| Equity Investments in Real Estate and REITs |
Equity Investments in Real Estate and the Managed Programs 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 real estate and the Managed REITs, 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): | | | | | | | | | | | | | | Years Ended December 31, | | 2014 | | 2013 | | 2012 | Proportionate share of equity in earnings of equity investments in the Managed REITs | $ | 2,425 |
| | $ | 7,057 |
| | $ | 8,867 |
| Amortization of basis differences on equity investments in the Managed REITs | (810 | ) | | (5,115 | ) | | (4,302 | ) | Other-than-temporary impairment charges on the Special Member Interest in CPA®:16 – Global’s operating partnership | (735 | ) | | (15,383 | ) | | (9,910 | ) | Distributions of Available Cash (Note 4) | 31,052 |
| | 34,121 |
| | 30,009 |
| Deferred revenue earned (Note 4) | 786 |
| | 9,436 |
| | 9,436 |
| Total equity in earnings of equity investments in the Managed REITs | 32,718 |
| | 30,116 |
| | 34,100 |
| Equity in earnings from other equity investments in real estate | 14,828 |
| | 26,928 |
| | 29,864 |
| Amortization of basis differences on other equity investments | (3,430 | ) | | (4,313 | ) | | (1,572 | ) | Equity in earnings of equity method investments in real estate and the Managed REITs | $ | 44,116 |
| | $ | 52,731 |
| | $ | 62,392 |
|
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. 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 | | | December 31, | | December 31, | Fund | | 2014 | | 2013 | | 2014 (a) (b) | | 2013 (a) | CPA®:16 – Global (c) | | 100.000 | % | | 18.533 | % | | $ | — |
| | $ | 282,520 |
| CPA®:16 – Global operating partnership (d) | | 100.000 | % | | 0.015 | % | | — |
| | 813 |
| CPA®:17 – Global (e) | | 2.676 | % | | 1.910 | % | | 79,429 |
| | 57,753 |
| CPA®:17 – Global operating partnership (f) | | 0.009 | % | | 0.009 | % | | — |
| | — |
| CPA®:18 – Global | | 0.221 | % | | 0.127 | % | | 2,784 |
| | 320 |
| CPA®:18 – Global operating partnership (g) | | 0.034 | % | | 0.034 | % | | 209 |
| | 209 |
| CWI | | 1.088 | % | | 0.538 | % | | 13,940 |
| | 3,369 |
| CWI operating partnership (h) | | 0.015 | % | | 0.015 | % | | — |
| | — |
| Carey Credit Income Fund (i) | | 50.00 | % | | — |
| | 25,000 |
| | — |
| | | |
| | |
| | $ | 121,362 |
| | $ | 344,984 |
|
___________ | | (a) | Includes asset management fees receivable, for which 240,318 shares, 37,870 class A shares, and 93,739 shares of common stock of CPA®:17 – Global, CPA®:18 – Global, and CWI, respectively, were issued during the first quarter of 2015. |
| | (b) | At December 31, 2014 and 2013, the aggregate unamortized basis differences on our equity investments in the Managed REITs were $20.2 million and $80.5 million, respectively. |
| | (c) | On January 31, 2014, we acquired all the remaining interests in CPA®:16 – Global, which merged into one of our wholly-owned subsidiaries with our subsidiary as the surviving entity, in the CPA®:16 Merger (Note 3). We received distributions of $6.4 million, $25.3 million, and $24.3 million from this affiliate during January 2014, the year ended December 31, 2013 and the year ended December 31, 2012, respectively. During the year ended December 31, 2013, equity income from CPA®:16 – Global and CPA®:16 – Global’s operating partnership exceeded 20% of our net income from continuing operations before income taxes. Therefore, the audited consolidated financial statements of CPA®:16 – Global are incorporated by reference in this Report. |
| | (d) | During January 2014 and the years ended December 31, 2013 and 2012, we recognized other-than-temporary impairment charges of $0.7 million, $15.4 million, and $9.9 million, respectively, on this investment to reduce the carrying value of our interest in the investment to its estimated fair value (Note 9). In addition, we received distributions of $4.8 million, $15.2 million, and $15.4 million from this investment during January 2014, the year ended December 31, 2013, and the year ended December 31, 2012, respectively. On January 31, 2014, we acquired the remaining interests in CPA®:16 – Global’s operating partnership and now consolidate this entity. |
