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended March 31, |
|
|
|
2011 |
|
|
2010 |
|
Cash Flows Operating Activities |
|
|
|
|
|
|
|
|
Net income |
|
$ |
7,783 |
|
|
$ |
14,412 |
|
Adjustments to net income: |
|
|
|
|
|
|
|
|
Depreciation and amortization including intangible assets and deferred financing costs |
|
|
15,464 |
|
|
|
12,421 |
|
Income from equity investments in real estate in excess of distributions received |
|
|
(583 |
) |
|
|
(736 |
) |
Issuance of shares to affiliate in satisfaction of fees due |
|
|
2,939 |
|
|
|
2,945 |
|
Straight-line rent adjustment and amortization of rent-related intangibles |
|
|
(116 |
) |
|
|
654 |
|
Gain on deconsolidation of a subsidiary |
|
|
|
|
|
|
(7,082 |
) |
Unrealized (gain) loss on foreign currency transactions and others |
|
|
(832 |
) |
|
|
548 |
|
Realized loss on foreign currency transactions and others |
|
|
66 |
|
|
|
193 |
|
Impairment charges |
|
|
|
|
|
|
8,030 |
|
Net changes in other operating assets and liabilities |
|
|
2,678 |
|
|
|
1,719 |
|
|
|
|
|
|
|
|
Net cash provided by operating activities |
|
|
27,399 |
|
|
|
33,104 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash Flows Investing Activities |
|
|
|
|
|
|
|
|
Distributions received from equity investments in real estate in excess of equity income |
|
|
768 |
|
|
|
383 |
|
Acquisitions of real estate and other capital expenditures |
|
|
(359 |
) |
|
|
(1,080 |
) |
Cash acquired on acquisition of subsidiary (a) |
|
|
7,121 |
|
|
|
|
|
Funding/purchases of notes receivable |
|
|
|
|
|
|
(791 |
) |
Funds placed in escrow |
|
|
(517 |
) |
|
|
(1,475 |
) |
Funds released from escrow |
|
|
336 |
|
|
|
548 |
|
Payment of deferred acquisition fees to an affiliate |
|
|
(1,911 |
) |
|
|
(6,261 |
) |
|
|
|
|
|
|
|
Net cash provided by (used in) investing activities |
|
|
5,438 |
|
|
|
(8,676 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash Flows Financing Activities |
|
|
|
|
|
|
|
|
Distributions paid |
|
|
(20,825 |
) |
|
|
(20,345 |
) |
Contributions from noncontrolling interests |
|
|
353 |
|
|
|
383 |
|
Distributions to noncontrolling interests |
|
|
(3,047 |
) |
|
|
(9,217 |
) |
Scheduled payments of mortgage principal |
|
|
(7,079 |
) |
|
|
(5,065 |
) |
Deferred financing costs and mortgage deposits |
|
|
22 |
|
|
|
|
|
Funds placed in escrow |
|
|
58 |
|
|
|
3,733 |
|
Funds released from escrow |
|
|
(8 |
) |
|
|
(3,211 |
) |
Proceeds from issuance of shares |
|
|
7,476 |
|
|
|
7,677 |
|
Purchase of treasury stock |
|
|
(2,725 |
) |
|
|
(5,110 |
) |
|
|
|
|
|
|
|
Net cash used in financing activities |
|
|
(25,775 |
) |
|
|
(31,155 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Change in Cash and Cash Equivalents During the Period |
|
|
|
|
|
|
|
|
Effect of exchange rate changes on cash |
|
|
2,183 |
|
|
|
(1,318 |
) |
|
|
|
|
|
|
|
Net increase (decrease) in cash and cash equivalents |
|
|
9,245 |
|
|
|
(8,045 |
) |
Cash and cash equivalents, beginning of period |
|
|
59,012 |
|
|
|
83,985 |
|
|
|
|
|
|
|
|
Cash and cash equivalents, end of period |
|
$ |
68,257 |
|
|
$ |
75,940 |
|
|
|
|
|
|
|
|
See Notes to Consolidated Financial Statements.
CPA®:16 Global 3/31/2011 10-Q 5
CORPORATE PROPERTY ASSOCIATES 16 GLOBAL INCORPORATED
CONSOLIDATED STATEMENTS OF CASH FLOWS CONTINUED (UNAUDITED)
Non-cash investing activities
|
|
|
(a) |
|
In January 2011, we acquired 10 properties from
Corporate Property Associates 14 Incorporated
(CPA®:14) in exchange for newly
issued shares in one of our wholly-owned subsidiaries with a fair value of $75.5 million (Note
4). The newly issued equity in our subsidiary, which is in substance
real estate, has resulted in a reduction of our effective ownership
stake in the entity from 100% to 3%. Accordingly, the
fair value of these shares has been reflected as a noncontrolling interest in our consolidated
financial statements. This non-cash transaction consisted of the acquisition and assumption of
certain assets and liabilities, respectively, and an increase in noncontrolling interest at
fair value as follows: |
|
|
|
|
|
Real estate |
|
$ |
143,064 |
|
Other assets |
|
|
8,211 |
|
Mortgage notes payable |
|
|
(81,671 |
) |
Accounts payable, accrued expenses and other liabilities |
|
|
(1,251 |
) |
Noncontrolling interest |
|
|
(75,474 |
) |
|
|
|
|
Cash acquired on issuance of additional shares in subsidiary |
|
$ |
(7,121 |
) |
|
|
|
|
CPA®:16 Global 3/31/2011 10-Q 6
CORPORATE PROPERTY ASSOCIATES 16 GLOBAL INCORPORATED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
Note 1. Business and Organization
Corporate Property Associates 16 Global Incorporated (CPA®:16 Global 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 394 properties, substantially all of which
were triple-net leased to 80 tenants, and totaled approximately 30.0 million square feet (on a pro
rata basis), with an occupancy rate of approximately 99%. We were formed in 2003 and are managed by
W. P. Carey & Co. LLC (WPC) and its subsidiaries (collectively, the advisor).
In May
2011, we acquired a portfolio of 178 properties from our affiliate,
CPA®:14,
as described in Note 13.
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, Canada, Mexico, Malaysia and Thailand. The following tables present information about these
investments (in thousands):
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended March 31, |
|
|
|
2011 |
|
|
2010 |
|
Revenues |
|
$ |
26,767 |
|
|
$ |
26,278 |
|
|
|
|
|
|
March 31, 2011 |
|
|
December 31, 2010 |
|
Net investments in real estate |
|
$ |
1,062,349 |
|
|
$ |
913,639 |
|
CPA®:16 Global 3/31/2011 10-Q 7
Notes to Consolidated Financial Statements
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 was in effect through May 2, 2011 was 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) |
|
$ |
2,941 |
|
|
$ |
2,931 |
|
Performance fees (a) |
|
|
2,941 |
|
|
|
2,931 |
|
Personnel reimbursements (b) |
|
|
945 |
|
|
|
840 |
|
Office rent reimbursements (b) |
|
|
192 |
|
|
|
198 |
|
|
|
|
|
|
|
|
|
|
$ |
7,019 |
|
|
$ |
6,900 |
|
|
|
|
|
|
|
|
|
|
|
|
|
March 31, 2011 |
|
|
December 31, 2010 |
|
Unpaid transaction fees: |
|
|
|
|
|
|
|
|
Unpaid deferred acquisition fees (c) |
|
$ |
789 |
|
|
$ |
2,701 |
|
Subordinated disposition fees (d) |
|
|
1,013 |
|
|
|
1,013 |
|
|
|
|
|
|
|
|
|
|
$ |
1,802 |
|
|
$ |
3,714 |
|
|
|
|
|
|
|
|
|
|
|
(a) |
|
Asset management and performance fees are included in Property expenses in the consolidated
financial statements. For 2011 and 2010, the advisor elected to receive its asset management
fees in cash and 80% of its performance fees in restricted shares, with the remaining 20%
payable in cash. At March 31, 2011, the advisor owned 7,326,624 shares (5.8%) of our common
stock. |
|
(b) |
|
Personnel and office rent expenses are included in General and administrative expenses in the
consolidated financial statements. Based on gross revenues through March 31, 2011, our current
share of future annual minimum lease payments would be $0.7 million annually through 2016. |
|
(c) |
|
We did not incur any current or deferred acquisition fees during the three months ended March
31, 2011 or 2010. We paid annual deferred acquisition fee installments of $1.9 million and
$6.3 million in cash to the advisor in January 2011 and 2010, respectively. |
|
(d) |
|
These fees, which are subordinated to the performance criterion and certain other provisions
included in the advisory agreement, are deferred and are payable to the advisor only in
connection with a liquidity event. |
Joint Ventures and Other Transactions with Affiliates
We own interests in entities ranging from 3% to 70%, 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.
Merger
On December 13, 2010, we and CPA®:14
entered into a definitive agreement pursuant to which CPA®:14 will merge with and into
us, subject to the approval of the shareholders of CPA®:14 (the Merger). The
shareholders of CPA®:14 approved the Merger on April 26, 2011, and the Merger closed on
May 2, 2011, as described in Note 13.
CPA®:16 Global 3/31/2011 10-Q 8
Notes to Consolidated Financial Statements
Note 4. Net Investments in Properties
Real Estate
Real estate, 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 |
|
$ |
365,255 |
|
|
$ |
338,979 |
|
Buildings |
|
|
1,538,611 |
|
|
|
1,391,442 |
|
Less: Accumulated depreciation |
|
|
(192,315 |
) |
|
|
(145,957 |
) |
|
|
|
|
|
|
|
|
|
$ |
1,711,551 |
|
|
$ |
1,584,464 |
|
|
|
|
|
|
|
|
Fluctuations in foreign currency exchange rates had a positive impact on the carrying amount of our
asset base as of March 31, 2011 as compared to December 31, 2010. 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 $39.8
million increase in the carrying value of real estate from December 31, 2010 to March 31, 2011.
Carrefour France, SAS acquisition
In January 2011, we acquired shares in a subsidiary of CPA®:14 that owns ten properties
in France (the Carrefour Properties) in exchange for newly issued shares in one of our
wholly-owned subsidiaries that also owns several properties in France. The Carrefour Properties had
a fair value of $143.1 million at the date of acquisition. As part of the transaction, we also
assumed two related non-recourse mortgages on these properties with an aggregate fair value of
$81.7 million at the date of acquisition. The mortgages mature in April 2017 and bear interest at a
variable rate. The newly issued equity in our subsidiary to CPA®:14 resulted in a
reduction of our ownership stake in the entity from 100% to 3%; however, we continued to
consolidate this entity in the first quarter of 2011 because we effectively bought back these
shares as part of the Merger. Accordingly, the fair value of these shares has been reflected as a
noncontrolling interest in our consolidated financial statements for the quarter ended March 31,
2011.
Operating Real Estate
Operating real estate, which consists primarily of our hotel operations, at cost, is summarized as
follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
March 31, 2011 |
|
|
December 31, 2010 |
|
Land |
|
$ |
8,296 |
|
|
$ |
8,296 |
|
Buildings |
|
|
76,530 |
|
|
|
76,476 |
|
Less: Accumulated depreciation |
|
|
(10,419 |
) |
|
|
(9,623 |
) |
|
|
|
|
|
|
|
|
|
$ |
74,407 |
|
|
$ |
75,149 |
|
|
|
|
|
|
|
|
Other
In connection with our acquisition of properties, we have recorded net lease intangibles of $201.0
million, which are being amortized over periods ranging from 5 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 $4.5 million and $2.1 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 portfolios consist of our Net
investments in direct financing leases and Notes receivable. Operating leases are not included in
finance receivables as such amounts are not recognized as an asset in the consolidated balance
sheets.
