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EX-31.2 - EXHIBIT 31.2 - W. P. Carey Inc.wpc2016q110-qexh312.htm
EX-32 - EXHIBIT 32 - W. P. Carey Inc.wpc2016q110-qexh32.htm
EX-10.3 - EXHIBIT 10.3 - W. P. Carey Inc.wpc2016q110-qexh103.htm
EX-31.1 - EXHIBIT 31.1 - W. P. Carey Inc.wpc2016q110-qexh311.htm


 

UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
 
FORM 10-Q

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

For the quarterly period ended March 31, 2016
or 

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

For the transition period from__________ to __________
 
Commission File Number: 001-13779

W. P. CAREY INC.
(Exact name of registrant as specified in its charter) 
Maryland
45-4549771
(State of incorporation)
(I.R.S. Employer Identification No.)
 
 
50 Rockefeller Plaza
 
New York, New York
10020
(Address of principal executive offices)
(Zip Code)
 
Investor Relations (212) 492-8920
(212) 492-1100
(Registrant’s telephone numbers, including area code)

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes þ No o

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes þ No o

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.
Large accelerated filer þ
Accelerated filer o
Non-accelerated filer o
Smaller reporting company o
 
 
(Do not check if a smaller reporting company)
 

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes o No þ
 
Registrant has 104,871,813 shares of common stock, $0.001 par value, outstanding at April 29, 2016.
 




INDEX
 
 
 
Page No.

Forward-Looking Statements

This Quarterly Report on Form 10-Q, or this Report, including Management’s Discussion and Analysis of Financial Condition and Results of Operations in Item 2 of Part I of this Report, contains forward-looking statements within the meaning of the federal securities laws. These forward-looking statements generally are identified by the words “believe,” “project,” “expect,” “anticipate,” “estimate,” “intend,” “strategy,” “plan,” “may,” “should,” “will,” “would,” “will be,” “will continue,” “will likely result,” and similar expressions. These forward-looking statements include, but are not limited to, statements regarding our formal strategic review; capital markets; tenant credit quality; general economic overview; our expected range of Adjusted funds from operations, or AFFO; our corporate strategy; our capital structure; our portfolio lease terms; our international exposure and acquisition volume; our expectations about tenant bankruptcies and interest coverage; statements regarding estimated or future economic performance and results, including our underlying assumptions, occupancy rate, credit ratings, and possible new acquisitions by us and our investment management programs; the Managed Programs discussed herein, including their earnings; statements that we make regarding our ability to remain qualified for taxation as a real estate investment trust, or REIT; the amount and timing of any future dividends; our existing or future leverage and debt service obligations; our ability to sell shares under our “at the market” program; our future prospects for growth; our projected assets under management; our future capital expenditure levels; our historical and anticipated funds from operations; our future financing transactions; our estimates of growth; and our plans to fund our future liquidity needs. These statements are based on the current expectations of our management. It is important to note that our actual results could be materially different from those projected in such forward-looking statements. There are a number of risks and uncertainties that could cause actual results to differ materially from these forward-looking statements. Other unknown or unpredictable factors could also have material adverse effects on our business, financial condition, liquidity, results of operations, AFFO, and prospects. You should exercise caution in relying on forward-looking statements as they involve known and unknown risks, uncertainties, and other factors that may materially affect our future results, performance, achievements or transactions. Information on factors that could impact actual results and cause them to differ from what is anticipated in the forward-looking statements contained herein is included in this Report as well as in our other filings with the Securities and Exchange Commission, or the SEC, including but not limited to those described in Item 1A. Risk Factors in our Annual Report on Form 10-K for the year ended December 31, 2015, as filed with the SEC on February 26, 2016, or the 2015 Annual Report. Moreover, because we operate in a very competitive and rapidly-changing environment, new risks are likely to emerge from time to time. Given these risks and uncertainties, potential investors are cautioned not to place undue reliance on these forward-looking statements as a prediction of future results, which speak only as of the date of this Report, unless noted otherwise. Except as required by federal securities laws and the rules and regulations of the SEC, we do not undertake to revise or update any forward-looking statements.

All references to “Notes” throughout the document refer to the footnotes to the consolidated financial statements of the registrant in Part I, Item 1. Financial Statements (Unaudited).

 
W. P. Carey 3/31/2016 10-Q 1
                    



PART I — FINANCIAL INFORMATION
Item 1. Financial Statements.

W. P. CAREY INC. 
CONSOLIDATED BALANCE SHEETS (UNAUDITED)
(in thousands, except share and per share amounts)
 
March 31, 2016
 
December 31, 2015
Assets
 
 
 
Investments in real estate:
 
 
 
Real estate, at cost (inclusive of $883,703 and $923,253, respectively, attributable to variable interest entities, or VIEs)
$
5,350,924

 
$
5,309,925

Operating real estate, at cost (inclusive of $43,135 and $42,472, respectively, attributable to VIEs)
80,224

 
82,749

Accumulated depreciation (inclusive of $81,918 and $75,271, respectively, attributable to VIEs)
(414,623
)
 
(381,529
)
Net investments in properties
5,016,525

 
5,011,145

Net investments in direct financing leases (inclusive of $62,387 and $61,454, respectively, attributable to VIEs)
753,746

 
756,353

Assets held for sale
3,747

 
59,046

Net investments in real estate
5,774,018

 
5,826,544

Equity investments in the Managed Programs and real estate
281,546

 
275,473

Cash and cash equivalents (inclusive of $12,016 and $12,382, respectively, attributable to VIEs)
267,064

 
157,227

Due from affiliates
61,548

 
62,218

In-place lease and tenant relationship intangible assets, net (inclusive of $214,233 and $214,924, respectively, attributable to VIEs)
856,496

 
902,848

Goodwill
680,043

 
681,809

Above-market rent intangible assets, net (inclusive of $80,314 and $80,901, respectively, attributable to VIEs)
460,422

 
475,072

Other assets, net (inclusive of $36,613 and $37,161, respectively, attributable to VIEs)
322,114

 
360,898

Total assets
$
8,703,251

 
$
8,742,089

Liabilities and Equity
 
 
 
Liabilities:
 
 
 
Non-recourse debt, net (inclusive of $449,187 and $439,285, respectively, attributable to VIEs)
$
2,247,993

 
$
2,269,421

Senior Unsecured Notes, net
1,501,281

 
1,476,084

Senior Unsecured Credit Facility - Revolver
564,600

 
485,021

Senior Unsecured Credit Facility - Term Loan, net
249,790

 
249,683

Accounts payable, accrued expenses and other liabilities (inclusive of $92,403 and $97,441, respectively, attributable to VIEs)
281,844

 
342,374

Below-market rent and other intangible liabilities, net (inclusive of $45,572 and $45,850, respectively, attributable to VIEs)
132,363

 
154,315

Deferred income taxes (inclusive of $6,872 and $8,020, respectively, attributable to VIEs)
88,935

 
86,104

Distributions payable
103,990

 
102,715

Total liabilities
5,170,796

 
5,165,717

Redeemable noncontrolling interest
965

 
14,944

Commitments and contingencies (Note 12)


 


Equity:
 
 
 
W. P. Carey stockholders’ equity:
 
 
 
Preferred stock, $0.001 par value, 50,000,000 shares authorized; none issued

 

Common stock, $0.001 par value, 450,000,000 shares authorized; 104,866,351 and 104,448,777 shares, respectively, issued and outstanding
105

 
104

Additional paid-in capital
4,295,469

 
4,282,042

Distributions in excess of accumulated earnings
(786,217
)
 
(738,652
)
Deferred compensation obligation
60,550

 
56,040

Accumulated other comprehensive loss
(171,903
)
 
(172,291
)
Total W. P. Carey stockholders’ equity
3,398,004

 
3,427,243

Noncontrolling interests
133,486

 
134,185

Total equity
3,531,490

 
3,561,428

Total liabilities and equity
$
8,703,251

 
$
8,742,089


 See Notes to Consolidated Financial Statements.

 
W. P. Carey 3/31/2016 10-Q 2
                    



W. P. CAREY INC. 
CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED)
(in thousands, except share and per share amounts)
 
Three Months Ended March 31,
 
2016
 
2015
Revenues
 
 
 
Owned Real Estate:
 
 
 
Lease revenues
$
175,244

 
$
160,165

Lease termination income and other
32,541

 
3,209

Operating property revenues
6,902

 
7,112

Reimbursable tenant costs
6,309

 
5,939

 
220,996

 
176,425

Investment Management:
 
 
 
Reimbursable costs
19,738

 
9,607

Asset management revenue
14,613

 
11,159

Structuring revenue
12,721

 
21,720

Dealer manager fees
2,172

 
1,274

Other advisory revenue

 
203

 
49,244

 
43,963

 
270,240

 
220,388

Operating Expenses
 
 
 
Depreciation and amortization
84,452

 
65,400

Reimbursable tenant and affiliate costs
26,047

 
15,546

General and administrative
21,438

 
29,768

Property expenses, excluding reimbursable tenant costs
17,772

 
9,364

Restructuring and other compensation
11,473

 

Stock-based compensation expense
6,607

 
7,009

Property acquisition and other expenses
5,566

 
5,676

Dealer manager fees and expenses
3,352

 
2,372

Subadvisor fees
3,293

 
2,661

Impairment charges

 
2,683

 
180,000

 
140,479

Other Income and Expenses
 
 
 
Interest expense
(48,395
)
 
(47,949
)
Equity in earnings of equity method investments in the Managed Programs and real estate
15,011

 
11,723

Other income and (expenses)
3,871

 
(4,306
)
 
(29,513
)
 
(40,532
)
Income before income taxes and gain on sale of real estate
60,727

 
39,377

Provision for income taxes
(525
)
 
(1,980
)
Income before gain on sale of real estate
60,202

 
37,397

Gain on sale of real estate, net of tax
662

 
1,185

Net Income
60,864

 
38,582

Net income attributable to noncontrolling interests
(3,425
)
 
(2,466
)
Net Income Attributable to W. P. Carey
$
57,439

 
$
36,116

 
 
 
 
Basic Earnings Per Share
$
0.54

 
$
0.34

Diluted Earnings Per Share
$
0.54

 
$
0.34

Weighted-Average Shares Outstanding
 
 
 
Basic
105,939,161

 
105,303,679

Diluted
106,405,453

 
106,109,877


 
 
 
Distributions Declared Per Share
$
0.9742

 
$
0.9525

 

See Notes to Consolidated Financial Statements.

