Agreements and Transactions with Related Parties

3 Months Ended

Mar. 31, 2013

Agreements and Transactions with Related Parties

Agreements and Transactions with Related Parties

Note3.Agreements and Transactions with Related Parties

Advisory Agreements with the Managed REITs

We have advisory agreements with each of the Managed REITs pursuant to which we earn fees and are entitled to receive cash distributions. These agreements are scheduled to expire on September 30, 2013 unless otherwise renewed pursuant to their terms.The following table presents a summary of revenue earned and/or cash received from the Managed REITs included in the consolidated statements of income (in thousands):

	Three Months Ended March 31,
	2013		2012
Asset management revenue	$	10,015	$	15,602
Structuring revenue		6,342		7,638
Dealer manager fees		1,223		3,787
Reimbursed costs from affiliates		11,968		18,737
Distributions of Available Cash		7,891		6,974
Deferred revenue earned		2,123		2,123
	$	39,562	$	54,861

	Three Months Ended March 31,
	2013		2012
CPA®:15	$	-	$	7,368
CPA®:16 – Global		13,924		13,124
CPA®:17 – Global		14,756		32,983
CWI		10,860		1,146
Other		22		240
	$	39,562	$	54,861

The following table presents a summary of Due from affiliates (in thousands):

	March 31, 2013		December 31, 2012
Deferred acquisition fees receivable	$	21,530	$	28,655
Reimbursable costs		5,640		1,457
Organization and offering costs		5,066		4,920
Accounts receivable		2,371		181
Asset management fee receivable		18		789
	$	34,625	$	36,002

The following table presents a summary of amounts due to affiliates, which are included in Accounts payable, accrued expenses and other liabilities in the consolidated balance sheet (in thousands):

	March 31, 2013		December 31, 2012
Due to the Estate	$	40,000	$	-
Due to other affiliates		673		673
	$	40,673	$	673

Asset Management Revenue

We earn asset management revenue from each Managed REIT, which is based on average invested assets and is calculated according to the advisory agreement for each Managed REIT. For CPA®:15 prior to the Merger, this revenue generally totaled 1% per annum, with a portion of this revenue, or 0.5%, contingent upon the achievement of specific performance criteria. For CPA®:16 – Global, we earn asset management revenue of 0.5% of average invested assets. For CPA®:17 – Global, we earn asset management revenue ranging from 0.5% of average market value for long-term net leases and certain other types of real estate investments up to 1.75% of average equity value for certain types of securities. For CWI, we earn asset management revenue of 0.5% of the average market value of lodging-related investments. We also receive up to 10% of distributions of Available Cash, as defined in the respective advisory agreements, from the operating partnerships of each of the Managed REITs.

Under the terms of the advisory agreements, we may elect to receive cash or shares of stock for asset management revenue due from each Managed REIT. In 2013,we elected to receive all asset management revenue from each Managed REIT in its respectiveshares. For 2012, we elected to receive all asset management revenue from CPA®:15 prior to the Merger in cash, 50% of asset management revenue from CPA®:16 – Globalin its shares with the remaining 50% payable in cash and all asset management revenue from CPA®:17 – Global and CWI in their respective shares.

Structuring Revenue

Under the terms of the advisory agreements, we earnrevenue in connection with structuring and negotiating investments and related financing for the Managed REITs, which we call acquisition revenue. We may receive acquisition revenue of 4.5% of the total aggregate cost of long-term net lease investments made by each CPA®REIT. A portion of this revenue (generally 2.5%) is paid when the transaction is completed, while the remainder (generally 2%) is payable in annual installments ranging from three to eight years, provided the relevant CPA®REIT meets its performance criterion. For certain types of non-long term net lease investments acquired on behalf of CPA®:17 – Global, initial acquisition revenue may range from 0% to 1.75% of the equity invested plus the related acquisition revenue, with no deferred acquisition revenue being earned. For CWI, we earn initial acquisition revenue of 2.5% of the total investment cost of the properties acquired and loans originated by us not to exceed 6% of the aggregate contract purchase price of all investments and loans with no deferred acquisition revenue being earned. We may also be entitled, subject to theapproval by the boards of directors of certain Managed REITs, to fees for structuring loan refinancings of up to 1% of the principal amount. This loan refinancing revenue, together with the acquisition revenue, is referred to as structuring revenue.

Unpaid transaction fees, including accrued interest, are included in Due from affiliates in the consolidated financial statements. Unpaid transaction fees bear interest at annual rates ranging from 5% to 7%.