CPA®:16 Global 3/31/2011 10-Q 9
Notes to Consolidated Financial Statements
Notes Receivable
Hellweg 2
Under the terms of the note receivable acquired in connection with the April 2007 venture in which
we and our affiliates acquired a property venture that in turn acquired a 24.7% ownership interest
in a limited partnership and a lending venture that made a loan (the note receivable) to the
holder of the remaining 75.3% interests in the limited partnership (Hellweg 2 transaction), the
lending venture will receive interest at a fixed annual rate of 8%. The note receivable matures in
April 2017. The note receivable has a principal balance of $23.2 million and $21.8 million,
inclusive of our affiliates noncontrolling interest of $17.2 million and $16.2 million at March
31, 2011 and December 31, 2010, respectively.
Other
In June 2007, we entered into an agreement to provide a developer with a construction loan of up to
$14.8 million that provides for a variable annual interest rate of LIBOR plus 2.5% and was
scheduled to mature in April 2010. This agreement was subsequently amended to provide for two loans
of up to $19.0 million and $4.9 million, respectively, with a variable annual interest rate of
LIBOR plus 2.5% and a fixed interest rate of 8%, respectively, both with maturity dates of December
2011. At March 31, 2011 and December 31, 2010, the balances of these notes receivable were $23.9
million and $24.0 million, respectively, inclusive of construction interest, which included amounts
funded of $23.9 million for each period.
In addition, we had a note receivable that totaled $9.7 million at both March 31, 2011 and December
31, 2010, with a fixed annual interest rate of 6.3% and a maturity date of February 2015.
Credit Quality of Finance Receivables
We generally seek investments in facilities that we believe are critical to the tenants business
and that we believe have a low risk of tenant defaults. At March 31, 2011 and December 31, 2010,
our allowance for uncollected accounts was $0.1 million and $0.2 million, respectively, and
pertained to disputed property-related charges in connection with 3 tenants. All rents were current
at March 31, 2011 and December 31, 2010 for our finance receivables. 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.
A summary of our tenant receivables by internal credit quality rating at March 31, 2011 and
December 31, 2010 is as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Internal |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Credit |
|
|
|
|
|
|
|
|
|
|
Net Investments in |
|
|
Number |
|
|
|
|
Quality |
|
|
Number of Tenants |
|
|
Direct Financing Leases |
|
|
of |
|
|
Note Receivable |
|
Rating |
|
|
March 31, 2011 |
|
|
December 31, 2010 |
|
|
March 31, 2011 |
|
|
December 31, 2010 |
|
|
Obligors |
|
|
March 31, 2011 |
|
|
December 31, 2010 |
|
|
1 |
|
|
|
1 |
|
|
|
2 |
|
|
$ |
7,810 |
|
|
$ |
39,505 |
|
|
|
|
|
|
$ |
|
|
|
$ |
|
|
|
2 |
|
|
|
4 |
|
|
|
3 |
|
|
|
85,250 |
|
|
|
49,639 |
|
|
|
1 |
|
|
|
9,745 |
|
|
|
9,738 |
|
|
3 |
|
|
|
4 |
|
|
|
3 |
|
|
|
29,791 |
|
|
|
26,015 |
|
|
|
2 |
|
|
|
47,113 |
|
|
|
45,766 |
|
|
4 |
|
|
|
9 |
|
|
|
10 |
|
|
|
206,146 |
|
|
|
203,074 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
5 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
328,997 |
|
|
$ |
318,233 |
|
|
|
|
|
|
$ |
56,858 |
|
|
$ |
55,504 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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).
CPA®:16 Global 3/31/2011 10-Q 10
Notes to Consolidated Financial Statements
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 |
|
U-Haul Moving Partners, Inc. and Mercury Partners, LP |
|
|
31 |
% |
|
$ |
32,570 |
|
|
$ |
32,808 |
|
The New York Times Company |
|
|
27 |
% |
|
|
32,178 |
|
|
|
33,888 |
|
Schuler A.G. (a) (b) |
|
|
33 |
% |
|
|
23,377 |
|
|
|
21,892 |
|
Hellweg Die Profi-Baumarkte GmbH & Co. KG (Hellweg 1)
(a) |
|
|
25 |
% |
|
|
19,653 |
|
|
|
18,493 |
|
TietoEnator Plc (a) |
|
|
40 |
% |
|
|
7,434 |
|
|
|
6,921 |
|
Police Prefecture, French Government (a) |
|
|
50 |
% |
|
|
7,033 |
|
|
|
6,636 |
|
Frontier Spinning Mills, Inc. |
|
|
40 |
% |
|
|
6,249 |
|
|
|
6,249 |
|
OBI A.G. (a) (c) |
|
|
25 |
% |
|
|
5,988 |
|
|
|
4,907 |
|
Pohjola Non-life Insurance Company (a) |
|
|
40 |
% |
|
|
5,546 |
|
|
|
5,419 |
|
Actebis Peacock GmbH (a) |
|
|
30 |
% |
|
|
5,215 |
|
|
|
5,043 |
|
Actuant Corporation (a) |
|
|
50 |
% |
|
|
2,757 |
|
|
|
2,670 |
|
Consolidated Systems, Inc. (b) |
|
|
40 |
% |
|
|
2,084 |
|
|
|
2,109 |
|
Talaria Holdings, LLC |
|
|
27 |
% |
|
|
1,170 |
|
|
|
1,400 |
|
Barth Europa Transporte e.K/MSR Technologies GmbH
(formerly Lindenmaier A.G.) (a) |
|
|
33 |
% |
|
|
1,158 |
|
|
|
1,179 |
|
Thales S.A. (a) |
|
|
35 |
% |
|
|
35 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
152,447 |
|
|
$ |
149,614 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(a) |
|
The carrying value of this investment is affected by the impact of fluctuations in the
exchange rate of the Euro. |
|
(b) |
|
Represents tenant-in-common interest. |
|
(c) |
|
The carrying value of this investment included our share of the Other Comprehensive Income (OCI) on interest rate
swap derivative instruments recognized by the venture. |
CPA®:16 Global 3/31/2011 10-Q 11
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 |
|
$ |
1,457,307 |
|
|
$ |
1,406,049 |
|
Liabilities |
|
|
(978,634 |
) |
|
|
(936,691 |
) |
|
|
|
|
|
|
|
Partners/members equity |
|
$ |
478,673 |
|
|
$ |
469,358 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended March 31, |
|
|
|
2011 |
|
|
2010 |
|
Revenues |
|
$ |
36,703 |
|
|
$ |
36,028 |
|
Expenses |
|
|
(22,026 |
) |
|
|
(21,097 |
) |
|
|
|
|
|
|
|
Net income |
|
$ |
14,677 |
|
|
$ |
14,931 |
|
|
|
|
|
|
|
|
We recognized income from equity investments in real estate of $4.3 million and $4.8 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.
Note 7. 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 an interest rate swap. This
derivative instrument was measured at fair value using readily observable market inputs, such as
quotations on interest rates. Our derivative instrument was classified as Level 2 as this
instrument is a custom, over-the-counter contract with a bank counterparty that is not
traded in an active market.
Other Securities and Derivative Assets Our other securities are comprised of our interest in an
interest-only senior note. Our derivative assets are comprised of an embedded credit derivative and
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®:16 Global 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: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other securities |
|
$ |
1,464 |
|
|
$ |
|
|
|
$ |
|
|
|
$ |
1,464 |
|
Derivative assets |
|
|
1,333 |
|
|
|
|
|
|
|
|
|
|
|
1,333 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
$ |
2,797 |
|
|
$ |
|
|
|
$ |
|
|
|
$ |
2,797 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Derivative liabilities |
|
$ |
(345 |
) |
|
$ |
|
|
|
$ |
(345 |
) |
|
$ |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
$ |
(345 |
) |
|
$ |
|
|
|
$ |
(345 |
) |
|
$ |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair Value Measurements at December 31, 2010 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 |
|
$ |
6,769 |
|
|
$ |
6,769 |
|
|
$ |
|
|
|
$ |
|
|
Other securities |
|
|
1,553 |
|
|
|
|
|
|
|
|
|
|
|
1,553 |
|
Derivative assets |
|
|
1,369 |
|
|
|
|
|
|
|
|
|
|
|
1,369 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
$ |
9,691 |
|
|
$ |
6,769 |
|
|
$ |
|
|
|
$ |
2,922 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Derivative liabilities |
|
$ |
(504 |
) |
|
$ |
|
|
|
$ |
(504 |
) |
|
$ |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
$ |
(504 |
) |
|
$ |
|
|
|
$ |
(504 |
) |
|
$ |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
CPA®:16 Global 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 |
|
$ |
1,553 |
|
|
$ |
1,369 |
|
|
$ |
2,922 |
|
|
$ |
1,851 |
|
|
$ |
2,178 |
|
|
$ |
4,029 |
|
Total gains or losses (realized and
unrealized): |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Included in earnings |
|
|
|
|
|
|
(37 |
) |
|
|
(37 |
) |
|
|
|
|
|
|
(151 |
) |
|
|
(151 |
) |
Included in other
comprehensive
income (loss) |
|
|
(6 |
) |
|
|
1 |
|
|
|
(5 |
) |
|
|
3 |
|
|
|
(53 |
) |
|
|
(50 |
) |
Amortization and accretion |
|
|
(83 |
) |
|
|
|
|
|
|
(83 |
) |
|
|
(79 |
) |
|
|
|
|
|
|
(79 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ending balance |
|
$ |
1,464 |
|
|
$ |
1,333 |
|
|
$ |
2,797 |
|
|
$ |
1,775 |
|
|
$ |
1,974 |
|
|
$ |
3,749 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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 |
|
$ |
|
|
|
$ |
(37 |
) |
|
$ |
(37 |
) |
|
$ |
|
|
|
$ |
(151 |
) |
|
$ |
(151 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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 |
|
$ |
1,487,355 |
|
|
$ |
1,427,312 |
|
|
$ |
1,369,248 |
|
|
$ |
1,314,768 |
|
Notes receivable |
|
|
56,858 |
|
|
|
57,026 |
|
|
|
55,504 |
|
|
|
55,682 |
|
We determined the estimated fair value of our debt and note 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, 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®:16 Global 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 were
measured using unobservable inputs (Level 3) (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended March 31, 2011 |
|
|
Three Months Ended March 31, 2010 |
|
|
|
Total Fair Value |
|
|
Total Impairment |
|
|
Total Fair Value |
|
|
Total Impairment |
|
|
|
Measurements |
|
|
Charges |
|
|
Measurements |
|
|
Charges |
|
Impairment Charges From Continuing Operations: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net investments in properties |
|
$ |
|
|
|
$ |
|
|
|
$ |
17,295 |
|
|
$ |
2,835 |
|
Net investments in direct financing leases |
|
|
|
|
|
|
|
|
|
|
31,705 |
|
|
|
5,195 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
49,000 |
|
|
$ |
8,030 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Note 8. 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, Canada, Mexico, Malaysia and
Thailand 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, certain other currencies. We manage foreign currency exchange rate movements by generally
placing both our debt obligation to the lender and the tenants 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 OCI until the hedged
item is recognized in earnings. The ineffective portion of a derivatives change in fair value is
immediately recognized in earnings.