 
W. P. Carey 3/31/2016 10-Q 3
                    



W. P. CAREY INC.
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS) (UNAUDITED)
(in thousands) 
 
Three Months Ended March 31,
 
2016
 
2015
Net Income
$
60,864

 
$
38,582

Other Comprehensive Income (Loss)
 
 
 
Foreign currency translation adjustments
14,033

 
(114,080
)
Realized and unrealized (loss) gain on derivative instruments
(11,775
)
 
26,818

Change in unrealized gain on marketable securities

 
14

 
2,258

 
(87,248
)
Comprehensive Income (Loss)
63,122

 
(48,666
)
 
 
 
 
Amounts Attributable to Noncontrolling Interests
 
 
 
Net income
(3,425
)
 
(2,466
)
Foreign currency translation adjustments
(1,870
)
 
5,143

Comprehensive (income) loss attributable to noncontrolling interests
(5,295
)
 
2,677

Comprehensive Income (Loss) Attributable to W. P. Carey
$
57,827

 
$
(45,989
)
 
See Notes to Consolidated Financial Statements.

 
W. P. Carey 3/31/2016 10-Q 4
                    



W. P. CAREY INC.
CONSOLIDATED STATEMENTS OF EQUITY (UNAUDITED)
Three Months Ended March 31, 2016 and 2015
(in thousands, except share and per share amounts)
 
W. P. Carey Stockholders
 
 
 
 
 
 
 
 
 
 
 
Distributions
 
 
 
Accumulated
 
 
 
 
 
 
 
Common Stock
 
Additional
 
in Excess of
 
Deferred
 
Other
 
Total
 
 
 
 
 
$0.001 Par Value
 
Paid-in
 
Accumulated
 
Compensation
 
Comprehensive
 
W. P. Carey
 
Noncontrolling
 
 
 
Shares
 
Amount
 
Capital
 
Earnings
 
Obligation
 
Loss
 
Stockholders
 
Interests
 
Total
Balance at January 1, 2016
104,448,777

 
$
104

 
$
4,282,042

 
$
(738,652
)
 
$
56,040

 
$
(172,291
)
 
$
3,427,243

 
$
134,185

 
$
3,561,428

Shares issued to a third party in connection with the redemption of a redeemable noncontrolling interest
217,011

 
1

 
13,418

 
 
 
 
 
 
 
13,419

 
 
 
13,419

Contributions from noncontrolling interests
 
 
 
 
 
 
 
 
 
 
 
 

 
90

 
90

Exercise of stock options and employee purchases under the employee share purchase plan
180

 

 
6

 
 
 
 
 
 
 
6

 
 
 
6

Grants issued in connection with services rendered
190,083

 

 
(6,662
)
 
 
 
 
 
 
 
(6,662
)
 
 
 
(6,662
)
Shares issued under share incentive plans
10,300

 

 
(690
)
 
 
 
 
 
 
 
(690
)
 
 
 
(690
)
Deferral of vested shares
 
 
 
 
(4,262
)
 
 
 
4,262

 
 
 

 
 
 

Amortization of stock-based compensation expense
 
 
 
 
9,814

 
 
 
 
 
 
 
9,814

 
 
 
9,814

Redemption value adjustment
 
 
 
 
561

 
 
 
 
 
 
 
561

 
 
 
561

Distributions to noncontrolling interests
 
 
 
 
 
 
 
 
 
 
 
 

 
(6,084
)
 
(6,084
)
Distributions declared ($0.9742 per share)
 
 
 
 
1,242

 
(105,004
)
 
248

 
 
 
(103,514
)
 
 
 
(103,514
)
Net income
 
 
 
 
 
 
57,439

 
 
 
 
 
57,439

 
3,425

 
60,864

Other comprehensive income (loss):
 
 
 
 
 
 
 
 
 
 
 
 


 
 
 


Foreign currency translation adjustments
 
 
 
 
 
 
 
 
 
 
12,163

 
12,163

 
1,870

 
14,033

Realized and unrealized loss on derivative instruments
 
 
 
 
 
 
 
 
 
 
(11,775
)
 
(11,775
)
 
 
 
(11,775
)
Balance at March 31, 2016
104,866,351

 
$
105

 
$
4,295,469

 
$
(786,217
)
 
$
60,550

 
$
(171,903
)
 
$
3,398,004

 
$
133,486

 
$
3,531,490





 
W. P. Carey 3/31/2016 10-Q 5
                    




W. P. CAREY INC.
CONSOLIDATED STATEMENTS OF EQUITY (UNAUDITED)
(Continued)
Three Months Ended March 31, 2016 and 2015
(in thousands, except share and per share amounts)
 
W. P. Carey Stockholders
 
 
 
 
 
 
 
 
 
 
 
Distributions
 
 
 
Accumulated
 
 
 
 
 
 
 
Common Stock
 
Additional
 
in Excess of
 
Deferred
 
Other
 
Total
 
 
 
 
 
$0.001 Par Value
 
Paid-in
 
Accumulated
 
Compensation
 
Comprehensive
 
W. P. Carey
 
Noncontrolling
 
 
 
Shares
 
Amount
 
Capital
 
Earnings
 
Obligation
 
Loss
 
Stockholders
 
Interests
 
Total
Balance at January 1, 2015
104,040,653

 
$
104

 
$
4,293,450

 
$
(497,730
)
 
$
30,624

 
$
(75,559
)
 
$
3,750,889

 
$
139,846

 
$
3,890,735

Contributions from noncontrolling interests
 
 
 
 
 
 
 
 
 
 
 
 

 
208

 
208

Exercise of stock options and employee purchases under the employee share purchase plan
3

 

 

 
 
 
 
 
 
 

 
 
 

Grants issued in connection with services rendered
279,621

 

 
(14,533
)
 
 
 
 
 
 
 
(14,533
)
 
 
 
(14,533
)
Shares issued under share incentive plans
17,146

 

 
(717
)
 
 
 
 
 
 
 
(717
)
 
 
 
(717
)
Deferral of vested shares
 
 
 
 
(24,288
)
 
 
 
24,288

 
 
 

 
 
 

Windfall tax benefits - share incentive plans
 
 
 
 
5,276

 
 
 
 
 
 
 
5,276

 
 
 
5,276

Amortization of stock-based compensation expense
 
 
 
 
7,009

 
 
 
 
 
 
 
7,009

 
 
 
7,009

Redemption value adjustment
 
 
 
 
(7,303
)
 
 
 
 
 
 
 
(7,303
)
 
 
 
(7,303
)
Distributions to noncontrolling interests
 
 
 
 
 
 
 
 
 
 
 
 

 
(2,354
)
 
(2,354
)
Distributions declared ($0.9525 per share)
 
 
 
 
5,064

 
(108,035
)
 
1,837

 
 
 
(101,134
)
 
 
 
(101,134
)
Net income
 
 
 
 
 
 
36,116

 
 
 
 
 
36,116

 
2,466

 
38,582

Other comprehensive (loss) income:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Foreign currency translation adjustments
 
 
 
 
 
 
 
 
 
 
(108,937
)
 
(108,937
)
 
(5,143
)
 
(114,080
)
Realized and unrealized gain on derivative instruments
 
 
 
 
 
 
 
 
 
 
26,818

 
26,818

 
 
 
26,818

Change in unrealized gain on marketable securities
 
 
 
 
 
 
 
 
 
 
14

 
14

 
 
 
14

Balance at March 31, 2015
104,337,423

 
$
104

 
$
4,263,958

 
$
(569,649
)
 
$
56,749

 
$
(157,664
)
 
$
3,593,498

 
$
135,023

 
$
3,728,521


See Notes to Consolidated Financial Statements.

