Stock-Based Compensation and Equity

We maintain several stock-based compensation plans, which are more fully described in the 2013 Annual Report. There have been no significant changes to the terms and conditions of any of our stock-based compensation plans or arrangements during the six months ended June 30, 2014.

The total compensation expense (net of forfeitures) for awards issued under these plans was $8.0 million and $8.4 million for the three months ended June 30, 2014 and 2013, respectively, and $15.0 million and $17.6 million for the six months ended June 30, 2014 and 2013, respectively, which is included in Stock-based compensation expense in the consolidated financial statements. The tax benefit recognized by us related to these awards totaled zero for each of the three months ended June 30, 2014 and 2013, respectively, and $17.3 million and $16.0 million for the six months ended June 30, 2014 and 2013, respectively.

Restricted and Conditional Awards

Nonvested restricted stock awards, or RSAs, restricted share units, or RSUs, and performance share units, or PSUs, at June 30, 2014 and changes during the six months ended June 30, 2014 were as follows:



	RSA and RSU Awards				PSU Awards
	Shares		Weighted-Average Grant Date Fair Value		Shares		Weighted-Average Grant Date Fair Value
Nonvested at January 1, 2014	519,608		$	45.19	1,220,720		$	28.28
Granted ^(a)	162,962		60.33		89,653		76.05
Vested ^(b)	(251,515	)	42.13		(881,388	)	15.04
Forfeited	(667	)	68.05		—		—
Adjustment ^(c)	—		—		430,590		55.04
Nonvested at June 30, 2014 ^(d)	430,388		$	52.68	859,575		$	32.74

__________

(a)

The grant date fair value of RSAs and RSUs reflect our stock price on the date of grant. The grant date fair value of PSUs were determined utilizing a Monte Carlo simulation model to generate a range of possible future stock prices for both us and the plan defined peer index over the three-year performance period. To estimate the fair value of PSUs granted during the six months ended June 30, 2014, we used a risk-free interest rate of 0.65% and an expected volatility rate of 25.89% (the plan defined peer index assumes 21.77%) and assumed a dividend yield of zero.

(b)

The total fair value of shares vested during the six months ended June 30, 2014 was $23.9 million. Employees have the option to take immediate delivery of the shares upon vesting or defer receipt to a future date, pursuant to previously-made deferral elections. At June 30, 2014, we had an obligation to issue 889,863 shares of our common stock underlying such deferred shares, which is recorded within W. P. Carey stockholders’ equity as a Deferred compensation obligation of $30.6 million.

(c)

Vesting and payment of the PSUs is conditioned upon certain company and market performance goals being met during the relevant three-year performance period. The ultimate number of PSUs to be vested will depend on the extent to which the performance goals are met and can range from zero to three times the original awards. In connection with the payment of the PSUs granted in 2011 that were paid out in February 2014, we adjusted the shares during the three months ended March 31, 2014 to reflect the actual number of shares issued. During the three months ended June 30, 2014, we also adjusted the number of PSUs expected to vest based on updated forecasted performance targets. There was no impact on our consolidated financial statements related to these adjustments, as the initial fair value of our PSUs factored in the variability associated with the performance features of these awards.


(d)	At June 30, 2014, total unrecognized compensation expense related to these awards was approximately $37.3 million, with an aggregate weighted-average remaining term of 1.78 years.

During the six months ended June 30, 2014, 51,900 stock options were exercised with an aggregate intrinsic value of $1.7 million. At June 30, 2014, there were 566,880 stock options outstanding, of which 495,169 were exercisable.

Earnings Per Share

Under current authoritative guidance for determining earnings per share, all unvested share-based payment awards that contain non-forfeitable rights to distributions are considered to be participating securities and therefore are included in the computation of earnings per share under the two-class method. The two-class method is an earnings allocation formula that determines earnings per share for each class of common shares and participating security according to dividends declared (or accumulated) and participation rights in undistributed earnings. Our unvested RSUs and RSAs contain rights to receive non-forfeitable distribution equivalents, and therefore we apply the two-class method of computing earnings per share. The calculation of earnings per share below excludes the income attributable to the unvested RSUs and RSAs from the numerator and such unvested shares in the denominator. The following table summarizes basic and diluted earnings (in thousands, except share amounts):



	Three Months Ended June 30,						Six Months Ended June 30,
	2014			2013			2014			2013
Net income attributable to W. P. Carey	$	64,739		$	43,167		$	178,915		$	57,348
Allocation of distribution equivalents paid on unvested RSUs and RSAs in excess of income	(277		)	(316		)	(765		)	(419		)
Net income – basic	64,462			42,851			178,150			56,929
Income effect of dilutive securities, net of taxes	(60		)	(24		)	82			(53		)
Net income – diluted	$	64,402		$	42,827		$	178,232		$	56,876

Weighted average shares outstanding – basic	100,236,362			68,406,771			94,855,067			68,776,108
Effect of dilutive securities	758,863			1,087,131			1,002,849			1,094,741
Weighted average shares outstanding – diluted	100,995,225			69,493,902			95,857,916			69,870,849

For the three and six months ended June 30, 2014 and 2013, there were no potentially dilutive securities excluded from the computation of diluted earnings per share.

Redeemable Noncontrolling Interest

We account for the noncontrolling interest in WPCI held by a third party as a redeemable noncontrolling interest, as we have an obligation to repurchase the interest at fair value, subject to certain conditions. This obligation is required to be settled in shares of our common stock. The third-party interest is reflected at estimated redemption value for all periods presented. On October 1, 2013, we received a notice from the holder of the noncontrolling interest in WPCI regarding the exercise of the put option, pursuant to which we are required to purchase the third party’s
7.7% interest in WPCI. Pursuant to the terms of the related put agreement, the purchase price is to be determined based on a third-party valuation as of October 31, 2013, which is the end of the month that the put option was exercised. We cannot currently estimate when the redemption will occur and the amount of $6.4 million recorded represents our best estimate of the fair value.