CPA®:16 Global 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 as |
|
Balance Sheet |
|
|
Asset Derivatives Fair Value at |
|
|
Liability Derivatives Fair Value at |
|
Hedging Instruments |
|
Location |
|
|
March 31, 2011 |
|
|
December 31, 2010 |
|
|
March 31, 2011 |
|
|
December 31, 2010 |
|
Foreign currency collar contracts |
|
Accounts payable, accrued expenses and other liabilities |
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
(106 |
) |
Interest rate swaps |
|
Accounts payable, accrued expenses and other liabilities |
|
|
|
|
|
|
|
|
|
|
(345 |
) |
|
|
(398 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(345 |
) |
|
|
(504 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Derivatives not Designated
as Hedging Instruments |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Embedded credit derivatives |
|
Other assets, net |
|
|
10 |
|
|
|
46 |
|
|
|
|
|
|
|
|
|
Stock warrants |
|
Other assets, net |
|
|
1,323 |
|
|
|
1,323 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,333 |
|
|
|
1,369 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total derivatives |
|
|
|
|
|
$ |
1,333 |
|
|
$ |
1,369 |
|
|
$ |
(345 |
) |
|
$ |
(504 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The following tables present the impact of derivative instruments on the consolidated financial
statements (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amount of Gain (Loss) Recognized |
|
|
Amount of Gain (Loss) Reclassified |
|
|
|
in OCI on Derivatives (Effective Portion) |
|
|
from OCI into Income (Effective Portion) |
|
|
|
Three Months Ended March 31, |
|
|
Three Months Ended March 31, |
|
Derivatives in Cash Flow Hedging Relationships |
|
2011 |
|
|
2010 |
|
|
2011 |
|
|
2010 |
|
Interest rate swaps (a) |
|
$ |
53 |
|
|
$ |
(50 |
) |
|
$ |
|
|
|
$ |
|
|
Foreign currency forward contracts (a) (b) |
|
|
106 |
|
|
|
123 |
|
|
|
|
|
|
|
(10 |
) |
Foreign currency collars (a) (b) |
|
|
|
|
|
|
36 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
$ |
159 |
|
|
$ |
109 |
|
|
$ |
|
|
|
$ |
(10 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(a) |
|
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. |
|
(b) |
|
Gains (losses) reclassified from OCI into income for contracts that have settled are included
in Other income and (expenses). |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amount of Gain (Loss) Recognized in Income on Derivatives |
|
Derivatives not in Cash Flow |
|
Location of Gain (Loss) |
|
|
Three Months Ended March 31, |
|
Hedging Relationships |
|
Recognized in Income |
|
|
2011 |
|
|
2010 |
|
Embedded credit derivatives (a) |
|
Other income and (expenses) |
|
$ |
(37 |
) |
|
$ |
(205 |
) |
Stock warrants |
|
Other income and (expenses) |
|
|
|
|
|
|
54 |
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
|
|
|
|
$ |
(37 |
) |
|
$ |
(151 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(a) |
|
Included losses attributable to noncontrolling interests totaling less than $0.1 million and
$0.1 million for the three months ended March 31, 2011 and 2010, respectively. |
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.
CPA®:16 Global 3/31/2011 10-Q 16
Notes to Consolidated Financial Statements
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 counterpartys stream of cash flow over a specific period. The notional, or
face, amount on which the swaps are based is not exchanged. Interest rate caps limit the effective
borrowing rate of variable-rate debt obligations while allowing participants to share in downward
shifts in interest rates. Our objective in using these derivatives is to limit our exposure to
interest rate movements.
The interest rate 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 Interest |
|
|
Effective |
|
|
Expiration |
|
|
Fair Value at March 31, |
|
|
|
Type |
|
|
Amount |
|
|
Cap Rate |
|
|
Spread |
|
|
Rate |
|
|
Date |
|
|
Date |
|
|
2011 |
|
1-Month LIBOR |
|
Pay-fixed swap |
|
$ |
3,789 |
|
|
|
N/A |
|
|
|
N/A |
|
|
|
6.7 |
% |
|
|
2/2008 |
|
|
|
2/2018 |
|
|
$ |
(345 |
) |
The interest rate swap and interest rate cap derivative instruments that our unconsolidated ventures had outstanding at March 31, 2011
were designated as cash flow hedges and are summarized as follows (dollars in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ownership Interest at |
|
|
|
|
|
|
Notional |
|
|
|
|
|
|
|
|
|
|
Effective Interest |
|
|
Effective |
|
|
Expiration |
|
|
Fair Value at March 31, |
|
|
|
March 31, 2011 |
|
|
Type |
|
Amount |
|
|
Cap Rate |
|
|
Spread |
|
|
Rate |
|
|
Date |
|
|
Date |
|
|
2011 |
|
3-Month LIBOR |
|
|
25.0 |
% |
|
Pay-fixed swap |
|
$ |
164,472 |
|
|
|
N/A |
|
|
|
N/A |
|
|
|
5.0%-5.6% |
|
|
|
7/2006-4/2008 |
|
|
|
10/2015-7/2016 |
|
|
$ |
(6,348 |
) |
3-Month LIBOR |
|
|
27.3 |
% |
|
Interest rate cap |
|
|
125,000 |
|
|
|
4.0 |
% |
|
|
1.2 |
% |
|
|
N/A |
|
|
|
3/2011 |
|
|
|
8/2014 |
|
|
|
730 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
(5,618 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Embedded Credit Derivatives
In connection with our April 2007 investment in a portfolio of German properties (Hellweg 2
transaction) through a venture in which we have a total effective ownership interest of 26% and
which we consolidate, we obtained non-recourse mortgage financing for which the interest rate has
both fixed and variable components. In connection with providing the financing, the lender entered
into an interest rate swap agreement on its own behalf through which the fixed interest rate
component of the financing was converted into a variable interest rate instrument. Through the
venture, we have the right, at our sole discretion, to prepay this 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.
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.
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 $0.2 million will be reclassified as interest expense during the next twelve months.
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
$0.3 million and $0.5 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 $0.4 million or $0.6
million, respectively.
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.
CPA®:16 Global 3/31/2011 10-Q 17
Notes to Consolidated Financial Statements
At March 31, 2011, 51% of our directly-owned real estate properties were located in the U.S., and
the majority of our directly-owned international properties were located in the European Union
(43%), with Germany (23%) representing the only significant international concentration based on
percentage of our annualized contractual minimum base rent for the first quarter of 2011. Within
our German investments, one tenant, Hellweg Die Profi-Baumarkte GmbH & Co. KG, represented 17% of
lease revenue for the three months ended March 31, 2011, inclusive of noncontrolling interest. At
March 31, 2011, our directly-owned real estate properties contained significant concentrations in
the following asset types: industrial (35%), warehouse/distribution (27%), retail (21%) and office
(11%); and in the following tenant industries: retail (35%).
There were no significant concentrations, individually or in the aggregate, related to our
unconsolidated ventures.
Note 9. 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.
Merger
In connection with the Merger, we had agreed to use our reasonable best efforts to obtain a
senior credit facility in order to partially fund cash elections by CPA®:14
shareholders in the Merger. The Merger closed on May 2, 2011, and we obtained a $320.0 million
senior credit facility on the same date, as described in Note 13.
Note 10. Noncontrolling Interests
Noncontrolling interests is the portion of equity in a subsidiary not attributable, directly or
indirectly, to a parent. Other than our acquisition of the Carrefour Properties, (Note 4) there were
no changes in our ownership interest in any of our consolidated subsidiaries for the three months
ended March 31, 2011.
The following tables present a reconciliation of total equity, the equity attributable to our
shareholders and the equity attributable to noncontrolling interests (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
CPA®:16 Global |
|
|
Noncontrolling |
|
|
|
Total Equity |
|
|
Shareholders |
|
|
Interests |
|
Balance at January 1, 2011 |
|
$ |
930,351 |
|
|
$ |
851,212 |
|
|
$ |
79,139 |
|
Shares issued |
|
|
88,551 |
|
|
|
10,415 |
|
|
|
78,136 |
|
Contributions |
|
|
353 |
|
|
|
|
|
|
|
353 |
|
Net income |
|
|
7,362 |
|
|
|
5,402 |
|
|
|
1,960 |
|
Distributions |
|
|
(23,540 |
) |
|
|
(20,975 |
) |
|
|
(2,565 |
) |
Effect of exchange rate change on contributions/distributions |
|
|
4,227 |
|
|
|
|
|
|
|
4,227 |
|
Change in other comprehensive income |
|
|
15,235 |
|
|
|
11,573 |
|
|
|
3,662 |
|
Shares repurchased |
|
|
(2,725 |
) |
|
|
(2,725 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at March 31, 2011 |
|
$ |
1,019,814 |
|
|
$ |
854,902 |
|
|
$ |
164,912 |
|
|
|
|
|
|
|
|
|
|
|
CPA®:16 Global 3/31/2011 10-Q 18
Notes to Consolidated Financial Statements
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
CPA®:16 Global |
|
|
Noncontrolling |
|
|
|
Total Equity |
|
|
Shareholders |
|
|
Interests |
|
Balance at January 1, 2010 |
|
$ |
976,827 |
|
|
$ |
888,659 |
|
|
$ |
88,168 |
|
Shares issued |
|
|
10,622 |
|
|
|
10,622 |
|
|
|
|
|
Contributions |
|
|
383 |
|
|
|
|
|
|
|
383 |
|
Net income |
|
|
7,967 |
|
|
|
5,960 |
|
|
|
2,007 |
|
Distributions |
|
|
(22,862 |
) |
|
|
(20,435 |
) |
|
|
(2,427 |
) |
Change in other comprehensive loss |
|
|
(15,568 |
) |
|
|
(12,400 |
) |
|
|
(3,168 |
) |
Shares repurchased |
|
|
(5,110 |
) |
|
|
(5,110 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at March 31, 2010 |
|
$ |
952,259 |
|
|
$ |
867,296 |
|
|
$ |
84,963 |
|
|
|
|
|
|
|
|
|
|
|
Redeemable Noncontrolling Interests
We account for the noncontrolling interests in an entity that holds a note receivable recorded in connection with the
Hellweg 2 transaction as redeemable noncontrolling interests because the transaction contains put
options that, if exercised, would obligate the partners to settle in cash. The partners interests
are reflected at estimated redemption value for all periods presented.
In November 2010, the property venture exercised its option
for $297.3 million and acquired an additional 70% interest in the limited partnership.
The following table presents a reconciliation of redeemable noncontrolling interests (in
thousands):
|
|
|
|
|
|
|
|
|
|
|
2011 |
|
|
2010 |
|
Balance at January 1, |
|
$ |
21,805 |
|
|
$ |
337,397 |
|
Foreign currency translation adjustment |
|
|
1,391 |
|
|
|
(20,668 |
) |
|
|
|
|
|
|
|
Balance at March 31, |
|
$ |
23,196 |
|
|
$ |
316,729 |
|
|
|
|
|
|
|
|
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.
We did not recognize any impairment charges during the three months ended March 31, 2011. The
following table summarizes impairment charges recognized on our consolidated and unconsolidated
real estate investments during the three months ended March 31, 2010 (in thousands):
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended March 31, |
|
|
|
2011 |
|
|
2010 |
|
Net investments in properties |
|
$ |
|
|
|
$ |
2,835 |
|
Net investments in direct financing leases |
|
|
|
|
|
|
5,195 |
|
|
|
|
|
|
|
|
Total impairment charges included in income from continuing operations |
|
$ |
|
|
|
$ |
8,030 |
|
|
|
|
|
|
|
|
During the first quarter of 2010, we recognized impairment charges of $8.0 million, inclusive of
amounts attributable to noncontrolling interests of $2.4 million, on a property leased to The
Talaria Company (Hinckley) to reduce the carrying value of this investment to its estimated fair
value based on a potential sale of the property. At March 31, 2011, the land was classified as Net
investments in properties and the building was classified as Net investment in direct financing
leases in the consolidated financial statements.
