UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
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ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
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For the fiscal year ended December 31, 2012 |
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or | |
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TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
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For the transition period from to |
Commission File Number: 000-52891
CORPORATE PROPERTY ASSOCIATES 17 GLOBAL INCORPORATED
(Exact name of registrant as specified in its charter)
Maryland |
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20-8429087 |
(State of incorporation) |
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(I.R.S. Employer Identification No.) |
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50 Rockefeller Plaza |
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New York, New York |
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10020 |
(Address of principal executive offices) |
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(Zip Code) |
Investor Relations (212) 492-8920
(212) 492-1100
(Registrants telephone numbers, including area code)
Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to Section 12(g) of the Act:
Common Stock, Par Value $0.001 Per Share
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes o No R
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. Yes o No R
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 R 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 R No o
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K (§229.405 of this chapter) is not contained herein, and will not be contained, to the best of registrants knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. R
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 o |
Accelerated filer o |
Non-accelerated filer R |
Smaller reporting company o |
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(Do not check if a smaller reporting company) |
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Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act). Yes o No R
Registrant has no active market for its common stock. Non-affiliates held 243,451,237 shares of common stock at June 30, 2012.
At March 4, 2013, there were 309,461,985 shares of common stock of registrant outstanding.
DOCUMENTS INCORPORATED BY REFERENCE
The registrant incorporates by reference its definitive Proxy Statement with respect to its 2013 Annual Meeting of Stockholders, to be filed with the Securities and Exchange Commission within 120 days following the end of its fiscal year, into Part III of this Annual Report on Form 10-K.
INDEX
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Page No. | |
2 | ||
13 | ||
29 | ||
29 | ||
29 | ||
29 | ||
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30 | ||
31 | ||
Managements Discussion and Analysis of Financial Condition and Results of Operations |
32 | |
53 | ||
56 | ||
Changes in and Disagreements with Accountants on Accounting and Financial Disclosure |
106 | |
106 | ||
106 | ||
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107 | ||
107 | ||
Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters |
107 | |
Certain Relationships and Related Transactions, and Director Independence |
107 | |
107 | ||
PART IV |
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108 | ||
111 |
Forward-Looking Statements
This Annual Report on Form 10-K (the Report), including Managements Discussion and Analysis of Financial Condition and Results of Operations in Item 7 of Part II 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. It is important to note that our actual results could be materially different from those projected in such forward-looking statements. 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 which 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 (the SEC), including but not limited to those described below in Item 1A. Risk Factors of this Report. 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 II, Item 8, Financial Statements and Supplementary Data.
CPA®:17 Global 2012 10-K 1
(a) General Development of Business
Overview
Corporate Property Associates 17 Global Incorporated (CPA®:17 Global and, together with its consolidated subsidiaries, we, us or our) is a publicly owned, non-listed real estate investment trust (REIT) and was formed as a Maryland corporation in February 2007 for the purpose of investing in a diversified portfolio of income-producing commercial properties and other real estate related assets, both domestically and outside the United States (U.S.). As a REIT, we are not subject to U.S. federal income taxation as long as we satisfy certain requirements, principally relating to the nature of our income, the level of our distributions and other factors. We conduct substantially all of our investment activities and own all of our assets through CPA®:17 Limited Partnership, our operating partnership. We are a general partner and a limited partner and own a 99.985% capital interest in the operating partnership. W. P. Carey Holdings, LLC (Carey Holdings), an indirect subsidiary of W. P. Carey Inc (WPC), holds a special general partner interest in the operating partnership.
Our core investment strategy is to acquire, own and manage a portfolio of commercial properties leased to a diversified group of companies on a single tenant net lease basis. Our net leases generally require the tenant to pay substantially all of the costs associated with operating and maintaining the property, such as maintenance, insurance, taxes, structural repairs and other operating expenses. Leases of this type are referred to as triple-net leases. We generally seek to include in our leases:
· clauses providing for mandated rent increases or periodic rent increases over the term of the lease tied to increases in the Consumer Price Index (CPI) or other similar index for the jurisdiction in which the property is located or, when appropriate, increases tied to the volume of sales at the property;
· indemnification for environmental and other liabilities;
· operational or financial covenants of the tenant; and
· guarantees of lease obligations from parent companies or letters of credit.
We are managed by WPC through certain of its subsidiaries (collectively, the advisor). WPC is a publicly-traded REIT listed on the New York Stock Exchange under the symbol WPC. Pursuant to an advisory agreement, the advisor provides both strategic and day-to-day management services for us, including capital funding services, investment research and analysis, investment financing and other investment related services, asset management, disposition of assets, investor relations and administrative services. The advisor also provides office space and other facilities for us. We pay asset management fees and certain transactional fees to the advisor and also reimburse the advisor for certain expenses incurred in providing services to us, including broker-dealer commissions the advisor pays on our behalf, marketing costs and those fees associated with personnel provided for administration of our operations. The current form of the agreement is scheduled to expire on September 30, 2013. The advisor also currently serves in this capacity for Corporate Property Associates 16 Global Incorporated (CPA®:16 Global and, together with us, the CPA® REITs) and Carey Watermark Investors Incorporated (CWI), and served in this capacity for Corporate Property Associates 15 Incorporated (CPA®:15) until it merged with and into a subsidiary of the advisor in September 2012 (collectively, including us, the Managed REITs).
In February 2007, WPC purchased 22,222 shares of our common stock for $0.2 million and was admitted as our initial stockholder. WPC purchased its shares at $9.00 per share, net of commissions and fees that would have otherwise been payable to Carey Financial, LLC (Carey Financial), a subsidiary of WPC. In addition, in July 2008, Carey Holdings made a capital contribution to us of $0.3 million.
Since inception through the termination of our initial public offering on April 7, 2011, upon the effectiveness of our follow-on offering described below, we raised a total of more than $1.5 billion.
We commenced a follow-on public offering of up to $1.0 billion of common stock and up to $475.0 million of common stock pursuant to our distribution reinvestment and stock purchase plan (DRIP) on April 7, 2011. We subsequently reallocated 35,000,000 shares of our common stock from our DRIP to our follow-on offering. We closed our follow-on offering on January 31, 2013. We issued approximately 289,000,000 shares of our common stock and raised aggregate gross proceeds of approximately $2.9 billion from our initial public offering and our follow-on offering. Through December 31, 2012, we have also issued 17,691,063 shares ($168.1 million) through our DRIP. We repurchased 3,645,644 shares ($34.3 million) of our common stock under our redemption plan from inception through December 31, 2012. We intend to continue to use the net proceeds of these offerings to acquire, own and manage a portfolio of commercial properties leased to a diversified group of companies primarily on a single tenant net lease basis. However,
CPA®:17 Global 2012 10-K 2
until we have fully invested the proceeds of our offerings, we have used, and expect in the future to use a portion of the offering proceeds to fund our operating activities and distributions to our stockholders.
In January 2013, we amended our articles of incorporation to increase our authorized capital stock to 950,000,000 shares consisting of 900,000,000 shares of common stock, $0.001 par value per share and 50,000,000 shares of preferred stock, $0.001 par value per share. In January 2013, we also filed a registration statement on Form S-3 (File No. 333-186182) with the SEC to register 200,000,000 shares of our common stock to be offered through our DRIP.
We have no employees. At December 31, 2012, the advisor employed 216 individuals who are available to perform services for us.
Significant Developments During 2012
Distributions We distributed $0.6500 per share and $0.6475 per share for the years ended December 31, 2012 and 2011, respectively.
Acquisition Activity During 2012, we entered into investments at a total cost of approximately $1,035.5 million, including $120.7 million in international investments. Amounts are based on the exchange rate of the foreign currency at the date of acquisition, as applicable.
Financing Activity During 2012, we obtained non-recourse mortgage financing totaling $469.6 million with a weighted-average annual interest rate and term of 4.3% and 8.6 years, respectively. Amounts are based on the exchange rate of the foreign currency at the date of financing, as applicable.
(b) Financial Information About Segments
We operate in one reportable segment, real estate ownership, with domestic and foreign investments. Refer to Note 16 for financial information about this segment.
(c) Narrative Description of Business
Business Objectives and Strategy
Our objectives are to:
· provide attractive risk-adjusted returns for our stockholders;
· generate sufficient cash flow over time to provide investors with increasing distributions;
· seek investments with potential for capital appreciation; and
· use leverage to enhance the returns on our investments.
We seek to achieve these objectives by investing in a portfolio of income-producing commercial properties leased to a diversified group of companies on a net lease basis.
We intend our portfolio to be diversified by property type, geography, tenant, and industry. We are not required to meet any diversification standards and have no specific policies or restrictions regarding the geographic areas where we make investments, the industries in which our tenants or borrowers may conduct business or the percentage of our capital that we may invest in a particular asset type.
Our Net-Leased Portfolio
At December 31, 2012, our portfolio was comprised of our full or partial ownership interests in 335 fully-occupied properties, substantially all of which were triple-net leased to 80 tenants, and totaled approximately 32 million square feet. In addition, we own 58 self-storage properties and retain a fee interest in a hotel property for an aggregate of approximately 4 million square feet. Our net lease portfolio, which excludes our self-storage facilities and hotel property, had the following property and lease characteristics:
CPA®:17 Global 2012 10-K 3
Geographic Diversification
Information regarding the geographic diversification of our net-leased properties at December 31, 2012 is set forth below (dollars in thousands):
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Consolidated Investments |
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Equity Investments in Real Estate | ||||||||
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Annualized |
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% of Annualized |
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Annualized |
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% of Annualized | ||||
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Contractual |
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Contractual |
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Contractual |
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Contractual | ||||
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Minimum |
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Minimum |
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Minimum |
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Minimum | ||||
Region |
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Base Rent (a) |
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Base Rent |
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Base Rent (b) |
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Base Rent | ||||
United States |
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East |
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$ |
51,368 |
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21 |
% |
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$ |
1,323 |
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4 |
% |
South |
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43,606 |
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17 |
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1,752 |
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5 |
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Midwest |
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39,098 |
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16 |
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4,775 |
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13 |
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West |
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23,141 |
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9 |
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875 |
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2 |
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Total U.S. |
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157,213 |
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63 |
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8,725 |
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24 |
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International |
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Italy |
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26,956 |
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11 |
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- |
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- |
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Croatia |
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24,499 |
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10 |
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- |
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- |
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Spain |
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19,523 |
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8 |
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760 |
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2 |
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Germany |
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7,717 |
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3 |
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11,838 |
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31 |
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The Netherlands |
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- |
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- |
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12,946 |
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34 |
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Other (c) |
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13,520 |
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5 |
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3,518 |
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9 |
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Total International |
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92,215 |
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37 |
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29,062 |
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76 |
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Total |
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$ |
249,428 |
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100 |
% |
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$ |
37,787 |
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100 |
% |
___________
(a) Reflects annualized contractual minimum base rent for the fourth quarter of 2012.
(b) Reflects our share of annualized contractual minimum base rent for the fourth quarter of 2012 from equity investments in real estate.
(c) Represents investments in Japan, Poland, and United Kingdom.
CPA®:17 Global 2012 10-K 4
Property Diversification
Information regarding our property diversification in our net-lease portfolio at December 31, 2012 is set forth below (dollars in thousands):
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Consolidated Investments |
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Equity Investments in Real Estate | ||||||||
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Annualized |
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% of Annualized |
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Annualized |
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% of Annualized | ||||
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Contractual |
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Contractual |
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Contractual |
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Contractual | ||||
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Minimum |
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Minimum |
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Minimum |
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Minimum | ||||
Property Type |
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Base Rent (a) |
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Base Rent |
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Base Rent (b) |
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Base Rent | ||||
Office |
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$ |
79,940 |
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32 |
% |
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$ |
- |
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- |
% |
Warehouse/Distribution |
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64,260 |
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26 |
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18,718 |
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50 |
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Retail |
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60,213 |
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24 |
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11,837 |
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31 |
| ||
Industrial |
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32,814 |
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13 |
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3,483 |
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9 |
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Educational Facilities |
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6,141 |
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2 |
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- |
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- |
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Automotive Dealerships |
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5,341 |
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2 |
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- |
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- |
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Self Storage |
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- |
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- |
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3,749 |
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10 |
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Other (c) |
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719 |
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1 |
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- |
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- |
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Total |
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$ |
249,428 |
|
100 |
% |
|
$ |
37,787 |
|
100 |
% |
___________
(a) Reflects annualized contractual minimum base rent for the fourth quarter of 2012.
(b) Reflects our share of annualized contractual minimum base rent for the fourth quarter of 2012 from equity investments in real estate.
(c) Includes annualized contractual minimum base rent of 1% or less from tenants in our consolidated investments in the following property types: health care and land.
CPA®:17 Global 2012 10-K 5
Tenant Diversification
Information regarding tenant diversification in our net-lease portfolio at December 31, 2012 is set forth below (dollars in thousands):
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Consolidated Investments |
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Equity Investments in Real Estate | ||||||||
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Annualized |
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% of Annualized |
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Annualized |
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% of Annualized | ||||
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Contractual |
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Contractual |
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Contractual |
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Contractual | ||||
|
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Minimum |
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Minimum |
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Minimum |
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Minimum | ||||
Tenant Industry (a) |
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Base Rent (b) |
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Base Rent |
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Base Rent (c) |
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Base Rent | ||||
Retail Stores |
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$ |
57,807 |
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23 |
% |
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$ |
13,331 |
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35 |
% |
Media: Printing and Publishing |
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36,961 |
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15 |
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- |
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- |
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Grocery |
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35,029 |
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14 |
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17,225 |
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46 |
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Transportation - Cargo |
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15,523 |
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6 |
|
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- |
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- |
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Insurance |
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11,276 |
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5 |
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- |
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- |
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Machine (Manufacturing) |
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10,221 |
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4 |
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- |
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- |
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Healthcare, Education and Childcare |
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9,960 |
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4 |
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- |
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- |
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Construction and Building |
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9,932 |
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4 |
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- |
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- |
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Electronics |
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8,471 |
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3 |
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- |
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- |
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Leisure, Amusement, Entertainment |
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6,124 |
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3 |
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- |
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- |
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Business and Commercial Services |
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6,084 |
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3 |
|
|
- |
|
- |
| ||
Chemicals, Plastics, Rubber, and Glass |
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5,803 |
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2 |
|
|
3,483 |
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9 |
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Beverages, Food, and Tobacco |
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5,613 |
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2 |
|
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- |
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- |
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Consumer Services |
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5,199 |
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2 |
|
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- |
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- |
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Consumer Goods |
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5,157 |
|
2 |
|
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- |
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- |
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Automobile |
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5,129 |
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2 |
|
|
- |
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- |
| ||
Textiles, Leather, and Apparel |
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4,908 |
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2 |
|
|
- |
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- |
| ||
Banking |
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4,065 |
|
2 |
|
|
- |
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- |
| ||
Transportation - Personal |
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2,377 |
|
1 |
|
|
1,312 |
|
4 |
| ||
Buildings and Real Estate |
|
538 |
|
- |
|
|
2,436 |
|
6 |
| ||
Other (d) |
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3,251 |
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1 |
|
|
- |
|
- |
| ||
Total |
|
$ |
249,428 |
|
100 |
% |
|
$ |
37,787 |
|
100 |
% |
___________
(a) Based on the Moodys Investors Service (Moodys) classification system and information provided by the tenant.
(b) Reflects annualized contractual minimum base rent for the fourth quarter of 2012.
(c) Reflects our share of annualized contractual minimum base rent for the fourth quarter of 2012 from equity investments in real estate.
(d) Includes annualized contractual minimum base rent of 1% or less from tenants in our consolidated investments in the following industries: forest products and paper, hotels and gaming, finance, telecommunications, and mining, metals and primary metal industries.
CPA®:17 Global 2012 10-K 6
Lease Expirations
At December 31, 2012, lease expirations of our net-leased properties were as follows (dollars in thousands):
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Consolidated Investments |
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Equity Investments in Real Estate | ||||||||
|
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Annualized |
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% of Annualized |
|
Annualized |
|
% of Annualized | ||||
|
|
Contractual |
|
Contractual |
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Contractual |
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Contractual | ||||
|
|
Minimum |
|
Minimum |
|
Minimum |
|
Minimum | ||||
Year of Lease Expiration |
|
Base Rent (a) |
|
Base Rent |
|
Base Rent (b) |
|
Base Rent | ||||
2013 2023 |
|
$ |
10,829 |
|
4 |
% |
|
$ |
1,493 |
|
4 |
% |
2024 |
|
35,507 |
|
14 |
|
|
7,268 |
|
19 |
| ||
2025 2027 |
|
43,183 |
|
17 |
|
|
12,946 |
|
34 |
| ||
2028 |
|
31,410 |
|
13 |
|
|
- |
|
- |
| ||
2029 |
|
13,383 |
|
5 |
|
|
- |
|
- |
| ||
2030 |
|
53,407 |
|
21 |
|
|
12,597 |
|
34 |
| ||
2031 |
|
17,372 |
|
8 |
|
|
- |
|
- |
| ||
2032 2034 |
|
44,337 |
|
18 |
|
|
3,483 |
|
9 |
| ||
Total |
|
$ |
249,428 |
|
100 |
% |
|
$ |
37,787 |
|
100 |
% |
___________
(a) Reflects annualized contractual minimum base rent for the fourth quarter of 2012.
(b) Reflects our share of annualized contractual minimum base rent for the fourth quarter of 2012 from equity investments in real estate.
Asset Management
Our advisor is generally responsible for all aspects of our operations, including selecting our investments, formulating and evaluating the terms of each proposed acquisition, arranging for the acquisition of the investment, negotiating the terms of borrowings, managing our day-to-day operations and arranging for and negotiating sales of assets. With respect to our net lease investments, asset management functions include restructuring transactions to meet the evolving needs of current tenants, re-leasing properties, refinancing debt, selling assets and utilizing knowledge of the bankruptcy process.
The advisor monitors compliance by tenants with their lease obligations and other factors that could affect the financial performance of any of our properties. Monitoring involves verifying that each tenant has paid real estate taxes, assessments and other expenses relating to the properties it occupies and confirming that appropriate insurance coverage is being maintained by the tenant. The advisor also utilizes third-party asset managers for certain domestic and international investments. The advisor reviews financial statements of our tenants and undertakes physical inspections of the condition and maintenance of our properties. Additionally, the advisor periodically analyzes each tenants financial condition, the industry in which each tenant operates and each tenants relative strength in its industry. With respect to other real estate related assets such as mortgage loans, B Notes and mezzanine loans, asset management operations include evaluating potential borrowers creditworthiness, operating history and capital structure. With respect to any investments in commercial mortgage-backed securities (CMBS) or other mortgage related instruments that we may make, the advisor will be responsible for selecting, acquiring and facilitating the acquisition or disposition of such investments, including monitoring the portfolio on an ongoing basis. Our advisor also monitors our portfolio to ensure that investments in equity and debt securities of companies engaged in real estate activities do not require us to register as an investment company.
Our board of directors has authorized our advisor to retain one or more subadvisors with expertise in our target asset classes to assist our advisor with investment decisions and asset management. If our advisor retains any subadvisor, our advisor will pay the subadvisor a portion of the fees that it receives from us.
Holding Period
We generally intend to hold each property we invest in for an extended period. The determination of whether a particular property should be sold or otherwise disposed of will be made after consideration of relevant factors, including prevailing economic conditions, with a view to achieving maximum capital appreciation for our stockholders or avoiding increases in risk. No assurance can be given that these objectives will be realized.
Our intention is to consider alternatives for providing liquidity for our stockholders generally commencing eight years following the investment of substantially all of the net proceeds from our initial public offering. We completed the investment of substantially all of
CPA®:17 Global 2012 10-K 7
the net proceeds from our initial public offering during 2011. We may provide liquidity for our stockholders through sales of assets, either on a portfolio basis or individually, a listing of our shares on a stock exchange, a merger (which may include a merger with one or more of the Managed REITs or our advisor) or another transaction approved by our board of directors and, if required by law, our stockholders. We are under no obligation to liquidate our portfolio within any particular period since the precise timing will depend on real estate and financial markets, economic conditions of the areas in which the properties are located and tax effects on stockholders that may prevail in the future. Furthermore, there can be no assurance that we will be able to consummate a liquidity event. In the most recent instance in which Managed REIT stockholders were provided with liquidity, CPA®:15 merged with and into a subsidiary of our advisor in September 2012. Prior to that, the liquidating entity merged with another, later-formed Managed REIT, as with the merger of Corporate Associates 14 Incorporated (CPA®:14) with CPA®:16 Global in May 2011. In each of these transactions, stockholders of the liquidating entity were offered the opportunity to exchange their shares for shares of the merged entity, cash and/or a short-term note.
Financing Strategies
Consistent with our investment policies, we use leverage when available on terms we believe are favorable. We generally borrow in the same currency that is used to pay rent on the property. This enables us to mitigate a portion of our currency risk on international investments. Substantially all of our mortgage loans provide for monthly or quarterly payments, which include scheduled payments of principal. At December 31, 2012, 67% of our mortgage financing bore interest at fixed rates. At December 31, 2012, a majority of our variable-rate debt bore interest that has been effectively converted to a fixed-rate through interest rate swap derivative instruments or has been subject to an interest rate cap, pursuant to the terms of the mortgage contracts. Accordingly, our near-term cash flow should not be adversely affected by increases in interest rates. The advisor may refinance properties or defease a loan when a decline in interest rates makes it profitable to prepay an existing mortgage loan, when an existing mortgage loan matures or if an attractive investment becomes available and the proceeds from the refinancing can be used to purchase the investment. There is no assurance that existing debt will be refinanced at lower rates of interest as the debt matures. The benefits of the refinancing may include an increased cash flow resulting from reduced debt service requirements, an increase in distributions from proceeds of the refinancing, if any, and/or an increase in property ownership if some refinancing proceeds are reinvested in real estate. We may be required to pay a yield maintenance premium, or a similar penalty, to the lender in order to pay off a loan prior to its maturity.
Our strategy is to borrow, generally, on a non-recourse basis. We currently estimate that we will borrow, on average, approximately 50%-60% of the value of our investments. Aggregate borrowings on our portfolio as a whole may not exceed, on average, the lesser of 75% of the total costs of all investments or 300% of our net assets unless the excess is approved by a majority of the independent directors and disclosed to stockholders in our next quarterly report, along with the reason for the excess. Net assets are our total assets (other than intangibles), valued at cost before deducting depreciation, reserves for bad debts and other non-cash reserves, less total liabilities.
A lender of non-recourse mortgage debt generally has recourse only to the asset collateralizing such debt and not to any of our other assets. The use of non-recourse debt, therefore, helps us to limit the exposure of our assets to the equity related to a single investment. While such lenders do not generally have recourse to our other assets, they may have such recourse in limited circumstances not related to the repayment of the indebtedness, such as under an environmental indemnity or in the case of fraud, or, in the case of loans to be securitized, certain additional events of default. Lenders may also seek to include in the terms of mortgage loans provisions making the termination or replacement of the advisor an event of default or an event requiring the immediate repayment of the full outstanding balance of the loan.
Most of our financing requires us to make a lump-sum or balloon payment at maturity. At December 31, 2012, scheduled balloon payments for the next five years were as follows (in thousands):
2013 (a) |
$ |
34,518 |
|
2014 (a) |
|
12,723 |
|
2015 (b) |
|
43,170 |
|
2016 (a) (b) |
|
269,851 |
|
2017 (a) (b) |
|
322,396 |
|
___________
(a) Excludes our share of scheduled balloon payments on non-recourse mortgage loans of equity investments in real estate totaling $79.2 million in 2013, $16.7 million in 2014, $19.7 million in 2016, and $95.6 million in 2017.
(b) Inclusive of amounts attributable to noncontrolling interests totaling $13.5 million in 2015, $8.3 million in 2016, and $0.9 million in 2017.
CPA®:17 Global 2012 10-K 8
Target Investments
Generally, most of our investments are long-term net leases. As opportunities arise, we may also seek to expand our portfolio to include other types of real estate investments, as described below.
We may compete for investment opportunities with WPC, other Managed REITs and entities that may in the future be managed by the advisor. Our advisor has undertaken in the advisory agreement to use its best efforts to present investment opportunities to us and to provide us with a continuing and suitable investment program. The advisor follows allocation guidelines set forth in the advisory agreement when allocating investments among us, WPC, the other Managed REITs and entities that our advisor may manage in the future. Each quarter, our independent directors review the allocations made by the advisor during the most recently-completed quarter. Compliance with the allocation guidelines is one of the factors that our independent directors expect to consider when considering whether to renew the advisory agreement each year.
Real Estate Properties
Long-Term Net Leased Assets
We invest primarily in income-producing properties that are, upon acquisition, improved or being developed or that are to be developed within a reasonable period after acquisition.
Most of our acquisitions are subject to long-term net leases and were acquired through sale-leaseback transactions, in which we acquire properties from companies that simultaneously lease the properties back from us. These sale-leaseback transactions provide the lessee company with a source of capital that is an alternative to other financing sources such as corporate borrowing, mortgaging real property, or selling shares of its stock.
Our sale-leaseback transactions may occur in conjunction with acquisitions, recapitalizations or other corporate transactions. We may act as one of several sources of financing for these transactions by purchasing real property from the seller and net leasing it back to the seller or its successor in interest (the lessee).
In analyzing potential net lease investment opportunities, the advisor reviews all aspects of a transaction, including the creditworthiness of the tenant or borrower and the underlying real estate fundamentals, to determine whether a potential acquisition satisfies our investment criteria. The advisor generally considers, among other things, the following aspects of each transaction:
Tenant/Borrower Evaluation The advisor evaluates each potential tenant or borrower for their creditworthiness, typically considering factors such as management experience, industry position and fundamentals, operating history and capital structure, as well as other factors that may be relevant to a particular investment. The advisor seeks opportunities in which it believes the tenant may have a stable or improving credit profile or credit potential that has not been recognized by the market. In evaluating a possible investment, the creditworthiness of a tenant or borrower often will be a more significant factor than the value of the underlying real estate, particularly if the underlying property is specifically suited to the needs of the tenant; however, in certain circumstances where the real estate is attractively valued, the creditworthiness of the tenant may be a secondary consideration. Whether a prospective tenant or borrower is creditworthy will be determined by the advisors investment department and its investment committee, as described below. Creditworthy does not mean investment grade, as defined by the credit rating agencies.
Properties Critical to Tenant/Borrower Operations The advisor generally focuses on properties that it believes are critical to the ongoing operations of the tenant. The advisor believes that these properties provide better protection generally as well as in the event of a bankruptcy, since a tenant or borrower is less likely to risk the loss of a critically important lease or property in a bankruptcy proceeding or otherwise.
Diversification The advisor attempts to diversify our portfolio to avoid dependence on any one particular tenant, borrower, collateral type, geographic location or tenant/borrower industry. By diversifying our portfolio, the advisor seeks to reduce the adverse effect of a single under-performing investment or a downturn in any particular industry or geographic region.
Lease Terms Generally, the net leased properties in which we invest will be leased on a full recourse basis to our tenants or their affiliates. In addition, the advisor generally seeks to include a clause in each lease that provides for increases in rent over the term of the lease. These increases are fixed or tied to increases in indices such as the CPI, or other similar index in the jurisdiction in which the property is located, but may contain caps or other limitations, either on an annual or overall basis. In the case of retail stores and hotels, the lease may provide for participation in gross revenues of the tenant at the property above a stated level, or percentage rent. Alternatively, a lease may provide for mandated rental increases on specific dates and the advisor may adopt other methods in the future.
CPA®:17 Global 2012 10-K 9
Real Estate Evaluation The advisor reviews the physical condition of the property and conducts a market evaluation to determine the likelihood of replacing the rental stream if the tenant defaults or of a sale of the property in such circumstances. The advisor will also generally engage third parties to conduct, or require the seller to conduct, Phase I or similar environmental site assessments (including a visual inspection for the potential presence of asbestos) in an attempt to identify potential environmental liabilities associated with a property prior to its acquisition. If potential environmental liabilities are identified, the advisor generally requires that identified environmental issues be resolved by the seller prior to property acquisition or, where such issues cannot be resolved prior to acquisition, requires tenants contractually to assume responsibility for resolving identified environmental issues after the acquisition and provide indemnification protections against any potential claims, losses or expenses arising from such matters. Although the advisor generally relies on its own analysis in determining whether to make an investment, each real property to be purchased by us will be appraised by an appraiser that is independent of the advisor, prior to acquisition. The contractual purchase price (plus acquisition fees, but excluding acquisition expenses, payable to the advisor) for a real property we acquire will not exceed its appraised value, unless approved by our independent directors. The appraisals may take into consideration, among other things, the terms and conditions of the particular lease transaction, the quality of the lessees credit and the conditions of the credit markets at the time the lease transaction is negotiated. The appraised value may be greater than the construction cost or the replacement cost of a property, and the actual sale price of a property if sold by us may be greater or less than the appraised value. In cases of special purpose real estate, a property is examined in light of the prospects for the tenant/borrowers enterprise and the financial strength and the role of that asset in the context of the tenant/borrowers overall viability. Operating results of properties and other collateral may be examined to determine whether or not projected income levels are likely to be met. The advisor considers factors particular to the laws of foreign countries, in addition to the risks normally associated with real property investments, when considering an investment outside the U.S.
Transaction Provisions to Enhance and Protect Value The advisor attempts to include provisions in our leases it believes may help protect our investment from changes in the operating and financial characteristics of a tenant that may affect its ability to satisfy its obligations to us or reduce the value of our investment. Such provisions include requiring our consent to specified tenant activity, requiring the tenant to provide indemnification protections, and requiring the tenant to satisfy specific operating tests. The advisor may also seek to enhance the likelihood of a tenants lease obligations being satisfied through a guaranty of obligations from the tenants corporate parent or other entity, security deposits, or through a letter of credit. This credit enhancement, if obtained, provides us with additional financial security. However, in markets where competition for net lease transactions is strong, some or all of these provisions may be difficult to obtain. In addition, in some circumstances, tenants may retain the right to repurchase the property leased by the tenant. The option purchase price is generally the greater of the contract purchase price or the fair market value of the property at the time the option is exercised.
Self-Storage Investments The advisor has a team of professionals dedicated to investments in the self-storage sector. The team, which was formed in 2006, combines a rigorous underwriting process and an active management of property managers with a goal to generate attractive risk adjusted returns. We have made several investments in self-storage properties.
Other Equity Enhancements The advisor may attempt to obtain equity enhancements in connection with transactions. These equity enhancements may involve warrants exercisable at a future time to purchase stock of the tenant or borrower or their parent. If warrants are obtained, and become exercisable, and if the value of the stock subsequently exceeds the exercise price of the warrant, equity enhancements can help us to achieve our goal of increasing investor returns.
Operating Real Estate
During 2010, we purchased a fee interest in a hotel with no third-party lessee. We have been granted a franchise license agreement from Marriott International Inc. to operate the property as a SpringHill Suites by Marriott. The hotel is managed by third parties, who receive management fees and a performance-based carried interest in the property. In addition, during 2012 and 2011, we entered into several investments for a total of 58 self-storage properties. These properties are managed by third parties who receive management fees.
Real Estate Related Assets
Opportunistic Investments
We may have opportunities to purchase non-long-term net leased real estate assets from corporations and other owners due to our market presence in the corporate real estate market-place. These may include short-term net leases, vacant property, land, multi-tenanted property, non-commercial property and property leased to non-related tenants.
CPA®:17 Global 2012 10-K 10
Mortgage Loans Collateralized by Commercial Real Properties
We have invested in, and may in the future invest in, commercial mortgages and other commercial real estate interests consistent with the requirements for qualification as a REIT. We may originate or acquire interests in mortgage loans, which may pay fixed or variable interest rates or have participating features. We may also invest in secured corporate loans, which are loans collateralized by real property, personal property connected to real property (i.e., fixtures) and/or personal property, on which another lender may hold a first priority lien.
B Notes
We may purchase from third parties, and may retain from mortgage loans we originate and securitize or sell, subordinated interests referred to as B Notes. B Notes share certain credit characteristics with second mortgages, in that both are subject to greater credit risk with respect to the underlying mortgage collateral than the corresponding first mortgage or A Note, and in consequence generally carry a higher rate of interest. When we acquire and/or originate B Notes, we may earn income on the investment, in addition to interest payable on the B Note, in the form of fees charged to the borrower under that note. Our ownership of a B Note with controlling class rights may, in the event the financing fails to perform according to its terms, cause us to elect to pursue our remedies as owner of the B Note, which may include foreclosure on, or modification of, the note. As a result, our economic and business interests may diverge from the interests of the holders of the A Note. These divergent interests among the holders of each investment may result in conflicts of interest.