The following table presents a reconciliation of redeemable noncontrolling interest (in thousands):



	Six Months Ended June 30,
	2014			2013
Beginning balance	$	7,436		$	7,531
Redemption value adjustment	(306		)	—
Net income (loss)	151			(93		)
Distributions	(836		)	(335		)
Change in other comprehensive loss	(27		)	(21		)
Ending balance	$	6,418		$	7,082

Transfers to Noncontrolling Interests

The following table presents a reconciliation of the effect of transfers in noncontrolling interest (in thousands):



	Six Months Ended June 30,
	2014			2013
Net income attributable to W. P. Carey	$	178,915		$	57,348
Transfers to noncontrolling interest
Decrease in W. P. Carey’s additional paid-in capital for purchases of less-than-wholly-owned investments in connection with the CPA^®:16 Merger ^(a)	(41,374		)	—
Net transfers to noncontrolling interest	(41,374		)	—
Change from net income attributable to W. P. Carey and transfers to noncontrolling interest	$	137,541		$	57,348

__________


(a)	During the second quarter of 2014, we identified certain measurement period adjustments that impacted the provisional accounting, which increased the fair value of our previously-held noncontrolling interests on the acquisition date by $0.6 million, resulting in a reduction of $0.6 million to additional paid-in-capital.

The following tables present a reconciliation of changes in Accumulated other comprehensive income by component for the periods presented (in thousands):



	Three Months Ended June 30, 2014
	Realized and Unrealized Gains (Losses) on Derivative Instruments			Foreign Currency Translation Adjustments			Unrealized Appreciation (Depreciation) on Marketable Securities			Total
Beginning balance	$	(10,285	)	$	27,680		$	48		$	17,443
Other comprehensive loss before reclassifications	(3,001		)	(1,590		)	(5		)	(4,596		)
Amounts reclassified from accumulated other comprehensive income to:
Interest expense	634			—			—			634
Other income and (expenses)	440			—			—			440
Net income from equity investments in real estate and the Managed REITs	160			—			—			160
Total	1,234			—			—			1,234
Net current period other comprehensive loss	(1,767		)	(1,590		)	(5		)	(3,362		)
Net current period other comprehensive loss attributable to noncontrolling interests and redeemable noncontrolling interest	—			134			—			134
Ending balance	$	(12,052	)	$	26,224		$	43		$	14,215



	Three Months Ended June 30, 2013
	Realized and Unrealized Gains (Losses) on Derivative Instruments			Foreign Currency Translation Adjustments			Unrealized Appreciation (Depreciation) on Marketable Securities		Total
Beginning balance	$	(4,333	)	$	(5,112	)	$	31	$	(9,414	)
Other comprehensive income before reclassifications	1,300			5,094			—		6,394
Amounts reclassified from accumulated other comprehensive income to:
Interest expense	441			—			—		441
Other income and (expenses)	23			—			—		23
Net income from equity investments in real estate and the Managed REITs	316			—			—		316
Total	780			—			—		780
Net current period other comprehensive income	2,080			5,094			—		7,174
Net current period other comprehensive (income) loss attributable to noncontrolling interests and redeemable noncontrolling interest	—			(744		)	—		(744		)
Ending balance	$	(2,253	)	$	(762	)	$	31	$	(2,984	)



	Six Months Ended June 30, 2014
	Realized and Unrealized Gains (Losses) on Derivative Instruments			Foreign Currency Translation Adjustments		Unrealized Appreciation (Depreciation) on Marketable Securities		Total
Beginning balance	$	(7,488	)	$	22,793	$	31	$	15,336
Other comprehensive (loss) income before reclassifications	(7,002		)	2,956		12		(4,034		)
Amounts reclassified from accumulated other comprehensive income to:
Interest expense	1,335			—		—		1,335
Other income and (expenses)	824			—		—		824
Net income from equity investments in real estate and the Managed REITs	279			—		—		279
Total	2,438			—		—		2,438
Net current period other comprehensive (loss) income	(4,564		)	2,956		12		(1,596		)
Net current period other comprehensive loss attributable to noncontrolling interests and redeemable noncontrolling interest	—			475		—		475
Ending balance	$	(12,052	)	$	26,224	$	43	$	14,215



	Six Months Ended June 30, 2013
	Realized and Unrealized Gains (Losses) on Derivative Instruments			Foreign Currency Translation Adjustments			Unrealized Appreciation (Depreciation) on Marketable Securities		Total
Beginning balance	$	(7,508	)	$	2,828		$	31	$	(4,649	)
Other comprehensive income (loss) before reclassifications	3,984			(4,658		)	—		(674		)
Amounts reclassified from accumulated other comprehensive income to:
Interest expense	875			—			—		875
Other income and (expenses)	(24		)	—			—		(24		)
Net income from equity investments in real estate and the Managed REITs	420			—			—		420
Total	1,271			—			—		1,271
Net current period other comprehensive income (loss)	5,255			(4,658		)	—		597
Net current period other comprehensive loss attributable to noncontrolling interests and redeemable noncontrolling interest	—			1,068			—		1,068
Ending balance	$	(2,253	)	$	(762	)	$	31	$	(2,984	)

Distributions Declared

During the second quarter of 2014, we declared a quarterly distribution of $0.90 per share, which was paid on July 15, 2014 to the stockholders of record on June 30, 2014.