 
W. P. Carey 3/31/2016 10-Q 6
                    



W. P. CAREY INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
(in thousands)
 
Three Months Ended March 31,
 
2016

2015
Cash Flows — Operating Activities
 
 
 
Net income
$
60,864

 
$
38,582

Adjustments to net income:
 
 
 
Depreciation and amortization, including intangible assets and deferred financing costs
84,956

 
66,994

Straight-line rent, amortization of rent-related intangibles, and deferred rental revenue
(36,309
)
 
10,364

Stock-based compensation expense
9,814

 
7,009

Allowance for credit losses
7,064

 

Management income received in shares of Managed REITs and other
(6,939
)
 
(4,988
)
Realized and unrealized (gain) loss on foreign currency transactions, derivatives, extinguishment of debt, and other
(3,914
)
 
7,615

Deferred income taxes
(3,027
)
 
(1,733
)
Gain on sale of real estate
(662
)
 
(1,185
)
Equity in earnings of equity method investments in the Managed Programs and real estate in excess of distributions received
464

 
331

Impairment charges

 
2,683

Changes in assets and liabilities:
 
 
 
Deferred acquisition revenue received
7,560

 
8,738

Payments for withholding taxes upon delivery of equity-based awards and exercises of stock options
(7,352
)
 
(15,250
)
Increase in structuring revenue receivable
(2,266
)
 
(6,645
)
Net changes in other operating assets and liabilities
2,819

 
(31,586
)
Net Cash Provided by Operating Activities
113,072

 
80,929

Cash Flows — Investing Activities
 
 
 
Proceeds from sale of real estate
103,689

 
13,119

Funding of short-term loans to affiliates
(20,000
)
 

Proceeds from repayment of short-term loans to affiliates
20,000

 

Capital expenditures on owned real estate
(4,092
)
 
(308
)
Change in investing restricted cash
(3,074
)
 
6,852

Investment in real estate under construction
(2,562
)
 
(10,481
)
Distributions received from equity investments in the Managed Programs and real estate in excess of equity income
1,935

 
1,473

Other investing activities, net
(1,130
)
 
489

Capital expenditures on corporate assets
(761
)
 
(882
)
Proceeds from repayments of note receivable
195

 
9,970

Capital contributions to equity investments in real estate
(5
)
 

Purchases of real estate

 
(385,603
)
Net Cash Provided by (Used in) Investing Activities
94,195

 
(365,371
)
Cash Flows — Financing Activities
 
 
 
Proceeds from Senior Unsecured Credit Facility
190,568

 
291,206

Repayments of Senior Unsecured Credit Facility
(130,000
)
 
(877,685
)
Distributions paid
(102,239
)
 
(99,860
)
Prepayments of mortgage principal
(36,894
)
 

Scheduled payments of mortgage principal
(17,941
)
 
(18,247
)
Distributions paid to noncontrolling interests
(6,084
)
 
(2,354
)
Change in financing restricted cash
633

 
175

Payment of financing costs
(250
)
 
(10,501
)
Contributions from noncontrolling interests
90

 
208

Proceeds from exercise of stock options and employee purchases under the employee share purchase plan
6

 

Proceeds from issuance of Senior Unsecured Notes

 
1,022,303

Proceeds from mortgage financing

 
8,277

Windfall tax benefit associated with stock-based compensation awards

 
5,276

Net Cash (Used in) Provided by Financing Activities
(102,111
)
 
318,798

Change in Cash and Cash Equivalents During the Period
 
 
 
Effect of exchange rate changes on cash
4,681

 
(25,648
)
Net increase in cash and cash equivalents
109,837

 
8,708

Cash and cash equivalents, beginning of period
157,227

 
198,683

Cash and cash equivalents, end of period
$
267,064

 
$
207,391

 

See Notes to Consolidated Financial Statements.

 
W. P. Carey 3/31/2016 10-Q 7
                    



W. P. CAREY INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

Note 1. Business and Organization
 
W. P. Carey Inc., or W. P. Carey, is, together with its consolidated subsidiaries and predecessors, a REIT that provides long-term financing via sale-leaseback and build-to-suit transactions for companies worldwide and manages a global investment portfolio. We invest primarily in commercial properties domestically and internationally. We earn revenue principally by leasing the properties we own to single corporate tenants, primarily on a triple-net lease basis, which generally requires each tenant to pay substantially all of the costs associated with operating and maintaining the property.

Originally founded in 1973, we reorganized as a REIT in September 2012 in connection with our merger with Corporate Property Associates 15 Incorporated. We refer to that merger as the CPA®:15 Merger. On January 31, 2014, Corporate Property Associates 16 – Global Incorporated, or CPA®:16 – Global, merged with and into us, which we refer to as the CPA®:16 Merger. Our shares of common stock are listed on the New York Stock Exchange under the symbol “WPC.”

We have elected to be taxed as a REIT under Section 856 through 860 of the Internal Revenue Code. As a REIT, we are not generally subject to United States federal income taxation other than from our taxable REIT subsidiaries, or TRSs, as long as we satisfy certain requirements, principally relating to the nature of our income and the level of our distributions, as well as other factors. We hold all of our real estate assets attributable to our Owned Real Estate segment under the REIT structure, while the activities conducted by our Investment Management segment subsidiaries have been organized under TRSs.

Through our TRSs, we also earn revenue as the advisor to publicly-owned, non-listed REITs, which are sponsored by us under the Corporate Property Associates, or CPA®, brand name and invest in similar properties. At March 31, 2016, we were the advisor to Corporate Property Associates 17 – Global Incorporated, or CPA®:17 – Global, and Corporate Property Associates 18 – Global Incorporated, or CPA®:18 – Global. We refer to CPA®:17 – Global and CPA®:18 – Global together as the CPA® REITs. We were also the advisor to CPA®:16 – Global until its merger with us on January 31, 2014. At March 31, 2016, we were also the advisor to Carey Watermark Investors Incorporated, referred to as CWI 1, and Carey Watermark Investors 2 Incorporated, or CWI 2, two publicly-owned, non-listed REITs that invest in lodging and lodging-related properties. We refer to CWI 1 and CWI 2 together as the CWI REITs and, together with the CPA® REITs, as the Managed REITs (Note 4). At March 31, 2016, we also served as the advisor to Carey Credit Income Fund, or CCIF, a business development company, or BDC (Note 7). We refer to CCIF and the two feeder funds of CCIF, or the CCIF Feeder Funds, collectively as the Managed BDCs and, together with the Managed REITs, as the Managed Programs.

Reportable Segments
 
Owned Real Estate — We own and invest in commercial properties principally in the United States, Europe, and Asia that are then leased to companies, primarily on a triple-net lease basis. We have also invested in several operating properties, such as lodging and self-storage properties. We earn lease revenues from our wholly-owned and co-owned real estate investments that we control. In addition, we generate equity income through co-owned real estate investments that we do not control and through our ownership of shares of the Managed Programs (Note 7). Through our special member interests in the operating partnerships of the Managed REITs, we also participate in their cash flows (Note 4). At March 31, 2016, our owned portfolio was comprised of our full or partial ownership interests in 866 properties, totaling approximately 89.3 million square feet, substantially all of which were net leased to 220 tenants, with an occupancy rate of 98.5%.

Investment Management — Through our TRSs, we structure and negotiate investments and debt placement transactions for the Managed REITs, for which we earn structuring revenue, and manage their portfolios of real estate investments, for which we earn asset-based management revenue. We also earn asset management revenue from CCIF based on the average of its gross assets at fair value. We may earn disposition revenue when we negotiate and structure the sale of properties on behalf of the Managed REITs, and we may also earn incentive revenue and receive other compensation in connection with providing liquidity events for the Managed REITs’ stockholders. At March 31, 2016, CPA®:17 – Global and CPA®:18 – Global collectively owned all or a portion of 431 properties, including certain properties in which we have an ownership interest. Substantially all of these properties, totaling approximately 49.9 million square feet, were net leased to 205 tenants, with an average occupancy rate of approximately 99.8%. The Managed REITs also had interests in 176 operating properties, totaling approximately 20.2 million square feet. We continue to explore alternatives for expanding our investment management operations beyond advising the existing Managed Programs. Any such expansion could involve the purchase of properties or other investments as principal, either for our owned portfolio or with the intention of transferring such investments to a newly-

 
W. P. Carey 3/31/2016 10-Q 8
                    

 
Notes to Consolidated Financial Statements (Unaudited)

created fund. These new funds could invest primarily in assets other than net-lease real estate and could include funds raised through private placements or publicly-traded vehicles, either in the United States or internationally.

Note 2. Revisions of Previously-Issued Financial Statements

During the second quarter of 2015, we identified errors in the March 31, 2015 interim consolidated financial statements related to the calculation of foreign currency translation of the assets and liabilities of a foreign investment acquired in January 2015 and the presentation of certain foreign currency losses within the consolidated statement of cash flows for the three months ended March 31, 2015. We evaluated the impact on the previously-issued financial statements and concluded that these errors were not material to our consolidated financial statements as of and for the three months ended March 31, 2015. However, in order to correctly present such foreign currency translation and certain foreign currency losses, we elected to revise the previously-issued consolidated statements of comprehensive loss, equity, and cash flows for the three months ended March 31, 2015. The interim consolidated financial statements as of and for the three months ended June 30, 2015 and September 30, 2015 are not impacted by these adjustments.

The corrections of the foreign currency translation adjustments resulted in a $17.3 million decrease in Accumulated other comprehensive loss on the consolidated statement of equity with a corresponding reduction in Other comprehensive loss, Comprehensive loss, and Comprehensive loss attributable to W. P. Carey within the consolidated statement of comprehensive loss for the three months ended March 31, 2015 as compared to amounts previously presented. The correction of the presentation of the foreign currency losses within the consolidated statement of cash flows for the three months ended March 31, 2015 resulted in a $13.6 million increase in Net cash provided by operating activities, with a corresponding decrease to the Effect of exchange rate changes on cash as compared to the amounts previously presented.
The revisions described above had no effect on our cash balances or liquidity as of March 31, 2015, or the consolidated statements of income or basic and diluted earnings per share for the three months ended March 31, 2015.

During the year ended December 31, 2015, we determined that our presentation of common shares repurchased should be classified as a reduction to Common stock, for the par amount of the common shares repurchased, Additional paid-in capital, and Distributions in excess of accumulated earnings, and included as shares unissued within the consolidated financial statements. We previously classified common shares repurchased as Treasury stock in the consolidated financial statements. We evaluated the impact of this correction on previously-issued financial statements and concluded that they were not materially misstated. In order to conform previously-issued financial statements to the current period, we elected to revise previously-issued financial statements the next time such financial statements are filed to include the elimination of Treasury stock of $60.9 million, with corresponding reductions of Common stock and Additional paid-in capital of $28.8 million, and Distributions in excess of accumulated earnings of $32.1 million as of March 31, 2015. These revisions resulted in no change in Total equity within the consolidated statements of equity for the three months ended March 31, 2015.