We may also retain or acquire interests in A Notes and notes sometimes referred to as C Notes, which are junior to the B Notes.
Mezzanine Loans
We may invest in mezzanine loans. Investments in mezzanine loans take the form of subordinated loans secured by second mortgages on the underlying property or loans secured by a pledge of the ownership interests in the entity that directly or indirectly owns the property. Mezzanine loans may have elements of both debt and equity instruments, offering fixed returns in the form of interest payments and principal payments associated with senior debt, while providing lenders an opportunity to participate in the capital appreciation of a borrower, if any, through an equity interest. Due to their higher risk profile, and often less restrictive covenants as compared to senior loans, mezzanine loans generally earn a higher return than senior secured loans.
Commercial Mortgage-Backed Securities
We have invested in, and may in the future invest in, mortgage-backed securities and other mortgage related or asset-backed instruments, including CMBS issued or guaranteed by agencies of the U.S. Government, non-agency mortgage instruments, and collateralized mortgage obligations that are fully collateralized by a portfolio of mortgages or mortgage related securities to the extent consistent with the requirements for qualification as a REIT. In most cases, mortgage-backed securities distribute principal and interest payments on the mortgages to investors. Interest rates on these instruments can be fixed or variable. Some classes of mortgage-backed securities may be entitled to receive mortgage prepayments before other classes do. Therefore, the prepayment risk for a particular instrument may be different than for other mortgage-related securities. We have designated our CMBS investments as securities held to maturity. On a quarterly basis, we evaluate our CMBS to determine if they have experienced an other-than temporary decline in value.
Equity and Debt Securities of Companies Engaged in Real Estate Activities, including other REITs
We may invest in equity and debt securities (including common and preferred stock, as well as limited partnership or other interests) of companies engaged in real estate activities. Companies engaged in real estate activities and real estate related investments may include, for example, companies engaged in the net lease business, REITs that either own properties or make construction or mortgage loans, real estate developers, companies with substantial real estate holdings and other companies whose products and services are related to the real estate industry, such as building supply manufacturers, mortgage lenders or mortgage servicing companies. Such securities may or may not be readily marketable and may or may not pay current distributions. We may acquire all or substantially all of the securities or assets of companies engaged in real estate related activities where such investment would be consistent with our investment policies and our status as a REIT. In any event, we do not intend that our investments in securities will require us to register as an investment company under the Investment Company Act of 1940, as amended (the Investment Company Act), and we intend to generally divest appropriate securities before any such registration would be required.
Investment Decisions
The advisors investment department, under the oversight of its chief investment officer, is primarily responsible for evaluating, negotiating and structuring potential investment opportunities for the Managed REITs and WPC. The advisor also has an investment committee that provides services to the Managed REITs. Before an investment is made, the transaction is generally reviewed by the advisors investment committee, except under the limited circumstances described below. The investment committee is not directly involved in originating or negotiating potential investments but instead functions as a separate and final step in the investment process. The advisor places special emphasis on having experienced individuals serve on its investment committee. The advisor generally will not invest in a transaction on our behalf unless it is approved by the investment committee, except that investments with a total purchase price of $10.0 million or less may be approved by either the chairman of the investment committee or the advisors chief investment officer (up to, in the case of investments other than long-term net leases, a cap of $30.0 million or 5% of our estimated net asset value, whichever is greater, provided that such investments may not have a credit rating of less than BBB-). For transactions that meet the investment criteria of more than one Managed REIT, the chief investment officer has discretion to allocate the investment to or among the Managed REITs. In cases where two or more of the Managed REITs, or one or more of the Managed REITs and WPC, will hold the investment, a majority of our directors (including a majority of our independent directors) not otherwise interested in the transaction must also approve the allocation of the transaction.
The following people currently serve on the investment committee:
· Nathaniel S. Coolidge, Chairman Former senior vice president and head of the bond and corporate finance department of John Hancock Mutual Life Insurance (currently known as John Hancock Life Insurance Company). Mr. Coolidges responsibilities included overseeing its entire portfolio of fixed income investments and private equities.
· Axel K.A. Hansing Currently serving as a partner at Coller Capital, Ltd., a global leader in the private equity secondary market.
· Frank J. Hoenemeyer Former vice chairman and chief investment officer of the Prudential Insurance Company of America. As chief investment officer, he was responsible for all of Prudential Insurance Company of Americas investments including stocks, bonds and real estate.
· Jean Hoysradt Currently serving as the chief investment officer of Mousse Partners Limited (Mousse), an investment office based in New York, since 2001. Prior to joining Mousse, she served as Senior Vice President and head of Securities Investment and Treasury at New York Life Insurance Company.
· Richard C. Marston Currently the James R.F. Guy professor of Finance and Economics at the Wharton School of the University of Pennsylvania.
· Nick J.M. van Ommen Former chief executive officer of the European Public Real Estate Association (EPRA), currently serves on the supervisory boards of several companies, including Babis Vovos International Construction SA, a listed real estate company in Greece, Intervest Retail and Intervest Offices, listed real estate companies in Belgium and IMMOFINANZ, a listed real estate company in Austria.
· Dr. Karsten von Köller Currently chairman of Lone Star Germany GmbH, a U.S. private equity firm (Lone Star), Chairman of the Supervisory Boards of Düsseldorfer Hypothekenbank AG and MHB Bank AG, and Vice Chairman of the Supervisory Boards of IKB Deutsche Industriebank AG and Corealcredit Bank AG.
The advisor is required to use its best efforts to present a continuing and suitable investment program to us but is not required to present to us any particular investment opportunity, even if it is of a character that, if presented, could be taken by us.
Segments
We operate in one reportable segment, real estate ownership, with domestic and foreign investments. Revenue from our tenant Metro Cash & Carry Italia S.p.A (Metro) represented 13% of our total 2012 lease revenues. Revenue from our tenant The New York Times Company represented 12% of our total 2012 lease revenues, inclusive of noncontrolling interests.
Competition
We face active competition from many sources for investment opportunities in commercial properties net leased to major corporations both domestically and internationally. In general, we believe the advisors experience in real estate, credit underwriting and transaction structuring should allow us to compete effectively for commercial properties and other real estate related assets. However, competitors may be willing to accept rates of returns, lease terms, other transaction terms or levels of risk that we may find unacceptable.
Environmental Matters
We have invested, and expect to continue to invest, in properties currently or historically used as industrial, manufacturing and commercial properties. Under various federal, state and local environmental laws and regulations, current and former owners and operators of property may have liability for the cost of investigating, cleaning up or disposing of hazardous materials released at, on, under, in or from the property. These laws typically impose responsibility and liability without regard to whether the owner or operator knew of or was responsible for the presence of hazardous materials or contamination, and liability under these laws is often joint and several. Third parties may also make claims against owners or operators of properties for personal injuries and property damage associated with releases of hazardous materials. As part of our efforts to mitigate these risks, we typically engage third parties to perform assessments of potential environmental risks when evaluating a new acquisition of property, and we frequently obtain contractual protection (indemnities, cash reserves, letters of credit or other instruments) from property sellers, tenants, a tenants parent company or another third party to address known or potential environmental issues.
Transactions with Affiliates
We have entered, and expect in the future to enter, into transactions with our affiliates, including the other Managed REITs and our advisor or its affiliates, if we believe that doing so is consistent with our investment objectives and we comply with our investment policies and procedures. These transactions typically take the form of equity investments in jointly-owned entities, direct purchases of assets, mergers or another type of transaction. Like us, the other Managed REITs intend to consider alternatives for providing liquidity for their stockholders some years after they have invested substantially all of the net proceeds from their initial public offerings. Investments with affiliates of WPC are permitted only if a majority of our directors (including a majority of our independent directors) not otherwise interested in the transaction approve the allocation of the transaction among the affiliates as being fair and reasonable to us and the affiliate makes its investment on substantially the same terms and conditions as us.
On May 2, 2011, CPA®:14 merged with and into one of CPA®:16 Globals subsidiaries pursuant to an Agreement and Plan of Merger, dated as of December 13, 2010. In connection with this merger, we purchased interests in three investments from CPA®:14 for an aggregate purchase price of $55.7 million (Note 3).
(d) Financial Information About Geographic Areas
See Our Portfolio above and Note 16 for financial information pertaining to our geographic operations.
(e) Available Information
All filings we make with the SEC, including this Report, our quarterly reports on Form 10-Q, and our current reports on Form 8-K, and any amendments to those reports, are available for free on our website, http://www.cpa17global.com, as soon as reasonably practicable after they are filed or furnished to the SEC. Our SEC filings are available to be read or copied at the SECs Public Reference Room at 100 F Street, N.E., Washington, D.C. 20549. Information regarding the operation of the Public Reference Room can be obtained by calling the SEC at 1-800-SEC-0330. Our filings can also be obtained for free on the SECs Internet site at http://www.sec.gov. We are providing our website address solely for the information of investors. We do not intend our website to be an active link or to otherwise incorporate the information contained on our website into this report or other filings with the SEC. We will supply to any stockholder, upon written request and without charge, a copy of this Report as filed with the SEC.
Our business, results of operations, financial condition and ability to pay distributions at the current rate could be materially adversely affected by various risks and uncertainties, including the conditions below. These risk factors may have affected, and in the future could affect, our actual operating and financial results and could cause such results to differ materially from those in any forward-looking statements. You should not consider this list exhaustive. New risk factors emerge periodically, and we cannot assure you that the factors described below list all risks that may become material to us at any later time.
The financial and economic crisis in 2008 and 2009 adversely affected our business, and the continued uncertainty in the global economic environment may adversely affect our business in the future.
We are impacted by macro-economic environmental factors, the capital markets, and general conditions in the commercial real estate market, both in the U.S. and globally. During 2012 as compared to the prior year period, we observed slow improvement in the U.S. economy following the significant distress experienced in 2008 and 2009. Towards the end of 2012, however, there was an increase in international economic uncertainty as a result of the sovereign debt crisis and a deterioration of economic fundamentals in Europe. To
date, these crises have had a limited impact on our business, primarily in that a number of tenants have experienced increased levels of financial distress. Currently, conditions in the U.S. appear to have stabilized, while the situation in Europe remains uncertain.
If the economic situation worsens, we could in the future experience a number of additional effects on our business, including higher levels of default in the payment of rent by our tenants, additional bankruptcies and impairments in the value of our property investments, as well as difficulties in financing transactions and refinancing existing loans as they come due. Any of these conditions may negatively affect our earnings, as well as our cash flow and, consequently, our ability to sustain the payment of distributions at current levels.
Our earnings or cash flow may also be adversely affected by other events, such as increases in the value of the U.S. dollar relative to other currencies in which we receive rent. Additionally, our ability to make new investments will be affected by the availability of financing as well as the need to expend cash to fund increased redemptions.
Our distributions have exceeded, and may in the future, exceed our cash flow from operating activities and our earnings in accordance with accounting principles generally accepted in the U.S. (GAAP).
Over the life of our company, the regular quarterly cash distributions we pay are expected to be principally sourced by cash flow from operating activities as determined under GAAP. However, we have funded a portion of our cash distributions paid to date using net proceeds from our public offerings, and there can be no assurance that our GAAP cash flow from operating activities will be sufficient to cover our future distributions. We may use other sources of funds, such as proceeds from borrowings and asset sales, to fund portions of our future distributions. In addition, our distributions in 2012 exceeded, and future distributions may exceed, our GAAP earnings primarily because our GAAP earnings are affected by non-cash charges such as depreciation and impairments.
For U.S. federal income tax purposes, portions of the distributions we make may represent return of capital to our stockholders if they exceed our earnings and profits.
The offering price for shares being offered through our distribution reinvestment plan was determined by our board of directors and may not be indicative of the price at which the shares would trade if they were listed on an exchange or were actively traded by brokers.
The offering price of the shares being offered through our distribution reinvestment plan was determined by our board of directors in the exercise of its business judgment. This price may not be indicative of the price at which shares would trade if they were listed on an exchange or actively traded by brokers nor of the proceeds that a stockholder would receive if we were liquidated or dissolved nor of the value of our portfolio at the time the shares are purchased.
A delay in investing funds may adversely affect or cause a delay in our ability to deliver expected returns to investors and may adversely affect our performance.
We have not yet identified most of the assets to be purchased with the remaining proceeds of our follow-on offering and our distribution reinvestment plan; therefore, there could be a substantial delay between the time stockholders invested in our shares and the time substantially all the proceeds are invested by us. Delays in investing our capital could also arise from the fact that our advisor is simultaneously seeking to locate suitable investments for the other Managed REITs managed by our advisor and its affiliates and for itself. We currently expect that it may take up to one year after the termination of our offering until our capital is substantially invested. Pending investment, the balance of the proceeds of our offering will be invested in permitted temporary investments, which include short-term U.S. government securities, bank certificates of deposit and other short term liquid investments. The rate of return on those investments, which affects the amount of cash available to make distributions to stockholders, has been extremely low in recent years and most likely will be less than the return obtainable from real property or other investments. Therefore, delays in our ability to invest the proceeds of our offering could adversely affect our ability to pay distributions to our stockholders and adversely affect your total return. If we fail to timely invest the net proceeds of our offering or to invest in quality assets, our ability to achieve our investment objectives could be materially adversely affected.
We have recognized, and may in the future recognize, substantial impairment charges on our properties.
We have incurred, and may in the future incur, substantial impairment charges, which we are required to recognize whenever we sell a property for less than its carrying value or we determine that the carrying amount of the property is not recoverable and exceeds its fair value (or, for direct financing leases, that the unguaranteed residual value of the underlying property has declined or, for equity investments, that the estimated fair value of the investments underlying net assets in comparison with the carrying value of our interest in the investment has declined). By their nature, the timing and extent of impairment charges are not predictable. Impairment charges reduce our net income, although they do not necessarily affect our cash flow from operations.
Our board of directors may change our investment policies without stockholder approval, which could alter the nature of their investment.
Our charter requires that our independent directors review our investment policies at least annually to determine that the policies we are following are in the best interest of our stockholders. These policies may change over time. The methods of implementing our investment policies may also vary, as new investment techniques are developed. Our investment policies, the methods for their implementation, and our other objectives, policies and procedures may be altered by a majority of the directors (which must include a majority of the independent directors), without the approval of our stockholders. As a result, the nature of stockholders investment could change without their consent. A change in our investment strategy may, among other things, increase our exposure to interest rate risk, default risk and commercial real property market fluctuations, all of which could materially adversely affect our ability to achieve our investment objectives.
We are not required to meet any diversification standards; therefore, our investments may become subject to concentration of risk.
Subject to our intention to maintain our qualification as a REIT, there are no limitations on the number or value of particular types of investments that we may make. We are not required to meet any diversification standards, including geographic diversification standards. Our investments may become concentrated in type or geographic location, which could subject us to significant concentration of risk with potentially adverse effects on our investment objectives. Approximately 13% and 12% of our lease revenues in 2012 was derived from our leases with Metro and The New York Times Company, respectively. A failure by either Metro or The New York Times Company to meet its obligations to us could have a material adverse effect on our financial condition and results of operations and on our ability to pay distributions to our stockholders.
Our success is dependent on the performance of our advisor.
Our ability to achieve our investment objectives and to pay distributions is largely dependent upon the performance of our advisor in the acquisition of investments, the selection of tenants, the determination of any financing arrangements, and the management of our assets. The advisory agreement currently in effect has a one year term and may be renewed at our option upon expiration. The past performance of partnerships and REITs managed by our advisor may not be indicative of our advisors performance with respect to us. We cannot guarantee that our advisor will be able to successfully manage and achieve liquidity for our stockholders to the extent it has done so for prior programs.
We may invest in assets outside our advisors core expertise and incur losses as a result.
We are not restricted in the types of investments we may make and we may invest in assets outside our advisors core expertise of long-term net leased properties. Our advisor may not be as familiar with the potential risks of investments outside net leased properties. If we invest in assets outside our advisors core expertise, the fact that our advisor does not have the same level of experience in evaluating investments outside its core business could result in such investments performing more poorly than long-term net lease investments, which in turn could adversely affect our revenues, net asset values, and distributions to stockholders.
WPC and our dealer manager are parties to a settlement agreement with the SEC and are subject to a federal court injunction as well as a consent order with the Maryland Division of Securities.
In 2008, WPC and Carey Financial, the dealer manager for our public offerings, settled all matters relating to an investigation by the SEC, including matters relating to payments by certain CPA® REITs other than us during 2000-2003 to broker-dealers that distributed their shares, which were alleged by the SEC to be undisclosed underwriting compensation, which WPC and Carey Financial neither admitted nor denied. In connection with implementing the settlement, a federal court injunction has been entered against WPC and Carey Financial enjoining them from violating a number of provisions of the federal securities laws. Any further violation of these laws by WPC or Carey Financial could result in civil remedies, including sanctions, fines and penalties, which may be more severe than if the violation had occurred without the injunction being in place. Additionally, if WPC or Carey Financial breaches the terms of the injunction, the SEC may petition the court to vacate the settlement and restore the SECs original action to the active docket for all purposes.
The settlement is not binding on other regulatory authorities, including the Financial Industry Regulatory Authority (FINRA), which regulates Carey Financial, state securities regulators, or other regulatory organizations, which may seek to commence proceedings or take action against WPC or its affiliates on the basis of the settlement or otherwise.
In 2012, CPA®:15, WPC and Carey Financial (the Parties) settled all matters relating to an investigation by the state of Maryland regarding the sale of unregistered securities of CPA®:15 in 2002 and 2003. Under the consent order, the Parties agreed, without admitting or denying liability, to cease and desist from any further violations of selling unregistered securities in Maryland. Contemporaneous with the issuance of the consent order, the Parties paid to the Maryland Division of Securities a civil penalty of $10,000.
Additional regulatory action, litigation or governmental proceedings could adversely affect us by, among other things, distracting WPC from its duties to us, resulting in significant monetary damages to WPC that could adversely affect its ability to perform services for us, or resulting in injunctions or other restrictions on WPCs ability to act as our advisor in the U.S. or in one or more states.
Exercising our right to repurchase all or a portion of Carey Holdings interests in our operating partnership upon certain termination events could be prohibitively expensive and could deter us from terminating the advisory agreement.
The termination of Carey Asset Management Corp. (Carey Asset Management) as our advisor, including by non-renewal of the advisory agreement, and replacement with an entity that is not an affiliate of Carey Asset Management, or the resignation of our advisor for good reason, all after two years from the start of operations of our operating partnership, would give our operating partnership the right, but not the obligation, to repurchase all or a portion of Carey Holdings interests in our operating partnership at the fair market value of those interests on the date of termination, as determined by an independent appraiser. This repurchase could be prohibitively expensive, could require the operating partnership to have to sell assets to raise sufficient funds to complete the repurchase and could discourage or deter us from terminating the advisory agreement. Alternatively, if our operating partnership does not exercise its repurchase right and Carey Holdings interest is converted into a special limited partnership interest, we might be unable to find another entity that would be willing to act as our advisor while Carey Holdings owns a significant interest in the operating partnership. If we do find another entity to act as our advisor, we may be subject to higher fees than the fees charged by Carey Asset Management.
The repurchase of Carey Holdings special general partner interest in our operating partnership upon the termination of Carey Asset Management as our advisor may discourage a takeover attempt if our advisory agreement would be terminated and Carey Asset Management not be replaced by an affiliate of Carey Asset Management as our advisor in connection therewith.
In the event of a merger in which our advisory agreement is terminated and Carey Asset Management is not replaced by an affiliate of Carey Asset Management as our advisor, the operating partnership must either repurchase all or a portion of Carey Holdings special general partner interest in our operating partnership or obtain the consent of Carey Holdings to the merger. This obligation may deter a transaction that could result in a merger in which we are not the surviving entity. This deterrence may limit the opportunity for stockholders to receive a premium for their shares of common stock that might otherwise exist if an investor were to attempt to acquire us through a merger.
The termination or replacement of our advisor could trigger a default or repayment event under our financing arrangements for some of our assets.
Lenders for certain of our assets may request change of control provisions in the loan documentation that would make the termination or replacement of WPC or its affiliates as our advisor an event of default or an event requiring the immediate repayment of the full outstanding balance of the loan. If an event of default or repayment event occurs with respect to any of our assets, our revenues and distributions to our stockholders may be adversely affected.
Payment of fees to our advisor, and distributions to our special general partner, will reduce cash available for investment and distribution.
Our advisor will perform services for us in connection with the selection and acquisition of our investments, the management and leasing of our properties and the administration of our other investments. Unless our advisor elects to receive shares of our common stock in lieu of cash compensation, we will pay our advisor substantial cash fees for these services. In addition, our special general partner is entitled to certain distributions from our operating partnership. The payment of these fees and distributions will reduce the amount of cash available for investments or distribution to our stockholders.
Our advisor and its affiliates may be subject to conflicts of interest.
Our advisor manages our business and selects our investments. Our advisor and its affiliates have potential conflicts of interest in their dealings with us. Circumstances under which a conflict could arise between us and our advisor and its affiliates include:
· the receipt of compensation by our advisor for acquisitions of investments, leases, sales and financing for us, which may cause our advisor to engage in transactions that generate higher fees, rather than transactions that are more appropriate or beneficial for our business;
· agreements between us and our advisor, including agreements regarding compensation, will not be negotiated on an arms-length basis as would occur if the agreements were with unaffiliated third parties;
· acquisitions of single assets or portfolios of assets from affiliates, including the other Managed REITs, subject to our investment policies and procedures, which may take the form of a direct purchase of assets, a merger or another type of transaction;
· competition with W. P. Carey and entities managed by it for investment acquisitions. All such conflicts of interest will be resolved by our advisor. Although our advisor is required to use its best efforts to present a continuing and suitable investment program to us, decisions as to the allocation of investment opportunities present conflicts of interest, which may not be resolved in the manner that is most favorable to our interests;
· a decision by our advisor (on our behalf) of whether to hold or sell an asset. This decision could impact the timing and amount of fees payable to our advisor as well as allocations and distributions payable to the Special General Partner pursuant to its special general partner interests. On the one hand, our advisor receives asset management fees and may decide not to sell an asset. On the other hand, Special General Partner will be entitled to certain profit allocations and cash distributions based upon sales of assets as a result of its operating partnership profits interest;
· business combination transactions, including mergers, with W. P. Carey or another Managed REIT;
· decisions regarding liquidity events, which may entitle our advisor and its affiliates to receive additional fees and distributions in respect of the liquidations;
· a recommendation by our advisor that we declare distributions at a particular rate because our advisor and Special General Partner may begin collecting subordinated fees once the applicable preferred return rate has been met;
· disposition fees based on the sale price of assets and interests in disposition proceeds based on net cash proceeds from sale, exchange or other disposition of assets may cause a conflict between the advisors desire to sell an asset and our plans to hold or sell the asset;
· the termination of the advisory agreement and other agreements with our advisor and its affiliates; and
· affiliates of our advisor own approximately 1.3% of our outstanding common stock, which gives the advisor significant influence over our affairs even if we were to terminate the advisory agreement. There can be no assurance that such affiliates will act in accordance with our interests when exercising the voting power of their shares, including in connection with a change of control or liquidity transaction
We face competition from unrelated parties for the investments we make.
We face competition for the acquisition of commercial properties and real estate-related assets from insurance companies, credit companies, pension funds, private individuals, investment companies and other REITs. We also face competition from institutions that provide or arrange for other types of commercial financing through private or public offerings of equity or debt or traditional bank financings. These institutions may accept greater risk or lower returns, allowing them to offer more attractive terms to prospective tenants. In addition, our advisors evaluation of the acceptability of rates of return on our behalf will be affected by our relative cost of capital. Thus, to the extent our fee structure and cost of fundraising is higher than those of our competitors, we may be limited in the amount of new acquisitions we are able to make.
We delegate our management functions to the advisor.
We delegate our management functions to the advisor, for which it earns fees pursuant to an advisory agreement. Although at least a majority of our board of directors must be independent, because the advisor earns fees from us and has an ownership interest in us, we have limited independence from the advisor.
We face competition from affiliates of our advisor, and our advisor itself, in the purchase, sale, lease and operation of properties.
WPC and its affiliates specialize in providing lease financing services to corporations and in sponsoring funds, such as the CPA® REITs, and to a lesser extent CWI, that invest in real estate. In addition, on September 28, 2012, W. P. Carey announced the completion of its conversion to a real estate investment trust and the merger with CPA®:15. WPC and the other operating CPA® REITs have investment policies and return objectives that are similar to ours and they and CWI are currently actively seeking
opportunities to invest capital. Therefore, WPC and its affiliates, including CPA®:16 Global, CWI, and future entities advised by WPC, may compete with us with respect to properties, potential purchasers, sellers and lessees of properties, and mortgage financing for properties. We do not have a non-competition agreement with WPC, CPA®:16 Global, or CWI and there are no restrictions on WPCs ability to sponsor or manage funds or other investment vehicles that may compete with us in the future. Some of the entities formed and managed by WPC may be focused specifically on particular types of investments and receive preference in the allocation of those types of investments.
If we internalize our management functions, the percentage of our outstanding common stock owned by our other stockholders could be reduced, and we could incur other significant costs associated with being self-managed.
In the future, our board of directors may consider internalizing the functions performed for us by our advisor. The method by which we could internalize these functions could take many forms. There is no assurance that internalizing our management functions will be beneficial to us and our stockholders. An acquisition of our advisor could also result in dilution of your interests as a stockholder and could reduce earnings per share and funds from operations per share. Additionally, we may not realize the perceived benefits or we may not be able to properly integrate a new staff of managers and employees or we may not be able to effectively replicate the services provided previously by our advisor, property manager or their affiliates. Internalization transactions, including without limitation transactions involving the acquisition of advisors or property managers affiliated with entity sponsors, have also, in some cases, been the subject of litigation. Even if these claims are without merit, we could be forced to spend significant amounts of money defending claims which would reduce the amount of funds available for us to invest in properties or other investments and to pay distributions. All of these factors could have a material adverse effect on our results of operations, financial condition and ability to pay distributions.
Our advisor may hire subadvisors in areas where our advisor is seeking additional expertise. Stockholders will not be able to review these subadvisors, and our advisor may not have sufficient expertise to monitor the subadvisors.
Our advisor has the right to appoint one or more subadvisors with expertise in our target asset classes to assist our advisor with investment decisions and asset management. We do not have control over which subadvisors our advisor may choose and our advisor may not have the necessary expertise to effectively monitor the subadvisors investment decisions.
Our ability to control the management of our net-leased properties may be limited.
The tenants or managers of net leased properties are responsible for maintenance and other day-to-day management of the properties. If a property is not adequately maintained in accordance with the terms of the applicable lease, we may incur expenses for deferred maintenance expenditures or other liabilities once the property becomes free of the lease. A bankrupt or financially troubled tenant may be more likely to defer maintenance and it may be more difficult to enforce remedies, including those provided in the applicable lease, against such a tenant. In addition, to the extent tenants are unable to conduct their operation of the property on a financially successful basis, their ability to pay rent may be adversely affected. Monitoring of compliance by tenants with their lease obligations and other factors that could affect the financial performance of our properties may not in all circumstances ascertain or forestall deterioration either in the condition of a property or the financial circumstances of a tenant.
We may incur material losses on some of our investments.
Our objective is to generate attractive risk adjusted returns, which means that we will take on risk in order to achieve higher returns. We expect that we will incur losses on some of our investments. Some of those losses could be material.
Our participation in equity investments in jointly-owned entities creates additional risk.
From time to time we participate in equity investments in jointly-owned entities and purchase assets jointly with the other operating Managed REITs and/or WPC and may do so as well with third parties. There are additional risks involved in such investment transactions. As a co-investor in a joint investment, we would not be in a position to exercise sole decision-making authority relating to the property, the jointly-owned entity or other entity.
In addition, there is the potential of our investment partner becoming bankrupt and the possibility of diverging or inconsistent economic or business interests of us and our partner. These diverging interests could result in, among other things, exposing us to liabilities of the investment in excess of our proportionate share of these liabilities. The partition rights of each owner in a jointly-owned property could reduce the value of each portion of the divided property. In addition, the fiduciary obligation that our advisor or members of our board may owe to our partner in an affiliated transaction may make it more difficult for us to enforce our rights.
Our operations could be restricted if we become subject to the Investment Company Act and your investment return, if any, may be reduced if we are required to register as an investment company under the Investment Company Act.
A person will generally be deemed to be an investment company for purposes of the Investment Company Act if:
· it is or holds itself out as being engaged primarily, or proposes to engage primarily, in the business of investing, reinvesting or trading in securities; or
· it owns or proposes to acquire investment securities having a value exceeding 40% of the value of its total assets (exclusive of U.S. government securities and cash items) on an unconsolidated basis, which is referred to as the 40% test.
We believe that we are engaged primarily in the business of acquiring and owning interests in real estate. We hold ourselves out as a real estate firm and do not propose to engage primarily in the business of investing, reinvesting or trading in securities. Accordingly, we do not believe that we are an orthodox investment company as defined in Section 3(a)(1)(A) of the Investment Company Act and described in the first bullet point above. Further, following this offering, we will have no material assets other than our 99.97% ownership interest in the operating partnership. Excepted from the term investment securities for purposes of the 40% test described above, are securities issued by majority-owned subsidiaries, such as our operating partnership, that are not themselves investment companies and are not relying on the exception from the definition of investment company set forth in Section 3(c)(1) or Section 3(c)(7) of the Investment Company Act.
Our operating partnership relies upon the exemption from registration as an investment company pursuant to Section 3(c)(5)(C) of the Investment Company Act, which is available for entities primarily engaged in the business of purchasing or otherwise acquiring mortgages and other liens on and interests in real estate. This exemption generally requires that at least 55% of the operating partnerships assets must be comprised of qualifying real estate assets and at least 80% of its portfolio must be comprised of qualifying real estate assets and real estate-related assets. Qualifying assets for this purpose include mortgage loans and other assets, including certain mezzanine loans, B Notes and C Notes, that the SEC staff in various no-action letters has affirmed can be treated as qualifying assets. We treat as real estate-related assets CMBS, debt and equity securities of companies primarily engaged in real estate businesses and securities issued by pass-through entities of which substantially all the assets consist of qualifying assets and/or real estate-related assets. We rely on guidance published by the SEC staff or on our analyses of guidance published with respect to other types of assets to determine which assets are qualifying real estate assets and real estate-related assets. To the extent that the SEC staff publishes new or different guidance with respect to these matters, we may be required to adjust our strategy accordingly. In addition, we may be limited in our ability to make certain investments and these limitations could result in the operating partnership holding assets we might wish to sell or selling assets we might wish to hold.
We may use derivative financial instruments to hedge against interest rate and currency fluctuations, which could reduce the overall returns on your investment.
We may use derivative financial instruments to hedge exposures to changes in interest rates and currency rates. These instruments involve risk, such as the risk that counterparties may fail to perform under the terms of the derivative contract or that such arrangements may not be effective in reducing our exposure to interest rate changes. In addition, the possible use of such instruments may reduce the overall return on our investments. These instruments may also generate income that may not be treated as qualifying REIT income for purposes of the 75% or 95% REIT income test.
International investment risks may adversely affect our operations and our ability to make distributions.
We have purchased and may in the future purchase properties and/or assets secured by properties or interests in properties located outside the U.S. At December 31, 2012, our directly-owned real estate properties located outside of the U.S. represented 37% of current annualized contractual minimum base rent. Foreign real estate investments involve certain risks not generally associated with investments in the U.S. These risks include unexpected changes in regulatory requirements, political and economic instability in certain geographic locations, potential imposition of adverse or confiscatory taxes, possible challenges to the anticipated tax treatment of the structures through which we acquire and hold investments, possible currency transfer restrictions, expropriation of investments, difficulty in enforcing obligations in other countries and the burden of complying with a wide variety of foreign laws. Each of these risks might adversely affect our performance and impair our ability to make distributions to our stockholders that are required in order to maintain our REIT qualification. In addition, there is less publicly available information about foreign companies and a lack of uniform financial accounting standards and practices (including the availability of information in accordance with GAAP), which could impair our ability to analyze transactions and receive timely and accurate financial information from tenants necessary to meet our reporting obligations to financial institutions or governmental or regulatory agencies. Certain of these risks may be greater in emerging markets and less developed countries.