| | (e) | We received distributions of $4.6 million, $3.0 million, and $1.6 million from this affiliate during 2014, 2013, and 2012, respectively. |
| | (f) | We received distributions of $20.4 million, $16.9 million, and $14.6 million from this affiliate during 2014, 2013, and 2012, respectively. |
| | (g) | We received distributions of $1.8 million and $0.1 million, from this affiliate, which commenced operations in May 2013, during the years ended December 31, 2014 and 2013, respectively. |
| | (h) | We received distributions of $4.1 million and $1.9 million from this affiliate during the years ended December 31, 2014 and 2013, respectively. There were no such distributions received during the year ended December 31, 2012. |
| | (i) | In December 2014, we purchased 2,777,778 shares of CCIF at $9.00 per share for a total purchase price of $25.0 million. We account for our interest in this investment using the equity method of accounting because we share the decision-making with the third-party investment partner. As of December 31, 2014, CCIF has not yet admitted any additional shareholders. |
The following tables present estimated combined summarized financial information for the Managed Programs. Certain prior year amounts have been retrospectively adjusted to reflect the impact of discontinued operations. Amounts provided are expected total amounts attributable to the Managed Programs and do not represent our proportionate share (in thousands): | | | | | | | | | | December 31, | | 2014 | | 2013 | Real estate, net | $ | 5,969,011 |
| | $ | 7,218,177 |
| Other assets | 2,293,065 |
| | 2,128,862 |
| Total assets | 8,262,076 |
| | 9,347,039 |
| Debt | (3,387,795 | ) | | (4,237,044 | ) | Accounts payable, accrued expenses and other liabilities | (496,857 | ) | | (571,097 | ) | Total liabilities | (3,884,652 | ) | | (4,808,141 | ) | Noncontrolling interests | (170,249 | ) | | (192,492 | ) | Stockholders’ equity | $ | 4,207,175 |
| | $ | 4,346,406 |
|
| | | | | | | | | | | | | | Years Ended December 31, | | 2014 | | 2013 | | 2012 | Revenues | $ | 825,405 |
| | $ | 796,637 |
| | $ | 860,983 |
| Expenses (a) | (838,100 | ) | | (701,830 | ) | | (759,435 | ) | (Loss) income from continuing operations | $ | (12,695 | ) | | $ | 94,807 |
| | $ | 101,548 |
| Net (loss) income attributable to the Managed Programs (b) (c) | $ | (12,695 | ) | | $ | 104,342 |
| | $ | 128,455 |
|
___________ | | (a) | Total net expenses recognized by the Managed Programs during the year ended December 31, 2012 included $3.1 million of CPA®:15 Merger-related expenses incurred by CPA®:15, of which our share was approximately $0.2 million. |
| | (b) | Inclusive of impairment charges recognized by the Managed Programs totaling $1.3 million, $25.6 million, and $25.0 million during the years ended December 31, 2014, 2013, and 2012, respectively. These impairment charges reduced our income earned from these investments by approximately less than $0.1 million, $4.7 million, and $4.2 million during the years ended December 31, 2014, 2013, and 2012, respectively. |
| | (c) | Amounts included net gains on sale of real estate recorded by the Managed Programs totaling $13.3 million, $7.7 million, and $35.4 million during the years ended December 31, 2014, 2013, and 2012, 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. Investments in unconsolidated investments are required to be evaluated periodically. We periodically compare an investment’s carrying value to its estimated fair value and recognize an impairment charge to the extent that the carrying value exceeds fair value and such decline is determined to be other than temporary.