Reimbursed Costs from Affiliates and Dealer Manager Fees

The Managed REITs reimburse us for certain costs, primarily broker/dealer commissions paid on behalf of the Managed REITs and marketing and personnel costs. Since October 1, 2012, when advisory agreementswith the CPA® REITs were amended, personnel costs are allocated based on the revenues of each of the CPA®REITs rather than the method utilized before that date, which involvedan allocation of time charges incurred by our personnel for each of the CPA®REITs. In addition, we earned a selling commission of up to $0.65 per share sold and a dealer manager fee of up to $0.35 per share sold from CPA®:17 – Global through its public offering, which was terminated in January 2013. We also receive a selling commission of up to $0.70 per share sold and a dealer manager fee of up to $0.30 per share sold from CWI. We re-allow all or a portion of the dealer manager fees to selected dealers in the offerings. Dealer manager fees that are not re-allowed are classified as Dealer manager fees.

Pursuant to its advisory agreement, CWI is obligated to reimburse us for all organization costs and a portion of offering costs incurred in connection with its offering, up to a maximum amount (excluding selling commissions and the dealer manager fee) of 2% of the gross proceeds of its offering and distribution reinvestment plan. Through March 31, 2013, we have incurred organization and offering costs on behalf of CWI of approximately $7.9 million. However, at March 31, 2013,CWI was only obligated to reimburse us $4.6 million of these costs because of the 2% limitation described above, and $3.5 million had been reimbursed as of that date.

Distributions of Available Cash and Deferred Revenue Earned

We receive distributions of our proportionate share of earnings up to 10% of the Available Cash fromthe Managed REITs, as defined in the respective advisory agreements, from their operating partnerships. In connection with the merger in the second quarter of 2011 between Corporate Property Associates 14 Incorporated (“CPA®:14”) and CPA®:16 – Global, we acquired a special member interest in CPA®:16 – Global's operating partnership. We initially recorded this special member interest at its fair value, which is amortized into earnings over the expected period of performance considering the estimated life of the entity. Cash distributions of our proportionate share of earnings from the CPA®:16 – Global and CPA®:17 – Global operating partnerships as well as deferred revenue earned from our special member interest in CPA®:16 – Global's operating partnership are recorded as Income from equity investments in real estate and the Managed REITs within the Real Estate Ownership segment. We have not yet earned or received any distributions of our proportionate share of earnings from CWI's operating partnership because CWI has not yet generated Available Cash.

Other Transactions with Affiliates

Transactions with Estate of Wm. Polk Carey

As discussed in the 2012 Annual Report, we entered into a share purchase agreement with the Estateof Wm. Polk Carey and its affiliated entities (collectively, the “Estate”)pursuant to which we agreed to repurchase up to an aggregate amount of $85.0 million of our common stock beneficially owned by the Estate, in three transactions between August 6, 2012 and March 31, 2013. As of December 31, 2012, we completed two transactions totaling $45.0 million. On March 28, 2013, we received an irrevocable notice (the “Notice”) from the Estate to exercise the final sale option. Accordingly, as the Notice resulted in a fixed and determinable obligation at March 31, 2013,we reclassified $40.0 million from Redeemable securities – related party to Accounts payable, accrued expenses and other liabilities. On April 4, 2013, we repurchased 616,971 shares of our common stock for $40.0 million from the Estate at a price of $64.83 per share.

The following table presents a reconciliation of our Redeemable securities – related party (in thousands):

	Three Months Ended
	March 31, 2013
Balance - beginning of period	$	40,000
Reclassification to a liability upon receipt of notice		(40,000)
Balance - end of period	$	-

Merger with CPA®:15

On September 28, 2012, CPA®:15 merged with and into us with CPA®:15 surviving as an indirect, wholly-owned subsidiary. In the Merger, we acquired CPA®:15's portfolio, which was comprised of full or partial ownership in 305 properties, substantially all of which were triple-net leased to 76 tenants, and totaled approximately 27.0 million square feet, with an occupancy rate of approximately 99%.

We accounted for the Merger as a business combination under the acquisition method of accounting. The purchase price was allocated to the assets acquired and liabilities assumed, based upon their fair values. The fair values of the lease intangibles acquired were measured in a manner consistent with our purchase price allocation policy described in the 2012 Annual Report.

Other

We own interests in entities ranging from 3% to 95%, as well as jointly-controlled tenancy-in-common interests in properties, with the remaining interests generally held by affiliates, and own common stock in each of the Managed REITs. We consolidate certain of these investments and account for the remainder under the equity method of accounting.

Family members of one of our directors have an ownership interest in certain companies that own noncontrolling interests in one of our French majority-owned subsidiaries. These ownership interests are subject to substantially the same terms as all other ownership interests in the subsidiary companies.

In January 2013, our board of directors approved loans to CWI up to $50.0 million to be made at our discretion.