We have invested, and may in the future invest, in new geographic areas that have risks that are greater or less well known to our advisor, and we may incur losses as a result.
We have purchased, and may in the future purchase, properties and assets secured by properties located outside the U.S., Europe, and Asia. Our advisors expertise to date is primarily in the U.S., Europe, and Asia and our advisor has less experience in other international markets. Our advisor may not be as familiar with the potential risks to our investments outside the U.S., Europe, and Asia, and we could incur losses as a result.
We will incur debt to finance our operations, which may subject us to an increased risk of loss.
We will incur debt to finance our operations. The leverage we employ will vary depending on our ability to obtain credit facilities, the loan-to-value and debt service coverage ratios of our assets, the yield on our assets, the targeted leveraged return we expect from our investment portfolio and our ability to meet ongoing covenants related to our asset mix and financial performance. Our return on our investments and cash available for distribution to our stockholders may be reduced to the extent that changes in market conditions cause the cost of our financing to increase relative to the income that we can derive from the assets we acquire.
Debt service payments may reduce the net income available for distributions to our stockholders. Moreover, we may not be able to meet our debt service obligations and, to the extent that we cannot, we risk the loss of some or all of our assets to foreclosure or sale to satisfy our debt obligations. Our charter or bylaws do not restrict the form of indebtedness we may incur.
The inability of a tenant in a single tenant property to pay rent will reduce our revenues and increase our expenses.
Most of our commercial real estate properties are occupied by a single tenant, and therefore the success of our investments is materially dependent on the financial stability of these tenants. Revenues from several of our tenants/guarantors constitute a significant percentage of our lease revenues. Our five largest tenants/guarantors represented approximately 47.0%, 49.1%, and 57.6% of total lease revenues in 2012, 2011 and 2010, respectively. Lease payment defaults by tenants could negatively impact our net income and reduce the amounts available for distributions to our stockholders. A default of a tenant on its lease payment to us could cause us to lose the revenue from the property and require us to find an alternative source of revenue to meet any mortgage payment and prevent a foreclosure if the property is subject to a mortgage. In the event of a default, we may experience delays in enforcing our rights as landlord and may incur substantial costs in protecting our investment and re-leasing our property. If a lease is terminated, there is no assurance that we will be able to re-lease the property for the rent previously received or sell the property without incurring a loss. Approximately 13% and 12% of our lease revenues in 2012 was derived from our leases with Metro and The New York Times Company, respectively. A failure by either Metro or The New York Times Company to meet its obligations to us could have a material adverse effect on our financial condition and results of operations and on our ability to pay distributions to our stockholders.
The bankruptcy or insolvency of tenants or borrowers may cause a reduction in revenue.
Bankruptcy or insolvency of a tenant or borrower could cause:
· the loss of lease or interest and principal payments;
· an increase in the costs incurred to carry the asset;
· litigation;
· a reduction in the value of our shares; and
· a decrease in distributions to our stockholders.
Under U.S. bankruptcy law, a tenant who is the subject of bankruptcy proceedings has the option of assuming or rejecting any unexpired lease. If the tenant rejects the lease, any resulting claim we have for breach of the lease (excluding collateral securing the claim) will be treated as a general unsecured claim. The maximum claim will be capped at the amount owed for unpaid rent prior to the bankruptcy unrelated to the termination, plus the greater of one years lease payments or 15% of the remaining lease payments payable under the lease (but no more than three years lease payments). In addition, due to the long-term nature of our leases and, in some cases, terms providing for the repurchase of a property by the tenant, a bankruptcy court could recharacterize a net lease transaction as a secured lending transaction. If that were to occur, we would not be treated as the owner of the property, but we might have rights as a secured creditor. Those rights would not include a right to compel the tenant to timely perform its obligations under the lease but may instead entitle us to adequate protection, a bankruptcy concept that applies to protect against a decrease in the value of the property if the value of the property is less than the balance owed to us.
Insolvency laws outside of the U.S. may not be as favorable to reorganization or to the protection of a debtors rights as tenants under a lease as are the laws in the U.S. Our rights to terminate a lease for default may be more likely to be enforceable in countries other than the U.S., in which a debtor/ tenant or its insolvency representative may be less likely to have rights to force continuation of a
lease without our consent. Nonetheless, such laws may permit a tenant or an appointed insolvency representative to terminate a lease if it so chooses.
However, in circumstances where the bankruptcy laws of the U.S. are considered to be more favorable to debtors and to their reorganization, entities that are not ordinarily perceived as U.S. entities may seek to take advantage of the U.S. bankruptcy laws if they are eligible. An entity would be eligible to be a debtor under the U.S. bankruptcy laws if it had a domicile (state of incorporation or registration), place of business or assets in the U.S. If a tenant became a debtor under the U.S. bankruptcy laws, then it would have the option of assuming or rejecting any unexpired lease. As a general matter, after the commencement of bankruptcy proceedings and prior to assumption or rejection of an expired lease, U.S. bankruptcy laws provide that until an unexpired lease is assumed or rejected, the tenant (or its trustee if one has been appointed) must timely perform obligations of the tenant under the lease. However, under certain circumstances, the time period for performance of such obligations may be extended by an order of the bankruptcy court.
We and the other Managed REITs managed by the advisor have had tenants (including several international tenants) file for bankruptcy protection in the past and have been involved in bankruptcy-related litigation. Four prior CPA® REITs reduced the rate of distributions to their investors as a result of adverse developments involving tenants.
Similarly, if a borrower under one of our loan transactions declares bankruptcy, there may not be sufficient funds to satisfy its payment obligations to us, which may adversely affect our revenue and distributions to our stockholders. The mortgage loans in which we may invest and the mortgage loans underlying the CMBS in which we may invest may be subject to delinquency, foreclosure and loss, which could result in losses to us.
Highly leveraged tenants may have a higher possibility of filing for bankruptcy or insolvency.
Highly leveraged tenants that experience downturns in their operating results due to adverse changes to their business or economic conditions may have a higher possibility of filing for bankruptcy or insolvency. In bankruptcy or insolvency, a tenant may have the option of vacating a property instead of paying rent. Until such a property is released from bankruptcy, our revenues may be reduced and could cause us to reduce distributions to stockholders.
The credit profiles of our tenants may create a higher risk of lease defaults and therefore lower revenues.
Generally, no credit rating agencies evaluate or rank the debt or the credit risk of many of our tenants, as we seek tenants that we believe will have stable or improving credit profiles that have not been recognized by the traditional credit market. Our long-term leases with certain of these tenants may therefore pose a higher risk of default than would long-term leases with tenants whose credit is rated highly by a rating agency.
We may incur costs to finish build-to-suit properties.
We may acquire undeveloped land or partially developed buildings for the purpose of owning to-be-built facilities for a prospective tenant. The primary risks of a build-to-suit project are potential for failing to meet an agreed-upon delivery schedule and cost-overruns, which may among other things, cause the total project costs to exceed the original appraisal. In some cases, the prospective tenant will bear these risks. However, in other instances we may be required to bear these risks, which means that we may have to advance funds to cover cost-overruns that we would not be able to recover through increased rent payments or that we may experience delays in the project that delay commencement of rent. We will attempt to minimize these risks through guaranteed maximum price contracts, review of contractor financials and completed plans and specifications prior to commencement of construction. The incurrence of the costs described above or any non-occupancy by the tenant upon completion may reduce the projects and our portfolios returns or result in losses to us.
A potential change in U.S. accounting standards regarding operating leases may make the leasing of facilities less attractive to our potential domestic tenants, which could reduce overall demand for our leasing services.
A lease is classified by a tenant as a capital lease if the significant risks and rewards of ownership are considered to reside with the tenant. This situation is considered to be met if, among other things, the non-cancelable lease term is more than 75% of the useful life of the asset or if the present value of the minimum lease payments equals 90% or more of the leased propertys fair value. Under capital lease accounting for a tenant, both the leased asset and liability are reflected on their balance sheet. If the lease does not meet any of the criteria for a capital lease, the lease is considered an operating lease by the tenant and the obligation does not appear on the tenants balance sheet; rather, the contractual future minimum payment obligations are only disclosed in the footnotes thereto. Thus, entering into an operating lease can appear to enhance a tenants balance sheet in comparison to direct ownership. In response to concerns caused by a 2005 SEC study that the current model does not have sufficient transparency, the Financial Accounting Standards Board (FASB) and the International Accounting Standards Board (IASB) issued an Exposure Draft on a joint proposal
that would dramatically transform lease accounting from the existing model. The FASB and IASB met during the third quarter of 2012 and voted to re-expose the proposed standard. A revised exposure draft for public comment is currently expected to be issued in 2013, with a final standard is currently expected to be issued during 2014. As of the date of this Report, the proposed guidance has not yet been finalized. Changes to the accounting guidance could affect both our and the Managed REITs accounting for leases as well as that of our and the Managed REITs tenants. These changes would impact most companies but are particularly applicable to those that are significant users of real estate. The proposal outlines a completely new model for accounting by lessees, whereby their rights and obligations under all leases, existing and new, would be capitalized and recorded on the balance sheet. For some companies, the new accounting guidance may influence whether or not, or the extent to which, they may enter into the type of sale-leaseback transactions in which we specialize.
We are subject, in part, to the risks of real estate ownership, which could reduce the value of our properties.
Our performance and asset value are subject, in part, to risks incident to the ownership and operation of real estate, including:
· changes in the general economic climate;
· changes in local conditions such as an oversupply of space or reduction in demand for commercial real estate;
· changes in interest rates and the availability of financing; and
· changes in laws and governmental regulations, including those governing real estate usage, zoning and taxes.
We may have difficulty selling or re-leasing our properties and this lack of liquidity may limit our ability to quickly change our portfolio in response to changes in economic or other conditions.
Real estate investments generally have less liquidity compared to other financial assets and this lack of liquidity may limit our ability to quickly change our portfolio in response to changes in economic or other conditions. The leases we may enter into or acquire may be for properties that are specially suited to the particular needs of our tenant. With these properties, if the current lease is terminated or not renewed, we may be required to renovate the property or to make rent concessions in order to lease the property to another tenant. In addition, if we are forced to sell the property, we may have difficulty selling it to a party other than the tenant due to the special purpose for which the property may have been designed. These and other limitations may affect our ability to sell properties without adversely affecting returns to our stockholders. See Item 1 Business Our Portfolio for scheduled lease expirations.
Potential liability for environmental matters could adversely affect our financial condition.
Our properties currently are used for industrial, manufacturing, and other commercial purposes, and some of our tenants may handle hazardous or toxic substances, generate hazardous wastes, or discharge regulated pollutants to the environment. We therefore may own properties that have known or potential environmental contamination as a result of historical or ongoing operations. Buildings and structures on the properties we purchase may have known or suspected asbestos-containing building materials. We may invest in properties located in countries that have adopted laws or observe environmental management standards that are less stringent than those generally followed in the U.S., which may pose a greater risk that releases of hazardous or toxic substances have occurred to the environment. Leasing properties to tenants that engage in these activities, and owning properties historically and currently used for industrial, manufacturing, and commercial purposes, will cause us to be subject to the risk of liabilities under environmental laws. Some of these laws could impose the following on us:
· responsibility and liability for the costs of investigation, and removal or remediation of hazardous or toxic substances released on or from our real property, generally without regard to our knowledge of, or responsibility for, the presence of these contaminants;
· liability for the costs of investigation and removal or remediation of hazardous substances at disposal facilities for persons who arrange for the disposal or treatment of such substances;
· liability for claims by third parties based on damages to natural resources or property, personal injuries, or costs of removal or remediation of hazardous or toxic substances in, on, or migrating from our property; and
· responsibility for managing asbestos-containing building materials, and third-party claims for exposure to those materials.
Our costs of investigation, remediation or removal of hazardous or toxic substances, or for third-party claims for damages, may be substantial. The presence of hazardous or toxic substances on one of our properties, or the failure to properly remediate a contaminated property, could give rise to a lien in favor of the government for costs it may incur to address the contamination, or otherwise adversely affect our ability to sell or lease the property or to borrow using the property as collateral. In addition, environmental liabilities, or costs or operating limitations imposed on a tenant to comply with environmental laws, could affect its ability to make rental payments to us. Also, we may be required, in connection with any future divestitures of property, to provide buyers with indemnification against potential environmental liabilities.
Liability for uninsured losses could adversely affect our financial condition.
Losses from disaster-type occurrences (such as wars, terrorist activities, floods or earthquakes) may be either uninsurable or not insurable on economically viable terms. Should an uninsured loss or a loss in excess of the limits of our insurance occur, we could lose our capital investment and/or anticipated profits and cash flow from one or more investments, which in turn could cause the value of the shares and distributions to our stockholders to be reduced.
Valuations that we obtain may include leases in place on the property being appraised, and if the leases terminate, the value of the property may become significantly lower.
The initial appraisals that we obtain on our properties are generally based on the value of the properties when they are leased. If the leases on the properties terminate, the value of the properties may fall significantly below the appraised value, which could result in impairment charges on the properties.
The mortgage loans in which we may invest and the mortgage loans underlying the CMBS in which we may invest will be subject to delinquency, foreclosure and loss, which could result in losses to us.
The ability of a borrower to repay a loan secured by an income-producing property typically is dependent primarily upon the successful operation of the property rather than upon the existence of independent income or assets of the borrower. If the net operating income of the property is reduced, the borrowers ability to repay the loan may be impaired. Net operating income of an income-producing property can be affected by the risks particular to real property described above, as well as, among other things:
· tenant mix;
· success of tenant businesses;
· property management decisions;
· property location and condition;
· competition from comparable types of properties;
· changes in specific industry segments;
· declines in regional or local real estate values, or rental or occupancy rates; and
· increases in interest rates, real estate tax rates and other operating expenses.
In the event of any default under a mortgage loan (or any financing lease or net lease that is recharacterized as a mortgage loan) held directly by us, we will bear a risk of loss of principal to the extent of any deficiency between the value of the collateral and the principal and accrued interest of the mortgage loan, which could have a material adverse effect on our ability to achieve our investment objectives, including, without limitation, diversification of our commercial real estate properties portfolio by property type and location, moderate financial leverage, low to moderate operating risk and an attractive level of current income. In the event of the bankruptcy of a mortgage loan borrower (or any tenant under a financing lease or a net lease that is recharacterized as a mortgage loan), the mortgage loan (or any financing lease or net lease that is recharacterized as a mortgage loan) to that borrower will be deemed to be secured only to the extent of the value of the underlying collateral at the time of bankruptcy (as determined by the bankruptcy court), and the lien securing the mortgage loan will be subject to the avoidance powers of the bankruptcy trustee or debtor-in-possession to the extent the lien is unenforceable under state law. Foreclosure of a mortgage loan (or any financing lease or net lease that is recharacterized as a mortgage loan) can be an expensive and lengthy process that could have a substantial negative effect on our anticipated return on the foreclosed mortgage loan.
The B Notes, C Notes, subordinate mortgage notes, mezzanine loans and participation interests in mortgage and mezzanine loans in which we may invest may be subject to risks relating to the structure and terms of the transactions, as well as subordination in bankruptcy, and there may not be sufficient funds or assets remaining to satisfy the subordinate notes in which we may have invested, which may result in losses to us.
We may invest in B Notes, C Notes, subordinate mortgage notes, mezzanine loans and participation interests in mortgage and mezzanine loans, to the extent consistent with our investment guidelines and the rules applicable to REITs. These investments are subordinate to first mortgages on commercial real estate properties and are secured by subordinate rights to the commercial real estate properties or by equity interests in the commercial entity. If a borrower defaults or declares bankruptcy, after senior obligations are met, there may not be sufficient funds or assets remaining to satisfy the subordinate notes in which we may have invested. Because each transaction is privately negotiated, B Notes, C Notes and subordinate mortgage notes can vary in their structural characteristics and lender rights. Our rights to control the default or bankruptcy process following a default will vary from transaction to transaction. The subordinate real estate-related debt in which we intend to invest may not give us the right to demand foreclosure. Furthermore, the presence of intercreditor agreements may limit our ability to amend our loan documents, assign our loans, accept prepayments, exercise our remedies and control decisions made in bankruptcy proceedings relating to borrowers. Bankruptcy and borrower
litigation can significantly increase the time needed for us to acquire underlying collateral in the event of a default, during which time the collateral may decline in value. In addition, there are significant costs and delays associated with the foreclosure process. The Internal Revenue Service (IRS) has issued restrictive guidance as to when a loan secured by equity in an entity will be treated as a qualifying REIT asset. Failure to comply with such guidance could jeopardize our ability to continue to qualify as a REIT.
Interest rate fluctuations and changes in prepayment rates could reduce our ability to generate income on our investments in commercial mortgage loans.
The yield on our investments in commercial mortgage loans may be sensitive to changes in prevailing interest rates and changes in prepayment rates. Therefore, changes in interest rates may affect our net interest income, which is the difference between the interest income we earn on our interest-earning investments and the interest expense we incur in financing these investments. We will often price loans at a spread to either U.S. Treasury obligations, swaps or the London Inter-Bank Offered Rate, or LIBOR. A decrease in these indexes may lower the yield on our investments. Conversely, if these indexes rise materially, borrowers may become delinquent or default on the high-leverage loans we occasionally target. As discussed below with respect to mortgage loans underlying CMBS, when a borrower prepays a mortgage loan more quickly than we expect, our expected return on the investment generally will be adversely affected.
An increase in prepayment rates of the mortgage loans underlying our CMBS investments may adversely affect the profitability of our investment in these securities.
The CMBS investments we may acquire will be secured by pools of mortgage loans. When we acquire CMBS, we anticipate that the underlying mortgage loans will be prepaid at a projected rate generating an expected yield. When borrowers prepay their mortgage loans more quickly than we expect, it results in redemptions that are earlier than expected on the CMBS, and this may adversely affect the expected returns on our investments. Prepayment rates generally increase when interest rates fall and decrease when interest rates rise, but changes in prepayment rates are difficult to predict. Prepayment rates also may be affected by conditions in the housing and financial markets, general economic conditions and the relative interest rates on fixed-rate and adjustable-rate mortgage loans.
As the holder of CMBS, a portion of our investment principal will be returned to us if and when the underlying mortgage loans are prepaid. In order to continue to earn a return on this returned principal, we must reinvest it in other mortgage-backed securities or other investments. If interest rates are falling, however, we may earn a lower return on the new investment as compared to the original CMBS.
We may invest in subordinate CMBS, which are subject to a greater risk of loss than more senior securities.
We may invest in a variety of subordinate CMBS, to the extent consistent with our investment guidelines and the rules applicable to REITs. The ability of a borrower to make payments on a loan underlying these securities is dependent primarily upon the successful operation of the property rather than upon the existence of independent income or assets of the borrower. In the event of default and the exhaustion of any equity support, reserve fund, letter of credit and any classes of securities junior to those in which we invest, we may not be able to recover all of our investment in the securities we purchase.
Expenses of enforcing the underlying mortgage loans (including litigation expenses), expenses of protecting the properties securing the mortgage loans and the lien on the mortgaged properties and, if such expenses are advanced by the servicer of the mortgage loans, interest on such advances will also be allocated to junior securities prior to allocation to more senior classes of securities issued in the securitization. Prior to the reduction of distributions to more senior securities, distributions to the junior securities may also be reduced by payments of compensation to any servicer engaged to enforce a defaulted mortgage loan. Such expenses and servicing compensation may be substantial and consequently, in the event of a default or loss on one or more mortgage loans contained in a securitization, we may not recover our investment.
In times of economic distress, such as the recent downturn, the risk of loss on our investments in subordinated CMBS could increase. In 2009 and 2012, we incurred a significant impairment charge on our CMBS investments. The prices of lower credit-quality securities are generally less sensitive to interest rate changes than more highly rated investments but are more sensitive to adverse economic downturns or individual property developments. An economic downturn or a projection of an economic downturn could cause a decline in the price of lower credit quality securities because the ability of obligors of mortgage loans underlying mortgage-backed securities to make principal and interest payments may be impaired. In such event, existing credit support to a securitized structure may be insufficient to protect us against loss of our principal on these securities.
Investments in B Notes and C Notes may be subject to additional risks relating to the privately negotiated structure and terms of the transaction, which may result in losses to us.
We may invest in B Notes and C Notes. A B Note is a mortgage loan typically (i) secured by a first mortgage on a single large commercial property or group of related properties and (ii) subordinated to an A Note secured by the same first mortgage on the same collateral. As a result, if a borrower defaults, there may not be sufficient funds remaining for B Note owners after payment to the A Note owners. B Notes, including C Notes, which are junior to B Notes, reflect similar credit risks to comparably rated CMBS. However, since each transaction is privately negotiated, B Notes can vary in their structural characteristics and risks. For example, the rights of holders of B Notes to control the process following a borrower default may be limited in certain investments. We cannot predict the terms of each B Note investment. Further, B Notes typically are secured by a single property and so reflect the increased risks associated with a single property compared to a pool of properties. B Notes also are less liquid than CMBS, and thus we may be unable to dispose of underperforming or non-performing investments. The higher risks associated with our subordinate position in B Note investments could subject us to increased risk of losses.
Investment in non-conforming and non-investment grade loans may involve increased risk of loss.
We may acquire or originate certain loans that do not conform to conventional loan criteria applied by traditional lenders and are not rated or are rated as non-investment grade (for example, for investments rated by Moodys, ratings lower than Baa3, and for Standard & Poors, BBB- or below). The non-investment grade ratings for these loans typically result from the overall leverage of the loans, the lack of a strong operating history for the properties underlying the loans, the borrowers credit history, the properties underlying cash flow or other factors. As a result, these loans we may originate or acquire have a higher risk of default and loss than conventional loans. Any loss we incur may reduce distributions to our stockholders. There are no limits on the percentage of unrated or non-investment grade assets we may hold in our portfolio.
Investments in mezzanine loans involve greater risks of loss than senior loans secured by income producing properties.
We may invest in mezzanine loans. Investments in mezzanine loans take the form of subordinated loans secured by second mortgages on the underlying property or loans secured by a pledge of the ownership interests in the entity that directly or indirectly owns the property. These types of investments involve a higher degree of risk than a senior mortgage loan because the investment may become unsecured as a result of foreclosure by the senior lender. In the event of a bankruptcy of the entity providing the pledge of its ownership interests as security, we may not have full recourse to the assets of the property owning entity, or the assets of the entity may not be sufficient to satisfy our mezzanine loan. If a borrower defaults on our mezzanine loan or debt senior to our loan, or in the event of a borrower bankruptcy, our mezzanine loan will be satisfied only after the senior debt is paid in full. As a result, we may not recover some or all of our investment, which could result in losses. In addition, mezzanine loans may have higher loan-to-value ratios than conventional mortgage loans, resulting in less equity in the property and increasing the risk of loss of principal.
Our investments in debt securities are subject to specific risks relating to the particular issuer of securities and to the general risks of investing in subordinated real estate securities.
Our investments in debt securities involve special risks. REITs generally are required to invest substantially in real estate or real estate-related assets and are subject to the inherent risks associated with real estate-related investments discussed in this Report. Our investments in debt are subject to the risks described above with respect to mortgage loans and mortgage-backed securities and similar risks, including:
· risks of delinquency and foreclosure, and risks of loss in the event thereof;
· the dependence upon the successful operation of and net income from real property;
· risks generally incident to interests in real property; and
· risk that may be presented by the type and use of a particular commercial property.
Debt securities are generally unsecured and may also be subordinated to other obligations of the issuer. We may also invest in debt securities that are rated below investment grade. As a result, investment in debt securities are also subject to risks of:
· limited liquidity in the secondary trading market;
· substantial market price volatility resulting from changes in prevailing interest rates;
· subordination to the prior claims of banks and other senior lenders to the issuer;
· the operation of mandatory sinking fund or call/redemption provisions during periods of declining interest rates that could cause the issuer to reinvest premature redemption proceeds in lower yielding assets;
· the possibility that earnings of the debt security issuer may be insufficient to meet its debt service; and
· the declining creditworthiness and potential for insolvency of the issuer of such debt securities during periods of rising interest rates and economic downturn.
The risks may adversely affect the value of outstanding debt securities and the ability of the issuers thereof to repay principal and interest.
Investments in loans collateralized by non-real estate assets create additional risk and may adversely affect our REIT qualification.
We may in the future invest in secured corporate loans, which are loans collateralized by real property, personal property connected to real property (i.e., fixtures) and/or personal property, on which another lender may hold a first priority lien. If a default occurs, the value of the collateral may not be sufficient to repay all of the lenders that have an interest in the collateral. Our right in bankruptcy will be different for these loans than typical net lease transactions. To the extent that loans are collateralized by personal property only, or to the extent the value of the real estate collateral is less than the aggregate amount of our loans and equal or higher-priority loans secured by the real estate collateral, that portion of the loan will not be considered a real estate asset for purposes of the 75% REIT asset test. Also, income from that portion of such a loan will not qualify under the 75% REIT income test for REIT qualification.
Investments in securities of REITs, real estate operating companies and companies with significant real estate assets will expose us to many of the same general risks associated with direct real property ownership.
Investments we may make in other REITs, real estate operating companies and companies with significant real estate assets, directly or indirectly through other real estate funds, will be subject to many of the same general risks associated with direct real property ownership. In particular, equity REITs may be affected by changes in the value of the underlying property owned by us, while mortgage REITs may be affected by the quality of any credit extended. Since REIT investments, however, are securities, they also may be exposed to market risk and price volatility due to changes in financial market conditions and changes as discussed below.
The value of the equity securities of companies engaged in real estate activities that we may invest in may be volatile and may decline.
The value of equity securities of companies engaged in real estate activities, including those of REITs, fluctuates in response to issuer, political, market and economic developments. In the short term, equity prices can fluctuate dramatically in response to these developments. Different parts of the market and different types of equity securities can react differently to these developments and they can affect a single issuer, multiple issuers within an industry or economic sector or geographic region or the market as a whole. These fluctuations in value could result in significant gains or losses being reported in our financial statements because we will be required to mark such investments to market periodically.
The real estate industry is sensitive to economic downturns. The value of securities of companies engaged in real estate activities can be adversely affected by changes in real estate values and rental income, property taxes, interest rates, and tax and regulatory requirements. In addition, the value of a REITs equity securities can depend on the structure and amount of cash flow generated by the REIT. It is possible that our investments in securities may decline in value even though the obligor on the securities is not in default of its obligations to us.
We are not required to complete a liquidity event by a specified date. The lack of an active public trading market for our shares combined with the limit on the number of our shares a person may own may discourage a takeover and make it difficult for stockholders to sell shares quickly.
There is no active public trading market for our shares, and we do not expect there ever will be one. Moreover, we are not required to complete a liquidity event by a specified date. Our charter also prohibits the ownership by one person or affiliated group of more than 9.8% in value of our stock or more than 9.8% in value or number, whichever is more restrictive, of our outstanding shares of common stock, unless exempted by our board of directors, to assist us in meeting the REIT qualification rules, among other things. This limit on the number of our shares a person may own may discourage a change of control of us and may inhibit individuals or large investors from desiring to purchase your shares by making a tender offer for your shares through offers financially attractive to you. Moreover, you should not rely on our redemption plan as a method to sell shares promptly because our redemption plan includes numerous restrictions that limit your ability to sell your shares to us, and our board of directors may amend, suspend or terminate our redemption plan, without giving you advance notice. In particular, the redemption plan provides that we may redeem shares only if we have sufficient funds available for redemption and to the extent the total number of shares for which redemption is requested in any quarter, together with the aggregate number of shares redeemed in the preceding three fiscal quarters, does not exceed five percent of the total
number of our shares outstanding as of the last day of the immediately preceding fiscal quarter. Therefore, it will be difficult for you to sell your shares promptly or at all. In addition, the price received for any shares sold prior to a liquidity event is likely to be less than the proportionate value of the real estate we own. Investor suitability standards imposed by certain states may also make it more difficult to sell your shares to someone in those states. As a result, our shares should be purchased as a long-term investment only.
Failing to continue to qualify as a REIT would adversely affect our operations and ability to make distributions.
If we fail to continue to qualify as a REIT in any taxable year, we would be subject to U.S. federal income tax on our net taxable income at corporate rates. In addition, we would generally be disqualified from treatment as a REIT for the four taxable years following the year we lost our REIT qualification. Losing our REIT qualification would reduce our net earnings available for investment or distribution to stockholders because of the additional tax liability, and we would no longer be required to make distributions. We might be required to borrow funds or liquidate some investments in order to pay the applicable tax.
Qualification as a REIT involves the application of highly technical and complex Internal Revenue Code provisions for which there are only limited judicial and administrative interpretations. The determination of various factual matters and circumstances not entirely within our control may affect our ability to qualify as a REIT. In order to qualify as a REIT, we must satisfy a number of requirements regarding the composition of our assets and the sources of our gross income. Also, we must make distributions to our stockholders aggregating annually at least 90% of our REIT net taxable income, excluding net capital gains. Because we have investments in foreign real property, we are subject to foreign currency gains and losses. Foreign currency gains may or may not be taken into account for purposes of the REIT income requirements. In addition, legislation, new regulations, administrative interpretations or court decisions may adversely affect our investors, our ability to qualify as a REIT for U.S. federal income tax purposes or the desirability of an investment in a REIT relative to other investments.
The IRS may take the position that specific sale-leaseback transactions we treat as true leases are not true leases for U.S. federal income tax purposes but are, instead, financing arrangements or loans. If a sale-leaseback transaction were so recharacterized, we might fail to satisfy the qualification requirements applicable to REITs.
We do not operate our hotel and, as a result, we do not have complete control over implementation of our strategic decisions.
In order for us to satisfy certain REIT qualification rules, we cannot directly operate our hotel. Instead, we must engage an independent management company to operate our hotel. Our taxable REIT subsidiaries (TRSs), engage independent management companies as the property manager for our hotel, as required by the REIT qualification rules. The management company operating our hotel makes and implements strategic business decisions, such as decisions with respect to the repositioning of the franchise or food and beverage operations and other similar decisions. Decisions made by the management company operating the hotel may not be in the best interests of the hotel or us. Accordingly, we cannot assure you that the management company operating our hotel will operate it in a manner that is in our best interests.
Distributions payable by REITs generally do not qualify for reduced U.S. federal income tax rates because qualifying REITs do not pay U.S. federal income tax on their undistributed net income.
The maximum U.S. federal income tax rate for distributions payable by domestic corporations to taxable U.S. stockholders is 20% under current law. Distributions payable by REITs, however, are generally not eligible for the reduced rates, except to the extent that they are attributable to distributions paid by a TRS or a C corporation, or relate to certain other activities. This is because qualifying REITs receive an entity level tax benefit from not having to pay U.S. federal income tax on their undistributed net income. As a result, the more favorable rates applicable to regular corporate distributions could cause stockholders who are individuals to perceive investments in REITs to be relatively less attractive than investments in the stocks of non-REIT corporations that pay distributions, which could adversely affect the value of the stock of REITs, including our common stock. In addition, the relative attractiveness of real estate in general may be adversely affected by the reduced U.S. federal income tax rates applicable to corporate distributions, which could negatively affect the value of our properties.
Our board of directors may revoke our REIT election without stockholder approval, which may cause adverse consequences to our stockholders.
Our organizational documents permit our board of directors to revoke or otherwise terminate our REIT election, without the approval of our stockholders, if the board determines that it is not in our best interest to qualify as a REIT. In such a case, we would become subject to U.S. federal income tax on our net taxable income and we would no longer be required to distribute most of our net taxable income to our stockholders, which may have adverse consequences on the total return to our stockholders.
Conflicts of interest may arise between holders of our common shares and holders of partnership interests in our operating partnership.
Our directors and officers have duties to us and to our stockholders under Maryland law in connection with their management of us. At the same time, because our operating partnership was formed in Delaware, we as general partner will have fiduciary duties under Delaware law to our operating partnership and to the limited partners in connection with the management of our operating partnership. Our duties as general partner of our operating partnership and its partners may come into conflict with the duties of our directors and officers to us and our stockholders.