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 | | Carrying Value at December 31, | Lessee | | Co-owner(s) | | at December 31, 2014 | | 2014 | | 2013 | Same Store Equity Investments (a) (b) | | | | | | | | | C1000 Logistiek Vastgoed B.V. (c) | | CPA®:17 – Global | | 15% | | $ | 11,192 |
| | $ | 13,673 |
| Waldaschaff Automotive GmbH and Wagon Automotive Nagold GmbH | | CPA®:17 – Global | | 33% | | 6,949 |
| | 7,267 |
| Wanbishi Archives Co. Ltd. | | CPA®:17 – Global | | 3% | | 341 |
| | 395 |
| | | | | | | 18,482 |
| | 21,335 |
| Equity Investments Consolidated After the CPA®:16 Merger (d) | | | | | Schuler A.G. (a) | | CPA®:16 – Global | | 100% | | — |
| | 65,798 |
| Hellweg 2 (a) (e) | | CPA®:16 – Global/ CPA®:17 – Global | | 63% | | — |
| | 27,923 |
| Advanced Micro Devices | | CPA®:16 – Global | | 100% | | — |
| | 22,392 |
| The Upper Deck Company | | CPA®:16 – Global | | 100% | | — |
| | 7,518 |
| Del Monte Corporation | | CPA®:16 – Global | | 100% | | — |
| | 7,145 |
| Builders FirstSource, Inc. | | CPA®:16 – Global | | 100% | | — |
| | 4,968 |
| PetSmart, Inc. | | CPA®:16 – Global | | 100% | | — |
| | 3,877 |
| Consolidated Systems, Inc. | | CPA®:16 – Global | | 100% | | — |
| | 3,176 |
| SaarOTEC (a) | | CPA®:16 – Global | | 100% | | — |
| | (639 | ) | | | | | | | — |
| | 142,158 |
| Equity Investments Acquired in the CPA®:16 Merger | | | | | | The New York Times Company (f) | | CPA®:16 – Global/ CPA®:17 – Global | | 45% | | 72,476 |
| | 21,543 |
| Frontier Spinning Mills, Inc. | | CPA®:17 – Global | | 40% | | 15,609 |
| | — |
| Actebis Peacock GmbH (a) | | CPA®:17 – Global | | 30% | | 6,369 |
| | — |
| | | | | | | 94,454 |
| | 21,543 |
| Recently Acquired Equity Investment | | | | | | | | | Beach House JV, LLC (g) | | Third Party | | N/A | | 15,105 |
| | — |
| | | | | | | $ | 128,041 |
| | $ | 185,036 |
|
___________ | | (a) | The carrying value of this investment is affected by the impact of fluctuations in the exchange rate of the foreign currency. |
| | (b) | Represents equity investments we acquired prior to January 1, 2013. |
| | (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 total amount due under the arrangement was approximately $82.7 million at December 31, 2014. Of this amount, $12.4 million represents the amount we agreed to pay and is included within the carrying value of the investment at December 31, 2014. |
| | (d) | We acquired the remaining interests in these investments from CPA®:16 – Global in the CPA®:16 Merger. Subsequent to the CPA®:16 Merger, we consolidate these wholly-owned or majority-owned investments (Note 3). |
| | (e) | We acquired an additional 25% interest in this investment in the CPA®:16 Merger. The remaining interest in this investment is owned by CPA®:17 – Global. |
| | (f) | We acquired an additional 27% interest in this investment in the CPA®:16 Merger. The remaining interest in this investment is owned by CPA®:17 – Global. |
| | (g) | During the year ended December 31, 2014, we received a preferred equity position in Beach House JV, LLC as part of the sale of our Soho House investment. The preferred equity interest, which is redeemable on March 13, 2019, provides us with a preferred rate of return of 8.5%. The rights under these preferred units allow us to have significant influence over the entity. Accordingly, we account for this investment using the equity method of accounting. We own 100 redeemable preferred units of Beach House JV LLC. During the year ended December 31, 2014, we recognized $1.0 million of income related to this investment, which is included in Equity in earnings of equity method investments in real estate and the Managed REITs in the consolidated financial statements. |
The following tables present combined summarized financial information of our equity investments, excluding the Managed Programs. Amounts provided are the total amounts attributable to the investments and do not represent our proportionate share (in thousands): | | | | | | | | | | December 31, | | 2014 | | 2013 | Real estate, net | $ | 486,858 |
| | $ | 1,038,422 |
| Other assets | 81,232 |
| | 146,635 |
| Total assets | 568,090 |
| | 1,185,057 |
| Debt | (278,012 | ) | | (695,429 | ) | Accounts payable, accrued expenses and other liabilities | (10,057 | ) | | (77,819 | ) | Total liabilities | (288,069 | ) | | (773,248 | ) | Noncontrolling interests | (355 | ) | | 176 |
| Stockholders’ equity | $ | 279,666 |
| | $ | 411,985 |
|
| | | | | | | | | | | | | | Years Ended December 31, | | 2014 | | 2013 | | 2012 | Revenues | $ | 64,294 |
| | $ | 117,278 |
| | $ | 108,242 |
| Expenses | (27,801 | ) | | (50,907 | ) | | (64,453 | ) | Income from continuing operations | $ | 36,493 |
| | $ | 66,371 |
| | $ | 43,789 |
| Net income attributable to the jointly-owned investments (a) | $ | 36,493 |
| | $ | 15,762 |
| | $ | 79,591 |
|
| | (a) | Amount during the year ended December 31, 2012 included a net gain of approximately $34.0 million recognized by a jointly-owned investment as a result of selling its interests in the Médica investment. Our share of the gain was approximately $15.1 million. |
We received aggregate distributions of $12.5 million, $25.9 million, and $20.0 million from our other unconsolidated real estate investments for the years ended December 31, 2014, 2013, and 2012, respectively. At December 31, 2014 and 2013, the aggregate unamortized basis differences on our unconsolidated real estate investments were $5.8 million and $16.6 million, respectively.