Note 3. Basis of Presentation

Basis of Presentation

Our interim consolidated financial statements have been prepared in accordance with the instructions to Form 10-Q and, therefore, do not necessarily include all information and footnotes necessary for a fair statement of our consolidated financial position, results of operations, and cash flows in accordance with generally accepted accounting principles in the United States, or GAAP.

In the opinion of management, the unaudited financial information for the interim periods presented in this Report reflects all normal and recurring adjustments necessary for a fair statement of financial position, results of operations, and cash flows. Our interim consolidated financial statements should be read in conjunction with our audited consolidated financial statements and accompanying notes for the year ended December 31, 2015, which are included in the 2015 Annual Report, as certain disclosures that would substantially duplicate those contained in the audited consolidated financial statements have not been included in this Report. Operating results for interim periods are not necessarily indicative of operating results for an entire year.

The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts and the disclosure of contingent amounts in our consolidated financial statements and the accompanying notes. Actual results could differ from those estimates.


 
W. P. Carey 3/31/2016 10-Q 9
                    

 
Notes to Consolidated Financial Statements (Unaudited)

Basis of Consolidation

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

On January 1, 2016, we adopted the Financial Accounting Standards Board’s, or FASB’s, Accounting Standards Update, or ASU, 2015-02, Consolidation (Topic 810): Amendments to the Consolidation Analysis, as described in the Recent Accounting Pronouncements section below, which amends the current consolidation guidance, including introducing a separate consolidation analysis specific to limited partnerships and other similar entities. When we obtain an economic interest in an entity, we evaluate the entity to determine if it should be deemed a variable interest entity, or VIE, and, if so, whether we are the primary beneficiary and are therefore required to consolidate the entity. We apply accounting guidance for consolidation of VIEs to certain entities in which the equity investors do not have the characteristics of a controlling financial interest or do not have sufficient equity at risk for the entity to finance its activities without additional subordinated financial support from other parties. Fixed price purchase and renewal options within a lease, as well as certain decision-making rights within a loan or joint-venture agreement, can cause us to consider an entity a VIE. Limited partnerships and other similar entities which operate as a partnership will be considered a VIE unless the limited partners hold substantive kick-out rights or participation rights. Significant judgment is required to determine whether a VIE should be consolidated. We review the contractual arrangements provided for in the partnership agreement or other related contracts to determine whether the entity is considered a VIE, and to establish whether we have any variable interests in the VIE. We then compare our variable interests, if any, to those of the other variable interest holders to determine which party is the primary beneficiary of the VIE based on whether the entity (i) has the power to direct the activities that most significantly impact the economic performance of the VIE and (ii) has the obligation to absorb losses or the right to receive benefits of the VIE that could potentially be significant to the VIE. We performed this analysis on all of our subsidiary entities following the guidance in ASU 2015-02 to determine whether they qualify as VIEs and whether they should be consolidated or accounted for as equity investments in an unconsolidated venture. As a result of our assessment, at March 31, 2016, we considered 33 entities VIEs, 26 of which we consolidated and seven of which we accounted for as an equity investment. As a part of this assessment, we determined that 13 entities that were previously classified as voting interest entities should now be classified as VIEs as of January 1, 2016 and therefore included in our VIE disclosures. However, there was no change in determining whether or not we consolidate these entities as a result of the new guidance. We elected to retrospectively adopt ASU 2015-02, which resulted in changes to our VIE disclosures within the consolidated balance sheets. There were no other changes to our consolidated balance sheets or results of operations for the periods presented.

At March 31, 2016, we had an investment in a tenancy-in-common interest in various underlying international properties. Consolidation of this investment is not required as such interest does not qualify as a VIE and does not meet the control requirement for consolidation. Accordingly, we account for this investment using the equity method of accounting. We use the equity method of accounting because the shared decision-making involved in a tenancy-in-common interest investment provides us with significant influence on the operating and financial decisions of this investment.

Additionally, we own interests in single-tenant, net-leased properties leased to companies through noncontrolling interests in partnerships and limited liability companies that we do not control but over which we exercise significant influence. We account for these investments under the equity method of accounting. At times, the carrying value of our equity investments may fall below zero for certain investments. We intend to fund our share of the jointly-owned investments’ future operating deficits should the need arise. However, we have no legal obligation to pay for any of the liabilities of such investments nor do we have any legal obligation to fund operating deficits. At March 31, 2016, none of our equity investments had carrying values below zero.

Reclassifications

Certain prior period amounts have been reclassified to conform to the current period presentation.

On January 1, 2016, we adopted ASU 2015-03, Interest-Imputation of Interest (Subtopic 835-30) as described in the Recent Accounting Pronouncements section below. ASU 2015-03 changes the presentation of debt issuance costs, which were previously recognized as an asset and requires that they be presented in the balance sheet as a direct deduction from the carrying amount of that debt liability. As a result of adopting this guidance, we reclassified $12.6 million of deferred financing costs, net from Other assets, net to Non-recourse debt, net, Senior Unsecured Notes, net, and Senior Unsecured Credit Facility - Term Loan, net as of December 31, 2015.


 
W. P. Carey 3/31/2016 10-Q 10
                    

 
Notes to Consolidated Financial Statements (Unaudited)

Recent Accounting Pronouncements

In May 2014, the FASB issued ASU 2014-09, Revenue from Contracts with Customers (Topic 606) — ASU 2014-09 is a comprehensive new revenue recognition model requiring a company to recognize revenue to depict the transfer of goods or services to a customer at an amount reflecting the consideration it expects to receive in exchange for those goods or services. ASU 2014-09 does not apply to our lease revenues, but will apply to reimbursed tenant costs and revenues generated from our operating properties and our Investment Management business. Additionally, this guidance modifies disclosures regarding the nature, amount, timing and uncertainty of revenue and cash flows arising from contracts with customers. In August 2015, the FASB issued ASU 2015-14, which defers the effective date of ASU 2014-09 for all entities by one year, until years beginning in 2018, with early adoption permitted but not before 2017, the original public company effective date. We are currently evaluating the impact of ASU 2014-09 on our consolidated financial statements and have not yet determined the method by which we will adopt the standard.

In February 2015, the FASB issued ASU 2015-02, Consolidation (Topic 810), which amends the current consolidation guidance, including modification of the guidance for evaluating whether limited partnerships and similar legal entities are VIEs or voting interest entities. The guidance does not amend the existing disclosure requirements for VIEs or voting interest model entities. The guidance, however, modified the requirements to qualify under the voting interest model. Under the revised guidance, ASU 2015-02 requires an entity to classify a limited liability company or a limited partnership as a VIE unless the partnership provides partners with either substantive kick-out rights or substantive participating rights over the managing member or general partner. Refer to the discussion in the Basis of Consolidation section above.

In April 2015, the FASB issued ASU 2015-03, Interest-Imputation of Interest (Subtopic 835-30). ASU 2015-03 changes the presentation of debt issuance costs, which were previously recognized as an asset, and requires that they be presented in the balance sheet as a direct deduction from the carrying amount of that debt liability. ASU 2015-03 does not affect the recognition and measurement guidance for debt issuance costs. ASU 2015-03 is effective for periods beginning after December 15, 2015, early adoption is permitted and retrospective application is required. We adopted ASU 2015-03 on January 1, 2016 and have disclosed the reclassification of our debt issuance costs in the Reclassifications section above.

In September 2015, the FASB issued ASU 2015-16, Business Combinations (Topic 805). ASU 2015-16 eliminates the requirement that an acquirer in a business combination account for measurement period adjustments retrospectively. Instead, an acquirer will recognize a measurement period adjustment during the period in which it determines the amount of the adjustment, including the effect on earnings of any amounts it would have recorded in previous periods if the accounting had been completed at the acquisition date. ASU 2015-16 is effective for fiscal years beginning after December 15, 2015, including interim periods within those fiscal years, early adoption is permitted and prospective application is required for adjustments that are identified after the effective date of this update. We elected to early adopt ASU 2015-16 and implemented the standard prospectively beginning July 1, 2015. The adoption and implementation of the standard did not have a material impact on our consolidated financial statements.

In February 2016, the FASB issued ASU 2016-02 - Leases (Topic 842), which outlines a new model for accounting by lessees, whereby their rights and obligations under substantially all leases, existing and new, would be capitalized and recorded on the balance sheet. For lessors, however, the accounting remains largely unchanged from the current model, with the distinction between operating and financing leases retained, but updated to align with certain changes to the lessee model and the new revenue recognition standard. The new standard also replaces existing sale-leaseback guidance with a new model applicable to both lessees and lessors. Additionally, the new standard requires extensive quantitative and qualitative disclosures. ASU 2016-02 is effective for U.S. GAAP public companies for fiscal years beginning after December 15, 2018, including interim periods within those fiscal years; for all other entities, the final lease standard will be effective for fiscal years beginning after December 15, 2019, and interim periods within fiscal years beginning after December 15, 2020. Early application will be permitted for all entities. The new standard must be adopted using a modified retrospective transition of the new guidance and provides for certain practical expedients. Transition will require application of the new model at the beginning of the earliest comparative period presented. We are in the process of evaluating the impact of the new standard on our business and on our consolidated financial statements.