Under Delaware law, a general partner of a Delaware limited partnership owes its limited partners the duties of good faith and fair dealing. Other duties, including fiduciary duties, may be modified or eliminated in the partnerships partnership agreement. The partnership agreement of our operating partnership provides that, for so long as we own a controlling interest in our operating partnership, any conflict that cannot be resolved in a manner not adverse to either our stockholders or the limited partners will be resolved in favor of our stockholders.
Additionally, the partnership agreement expressly limits our liability by providing that we and our officers, directors, employees and designees will not be liable or accountable to our operating partnership for losses sustained, liabilities incurred or benefits not derived if we or our officers, directors, agents, employees or designees, as the case may be, acted in good faith. In addition, our operating partnership is required to indemnify us and our officers, directors, agents, employees and designees to the extent permitted by applicable law from and against any and all claims arising from operations of our operating partnership, unless it is established that: (1) the act or omission was committed in bad faith, was fraudulent or was the result of active and deliberate dishonesty; (2) the indemnified party actually received an improper personal benefit in money, property or services; or (3) in the case of a criminal proceeding, the indemnified person had reasonable cause to believe that the act or omission was unlawful. These limitations on liability do not supersede the indemnification provisions of our charter.
The provisions of Delaware law that allow the fiduciary duties of a general partner to be modified by a partnership agreement have not been tested in a court of law, and we have not obtained an opinion of counsel covering the provisions set forth in the partnership agreement that purport to waive or restrict our fiduciary duties.
Maryland law could restrict a change in control, which could have the effect of inhibiting a change in control even if a change in control were in our stockholders interest.
Provisions of Maryland law applicable to us prohibit business combinations with:
· any person who beneficially owns 10% or more of the voting power of our outstanding voting shares, referred to as an interested stockholder;
· an affiliate who, at any time within the two-year period prior to the date in question, was the beneficial owner of 10% or more of the voting power of our outstanding shares, also referred to as an interested stockholder; or
· an affiliate of an interested stockholder.
These prohibitions last for five years after the most recent date on which the interested stockholder became an interested stockholder. Thereafter, any business combination must be recommended by our board of directors and approved by the affirmative vote of at least 80% of the votes entitled to be cast by holders of our outstanding voting shares and two-thirds of the votes entitled to be cast by holders of our voting shares other than voting shares held by the interested stockholder or by an affiliate or associate of the interested stockholder. These requirements could have the effect of inhibiting a change in control even if a change in control were in our stockholders interest. These provisions of Maryland law do not apply, however, to business combinations that are approved or exempted by our board of directors prior to the time that someone becomes an interested stockholder. In addition, a person is not an interested stockholder if the board of directors approved in advance the transaction by which he or she otherwise would have become an interested stockholder. However, in approving a transaction, the board of directors may provide that its approval is subject to compliance, at or after the time of approval, with any terms and conditions determined by the board.
Our charter permits our board of directors to issue stock with terms that may subordinate the rights of the holders of our current common stock or discourage a third party from acquiring us.
Our board of directors may determine that it is in our best interest to classify or reclassify any unissued stock and establish the preferences, conversion or other rights, voting powers, restrictions, limitations as to distributions, qualifications, and terms or conditions of redemption of any such stock. Thus, our board of directors could authorize the issuance of such stock with terms and conditions that could subordinate the rights of the holders of our common stock or have the effect of delaying, deferring or preventing a change in control of us, including an extraordinary transaction (such as a merger, tender offer or sale of all or substantially all of our
assets) that might provide a premium price for holders of our common stock. However, the issuance of preferred stock must also be approved by a majority of independent directors not otherwise interested in the transaction, who will have access at our expense to our legal counsel or to independent legal counsel. In addition, the board of directors, with the approval of a majority of the entire board and without any action by the stockholders, may amend our charter from time to time to increase or decrease the aggregate number of shares or the number of shares of any class or series that we have authority to issue. If our board of directors determines to take any such action, it will do so in accordance with the duties it owes to holders of our common stock.
Our revenues from our operating real estate are significantly influenced by demand for self-storage space generally, and a decrease in such demand would likely have an adverse effect on such revenues.
A decrease in the demand for self-storage space would have an adverse effect on our revenues from our operating real estate. Demand for self-storage space has been and could be adversely affected by ongoing weakness in the national, regional and local economies, changes in supply of, or demand for, similar or competing self-storage facilities in an area and the excess amount of self-storage space in a particular market. To the extent that any of these conditions occur, they are likely to affect market rents for self-storage space, which could cause a decrease in our revenue. Our revenues from our operating real estate represented approximately 8.3% of our total revenues in 2012.
Item 1B. Unresolved Staff Comments.
None.
Our principal corporate offices are located at 50 Rockefeller Plaza, New York, NY 10020. The advisor also has its primary international investment offices located in London and Amsterdam. The advisor also has office space domestically in Dallas, Texas and internationally in Shanghai. The advisor leases all of these offices and believes these leases are suitable for our operations for the foreseeable future.
See Item 1, Business Our Net-Leased Portfolio for a discussion of the properties we hold for rental operations and Part II, Item 8, Financial Statements and Supplemental Data Schedule III Real Estate and Accumulated Depreciation for a detailed listing of such properties.
At December 31, 2012, we were not involved in any material litigation.
Various claims and lawsuits arising in the normal course of business are pending against us. The results of these proceedings are not expected to have a material adverse effect on our consolidated financial position or results of operations.
Item 4. Mine Safety Disclosures.
Not applicable.
CPA®:17 Global 2012 10-K 29
Item 5. Market for Registrants Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities.
Unlisted Shares and Distributions
There is no active public trading market for our shares. At March 4, 2013, there were approximately 83,323 holders of record of our shares.
We are required to distribute annually at least 90% of our distributable REIT net taxable income to maintain our status as a REIT. Quarterly distributions declared by us for the past two years are as follows:
|
|
Years Ended December 31, |
| ||||
|
|
2012 |
|
2011 |
| ||
First quarter |
|
$ |
0.1625 |
|
$ |
0.1600 |
|
Second quarter |
|
0.1625 |
|
0.1625 |
| ||
Third quarter |
|
0.1625 |
|
0.1625 |
| ||
Fourth quarter |
|
0.1625 |
|
0.1625 |
| ||
|
|
$ |
0.6500 |
|
$ |
0.6475 |
|
Unregistered Sales of Equity Securities
For the three months ended December 31, 2012, we issued 507,012 shares of our common stock to the advisor as consideration for asset management fees. These shares were issued at $10.00 per share, which represents our follow-on offering price. Since none of these transactions were considered to have involved a public offering within the meaning of Section 4(a)(2) of the Securities Act, the shares issued were deemed to be exempt from registration. In acquiring our shares, the advisor represented that such interests were being acquired by it for the purposes of investment and not with a view to the distribution thereof.
All prior sales of unregistered securities have been previously reported on quarterly reports on Form 10-Q.
Issuer Purchases of Equity Securities
|
|
|
|
|
|
|
|
Maximum number (or |
| |
|
|
|
|
|
|
Total number of shares |
|
approximate dollar value) |
| |
|
|
|
|
|
|
purchased as part of |
|
of shares that may yet be |
| |
|
|
Total number of |
|
Average price |
|
publicly announced |
|
purchased under the |
| |
2012 Period |
|
shares purchased (a) |
|
paid per share |
|
plans or program (a) |
|
plans or program (a) |
| |
October |
|
- |
|
$ |
- |
|
N/A |
|
N/A |
|
November |
|
- |
|
- |
|
N/A |
|
N/A |
| |
December |
|
503,642 |
|
9.45 |
|
N/A |
|
N/A |
| |
Total |
|
503,642 |
|
|
|
|
|
|
| |
___________
(a) Represents shares of our common stock repurchased under our redemption plan, pursuant to which we may elect to redeem shares at the request of our stockholders who have held their shares for at least one year from the date of their issuance, subject to certain exceptions, conditions and limitations. The maximum amount of shares purchasable by us in any period depends on a number of factors and is at the discretion of our board of directors. The redemption plan will terminate if and when our shares are listed on a national securities market. We satisfied the above redemption requests during the fourth quarter, inclusive of 20,000 shares requested during the third quarter of 2012. We satisfied all redemption requests received in 2012.
CPA®:17 Global 2012 10-K 30
Item 6. Selected Financial Data.
The following selected financial data should be read in conjunction with the consolidated financial statements and related notes in Item 8 (in thousands, except per share data):
|
|
Years Ended December 31, |
| |||||||||||||
|
|
2012 |
|
2011 |
|
2010 |
|
2009 (b) |
|
2008 |
| |||||
Operating Data |
|
|
|
|
|
|
|
|
|
|
| |||||
Total revenues (a) |
|
$ |
294,043 |
|
$ |
196,121 |
|
$ |
99,463 |
|
$ |
50,346 |
|
$ |
9,684 |
|
Income (loss) from continuing operations |
|
67,329 |
|
68,891 |
|
45,756 |
|
2,180 |
|
(1,650) |
| |||||
Net income (loss) |
|
68,153 |
|
70,446 |
|
45,787 |
|
2,180 |
|
(1,650) |
| |||||
Add: Net (income) loss attributable to noncontrolling interests |
|
(26,542) |
|
(20,791) |
|
(15,333) |
|
(9,881) |
|
403 |
| |||||
Net income (loss) attributable to CPA®:17 Global stockholders |
|
41,611 |
|
49,655 |
|
30,454 |
|
(7,701) |
|
(1,247) |
| |||||
|
|
|
|
|
|
|
|
|
|
|
| |||||
Income (loss) per share: |
|
|
|
|
|
|
|
|
|
|
| |||||
Net income (loss) attributable to CPA®:17 Global stockholders |
|
0.17 |
|
0.28 |
|
0.27 |
|
(0.14) |
|
(0.07) |
| |||||
|
|
|
|
|
|
|
|
|
|
|
| |||||
Cash distributions declared per share |
|
0.6500 |
|
0.6475 |
|
0.6400 |
|
0.6324 |
|
0.5578 |
| |||||
|
|
|
|
|
|
|
|
|
|
|
| |||||
Balance Sheet Data |
|
|
|
|
|
|
|
|
|
|
| |||||
Total assets |
|
$ |
4,416,299 |
|
$ |
3,045,812 |
|
$ |
1,998,255 |
|
$ |
1,067,872 |
|
$ |
479,072 |
|
Net investments in real estate (c) |
|
3,097,865 |
|
2,374,773 |
|
1,426,907 |
|
698,332 |
|
273,314 |
| |||||
Long-term obligations (d) |
|
1,659,698 |
|
1,177,002 |
|
687,297 |
|
308,830 |
|
137,181 |
| |||||
|
|
|
|
|
|
|
|
|
|
|
| |||||
Other Information |
|
|
|
|
|
|
|
|
|
|
| |||||
Net cash provided by operating activities |
|
$ |
157,275 |
|
$ |
101,515 |
|
$ |
69,518 |
|
$ |
35,348 |
|
$ |
4,443 |
|
Cash distributions paid |
|
147,649 |
|
102,503 |
|
60,937 |
|
27,193 |
|
5,196 |
| |||||
Payments of mortgage principal (e) |
|
17,525 |
|
14,136 |
|
6,541 |
|
4,494 |
|
540 |
|
___________
(a) Certain prior year amounts have been reclassified from continuing operations to discontinued operations.
(b) Net loss in 2009 reflects impairment charges totaling $26.8 million, inclusive of amounts attributable to noncontrolling interests totaling $2.8 million.
(c) Net investments in real estate consists of Net investments in properties, Net investments in direct financing leases, Real estate under construction and Equity investments in real estate, as applicable.
(d) Represents non-recourse mortgage obligations (Note 10) and deferred acquisition fee installments.
(e) Represents scheduled mortgage principal payments.
Item 7. Managements Discussion and Analysis of Financial Condition and Results of Operations.
Managements discussion and analysis of financial condition and results of operations (MD&A) is intended to provide the reader with information that will assist in understanding our financial statements and the reasons for changes in certain key components of our financial statements from period to period. MD&A also provides the reader with our perspective on our financial position and liquidity, as well as certain other factors that may affect our future results.
Business Overview
We are a publicly owned, non-listed REIT that invests primarily in commercial properties leased to companies domestically and internationally. As opportunities arise, we also make other types of commercial real estate related investments. As a REIT, we are not subject to U.S. federal income taxation as long as we satisfy certain requirements, principally relating to the nature of our income, the level of our distributions and other factors. We earn revenue principally by leasing the properties we own to single corporate tenants, primarily on a triple-net lease basis, which requires the tenant to pay substantially all of the costs associated with operating and maintaining the property. Revenue is subject to fluctuation because of the timing of new lease transactions, lease terminations, lease expirations, contractual rent adjustments, tenant defaults and sales of properties. We were formed in 2007 and are managed by the advisor. We hold substantially all of our assets and conduct substantially all of our business through our operating partnership. We are the general partner of, and own 99.985% of the interests in, the operating partnership. The remaining 0.015% interest in the Operating Partnership is held by a subsidiary of WPC.
Financial Highlights
(In thousands)
|
|
Years Ended December 31, |
| |||||||
|
|
2012 |
|
2011 |
|
2010 |
| |||
Total revenues |
|
$ |
294,043 |
|
$ |
196,121 |
|
$ |
99,463 |
|
Net income attributable to CPA®:17 Global stockholders |
|
41,611 |
|
49,655 |
|
30,454 |
| |||
|
|
|
|
|
|
|
| |||
Net cash provided by operating activities |
|
157,275 |
|
101,515 |
|
69,518 |
| |||
Net cash used in investing activities |
|
(838,058) |
|
(758,551) |
|
(1,031,896) |
| |||
Net cash provided by financing activities |
|
1,150,361 |
|
670,616 |
|
844,485 |
| |||
|
|
|
|
|
|
|
| |||
Cash distributions paid |
|
147,649 |
|
102,503 |
|
60,937 |
| |||
|
|
|
|
|
|
|
| |||
Supplemental financial measure: |
|
|
|
|
|
|
| |||
Modified funds from operations |
|
125,180 |
|
96,766 |
|
44,589 |
| |||
We consider the performance metrics listed above, including Modified funds from operations (MFFO), a supplemental measure that is not defined by GAAP (non-GAAP), to be important measures in the evaluation of our results of operations and capital resources. We evaluate our results of operations with a primary focus on the ability to generate cash flow necessary to meet our objectives of funding distributions to stockholders. See Supplemental Financial Measures below for our definition of this non-GAAP measure and reconciliation to its most directly comparable GAAP measure.
Total revenues, Net cash provided by operating activities, and MFFO supplemental measure all increased during 2012 as compared to 2011, primarily reflecting our investment activity during 2012 and 2011.
As further discussed below, Net income attributable to CPA®:17 Global stockholders decreased during 2012 as compared to 2011 despite revenues generated by the net-leased and self storage properties we acquired in 2011 and 2012. This revenue contribution was more than offset by several factors, including primarily an increase in general and administrative expenses and the impact of weakening of the U.S. dollar versus the euro during 2012. The increase in general and administrative expenses resulted from acquisition costs related to our 2012 self-storage acquisitions and an amendment to our advisory agreement changing the allocation of advisor personnel expenses from individual time records to reported revenue amongst the Managed REITs (Note 3).
CPA®:17 Global 2012 10-K 32
How We Evaluate Results of Operations
We evaluate our results of operations with a primary focus on our ability to generate cash flow necessary to meet our objectives of funding distributions to stockholders and increasing our equity in our real estate. As a result, our assessment of operating results gives less emphasis to the effect of unrealized gains and losses, which may cause fluctuations in net income for comparable periods but have no impact on cash flows, and to other non-cash charges, such as depreciation and impairment charges.
We consider cash flows from operating activities, cash flows from investing activities, cash flows from financing activities and certain non-GAAP performance metrics to be important measures in the evaluation of our results of operations and capital resources. Net cash provided by operating activities are sourced primarily from long-term lease contracts. These leases are generally triple net and mitigate, to an extent, our exposure to certain property operating expenses. Our evaluation of the amount and expected fluctuation of net cash provided by operating activities is essential in evaluating our ability to fund operating expenses, service debt and fund distributions to stockholders.
We focus on measures of cash flows from investing activities and cash flows from financing activities in our evaluation of our capital resources. Investing activities typically consist of the acquisition or disposition of investments in real property and the funding of capital expenditures with respect to real properties. Financing activities primarily consist of the payment of distributions to stockholders, obtaining non-recourse mortgage financing, generally in connection with the acquisition or refinancing of properties, and making mortgage principal payments. Our financing strategy has been to purchase substantially all of our properties with a combination of equity and non-recourse mortgage debt. A lender on a non-recourse mortgage loan generally has recourse only to the property collateralizing such debt and not to any of our other assets. This strategy has allowed us to diversify our portfolio of properties and, thereby, limit our risk. In the event that a balloon payment comes due, we may seek to refinance the loan, restructure the debt with existing lenders, or evaluate our ability to pay the balloon payment from our cash reserves or sell the property and use the proceeds to satisfy the mortgage debt.
CPA®:17 Global 2012 10-K 33
Results of Operations
The following table presents the comparative results of operations (in thousands):
|
|
Years Ended December 31, |
| ||||||||||||||||
|
|
2012 |
|
2011 |
|
Change |
|
2011 |
|
2010 |
|
Change |
| ||||||
Revenues |
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
Rental income |
|
$ |
177,161 |
|
$ |
124,425 |
|
$ |
52,736 |
|
$ |
124,425 |
|
$ |
52,233 |
|
$ |
72,192 |
|
Interest income from direct financing leases |
|
53,549 |
|
48,474 |
|
5,075 |
|
48,474 |
|
40,028 |
|
8,446 |
| ||||||
Lease revenues |
|
230,710 |
|
172,899 |
|
57,811 |
|
172,899 |
|
92,261 |
|
80,638 |
| ||||||
Other operating income |
|
5,188 |
|
2,880 |
|
2,308 |
|
2,880 |
|
1,440 |
|
1,440 |
| ||||||
Interest income |
|
9,042 |
|
6,602 |
|
2,440 |
|
6,602 |
|
3,545 |
|
3,057 |
| ||||||
Other real estate income |
|
49,103 |
|
13,740 |
|
35,363 |
|
13,740 |
|
2,217 |
|
11,523 |
| ||||||
|
|
294,043 |
|
196,121 |
|
97,922 |
|
196,121 |
|
99,463 |
|
96,658 |
| ||||||
Operating Expenses |
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
Depreciation and amortization |
|
(69,605) |
|
(43,599) |
|
(26,006) |
|
(43,599) |
|
(14,528) |
|
(29,071) |
| ||||||
General and administrative |
|
(29,716) |
|
(16,585) |
|
(13,131) |
|
(16,585) |
|
(5,256) |
|
(11,329) |
| ||||||
Property expenses |
|
(31,342) |
|
(19,206) |
|
(12,136) |
|
(19,206) |
|
(6,991) |
|
(12,215) |
| ||||||
Other real estate expenses |
|
(33,701) |
|
(8,009) |
|
(25,692) |
|
(8,009) |
|
(1,327) |
|
(6,682) |
| ||||||
Impairment charges |
|
(2,019) |
|
70 |
|
(2,089) |
|
70 |
|
- |
|
70 |
| ||||||
|
|
(166,383) |
|
(87,329) |
|
(79,054) |
|
(87,329) |
|
(28,102) |
|
(59,227) |
| ||||||
Other Income and Expenses |
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
Income from equity investments in real estate |
|
7,828 |
|
5,527 |
|
2,301 |
|
5,527 |
|
1,675 |
|
3,852 |
| ||||||
Other income and (expenses) |
|
4,516 |
|
6,983 |
|
(2,467) |
|
6,983 |
|
794 |
|
6,189 |
| ||||||
Gain on sale of real estate |
|
1,092 |
|
- |
|
1,092 |
|
- |
|
- |
|
- |
| ||||||
Interest expense |
|
(72,651) |
|
(51,369) |
|
(21,282) |
|
(51,369) |
|
(27,860) |
|
(23,509) |
| ||||||
|
|
(59,215) |
|
(38,859) |
|
(20,356) |
|
(38,859) |
|
(25,391) |
|
(13,468) |
| ||||||
Income from continuing operations before income taxes |
|
68,445 |
|
69,933 |
|
(1,488) |
|
69,933 |
|
45,970 |
|
23,963 |
| ||||||
Provision for income taxes |
|
(1,116) |
|
(1,042) |
|
(74) |
|
(1,042) |
|
(214) |
|
(828) |
| ||||||
Income from continuing operations |
|
67,329 |
|
68,891 |
|
(1,562) |
|
68,891 |
|
45,756 |
|
23,135 |
| ||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
Discontinued Operations |
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
Income from discontinued operations, net of tax |
|
824 |
|
1,555 |
|
(731) |
|
1,555 |
|
31 |
|
1,524 |
| ||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
Net Income |
|
68,153 |
|
70,446 |
|
(2,293) |
|
70,446 |
|
45,787 |
|
24,659 |
| ||||||
Less: Net income attributable to noncontrolling interests |
|
(26,542) |
|
(20,791) |
|
(5,751) |
|
(20,791) |
|
(15,333) |
|
(5,458) |
| ||||||
Net Income Attributable to CPA®:17 Global Stockholders |
|
$ |
41,611 |
|
$ |
49,655 |
|
$ |
(8,044) |
|
$ |
49,655 |
|
$ |
30,454 |
|
$ |
19,201 |
|
The following tables present other operating data that management finds useful in evaluating results of operations:
|
|
As of December 31, |
| |||||||
|
|
2012 |
|
2011 |
|
2010 |
| |||
Occupancy rate - end of year |
|
100 % |
|
100 % |
|
100 % |
| |||
Number of leased properties |
|
335 |
|
307 |
|
135 |
| |||
Number of operating properties (a) |
|
59 |
|
45 |
|
1 |
| |||
|
|
|
|
|
|
|
| |||
|
|
Year Ended December 31, |
| |||||||
|
|
2012 |
|
2011 |
|
2010 |
| |||
Acquisition volume - consolidated subsidiaries (in millions) |
|
$ |
1,035.5 |
|
$ |
936.6 |
|
$ |
1,039.7 |
|
Acquisition volume - equity investments (in millions) |
|
- |
|
176.5 |
|
8.4 |
| |||
Financing obtained (in millions) (b) |
|
469.6 |
|
243.6 |
|
431.7 |
| |||
Funds raised (in millions) (c) |
|
927.3 |
|
584.5 |
|
591.8 |
| |||
Average U.S. dollar/euro exchange rate (d) |
|
$ |
1.2861 |
|
$ |
1.3926 |
|
$ |
1.3279 |
|
U.S. Consumer Price Index (CPI) (e) |
|
229.6 |
|
225.7 |
|
219.2 |
|
___________
(a) For all periods presented, operating properties comprise self-storage properties and one hotel, all of which are managed by third parties.
(b) Amounts include refinancings of $7.9 million and $53.0 million for the years ended December 31, 2012 and 2010, respectively.
(c) Reflects more than $2.9 billion in funds raised in the initial public offering (commenced in late December 2007) and the follow-on offering (commenced April 7, 2011). Our follow-on offering terminated in January 2013.
(d) The average conversion rate for the U.S. dollar in relation to the euro decreased during the year ended December 31, 2012 as compared to 2011 and increased during the year ended December 31, 2011 as compared to 2010, resulting in a negative impact on earnings in 2012 and a positive impact on earnings in 2011 for our euro-denominated investments.
(e) Many of our domestic lease agreements include contractual increases indexed to the change in the U.S. CPI.
CPA®:17 Global 2012 10-K 35
The following table sets forth the net lease revenues (i.e., rental income and interest income from direct financing leases) that we earned from lease obligations through our direct ownership of real estate (in thousands):
|
|
Years Ended December 31, |
| |||||||
Lessee (Date Acquired or Placed in Service) |
|
2012 |
|
2011 |
|
2010 |
| |||
Metro Cash & Carry Italia S.p.A. (9/2011) (a) |
|
$ |
29,143 |
|
$ |
7,974 |
|
$ |
- |
|
The New York Times Company (3/2009) (b) |
|
27,588 |
|
27,797 |
|
26,768 |
| |||
Agrokor d.d. (12/2012, 11/2011, 12/2010, 4/2010) (a) |
|
19,357 |
|
16,238 |
|
6,783 |
| |||
General Parts Inc., Golden State Supply LLC, Straus-Frank Enterprises LLC, General Parts Distribution LLC and Worldpac Inc., collectively CARQUEST (12/2010) |
|
19,302 |
|
19,302 |
|
766 |
| |||
Blue Cross and Blue Shield of Minnesota, Inc. (1/2012) |
|
13,073 |
|
- |
|
- |
| |||
Terminal Freezers, LLC (1/2011) |
|
10,443 |
|
10,731 |
|
- |
| |||
Eroski Sociedad Cooperativa (6/2010, 2/2010, 12/2009) (a) |
|
10,203 |
|
10,851 |
|
8,281 |
| |||
DTS Distribuidora de Television Digital SA (12/2010) (a) |
|
8,751 |
|
9,191 |
|
- |
| |||
LifeTime Fitness, Inc. (9/2008) |
|
6,850 |
|
6,847 |
|
6,847 |
| |||
Flanders Corporation (12/2011, 4/2011) |
|
6,731 |
|
3,962 |
|
- |
| |||
Flint River Services, LLC (11/2010) |
|
5,088 |
|
5,079 |
|
855 |
| |||
Angelica Corporation (3/2010) |
|
5,058 |
|
5,093 |
|
3,855 |
| |||
Frontier Spinning Mills, Inc. (12/2008) (b) |
|
4,563 |
|
4,537 |
|
4,464 |
| |||
Sun Products (9/2011) |
|
4,506 |
|
1,501 |
|
- |
| |||
McKesson Corporation (formerly US Oncology, Inc.) (12/2009) |
|
4,189 |
|
4,189 |
|
4,189 |
| |||
JP Morgan Chase Bank, National Association and AT&T Wireless Services (5/2010) |
|
4,000 |
|
3,935 |
|
2,440 |
| |||
Actebis Peacock GmbH (7/2008) (a) |
|
3,990 |
|
4,228 |
|
3,967 |
| |||
Kronos Products, Inc. (1/2010) |
|
3,890 |
|
3,763 |
|
3,784 |
| |||
Walgreens (3/2012) |
|
3,671 |
|
- |
|
- |
| |||
Harbor Freight Tools, USA, Inc. (3/2011) (c) |
|
3,360 |
|
2,728 |
|
- |
| |||
Sabre Communications Corporation and Cellxion, LLC (6/2012, 3/2012, 6/2010, 8/2008) |
|
3,264 |
|
2,851 |
|
2,695 |
| |||
Waldaschaff Automotive Nagold GmbH (6/2011, 8/2008) (a) (d) |
|
3,208 |
|
3,074 |
|
2,033 |
| |||
Laureate Education, Inc. (7/2008) |
|
2,956 |
|
2,910 |
|
2,895 |
| |||
TDG Limited (5/2010, 4/2010) |
|
2,901 |
|
2,928 |
|
2,040 |
| |||
Mori Seiki USA, Inc. (12/2009) |
|
2,811 |
|
2,811 |
|
2,811 |
| |||
Berry Plastics Corporation (4/2011, 3/2010) |
|
2,794 |
|
2,531 |
|
1,548 |
| |||
National Express Limited (12/2009) |
|
2,140 |
|
2,071 |
|
1,919 |
| |||
KBR, Inc. (11/2012) |
|
1,997 |
|
- |
|
- |
| |||
RLJ-McLarty-Landers Automotive Holdings, LLC (9/2012) |
|
1,683 |
|
- |
|
- |
| |||
Other (a) (b) |
|
13,200 |
|
5,777 |
|
3,321 |
| |||
|
|
$ |
230,710 |
|
$ |
172,899 |
|
$ |
92,261 |
|
___________
(a) Amounts are subject to fluctuations in foreign currency exchange rates. The average conversion rate for the U.S. dollar in relation to the euro decreased by approximately 7.6% during the year ended December 31, 2012 as compared to 2011 and increased by approximately 4.9% during the year ended December 31, 2011 as compared to 2010, resulting in a negative impact on lease revenues in 2012 and a positive impact on lease revenues in 2011 for our euro-denominated investments.
(b) These revenues are generated in consolidated investments, generally with our affiliates, and on a combined basis, include revenues applicable to noncontrolling interests totaling $16.5 million, $16.6 million, and $15.9 million for the years ended December 31, 2012, 2011, and 2010, respectively.
(c) Increase in 2012 was due to a CPI-based rent increase.
(d) Increase in 2011 was due to a lease restructuring. The former tenant, Wagon Automotive GmbH, terminated its lease with us in May 2009 and the successor company, Waldaschaff Automotive GmbH, took over the business and began paying rent to us at a significantly reduced rate until we entered into a new lease with Waldaschaff Automotive GmbH during 2011.
CPA®:17 Global 2012 10-K 36
We recognize income from equity investments in real estate, of which lease revenues are a significant component. The following table sets forth the net lease revenues earned by these investments from both continuing and discontinued operations. Amounts provided are the total amounts attributable to the investments and do not represent our proportionate share (dollars in thousands):
|
|
Ownership Interest |
|
Years Ended December 31, |
| |||||||
Lessee (Date Acquired) |
|
at December 31, 2012 |
|
2012 |
|
2011 |
|
2010 |
| |||
Hellweg Die Profi-Baumarkte GmbH & Co. KG (5/2011) (a) (b) |
|
33% |
|
$ |
34,518 |
|
$ |
24,543 |
|
$ |
- |
|
U-Haul Moving Partners, Inc. and Mercury Partners, LP (5/2011) (b) |
|
12% |
|
32,428 |
|
21,695 |
|
- |
| |||
C1000 Logistiek Vastgoed B.V. (1/2011) (a) |
|
85% |
|
14,413 |
|
14,519 |
|
- |
| |||
Tesco plc (7/2009) (a) |
|
49% |
|
7,249 |
|
7,720 |
|
7,337 |
| |||
Berry Plastics Corporation (12/2007) (c) |
|
50% |
|
6,982 |
|
6,649 |
|
6,666 |
| |||
Dicks Sporting Goods, Inc. (5/2011) (b) |
|
45% |
|
3,332 |
|
2,104 |
|
- |
| |||
Eroski Sociedad Cooperativa - Mallorca (6/2010) (a) |
|
30% |
|
2,989 |
|
3,235 |
|
1,710 |
| |||
|
|
|
|
$ |
101,911 |
|
$ |
80,465 |
|
$ |
15,713 |
|
___________
(a) Amounts are subject to fluctuations in foreign currency exchange rates. The average conversion rate for the U.S. dollar in relation to the euro decreased by approximately 7.6% during the year ended December 31, 2012 as compared to 2011 and increased by approximately 4.9% during the year ended December 31, 2011 as compared to 2010, resulting in a negative impact on lease revenues in 2012 and a positive impact on lease revenues in 2011 for our euro-denominated investments.
(b) We acquired our interest in this jointly-owned investment in May 2011 from CPA®:14 (Note 3). The amounts provided for 2011 represent lease revenues earned by the investment from the acquisition date.
(c) We also consolidate an investment with one of our affiliates that leases another property to this lessee.
Lease Revenues
As of December 31, 2012, approximately 47.1% of our net leases, based on annualized contractual minimum base rent, provide for adjustments based on formulas indexed to changes in the CPI, or other similar indices for the jurisdiction in which the property is located, some of which have caps and/or floors. In addition, 44.9% of our net leases on that same basis have fixed rent adjustments with contractual minimum base rent scheduled to increase by an average of 2.0% in the next 12 months. We own international investments and, therefore, lease revenues from these investments are subject to fluctuations in exchange rate movements in foreign currencies, primarily the euro.
During the year ended December 31, 2012, we modified five leases totaling approximately 2.2 million square feet of leased space with existing tenants. The average new rent for these leases was $4.86 per square foot and the average former rent was $4.33 per square foot. There were no tenant improvement allowances or concessions related to any of these leases.
During the year ended December 31, 2011, we entered into one new lease with a new tenant that took over the business of a former tenant. The former tenant had defaulted on its lease and paid rent to us at a significantly reduced rate. We negotiated new lease terms with the new tenant and signed a new lease in 2011 with approximately 0.4 million square feet of leased space. The average new rent for this lease was $2.38 per square foot and the average former rent was $1.24 per square foot. Amounts are based on the exchange rate of the euro at December 31, 2012 and 2011, respectively. There were no tenant improvement allowances or concessions related to any of these leases.