CPA®:16 Global 3/31/2011 10-Q 19
Notes to Consolidated Financial Statements
Note 12. 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.
We conduct business in the various states and municipalities within the U.S. and in the European
Union, Canada, Mexico, Malaysia and Thailand, 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 $0.5 million
and $0.5 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 2007 through 2011 remain open to examination by the major taxing
jurisdictions to which we are subject.
We have elected to treat two of our corporate subsidiaries, which engage in hotel operations, as
taxable REIT subsidiaries (TRSs). These subsidiaries own hotels that are managed on our behalf by
third party hotel management companies. A TRS is subject to corporate federal income taxes, and we
provide for income taxes in accordance with current authoritative accounting guidance. One of these
subsidiaries has operated at a loss since inception, and as a result, we have recorded a full
valuation allowance for this subsidiarys net operating loss carryforwards. The other subsidiary
became profitable in the first quarter of 2009, and therefore we have recorded a tax provision for
this subsidiary.
Note 13. Merger
Merger
On May 2, 2011, CPA®:14 merged with and into one of our subsidiaries based on a
definitive merger agreement executed on December 13, 2010 (the Merger Agreement).
In connection with the Merger, shareholders of CPA®:14 were entitled to receive $11.50
per share, which is equal to the estimated net asset value (NAV) of CPA®:14 as of
September 30, 2010. All CPA®:14 shareholders of record were entitled to receive a
special cash distribution of $1.00 per share, to be paid by CPA®:14 immediately prior to
the Merger, and the right to elect to receive $10.50 in merger consideration in either cash or
1.1932 shares of our common stock, which equates to $10.50 based on our NAV per share of $8.80 as
of September 30, 2010. As a result, merging shareholders of CPA®:14 who elected to
receive stock in the Merger received approximately 57.4 million shares of our common stock as
merger consideration from us, plus approximately $48.1 million in special cash distributions from
CPA®:14. Liquidating shareholders of CPA®:14 who elected to receive cash in
the Merger received a total of approximately $444.0 million in cash as merger consideration from
us, plus approximately $42.3 million in special cash distributions from CPA®:14.
The assets we acquired and liabilities we assumed in the Merger exclude asset sales made by
CPA®:14 (the Asset Sales) in connection with the Merger to an affiliate, Corporate
Property Associates 17 Global Incorporated, and WPC for an aggregate of $89.5 million in cash
plus related debt of approximately $218.6 million. Immediately prior to the Merger and subsequent
to the Asset Sales, CPA®:14s portfolio was comprised of full or partial ownership in
178 properties, substantially all of which were triple-net leased to 73 tenants, and totaled
approximately 24 million square feet (on a pro rata basis) with an occupancy rate of 95%. In the
Merger, we acquired these properties and their related leases with an average remaining life of 8.3
years and an estimated aggregate annualized contractual minimum base rent of $150.8 million. We
also assumed the related property debt comprised of 8 variable-rate and 39 fixed-rate non-recourse
mortgages amounting to approximately $119.6 million and $332.2 million, respectively, with weighted
average rates of 3.3% and 6.6%, respectively.
As of the date of this Report, we have not completed our initial accounting for the Merger,
including the determination of the fair value of the assets acquired and liabilities assumed.
Therefore, we are not yet able to present the pro forma impact of the Merger on
our earnings for the three months ended March 31, 2011 and 2010. The acquired assets and
liabilities and related operating activity will be reflected in our consolidated financial
statements as of and for the three months ended June 30, 2011.
CPA®:16 Global 3/31/2011 10-Q 20
Notes to Consolidated Financial Statements
Financing
On May 2, 2011, we entered into a credit agreement with Bank of America, N.A., (the Credit
Agreement) in connection with the Merger. The Credit Agreement provides for a secured revolving
credit facility in an amount of up to $320.0 million, with an option for us to request an increase
in the facility by an aggregate principal amount of up to $30.0 million for a total credit facility
of up to $350.0 million. Loans drawn under the Credit Agreement will bear interest at a rate per
annum equal to the Eurodollar Rate plus 3.25%. The revolving credit facility is scheduled to mature
on May 2, 2014, with an option for us to extend the maturity date for an additional 12 months. The
Credit Agreement contains customary affirmative and negative covenants and also requires us to meet
certain financial tests, including a minimum total equity value test, consolidated leverage ratio
test and a consolidated fixed charge coverage ratio test. Our obligations under the Credit
Agreement are secured by pledges of the equity of certain of our current and future subsidiaries
that own a pool of unencumbered properties. The revolving credit facility was used to finance in
part the Merger, as described below. The revolving credit facility may also be used to repay
certain property level indebtedness and for general corporate purposes.
Funding for the cash portion of the merger consideration of approximately $444.0 million was
comprised as follows: (i) a $302.0 million draw on our aforementioned credit facility, (ii)
approximately $21.0 million from cash on hand, including cash acquired from CPA®:14 in
the Merger, and (iii) a $121.0 million capital infusion from WPC who purchased 13.75 million shares
of our common stock in connection with their commitment in the Merger Agreement to purchase a
sufficient number of shares from us if the cash on hand and available to us was insufficient to pay
for cash elections by CPA®:14 shareholders in the Merger. The $90.4 million in special
cash distributions paid by CPA®:14 were funded almost entirely by the $89.5 million in
proceeds from CPA®:14s Asset Sales described above and the remaining $0.9 million was
funded from CPA®:14s cash on hand.
Immediately after giving effect to the Merger, subsidiaries of WPC collectively own approximately
17.3% of our outstanding common stock.
UPREIT Reorganization
Following the consummation of the Merger, we implemented an internal reorganization pursuant to
which we were reorganized as an umbrella partnership real estate investment trust (an UPREIT), to
hold substantially all of our assets and liabilities in CPA 16 LLC, a newly formed Delaware limited
liability company subsidiary. This UPREIT Reorganization was approved by our shareholders.
To give effect to the UPREIT Reorganization, we entered into an amended and restated advisory
agreement with our advisor, which changes our advisory fee arrangement. Changes include, among
others, a reduction in our asset management fee from 1% of the property value of the assets under
management to 0.5% and a new requirement for a distribution of 10% of the available cash of our
operating partnership to our advisor. We currently expect that the sum of the new 0.5% asset
management fee and annual distribution of 10% of available cash will be lower than the 1% asset
management fee previously paid to our advisor. Our advisor has also waived any acquisition fees
payable by us under our advisory agreement with our advisor in respect of the properties acquired
in the Merger and also waived any disposition fees that may subsequently be payable by us upon a
sale of such assets.
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 on our consolidated balance sheet and the current and prior period
results of operations of the property are reclassified as discontinued operations.
CPA®:16 Global 3/31/2011 10-Q 21
Notes to Consolidated Financial Statements
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 |
|
$ |
46 |
|
|
$ |
608 |
|
Expenses |
|
|
(2 |
) |
|
|
(662 |
) |
Gain on deconsolidation of a subsidiary |
|
|
|
|
|
|
7,082 |
|
|
|
|
|
|
|
|
Income from discontinued operations |
|
$ |
44 |
|
|
$ |
7,028 |
|
|
|
|
|
|
|
|
2010 During the second quarter of 2009, Goertz & Schiele Corp. ceased making rent payments to
us, and as a result, we suspended the debt service payments on the related mortgage loan beginning
in July 2009. Goertz & Schiele Corp. filed for bankruptcy in September 2009 and terminated its
lease with us in bankruptcy proceedings in January 2010. In January 2010, the consolidated
subsidiary consented to a court order appointing a receiver after we ceased making payments on a
non-recourse debt obligation collateralized by a property that was previously leased to Goertz &
Schiele Corp. As we no longer have control over the activities that most significantly impact the
economic performance of this subsidiary following possession by the receiver during January 2010,
the subsidiary was deconsolidated during the first quarter of 2010. At the date of deconsolidation,
the property had a carrying value of $5.9 million, reflecting the impact of impairment charges
totaling $15.7 million recognized in 2009 and the non-recourse mortgage loan had an outstanding
balance of $13.3 million. In connection with this deconsolidation, we recognized a gain of $7.1
million, inclusive of amounts attributable to noncontrolling interest of $3.5 million. We have recorded the 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 property.
CPA®:16 Global 3/31/2011 10-Q 22
|
|
|
Item 2. |
|
Managements Discussion and Analysis of Financial Condition and Results of Operations |
Managements 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 2003 and are managed by the advisor. On May 2, 2011
CPA®:14 merged with and into us as described in Note 13.
Financial Highlights
(In thousands)
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended March 31, |
|
|
|
2011 |
|
|
2010 |
|
Total revenues |
|
$ |
59,775 |
|
|
$ |
58,896 |
|
Net income attributable to CPA®:16 Global shareholders |
|
|
5,402 |
|
|
|
5,960 |
|
Cash flow from operating activities |
|
|
27,399 |
|
|
|
33,104 |
|
|
|
|
|
|
|
|
|
|
Distributions paid |
|
|
20,825 |
|
|
|
20,345 |
|
|
|
|
|
|
|
|
|
|
Supplemental financial measures: |
|
|
|
|
|
|
|
|
Funds from operations as adjusted (AFFO) |
|
$ |
16,218 |
|
|
$ |
20,264 |
|
Adjusted cash flow from operating activities |
|
|
23,264 |
|
|
|
29,726 |
|
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 in the first quarter of 2011 increased as compared to the same period in 2010,
primarily due to an increase in lease revenue as a result of our acquisition of the Carrefour Properties from
CPA®:14, substantially offset by a decrease in interest income on our Hellweg 2 note
receivable resulting from the exercise of a purchase option in November 2010.
Net income attributable to CPA®:16 Global shareholders in the three months ended
March 31, 2011 decreased as compared to the same period in 2010.
Cash flow from operating activities in the first quarter of 2011 decreased as compared to the same
period in 2010, primarily due to costs incurred in connection with the Merger and increased taxes related to certain of our international investments.
Our quarterly cash distribution remained at $0.1656 per share for the first quarter of 2011, which
equates to $0.66 per share on an annualized basis.
Our AFFO supplemental measure for the three months ended March 31, 2011 as compared to the same
period in 2010 decreased by $4.0 million, reflecting the impact of costs incurred in connection with the Merger as well as an increase in our provision for
income taxes.
CPA®:16 Global 3/31/2011 10-Q 23
Our Adjusted cash flow from operating activities supplemental measure for the three months ended
March 31, 2011 decreased by $6.5 million compared to the same period in 2010. This decrease was primarily attributable to charges incurred in connection with
the Merger as well as an increase in foreign income taxes.
Current Trends
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 43%
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 CMBS 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.
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 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®:16 Global 3/31/2011 10-Q 24
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 September 30, 2010, which was calculated in connection
with the Merger, decreased to $8.80, a 4.3% decline from our December 31, 2009 NAV per share of
$9.20.
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 tenants 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 a tenants 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 99% 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.
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.