In March 2016, the FASB issued ASU 2016-05 - Derivatives and Hedging (Topic 815): Effect of derivative contract novations on existing hedge accounting relationships, which clarifies that a change in counterparty to a derivative contract in and of itself, does not require the dedesignation of a hedging relationship. ASU 2016-05 is effective for fiscal years beginning after December 15, 2016, including interim periods within those years. Early adoption is permitted and entities have the option of adopting this guidance on a prospective basis to new derivative contracts or on a modified retrospective basis. We elected to

 
W. P. Carey 3/31/2016 10-Q 11
                    

 
Notes to Consolidated Financial Statements (Unaudited)

early adopt ASU 2016-05 on January 1, 2016 on a prospective basis and there was no impact on our consolidated financial statements.

In March 2016, the FASB issued ASU 2016-07 - Investments - Equity Method and Joint Ventures (Topic 323), which simplifies the transition to the equity method of accounting. ASU 2016-07 eliminates the requirement to apply the equity method of accounting retrospectively when a reporting entity obtains significant influence over a previously held investment. Instead the equity method of accounting will be applied prospectively from the date significant influence is obtained. The new standard should be applied prospectively for investments that qualify for the equity method of accounting in interim and annual periods beginning after December 15, 2016. Early adoption is permitted and we elected to early adopt this standard as of January 1, 2016. The adoption of this standard had no impact on our consolidated financial statements.

In March 2016, the FASB issued ASU 2016-09 - Improvements to Employee Share-Based Payment Accounting, which amends Accounting Standards Codification Topic 718, Compensation-Stock Based Compensation to simplify various aspects of how share-based payments are accounted for and presented in the financial statements including (i) reflecting income tax effects of share-based payments through the income statement, (ii) allowing statutory tax withholding requirements at the employees’ maximum individual tax rate without requiring awards to be classified as liabilities and (iii) permitting an entity to make an accounting policy election for the impact of forfeitures on the recognition of expense. ASU 2016-09 is effective for public business entities for annual reporting periods beginning after December 15, 2016, and interim periods within that reporting period, with early adoption permitted. We are in the process of evaluating the impact of adopting ASU 2016-09 on our consolidated financial statements.

Note 4. Agreements and Transactions with Related Parties
 
Advisory Agreements with the Managed Programs
 
We have advisory agreements with each of the Managed Programs, pursuant to which we earn fees and are entitled to receive reimbursement for fund management expenses, as well as cash distributions. We also earn fees for serving as the dealer-manager of the public offerings of the Managed Programs. Unless otherwise renewed, the advisory agreements with each of the CPA® REITs and with the CWI REITs are scheduled to expire on December 31, 2016. The advisory agreement with CCIF, which commenced February 27, 2015, is subject to renewal on or before February 26, 2017.

The following tables present a summary of revenue earned and/or cash received from the Managed Programs for the periods indicated, included in the consolidated financial statements. Asset management revenue excludes amounts received from third parties (in thousands):
 
Three Months Ended March 31,
 
2016
 
2015
Reimbursable costs from affiliates
$
19,738

 
$
9,607

Asset management revenue
14,590

 
11,112

Structuring revenue
12,721

 
21,720

Distributions of Available Cash
10,981

 
8,806

Dealer manager fees
2,172

 
1,274

Interest income on deferred acquisition fees and loans to affiliates
194

 
153

Other advisory revenue

 
203

 
$
60,396

 
$
52,875

 
Three Months Ended March 31,
 
2016
 
2015
CPA®:17 – Global
$
18,192

 
$
21,676

CPA®:18 – Global 
8,541

 
18,940

CWI 1
11,449

 
12,259

CWI 2
20,534

 

CCIF
1,680

 

 
$
60,396

 
$
52,875


 
W. P. Carey 3/31/2016 10-Q 12
                    

 
Notes to Consolidated Financial Statements (Unaudited)


The following table presents a summary of amounts included in Due from affiliates in the consolidated financial statements (in thousands):
 
March 31, 2016
 
December 31, 2015
Deferred acquisition fees receivable
$
28,101

 
$
33,386

Accounts receivable
21,181

 
15,711

Current acquisition fees receivable
4,491

 
4,909

Reimbursable costs
4,486

 
5,579

Asset management fees receivable
2,303

 
2,172

Organization and offering costs
986

 
461

 
$
61,548

 
$
62,218


Asset Management Revenue
 
Under the advisory agreements with the Managed Programs, we earn asset management revenue for managing their investment portfolios. The following table presents a summary of our asset management fee arrangements with the Managed Programs:
Managed Program
 
Rate
 
Payable
 
Description
CPA®:17 – Global
 
0.5% - 1.75%
 
50% in cash and 50% in shares of its common stock
 
Rate depends on the type of investment and is based on the average market or average equity value, as applicable
CPA®:18 – Global
 
0.5% - 1.5%
 
In shares of its class A common stock
 
Rate depends on the type of investment and is based on the average market or average equity value, as applicable
CWI 1
 
0.5%
 
In cash
 
Rate is based on the average market value of the investment; we are required to pay 20% of the asset management revenue we receive to the subadvisor
CWI 2
 
0.55%
 
In shares of its class A common stock
 
Rate is based on the average market value of the investment; we are required to pay 25% of the asset management revenue we receive to the subadvisor
CCIF
 
1.75% - 2.00%
 
In cash
 
Based on the average of gross assets at fair value; we are required to pay 50% of the asset management revenue we receive to the subadvisor

Incentive Fees

We are entitled to receive a quarterly incentive fee on income from CCIF equal to 100% of quarterly net investment income, before incentive fee payments, in excess of 1.875% of CCIF’s average adjusted capital up to a limit of 2.344%, plus 20% of net investment income, before incentive fee payments, in excess of 2.344% of average adjusted capital. We are also entitled to receive from CCIF an incentive fee on realized capital gains of 20%, net of (i) all realized capital losses and unrealized depreciation on a cumulative basis, and (ii) the aggregate amount, if any, of previously paid incentive fees on capital gains since inception.


 
W. P. Carey 3/31/2016 10-Q 13
                    

 
Notes to Consolidated Financial Statements (Unaudited)

Structuring Revenue
 
Under the terms of the advisory agreements, we earn revenue for structuring and negotiating investments and related financing for the Managed REITs. We do not earn any structuring revenue from the Managed BDCs. The following table presents a summary of our structuring fee arrangements with the Managed REITs:
Managed Program
 
Rate
 
Payable
 
Description
CPA®:17 – Global
 
1% - 1.75%, 4.5%
 
In cash; for non net-lease investments, 1% - 1.75% upon completion; for net-lease investments, 2.5% upon completion, with 2% deferred and payable in three interest-bearing annual installments
 
Based on the total aggregate cost of the net-lease investments made; also based on the total aggregate cost of the non net-lease investments made; total limited to 6% of the contract prices in aggregate
CPA®:18 – Global
 
4.5%
 
In cash; for all investments other than readily marketable real estate securities for which we will not receive any acquisition fees, 2.5% upon completion, with 2% deferred and payable in three interest-bearing annual installments
 
Based on the total aggregate cost of the investments made; total limited to 6% of the contract prices in aggregate
CWI REITs
 
2.5%
 
In cash upon completion
 
Based on the total aggregate cost of the lodging investments made; loan refinancing transactions up to 1% of the principal amount; we are required to pay 20% and 25% to the subadvisor of CWI 1 and CWI 2, respectively; total limited to 6% of the contract prices in aggregate

Reimbursable Costs from Affiliates
 
The Managed Programs reimburse us for certain costs that we incur on their behalf, which consist primarily of broker-dealer commissions, marketing costs, an annual distribution and shareholder servicing fee, or Shareholder Servicing Fee, and certain personnel and overhead costs, as applicable. The following tables present summaries of such fee arrangements:

Broker-Dealer Selling Commissions
Managed Program
 
Rate
 
Payable
 
Description
CWI 2 Class A Shares
 
$0.70
 
In cash upon share settlement; 100% re-allowed to broker-dealers
 
Per share sold
CPA®:18 – Global Class C Shares
 
$0.14
 
In cash upon share settlement; 100% re-allowed to broker-dealers
 
Per share sold; this offering closed in April 2015
CWI 2 Class T Shares
 
$0.19
 
In cash upon share settlement; 100% re-allowed to broker-dealers
 
Per share sold
CCIF Feeder Funds
 
0% - 3%
 
In cash upon share settlement; 100% re-allowed to broker-dealers
 
Based on the selling price of each share sold


 
W. P. Carey 3/31/2016 10-Q 14
                    

 
Notes to Consolidated Financial Statements (Unaudited)

Dealer Manager Fees
Managed Program
 
Rate
 
Payable
 
Description
CWI 2 Class A Shares
 
$0.30
 
Per share sold
 
In cash upon share settlement; a portion may be re-allowed to broker-dealers
CPA®:18 – Global Class C Shares
 
$0.21
 
Per share sold
 
In cash upon share settlement; a portion may be re-allowed to broker-dealers; this offering closed in April 2015
CWI 2 Class T Shares
 
$0.26
 
Per share sold
 
In cash upon share settlement; a portion may be re-allowed to broker-dealers
CCIF Feeder Funds
 
2.75% - 3.0%
 
Based on the selling price of each share sold
 
In cash upon share settlement; a portion may be re-allowed to broker-dealers

Annual Distribution and Shareholder Servicing Fee
Managed Program
 
Rate
 
Payable
 
Description
CPA®:18 – Global Class C Shares
 
1.0%
 
Accrued daily and payable quarterly in arrears in cash; a portion may be re-allowed to selected dealers
 
Based on the purchase price per share sold or, once reported, the net asset value per share; cease paying when underwriting compensation from all sources equals 10% of gross offering proceeds
CWI 2 Class T Shares
 
1.0%
 
Accrued daily and payable quarterly in arrears in cash; a portion may be re-allowed to selected dealers
 