2012 vs. 2011 For the year ended December 31, 2012 as compared to 2011, lease revenues increased by $57.8 million, primarily due to our investment activity during 2012 and 2011, which contributed revenues of $55.9 million, and scheduled rent increases at several properties contributed $1.6 million. These increases were partially offset by fluctuations in foreign currency exchange rates, which reduced lease revenues by $4.1 million.
2011 vs. 2010 For the year ended December 31, 2011 as compared to 2010, lease revenues increased by $80.6 million, primarily due to our investment activity during 2011 and 2010, which contributed revenues of $68.6 million. In addition, scheduled rent increases at several properties and positive fluctuations in foreign currency exchange rates contributed $8.1 million and $1.3 million, respectively, of the increases in lease revenues.
CPA®:17 Global 2012 10-K 37
Other Operating Income
Other operating income generally consists of costs reimbursable by tenants and non-rent related revenues. Reimbursable tenant costs are recorded as both income and property expense, and, therefore, have no impact on net income.
2012 vs. 2011 For the year ended December 31, 2012 as compared to 2011, other operating income increased by $2.3 million, primarily due to an increase in reimbursable tenant costs as a result of our investment activity in 2012 and 2011.
2011 vs. 2010 For the year ended December 31, 2011 as compared to 2010, other operating income increased by $1.4 million, primarily due to an increase in reimbursable tenant costs as a result of our investment activity in 2011 and 2010.
Interest Income
2012 vs. 2011 For the year ended December 31, 2012 as compared to 2011, interest income increased by $2.4 million, primarily due to $3.0 million in interest income received from the note receivable related to our Walgreens investment located in Las Vegas, NV (Walgreens Las Vegas), which was partially offset by a $0.6 million decrease in interest income related to our participation in The New York Times Company non-recourse mortgage loan that was repaid in full during the first quarter of 2011.
2011 vs. 2010 For the year ended December 31, 2011 as compared to 2010, interest income increased by $3.1 million, primarily as a result of interest income recognized during 2011 related to a $40.0 million note receivable acquired during December 2010.
Other Real Estate Operations
Other real estate operations represent the results of operations (revenues and operating expenses) of our hotel investment and 58 self-storage properties.
2012 vs. 2011 For the year ended December 31, 2012 as compared to 2011, Other real estate income increased by $35.4 million and Other real estate expenses increased by $25.7 million. The increases were primarily due to the acquisitions of 44 self-storage properties and one hotel property during 2011 and 14 self-storage properties during 2012.
2011 vs. 2010 For the year ended December 31, 2011 as compared to 2010, our results of operations reflected increases in income and expenses of $11.5 million and $6.7 million, respectively, primarily due to the acquisitions of 44 self-storage properties and one hotel property during 2011.
Depreciation and Amortization
2012 vs. 2011 For the year ended December 31, 2012 as compared to 2011, depreciation and amortization increased by $26.0 million as a result of investments we entered into during 2012 and 2011.
2011 vs. 2010 For the year ended December 31, 2011 as compared to 2010, depreciation and amortization increased by $29.1 million as a result of investments we entered into during 2011 and 2010.
General and Administrative
2012 vs. 2011 For the year ended December 31, 2012 as compared to 2011, general and administrative increased by $13.1 million, primarily due to an increase in acquisition-related fees and expenses of $7.2 million; an increase in management expenses of $2.9 million and an increase in professional fees of $2.8 million. Acquisition-related fees reflect costs expensed related to several acquisitions during 2012 which were accounted for as business combinations (Note 4). Management expenses increased primarily due to an amendment to our advisory agreement in 2012 related to the basis of allocating advisor personnel expenses amongst the Managed REITs from individual time records to reported revenues (Note 3). Our professional fees were higher because of an increase in the size of our portfolio during 2012 as compared to 2011. Management expenses include our reimbursements to the advisor for the allocated costs of personnel and overhead in providing management of our day-to-day operations, including accounting services, stockholder services, corporate management, and property management and operations. Professional fees include legal, accounting and investor-related expenses incurred in the normal course of business.
2011 vs. 2010 For the year ended December 31, 2011 as compared to 2010, general and administrative expense increased by $11.3 million, primarily due to an increase in acquisition-related fees and expenses, which were accounted for as business combinations, of
CPA®:17 Global 2012 10-K 38
$6.4 million; an increase in professional fees of $2.4 million; and an increase in management expenses of $1.3 million. Acquisition-related fees and expenses incurred in 2011 were primarily related to the acquisition of 44 self-storage properties. Both professional fees and management expenses increased in connection with 2011 and 2010 investment activity.
Property Expenses
2012 vs. 2011 For the year ended December 31, 2012 as compared to 2011, property expenses increased by $12.1 million, primarily due to increases in asset management fees of $5.5 million as a result of 2012 and 2011 investment volume, which increased the asset base from which the advisor earns a fee. In addition, other property expenses increased by $2.4 million as a result of real estate taxes on investments we entered into in 2012 and 2011.
2011 vs. 2010 For the year ended December 31, 2011 as compared to 2010, property expenses increased by $12.2 million, primarily due to increases in asset management fees of $8.4 million, professional fees of $1.5 million and reimbursable tenant costs of $1.4 million. Asset management fees, professional fees, and reimbursable tenant costs increased as a result of our 2011 and 2010 investment activity. Professional fees include legal and accounting expenses incurred for certain properties. Reimbursable tenant costs are recorded as both revenue and expenses and, therefore, have no impact on our results of operations.
Impairment Charges
During the year ended December 31, 2012, we incurred other-than-temporary impairment charges of $2.0 million to reduce the carrying values of three CMBS tranches to zero as a result of non-performance and the advisors assessment that the likelihood of receiving further interest payments or return of principal was remote. At December 31, 2012, the carrying value of our remaining CMBS securities was $1.6 million (Note 8).
Income from Equity Investments in Real Estate
Income from equity investments in real estate represents our proportionate share of net income or loss (revenue less expenses) from investments entered into with affiliates or third parties in which we have a noncontrolling interest but over which we exercise significant influence.
2012 vs. 2011 For the year ended December 31, 2012 as compared to 2011, income from equity investments in real estate increased by $2.3 million, primarily due to an increase in income of $1.9 million related to the jointly-owned investments we acquired in May 2011 from CPA®:14 and our $1.9 million share of a gain on the extinguishment of debt recognized by a jointly-owned investment. These increases were partially offset by $1.5 million related to the amortization of basis differences on these investments during 2012.
2011 vs. 2010 For the year ended December 31, 2011 as compared to 2010, income from equity investments in real estate increased by $3.9 million, primarily due to our investments in the C1000 B.V. (C1000) investment in January 2011 and the Eroski Socieded Cooperativa - Mallorca investment in June 2010, which contributed an increase to income of $4.0 million and $0.4 million, respectively. These increases in income were partially offset by net losses of $1.1 million recognized during 2011 on the investments we purchased from CPA®:14 primarily due to the amortization of basis differences (Note 6).
Other Income and (Expenses)
Other income and (expenses) primarily consists of gains and losses on foreign currency transactions and derivative instruments. We and certain of our foreign consolidated subsidiaries have intercompany debt and/or advances that are not denominated in the entitys functional currency. When the intercompany debt or accrued interest thereon is remeasured against the functional currency of the entity, a gain or loss may result. For intercompany transactions that are of a long-term investment nature, the gain or loss is recognized as a cumulative translation adjustment in Other comprehensive loss. We also recognize gains or losses on foreign currency transactions when we repatriate cash from our foreign investments. In addition, we have certain derivative instruments, including common stock warrants and foreign currency contracts that are not designated as hedging, for which realized and unrealized gains and losses are included in earnings. The timing and amount of such gains and losses cannot always be estimated and are subject to fluctuation.
2012 vs. 2011 For the year ended December 31, 2012 as compared to 2011, other income decreased by $2.5 million, primarily due to realized foreign currency transaction losses on cash adjustments related to our foreign investments acquired during 2012 and 2011.
CPA®:17 Global 2012 10-K 39
2011 vs. 2010 For the year ended December 31, 2011 as compared to 2010, other income increased by $6.2 million, mainly due to realized foreign currency transaction gains on cash repatriation from our foreign investments during 2011.
Gain on Sale of Real Estate
During the fourth quarter of 2012, we recognized a gain on sale of real estate of $1.1 million when we sold a portion of our investment in the Walgreens Las Vegas shopping center pursuant to the terms of the initial investment. In connection with this transaction, we acquired a 15% equity interest in BPS Parent, LLC (BPS), the developer of the shopping center (Note 6).
Interest Expense
2012 vs. 2011 For the year ended December 31, 2012 as compared to 2011, interest expense increased by $21.3 million, primarily as a result of mortgage financing obtained and assumed in connection with our investment activity during 2012 and 2011.
2011 vs. 2010 For the year ended December 31, 2011 as compared to 2010, interest expense increased by $23.5 million, primarily as a result of mortgage financing obtained and assumed in connection with our investment activity during 2011 and 2010.
Discontinued Operations
During the year ended December 31, 2012, we recognized income from discontinued operations of $0.8 million, primarily due to a net gain on the sale of properties of $0.7 million.
During the year ended December 31, 2011, we recognized income from discontinued operations of $1.6 million, primarily due to a net gain on the sale of properties of $0.8 million and income generated from the operations of these properties totaling $0.5 million. Amounts are based on the exchange rate of the Canadian dollar on the date of the sale.
Net Income Attributable to Noncontrolling Interests
2012 vs. 2011 For the year ended December 31, 2012 as compared to 2011, net income attributable to noncontrolling interests increased by $5.8 million, primarily due to an increase in Available Cash distributions paid to the advisor of $5.3 million as a result of our 2012 and 2011 investment activity. As discussed in Note 3, the advisor owns a special general partner interest in our operating partnership entitling it to up to 10% of the Available Cash of our operating partnership.
2011 vs. 2010 For the year ended December 31, 2011 as compared to 2010, net income attributable to noncontrolling interests increased by $5.5 million, primarily due to an increase in Available Cash distributions paid to the advisor of $4.9 million as a result of our 2011 and 2010 investment activity.
Net Income Attributable to CPA®:17 Global Stockholders
2012 vs. 2011 For the year ended December 31, 2012 as compared to 2011, net income attributable to CPA®:17 Global stockholders decreased by $8.0 million.
2011 vs. 2010 For the year ended December 31, 2011 as compared to 2010, net income attributable to CPA®:17 - Global stockholders increased by $19.2 million.
Modified Funds from Operations
MFFO is a non-GAAP measure that we use to evaluate our business. For a definition of MFFO and reconciliation to net income attributable to CPA®:17 Global stockholders, see Supplemental Financial Measures below.
2012 vs. 2011 For the year ended December 31, 2012 as compared to 2011, MFFO increased by $28.4 million, primarily as a result of revenue generated from our investment activity in 2012 and 2011, partially offset by increased general and administrative expenses due to the amendment to our advisory agreement in 2012 whereby the basis of allocating advisor personnel expenses amongst the Managed REITs was changed from individual time records to reported revenues (Note 2).
2011 vs. 2010 For the year ended December 31, 2011 as compared to 2010, MFFO increased by $52.2 million, primarily as a result of our investment activity in 2011 and 2010.
CPA®:17 Global 2012 10-K 40
Financial Condition
Sources and Uses of Cash During the Year
We expect to continue to invest the proceeds of our public offerings in a diversified portfolio of income-producing commercial properties and other real estate related assets. We use the cash flow generated from our investments to meet our operating expenses, service debt and fund distributions to our stockholders. Our cash flows fluctuate period to period due to a number of factors, which may include, among other things, the timing of purchases and sales of real estate, the timing of the receipt of the proceeds from and the repayment of non-recourse mortgage loans and receipt of lease revenues, the advisors annual election to receive fees in shares of our common stock or cash, the timing and characterization of distributions received from equity investments in real estate, the timing of payments of distributions of available cash to the advisor, and changes in foreign currency exchange rates. Despite these fluctuations, we believe our net leases and other real estate related assets will generate sufficient cash from operations and from equity distributions in excess of equity income in real estate to meet our normal recurring short-term and long-term liquidity needs. However, until we have fully invested the proceeds of our offerings, we have used, and expect in the future to use a portion of the offering proceeds to fund our operating activities and distributions to our stockholders (see Financing Activities below). We assess our ability to access capital on an ongoing basis. Our sources and uses of cash during the period are described below.
Operating Activities
During 2012, we used cash flows provided by operating activities of $157.3 million to fund cash distributions paid to our stockholders of $76.2 million, excluding $71.4 million in distributions that were reinvested in shares of our common stock by stockholders through our DRIP, and to pay distributions of $24.4 million to affiliates that hold noncontrolling interests in various entities with us. For 2012, the advisor elected to continue to receive its asset management fees in shares of our common stock, and as a result, we paid asset management fees of $20.5 million through the issuance of stock rather than in cash.
Investing Activities
Our investing activities are generally comprised of real estate-related transactions (purchases and sales), payment of deferred acquisition fees to the advisor and capitalized property-related costs. During 2012, we used offering proceeds of $799.2 million primarily to acquire several consolidated investments, including KBR, Inc. (KBR) for $172.6 million and Blue Cross Blue Shield, Inc. (BCBS) for $165.6 million, and to fund construction costs on several build-to-suit projects (Note 4). We contributed $73.7 million to a jointly-owned investment, Hellweg Die Profi-Baumarkte GmbH & Co. KG (Hellweg 2), to repurchase a portion of its outstanding mortgage loan. We received $23.6 million in distributions from our equity investments in real estate in excess of cumulative equity in net income. Additionally, we received aggregate proceeds of $59.3 million from the sales of a portion of the Walgreens Las Vegas investment and 12 other domestic properties. Funds totaling $52.3 million and $35.2 million, respectively, were invested in and released from lender-held investment accounts. We paid foreign value added taxes, or VAT, totaling $15.6 million during 2012 in connection with several international investments, of which $7.3 million was recovered during 2012, with the remainder expected to be fully recovered in future periods. Payments of deferred acquisition fees to the advisor totaled $15.7 million. We also used $7.1 million to acquire equity securities in a warehouse and logistics company (Note 8).
Financing Activities
As noted above, during 2012, we received $897.7 million in net proceeds from our follow-on public offering and $469.7 million in proceeds from mortgage financings related to 2012 and 2011 investment activity, including $128.2 million obtained in connection with the KBR acquisition and $92.4 million obtained in connection with the BCBS acquisition. We paid distributions to our stockholders and to affiliates that hold noncontrolling interests in various entities with us totaling $24.4 million. We also made scheduled mortgage principal installments of $17.5 million. We also used $17.2 million to repurchase shares through our redemption plan, as described below.
Our objectives are to generate sufficient cash flow over time to provide our stockholders with increasing distributions and to seek investments with potential for capital appreciation throughout varying economic cycles. During the 2012, we declared distributions to our stockholders totaling $161.7 million, which were comprised of cash distributions of $83.7 million and $78.0 million of distributions reinvested by stockholders through the DRIP. We have funded $157.3 million, or 97%, of these distributions from Net cash provided by operating activities with the remainder being funded from proceeds of our public offerings. In determining our distribution policy during the periods we are raising funds and investing capital, we place primary emphasis on projections of cash flow from operations, together with equity distributions in excess of equity income in real estate, from our investments, rather than on
CPA®:17 Global 2012 10-K 41
historical results of operations (though these and other factors may be a part of our consideration). In setting a distribution rate, we thus focus primarily on expected returns from those investments we have already made, as well as our anticipated rate of future investment, to assess the sustainability of a particular distribution rate over time.
We maintain a quarterly redemption plan pursuant to which we may, at the discretion of our board of directors, redeem shares of our common stock from stockholders seeking liquidity. During the year ended December 31, 2012, we redeemed 1,818,685 shares of our common stock pursuant to our redemption plan at a weighted-average price of $9.45 per share. For the three months ended December 31, 2012, we received requests to redeem 503,642 shares of our common stock pursuant to our redemption plan, all of which were redeemed in the same period.
Liquidity is affected adversely by unanticipated costs and greater-than-anticipated operating expenses. To the extent that our cash reserves are insufficient to satisfy our cash requirements, additional funds may be provided from cash generated from operations. In addition, we may incur indebtedness in connection with the acquisition of any property, refinancing the debt thereon, arranging for the leveraging of any previously unfinanced property, or reinvesting the proceeds from financings or refinancings of additional properties.
Summary of Financing
The table below summarizes our non-recourse debt (dollars in thousands):
|
|
December 31, |
| ||||
|
|
2012 |
|
2011 |
| ||
Balance |
|
|
|
|
| ||
Fixed rate |
|
$ |
1,096,488 |
|
$ |
772,259 |
|
Variable rate (a) |
|
536,964 |
|
381,995 |
| ||
Total |
|
$ |
1,633,452 |
|
$ |
1,154,254 |
|
|
|
|
|
|
| ||
Percent of Total Debt |
|
|
|
|
| ||
Fixed rate |
|
67% |
|
67% |
| ||
Variable rate (a) |
|
33% |
|
33% |
| ||
|
|
100% |
|
100% |
| ||
Weighted-Average Interest Rate at End of Year |
|
|
|
|
| ||
Fixed rate |
|
5.5% |
|
6.1% |
| ||
Variable rate (a) |
|
4.0% |
|
4.0% |
|
___________
(a) Variable-rate debt at December 31, 2012 primarily consisted of (i) $391.7 million that was effectively converted to fixed-rate debt through interest rate swap derivative instruments and (ii) $119.2 million that was subject to an interest rate cap, but for which the applicable interest rate was below the interest rate of the cap at December 31, 2012.
Cash Resources
At December 31, 2012, our cash resources consisted of cash and cash equivalents totaling $652.3 million. Of this amount, $34.7 million, at then-current exchange rates, was held in foreign subsidiaries, but we could be subject to restrictions or significant costs should we decide to repatriate these amounts. We also had unleveraged properties that had an aggregate carrying value of $329.9 million at December 31, 2012, although there can be no assurance that we would be able to obtain financing for these properties. Our cash resources may be used for future investments and can be used for working capital needs and other commitments.
Cash Requirements
During the next 12 months, we expect that cash payments will include paying distributions to our stockholders and to our affiliates that hold noncontrolling interests in entities we control, making scheduled mortgage loan principal payments, reimbursing the advisor for costs incurred on our behalf, and paying normal recurring operating expenses. Balloon payments on our mortgage loan obligations totaling $34.5 million are due during the next 12 months. In addition, our share of balloon payments due during the next 12 months on our unconsolidated jointly-owned investments totals $79.2 million. Our advisor is actively seeking to refinance certain of these loans, although there can be no assurance that it will be able to do so on favorable terms, if at all.
CPA®:17 Global 2012 10-K 42
We expect to fund future investments, any capital expenditures on existing properties, and scheduled debt maturities on mortgage loans through the use of our cash reserves and cash generated from operations.
Off-Balance Sheet Arrangements and Contractual Obligations
The table below summarizes our debt, off-balance sheet arrangements and other contractual obligations at December 31, 2012 and the effect that these arrangements and obligations are expected to have on our liquidity and cash flow in the specified future periods (in thousands):
|
|
|
|
Less than |
|
|
|
|
|
More than |
| |||||
|
|
Total |
|
1 year |
|
1-3 years |
|
3-5 years |
|
5 years |
| |||||
Non-recourse debt principal (a) |
|
$ |
1,641,182 |
|
$ |
55,612 |
|
$ |
103,136 |
|
$ |
639,234 |
|
$ |
843,200 |
|
Deferred acquisition fees |
|
26,246 |
|
15,537 |
|
10,709 |
|
- |
|
- |
| |||||
Interest on borrowings and deferred acquisition fees |
|
507,949 |
|
81,329 |
|
152,621 |
|
120,281 |
|
153,718 |
| |||||
Subordinated disposition fees (b) |
|
202 |
|
- |
|
- |
|
- |
|
202 |
| |||||
Capital commitments (c) |
|
207,069 |
|
130,589 |
|
76,027 |
|
453 |
|
- |
| |||||
Operating and other lease commitments (d) |
|
15,032 |
|
1,879 |
|
3,804 |
|
2,846 |
|
6,503 |
| |||||
|
|
$ |
2,397,680 |
|
$ |
284,946 |
|
$ |
346,297 |
|
$ |
762,814 |
|
$ |
1,003,623 |
|
___________
(a) Excludes $7.7 million of unamortized discount on three notes, which was included in Non-recourse debt at December 31, 2012.
(b) Payable to the advisor, subject to meeting contingencies, in connection with any liquidity event for our stockholders. There can be no assurance that any liquidity event will be achieved in this time frame.
(c) Capital commitments relate to four current build-to-suit projects, three build-to-suit projects that had been placed into service as of December 31, 2012, and two projects with other capital commitments. As of December 31, 2012, the total estimated construction costs were $427.0 million in the aggregate, of which $219.9 million had been completed at that date. Amounts are based on the exchange rate of the euro at December 31, 2012, as applicable.
(d) Operating and other lease commitments consist of rental obligations under ground leases and our share of future minimum rents payable pursuant to our advisory agreement for the purpose of leasing office space used for the administration of real estate entities as well as future minimum rents payable under a lease executed in June 2010 (denominated in British pound sterling) in conjunction with an investment in the United Kingdom.
Amounts in the table above related to our foreign operations are based on the exchange rate of the local currencies at December 31, 2012, which consisted primarily of the euro. At December 31, 2012, we had no material capital lease obligations for which we were the lessee, either individually or in the aggregate.
Equity Investments
We have investments in unconsolidated investments that own single-tenant properties net leased to corporations. Generally, the underlying investments are jointly-owned with our affiliates. Summarized financial information for these investments and our ownership interest in the investments at December 31, 2012 is presented below. Cash requirements with respect to our share of these debt obligations are discussed above under Cash Requirements. Summarized financial information provided represents the total amounts recorded by the investees and does not represent our proportionate share (dollars in thousands):
|
|
Ownership Interest |
|
|
|
Total Third- |
|
|
| ||
Lessee |
|
at December 31, 2012 |
|
Total Assets |
|
Party Debt |
|
Maturity Date |
| ||
C1000 Logistiek Vastgoed B.V. (a) |
|
85% |
|
$ |
191,368 |
|
$ |
93,187 |
|
3/2013 |
|
U-Haul Moving Partners, Inc. and Mercury Partners, LP |
|
12% |
|
471,495 |
|
154,657 |
|
5/2014 |
| ||
Tesco plc (a) |
|
49% |
|
82,096 |
|
43,472 |
|
6/2016 |
| ||
Hellweg Die Profi-Baumarkte GmbH & Co. KG (a) |
|
33% |
|
425,913 |
|
328,737 |
|
4/2017 |
| ||
Berry Plastics Corporation |
|
50% |
|
73,618 |
|
27,352 |
|
6/2020 |
| ||
Dicks Sporting Goods, Inc. |
|
45% |
|
25,788 |
|
21,150 |
|
1/2022 |
| ||
Eroski Sociedad Cooperativa - Mallorca (a) |
|
30% |
|
30,812 |
|
- |
|
N/A |
| ||
|
|
|
|
$ |
1,301,090 |
|
$ |
668,555 |
|
|
|
___________
(a) Dollar amounts shown are based on the exchange rate of the euro at December 31, 2012.
Environmental Obligations
In connection with the purchase of many of our properties, we required the sellers to perform environmental reviews. We believe, based on the results of these reviews, that our properties were in substantial compliance with Federal, state, and foreign environmental statutes at the time the properties were acquired. However, portions of certain properties have been subject to some degree of contamination, principally in connection with leakage from underground storage tanks, surface spills or other on-site activities. In most instances where contamination has been identified, tenants are actively engaged in the remediation process and addressing identified conditions. Tenants are generally subject to environmental statutes and regulations regarding the discharge of hazardous materials and any related remediation obligations. In addition, our leases generally require tenants to indemnify us from all liabilities and losses related to the leased properties and the provisions of such indemnifications specifically address environmental matters. The leases generally include provisions that allow for periodic environmental assessments, paid for by the tenant, and allow us to extend leases until such time as a tenant has satisfied its environmental obligations. Certain of our leases allow us to require financial assurances from tenants, such as performance bonds or letters of credit, if the costs of remediating environmental conditions are, in our estimation, in excess of specified amounts. Accordingly, we believe that the ultimate resolution of environmental matters should not have a material adverse effect on our financial condition, liquidity or results of operations.
Critical Accounting Estimates
Our significant accounting policies are described in Note 2. Many of these accounting policies require judgment and the use of estimates and assumptions when applying these policies in the preparation of our consolidated financial statements. On a quarterly basis, we evaluate these estimates and judgments based on historical experience as well as other factors that we believe to be reasonable under the circumstances. These estimates are subject to change in the future if underlying assumptions or factors change. Certain accounting policies, while significant, may not require the use of estimates. Those accounting policies that require significant estimation and/or judgment are listed below.
Purchase Price Allocation
In connection with our acquisition of properties, we allocate the purchase price to tangible and intangible assets and liabilities acquired based on their estimated fair values. We determine the value of tangible assets, consisting of land and buildings, as if vacant, and record intangible assets, including the above- and below-market value of leases, the value of in-place leases and the value of tenant relationships, at their relative estimated fair values.
CPA®:17 Global 2012 10-K 44
Tangible Assets
We determine the value attributed to tangible assets and additional investments in equity interests by applying a discounted cash flow model that is intended to approximate both what a third party would pay to purchase the vacant property and rent at current estimated market rates at a selected capitalization rate. In applying the model, we assume that the disinterested party would sell the property at the end of an estimated market lease term. Assumptions used in the model are property-specific where this information is available; however, when certain necessary information is not available, we use available regional and property type information. Assumptions and estimates include the following:
· a discount rate or internal rate of return;
· the marketing period necessary to put a lease in place;
· carrying costs during the marketing period;
· leasing commissions and tenant improvement allowances;
· market rents and growth factors of these rents; and
· a market lease term and a cap rate to be applied to an estimate of market rent at the end of the market lease term.
The discount rates and residual capitalization rates used to value the properties are selected based on several factors, including:
· the creditworthiness of the lessees;
· industry surveys;
· property type;
· property location and age;
· current lease rates relative to market lease rates; and
· anticipated lease duration.
In the case where a tenant has a purchase option deemed to be favorable to the tenant, or the tenant has long-term renewal options at rental rates below estimated market rental rates, the appraisal assumes the exercise of such purchase option or long-term renewal options in its determination of residual value.
Where a property is deemed to have excess land, the discounted cash flow analysis includes the estimated excess land value at the assumed expiration of the lease, based upon an analysis of comparable land sales or listings in the general market area of the property growing at estimated market growth rates through the year of lease expiration.
The remaining economic life of leased assets is estimated by relying in part upon third-party appraisals of the leased assets, industry standards, and our experience. Different estimates of remaining economic life will affect the depreciation expense that is recorded.
Intangible Assets
We acquire properties subject to net leases and determine the value of above-market and below-market lease intangibles based on the difference between (i) the contractual rents to be paid pursuant to the leases negotiated and in place at the time of acquisition of the properties and (ii) our estimate of fair market lease rates for the property or a similar property, both of which are measured over a period equal to the estimated lease term, which includes any renewal options with rental rates below estimated market rental rates. We discount the difference between the estimated market rent and contractual rent to a present value using an interest rate reflecting our current assessment of the risk associated with the lease acquired, which includes a consideration of the credit of the lessee. Estimates of market rent are generally determined by us relying in part upon a third-party appraisal obtained in connection with the property acquisition and can include estimates of market rent increase factors, which are generally provided in the appraisal or by local real estate brokers.
We evaluate the specific characteristics of each tenants lease in determining the value of in-place lease intangibles. To determine the value of in-place lease intangibles, we consider the following:
· estimated market rent;
· estimated lease term, including renewal options at rental rates below estimated market rental rates;
· estimated carrying costs of the property during a hypothetical expected lease-up period; and
· current market conditions and costs to execute similar leases.
CPA®:17 Global 2012 10-K 45
Estimated carrying costs of the property include real estate taxes, insurance, other property operating costs, and estimates of lost rentals at market rates during the market participants expected lease-up periods, based on assessments of specific market conditions.
We determine these values using our estimates or by relying in part upon third-party appraisals conducted by independent appraisal firms.
Impairments
We periodically assess whether there are any indicators that the value of our long-lived assets may be impaired or that their carrying value may not be recoverable. These impairment indicators include, but are not limited to, the vacancy of a property that is not subject to a lease; a lease default by a tenant that is experiencing financial difficulty; the termination of a lease by a tenant or the rejection of a lease in a bankruptcy proceeding. We may incur impairment charges on long-lived assets, including real estate, direct financing leases, assets held for sale and equity investments in real estate. We may also incur impairment charges on marketable securities and CMBS investments. Estimates and judgments used when evaluating whether these assets are impaired are presented below.
Real Estate
For real estate assets that we intend to hold and use in which an impairment indicator is identified, we follow a two-step process to determine whether an asset is impaired and to determine the amount of the charge. First, we compare the carrying value of the propertys asset group to the future net undiscounted cash flow that we expect the propertys asset group will generate, including any estimated proceeds from the eventual sale of the propertys asset group. The undiscounted cash flow analysis requires us to make our best estimate of market rents, residual values and holding periods. We estimate market rents and residual values using market information from outside sources such as broker quotes or recent comparable sales. In cases where the available market information is not deemed appropriate, we perform a future net cash flow analysis discounted for inherent risk associated with each asset to determine an estimated fair value. As our investment objective is to hold properties on a long-term basis, holding periods used in the undiscounted cash flow analysis generally range from five to ten years. Depending on the assumptions made and estimates used, the future cash flow projected in the evaluation of long-lived assets can vary within a range of outcomes. We consider the likelihood of possible outcomes in determining our estimate of future cash flows. If the future net undiscounted cash flow of the propertys asset group is less than the carrying value, the carrying value of the propertys asset group is considered not recoverable. We then measure the impairment loss as the excess of the carrying value of the propertys asset group over its estimated fair value. The property asset groups estimated fair value is primarily determined using market information from outside sources such as broker quotes or recent comparable sales.
Assets Held for Sale
We classify real estate assets that are accounted for as operating leases as held for sale when we have entered into a contract to sell the property, all material due diligence requirements have been satisfied and we believe it is probable that the disposition will occur within one year. When we classify an asset as held for sale, we carry the investment at the lower of its current carrying value or the expected sale price, less expected selling costs. We base the expected sale price on the contract and the expected selling costs on information provided by brokers and legal counsel. We then compare the assets expected sales price, less expected selling costs, to its carrying value, and if the expected sales price, less expected selling costs, is less than the propertys carrying value, we reduce the carrying value to the expected sales price, less expected selling costs. We continue to review the initial impairment for subsequent changes in the expected sales price, and may recognize an additional impairment charge if warranted.
Direct Financing Leases
We review our direct financing leases at least annually to determine whether there has been an other-than-temporary decline in the current estimate of residual value of the property. The residual value is our estimate of what we could realize upon the sale of the property at the end of the lease term, based on market information and third-party estimates where available. If this review indicates that a decline in residual value has occurred that is other-than-temporary, we recognize an impairment charge and revise the accounting for the direct financing lease to reflect a portion of the future cash flow from the lessee as a return of principal rather than as revenue.
When we enter into a contract to sell the real estate assets that are recorded as direct financing leases, we evaluate whether we believe it is probable that the disposition will occur. If we determine that the disposition is probable and therefore the assets holding period is reduced, we record an allowance for credit losses to reflect the change in the estimate of the undiscounted future rents. Accordingly, the net investment balance is written down to fair value.
CPA®:17 Global 2012 10-K 46
Equity Investments in Real Estate
We evaluate our equity investments in real estate on a periodic basis to determine if there are any indicators that the value of our equity investment may be impaired and to establish whether or not that impairment is other-than-temporary.
To the extent impairment has occurred, we measure the charge as the excess of the carrying value of our investment over its estimated fair value, which is determined by multiplying the estimated fair value of the underlying investments net assets by our ownership interest percentage. For our unconsolidated jointly-owned investments in real estate, we calculate the estimated fair value of the underlying investments real estate or net investment in direct financing lease as described in Real Estate and Direct Financing Leases above. The fair value of the underlying investments debt, if any, is calculated based on market interest rates and other market information. The fair value of the underlying investments other financial assets and liabilities (excluding net investment in direct financing leases) have fair values that approximate their carrying values.