CPA®:16 Global 3/31/2011 10-Q 25
Results of Operations
The following table presents the components of our lease revenues (in thousands):
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended March 31, |
|
|
|
2011 |
|
|
2010 |
|
Rental income |
|
$ |
44,762 |
|
|
$ |
38,468 |
|
Interest income from direct financing leases |
|
|
6,789 |
|
|
|
6,727 |
|
|
|
|
|
|
|
|
|
|
$ |
51,551 |
|
|
$ |
45,195 |
|
|
|
|
|
|
|
|
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 |
|
Hellweg Die Profi-Baumarkte GmbH & Co. KG (Hellweg 2)
(a) (b) |
|
$ |
8,948 |
|
|
$ |
8,947 |
|
Carrefour France, SAS (a) (b)
(c) |
|
|
6,114 |
|
|
|
|
|
Telcordia Technologies, Inc. |
|
|
2,499 |
|
|
|
2,343 |
|
Tesco plc (a) (b) |
|
|
1,884 |
|
|
|
1,894 |
|
Nordic Cold Storage LLC |
|
|
1,731 |
|
|
|
1,731 |
|
Berry Plastics Corporation (b) |
|
|
1,675 |
|
|
|
1,697 |
|
Fraikin SAS (a) |
|
|
1,376 |
|
|
|
1,410 |
|
The Talaria Company (Hinckley) (b) (d) |
|
|
1,333 |
|
|
|
1,120 |
|
MetoKote Corp., MetoKote Canada Limited and MetoKote de Mexico (a) |
|
|
1,228 |
|
|
|
1,207 |
|
LFD Manufacturing Ltd., IDS Logistics (Thailand) Ltd. and IDS Manufacturing SDN BHD
(a) |
|
|
1,133 |
|
|
|
1,043 |
|
Best Brands Corp. |
|
|
1,010 |
|
|
|
997 |
|
Huntsman International, LLC |
|
|
1,006 |
|
|
|
1,006 |
|
Ply Gem Industries, Inc. (a) |
|
|
997 |
|
|
|
985 |
|
TRW Vehicle Safety Systems Inc. |
|
|
892 |
|
|
|
892 |
|
Bobs Discount Furniture, LLC |
|
|
888 |
|
|
|
888 |
|
Universal Technical Institute of California, Inc. |
|
|
885 |
|
|
|
836 |
|
Kings Super Markets Inc. |
|
|
879 |
|
|
|
835 |
|
International Aluminum Corp. and United States Aluminum of Canada Ltd. (a)
(e) |
|
|
853 |
|
|
|
1,302 |
|
Performance Fibers GmbH (a) |
|
|
842 |
|
|
|
841 |
|
Finisar Corporation |
|
|
804 |
|
|
|
805 |
|
Dicks Sporting Goods, Inc. (b) |
|
|
784 |
|
|
|
784 |
|
Other (a) (b) |
|
|
13,790 |
|
|
|
13,632 |
|
|
|
|
|
|
|
|
|
|
$ |
51,551 |
|
|
$ |
45,195 |
|
|
|
|
|
|
|
|
|
|
|
(a) |
|
Amounts are subject to fluctuations in foreign currency exchange rates. The average rate for
the U.S. dollar in relation to the Euro during the three months ended March 31, 2011
strengthened by approximately 1% in comparison to the same period in 2010, resulting in a
negative impact on lease revenues for our Euro-denominated investments in the current year
period. |
|
(b) |
|
These revenues are generated in consolidated ventures, generally with our affiliates, and on
a combined basis, include revenues applicable to noncontrolling interests totaling $16.9
million and $11.0 million for the three months ended March 31, 2011 and 2010, respectively. |
|
(c) |
|
We acquired this investment in January 2011. |
|
(d) |
|
This increase was due to the completion of a rent deferral agreement which was in effect
during the first quarter of 2010. |
|
(e) |
|
In January 2011, we entered into a lease agreement with the tenant to defer certain rental
payments until May 2011. On May 11, 2011, the tenant filed for bankruptcy protection. |
CPA®:16 Global 3/31/2011 10-Q 26
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 |
|
U-Haul Moving Partners, Inc. and Mercury Partners, L.P. |
|
|
31 |
% |
|
$ |
8,122 |
|
|
$ |
8,122 |
|
The New York Times Company |
|
|
27 |
% |
|
|
7,238 |
|
|
|
6,659 |
|
OBI A.G. (a) |
|
|
25 |
% |
|
|
4,184 |
|
|
|
4,060 |
|
Hellweg Die Profi-Baumarkte GmbH & Co. KG (a) |
|
|
25 |
% |
|
|
3,864 |
|
|
|
3,754 |
|
Pohjola Non-life Insurance Company (a) |
|
|
40 |
% |
|
|
2,232 |
|
|
|
2,210 |
|
TietoEnator Plc (a) |
|
|
40 |
% |
|
|
2,102 |
|
|
|
2,098 |
|
Police Prefecture, French Government (a) |
|
|
50 |
% |
|
|
2,004 |
|
|
|
2,157 |
|
Schuler A.G. (a) |
|
|
33 |
% |
|
|
1,577 |
|
|
|
1,595 |
|
Frontier Spinning Mills, Inc. |
|
|
40 |
% |
|
|
1,111 |
|
|
|
1,118 |
|
Thales S.A. (a) |
|
|
35 |
% |
|
|
1,072 |
|
|
|
1,086 |
|
Actebis Peacock GmbH (a) |
|
|
30 |
% |
|
|
1,005 |
|
|
|
1,008 |
|
Consolidated Systems, Inc. |
|
|
40 |
% |
|
|
449 |
|
|
|
449 |
|
Actuant Corporation (a) |
|
|
50 |
% |
|
|
447 |
|
|
|
446 |
|
Barth Europa Transporte e.K/MSR Technologies GmbH (formerly
Lindenmaier A.G.) (a) |
|
|
33 |
% |
|
|
374 |
|
|
|
379 |
|
Talaria Holdings, LLC |
|
|
27 |
% |
|
|
18 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
35,799 |
|
|
$ |
35,141 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(a) |
|
Amounts are subject to fluctuations in foreign currency exchange rates. The average rate for
the U.S. dollar in relation to the Euro during the three months ended March 31, 2011
strengthened by approximately 1% in comparison to the same period in 2010, resulting in a
negative impact on lease revenues for our Euro-denominated investments in the current year
period. |
Lease Revenues
Our net leases generally have rent adjustments based on formulas indexed to changes in the CPI or
other similar indices for the jurisdiction in which the property is located, sales overrides or
other periodic increases, which are intended to increase lease revenues in the future. We own
international investments and, therefore, lease revenues from these investments are subject to
fluctuations in exchange rate movements in foreign currencies.
For the three months ended March 31, 2011 as compared to the same period in 2010, lease revenues
increased by $6.4 million. Lease revenues increased by $5.6 million as a result of acquiring the
Carrefour Properties from our affiliate, CPA®:14 in January 2011.
Approximately 97% of the earnings from these assets are attributed to our noncontrolling interests.
Lease revenue also increased $1.0 million from build-to-suits and expansions placed into service during
2010 and $0.7 million due to scheduled rent increases at several properties. These increases were
partially offset by the impact of recent tenant activity, including lease restructurings and lease
rejections of $1.0 million.
Interest Income on Notes Receivable
For the three months ended March 31, 2011 as compared to the same period in 2010, interest income
on notes receivable decreased $6.4 million as a result of the decrease in our investment in the
Hellweg 2 note receivable resulting from the exercise of a purchase option in November 2010.
General and Administrative Expenses
For the three months ended March 31, 2011 as compared to the same period in 2010, general and
administrative expenses increased $2.5 million primarily due to expenses incurred in connection with
the Merger.
CPA®:16 Global 3/31/2011 10-Q 27
Depreciation and Amortization
For the three months ended March 31, 2011 as compared to the same period in 2010, depreciation and
amortization increased $3.1 million as a result of our acquisition of the Carrefour Properties which contributed $2.6 million of the increase and a
build-to-suit investment placed into service during 2010 which resulted in an increase of $0.5
million.
Impairment Charges
For the three months ended March 31, 2010, we recognized an impairment charge of $8.0 million,
inclusive of amounts attributable to noncontrolling interests of $2.4 million, on a property leased
to Hinckley to reduce the carrying value of this investment to its estimated fair value based on a
potential sale of the property.
Income from Equity Investments in Real Estate
Income from equity investments in real estate represents our proportionate share of net income or
loss (revenue less expenses) from investments entered into with affiliates or third parties in
which we have a noncontrolling interest but over which we exercise significant influence. Under
current accounting guidance for investments in unconsolidated ventures, we are required to
periodically compare an investments carrying value to its estimated fair value and recognize an
impairment charge to the extent that carrying value exceeds fair value.
For the three months ended March 31, 2011 as compared to the same period in 2010, income from our
equity investments decreased $0.5 million. This decrease was due primarily to our investment in
Talaria Holdings, LLC, which we entered into during December 2010 and recognized a loss of $0.2
million during the first quarter of 2011 and a decrease in income of $0.2 million on our investment
in the New York Times transaction primarily as a result of our share of expenses incurred in
connection with the refinancing of its limited-recourse debt in March 2011.
Other Income and (Expenses)
Other income and (expenses) generally consists of gains and losses on foreign currency transactions
and derivative instruments. We and certain of our foreign consolidated subsidiaries have
intercompany debt and/or advances that are not denominated in the entitys functional currency.
When the intercompany debt or accrued interest thereon is remeasured against the functional
currency of the entity, a gain or loss may result. For intercompany transactions that are of a
long-term investment nature, the gain or loss is recognized as a cumulative translation adjustment
in other comprehensive income (loss). We also recognize gains or losses on foreign currency
transactions when we repatriate cash from our foreign investments. In addition, we have certain
derivative instruments, including embedded credit derivatives and common stock warrants, for which
realized and unrealized gains and losses are included in earnings. The timing and amount of such
gains and losses cannot always be estimated and are subject to fluctuation.
For the three months ended March 31, 2011, we recognized net other income of $0.8 million as
compared to net other expense of $0.7 million for the three months ended March 31, 2010. We
recognized unrealized gains and realized losses on foreign
currency transactions of $0.9 million and $0.1 million,
respectively, for the three months ended March 31, 2011 as
compared to unrealized and realized losses on foreign currency transactions of $0.4 million and
$0.2 million, respectively, for the three months ended March 31, 2010.
Provision for Income Taxes
For the three months ended March 31, 2011 as compared to the same period in 2010, provision for
income taxes increased $2.0 million. This increase is primarily due to tax expense of $0.9 million
recorded on the Carrefour Properties acquisition, as well as a $0.9 million increase in tax expense
related to two German investments.
Discontinued Operations
For the three months ended March 31, 2011, we recognized income from discontinued operations of
less than $0.1 million.
For the three months ended March 31, 2010, we recognized income from discontinued operations of
$7.0 million primarily due to the recognition of a $7.1 million gain on the deconsolidation of
Goertz & Schiele Corp.
Net Income Attributable to Redeemable Noncontrolling Interests
Net income attributable to redeemable noncontrolling interests decreased $6.0 million primarily due to the exercise of the put
option in connection with the Hellweg 2 transaction in which we acquired an additional 70% interest in the limited partnership.
CPA®:16 Global 3/31/2011 10-Q 28
Net Income Attributable to CPA®:16
Global Shareholders
For the three months ended March 31, 2011, as compared to the same period in 2010, the resulting
net income attributable to CPA®:16 Global shareholders decreased by $0.6 million.
Funds from Operations as Adjusted (AFFO)
For the three months ended March 31, 2011 as compared to the same period in 2010, AFFO decreased
by $4.0 million, primarily due to charges incurred in connection with the Merger as well as an increase in our provision for income taxes. AFFO is a non-GAAP measure we use to evaluate our business. For a definition of
AFFO and a reconciliation to net income attributable to CPA®:16 Global shareholders,
see Supplemental Financial Measures below.