Based on the purchase price per share sold or, once reported, the net asset value per share; cease paying on the earlier of six years or when underwriting compensation from all sources equals 10% of gross offering proceeds

Personnel and Overhead Costs
Managed Program
 
Payable
 
Description
CPA®:17 – Global and CPA®:18 – Global
 
In cash
 
Personnel and overhead costs, excluding those related to our legal transactions group, our senior management, and our investments team, are charged to the CPA® REITs based on the average of the trailing 12-month aggregate reported revenues of the Managed REITs and us, and are capped at 2.2% and 2.4% of each CPA® REIT’s pro rata lease revenues for 2016 and 2015, respectively; for the legal transactions group, costs are charged according to a fee schedule
CWI 1
 
In cash
 
Actual expenses incurred; allocated between the CWI REITs based on the percentage of their total pro rata hotel revenues for the most recently completed quarter
CWI 2
 
In cash
 
Actual expenses incurred; allocated between the CWI REITs based on the percentage of their total pro rata hotel revenues for the most recently completed quarter
CCIF and CCIF Feeder Funds
 
In cash
 
Actual expenses incurred

Organization and Offering Costs
Managed Program
 
Payable
 
Description
CWI 2
 
In cash; within 60 days after the end of the quarter in which the offering terminates
 
Actual costs incurred from 1.5% through 4.0% of the gross offering proceeds, depending on the amount raised
CCIF and CCIF Feeder Funds
 
In cash; payable monthly
 
Up to 1.5% of the gross offering proceeds


 
W. P. Carey 3/31/2016 10-Q 15
                    

 
Notes to Consolidated Financial Statements (Unaudited)

For CCIF, total reimbursements to us for personnel and overhead costs and organization and offering costs may not exceed 18% of total Front End Fees, as defined in its Declaration of Trust, so that total funds available for investment may not be lower than 82% of total gross proceeds.

Expense Support and Conditional Reimbursements

Under the expense support and conditional reimbursement agreement we have with each of the CCIF Feeder Funds, we and the CCIF subadvisor are obligated to reimburse the CCIF Feeder Funds for 50% of the excess of the cumulative distributions paid to the CCIF Feeder Funds’ shareholders over the available operating funds on a monthly basis. Following any month in which the available operating funds exceed the cumulative distributions paid to its shareholders, the excess operating funds are used to reimburse us and the CCIF subadvisor for any expense payment we made within three years prior to the last business day of such months that have not been previously reimbursed by the CCIF Feeder Fund, up to the lesser of (i) 1.75% of each CCIF Feeder Fund’s average net assets or (ii) the percentage of each CCIF Feeder Fund’s average net assets attributable to its common shares represented by other operating expenses during the fiscal year in which such expense support payment from us and the CCIF’s subadvisor was made, provided that the effective rate of distributions per share at the time of reimbursement is not less than such rate at the time of expense payment.
 
Distributions of Available Cash
 
We are entitled to receive distributions of up to 10% of the Available Cash (as defined in the respective advisory agreements) from the operating partnerships of each of the Managed REITs, as described in their respective operating partnership agreements, payable quarterly in arrears.

Other Transactions with Affiliates
 
Loans to Affiliates

During 2015 and 2014, our board of directors approved unsecured loans from us to CPA®:17 – Global of up to $75.0 million, CPA®:18 – Global of up to $100.0 million, CWI 1 and CWI 2 of up to $110.0 million in the aggregate, and CCIF of up to $50.0 million, with each loan at a rate equal to the rate at which we are able to borrow funds under our senior credit facility (Note 11), for the purpose of facilitating acquisitions approved by their respective investment committees.

During 2015, various loans aggregating $185.4 million were made to the Managed Programs, all of which were repaid during 2015. All of the loans were made at an interest rate equal to the London Interbank Offered Rate, or LIBOR, as of the issue date, plus 1.1%. During 2015, we arranged credit agreements for each of CPA®:17 – Global, CWI 1, and CCIF, and our board of directors terminated its previous authorizations to provide loans to CPA®:17 – Global and CWI 1. During the three months ended March 31, 2016, our board of directors terminated its previous authorizations to provide loans to CPA®:18 – Global and CCIF.

On January 20, 2016, we made a $20.0 million loan to CWI 2, which was repaid in full on February 20, 2016.

Other

On February 2, 2016, an entity in which we, one of our employees, and third parties owned 38.3%, 0.5%, and 61.2%, respectively, and which we consolidated, sold a self-storage property (Note 16). In connection with the sale, we made a distribution of $0.1 million to the employee, representing their share of the net proceeds from the sale.

At March 31, 2016, we owned interests ranging from 3% to 90% in jointly-owned investments, including a jointly-controlled tenancy-in-common interest in several properties, with the remaining interests generally held by affiliates, and stock of each of the Managed REITs and CCIF. We consolidate certain of these investments and account for the remainder under the equity method of accounting (Note 7).


 
W. P. Carey 3/31/2016 10-Q 16
                    

 
Notes to Consolidated Financial Statements (Unaudited)

Note 5. Net Investments in Properties
 
Real Estate

Real estate, which consists of land and buildings leased to others, at cost, and which are subject to operating leases, and real estate under construction, is summarized as follows (in thousands):
 
March 31, 2016
 
December 31, 2015
Land
$
1,172,868

 
$
1,160,567

Buildings
4,175,564

 
4,147,644

Real estate under construction
2,492

 
1,714

Less: Accumulated depreciation
(405,684
)
 
(372,735
)
 
$
4,945,240

 
$
4,937,190

 
During the three months ended March 31, 2016, 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, 2016 increased by 4.6% to $1.1385 from $1.0887 at December 31, 2015. As a result, the carrying value of our Real estate increased by $58.9 million from December 31, 2015 to March 31, 2016.

During the three months ended March 31, 2016, we did not acquire any properties. During the three months ended March 31, 2016, we sold four properties and a parcel of vacant land (Note 16). As a result, the carrying value of our Real estate decreased by $28.0 million from December 31, 2015 to March 31, 2016.

Operating Real Estate
 
At March 31, 2016, Operating real estate consisted of our investments in two hotels. At December 31, 2015, Operating real estate consisted of our investments in two hotels and one self-storage property. During the three months ended March 31, 2016, we sold one self-storage property, and as a result, the carrying value of our Operating real estate decreased by $2.3 million from December 31, 2015 to March 31, 2016 (Note 16). Below is a summary of our Operating real estate (in thousands): 
 
March 31, 2016
 
December 31, 2015
Land
$
6,041

 
$
6,578

Buildings
74,183

 
76,171

Less: Accumulated depreciation
(8,939
)
 
(8,794
)
 
$
71,285

 
$
73,955


Assets Held for Sale

Below is a summary of our properties held for sale (in thousands):
 
March 31, 2016
 
December 31, 2015
Real estate, net
$
3,747

 
$
59,046

Assets held for sale
$
3,747

 
$
59,046


At March 31, 2016, we had one property classified as Assets held for sale. At December 31, 2015, we had two properties classified as Assets held for sale, one of which was sold during the three months ended March 31, 2016.


 
W. P. Carey 3/31/2016 10-Q 17
                    

 
Notes to Consolidated Financial Statements (Unaudited)

Note 6. Finance Receivables
 
Assets representing rights to receive money on demand or at fixed or determinable dates are referred to as finance receivables. Our finance receivables portfolio consists of our Net investments in direct financing leases, notes receivable, and deferred acquisition fees. Operating leases are not included in finance receivables as such amounts are not recognized as an asset in the consolidated financial statements. Our note receivable is included in Other assets, net in the consolidated financial statements. Earnings from our note receivable are included in Lease termination income and other in the consolidated financial statements.
 
Net Investments in Direct Financing Leases
 
Interest income from direct financing leases, which was included in Lease revenues in the consolidated financial statements, was $18.3 million and $18.8 million for the three months ended March 31, 2016 and 2015, respectively. During the three months ended March 31, 2016, the U.S. dollar weakened against the euro, resulting in a $14.6 million increase in the carrying value of Net investments in direct financing leases from December 31, 2015 to March 31, 2016. During the three months ended March 31, 2016, we reclassified 31 properties with a carrying value of $9.7 million from Net investments in direct financing leases to Real estate, at cost in connection with the extensions of the underlying leases.

Note Receivable

At March 31, 2016 and December 31, 2015, we had a note receivable with an outstanding balance of $10.5 million and $10.7 million, respectively, representing the expected future payments under a sales type lease, which was included in Other assets, net in the consolidated financial statements.

Deferred Acquisition Fees Receivable
 
As described in Note 4, we earn revenue in connection with structuring and negotiating investments and related mortgage financing for the CPA® REITs. A portion of this revenue is due in equal annual installments over three years, provided the CPA® REITs meet their respective performance criteria. Unpaid deferred installments, including accrued interest, from the CPA® REITs were included in Due from affiliates in the consolidated financial statements.
 
Credit Quality of Finance Receivables
 
We generally seek investments in facilities that we believe are critical to a tenant’s business and that we believe have a low risk of tenant default. As of March 31, 2016 and December 31, 2015, we had allowances for credit losses of $15.8 million and $8.7 million, respectively, on a direct financing lease. During the three months ended March 31, 2016, we increased the allowance by $7.1 million, which was recorded in Property expenses, excluding reimbursable tenant costs in the consolidated financial statements, due to a decline in the estimated amount of future payments we will receive from the tenant, including the possible early termination of the direct financing lease. At both March 31, 2016 and December 31, 2015, none of the balances of our finance receivables were past due. Other than the lease extensions noted under Net Investments in Direct Financing Leases above and the allowance for credit losses discussed above, there were no modifications of finance receivables during the three months ended March 31, 2016 or the year ended December 31, 2015. We evaluate the credit quality of our finance receivables utilizing an internal five-point credit rating scale, with one representing the highest credit quality and five representing the lowest. The credit quality evaluation of our finance receivables was last updated in the first quarter of 2016. We believe the credit quality of our deferred acquisition fees receivable falls under category one, as the CPA® REITs are expected to have the available cash to make such payments.
 