Commercial Mortgage-Backed Securities
We have CMBS investments that are designated as securities held to maturity. On a quarterly basis, we evaluate our CMBS to determine if they have experienced an other-than temporary decline in value. In our evaluation, we consider, among other items, the significance of the decline in value compared to the cost basis; underlying factors contributing to the decline in value, such as delinquencies and expectations of credit losses; the length of time the market value of the security has been less than its cost basis; expected market volatility and market and economic conditions; advice from dealers; and our own experience in the market.
Under current authoritative accounting guidance, if the debt securitys market value is below its amortized cost and we either intend to sell the security or it is more likely than not that we will be required to sell the security before its anticipated recovery, we record the entire amount of the other-than-temporary impairment charge in earnings.
We do not intend to sell our CMBS investments, and we do not expect that it is more likely than not that we will be required to sell these investments before their anticipated recovery. We perform an additional analysis to determine whether we expect to recover our amortized cost basis in the investment. If we determine that a decline in the estimated fair value of our CMBS investments has occurred that is other-than-temporary and we do not expect to recover the entire amortized cost basis, we calculate the total other-than-temporary impairment charge as the difference between the CMBS investments carrying value and their estimated fair value. We then separate the other-than-temporary impairment charge into the portion of the loss related to noncredit factors, such as the illiquidity of the securities (the non-credit loss portion), and the portion related to credit factors (the credit loss portion). We determine the non-credit loss portion by analyzing the changes in spreads on high credit quality CMBS securities as compared with the changes in spreads on the CMBS securities being analyzed for other-than-temporary impairment. We generally perform this analysis over a time period from the date of acquisition of the debt securities through the date of the analysis. Any resulting loss is deemed to represent losses due to the illiquidity of the debt securities and is recorded as the non-credit loss portion. We then measure the credit loss portion of the other-than-temporary impairment as the residual amount of the other-than-temporary impairment. We record the non-credit loss portion as a separate component of Other comprehensive income or loss in equity and the credit loss portion in earnings.
Following recognition of the other-than-temporary impairment, the difference between the new cost basis of the CMBS investments and cash flows expected to be collected is accreted to Interest income from CMBS over the remaining expected lives of the securities.
Supplemental Financial Measures
In the real estate industry, analysts and investors employ certain non-GAAP supplemental financial measures in order to facilitate meaningful comparisons between periods and among peer companies. Additionally, in the formulation of our goals and in the evaluation of the effectiveness of our strategies, we use supplemental non-GAAP measures which are uniquely defined by our management. We believe these measures are useful to investors to consider because they may assist them to better understand and measure the performance of our business over time and against similar companies. A description of these non-GAAP financial measures and reconciliations to the most directly comparable GAAP measures are provided below.
Funds from Operations (FFO) and Modified Funds from Operations (MFFO)
Due to certain unique operating characteristics of real estate companies, as discussed below, the National Association of Real Estate Investment Trusts, Inc. (NAREIT), an industry trade group, has promulgated a measure known as FFO, which we believe to be an
CPA®:17 Global 2012 10-K 47
appropriate supplemental measure to reflect the operating performance of a REIT. The use of FFO is recommended by the REIT industry as a supplemental performance measure. FFO is not equivalent to nor a substitute for net income or loss as determined under GAAP.
We define FFO consistent with the standards established by the White Paper on FFO approved by the Board of Governors of NAREIT, as revised in February 2004, or the White Paper. The White Paper defines FFO as net income or loss computed in accordance with GAAP, excluding gains or losses from sales of property, impairment charges on real estate and depreciation and amortization; and after adjustments for unconsolidated partnerships and jointly-owned investments. Adjustments for unconsolidated partnerships and jointly-owned investments are calculated to reflect FFO.
The historical accounting convention used for real estate assets requires straight-line depreciation of buildings and improvements, which implies that the value of real estate assets diminishes predictably over time, especially if such assets are not adequately maintained or repaired and renovated as required by relevant circumstances and/or is requested or required by lessees for operational purposes in order to maintain the value disclosed. We believe that, since real estate values historically rise and fall with market conditions, including inflation, interest rates, the business cycle, unemployment and consumer spending, presentations of operating results for a REIT using historical accounting for depreciation may be less informative. Historical accounting for real estate involves the use of GAAP. Any other method of accounting for real estate such as the fair value method cannot be construed to be any more accurate or relevant than the comparable methodologies of real estate valuation found in GAAP. Nevertheless, we believe that the use of FFO, which excludes the impact of real estate-related depreciation and amortization as well as impairment charges of real estate-related assets, provides a more complete understanding of our performance to investors and to management, and when compared year over year, reflects the impact on our operations from trends in occupancy rates, rental rates, operating costs, general and administrative expenses, and interest costs, which may not be immediately apparent from net income. In particular, we believe it is appropriate to disregard impairment charges, as this is a fair value adjustment that is largely based on market fluctuations and assessments regarding general market conditions which can change over time. An asset will only be evaluated for impairment if certain impairment indications exist and if the carrying, or book value, exceeds the total estimated undiscounted future cash flows (including net rental and lease revenues, net proceeds on the sale of the property, and any other ancillary cash flows at a property or group level under GAAP) from such asset. Investors should note, however, that determinations of whether impairment charges have been incurred are based partly on anticipated operating performance, because estimated undiscounted future cash flows from a property, including estimated future net rental and lease revenues, net proceeds on the sale of the property, and certain other ancillary cash flows, are taken into account in determining whether an impairment charge has been incurred. While impairment charges are excluded from the calculation of FFO described above, investors are cautioned that, due to the fact that impairments are based on estimated future undiscounted cash flows and the relatively limited term of our operations, it could be difficult to recover any impairment charges. However, FFO and MFFO, as described below, should not be construed to be more relevant or accurate than the current GAAP methodology in calculating net income or in its applicability in evaluating the operating performance of the company. The method utilized to evaluate the value and performance of real estate under GAAP should be construed as a more relevant measure of operational performance and considered more prominently than the non-GAAP FFO and MFFO measures and the adjustments to GAAP in calculating FFO and MFFO.
Changes in the accounting and reporting promulgations under GAAP (for acquisition fees and expenses from a capitalization/depreciation model to an expensed-as-incurred model) were put into effect in 2009. These other changes to GAAP accounting for real estate subsequent to the establishment of NAREITs definition of FFO have prompted an increase in cash-settled expenses, such as acquisition fees, that are typically accounted for as operating expenses. Management believes these fees and expenses do not affect our overall long-term operating performance. Publicly registered, non-listed REITs typically have a significant amount of acquisition activity and are substantially more dynamic during their initial years of investment and operation. While other start-up entities may also experience significant acquisition activity during their initial years, we believe that non-listed REITs are unique in that they have a limited life with targeted exit strategies within a relatively limited time frame after acquisition activity ceases. As disclosed in the prospectus for our follow-on offering dated April 7, 2011 (the Prospectus), we intend to begin the process of achieving a liquidity event (i.e., listing of our common stock on a national exchange, a merger or sale of our assets or another similar transaction) within eight to 12 years following the investment of substantially all of the net proceeds from our initial offering, which occurred in April 2011. Thus, we do not intend to continuously purchase assets and intend to have a limited life. Due to the above factors and other unique features of publicly registered, non-listed REITs, the Investment Program Association (IPA), an industry trade group, has standardized a measure known as MFFO, which the IPA has recommended as a supplemental measure for publicly registered non-listed REITs and which we believe to be another appropriate supplemental measure to reflect the operating performance of a non-listed REIT having the characteristics described above. MFFO is not equivalent to our net income or loss as determined under GAAP, and MFFO may not be a useful measure of the impact of long-term operating performance on value if we do not continue to operate with a limited life and targeted exit strategy, as currently intended. We believe that, because MFFO excludes costs that we consider more reflective of investing activities and other non-operating items included in FFO and also excludes
CPA®:17 Global 2012 10-K 48
acquisition fees and expenses that affect our operations only in periods in which properties are acquired, MFFO can provide, on a going forward basis, an indication of the sustainability (that is, the capacity to continue to be maintained) of our operating performance after the period in which we are acquiring properties and once our portfolio is in place. By providing MFFO, we believe we are presenting useful information that assists investors and analysts to better assess the sustainability of our operating performance now that our offering has been completed and once all of our properties have been acquired. We also believe that MFFO is a recognized measure of sustainable operating performance by the non-listed REIT industry. Further, we believe MFFO is useful in comparing the sustainability of our operating performance since our offering and most of our acquisitions are completed with the sustainability of the operating performance of other real estate companies that are not as involved in acquisition activities. Investors are cautioned that MFFO should only be used to assess the sustainability of a companys operating performance after a companys offering has been completed and properties have been acquired, as it excludes acquisition costs that have a negative effect on a companys operating performance during the periods in which properties are acquired.
We define MFFO consistent with the IPAs Guideline 2010-01, Supplemental Performance Measure for Publicly Registered, Non-Listed REITs: Modified Funds from Operations, or the Practice Guideline, issued by the IPA in November 2010. The Practice Guideline defines MFFO as FFO further adjusted for the following items, as applicable, included in the determination of GAAP net income: acquisition fees and expenses; amounts relating to deferred rent receivables and amortization of above and below market leases and liabilities (which are adjusted in order to reflect such payments from a GAAP accrual basis to a cash basis of disclosing the rent and lease payments); accretion of discounts and amortization of premiums on debt investments; nonrecurring impairments of real estate-related investments (i.e., infrequent or unusual, not reasonably likely to recur in the ordinary course of business); mark-to-market adjustments included in net income; nonrecurring gains or losses included in net income from the extinguishment or sale of debt, hedges, foreign exchange, derivatives or securities holdings where trading of such holdings is not a fundamental attribute of the business plan, unrealized gains or losses resulting from consolidation from, or deconsolidation to, equity accounting, and after adjustments for consolidated and unconsolidated partnerships and jointly-owned investments, with such adjustments calculated to reflect MFFO on the same basis. The accretion of discounts and amortization of premiums on debt investments, nonrecurring unrealized gains and losses on hedges, foreign exchange, derivatives or securities holdings, unrealized gains and losses resulting from consolidations, as well as other listed cash flow adjustments are adjustments made to net income in calculating the cash flows provided by operating activities and, in some cases, reflect gains or losses which are unrealized and may not ultimately be realized. While we are responsible for managing interest rate, hedge and foreign exchange risk, we retain an outside consultant to review all our hedging agreements. Inasmuch as interest rate hedges are not a fundamental part of our operations, we believe it is appropriate to exclude such infrequent gains and losses in calculating MFFO, as such gains and losses are not reflective of on-going operations.
In calculating MFFO, we exclude acquisition-related expenses, amortization of above- and below-market leases, fair value adjustments of derivative financial instruments, deferred rent receivables and the adjustments of such items related to noncontrolling interests. Under GAAP, acquisition fees and expenses are characterized as operating expenses in determining operating net income. These expenses are paid in cash by a company. All paid and accrued acquisition fees and expenses will have negative effects on returns to investors, the potential for future distributions, and cash flows generated by the company, unless earnings from operations or net sales proceeds from the disposition of other properties are generated to cover the purchase price of the property, these fees and expenses and other costs related to such property. Further, under GAAP, certain contemplated non-cash fair value and other non-cash adjustments are considered operating non-cash adjustments to net income in determining cash flow from operating activities. In addition, we view fair value adjustments of derivatives and gains and losses from dispositions of assets as infrequent items or items which are unrealized and may not ultimately be realized, and which are not reflective of on-going operations and are therefore typically adjusted for assessing operating performance.
Our management uses MFFO and the adjustments used to calculate it in order to evaluate our performance against other non-listed REITs which have limited lives with short and defined acquisition periods and targeted exit strategies shortly thereafter. As noted above, MFFO may not be a useful measure of the impact of long-term operating performance on value if we do not continue to operate in this manner. We believe that our use of MFFO and the adjustments used to calculate it allow us to present our performance in a manner that reflects certain characteristics that are unique to non-listed REITs, such as their limited life, limited and defined acquisition period and targeted exit strategy, and hence that the use of such measures is useful to investors. For example, acquisition costs are generally funded from the proceeds of our offering and other financing sources and not from operations. By excluding expensed acquisition costs, the use of MFFO provides information consistent with managements analysis of the operating performance of the properties. Additionally, fair value adjustments, which are based on the impact of current market fluctuations and underlying assessments of general market conditions, but can also result from operational factors such as rental and occupancy rates, may not be directly related or attributable to our current operating performance. By excluding such changes that may reflect anticipated and unrealized gains or losses, we believe MFFO provides useful supplemental information.
Presentation of this information is intended to provide useful information to investors as they compare the operating performance of different REITs, although it should be noted that not all REITs calculate FFO and MFFO the same way, so comparisons with other REITs may not be meaningful. Furthermore, FFO and MFFO are not necessarily indicative of cash flow available to fund cash needs and should not be considered as an alternative to net income or income from continuing operations as an indication of our performance, as an alternative to cash flows from operations as an indication of our liquidity, or indicative of funds available to fund our cash needs including our ability to make distributions to our stockholders. FFO and MFFO should be reviewed in conjunction with other GAAP measurements as an indication of our performance.
MFFO has limitations as a performance measure in an offering such as ours, where the price of a share of common stock is a stated value and there is no estimated net asset value per share (NAV) determination during the offering stage and for a period thereafter. MFFO is useful in assisting management and investors in assessing the sustainability of operating performance in future operating periods, and in particular, after the offering and acquisition stages are complete and NAV is disclosed. MFFO is not a useful measure in evaluating NAV because impairments are taken into account in determining NAV but not in determining MFFO.
Neither the SEC, NAREIT nor any other regulatory body has passed judgment on the acceptability of the adjustments that we use to calculate FFO or MFFO. In the future, the SEC, NAREIT or another regulatory body may decide to standardize the allowable adjustments across the non-listed REIT industry and we would have to adjust our calculation and characterization of FFO or MFFO accordingly.
FFO and MFFO were as follows (in thousands):
|
|
Years Ended December 31, |
| |||||||||
|
|
2012 |
|
|
2011 |
|
|
2010 |
| |||
Net income attributable to CPA®:17 Global stockholders |
|
$ |
41,611 |
|
|
$ |
49,655 |
|
|
$ |
30,454 |
|
Adjustments: |
|
|
|
|
|
|
|
|
| |||
Depreciation and amortization of real property |
|
67,141 |
|
|
42,240 |
|
|
13,898 |
| |||
Impairment charges |
|
- |
|
|
(70 |
) |
|
- |
| |||
Gain on sale of real estate |
|
(1,832 |
) |
|
(778 |
) |
|
(110 |
) | |||
Proportionate share of adjustments to equity in net income of partially-owned entities to arrive at FFO: |
|
|
|
|
|
|
|
|
| |||
Depreciation and amortization of real property |
|
16,458 |
|
|
13,892 |
|
|
3,136 |
| |||
Impairment charges |
|
- |
|
|
13 |
|
|
- |
| |||
Loss on sale of real estate, net |
|
1 |
|
|
- |
|
|
38 |
| |||
Proportionate share of adjustments for noncontrolling interests to arrive at FFO |
|
(578 |
) |
|
(646 |
) |
|
(580 |
) | |||
Total adjustments |
|
81,190 |
|
|
54,651 |
|
|
16,382 |
| |||
FFO as defined by NAREIT |
|
122,801 |
|
|
104,306 |
|
|
46,836 |
| |||
Adjustments: |
|
|
|
|
|
|
|
|
| |||
Other non-real estate depreciation, amortization and non-cash charges |
|
1,825 |
|
|
114 |
|
|
79 |
| |||
Straight-line and other rent adjustments (a) |
|
(15,315 |
) |
|
(14,236 |
) |
|
(5,252 |
) | |||
Impairment charges (b) |
|
2,019 |
|
|
- |
|
|
- |
| |||
Acquisition expenses (c) |
|
17,173 |
|
|
9,335 |
|
|
1,868 |
| |||
Above (below)-market rent intangible lease amortization, net (d) |
|
858 |
|
|
1,756 |
|
|
1,215 |
| |||
Amortization of premiums on debt investments, net |
|
138 |
|
|
148 |
|
|
130 |
| |||
Realized gains on foreign currency, derivatives and other (e) |
|
(3,724 |
) |
|
(6,665 |
) |
|
(846 |
) | |||
Proportionate share of adjustments to equity in net income of partially-owned entities to arrive at MFFO: |
|
|
|
|
|
|
|
|
| |||
Other non-real estate depreciation, amortization and non-cash charges |
|
28 |
|
|
(6 |
) |
|
(6 |
) | |||
Straight-line and other rent adjustments (a) |
|
(45 |
) |
|
(154 |
) |
|
(364 |
) | |||
Gain on extinguishment of debt (f) |
|
(1,914 |
) |
|
- |
|
|
- |
| |||
Acquisition expenses (c) |
|
273 |
|
|
282 |
|
|
2 |
| |||
Above (below)-market rent intangible lease amortization, net (d) |
|
2 |
|
|
13 |
|
|
(22 |
) | |||
Realized (gains) losses on foreign currency, derivatives and other (e) |
|
- |
|
|
(7 |
) |
|
1 |
| |||
Proportionate share of adjustments for noncontrolling interests to arrive at MFFO |
|
1,061 |
|
|
1,880 |
|
|
948 |
| |||
Total adjustments |
|
2,379 |
|
|
(7,540 |
) |
|
(2,247 |
) | |||
MFFO |
|
$ |
125,180 |
|
|
$ |
96,766 |
|
|
$ |
44,589 |
|
___________
(a) |
Under GAAP, rental receipts are allocated to periods using an accrual basis. This may result in income recognition that is significantly different than underlying contract terms. By adjusting for these items (to reflect such payments from a GAAP accrual basis to a cash basis of disclosing the rent and lease payments), management believes that MFFO provides useful supplemental information on the realized economic impact of lease terms and debt investments, provides insight on the contractual cash flows of such lease terms and debt investments, and aligns results with managements analysis of operating performance. |
(b) |
Impairment charges were incurred on our CMBS portfolio and are considered non-real estate impairments. As such, these impairment charges were not included in our computation of FFO as defined by NAREIT but are included as an adjustment in arriving at MFFO as these charges are not directly related or attributable to our operations. |
(c) |
In evaluating investments in real estate, management differentiates the costs to acquire the investment from the operations derived from the investment. Such information would be comparable only for non-listed REITs that have completed their acquisition activity and have other similar operating characteristics. By excluding expensed acquisition costs, management believes MFFO provides useful supplemental information that is comparable for each type of real estate investment and is consistent with managements analysis of the investing and operating performance of our properties. Acquisition fees and expenses include payments to our advisor or third parties. Acquisition fees and expenses under GAAP are considered operating expenses and as expenses included in the determination of net income and income from continuing operations, both of which are performance measures under GAAP. All paid and accrued acquisition fees and expenses will have negative |
CPA®:17 Global 2012 10-K 51
|
effects on returns to stockholders, the potential for future distributions, and cash flows generated by us, unless earnings from operations or net sales proceeds from the disposition of properties are generated to cover the purchase price of the property, these fees and expenses and other costs related to the property. |
(d) |
Under GAAP, certain intangibles are accounted for at cost and reviewed at least annually for impairment, and certain intangibles are assumed to diminish predictably in value over time and amortized, similar to depreciation and amortization of other real estate related assets that are excluded from FFO. However, because real estate values and market lease rates historically rise or fall with market conditions, management believes that by excluding charges relating to amortization of these intangibles, MFFO provides useful supplemental information on the performance of the real estate. |
(e) |
Management believes that adjusting for fair value adjustments for derivatives provides useful information because such fair value adjustments are based on market fluctuations and may not be directly related or attributable to our operations. |
(f) |
Relates to our share of gain on the extinguishment of debt recognized by a jointly-owned investment (Note 6). |
CPA®:17 Global 2012 10-K 52
Item 7A. Quantitative and Qualitative Disclosures About Market Risk.
Market Risk
Market risk is the exposure to loss resulting from changes in interest rates, foreign currency exchange rates and equity prices. The primary risks to which we are exposed are interest rate risk and foreign currency exchange risk. We are also exposed to market risk as a result of concentrations in certain tenant industries. Adverse market factors can affect the ability of tenants in a particular industry/region to meet their respective lease obligations. In order to manage this risk, we view our collective tenant roster as a portfolio, and in its investment decisions the advisor attempts to diversify our portfolio so that we are not overexposed to a particular industry or geographic region.
Generally, we do not use derivative instruments to hedge credit/market risks or for speculative purposes. However, from time to time, we may enter into foreign currency derivative contracts to hedge our foreign currency cash flow exposures.
Interest Rate Risk
The value of our real estate, related fixed-rate debt obligations and notes receivable is subject to fluctuations based on changes in interest rates. The value of our real estate is also subject to fluctuations based on local and regional economic conditions and changes in the creditworthiness of lessees, all of which may affect our ability to refinance property-level mortgage debt when balloon payments are scheduled. Interest rates are highly sensitive to many factors, including governmental monetary and tax policies, domestic and international economic and political conditions, and other factors beyond our control. An increase in interest rates would likely cause the value of our owned assets to decrease. Increases in interest rates may also have an impact on the credit profile of certain tenants.
We are exposed to the impact of interest rate changes primarily through our borrowing activities. To limit this exposure, we attempt to obtain non-recourse mortgage financing on a long-term, fixed-rate basis. However, from time to time, we or our joint investment partners may obtain variable-rate non-recourse mortgage loans and, as a result, may enter into interest rate swap agreements or interest rate cap agreements with lenders that effectively convert the variable-rate debt service obligations of the loan to a fixed rate or limit the underlying interest rate from exceeding a specified strike rate, respectively. Interest rate swaps are agreements in which one party exchanges a stream of interest payments for a counterpartys stream of cash flows over a specific period, and interest rate caps limit the effective borrowing rate of variable-rate debt obligations while allowing participants to share in downward shifts in interest rates. These interest rate swaps and caps are derivative instruments designated as cash flow hedges on the forecasted interest payments on the debt obligation. The notional, or face, amount on which the swaps or caps are based is not exchanged. Our objective in using these derivatives is to limit our exposure to interest rate movements. At December 31, 2012, we estimate that the net fair value of our interest rate cap and interest rate swaps, which are included in Other assets, net and Accounts payable, accrued expenses and other liabilities, respectively, in the consolidated financial statements, was in a net liability position of $20.1 million (Note 9).
At December 31, 2012, all of our debt either bore interest at fixed rates, was swapped to a fixed rate, was subject to an interest rate cap, or bore interest at fixed rates that were scheduled to convert to then-prevailing market fixed rates at certain future points during their term. The annual interest rates on our fixed-rate debt at December 31, 2012 ranged from 2.0% to 8.0%. The effective annual interest rates on our variable-rate debt at December 31, 2012 ranged from 2.9% to 6.6%. Our debt obligations are more fully described under Financial Condition in Item 7 above. The following table presents principal cash flows based upon expected maturity dates of our debt obligations outstanding at December 31, 2012 (in thousands):
|
|
2013 |
|
2014 |
|
2015 |
|
2016 |
|
2017 |
|
Thereafter |
|
Total |
|
Fair value |
| ||||||||
Fixed-rate debt |
|
$ |
50,273 |
|
$ |
30,577 |
|
$ |
61,388 |
|
$ |
71,334 |
|
$ |
202,074 |
|
$ |
681,590 |
|
$ |
1,097,236 |
|
$ |
1,133,927 |
|
Variable-rate debt |
|
$ |
5,339 |
|
$ |
5,529 |
|
$ |
5,642 |
|
$ |
222,864 |
|
$ |
142,962 |
|
$ |
161,610 |
|
$ |
543,946 |
|
$ |
540,092 |
|
The estimated fair value of our fixed-rate debt and our variable-rate debt that currently bears interest at fixed rates or has effectively been converted to a fixed rate through the use of interest rate swaps or that has been subject to an interest rate cap is affected by changes in interest rates. A decrease or increase in interest rates of 1% would change the estimated fair value of this debt at December 31, 2012 by an aggregate increase of $78.4 million or an aggregate decrease of $82.9 million, respectively.
As more fully described under Financial Condition Summary of Financing in Item 7 above, our variable-rate debt in the table above bore interest at fixed rates at December 31, 2012 but has interest rate reset features that will change the fixed interest rates to then-prevailing market fixed rates at certain points during their term. This debt is generally not subject to short-term fluctuations in interest rates.
CPA®:17 Global 2012 10-K 53
Foreign Currency Exchange Rate Risk
We own investments in Europe and in Asia, and as a result are subject to risk from the effects of exchange rate movements in the euro and, to a lesser extent, the British pound sterling and the Japanese yen, which may affect future costs and cash flows. Although all of our foreign investments through the fourth quarter of 2012 were conducted in these currencies, we are likely to conduct business in other currencies in the future as we seek to invest funds from our offering internationally. We manage foreign currency exchange rate movements by generally placing both our debt obligation to the lender and the tenants rental obligation to us in the same currency. This reduces our overall exposure to the actual equity that we have invested and the equity portion of our cash flow. In addition, we may use currency hedging to further reduce the exposure to our equity cash flow. We are generally a net receiver of these currencies (we receive more cash than we pay out), and therefore our foreign operations benefit from a weaker U.S. dollar, and are adversely affected by a stronger U.S. dollar, relative to the foreign currency.
We recognized net unrealized and realized foreign currency transaction losses of $0.3 million and gains of $1.1 million, respectively, for the year ended December 31, 2012. These losses and gains are included in Other income and (expenses) in the consolidated financial statements and were primarily due to changes in the value of the foreign currency on accrued interest receivable on notes receivable from consolidated subsidiaries.
We enter into foreign currency forward contracts, collars, and put options to hedge certain of our foreign currency cash flow exposures. A foreign currency forward contract is a commitment to deliver a certain amount of currency at a certain price on a specific date in the future. A foreign currency collar consists of a written call option and a purchased put option to sell the foreign currency at a range of predetermined exchange rates. A foreign currency put option is the right to sell the currency at a predetermined price. By entering into forward contracts, we are locked into a future currency exchange rate for the term of the contract. A foreign currency collar guarantees that the exchange rate of the currency will not fluctuate beyond the range of the options strike prices. The total estimated fair value of these instruments, which is included in Other assets, net, in the consolidated financial statements was $4.4 million at December 31, 2012. We obtain non-recourse mortgage financing in the local currency in order to mitigate our exposure to changes in foreign currency exchange rates. To the extent that the currency fluctuations increase or decrease rental revenues as translated to U.S. dollar, the change in debt service, as translated to U.S. dollars, will partially offset the effect of fluctuations in revenue and, to some extent, mitigate the risk from changes in foreign currency exchange rates.
We have obtained mortgage financing in the local currency. To the extent that currency fluctuations increase or decrease rental revenues as translated to U.S. dollars, the change in debt service, as translated to U.S. dollars, will partially offset the effect of fluctuations in revenue and mitigate the risk from changes in foreign currency exchange rates.
Scheduled future minimum rents, exclusive of renewals, under non-cancelable operating leases, for our foreign operations during each of the next five years and thereafter, are as follows (in thousands):
Lease Revenues (a) |
|
2013 |
|
2014 |
|
2015 |
|
2016 |
|
2017 |
|
Thereafter |
|
Total |
| |||||||
Euro (c) |
|
$ |
86,969 |
|
$ |
87,166 |
|
$ |
87,194 |
|
$ |
87,194 |
|
$ |
87,194 |
|
$ |
958,092 |
|
$ |
1,393,809 |
|
British pound sterling (d) |
|
5,788 |
|
5,788 |
|
5,788 |
|
5,789 |
|
5,788 |
|
76,011 |
|
104,952 |
| |||||||
Japanese yen (e) |
|
3,571 |
|
3,571 |
|
3,571 |
|
3,649 |
|
3,675 |
|
15,598 |
|
33,635 |
| |||||||
|
|
$ |
96,328 |
|
$ |
96,525 |
|
$ |
96,553 |
|
$ |
96,632 |
|
$ |
96,657 |
|
$ |
1,049,701 |
|
$ |
1,532,396 |
|
Scheduled debt service payments (principal and interest) for mortgage notes payable for our foreign operations during each of the next five years and thereafter, are as follows (in thousands):
Debt Service (a) (b) |
|
2013 |
|
2014 |
|
2015 |
|
2016 |
|
2017 |
|
Thereafter |
|
Total |
| |||||||
Euro (c) |
|
$ |
50,506 |
|
$ |
28,489 |
|
$ |
69,870 |
|
$ |
252,479 |
|
$ |
142,952 |
|
$ |
- |
|
$ |
544,296 |
|
British pound sterling (d) |
|
486 |
|
486 |
|
486 |
|
13,858 |
|
- |
|
- |
|
15,316 |
| |||||||
Japanese yen (e) |
|
305 |
|
605 |
|
605 |
|
607 |
|
30,929 |
|
- |
|
33,051 |
| |||||||
|
|
$ |
51,297 |
|
$ |
29,580 |
|
$ |
70,961 |
|
$ |
266,944 |
|
$ |
173,881 |
|
$ |
- |
|
$ |
592,663 |
|
CPA®:17 Global 2012 10-K 54
___________
(a) Amounts are based on the applicable exchange rates at December 31, 2012. Contractual rents and debt obligations are denominated in the functional currency of the country of each property.
(b) Interest on unhedged variable-rate debt obligations was calculated using the applicable annual interest rates and balances outstanding at December 31, 2012.
(c) We estimate that for a 1% increase or decrease in the exchange rate between the euro and the U.S. dollar, there would be a corresponding change in the projected property-level cash flow at December 31, 2012 of $8.5 million.
(d) We estimate that for a 1% increase or decrease in the exchange rate between the British pound sterling and the U.S. dollar, there would be a corresponding change in the projected property-level cash flow at December 31, 2012 of $0.9 million.
(e) We estimate that for a 1% increase or decrease in the exchange rate between the Japanese yen and the U.S. dollar, there would be a corresponding change in the projected property-level cash flow at December 31, 2012 of less than $0.1 million.
As a result of scheduled balloon payments on international non-recourse mortgage loans, projected debt service obligations exceed projected lease revenues in 2016 and 2017. In 2016 and 2017, balloon payments totaling $244.3 million and $164.4 million, respectively, are due in each year on five non-recourse mortgage loans that are collateralized by properties that we own with affiliates. We currently anticipate that, by their respective due dates, we will have refinanced certain of these loans, but there can be no assurance that we will be able to do so on favorable terms, if at all. If that has not occurred, we would expect to use our cash resources to make these payments, if necessary.
CPA®:17 Global 2012 10-K 55
Item 8. Financial Statements and Supplementary Data.
The following financial statements and schedule are filed as a part of this Report:
|
Page No. |
57 | |
|
|
58 | |
|
|
59 | |
|
|
60 | |
|
|
61 | |
|
|
62 | |
|
|
64 | |
|
|
98 | |
|
|
103 | |
|
|
105 | |
|
|
105 |
Financial statement schedules other than those listed above are omitted because the required information is given in the financial statements, including the notes thereto, or because the conditions requiring their filing do not exist.
CPA®:17 Global 2012 10-K 56
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Board of Directors and Stockholders of Corporate Property Associates 17 Global Incorporated:
In our opinion, the consolidated financial statements listed in the accompanying index present fairly, in all material respects, the financial position of Corporate Property Associates 17 Global Incorporated and its subsidiaries (the Company) at December 31, 2012 and 2011, and the results of their operations and their cash flows for each of the three years in the period ended December 31, 2012 in conformity with accounting principles generally accepted in the United States of America. In addition, in our opinion, the financial statement schedules listed in the accompanying index presents fairly, in all material respects, the information set forth therein when read in conjunction with the related consolidated financial statements. These financial statements and financial statement schedules are the responsibility of the Companys management. Our responsibility is to express an opinion on these financial statements and financial statement schedules based on our audits. We conducted our audits of these statements in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.
