Merger with CPA^®:16 – Global

On July 25, 2013, we and CPA^®:16 – Global entered into a definitive agreement pursuant to which CPA^®:16 – Global would merge with and into one of our wholly owned subsidiaries, subject to the approval of our stockholders and the stockholders of CPA^®:16 – Global. On January 24, 2014, our stockholders and the stockholders of CPA^®:16 – Global each approved the CPA^®:16 Merger, and the CPA^®:16 Merger closed on January 31, 2014.

In the CPA^®:16 Merger, CPA^®:16 – Global stockholders received 0.1830 shares of our common stock in exchange for each share of CPA^®:16 – Global stock owned, pursuant to an exchange ratio based upon a value of $11.25 per share of CPA^®:16 – Global and the volume weighted-average trading price of our common stock for the five consecutive trading days ending on the third trading day preceding the closing of the transaction on January 31, 2014. CPA^®:16 – Global stockholders received cash in lieu of any fractional shares in the CPA^®:16 Merger. We paid total merger consideration of approximately $1.8 billion, including the issuance of 30,729,878 shares of our common stock with a fair value of $1.8 billion based on the closing price of our common stock on January 31, 2014, of $59.08 per share, to the stockholders of CPA^®:16 – Global in exchange for the 168,041,772 shares of CPA^®:16 – Global common stock that we and our affiliates did not previously own, and cash of $1.3 million paid in lieu of issuing any fractional shares, or collectively, the Merger Consideration. As a condition of the CPA^®:16 Merger, we waived the subordinated disposition and termination fees that we would have been entitled to receive from CPA^®:16 – Global upon its liquidation pursuant to the terms of our advisory agreement with CPA^®:16 – Global (Note 4).

Immediately prior to the CPA^®:16 Merger, CPA^®:16 – Global’s portfolio was comprised of the consolidated full or partial interests in 325 leased properties, substantially all of which were triple-net leased with an average remaining life of 10.4 years and an estimated contractual minimum annualized base rent, or ABR, totaling $300.1 million, and two hotel properties. The related property-level debt was comprised of 92 fixed-rate and 18 variable-rate non-recourse mortgage loans with an aggregate fair value of approximately $1.8 billion and a weighted-average annual interest rate of 5.6% at that date. Additionally, CPA^®:16 – Global had a line of credit with an outstanding balance of $170.0 million on the date of the closing of the CPA^®:16 Merger. In addition, CPA^®:16 – Global had equity interests in 18 unconsolidated investments, 11 of which were consolidated by us prior to the CPA^®:16 Merger, five of which were consolidated by us subsequent to the CPA^®:16 Merger, and two of which were jointly owned with CPA^®:17 – Global. These investments owned 140 properties, substantially all of which were triple-net leased with an average remaining life of 8.6 years and an estimated ABR totaling $63.9 million, as of January 31, 2014. The debt related to these equity investments was comprised of 17 fixed-rate and five variable-rate non-recourse mortgage loans with an aggregate fair value of approximately $291.2 million and a weighted-average annual interest rate of 4.8% on January 31, 2014. The lease revenues and income from continuing operations from the properties acquired from the date of the CPA^®:16 Merger through December 31, 2014 were $251.5 million and $91.1 million (inclusive of $2.4 million attributable to noncontrolling interests), respectively.

During 2014, we sold all ten of the properties that were classified as held for sale upon acquisition in connection with the CPA^®:16 Merger (Note 17). The results of operations for all ten of these properties have been included in Income from discontinued operations, net of tax in the consolidated financial statements. In addition, we sold one property subject to a direct financing lease that we acquired in the CPA^®:16 Merger. The results of operations for this property have been included in Income from continuing operations before income taxes and gain on sale of real estate in the consolidated financial statements.

Purchase Price Allocation

We accounted for the CPA^®:16 Merger as a business combination under the acquisition method of accounting. After consideration of all applicable factors pursuant to the business combination accounting rules, we were considered the “accounting acquirer” due to various factors, including the fact that our stockholders held the largest portion of the voting rights in us upon completion of the CPA^®:16 Merger. Costs related to the CPA^®:16 Merger of $30.5 million and $5.0 million were expensed as incurred for the years ended December 31, 2014 and 2013, respectively, and classified within Merger, property acquisition, and other expenses in the consolidated financial statements. In addition, CPA^®:16 – Global incurred a total of $10.6 million of merger expenses prior to January 31, 2014.