Financial Condition
Sources and Uses of Cash During the Period
We use the cash flow generated from net leases to meet our operating expenses, service debt and
fund distributions to shareholders. Our cash flows fluctuate period to period due to a number of
factors, which may include, among other things, the timing of purchases and sales of real estate,
the timing of proceeds from non-recourse mortgage loans and receipt of lease revenues, the
advisors annual election to receive fees in restricted shares of our common stock or cash, the
timing and characterization of distributions from equity investments in real estate, payment to the
advisor of the annual installment of deferred acquisition fees and interest thereon in the first
quarter and changes in foreign currency exchange rates. Despite this fluctuation, we believe that
we will generate sufficient cash from operations and from equity distributions in excess of equity
income in real estate to meet our normal recurring short-term and long-term liquidity needs, see
Impact of Merger below. We may also use existing cash resources, the proceeds of non-recourse
mortgage loans and the issuance of additional equity securities to meet these needs. We assess our
ability to access capital on an ongoing basis. Our sources and uses of cash during the period are
described below.
Operating Activities
During the three months ended March 31, 2011, we used cash flows from operating activities of $27.4
million primarily to fund distributions to shareholders of $13.3 million, which excluded $7.5 million in
dividends that were reinvested by shareholders through our distribution reinvestment and share purchase plan.
We also used cash distributions received from equity investments in real estate in excess of equity income of $0.8
million (see Investing Activities below) and our existing cash resources to fund these payments.
For 2011, the advisor has elected to continue to receive its performance fees in restricted shares
of our common stock, and as a result, we paid performance fees of $2.9 million through the issuance
of restricted stock rather than in cash.
Investing Activities
Our investing activities are generally comprised of real estate-related transactions (purchases and
sales), payment of our annual installment of deferred acquisition fees to the advisor and
capitalized property related costs. Investing activities during the three months ended March 31,
2011 consisted primarily of the receipt of cash totaling $7.1 million in connection with the acquisition of the
Carrefour Properties and paying our annual installment of deferred acquisition fees to the advisor,
which totaled $1.9 million.
Financing Activities
For the three months ended March 31, 2011, in addition to paying distributions
to shareholders, our financing activities primarily consisted of making scheduled mortgage principal installments of $7.1 million and paying
distributions to noncontrolling interests of $3.0 million. We also used $2.7 million to repurchase our shares through a redemption plan that allows shareholders to sell
shares back to us, subject to certain limitations as described below. We received $7.5 million as a
result of issuing shares through our distribution reinvestment and stock purchase plan.
As described in our 2010 Annual Report, we maintain a quarterly redemption plan pursuant to which
we may, at the discretion of our board of directors, redeem shares of our common stock from
shareholders seeking liquidity.
For the three months ended March 31, 2011, we received requests to redeem 333,005 shares of our
common stock pursuant to our redemption plan, and we redeemed these requests at an average price
per share of $8.18. We funded share redemptions during 2011 from the proceeds of the sale of shares
of our common stock pursuant to our distribution reinvestment and share purchase plan.
CPA®:16 Global 3/31/2011 10-Q 29
Adjusted Cash Flow from Operating Activities
Our adjusted cash flow from operating activities for the three months ended March 31, 2011 was
$23.3 million, a decrease of $6.5 million over the prior year period. This decrease was primarily
attributable to costs incurred in connection with the Merger as well as an increase in foreign income taxes. Adjusted cash flow from operating
activities is a non-GAAP measure we use to evaluate our business. For a definition of adjusted cash
flow from operating activities and reconciliation to cash flow from operating activities, see
Supplemental Financial Measures below.
Summary of Financing
The table below summarizes our non-recourse long-term debt (dollars in thousands):
|
|
|
|
|
|
|
|
|
|
|
March 31, 2011 |
|
|
December 31, 2010 |
|
Balance |
|
|
|
|
|
|
|
|
Fixed rate |
|
$ |
1,389,917 |
|
|
$ |
1,331,869 |
|
Variable rate (a) |
|
|
97,438 |
|
|
|
37,379 |
|
|
|
|
|
|
|
|
Total |
|
$ |
1,487,355 |
|
|
$ |
1,369,248 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Percent of total debt |
|
|
|
|
|
|
|
|
Fixed rate |
|
|
93 |
% |
|
|
97 |
% |
Variable rate (a) |
|
|
7 |
% |
|
|
3 |
% |
|
|
|
|
|
|
|
|
|
|
100 |
% |
|
|
100 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average interest rate at
end of period |
|
|
|
|
|
|
|
|
Fixed rate |
|
|
5.8 |
% |
|
|
5.9 |
% |
Variable rate (a) |
|
|
6.1 |
% |
|
|
5.6 |
% |
|
|
|
(a) |
|
Variable-rate debt at March 31, 2011 included (i) $3.8 million that has been effectively
converted to a fixed rate through an interest rate swap derivative instrument and (ii) $86.3
million in non-recourse mortgage loan obligations that bore interest at fixed rates but that
have interest rate reset features that may change the interest rates to then-prevailing market
fixed rates (subject to specific caps) at certain points during their term. At March 31, 2011,
we have no interest rate resets or expirations of interest rate swaps or caps scheduled to
occur during the next twelve months. |
Cash Resources
At March 31, 2011, our cash resources consisted of cash and cash equivalents totaling $68.3
million. Of this amount, $50.9 million, at then-current exchange rates, was held in foreign bank
accounts, but we could be subject to restrictions or significant costs should we decide to
repatriate these amounts. We also had unleveraged properties that had an aggregate carrying value
of $191.3 million although there can be no assurance that
we would be able to obtain financing for these properties. Our cash resources can be used for
working capital needs and other commitments.
Cash Requirements
During the next twelve months, we expect that our cash payments will include paying distributions
to our shareholders and to our affiliates who hold noncontrolling interests in entities we control,
making scheduled mortgage loan principal payments of $31.9 million (neither we nor our venture
partners have any balloon payments on our mortgage loan obligations until the third quarter of
2011) and funding build-to-suit, expansion projects and lending commitments that we currently
estimate to total $6.3 million, as well as other normal recurring operating expenses. See below for
cash requirements related to the Merger.
Impact of Merger
As described in Note 13, we paid cash consideration in the Merger of $444.0 million to liquidating
shareholders and issued approximately 57.4 million shares of our common stock to merging
shareholders. The cash portion of the merger consideration was funded primarily by a $302.0 million
draw on our new revolving credit facility and a $121.0 million capital infusion by WPC.
CPA®:16 Global 3/31/2011 10-Q 30
Off-Balance Sheet Arrangements and Contractual Obligations
The table below summarizes our debt, off-balance sheet arrangements and other contractual
obligations at March 31, 2011 and the effect that these arrangements and obligations are expected
to have on our liquidity and cash flow in the specified future periods (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Less than |
|
|
|
|
|
|
|
|
|
|
More than |
|
|
|
Total |
|
|
1 year |
|
|
1-3 years |
|
|
3-5 years |
|
|
5 years |
|
Non-recourse debt Principal (a) |
|
$ |
1,485,401 |
|
|
$ |
31,884 |
|
|
$ |
72,044 |
|
|
$ |
235,061 |
|
|
$ |
1,146,412 |
|
Deferred acquisition fees Principal |
|
|
789 |
|
|
|
789 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest on borrowings and deferred
acquisition fees (b) |
|
|
552,105 |
|
|
|
87,922 |
|
|
|
169,682 |
|
|
|
150,814 |
|
|
|
143,687 |
|
Subordinated disposition fees (c) |
|
|
1,013 |
|
|
|
|
|
|
|
|
|
|
|
1,013 |
|
|
|
|
|
Build-to-suit and expansion commitments
(d) |
|
|
6,502 |
|
|
|
6,269 |
|
|
|
233 |
|
|
|
|
|
|
|
|
|
Operating and other lease commitments
(e) |
|
|
55,907 |
|
|
|
1,759 |
|
|
|
3,528 |
|
|
|
3,507 |
|
|
|
47,113 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
2,101,717 |
|
|
$ |
128,623 |
|
|
$ |
245,487 |
|
|
$ |
390,395 |
|
|
$ |
1,337,212 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(a) |
|
Excludes $2.0 million of unamortized discount on a non-recourse loan that we purchased back
from the lender. |
|
(b) |
|
Interest on an unhedged variable rate debt obligation was calculated using the variable
interest rate and balance outstanding at March 31, 2011. |
|
(c) |
|
Payable to the advisor, subject to meeting contingencies, in connection with any liquidity
event. There can be no assurance that any liquidity event will be achieved in this time frame. |
|
(d) |
|
Represents the remaining commitment on a build-to-suit project and three expansion projects. |
|
(e) |
|
Operating and other lease commitments consist primarily of rent obligations under ground
leases and our share of future minimum rents payable under an office cost-sharing agreement
with certain affiliates for the purpose of leasing office space used for the administration of
real estate entities. Amounts under the cost-sharing agreement are allocated among the
entities based on gross revenues and are adjusted quarterly. Rental obligations under ground
leases are inclusive of noncontrolling interests of approximately $9.0 million. |
Amounts in the table above related to our foreign operations are based on the exchange rate of the
local currencies at March 31, 2011. At March 31, 2011, we had no material capital lease obligations
for which we are the lessee, either individually or in the aggregate.
Together with our advisor and certain of our affiliates, we acquired two related investments in
2007 in which we have a total effective ownership interest of 26% and that we consolidate, as we
are the managing member of the ventures (the Hellweg 2 transaction). The primary purpose of these
investments was to ultimately acquire an interest in the underlying properties and as such was
structured to effectively transfer the economics of ownership to us and our affiliates while still
monetizing the sales value by transferring the legal ownership in the underlying properties over
time.
In connection with the acquisition, the property venture agreed to three option agreements that
give the property venture the right to purchase, from our partner, the remaining 75.3% (direct and
indirect) interest in the limited partnership at a price equal to the principal amount of the note
receivable at the time of purchase. In November 2010, the property venture exercised the first of
its three options and acquired from our partner a 70% direct interest in the limited partnership
for $297.3 million, thus owning a (direct and indirect) 94.7% interest in the limited partnership.
The property venture has assignable option agreements to acquire the remaining (direct and
indirect) 5.3% interest in the limited partnership by October 2012. If the property venture does
not exercise its option agreements, our partner has option agreements to put its remaining
interests in the limited partnership to the property venture during 2014 at a price equal to the
principal amount of the note receivable at the time of purchase. As of the date of this Report,
under the terms of the note receivable, the lending venture will receive interest income that
approximates 5.3% of all income earned by the limited partnership less adjustments. At March 31,
2011, our total effective ownership interest in the ventures was 26%.
Upon exercise of the relevant purchase option or the put, in order to avoid circular transfers of
cash, the seller and the lending venture and the property venture agreed that the lending venture
or the seller may elect, upon exercise of the respective purchase option or put option, to have the
loan from the lending venture to the seller repaid by a deemed transfer of cash. The deemed
transfer will be in amounts necessary to fully satisfy the sellers obligations to the lending
venture, and the lending venture will be deemed to have transferred such funds up to us and our
affiliates as if they had been recontributed down into the property venture based on their pro rata
ownership. Accordingly, at March 31, 2011 (based on the exchange rate of the Euro at that date),
the only additional cash required
by us to fund the exercise of the purchase option or the put would be the pro rata amounts
necessary to redeem the advisors interest, the aggregate of which would be approximately $0.5
million, with our share approximating $0.1 million.
CPA®:16 Global 3/31/2011 10-Q 31
Merger
As described in Note 13, on May 2, 2011, CPA®:14 merged with and into one of our subsidiaries. In connection with our
existing commitments associated with the Merger, we had agreed to use our reasonable best efforts
to obtain a senior credit facility in order to pay for cash elections by
CPA®:14 shareholders in the Merger. At the time of the Merger, we obtained a secured revolving credit facility of up to $320.0 million.
Equity Method Investments
We have investments in unconsolidated ventures that own single-tenant properties net leased to
corporations. Generally, the underlying investments are jointly owned with our affiliates.