/s/ PricewaterhouseCoopers LLP
New York, New York
March 8, 2013
CPA®:17 Global 2012 10-K 57
CORPORATE PROPERTY ASSOCIATES 17 GLOBAL INCORPORATED
(in thousands, except share and per share amounts)
|
|
December 31, |
| |||||
|
|
2012 |
|
|
2011 |
| ||
Assets |
|
|
|
|
|
| ||
Investments in real estate: |
|
|
|
|
|
| ||
Real estate, at cost (inclusive of amounts attributable to consolidated variable interest entities (VIEs) of $133,472 and $137,902, respectively) |
|
$ |
2,105,772 |
|
|
$ |
1,500,151 |
|
Operating real estate, at cost |
|
254,805 |
|
|
178,141 |
| ||
Accumulated depreciation (inclusive of amounts attributable to consolidated VIEs of $3,801 and $1,617, respectively) |
|
(85,002 |
) |
|
(43,267 |
) | ||
Net investments in properties |
|
2,275,575 |
|
|
1,635,025 |
| ||
Real estate under construction (inclusive of amounts attributable to consolidated VIEs of $12,629 and $82,521, respectively) |
|
71,285 |
|
|
90,176 |
| ||
Net investments in direct financing leases (inclusive of amounts attributable to consolidated VIEs of $242,175 and $240,112, respectively) |
|
475,872 |
|
|
462,505 |
| ||
Equity investments in real estate |
|
275,133 |
|
|
187,067 |
| ||
Net investments in real estate |
|
3,097,865 |
|
|
2,374,773 |
| ||
Notes receivable |
|
40,000 |
|
|
70,000 |
| ||
Cash and cash equivalents (inclusive of amounts attributable to consolidated VIEs of $1,529 and $275, respectively) |
|
652,330 |
|
|
180,726 |
| ||
In-place lease intangible assets, net (inclusive of amounts attributable to consolidated VIEs of $6,040 and $6,378, respectively) |
|
423,084 |
|
|
267,906 |
| ||
Other intangible assets, net |
|
78,239 |
|
|
66,231 |
| ||
Other assets, net (inclusive of amounts attributable to consolidated VIEs of $14,780 and $16,118, respectively) |
|
124,781 |
|
|
86,176 |
| ||
Total assets |
|
$ |
4,416,299 |
|
|
$ |
3,045,812 |
|
|
|
|
|
|
|
| ||
Liabilities and Equity |
|
|
|
|
|
| ||
Liabilities: |
|
|
|
|
|
| ||
Non-recourse debt (inclusive of amounts attributable to consolidated VIEs of $123,413 and $120,717, respectively) |
|
$ |
1,633,452 |
|
|
$ |
1,154,254 |
|
Accounts payable, accrued expenses and other liabilities |
|
74,384 |
|
|
48,035 |
| ||
Prepaid and deferred rental income and security deposits (inclusive of amounts attributable to consolidated VIEs of $2,249 and $3,228, respectively) |
|
118,017 |
|
|
56,029 |
| ||
Due to affiliates (inclusive of amounts attributable to consolidated VIEs of $5,710 and $4,903, respectively) |
|
29,527 |
|
|
27,747 |
| ||
Distributions payable |
|
46,412 |
|
|
32,288 |
| ||
Total liabilities |
|
1,901,792 |
|
|
1,318,353 |
| ||
Commitments and contingencies (Note 11) |
|
|
|
|
|
| ||
|
|
|
|
|
|
| ||
Equity: |
|
|
|
|
|
| ||
CPA®:17 Global stockholders equity: |
|
|
|
|
|
| ||
Preferred stock, $0.001 par value; 50,000,000 shares authorized; none issued |
|
- |
|
|
- |
| ||
Common stock, $0.001 par value; 400,000,000 shares authorized; 310,548,664 and 207,975,777 shares issued and outstanding, respectively |
|
310 |
|
|
208 |
| ||
Additional paid-in capital |
|
2,786,855 |
|
|
1,863,227 |
| ||
Distributions in excess of accumulated earnings |
|
(277,224 |
) |
|
(157,062 |
) | ||
Accumulated other comprehensive loss |
|
(35,366 |
) |
|
(32,601 |
) | ||
Less, treasury stock at cost, 3,645,644 and 1,826,959 shares, respectively |
|
(34,293 |
) |
|
(17,104 |
) | ||
Total CPA®:17 Global stockholders equity |
|
2,440,282 |
|
|
1,656,668 |
| ||
Noncontrolling interests |
|
74,225 |
|
|
70,791 |
| ||
Total equity |
|
2,514,507 |
|
|
1,727,459 |
| ||
Total liabilities and equity |
|
$ |
4,416,299 |
|
|
$ |
3,045,812 |
|
See Notes to Consolidated Financial Statements.
CPA®:17 Global 2012 10-K 58
CORPORATE PROPERTY ASSOCIATES 17 GLOBAL INCORPORATED
CONSOLIDATED STATEMENTS OF INCOME
(in thousands, except share and per share amounts)
|
|
Years Ended December 31, |
| |||||||||
|
|
2012 |
|
|
2011 |
|
|
2010 |
| |||
Revenues |
|
|
|
|
|
|
|
|
| |||
Rental income |
|
$ |
177,161 |
|
|
$ |
124,425 |
|
|
$ |
52,233 |
|
Interest income from direct financing leases |
|
53,549 |
|
|
48,474 |
|
|
40,028 |
| |||
Lease revenues |
|
230,710 |
|
|
172,899 |
|
|
92,261 |
| |||
Other operating income |
|
5,188 |
|
|
2,880 |
|
|
1,440 |
| |||
Interest income |
|
9,042 |
|
|
6,602 |
|
|
3,545 |
| |||
Other real estate income |
|
49,103 |
|
|
13,740 |
|
|
2,217 |
| |||
|
|
294,043 |
|
|
196,121 |
|
|
99,463 |
| |||
Operating Expenses |
|
|
|
|
|
|
|
|
| |||
Depreciation and amortization |
|
(69,605 |
) |
|
(43,599 |
) |
|
(14,528 |
) | |||
General and administrative |
|
(29,716 |
) |
|
(16,585 |
) |
|
(5,256 |
) | |||
Property expenses |
|
(31,342 |
) |
|
(19,206 |
) |
|
(6,991 |
) | |||
Other real estate expenses |
|
(33,701 |
) |
|
(8,009 |
) |
|
(1,327 |
) | |||
Impairment charges |
|
(2,019 |
) |
|
70 |
|
|
- |
| |||
|
|
(166,383 |
) |
|
(87,329 |
) |
|
(28,102 |
) | |||
Other Income and Expenses |
|
|
|
|
|
|
|
|
| |||
Income from equity investments in real estate |
|
7,828 |
|
|
5,527 |
|
|
1,675 |
| |||
Other income and (expenses) |
|
4,516 |
|
|
6,983 |
|
|
794 |
| |||
Gain on sale of real estate |
|
1,092 |
|
|
- |
|
|
- |
| |||
Interest expense |
|
(72,651 |
) |
|
(51,369 |
) |
|
(27,860 |
) | |||
|
|
(59,215 |
) |
|
(38,859 |
) |
|
(25,391 |
) | |||
Income from continuing operations before income taxes |
|
68,445 |
|
|
69,933 |
|
|
45,970 |
| |||
Provision for income taxes |
|
(1,116 |
) |
|
(1,042 |
) |
|
(214 |
) | |||
Income from continuing operations |
|
67,329 |
|
|
68,891 |
|
|
45,756 |
| |||
|
|
|
|
|
|
|
|
|
| |||
Discontinued Operations |
|
|
|
|
|
|
|
|
| |||
Income from operations of discontinued properties, net of tax |
|
84 |
|
|
777 |
|
|
31 |
| |||
Gain on sale of real estate |
|
740 |
|
|
778 |
|
|
- |
| |||
Income from discontinued operations, net of tax |
|
824 |
|
|
1,555 |
|
|
31 |
| |||
|
|
|
|
|
|
|
|
|
| |||
Net Income |
|
68,153 |
|
|
70,446 |
|
|
45,787 |
| |||
Less: Net income attributable to noncontrolling interests |
|
(26,542 |
) |
|
(20,791 |
) |
|
(15,333 |
) | |||
Net Income Attributable to CPA®:17 Global Stockholders |
|
$ |
41,611 |
|
|
$ |
49,655 |
|
|
$ |
30,454 |
|
|
|
|
|
|
|
|
|
|
| |||
Earnings Per Share |
|
|
|
|
|
|
|
|
| |||
Income from continuing operations attributable to CPA®:17 Global stockholders |
|
$ |
0.17 |
|
|
$ |
0.27 |
|
|
$ |
0.27 |
|
Income from discontinued operations attributable to CPA®:17 Global stockholders |
|
- |
|
|
0.01 |
|
|
- |
| |||
Net income attributable to CPA®:17 Global stockholders |
|
$ |
0.17 |
|
|
$ |
0.28 |
|
|
$ |
0.27 |
|
|
|
|
|
|
|
|
|
|
| |||
Weighted Average Shares Outstanding |
|
249,283,354 |
|
|
175,271,595 |
|
|
110,882,448 |
| |||
|
|
|
|
|
|
|
|
|
| |||
Amounts Attributable to CPA®:17 Global Stockholders |
|
|
|
|
|
|
|
|
| |||
Income from continuing operations, net of tax |
|
$ |
40,787 |
|
|
$ |
48,100 |
|
|
$ |
30,423 |
|
Income from discontinued operations, net of tax |
|
824 |
|
|
1,555 |
|
|
31 |
| |||
Net income attributable to CPA®:17 Global stockholders |
|
$ |
41,611 |
|
|
$ |
49,655 |
|
|
$ |
30,454 |
|
See Notes to Consolidated Financial Statements.
CPA®:17 Global 2012 10-K 59
CORPORATE PROPERTY ASSOCIATES 17 GLOBAL INCORPORATED
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(in thousands)
|
|
Years Ended December 31, |
| |||||||||
|
|
2012 |
|
|
2011 |
|
|
2010 |
| |||
Net Income |
|
$ |
68,153 |
|
|
$ |
70,446 |
|
|
$ |
45,787 |
|
Other Comprehensive Loss: |
|
|
|
|
|
|
|
|
| |||
Foreign currency translation adjustments |
|
13,515 |
|
|
(12,753 |
) |
|
(7,438 |
) | |||
Unrealized loss on derivative instruments |
|
(16,758 |
) |
|
(5,219 |
) |
|
(4,375 |
) | |||
Change in unrealized appreciation (depreciation) on marketable securities |
|
1,035 |
|
|
(15 |
) |
|
- |
| |||
|
|
(2,208 |
) |
|
(17,987 |
) |
|
(11,813 |
) | |||
Comprehensive Income |
|
65,945 |
|
|
52,459 |
|
|
33,974 |
| |||
|
|
|
|
|
|
|
|
|
| |||
Amounts Attributable to Noncontrolling Interests: |
|
|
|
|
|
|
|
|
| |||
Net income |
|
(26,542 |
) |
|
(20,791 |
) |
|
(15,333 |
) | |||
Foreign currency translation adjustments |
|
(192 |
) |
|
220 |
|
|
778 |
| |||
Change in unrealized (gain) loss on derivative instruments |
|
(365 |
) |
|
109 |
|
|
994 |
| |||
Comprehensive income attributable to noncontrolling interests |
|
(27,099 |
) |
|
(20,462 |
) |
|
(13,561 |
) | |||
|
|
|
|
|
|
|
|
|
| |||
Comprehensive Income Attributable to CPA®:17 Global Stockholders |
|
$ |
38,846 |
|
|
$ |
31,997 |
|
|
$ |
20,413 |
|
See Notes to Consolidated Financial Statements.
CORPORATE PROPERTY ASSOCIATES 17 GLOBAL INCORPORATED
CONSOLIDATED STATEMENTS OF EQUITY
Years Ended December 31, 2012, 2011, and 2010
(in thousands, except share and per share amounts)
|
|
|
|
CPA®:17 Global Stockholders |
|
|
|
| ||||||||||||||||||
|
|
|
|
|
|
|
|
| ||||||||||||||||||
|
|
|
|
|
|
|
|
Distributions |
|
Accumulated |
|
|
|
Total |
|
|
|
| ||||||||
|
|
Total |
|
|
|
Additional |
|
in Excess of |
|
Other |
|
|
|
CPA®:17 |
|
|
|
| ||||||||
|
|
Outstanding |
|
Common |
|
Paid-In |
|
Accumulated |
|
Comprehensive |
|
Treasury |
|
Global |
|
Noncontrolling |
|
| ||||||||
|
|
Shares |
|
Stock |
|
Capital |
|
Earnings |
|
Loss |
|
Stock |
|
Stockholders |
|
Interests |
|
Total | ||||||||
Balance at January 1, 2010 |
|
79,886,568 |
|
$ |
82 |
|
$ |
718,057 |
|
$ |
(53,118) |
|
$ |
(4,902) |
|
$ |
(2,314) |
|
$ |
657,805 |
|
$ |
71,332 |
|
$ |
729,137 |
Shares issued, net of offering costs |
|
62,643,431 |
|
60 |
|
557,835 |
|
|
|
|
|
|
|
557,895 |
|
|
|
557,895 | ||||||||
Shares issued to affiliates |
|
453,121 |
|
1 |
|
4,561 |
|
|
|
|
|
|
|
4,562 |
|
|
|
4,562 | ||||||||
Contributions from noncontrolling interests |
|
|
|
|
|
|
|
|
|
|
|
|
|
- |
|
412 |
|
412 | ||||||||
Distributions declared ($0.6400 per share) |
|
|
|
|
|
|
|
(70,782) |
|
|
|
|
|
(70,782) |
|
|
|
(70,782) | ||||||||
Distributions to noncontrolling interests |
|
|
|
|
|
|
|
|
|
|
|
|
|
- |
|
(12,959) |
|
(12,959) | ||||||||
Net income |
|
|
|
|
|
|
|
30,454 |
|
|
|
|
|
30,454 |
|
15,333 |
|
45,787 | ||||||||
Other comprehensive loss: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||
Foreign currency translation adjustments |
|
|
|
|
|
|
|
|
|
(6,660) |
|
|
|
(6,660) |
|
(778) |
|
(7,438) | ||||||||
Change in unrealized loss on derivative instruments |
|
|
|
|
|
|
|
|
|
(3,381) |
|
|
|
(3,381) |
|
(994) |
|
(4,375) | ||||||||
Repurchase of shares |
|
(616,158) |
|
|
|
|
|
|
|
|
|
(5,730) |
|
(5,730) |
|
|
|
(5,730) | ||||||||
Balance at December 31, 2010 |
|
142,366,962 |
|
143 |
|
1,280,453 |
|
(93,446) |
|
(14,943) |
|
(8,044) |
|
1,164,163 |
|
72,346 |
|
1,236,509 | ||||||||
Shares issued, net of offering costs |
|
63,628,957 |
|
63 |
|
571,592 |
|
|
|
|
|
|
|
571,655 |
|
|
|
571,655 | ||||||||
Shares issued to affiliates |
|
1,114,867 |
|
2 |
|
11,182 |
|
|
|
|
|
|
|
11,184 |
|
|
|
11,184 | ||||||||
Contributions from noncontrolling interests |
|
|
|
|
|
|
|
|
|
|
|
|
|
- |
|
1,197 |
|
1,197 | ||||||||
Distributions declared ($0.6475 per share) |
|
|
|
|
|
|
|
(113,271) |
|
|
|
|
|
(113,271) |
|
|
|
(113,271) | ||||||||
Distributions to noncontrolling interests |
|
|
|
|
|
|
|
|
|
|
|
|
|
- |
|
(23,214) |
|
(23,214) | ||||||||
Net income |
|
|
|
|
|
|
|
49,655 |
|
|
|
|
|
49,655 |
|
20,791 |
|
70,446 | ||||||||
Other comprehensive loss: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||
Foreign currency translation adjustments |
|
|
|
|
|
|
|
|
|
(12,533) |
|
|
|
(12,533) |
|
(220) |
|
(12,753) | ||||||||
Change in unrealized loss on derivative instruments |
|
|
|
|
|
|
|
|
|
(5,110) |
|
|
|
(5,110) |
|
(109) |
|
(5,219) | ||||||||
Change in unrealized depreciation on marketable securities |
|
|
|
|
|
|
|
|
|
(15) |
|
|
|
(15) |
|
|
|
(15) | ||||||||
Repurchase of shares |
|
(961,968) |
|
|
|
|
|
|
|
|
|
(9,060) |
|
(9,060) |
|
|
|
(9,060) | ||||||||
Balance at December 31, 2011 |
|
206,148,818 |
|
208 |
|
1,863,227 |
|
(157,062) |
|
(32,601) |
|
(17,104) |
|
1,656,668 |
|
70,791 |
|
1,727,459 | ||||||||
Shares issued, net of offering costs |
|
100,529,436 |
|
100 |
|
903,129 |
|
|
|
|
|
|
|
903,229 |
|
|
|
903,229 | ||||||||
Shares issued to affiliates |
|
2,043,451 |
|
2 |
|
20,499 |
|
|
|
|
|
|
|
20,501 |
|
|
|
20,501 | ||||||||
Contributions from noncontrolling interests |
|
|
|
|
|
|
|
|
|
|
|
|
|
- |
|
762 |
|
762 | ||||||||
Distributions declared ($0.6500 per share) |
|
|
|
|
|
|
|
(161,773) |
|
|
|
|
|
(161,773) |
|
|
|
(161,773) | ||||||||
Distributions to noncontrolling interests |
|
|
|
|
|
|
|
|
|
|
|
|
|
- |
|
(24,427) |
|
(24,427) | ||||||||
Net income |
|
|
|
|
|
|
|
41,611 |
|
|
|
|
|
41,611 |
|
26,542 |
|
68,153 | ||||||||
Other comprehensive loss: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||
Foreign currency translation adjustments |
|
|
|
|
|
|
|
|
|
13,323 |
|
|
|
13,323 |
|
192 |
|
13,515 | ||||||||
Change in unrealized loss on derivative instruments |
|
|
|
|
|
|
|
|
|
(17,123) |
|
|
|
(17,123) |
|
365 |
|
(16,758) | ||||||||
Change in unrealized appreciation on marketable securities |
|
|
|
|
|
|
|
|
|
1,035 |
|
|
|
1,035 |
|
|
|
1,035 | ||||||||
Repurchase of shares |
|
(1,818,685) |
|
|
|
|
|
|
|
|
|
(17,189) |
|
(17,189) |
|
|
|
(17,189) | ||||||||
Balance at December 31, 2012 |
|
306,903,020 |
|
$ |
310 |
|
$ |
2,786,855 |
|
$ |
(277,224) |
|
$ |
(35,366) |
|
$ |
(34,293) |
|
$ |
2,440,282 |
|
$ |
74,225 |
|
$ |
2,514,507 |
See Notes to Consolidated Financial Statements.
CPA®:17 Global 2012 10-K 61
CORPORATE PROPERTY ASSOCIATES 17 GLOBAL INCORPORATED
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
|
|
Years Ended December 31, |
| |||||||
|
|
2012 |
|
2011 |
|
2010 |
| |||
Cash Flows Operating Activities |
|
|
|
|
|
|
| |||
Net income |
|
$ |
68,153 |
|
$ |
70,446 |
|
$ |
45,787 |
|
Adjustments to net income: |
|
|
|
|
|
|
| |||
Depreciation and amortization, including intangible assets and deferred financing costs |
|
72,486 |
|
46,720 |
|
14,972 |
| |||
Loss from equity investments in real estate in excess of distributions received |
|
419 |
|
1,868 |
|
- |
| |||
Issuance of shares to affiliate in satisfaction of fees due |
|
20,501 |
|
11,184 |
|
4,562 |
| |||
Gain on sale of real estate |
|
(1,832) |
|
(787) |
|
- |
| |||
Unrealized loss on foreign currency transactions and others |
|
2,221 |
|
3 |
|
85 |
| |||
Realized gain on foreign currency transactions and others |
|
(1,128) |
|
(6,055) |
|
(777) |
| |||
Straight-line rent adjustment and amortization of rent-related intangibles |
|
(14,185) |
|
(11,616) |
|
(4,040) |
| |||
Settlement of derivative liability |
|
- |
|
(5,131) |
|
- |
| |||
Impairment charges on net investments in properties and CMBS |
|
2,019 |
|
(70) |
|
- |
| |||
Decrease (increase) in accounts receivable and prepaid expenses |
|
10,609 |
|
(2,949) |
|
(2,430) |
| |||
Increase in accounts payable and accrued expenses |
|
432 |
|
3,621 |
|
5,075 |
| |||
Increase in prepaid and deferred rental income |
|
3,261 |
|
1,485 |
|
3,868 |
| |||
(Decrease) increase in due to affiliates |
|
(2,384) |
|
(2,197) |
|
3,574 |
| |||
Net changes in other operating assets and liabilities |
|
(3,297) |
|
(5,007) |
|
(1,158) |
| |||
Net Cash Provided by Operating Activities |
|
157,275 |
|
101,515 |
|
69,518 |
| |||
|
|
|
|
|
|
|
| |||
Cash Flows Investing Activities |
|
|
|
|
|
|
| |||
Distributions received from equity investments in real estate in excess of equity income |
|
23,616 |
|
90,571 |
|
2,761 |
| |||
Acquisitions of real estate and direct financing leases |
|
(799,175) |
|
(658,546) |
|
(917,897) |
| |||
Capital contributions to equity investments in real estate |
|
(73,656) |
|
(228,519) |
|
(10,648) |
| |||
VAT paid in connection with acquisitions of real estate |
|
(15,594) |
|
(4,592) |
|
(53,241) |
| |||
VAT refunded in connection with acquisitions of real estate |
|
7,314 |
|
29,336 |
|
40,441 |
| |||
Proceeds from sale of real estate |
|
59,323 |
|
19,821 |
|
1,690 |
| |||
Funds placed in escrow |
|
(52,266) |
|
(196,291) |
|
(103,045) |
| |||
Funds released from escrow |
|
35,159 |
|
186,958 |
|
98,502 |
| |||
Payment of deferred acquisition fees to an affiliate |
|
(15,708) |
|
(14,455) |
|
(7,204) |
| |||
Proceeds from repayment of notes receivable |
|
- |
|
49,560 |
|
7,440 |
| |||
Investment in securities |
|
(7,071) |
|
(2,394) |
|
- |
| |||
Purchase of notes receivable |
|
- |
|
(30,000) |
|
(90,695) |
| |||
Net Cash Used in Investing Activities |
|
(838,058) |
|
(758,551) |
|
(1,031,896) |
| |||
|
|
|
|
|
|
|
| |||
Cash Flows Financing Activities |
|
|
|
|
|
|
| |||
Distributions paid |
|
(147,649) |
|
(102,503) |
|
(60,937) |
| |||
Contributions from noncontrolling interests |
|
762 |
|
1,197 |
|
412 |
| |||
Distributions to noncontrolling interests |
|
(24,427) |
|
(23,214) |
|
(12,959) |
| |||
Scheduled payments of mortgage principal |
|
(17,525) |
|
(14,136) |
|
(6,541) |
| |||
Prepayments of mortgage principal |
|
(11,224) |
|
- |
|
(53,017) |
| |||
Proceeds from mortgage financing |
|
469,709 |
|
243,517 |
|
425,881 |
| |||
Funds placed in escrow |
|
8,691 |
|
17,919 |
|
7,168 |
| |||
Funds released from escrow |
|
(6,780) |
|
(8,932) |
|
(3,593) |
| |||
Proceeds from loan from an affiliate |
|
- |
|
90,000 |
|
- |
| |||
Repayment of loan from an affiliate |
|
- |
|
(90,000) |
|
- |
| |||
Payment of financing costs and mortgage deposits, net of deposits refunded |
|
(1,667) |
|
(9,423) |
|
(4,094) |
| |||
Proceeds from issuance of shares, net of issuance costs |
|
897,660 |
|
575,251 |
|
557,895 |
| |||
Purchase of treasury stock |
|
(17,189) |
|
(9,060) |
|
(5,730) |
| |||
Net Cash Provided by Financing Activities |
|
1,150,361 |
|
670,616 |
|
844,485 |
| |||
Change in Cash and Cash Equivalents During the Year |
|
|
|
|
|
|
| |||
Effect of exchange rate changes on cash |
|
2,026 |
|
4,401 |
|
(916) |
| |||
Net increase (decrease) in cash and cash equivalents |
|
471,604 |
|
17,981 |
|
(118,809) |
| |||
Cash and cash equivalents, beginning of year |
|
180,726 |
|
162,745 |
|
281,554 |
| |||
Cash and cash equivalents, end of year |
|
$ |
652,330 |
|
$ |
180,726 |
|
$ |
162,745 |
|
(Continued)
CPA®:17 Global 2012 10-K 62
CORPORATE PROPERTY ASSOCIATES 17 GLOBAL INCORPORATED
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Continued)
Supplemental non-cash investing and financing activities:
The cost basis of real estate investments acquired during the years ended December 31, 2012, 2011, and 2010, including equity investments in real estate, also included deferred acquisition fees payable and other accrued liabilities of $19.5 million, $17.4 million, and $19.1 million, respectively (Note 3, Note 4).
In connection with one of our self-storage investments and one build-to-suit investment during 2012, we assumed two non-recourse mortgage loans totaling $29.6 million, including unamortized discount of $7.1 million (Note 10).
In connection with several of our acquisitions, we have recorded asset retirement obligations for the removal of asbestos and environmental waste of $6.8 million, $9.6 million, and $1.3 million during the years ended December 31, 2012, 2011, and 2010, respectively (Note 4).
In October 2012, we converted a $30.0 million loan we provided to a developer, BPS, for the construction of the Walgreens Las Vegas shopping center and exercised our option to acquire a 15% equity interest in BPS, which holds the remaining interest in the shopping center (Note 5, Note 6).
In September 2011, we purchased substantially all of the economic and voting interests in a real estate fund, Metro, for $164.9 million, based on the exchange rate of the euro on the date of acquisition (Note 4). This transaction consisted of the acquisition and assumption of certain assets and liabilities, as detailed in the table below (in thousands).
Assets Acquired at Fair Value: |
|
| |
Land |
|
$ |
91,691 |
Building |
|
262,651 | |
Intangible assets |
|
57,750 | |
|
|
| |
Liabilities Assumed at Fair Value: |
|
| |
Non-recourse debt |
|
(222,680) | |
Accounts payable, accrued expenses and other liabilities |
|
(9,050) | |
Prepaid and deferred rental income |
|
(15,488) | |
Net Assets Acquired |
|
$ |
164,874 |
Supplemental cash flows information (in thousands):
|
|
Years Ended December 31, | |||||||
|
|
2012 |
|
2011 |
|
2010 | |||
Interest paid, net of amounts capitalized |
|
$ |
68,972 |
|
$ |
46,722 |
|
$ |
26,275 |
Interest capitalized |
|
$ |
1,719 |
|
$ |
3,543 |
|
$ |
315 |
Income taxes paid (refunded) |
|
$ |
1,502 |
|
$ |
401 |
|
$ |
(111) |
See Notes to Consolidated Financial Statements.
CPA®:17 Global 2012 10-K 63
CORPORATE PROPERTY ASSOCIATES 17 GLOBAL INCORPORATED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 1. Organization and Offering
Organization
CPA®:17 Global is a publicly owned, non-listed REIT that invests primarily in commercial properties leased to companies domestically and internationally. As a REIT, we are not subject to U.S. federal income taxation as long as we satisfy certain requirements, principally relating to the nature of our income, the level of our distributions and other factors. We earn revenue principally by leasing the properties we own to single corporate tenants, primarily on a triple-net lease basis, which requires the tenant to pay substantially all of the costs associated with operating and maintaining the property. Revenue is subject to fluctuation because of the timing of new lease transactions, lease terminations, lease expirations, contractual rent adjustments, tenant defaults, sales of properties, and changes in foreign currency exchange rates. At December 31, 2012, our portfolio was comprised of our full or partial ownership interests in 335 fully-occupied properties, substantially all of which were triple-net leased to 80 tenants, and totaled approximately 32 million square feet (unaudited). In addition, we own 58 self-storage properties and retain a fee interest in a hotel property for an aggregate of approximately 4 million square feet (unaudited). As opportunities arise, we may also make other types of commercial real estate related investments. We were formed in 2007 and are managed by the advisor.
At December 31, 2012, CPA®:17 Global owned 99.985% of general and limited partnership interests in the Operating Partnership. The remaining 0.015% interest in the operating partnership is held by a subsidiary of WPC.
Public Offerings
Since inception through the termination of our initial public offering on April 7, 2011, upon the effectiveness of our follow-on offering described below, we raised a total of more than $1.5 billion.
We commenced a follow-on public offering of up to $1.0 billion of common stock and up to $475.0 million of common stock pursuant to our DRIP on April 7, 2011. We subsequently reallocated 35,000,000 shares of our common stock from our DRIP to our follow-on offering. We closed our follow-on offering on January 31, 2013. We issued approximately 289,000,000 shares of our common stock and raised aggregate gross proceeds of approximately $2.9 billion from our initial public offering and our follow-on offering. Through December 31, 2012, we have also issued 17,691,063 shares ($168.1 million) through our DRIP. We closed our follow-on offering on January 31, 2013. We repurchased 3,645,644 shares ($34.3 million) of our common stock under our redemption plan from inception through December 31, 2012. We intend to continue to use the net proceeds of these offerings to acquire, own and manage a portfolio of commercial properties leased to a diversified group of companies primarily on a single tenant net lease basis.
In January 2013, we amended our articles of incorporation to increase the number of shares authorized to 950,000,000 consisting of 900,000,000 shares of common stock, $0.001 par value per share and 50,000,000 shares of preferred stock, $0.001 par value per share. In January 2013, we also filed a registration statement on Form S-3 (File No. 333-186182) with the SEC regarding 200,000,000 shares of our common stock to be offered through our DRIP.
Note 2. Summary of Significant Accounting Policies
Basis of Consolidation
The consolidated financial statements reflect all of our accounts, including those of our majority-owned and/or controlled subsidiaries. The portion of equity in a subsidiary that is not attributable, directly or indirectly, to us is presented as noncontrolling interests. All significant intercompany accounts and transactions have been eliminated.
When we obtain an economic interest in an entity, we evaluate the entity to determine if it is deemed a VIE. Certain factors we consider in this analysis are insufficient equity at risk, fixed price purchase or renewal options within a lease, as well as certain decision-making rights within a loan. Significant judgment is required to determine if we are the primary beneficiary of a VIE and should consolidate the VIE. 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 a VIE based on whether the entity (i) has the power to direct the activities that most significantly impact the economic
CPA®:17 Global 2012 10-K 64
Notes to Consolidated Financial Statements
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.
For an entity that is not considered to be a VIE, the general partners in a limited partnership (or similar entity) are presumed to control the entity regardless of the level of their ownership and, accordingly, may be required to consolidate the entity. We evaluate the partnership agreements or other relevant contracts to determine whether there are provisions in the agreements that would overcome this presumption. If the agreements provide the limited partners with either (a) the substantive ability to dissolve or liquidate the limited partnership or otherwise remove the general partners without cause or (b) substantive participating rights, the limited partners rights overcome the presumption of control by a general partner of the limited partnership, and, therefore, the general partner must account for its investment in the limited partnership using the equity method of accounting.
We have investments in tenancy-in-common interests in various domestic and international properties. Consolidation of these investments is not required as such interests do not qualify as VIEs and do not meet the control requirement required for consolidation. Accordingly, we account for these investments 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 these investments.
Additionally, we own interests in single-tenant net lease properties leased to corporations 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.
We previously determined that the Walgreens Las Vegas investment was a VIE and we were its primary beneficiary. In October 2012, we exercised options to acquire the Walgreens store and to acquire a 15% equity interest in a project that includes a multi-tenant retail development managed by BPS. Walgreens Las Vegas is no longer a VIE as we own 100% of the entity. We continue to consolidate the accounts of Walgreens Las Vegas (Note 6).
Reclassifications and Revisions
Certain prior year amounts have been reclassified to conform to the current year presentation. The consolidated financial statements included in this Report have been retrospectively adjusted to reflect the disposition (or planned disposition) of certain properties as discontinued operations and certain adjustments related to purchase price allocation for all periods presented.
Purchase Price Allocation
In accordance with the guidance for business combinations, we determine whether a transaction or other event is a business combination, which requires that the assets acquired and liabilities assumed constitute a business. Each business combination is then accounted for by applying the acquisition method. If the assets acquired are not a business, we account for the transaction or other event as an asset acquisition. Under both methods, we recognize the identifiable assets acquired, the liabilities assumed, and any noncontrolling interest in the acquired entity. In addition, for transactions that are business combinations, we evaluate the existence of goodwill or a gain from a bargain purchase. We immediately expense acquisition-related costs and fees associated with business combinations.