Goodwill

The $346.6 million of goodwill recorded in connection with the CPA^®:16 Merger was primarily attributable to the premium we agreed to pay for CPA^®:16 – Global’s common stock at the time we entered into the merger agreement in July 2013. Management believes the premium is supported by several factors of the combined entity, including the fact that (i) it is among the largest publicly traded commercial net-lease REITs with greater operating and financial flexibility and better access to capital markets and with a lower cost of capital than CPA^®:16 – Global had on a stand-alone basis; (ii) the CPA^®:16 Merger eliminated costs associated with the advisory structure that CPA^®:16 – Global had previously; and (iii) the combined portfolio has greater tenant and geographic diversification and an improved overall weighted-average debt maturity and interest rate. The aforementioned amount of goodwill attributable to the premium was partially offset by an increase in the fair value of the net assets through the date of the CPA^®:16 Merger.

Goodwill acquired in the CPA^®:16 Merger is not deductible for income tax purposes.

Equity Investments and Noncontrolling Interests

During the first quarter of 2014, we recognized a gain on change in control of interests of approximately $73.1 million, which was the difference between the carrying value of approximately $274.1 million and the preliminary estimated fair value of approximately $347.2 million of our previously held equity interest in 38,229,294 shares of CPA^®:16 – Global’s common stock. During 2014, we identified certain measurement period adjustments that impacted the provisional accounting, which increased the estimated fair value of our previously held equity interest in shares of CPA^®:16 – Global’s common stock by $2.6 million, resulting in an increase of $2.6 million in Gain on change in control of interests. In accordance with Accounting Standards Codification, or ASC, 805-10-25, we did not record the measurement period adjustments during the periods they occurred. Rather, such amounts are reflected in the financial statements for the three months ended March 31, 2014.

The CPA^®:16 Merger also resulted in our acquisition of the remaining interests in nine investments in which we already had a joint interest and accounted for under the equity method. Upon acquiring the remaining interests in these investments, we owned 100% of these investments and thus accounted for the acquisitions of these interests utilizing the purchase method of accounting. Due to the change in control of the nine jointly owned investments that occurred, we recorded a gain on change in control of interests of approximately $30.2 million during the first quarter of 2014, which was the difference between our carrying values and the estimated fair values of our previously held equity interests on the acquisition date of approximately $142.5 million and approximately $172.7 million, respectively. Subsequent to the CPA^®:16 Merger, we consolidate these wholly owned investments.

In connection with the CPA^®:16 Merger, we also acquired the remaining interests in 12 less-than-wholly owned investments that we already consolidate and recorded an adjustment to additional paid-in-capital of approximately $42.0 million during the first quarter of 2014 related to the difference between our carrying values and the preliminary estimated fair values of our previously held noncontrolling interests on the acquisition date of approximately $236.8 million and $278.2 million, respectively. During 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.

Pro Forma Financial Information (Unaudited)

The following unaudited consolidated pro forma financial information has been presented as if the CPA^®:16 Merger had occurred on January 1, 2013 for the year ended December 31, 2014. The pro forma financial information is not necessarily indicative of what the actual results would have been had the CPA^®:16 Merger occurred on that date, nor does it purport to represent the results of operations for future periods.

(in thousands, except share and per share amounts)



	Year Ended December 31, 2014
Pro forma total revenues	$	931,309

Pro forma net income from continuing operations, net of tax	$	139,698
Pro forma net income attributable to noncontrolling interests	(5,380		)
Pro forma net loss attributable to redeemable noncontrolling interest	142
Pro forma net income from continuing operations, net of tax attributable to W. P. Carey	$	134,460

Pro forma earnings per share:
Basic	$	1.32
Diluted	$	1.31

Pro forma weighted-average shares outstanding: ^(a)
Basic	101,296,847
Diluted	102,360,038

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(a)	The pro forma weighted-average shares outstanding for the year ended December 31, 2014 were determined as if the 30,729,878 shares of our common stock issued to CPA^®:16 – Global stockholders in the CPA^®:16 Merger were issued on January 1, 2013.