A summary of our finance receivables by internal credit quality rating is as follows (dollars in thousands):
 
 
Number of Tenants / Obligors at
 
Carrying Value at
Internal Credit Quality Indicator
 
March 31, 2016
 
December 31, 2015
 
March 31, 2016
 
December 31, 2015
1
 
2
 
2
 
$
26,154

 
$
90,818

2
 
4
 
3
 
70,769

 
53,492

3
 
22
 
23
 
563,225

 
512,724

4
 
5
 
6
 
102,184

 
110,002

5
 
1
 
 
1,921

 

 
 
 
 
 
 
$
764,253

 
$
767,036



 
W. P. Carey 3/31/2016 10-Q 18
                    

 
Notes to Consolidated Financial Statements (Unaudited)

Note 7. Equity Investments in the Managed Programs and Real Estate
 
We own interests in certain unconsolidated real estate investments with the Managed Programs and also own interests in the Managed Programs. We account for our interests in 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).
 
The following table presents Equity in earnings of equity method investments in the Managed Programs and real estate, which represents our proportionate share of the income or losses of these investments, as well as certain adjustments related to other-than-temporary impairment charges and amortization of basis differences related to purchase accounting adjustments (in thousands):
 
Three Months Ended March 31,
 
2016
 
2015
Distributions of Available Cash (Note 4)
$
10,981

 
$
8,806

Proportionate share of earnings from equity investments in the Managed Programs
1,112

 
307

Amortization of basis differences on equity investments in the Managed Programs
(239
)
 
(295
)
Total equity earnings from the Managed Programs
11,854

 
8,818

Equity earnings from other equity investments
4,102

 
3,816

Amortization of basis differences on other equity investments
(945
)
 
(911
)
Equity in earnings of equity method investments in the Managed Programs and real estate
$
15,011

 
$
11,723

 
Managed Programs
 
We own interests in the Managed Programs and account for these interests under the equity method because, as their advisor and through our ownership of their common stock, we do not exert control over, but we do have the ability to exercise significant influence on, the Managed Programs. Operating results of the Managed REITs are included in the Owned Real Estate segment and operating results of CCIF are included in the Investment Management segment.
 
The following table sets forth certain information about our investments in the Managed Programs (dollars in thousands):
 
 
% of Outstanding Shares Owned at
 
Carrying Amount of Investment at
Fund
 
March 31, 2016
 
December 31, 2015
 
March 31, 2016
 
December 31, 2015
CPA®:17 – Global
 
3.177
%
 
3.087
%
 
$
90,836

 
$
87,912

CPA®:17 – Global operating partnership
 
0.009
%
 
0.009
%
 

 

CPA®:18 – Global
 
0.940
%
 
0.735
%
 
11,806

 
9,279

CPA®:18 – Global operating partnership
 
0.034
%
 
0.034
%
 
209

 
209

CWI 1
 
1.124
%
 
1.131
%
 
12,262

 
12,619

CWI 1 operating partnership
 
0.015
%
 
0.015
%
 

 

CWI 2
 
0.389
%
 
0.379
%
 
1,661

 
949

CWI 2 operating partnership
 
0.015
%
 
0.015
%
 
300

 
300

CCIF
 
36.713
%
 
47.882
%
 
21,931

 
22,214

 
 
 
 
 
 
$
139,005

 
$
133,482


CPA®:17 – Global — The carrying value of our investment in CPA®:17 – Global at March 31, 2016 includes asset management fees receivable, for which 122,304 shares of CPA®:17 – Global common stock were issued during the second quarter of 2016. We received distributions from this investment during the three months ended March 31, 2016 and 2015 of $1.9 million and $1.4 million, respectively. We received distributions from our investment in the CPA®:17 – Global operating partnership during the three months ended March 31, 2016 and 2015 of $6.7 million and $6.1 million, respectively.


 
W. P. Carey 3/31/2016 10-Q 19
                    

 
Notes to Consolidated Financial Statements (Unaudited)

CPA®:18 – Global — The carrying value of our investment in CPA®:18 – Global at March 31, 2016 includes asset management fees receivable, for which 103,955 shares of CPA®:18 – Global class A common stock were issued during the second quarter of 2016. We received distributions from this investment during the three months ended March 31, 2016 of $0.2 million. We received distributions from our investment in the CPA®:18 – Global operating partnership during the three months ended March 31, 2016 and 2015 of $1.3 million and $0.9 million, respectively.

CWI 1 We received distributions from this investment during the three months ended March 31, 2016 of $0.2 million. We received distributions from our investment in the CWI 1 operating partnership during the three months ended March 31, 2016 and 2015 of $2.5 million and $1.8 million, respectively.

CWI 2 The carrying value of our investment in CWI 2 at March 31, 2016 includes asset management fees receivable, for which 26,550 shares of class A common stock of CWI 2 were issued during the second quarter of 2016. We received distributions from this investment during the three months ended March 31, 2016 of less than $0.1 million. On March 27, 2015, we purchased a 0.015% special general partnership interest in the CWI 2 operating partnership for $0.3 million. This special general partnership interest entitles us to receive distributions of our proportionate share of earnings up to 10% of the Available Cash from the CWI 2 operating partnership (Note 4). During the three months ended March 31, 2016, we received $0.5 million of distributions from this investment.

CCIF — We received $0.1 million of distributions from our investment in CCIF during the three months ended March 31, 2016.

At March 31, 2016 and December 31, 2015, the aggregate unamortized basis differences on our equity investments in the Managed Programs were $28.5 million and $27.4 million, respectively.

Interests in Other Unconsolidated Real Estate Investments

We own equity interests in single-tenant net-leased properties that are generally leased to companies through noncontrolling interests (i) in partnerships and limited liability companies that we do not control but over which we exercise significant influence or (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. Earnings for each investment are recognized in accordance with each respective investment agreement.

The following table sets forth our ownership interests in our equity investments in real estate, excluding the Managed Programs, and their respective carrying values (dollars in thousands):
 
 
 
 
Ownership Interest at
 
Carrying Value at
Lessee
 
Co-owner
 
March 31, 2016
 
March 31, 2016
 
December 31, 2015
The New York Times Company
 
CPA®:17 – Global
 
45%
 
$
70,586

 
$
70,976

Frontier Spinning Mills, Inc.
 
CPA®:17 – Global
 
40%
 
24,163

 
24,288

Beach House JV, LLC (a)
 
Third Party
 
N/A
 
15,105

 
15,318

Actebis Peacock GmbH (b)
 
CPA®:17 – Global
 
30%
 
12,729

 
12,186

Waldaschaff Automotive GmbH and Wagon Automotive Nagold GmbH (b)
 
CPA®:17 – Global
 
33%
 
10,136

 
9,507

C1000 Logistiek Vastgoed B.V. (b) (c)
 
CPA®:17 – Global
 
15%
 
9,462

 
9,381

Wanbishi Archives Co. Ltd. (d)
 
CPA®:17 – Global
 
3%
 
360

 
335

 
 
 
 
 
 
$
142,541

 
$
141,991

__________
(a)
This investment is a preferred equity position.
(b)
The carrying value of this investment is affected by fluctuations in the exchange rate of the euro.
(c)
This investment represents a tenancy-in-common interest, whereby the property is encumbered by the debt for which we are jointly and severally liable. For this investment, the co-obligor is CPA®:17 – Global and the amount due under the arrangement was approximately $75.0 million at March 31, 2016. Of this amount, $11.3 million represents the amount we agreed to pay and is included within the carrying value of the investment at March 31, 2016.
(d)
The carrying value of this investment is affected by fluctuations in the exchange rate of the yen.


 
W. P. Carey 3/31/2016 10-Q 20
                    

 
Notes to Consolidated Financial Statements (Unaudited)

We received aggregate distributions of $4.0 million and $3.1 million from our other unconsolidated real estate investments for the three months ended March 31, 2016 and 2015, respectively. At both March 31, 2016 and December 31, 2015, the aggregate unamortized basis differences on our unconsolidated real estate investments were $5.7 million.

As of March 31, 2016, we had six unconsolidated VIEs among our interests in unconsolidated real estate investments and one unconsolidated VIE among our interests in the Managed Programs. We do not consolidate these entities because we are not the primary beneficiary and the nature of our involvement in the activities of these entities does not give us power over decisions that significantly affect these entities’ economic performances. We account for our investments in these entities under the equity method. As of March 31, 2016 and December 31, 2015, the carrying amount of our investments in these entities was $155.0 million and $154.8 million, respectively, and our maximum exposure to loss in these entities was limited to our investments in the entities.

Note 8. Goodwill and Other Intangibles

In connection with our acquisitions of properties, we have recorded net lease intangibles that are being amortized over periods ranging from one year to 40 years. In addition, we have several ground lease intangibles that are being amortized over periods of up to 99 years. In-place lease and tenant relationship intangibles are included in In-place lease and tenant relationship intangible assets, net in the consolidated financial statements. Above-market rent intangibles are included in Above-market rent intangible assets, net in the consolidated financial statements. Below-market ground lease (as lessee), trade name, management contracts, and software license intangibles are included in Other assets, net in the consolidated financial statements. Below-market rent, above-market ground lease (as lessee), and below-market purchase option intangibles are included in Below-market rent and other intangible liabilities, net in the consolidated financial statements.