Summarized financial information for these ventures and our ownership interest in the ventures at
March 31, 2011 is presented below. Summarized financial information provided represents the total
amounts attributable to the ventures and does not represent our proportionate share (dollars in
thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ownership Interest |
|
|
|
|
|
|
Total Third |
|
|
|
|
Lessee |
|
at March 31, 2011 |
|
|
Total Assets |
|
|
Party Debt |
|
|
Maturity Date |
|
Thales S.A. (a) |
|
|
35 |
% |
|
$ |
24,743 |
|
|
$ |
24,631 |
|
|
|
7/2011 |
|
U-Haul Moving Partners, Inc. and Mercury Partners,
L.P. |
|
|
31 |
% |
|
|
290,667 |
|
|
|
159,079 |
|
|
|
5/2014 |
|
Actuant Corporation (a) |
|
|
50 |
% |
|
|
17,475 |
|
|
|
11,475 |
|
|
|
5/2014 |
|
TietoEnator Plc (a) |
|
|
40 |
% |
|
|
91,524 |
|
|
|
72,178 |
|
|
|
7/2014 |
|
The New York Times Company |
|
|
27 |
% |
|
|
246,278 |
|
|
|
125,000 |
|
|
|
9/2014 |
|
Pohjola Non-life Insurance Company (a) |
|
|
40 |
% |
|
|
98,553 |
|
|
|
82,677 |
|
|
|
1/2015 |
|
Hellweg Die Profi-Baumarkte GmbH & Co. KG (Hellweg
1) (a) |
|
|
25 |
% |
|
|
189,821 |
|
|
|
99,337 |
|
|
|
5/2015 |
|
Actebis Peacock GmbH (a) |
|
|
30 |
% |
|
|
49,686 |
|
|
|
30,804 |
|
|
|
7/2015 |
|
Frontier Spinning Mills, Inc. |
|
|
40 |
% |
|
|
38,791 |
|
|
|
22,903 |
|
|
|
8/2016 |
|
Consolidated Systems, Inc. |
|
|
40 |
% |
|
|
16,702 |
|
|
|
11,323 |
|
|
|
11/2016 |
|
Barth Europa Transporte e.K/MSR Technologies GmbH
(formerly Lindenmaier A.G.) (a) |
|
|
33 |
% |
|
|
17,007 |
|
|
|
11,515 |
|
|
|
10/2017 |
|
OBI A.G. (a) |
|
|
25 |
% |
|
|
199,199 |
|
|
|
164,472 |
|
|
|
3/2018 |
|
Police Prefecture, French Government (a) |
|
|
50 |
% |
|
|
104,685 |
|
|
|
87,909 |
|
|
|
8/2020 |
|
Schuler A.G. (a) |
|
|
33 |
% |
|
|
72,176 |
|
|
|
|
|
|
|
N/A |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
1,457,307 |
|
|
$ |
903,303 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(a) |
|
Dollar amounts shown are based on the applicable exchange rate of the foreign currency at
March 31, 2011. |
Environmental Obligations
In connection with the purchase of many of our properties, we required the sellers to perform
environmental reviews. We believe, based on the results of these reviews, that our properties were
in substantial compliance with Federal and state environmental statutes at the time the properties
were acquired. However, portions of certain properties have been subject to some degree of
contamination, principally in connection with leakage from underground storage tanks, surface
spills or other on-site activities. In most instances where contamination has been identified,
tenants are actively engaged in the remediation process and addressing identified conditions.
Tenants are generally subject to environmental statutes and regulations regarding the discharge of
hazardous materials and any related remediation obligations. In addition, our leases generally
require tenants to indemnify us from all liabilities and losses related to the leased properties
and the provisions of such indemnifications specifically address environmental matters. The leases
generally include provisions that allow for periodic environmental assessments, paid for by the
tenant, and allow us to extend leases until such time as a tenant has satisfied its environmental
obligations. Certain of our leases allow us to require financial assurances from tenants, such as
performance bonds or letters of credit, if the costs of remediating environmental conditions are,
in our estimation, in excess of specified amounts. Accordingly, we believe that the ultimate
resolution of environmental matters should not have a material adverse effect on our financial
condition, liquidity or results of operations.
CPA®:16 Global 3/31/2011 10-Q 32
Supplemental Financial Measures
In the real estate industry, analysts and investors employ certain non-GAAP supplemental financial
measures in order to facilitate meaningful comparisons between periods and among peer companies.
Additionally, in the formulation of our goals and in the evaluation of the effectiveness of our
strategies, we employ the use of supplemental non-GAAP measures, which are uniquely defined by our
management. We believe these measures are useful to investors to consider because they may assist
them to better understand and measure the performance of our business over time and against similar
companies. A description of these non-GAAP financial measures and reconciliations to the most
directly comparable GAAP measures are provided below.
Funds from Operations as Adjusted
Funds from Operations (FFO) is a non-GAAP measure defined by the National Association of Real
Estate Investment Trusts (NAREIT). NAREIT defines FFO as net income or loss (as computed in
accordance with GAAP) excluding: depreciation and amortization expense from real estate assets,
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, real estate 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 for certain
non-cash charges, where applicable, such as gains or losses from extinguishment of debt and
deconsolidation of subsidiaries, amortization of intangibles, straight-line rents, impairment
charges on real estate, allowances for credit losses and unrealized foreign currency exchange gains
and losses. We refer to our modified definition of FFO as Funds from Operations as Adjusted, or
AFFO, and we employ it as one measure of our operating performance when we formulate corporate
goals and evaluate the effectiveness of our strategies. We exclude these items from GAAP net income
as they are not the primary drivers in our decision-making process. 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.
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.
CPA®:16 Global 3/31/2011 10-Q 33
FFO and AFFO for the three months ended March 31, 2011 and 2010 are presented below (in thousands):
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended March 31, |
|
|
|
2011 |
|
|
2010 |
|
Net income attributable to CPA®:16 - Global shareholders |
|
$ |
5,402 |
|
|
$ |
5,960 |
|
Adjustments: |
|
|
|
|
|
|
|
|
Depreciation and amortization of real property |
|
|
15,138 |
|
|
|
12,126 |
|
Proportionate share of adjustments to equity in net income of
partially owned entities to arrive at FFO: |
|
|
|
|
|
|
|
|
Depreciation and amortization of real property |
|
|
2,368 |
|
|
|
2,212 |
|
Gain on sale of real estate |
|
|
1 |
|
|
|
|
|
Proportionate share of adjustments for noncontrolling interests to
arrive at FFO |
|
|
(5,875 |
) |
|
|
(2,790 |
) |
|
|
|
|
|
|
|
Total adjustments |
|
|
11,632 |
|
|
|
11,548 |
|
|
|
|
|
|
|
|
FFO as defined by NAREIT |
|
|
17,034 |
|
|
|
17,508 |
|
|
|
|
|
|
|
|
Adjustments: |
|
|
|
|
|
|
|
|
Gain on deconsolidation of subsidiary |
|
|
|
|
|
|
(7,082 |
) |
Other depreciation, amortization and non-cash charges |
|
|
(845 |
) |
|
|
548 |
|
Straight-line and other rent adjustments |
|
|
(735 |
) |
|
|
337 |
|
Impairment charges |
|
|
|
|
|
|
8,030 |
|
Proportionate share of adjustments to equity in net income of
partially owned entities to arrive at AFFO: |
|
|
|
|
|
|
|
|
Other depreciation, amortization and other non-cash charges |
|
|
32 |
|
|
|
|
|
Straight-line and other rent adjustments |
|
|
(182 |
) |
|
|
(114 |
) |
Proportionate share of adjustments for noncontrolling interests to
arrive at AFFO |
|
|
914 |
|
|
|
1,037 |
|
|
|
|
|
|
|
|
Total adjustments |
|
|
(816 |
) |
|
|
2,756 |
|
|
|
|
|
|
|
|
AFFO (inclusive of Merger costs totaling $2.9 million in 2011) (a) |
|
$ |
16,218 |
|
|
$ |
20,264 |
|
|
|
|
|
|
|
|
|
|
|
(a) |
|
AFFO for the three months ended March 31, 2011 includes a reduction of $2.9 million as a
result of charges incurred in connection with the Merger. Management does not consider these
costs to be an ongoing expense of our business when evaluating our operating performance using
this supplemental financial measure. |
Adjusted Cash Flow from Operating Activities
Adjusted cash flow from operating activities refers to our cash flow from operating activities (as
computed in accordance with GAAP) adjusted, where applicable, primarily to: add cash distributions
that we receive from our investments in unconsolidated real estate joint ventures in excess of our
equity income; subtract cash distributions that we make to our noncontrolling partners in real
estate joint ventures that we consolidate; and eliminate changes in working capital. We hold a
number of interests in real estate joint ventures, and we believe that adjusting our GAAP cash flow
provided by operating activities to reflect these actual cash receipts and cash payments, as well
as eliminating the effect of timing differences between the payment of certain liabilities and the
receipt of certain receivables in a period other than that in which the item is recognized, may
give investors additional information about our actual cash flow that is not incorporated in cash
flow from operating activities as defined by GAAP.
We believe that adjusted cash flow from operating activities is a useful supplemental measure for
assessing the cash flow generated from our core operations as it gives investors important
information about our liquidity that is not provided within cash flow from operating activities as
defined by GAAP, and we use this measure when evaluating distributions to shareholders.
CPA®:16 Global 3/31/2011 10-Q 34
Adjusted cash flow from operating activities for the three months ended March 31, 2011 and 2010 is
presented below (in thousands):
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended March 31, |
|
|
|
2011 |
|
|
2010 |
|
Cash flow provided by operating activities |
|
$ |
27,399 |
|
|
$ |
33,104 |
|
Adjustments: |
|
|
|
|
|
|
|
|
Distributions received from equity investments in
real estate in excess of equity income, net |
|
|
768 |
|
|
|
383 |
|
Distributions paid to noncontrolling interests, net |
|
|
(2,225 |
) |
|
|
(2,042 |
) |
Changes in working capital |
|
|
(2,678 |
) |
|
|
(1,719 |
) |
|
|
|
|
|
|
|
Adjusted cash flow from operating activities
(inclusive of Merger costs totaling $2.9 million
in 2011) (a) (b) |
|
$ |
23,264 |
|
|
$ |
29,726 |
|
|
|
|
|
|
|
|
Distributions declared (weighted average share basis) |
|
$ |
20,956 |
|
|
$ |
20,470 |
|
|
|
|
|
|
|
|
|
|
|
(a) |
|
Adjusted cash flow from operating activities for the three months ended March 31, 2011
included a reduction of $2.9 million as a result of charges incurred in connection with the
Merger. Management does not consider these costs to be an ongoing cash outflow of our business
when evaluating our cash flow generated from our core operations using this supplemental
financial measure. |
|
(b) |
|
During the first quarter of 2011, we made an adjustment to exclude the impact of escrow funds
from Adjusted cash flow from operating activities as, more often than not, these funds
represent investing and/or financing activities. Adjusted cash flow from operating activities
for the three months ended March 31, 2010 has been adjusted to reflect this reclassification. |
While we believe that FFO, AFFO and Adjusted cash flow from operating activities are important
supplemental measures, they should not be considered as alternatives to net income as an indication
of a companys operating performance or to cash flow from operating activities as a measure of
liquidity. These non-GAAP measures should be used in conjunction with net income and cash flow from
operating activities as defined by GAAP. FFO, AFFO and Adjusted cash flow from operating
activities, or similarly titled measures disclosed by other REITs, may not be comparable to our
FFO, AFFO and Adjusted cash flow from operating activities measures.
|
|
|
Item 3. |
|
Quantitative and Qualitative Disclosures About Market Risk |
Market Risk
Market risk is the exposure to loss resulting from changes in interest rates, foreign currency
exchange rates and equity prices. The primary risks to which we are exposed are interest rate risk
and foreign currency exchange risk. We are also exposed to market risk as a result of
concentrations in certain tenant industries.