Hellweg 2 Restructuring
In 2007, CPA®:14, CPA®:15, and CPA®:16 – Global, acquired a 33%, 40%, and 27% interest, respectively, in an entity, or Purchaser, for purposes of acquiring a 25% interest in a property holding company, or PropCo, that owns 37 do-it-yourself stores located in Germany. This is referred to as the Hellweg 2 transaction. The remaining 75% interest in PropCo was owned by a third party, or the Partner. In November 2010, CPA®:14, CPA®:15, and CPA®:16 – Global obtained a 70% additional interest in PropCo from the Partner, resulting in Purchaser owning approximately 95% of PropCo. In 2011, CPA®:17 – Global acquired CPA®:14’s interests, and in 2012, through the CPA®:15 Merger, we acquired CPA®:15’s interests. We had previously accounted for our investment under the equity method of accounting. In January 2014 in connection with the CPA®:16 Merger, we acquired CPA®:16 – Global’s interests in the investment. Subsequent to the acquisition, we consolidate this investment.
In October 2013, the Partner’s remaining 5% equity interest in PropCo was acquired by CPA®:17 – Global, which resulted in PropCo incurring a German real estate transfer tax of $22.1 million, of which our share was approximately $8.4 million and was recorded within Equity in earnings of equity method investments in real estate and the Managed REITs in our consolidated statement of income for the year ended December 31, 2013. PropCo intends to appeal the real estate transfer tax upon assessment, but there is no certainty it will be successful in appealing its obligation.
Acquisition of Unconsolidated Real Estate Investment During 2012
In December 2012, an entity in which we and CPA®:17 – Global hold 3% and 97% interests, respectively, purchased a warehouse/distribution facility in Japan for $52.1 million. Our share of the purchase price was approximately $1.5 million. We account for this investment under the equity method of accounting, as we do not have a controlling interest in the entity but exercise significant influence over it. In connection with this investment, the entity obtained mortgage financing on the property of $31.6 million at an annual interest rate of 2% and term of five years. Our share of the financing was approximately $0.9 million. Amounts are based on the exchange rate of the Japanese yen on the date of acquisition.
Disposition of Unconsolidated Real Estate Investment During 2013
In June 2013, we contributed $2.9 million to partially repay the existing $17.1 million mortgage loan on our U.S. Airways investment. We refinanced the remaining mortgage loan with new financing of $13.9 million. Immediately after the refinancing, we sold our interest in the investment to a third party for $28.4 million, net of closing costs and our contribution to partially repay the loan, and recognized a gain on sale of $19.5 million. The gain was included in Equity in earnings of equity method investments in real estate and the Managed REITs in the consolidated financial statements.
In October 2013, an entity in which we and CPA®:16 – Global held 30% and 70% interests, respectively, sold the five properties it owned for $41.4 million and recognized a net gain on sale of $0.5 million. The entity used a portion of the proceeds to repay the related mortgage loan, which had a carrying value of $25.7 million on the date of sale. Amounts presented are total amounts attributable to the whole entity and do not represent our proportionate share. In connection with the sale, the entity made a distribution of $4.2 million to us, representing our share of the net proceeds from the sale. |