The following table presents a reconciliation of our goodwill (in thousands):
 
Owned Real Estate
 
Investment Management
 
Total
Balance at January 1, 2016
$
618,202

 
$
63,607

 
$
681,809

Foreign currency translation adjustments and other
4,133

 

 
4,133

Allocation of goodwill to the cost basis of properties sold or classified as held for sale
(5,899
)
 

 
(5,899
)
Balance at March 31, 2016
$
616,436

 
$
63,607

 
$
680,043



 
W. P. Carey 3/31/2016 10-Q 21
                    

 
Notes to Consolidated Financial Statements (Unaudited)

Intangible assets, intangible liabilities, and goodwill are summarized as follows (in thousands):
 
March 31, 2016
 
December 31, 2015
 
Gross Carrying Amount
 
Accumulated Amortization
 
Net Carrying Amount
 
Gross Carrying Amount
 
Accumulated Amortization
 
Net Carrying Amount
Amortizable Intangible Assets
 
 
 
 
 
 
 
 
 
 
 
Management contracts
$
32,765

 
$
(32,765
)
 
$

 
$
32,765

 
$
(32,765
)
 
$

Internal-use software development costs
18,447

 
(2,770
)
 
15,677

 
18,188

 
(2,038
)
 
16,150

 
51,212

 
(35,535
)
 
15,677

 
50,953

 
(34,803
)
 
16,150

Lease Intangibles:
 
 
 
 
 
 
 
 
 
 
 
In-place lease and tenant relationship
1,161,523

 
(305,027
)
 
856,496

 
1,205,585

 
(302,737
)
 
902,848

Above-market rent
648,822

 
(188,400
)
 
460,422

 
649,035

 
(173,963
)
 
475,072

Below-market ground lease
26,182

 
(1,076
)
 
25,106

 
25,403

 
(889
)
 
24,514

 
1,836,527

 
(494,503
)
 
1,342,024

 
1,880,023

 
(477,589
)
 
1,402,434

Unamortizable Goodwill and Indefinite-Lived Intangible Assets
 
 
 
 
 
 
 
 
 
 
 
Goodwill
680,043

 

 
680,043

 
681,809

 

 
681,809

Trade name
3,975

 

 
3,975

 
3,975

 

 
3,975

Below-market ground lease
936

 

 
936

 
895

 

 
895

 
684,954

 

 
684,954

 
686,679

 

 
686,679

Total intangible assets
$
2,572,693

 
$
(530,038
)
 
$
2,042,655

 
$
2,617,655

 
$
(512,392
)
 
$
2,105,263

 
 
 
 
 
 
 
 
 
 
 
 
Amortizable Intangible Liabilities
 
 
 
 
 
 
 
 
 
 
 
Below-market rent
$
(137,951
)
 
$
33,506

 
$
(104,445
)
 
$
(171,199
)
 
$
44,873

 
$
(126,326
)
Above-market ground lease
(13,154
)
 
1,947

 
(11,207
)
 
(13,052
)
 
1,774

 
(11,278
)
 
(151,105
)
 
35,453

 
(115,652
)
 
(184,251
)
 
46,647

 
(137,604
)
Unamortizable Intangible Liabilities
 
 
 
 
 
 
 
 
 
 
 
Below-market purchase option
(16,711
)
 

 
(16,711
)
 
(16,711
)
 

 
(16,711
)
Total intangible liabilities
$
(167,816
)
 
$
35,453

 
$
(132,363
)
 
$
(200,962
)
 
$
46,647

 
$
(154,315
)

Net amortization of intangibles, including the effect of foreign currency translation, was $46.3 million and $44.0 million for the three months ended March 31, 2016 and 2015, respectively. Amortization of below-market rent and above-market rent intangibles is recorded as an adjustment to Lease revenues; amortization of in-place lease and tenant relationship intangibles is included in Depreciation and amortization; and amortization of above-market ground lease and below-market ground lease intangibles is included in Property expenses, excluding reimbursable tenant costs.

Note 9. 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, interest rate swaps, foreign currency forward contracts, and foreign currency collars; and Level 3, for securities that do not fall into Level 1 or Level 2 and for which little or no market data exists, therefore requiring us to develop our own assumptions.


 
W. P. Carey 3/31/2016 10-Q 22
                    

 
Notes to Consolidated Financial Statements (Unaudited)

Items Measured at Fair Value on a Recurring Basis

The methods and assumptions described below were used to estimate the fair value of each class of financial instrument. For significant Level 3 items, we have also provided the unobservable inputs along with their weighted-average ranges.

Money Market Funds — Our money market funds, which are included in Cash and cash equivalents in the consolidated financial statements, are comprised 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 Assets — Our derivative assets, which are included in Other assets, net in the consolidated financial statements, are comprised of an interest rate cap, stock warrants, foreign currency forward contracts, and foreign currency collars (Note 10). The interest rate cap, foreign currency forward contracts, and foreign currency collars were measured at fair value using readily observable market inputs, such as quotations on interest rates, and were classified as Level 2 as these instruments are custom, over-the-counter contracts with various bank counterparties that are not traded in an active market. The stock warrants were measured at fair value using internal valuation models that incorporate market inputs and our own assumptions about future cash flows. We classified these assets as Level 3 because these assets are not traded in an active market.

Derivative Liabilities — Our derivative liabilities, which are included in Accounts payable, accrued expenses and other liabilities in the consolidated financial statements, are comprised of interest rate swaps and foreign currency collars (Note 10). These derivative instruments were measured at fair value using readily observable market inputs, such as quotations on interest rates, and were classified as Level 2 because they are custom, over-the-counter contracts with various bank counterparties that are not traded in an active market.

Redeemable Noncontrolling Interest — We account for the noncontrolling interest in W. P. Carey International, LLC, or WPCI, held by a third party as a redeemable noncontrolling interest (Note 14). We determined the valuation of redeemable noncontrolling interest using widely accepted valuation techniques, including comparable transaction analysis, comparable public company analysis, and discounted cash flow analysis. We classified this liability as Level 3.

We did not have any transfers into or out of Level 1, Level 2, and Level 3 measurements during either the three months ended March 31, 2016 or 2015.

Our other financial instruments had the following carrying values and fair values as of the dates shown (dollars in thousands):
 
 
 
March 31, 2016
 
December 31, 2015
 
Level
 
Carrying Value
 
Fair Value
 
Carrying Value
 
Fair Value
Non-recourse debt, net (a) (b)
3
 
$
2,247,993

 
$
2,272,258

 
$
2,269,421

 
$
2,293,542

Senior Unsecured Notes, net (a) (c)
2
 
1,501,281

 
1,489,586

 
1,476,084

 
1,459,544

Note receivable (b)
3
 
10,508

 
10,222

 
10,689

 
10,610

__________
(a)
In accordance with ASU 2015-03, we reclassified deferred financing costs from Other assets, net to Non-recourse debt, net, Senior Unsecured Notes, net, and Senior Unsecured Credit Facility - Term Loan, net as of December 31, 2015 (Note 3).
(b)
We determined the estimated fair value of these financial instruments using a discounted cash flow model that estimates the present value of the future loan payments by discounting such payments at current estimated market interest rates. The estimated market interest rates take into account interest rate risk and the value of the underlying collateral, which includes quality of the collateral, the credit quality of the tenant/obligor, and the time until maturity.
(c)
We determined the estimated fair value of the Senior Unsecured Notes (Note 11) using quoted market prices in an open market with limited trading volume where available. In cases where there was no trading volume, we determined the estimated fair value using a discounted cash flow model using a rate that reflects the average yield of similar market participants.
 
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, 2016 and December 31, 2015.


 
W. P. Carey 3/31/2016 10-Q 23
                    

 
Notes to Consolidated Financial Statements (Unaudited)

Items Measured at Fair Value on a Non-Recurring Basis (Including 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 held for use for 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 property’s asset group to the future undiscounted net cash flows that we expect the property’s asset group will generate, including any estimated proceeds from the eventual sale of the property’s asset group. If this amount is less than the carrying value, the property’s asset group is considered to be not recoverable. We then measure the impairment charge as the excess of the carrying value of the property’s asset group over the estimated fair value of the property’s asset group, which is primarily determined using market information such as recent comparable sales, broker quotes, or third-party appraisals. If relevant market information is not available or is not deemed appropriate, we perform a future net cash flow analysis, discounted for inherent risk associated with each investment. We determined that the significant inputs used to value these investments fall within Level 3 for fair value reporting. As a result of our assessments, we calculated impairment charges 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.
 
The following table presents information about our other assets for which we recorded an impairment charge that were measured at fair value on a non-recurring basis (in thousands):
 
Three Months Ended March 31, 2016
 
Three Months Ended March 31, 2015
 
Fair Value
Measurements
 
Total Impairment
Charges
 
Fair Value
Measurements
 
Total Impairment
Charges
Impairment Charges
 
 
 
 
 
 
 
Real estate
$

 
$

 
$
5,294

 
$
2,683

 
 
 
$

 
 
 
$
2,683


We did not recognize impairment charges during the three months ended March 31, 2016. During the three months ended March 31, 2015, we recognized impairment charges totaling $2.7 million on two properties in order to reduce the carrying values of the properties to their estimated fair values. The fair value measurements for the properties approximated their estimated selling prices and the properties were subsequently sold during 2015.

Note 10. Risk Management and Use of Derivative Financial Instruments

Risk Management
 
In the normal course of our ongoing business operations, we encounter economic risk. There are four main components of economic risk that impact us: interest rate risk, credit risk, market risk, and foreign currency risk. We are primarily subject to interest rat