We do not generally use derivative instruments to manage foreign currency exchange rate risk
exposure and do not use derivative instruments to hedge credit/market risks or for speculative
purposes. However, from time to time, we may enter into foreign currency forward contracts to hedge
our foreign currency cash flow exposures.
Interest Rate Risk
The value of our real estate and related fixed rate debt obligations is subject to fluctuations
based on changes in interest rates. The value of our real estate is also subject to fluctuations
based on local and regional economic conditions and changes in the creditworthiness of lessees, all
of which may affect our ability to refinance property-level mortgage debt when balloon payments are
scheduled. Interest rates are highly sensitive to many factors, including governmental monetary and
tax policies, domestic and international economic and political conditions, and other factors
beyond our control. An increase in interest rates would likely cause the value of our owned assets
to decrease. Increases in interest rates may also have an impact on the credit profile of certain
tenants.
Although we have not experienced any credit losses on investments in loan participations, in the
event of a significant rising interest rate environment, loan defaults could occur and result in
our recognition of credit losses, which could adversely affect our liquidity and operating results.
Further, such defaults could have an adverse effect on the spreads between interest earning assets
and interest-bearing liabilities.
CPA®:16 Global 3/31/2011 10-Q 35
We are exposed to the impact of interest rate changes primarily through our borrowing activities.
To limit this exposure, we attempt to obtain non-recourse 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 lenders that effectively convert the
variable-rate debt service obligations of the loan to a fixed rate. Interest rate swaps are
agreements in which one party exchanges a stream of interest payments for a counterpartys stream
of cash flow over a specific period, and interest rate caps limit the effective borrowing rate of
variable-rate debt obligations while allowing participants to share in downward shifts in interest
rates. These interest rate swaps and caps are derivative instruments designated as cash flow hedges
on the forecasted interest payments on the debt obligation. The notional, or face, amount on which
the swaps or caps are based is not exchanged. Our objective in using these derivatives is to limit
our exposure to interest rate movements.
We estimate that the net fair value of our interest rate swap, which is included in Accounts
payable, accrued expenses and other liabilities in the consolidated financial statements, was a
liability of $0.3 million at March 31, 2011. In addition, two unconsolidated ventures in which we
have interests ranging from 25% to 27.25% had an interest rate swap and an interest rate cap with a
net estimated fair value liability of $5.6 million in the aggregate, representing the total amount
attributable to the ventures, not our proportionate share, at March 31, 2011 (Note 8).
In connection with the Hellweg 2 transaction, two ventures in which we have a total effective
ownership interest of 26%, which we consolidate, obtained participation rights in two interest rate
swaps obtained by the lender of the non-recourse mortgage financing on the transaction. The
participation rights are deemed to be embedded credit derivatives. For the three months ended March
31, 2011, the embedded credit derivatives generated unrealized losses of less than $0.1 million.
Because of current market volatility, we are experiencing significant fluctuation in the unrealized
gains or losses generated from these derivatives and expect this trend to continue until market
conditions stabilize.
At March 31, 2011, substantially all of our long-term debt either bore interest at fixed rates, was
swapped or capped to a fixed rate, or bore interest at fixed rates that were scheduled to convert
to then-prevailing market fixed rates at certain future points during their term. The estimated
fair value of these instruments is affected by changes in market interest rates. The annual
interest rates on our fixed-rate debt at March 31, 2011 ranged from 4.4% to 7.7%. The annual
interest rates on our variable-rate debt at March 31, 2011 ranged from 2.0% to 6.7%. Our debt
obligations are more fully described under Financial Condition in Item 2 above. The following table
presents principal cash flows based upon expected maturity dates of our debt obligations
outstanding at March 31, 2011, (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2011 |
|
|
2012 |
|
|
2013 |
|
|
2014 |
|
|
2015 |
|
|
Thereafter |
|
|
Total |
|
|
Fair value |
|
Fixed rate debt |
|
$ |
19,706 |
|
|
$ |
27,813 |
|
|
$ |
30,996 |
|
|
$ |
97,833 |
|
|
$ |
124,272 |
|
|
$ |
1,087,344 |
|
|
$ |
1,387,964 |
|
|
$ |
1,330,309 |
|
Variable rate debt |
|
$ |
4,055 |
|
|
$ |
5,483 |
|
|
$ |
5,961 |
|
|
$ |
6,417 |
|
|
$ |
6,847 |
|
|
$ |
68,675 |
|
|
$ |
97,438 |
|
|
$ |
97,003 |
|
A decrease or increase in interest rates of 1% would change the estimated fair value of this
debt at March 31, 2011 by an aggregate increase of $73.6 million or an aggregate decrease of $69.0
million, respectively.
This debt is generally not subject to short-term fluctuations in interest rates. As more fully
described under Financial Condition Summary of Financing in Item 2 above, a portion of the debt
classified as variable-rate debt in the table above bore interest at fixed rates at March 31, 2011
but has interest rate reset features that will change the fixed interest rates to then-prevailing
market fixed rates at certain points during their term.
Foreign Currency Exchange Rate Risk
We own investments in the European Union and other foreign countries, and as a result are subject
to risk from the effects of exchange rate movements of foreign currencies, primarily in the Euro,
and to a lesser extent, certain other currencies, which may affect future costs and cash flows. We
manage foreign currency exchange rate movements by generally placing both our debt obligations to
the lender and the tenants rental obligations to us in the same currency. We are generally a net
receiver of the foreign currency (we receive more cash than we pay out), and therefore our foreign
operations benefit from a weaker U.S. dollar, and are adversely affected by a stronger U.S. dollar,
relative to the foreign currency. For the three months ended March 31, 2011, we recognized net
realized foreign currency transaction losses and unrealized foreign currency transaction gains of
$0.1 million and $0.9 million, respectively. These gains and losses are included in Other income
and (expenses) in the consolidated financial statements and were primarily due to changes in the
value of the foreign currency on accrued interest receivable on notes receivable from consolidated
subsidiaries.
We have obtained mortgage financing in the local currency. To the extent that currency fluctuations
increase or decrease rental revenues as translated to dollars, the change in debt service, as
translated to dollars, will partially offset the effect of fluctuations in revenue and, to some
extent, mitigate the risk from changes in foreign currency rates.
CPA®:16 Global 3/31/2011 10-Q 36
Other
We own stock warrants that were granted to us by lessees in connection with structuring initial
lease transactions and that are defined as derivative instruments because they are readily
convertible to cash or provide for net settlement upon conversion. Changes in the fair value of
these derivative instruments are determined using an option pricing model and are recognized
currently in earnings as gains or losses. At March 31, 2011, warrants issued to us were classified
as derivative instruments and had an aggregate estimated fair value of $1.3 million.
|
|
|
Item 4. |
|
Controls and Procedures |
Disclosure Controls and Procedures
Our disclosure controls and procedures include our controls and other procedures designed to
provide reasonable assurance that information required to be disclosed in this and other reports
filed under the Securities Exchange Act of 1934, as amended (the Exchange Act) is recorded,
processed, summarized and reported within the required time periods specified in the SECs rules
and forms and that such information is accumulated and communicated to management, including our
chief executive officer and chief financial officer, to allow timely decisions regarding required
disclosures. It should be noted that no system of controls can provide complete assurance of
achieving a companys objectives and that future events may impact the effectiveness of a system of
controls.
Our chief executive officer and chief financial officer, after conducting an evaluation, together
with members of our management, of the effectiveness of the design and operation of our disclosure
controls and procedures at March 31, 2011, have concluded that our disclosure controls and
procedures (as defined in Rule 13a-15(e) under the Exchange Act) were effective as of March 31,
2011 at a reasonable level of assurance.
Changes in Internal Control over Financial Reporting
There have been no changes in our internal control over financial reporting during our most
recently completed fiscal quarter that have materially affected, or are reasonably likely to
materially affect, our internal control over financial reporting.
CPA®:16 Global 3/31/2011 10-Q 37
PART II
|
|
|
Item 2. |
|
Unregistered Sales of Equity Securities and Use of Proceeds |
For the three months ended March 31, 2011, we issued 136,738 restricted shares of common stock to
the advisor as consideration for performance fees. These shares were issued at $8.80 per share,
which was our most recently published estimated NAV per share as approved by our board of directors
at the date of issuance. Since none of these transactions were considered to have involved a
public offering within the meaning of Section 4(2) of the Securities Act, the shares issued were
deemed to be exempt from registration. In acquiring our shares, the advisor represented that such
interests were being acquired by it for the purposes of investment and not with a view to the
distribution thereof.
Issuer Purchases of Equity Securities
The following table provides information with respect to repurchases of our common stock during the
three months ended March 31, 2011:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Maximum number (or |
|
|
|
|
|
|
|
|
|
|
|
Total number of shares |
|
|
approximate dollar value) |
|
|
|
|
|
|
|
|
|
|
|
purchased as part of |
|
|
of shares that may yet be |
|
|
|
Total number of |
|
|
Average price |
|
|
publicly announced |
|
|
purchased under the |
|
2011 Period |
|
shares purchased(a) |
|
|
paid per share |
|
|
plans or program(a) |
|
|
plans or program(a) |
|
January |
|
|
|
|
|
|
|
|
|
|
N/A |
|
|
|
N/A |
|
February |
|
|
|
|
|
|
|
|
|
|
N/A |
|
|
|
N/A |
|
March |
|
|
333,005 |
|
|
$ |
8.18 |
|
|
|
N/A |
|
|
|
N/A |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
|
333,005 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(a) |
|
Represents shares of our common stock purchased through our redemption plan, pursuant to
which we may elect to redeem shares at the request of our shareholders, subject to certain
exceptions, conditions and limitations. The maximum amount of shares purchasable by us in any
period depends on a number of factors and is at the discretion of our board of directors. The
redemption plan will terminate if and when our shares are listed on a national securities
market. |
The following exhibits are filed with this Report, except where indicated.
|
|
|
|
|
Exhibit No. |
|
Description |
|
|
|
|
|
|
31.1 |
|
|
Certification pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 |
|
|
|
|
|
|
31.2 |
|
|
Certification pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 |
|
|
|
|
|
|
32 |
|
|
Certifications pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 |
CPA®:16 Global 3/31/2011 10-Q 38
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused
this Report to be signed on its behalf by the undersigned thereunto duly authorized.
|
|
|
|
|
|
Corporate Property Associates 16 Global Incorporated
|
|
Date: 5/16/11 |
By: |
/s/ Mark J. DeCesaris
|
|
|
|
Mark J. DeCesaris |
|
|
|
Chief Financial Officer
(Principal Financial Officer) |
|
|
|
|
Date: 5/16/11 |
By: |
/s/ Thomas J. Ridings, Jr.
|
|
|
|
Thomas J. Ridings, Jr. |
|
|
|
Chief Accounting Officer
(Principal Accounting Officer) |
|
CPA®:16 Global 3/31/2011 10-Q 39
EXHIBIT INDEX
The following exhibits are filed with this Report, except where indicated.
|
|
|
|
|
Exhibit No. |
|
Description |
|
|
|
|
|
|
31.1 |
|
|
Certification pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 |
|
|
|
|
|
|
31.2 |
|
|
Certification pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 |
|
|
|
|
|
|
32 |
|
|
Certifications pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 |