When we acquire properties with leases classified as operating leases, we allocate the purchase price to the tangible and intangible assets and liabilities acquired based on their estimated fair values. We determine the value of the tangible assets, consisting of land and buildings, as if vacant, and record intangible assets, including the above-market and below-market value of leases, the value of in-place leases and the value of tenant relationships, at their relative estimated fair values. Land is typically valued utilizing the sales comparison (or market approach). Buildings, as if vacant, are valued using the cost and/or income approach. Site improvements are valued using the cost approach. The fair value of real estate is determined by reference to portfolio appraisals which determines their values, on a property level, by applying a discounted cash flow analysis to the estimated net operating income for each property in the portfolio during the remaining anticipated lease term, and the estimated residual value of each property from a hypothetical sale of the property upon expiration after considering the re-tenanting of such property at estimated then current market rental rate, at a selected capitalization rate and deducting estimated costs of sale. The proceeds from a hypothetical sale are derived by capitalizing the estimated net operating income of each property for the year following lease expiration at an estimated residual capitalization rate. The discount rates and residual capitalization rates used to value the properties are selected based on several factors, including the
CPA®:17 Global 2012 10-K 65
Notes to Consolidated Financial Statements
creditworthiness of the lessees, industry surveys, property type, location and age, current lease rates relative to market lease rates and anticipated lease duration. In the case where a tenant has a purchase option deemed to be materially favorable to the tenant, or the tenant has long-term renewal options at rental rates below estimated market rental rates, the appraisal assumes the exercise of such purchase option or long-term renewal options in its determination of residual value. Where a property is deemed to have excess land, the discounted cash flow analysis includes the estimated excess land value at the assumed expiration of the lease, based upon an analysis of comparable land sales or listings in the general market area of the property grown at estimated market growth rates through the year of lease expiration. For those properties that are under contract for sale, the appraised value of the portfolio reflects the current contractual sale price of such properties. See Real Estate Leased to Others and Depreciation below for a discussion of our significant accounting policies related to tangible assets. We include the value of below-market leases in Prepaid and deferred rental income and security deposits in the consolidated financial statements.
We record above-market and below-market lease values for owned properties based on the present value (using a discount rate reflecting the risks associated with the leases acquired) of the difference between (i) the contractual amounts to be paid pursuant to the leases negotiated and in place at the time of acquisition of the properties and (ii) our estimate of fair market lease rates for the property or equivalent property, both of which are measured over a period equal to the estimated lease term, which includes renewal options with rental rates below estimated market rental rates. We amortize the capitalized above-market lease value as a reduction of rental income over the estimated market lease term. We amortize the capitalized below-market lease value as an increase to rental income over the initial term and any fixed-rate renewal periods in the respective leases.
The value of any in-place lease is estimated to be equal to the property owners avoidance of costs necessary to release the property for a lease term equal to the remaining primary in-place lease term and the value of investment grade tenancy. The cost avoidance to the property owners of vacancy/leasing costs necessary to lease the property for a lease term equal to the remaining in-place lease term is derived first by determining the in-place lease term on the subject lease. Then, based on our review of the market, the cost to be borne by a property owner to replicate a market lease to the remaining in-place term was estimated. These costs consist of: (i) rent lost during downtime (i.e. assumed periods of vacancy); (ii) estimated expenses that would be incurred by the property owner during periods of vacancy; (iii) rent concessions (i.e. free rent); (iv) leasing commissions; and (v) tenant improvement allowances. We determine these values using our estimates or by relying in part upon third-party appraisals. We amortize the capitalized value of in-place lease intangibles to expense over the remaining initial term of each lease. We amortize the capitalized value of tenant relationships to expense over the initial and expected renewal terms of the lease. No amortization period for intangibles will exceed the remaining depreciable life of the building.
If a lease is terminated, we charge the unamortized portion of above-market and below-market lease values to lease revenue and in-place lease to amortization expense.
When we acquire leveraged properties, the fair value of debt instruments acquired is determined using a discounted cash flow model with rates that take into account the credit of the tenants, where applicable, and interest rate risk. Such resulting premium or discount is amortized over the remaining term of the obligation. We also consider the value of the underlying collateral taking into account the quality of the collateral, the credit quality of the company, the time until maturity and the current interest rate.
Real Estate and Operating Real Estate
We carry land and buildings and personal property at cost less accumulated depreciation. We charge expenditures for maintenance and repairs, including routine betterments, to operations as incurred. We capitalize significant renovations that increase the useful life of the properties.
Real Estate Under Construction
For properties under construction, operating expenses including interest charges and other property expenses, including real estate taxes, are capitalized rather than expensed. We capitalize interest by applying the interest rate applicable to outstanding borrowings to the average amount of accumulated qualifying expenditures for properties under construction during the period.
Acquisition, Development and Construction Loans
We provide funding to developers for the acquisition, development and construction of real estate (ADC Arrangement). Under the ADC Arrangement, we may participate in the residual profits of the project through the sale or refinancing of the property. We evaluate these arrangements to determine if they have characteristics similar to a loan or if the characteristics are more similar to a joint venture or partnership such as participating in the risks and rewards of the project as an owner or an investment partner. For those
CPA®:17 Global 2012 10-K 66
Notes to Consolidated Financial Statements
arrangements with characteristics of a loan, we follow the accounting guidance for loans and disclose within our Finance Receivables footnote (Note 5). When we determine that the characteristics are more similar to a jointly-owned investment or partnership, we account for those arrangements under the equity method of accounting (Note 6). We use the hypothetical liquidation at book value method to calculate income which considers the principal and interest under the loan to be a preferential return.
Assets Held for Sale
We classify those assets that are associated with operating leases as held for sale when we have entered into a contract to sell the property, all material due diligence requirements have been satisfied and we believe it is probable that the disposition will occur within one year. Assets held for sale are recorded at the lower of carrying value or estimated fair value, which is generally calculated as the expected sale price, less expected selling costs. The results of operations and the related gain or loss on sale of properties that have been sold or that are classified as held for sale, and in which we will have no significant continuing involvement, are included in discontinued operations (Note 15).
If circumstances arise that we previously considered unlikely and, as a result, we decide not to sell a property previously classified as held for sale, we reclassify the property as held and used. We measure and record a property that is reclassified as held and used at the lower of (i) its carrying amount before the property was classified as held for sale, adjusted for any depreciation expense that would have been recognized had the property been continuously classified as held and used or (ii) the estimated fair value at the date of the subsequent decision not to sell.
We recognize gains and losses on the sale of properties when, among other criteria, we no longer have continuing involvement, the parties are bound by the terms of the contract, all consideration has been exchanged and all conditions precedent to closing have been performed. At the time the sale is consummated, a gain or loss is recognized as the difference between the sale price, less any selling costs, and the carrying value of the property.
Notes Receivable
For investments in mortgage notes and loan participations, the loans are initially reflected at acquisition cost, which consists of the outstanding balance, net of the acquisition discount or premium. We amortize any discount or premium as an adjustment to increase or decrease, respectively, the yield realized on these loans over the life of the loan. As such, differences between carrying value and principal balances outstanding do not represent embedded losses or gains as we generally plan to hold such loans to maturity.
Allowance for Doubtful Accounts
We consider direct financing leases and notes receivable to be past-due or delinquent when a contractually required principal or interest payment is not remitted in accordance with the provisions of the underlying agreement. We evaluate each account individually and set up an allowance when, based upon current information and events, it is probable that we will be unable to collect all amounts due according to the existing contractual terms and the amount can be reasonably estimated.
Cash and Cash Equivalents
We consider all short-term, highly liquid investments that are both readily convertible to cash and have a maturity of three months or less at the time of purchase to be cash equivalents. Items classified as cash equivalents include commercial paper and money market funds. Our cash and cash equivalents are held in the custody of several financial institutions, and these balances, at times, exceed federally insurable limits. We seek to mitigate this risk by depositing funds only with major financial institutions.
Commercial Mortgage-Backed Securities
We have CMBS investments that were designated as securities held to maturity on the date of acquisition, in accordance with current accounting guidance. We carry these securities held to maturity at cost, net of unamortized premiums and discounts, which are recognized in interest income using an effective yield or interest method, and assess them for other-than-temporary impairment on a quarterly basis.
Other Assets and Other Liabilities
We include accounts receivable, derivatives, stock warrants, marketable securities, deferred charges, and deferred rental income in Other assets, net. We include derivatives and miscellaneous amounts held on behalf of tenants in Other liabilities. Deferred charges
CPA®:17 Global 2012 10-K 67
Notes to Consolidated Financial Statements
are costs incurred in connection with mortgage financings and refinancings that are amortized over the terms of the mortgages and included in Interest expense in the consolidated financial statements. Deferred rental income is the aggregate cumulative difference for operating leases between scheduled rents that vary during the lease term, and rent recognized on a straight-line basis.
Deferred Acquisition Fees Payable to Affiliate
Fees payable to the advisor for structuring and negotiating investments and related mortgage financing on our behalf are included in Due to affiliates. A portion of these fees is payable in equal annual installments quarter following the quarter on which a property was purchased. Payment of such fees is subject to the performance criterion (Note 3).
Treasury Stock
Treasury stock is recorded at cost under our redemption plan, pursuant to which we may elect to redeem shares at the request of our stockholders, subject to certain exceptions, conditions, and limitations. The maximum amount of shares purchasable by us in any period depends on a number of factors and is at the discretion of our board of directors.
Noncontrolling Interests
We accounted for the Special Member Interest as a noncontrolling interest based on the fair value of the rights attributed to the interest at the time it was transferred to the Special General Partner (Note 3). The Special Member Interest entitles the Special General Partner to cash distributions and, in the event there is a termination or non-renewal of the advisory agreement, redemption rights at our option. In exchange for the Special Member Interest, we amended the fee arrangement with the advisor. The Special Member Interest was accounted for at fair value representing the estimated net present value of the related fee reduction. Cash distributions to the Special General Partner are accounted for as an allocation to net income attributable to noncontrolling interest.
Offering Costs
During the offering period, we accrued costs incurred in connection with the raising of capital as deferred offering costs. Upon receipt of offering proceeds, we charged the deferred costs to equity and reimbursed the advisor for costs incurred (Note 3). Such reimbursements did not exceed regulatory cost limitations.
Revenue Recognition
Real Estate Leased to Others
We lease real estate to others primarily on a triple-net leased basis whereby the tenant is generally responsible for all operating expenses relating to the property, including property taxes, insurance, maintenance, repairs, renewals and improvements. We charge expenditures for maintenance and repairs, including routine betterments, to operations as incurred. We capitalize significant renovations that increase the useful life of the properties. For the years ended December 31, 2012, 2011 and 2010, although we are legally obligated for the payment, pursuant to our lease agreements with our tenants, lessees were responsible for the direct payment to the taxing authorities of real estate taxes of $14.1 million, $9.5 million and $3.9 million, respectively.
Substantially all of our leases provide for either scheduled rent increases, periodic rent adjustments based on formulas indexed to changes in the CPI or similar indices or percentage rents. CPI-based adjustments are contingent on future events and are therefore not included in straight-line rent calculations. We recognize rents from percentage rents as reported by the lessees, which is after the level of sales requiring a rental payment to us is reached. Percentage rents were insignificant for the periods presented.
We account for leases as operating or direct financing leases as described below:
Operating leases We record real estate at cost less accumulated depreciation; we recognize future minimum rental revenue on a straight-line basis over the non-cancelable lease term of the related leases and charge expenses to operations as incurred (Note 4).
Direct financing method We record leases accounted for under the direct financing method at their net investment (Note 5). We defer and amortize unearned income to income over the lease term so as to produce a constant periodic rate of return on our net investment in the lease.
On an ongoing basis, we assess our ability to collect rent and other tenant-based receivables and determine an appropriate allowance for uncollected amounts. Because we have a limited number of lessees, we believe that it is necessary to evaluate the collectability of
CPA®:17 Global 2012 10-K 68
Notes to Consolidated Financial Statements
these receivables based on the facts and circumstances of each situation rather than solely using statistical methods. Therefore, in recognizing our provision for uncollected rents and other tenant receivables, we evaluate actual past due amounts and make subjective judgments as to the collectability of those amounts based on factors including, but not limited to, our knowledge of a lessees circumstances, the age of the receivables, the tenants credit profile and prior experience with the tenant. Even if a lessee has been making payments, we may reserve for the entire receivable amount if we believe there has been significant or continuing deterioration in the lessees ability to meet its lease obligations.
Asset Retirement Obligations
Asset retirement obligations relate to the legal obligations associated with the retirement of long-lived assets that result from the acquisition, construction, development and/or normal operation of a long-lived asset. The fair value of a liability for an asset retirement obligation is recorded in the period in which it is incurred and the cost of such liability is recorded as an increase in the carrying amount of the related long-lived asset by the same amount. The liability is accreted each period and the capitalized cost is depreciated over the estimated remaining life of the related long-lived asset. Revisions to estimated retirement obligations result in adjustments to the related capitalized asset and corresponding liability.
In order to determine the fair value of the asset retirement obligations, we make certain estimates and assumptions including, among other things, projected cash flows, the borrowing interest and an assessment of market conditions that could significantly impact the estimated fair value. These estimates and assumptions are subjective.
Interest Capitalized in Connection with Real Estate Under Construction
Operating real estate is stated at cost less accumulated depreciation. Interest directly related to build-to-suit projects is capitalized. Interest capitalized in 2012, 2011 and 2010 was $1.7 million, $3.5 million, and $0.3 million, respectively. We consider a build-to-suit project as substantially completed upon the completion of improvements. If discrete portions of a project are substantially completed and occupied and other portions have not yet reached that stage, the substantially completed portions are accounted for separately. We allocate costs incurred between the portions under construction and the portions substantially completed and only capitalize those costs associated with the portion under construction. We do not have a credit facility and determine an interest rate to be applied for capitalizing interest based on an average rate on our outstanding non-recourse mortgage debt.
Depreciation
We compute depreciation of building and related improvements using the straight-line method over the estimated remaining useful lives of the properties or improvements, which range from six to 40 years. We compute depreciation of tenant improvements using the straight-line method over the lesser of the remaining term of the lease or the estimated useful life.
Impairments
We periodically assess whether there are any indicators that the value of our long-lived assets may be impaired or that their carrying value may not be recoverable. These impairment indicators include, but are not limited to the vacancy of a property that is not subject to a lease, a lease default by a tenant that is experiencing financial difficulty, the termination of a lease by a tenant or the rejection of a lease in a bankruptcy proceeding. We may incur impairment charges on long-lived assets, including real estate, direct financing leases, assets held for sale and equity investments in real estate. Our policies for evaluating whether these assets are impaired are presented below.
Real Estate
For real estate assets in which an impairment indicator is identified, we follow a two-step process to determine whether an asset is impaired and to determine the amount of the charge. First, we compare the carrying value of the propertys asset group to the future net undiscounted cash flow that we expect the propertys asset group will generate, including any estimated proceeds from the eventual sale of the propertys asset group. The undiscounted cash flow analysis requires us to make our best estimate of, among other things, market rents, residual values, and holding periods. Depending on the assumptions made and estimates used, the future cash flow projected in the evaluation of long-lived assets can vary within a range of outcomes. We consider the likelihood of possible outcomes in determining our estimate of future cash flows. If the future net undiscounted cash flow of the propertys asset group is less than the carrying value, the propertys asset group is considered to be impaired. We then measure the loss as the excess of the carrying value of the propertys asset group over its estimated fair value.
CPA®:17 Global 2012 10-K 69
Notes to Consolidated Financial Statements
Assets Held for Sale
When we classify an asset as held for sale, we compare the assets estimated fair value less estimated cost to sell to its carrying value, and if the estimated fair value less estimated cost to sell is less than the propertys carrying value, we reduce the carrying value to the estimated fair value, less estimated cost to sell. We will continue to review the property for subsequent changes in the estimated fair value, and may recognize an additional impairment charge if warranted.
Direct Financing Leases
We review our direct financing leases at least annually to determine whether there has been an other-than-temporary decline in the current estimate of residual value of the property. The residual value is our estimate of what we could realize upon the sale of the property at the end of the lease term, based on market information. If this review indicates that a decline in residual value has occurred that is other-than-temporary, we recognize an impairment charge equal to the difference between the fair value and carrying value, which is discounted at the internal rate of return of the property.
Equity Investments in Real Estate
We evaluate our equity investments in real estate on a periodic basis to determine if there are any indicators that the value of our equity investment may be impaired and whether or not that impairment is other-than-temporary. To the extent an other-than-temporary impairment has occurred, we measure the charge as the excess of the carrying value of our investment over its estimated fair value, which is determined by multiplying the estimated fair value of the underlying investments net assets by our ownership interest percentage.
Commercial Mortgage-Backed Securities
We have CMBS investments that are designated as securities held to maturity. On a quarterly basis, we evaluate our CMBS to determine if they have experienced an other-than temporary decline in value. In our evaluation, we consider, among other items, the significance of the decline in value compared to the cost basis; underlying factors contributing to the decline in value, such as delinquencies and expectations of credit losses; the length of time the market value of the security has been less than its cost basis; expected market volatility and market and economic conditions; advice from dealers; and our own experience in the market.
If the debt securitys market value is below its amortized cost and we either intend to sell the security or it is more likely than not that we will be required to sell the security before its anticipated recovery, we record the entire amount of the other-than-temporary impairment charge in earnings.
We do not intend to sell our CMBS investments, and we do not expect that it is more likely than not that we will be required to sell these investments before their anticipated recovery. We perform an additional analysis to determine whether we expect to recover our amortized cost basis in the investment. If we have determined that a decline in the estimated fair value of our CMBS investments has occurred that is other-than-temporary and we do not expect to recover the entire amortized cost basis, we calculate the total other-than-temporary impairment charge as the difference between the CMBS investments carrying value and their estimated fair value. We then separate the other-than-temporary impairment charge into the non-credit loss portion and the credit loss portion. We determine the non-credit loss portion by analyzing the changes in spreads on high credit quality CMBS securities as compared with the changes in spreads on the CMBS securities being analyzed for other-than-temporary impairment. We generally perform this analysis over a time period from the date of acquisition of the debt securities through the date of the analysis. Any resulting loss is deemed to represent losses due to the illiquidity of the debt securities and is recorded as the non-credit loss portion. We then measure the credit loss portion of the other-than-temporary impairment as the residual amount of the other-than-temporary impairment. We record the non-credit loss portion as a separate component of Other comprehensive loss in equity and the credit loss portion in earnings.
Following recognition of the other-than-temporary impairment, the difference between the new cost basis of the CMBS investments and cash flows expected to be collected is accreted to Interest income from CMBS over the remaining expected lives of the securities.
Notes to Consolidated Financial Statements
Foreign Currency
Translation
We have interests in real estate investments and interest in properties in Europe and Asia. The functional currencies for these investments are primarily the euro, and, to a lesser extent, the Japanese yen and the British pound sterling. We perform the translation from these local currencies to the U.S. dollar for assets and liabilities using current exchange rates in effect at the balance sheet date and for revenue and expense accounts using a weighted-average exchange rate during the period. We report the gains and losses resulting from this translation as a component of Other comprehensive loss in equity. These translation gains and losses are released to net income when we have substantially exited from all investments in the related currency.
Transaction Gains or Losses
A transaction gain or loss (measured from the transaction date or the most recent intervening balance sheet date, whichever is later), realized upon settlement of a foreign currency transaction generally will be included in net income for the period in which the transaction is settled. Foreign currency transactions that are (i) designated as, and are effective as, economic hedges of a net investment and (ii) intercompany foreign currency transactions that are of a long-term nature (that is, settlement is not planned or anticipated in the foreseeable future), when the entities to the transactions are consolidated or accounted for by the equity method in our financial statements, are not included in determining net income are accounted for in the same manner as foreign currency translation adjustments and reported as a component of Other comprehensive loss in equity.
Derivative Instruments
We measure derivative instruments at fair value and record them as assets or liabilities, depending on our rights or obligations under the applicable derivative contract. Derivatives that are not designated as hedges must be adjusted to fair value through earnings. For a derivative designated and that qualified as a cash flow hedge, the effective portion of the change in fair value of the derivative is recognized in Other comprehensive loss until the hedged item is recognized in earnings. The ineffective portion of a derivatives change in fair value is immediately recognized in earnings. For a derivative designated and that qualified as a net investment hedge, the effective portion of the change in the fair value and/or the net settlement of the derivative are reported in Other comprehensive loss as part of the cumulative foreign currency translation adjustment. The ineffective portion of the change in fair value of the derivative is recognized directly in earnings. Amounts are reclassified out of Other comprehensive loss into earnings when the hedged investment is either sold or substantially liquidated.
We made an accounting policy election effective January 1, 2011, or the effective date, to use the portfolio exception in Accounting Standards Codification (ASC) 820-10-35-18D, Application to Financial Assets & Financial Liabilities with Offsetting Positions in Market Risk or Counterparty Credit Risk, the portfolio exception, with respect to measuring counterparty credit risk for all of our derivative transactions subject to master netting arrangements.
Income Taxes
We have elected to be taxed as a REIT under Sections 856 through 860 of the Internal Revenue Code. In order to maintain our qualification as a REIT, we are required, among other things, to distribute at least 90% of our REIT net taxable income to our stockholders and meet certain tests regarding the nature of our income and assets. As a REIT, we are not subject to federal income tax with respect to the portion of our income that meets certain criteria and is distributed annually to stockholders. Accordingly, no provision for federal income taxes is included in the consolidated financial statements with respect to these operations. We believe we have operated, and we intend to continue to operate, in a manner that allows us to continue to meet the requirements for taxation as a REIT.
We conduct business in various states and municipalities within the U.S., Europe, and Asia and, as a result, we or one or more of our subsidiaries file income tax returns in the U.S. federal jurisdiction and various state and certain foreign jurisdictions. As a result, we are subject to certain foreign, state and local taxes and a provision for such taxes is included in the consolidated financial statements.
We elect to treat certain of our corporate subsidiaries as TRSs. In general, a TRS may perform additional services for our tenants and generally may engage in any real estate or non-real estate-related business (except for the operation or management of health care facilities or lodging facilities or providing to any person, under a franchise, license or otherwise, rights to any brand name under which any lodging facility or health care facility is operated). A TRS is subject to corporate federal income tax. One of our TRS subsidiaries owns a hotel that is managed on our behalf by a third-party hotel management company.
Notes to Consolidated Financial Statements
Significant judgment is required in determining our tax provision and in evaluating our tax positions. We establish tax reserves based on a benefit recognition model, which we believe could result in a greater amount of benefit (and a lower amount of reserve) being initially recognized in certain circumstances. Provided that the tax position is deemed more likely than not of being sustained, we recognize the largest amount of tax benefit that is greater than 50 percent likely of being ultimately realized upon settlement. We derecognize the tax position when it is no longer more likely than not of being sustained.
Our earnings and profits, which determine the taxability of distributions to stockholders, differ from net income reported for financial reporting purposes due primarily to differences in depreciation, including hotel properties, for federal income tax purposes. Deferred income taxes relate primarily to our TRSs and are accounted for using the asset and liability method. Under this method, deferred income taxes are recognized for temporary differences between the financial reporting bases of assets and liabilities of our TRSs and their respective tax bases and for their operating loss and tax credit carry forwards based on enacted tax rates expected to be in effect when such amounts are realized or settled. However, deferred tax assets are recognized only to the extent that it is more likely than not that they will be realized based on consideration of available evidence, including tax planning strategies and other factors.
Earnings Per Share
We have a simple equity capital structure with only common stock outstanding. As a result, earnings per share, as presented, represents both basic and dilutive per-share amounts for all periods presented in the consolidated financial statements.
Use of Estimates
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.
Notes to Consolidated Financial Statements
Note 3. Agreements and Transactions with Related Parties
Transactions with the Advisor
We have an advisory agreement with the advisor whereby the advisor performs certain services for us for a fee. The agreement that is currently in place is scheduled to expire on September 30, 2013. Under the terms of this agreement, the advisor manages our day-to-day operations, for which we pay the advisor asset management fees and certain cash distributions, and structures and negotiates the purchase and sale of investments and debt placement transactions for us, for which we pay the advisor structuring and subordinated disposition fees. In addition, we reimbursed the advisor for organization and offering costs incurred in connection with our offering and for certain administrative duties performed on our behalf. The agreement, which was amended on September 28, 2012, provides for the allocation of the advisors personnel expenses from individual time records to reported revenue amongst the Managed REITs. We also have certain agreements with joint investments. The following tables present a summary of fees we paid and expenses we reimbursed to the advisor in accordance with the advisory agreement (in thousands):
|
|
Years Ended December 31, |
| |||||||
|
|
2012 |
|
2011 |
|
2010 |
| |||
Amounts Included in the Statements of Income: |
|
|
|
|
|
|
| |||
Asset management fees |
|
$ |
18,932 |
|
$ |
13,435 |
|
$ |
5,050 |
|
Distribution of Available Cash |
|
14,620 |
|
9,378 |
|
4,468 |
| |||
Personnel reimbursements |
|
5,205 |
|
2,258 |
|
915 |
| |||
Office rent reimbursements |
|
756 |
|
411 |
|
165 |
| |||
|
|
$ |
39,513 |
|
$ |
25,482 |
|
$ |
10,598 |
|
|
|
|
|
|
|
|
| |||
Other Transaction Fees Incurred: |
|
|
|
|
|
|
| |||
Current acquisition fees |
|
$ |
24,463 |
|
$ |
24,559 |
|
$ |
24,808 |
|
Deferred acquisition fees |
|
19,240 |
|
17,398 |
|
19,101 |
| |||
|
|
$ |
43,703 |
|
$ |
41,957 |
|
$ |
43,909 |
|
|
|
December 31, |
| ||||
|
|
2012 |
|
2011 |
| ||
Unpaid Transaction Fees: |
|
|
|
|
| ||
Deferred acquisition fees |
|
$ |
26,246 |
|
$ |
22,748 |
|
Subordinated disposition fees |
|
202 |
|
202 |
| ||
|
|
$ |
26,448 |
|
$ |
22,950 |
|
Asset Management Fees and Distribution of Available Cash
We pay the advisor asset management fees ranging from 0.5% of average market value for long-term net leases and certain other types of real estate investments to 1.75% of average equity value for certain types of securities. The asset management fees are payable in cash or shares of our common stock at the option of the advisor. If the advisor elects to receive all or a portion of its fees in shares, the number of shares issued is determined by dividing the dollar amount of fees by our most recently published NAV per share as approved by our board of directors, which was our $10.00 offering price at December 31, 2012. For the years ended December 31, 2012, 2011 and 2010, the advisor elected to receive our asset management fees in shares of our common stock. At December 31, 2012, the advisor owned 3,953,319 shares (1.3%) of our common stock. We also pay the advisor, depending on the type of investments we own, up to 10% of distributions of Available Cash of the operating partnership, which is defined as cash generated from operations, excluding capital proceeds, as reduced by operating expenses and debt service, excluding prepayments and balloon payments. Asset management fees and distributions of Available Cash are included in Property expenses and Net income attributable to noncontrolling interests, respectively, in the consolidated financial statements.
Personnel and Office Rent Reimbursements
We reimburse the advisor for various expenses it incurs in the course of providing services to us. We reimburse certain third-party expenses paid by the advisor on our behalf, including property-specific costs, professional fees, office expenses and business development expenses. In addition, we reimburse the advisor for the allocated costs of personnel and overhead in providing
Notes to Consolidated Financial Statements
management of our day-to-day operations, including accounting services, stockholder services, corporate management, and property management and operations. We do not reimburse the advisor for the cost of personnel if these personnel provide services for transactions for which the advisor receives a transaction fee, such as acquisitions, dispositions and refinancings. Personnel and office rent reimbursements are included in General and administrative expenses in the consolidated financial statements.
The advisor is obligated to reimburse us for the amount by which our operating expenses exceeds the 2%/25% guidelines (the greater of 2% of average invested assets or 25% of net income) as defined in the advisory agreement for any twelve-month period. If in any year our operating expenses exceed the 2%/25% guidelines, the advisor will have an obligation to reimburse us for such excess, subject to certain conditions. If our independent directors find that the excess expenses were justified based on any unusual and nonrecurring factors that they deem sufficient, the advisor may be paid in future years for the full amount or any portion of such excess expenses, but only to the extent that the reimbursement would not cause our operating expenses to exceed this limit in any such year. We will record any reimbursement of operating expenses as a liability until any contingencies are resolved and will record the reimbursement as a reduction of asset management fees at such time that a reimbursement is fixed, determinable and irrevocable. Our operating expenses have not exceeded the amount that would require the advisor to reimburse us.
Transaction Fees
We pay the advisor acquisition fees for structuring and negotiating investments and related mortgage financing on our behalf, a portion of which is payable upon acquisition of investments with the remainder subordinated to a preferred return. The preferred return is a non-compounded cumulative distribution return of 5% per annum (based initially on our invested capital). Acquisition fees payable to the advisor with respect to our long-term net lease investments may be up to an average of 4.5% of the total cost of those investments and are comprised of a current portion of 2.5%, typically paid when the investment is purchased, and a deferred portion of 2%, typically paid over three years, once the preferred return criterion has been met. For certain types of non-long term net lease investments, initial acquisition fees may range from 0% to 1.75% of the equity invested plus the related acquisition fees, with no portion of the fee being deferred. During the years ended December 31, 2012, 2011 and 2010, we made payments of deferred acquisition fees to the advisor totaling $15.7 million, $14.5 million, and $7.2 million, respectively. Unpaid installments of deferred acquisition fees are included in Due to affiliates in the consolidated financial statements.
The advisor may also receive subordinated disposition fees of up to 3% of the contract sales price of an investment for services provided in connection with a disposition; however, payment of such fees is subordinated to a preferred return.
Organization and Offering Expenses
During 2012, we were liable for expenses incurred in connection with the offering of our securities. These expenses were deducted from the gross proceeds of our offering. Total organization and offering expenses, including underwriting compensation, did not exceed 15% of the gross proceeds of our offering. Under the terms of a sales agency agreement between Carey Financial and us, Carey Financial received a selling commission of up to $0.65 per share sold, a selected dealer fee of up to $0.20 per share sold and a wholesaling fee of up to $0.15 per share sold. Carey Financial did re-allow all or a portion of selling commissions to selected dealers participating in the offering and did re-allow up to the full selected dealer fee to the selected dealers. Total underwriting compensation paid in connection with our offering, including selling commissions, the selected dealer fee, the wholesaling fee and reimbursements made by Carey Financial to selected dealers and investment advisors, did not exceed the limitations prescribed by FINRA. The limit on underwriting compensation is 10% of gross offering proceeds. We also reimbursed Carey Financial up to an additional 0.5% of offering proceeds for bona fide due diligence expenses. We reimbursed the advisor or one of its affiliates for other organization and offering expenses (including, but not limited to, filing fees, legal, accounting, printing and escrow costs). The advisor agreed to be responsible for the payment of organization and offering expenses (excluding selling commissions, selected dealer fees and wholesaling fees) that exceed 4% of the gross offering proceeds.
The total costs paid by the advisor and its affiliates in connection with the organization and offering of our securities were $20.5 million from inception through December 31, 2012, of which $20.1 million had been reimbursed as of December 31, 2012. Unpaid costs are included in Due to affiliates in the consolidated financial statements. During the offering period, we accrued costs incurred in connection with the raising of capital as deferred offering costs. Upon receipt of offering proceeds and reimbursement to the advisor for costs incurred, we charged the deferred costs to equity.
Other Transaction with the Advisor
In February 2011, we borrowed $90.0 million at an annual interest rate of 1.15% from the advisor to fund the acquisition of an investment that purchased properties from C1000 (Note 6). We repaid this loan on April 8, 2011, the maturity date. In connection with this loan, we paid the advisor interest of $0.2 million during the year ended December 31, 2011.
Notes to Consolidated Financial Statements
Jointly-Owned Investments and Other Transactions with Affiliates
We share leased office space used for the administration of our operations with our affiliates. Rental, occupancy and leasehold improvement costs are allocated among us and our affiliates based on our respective gross revenues and are adjusted quarterly. Based on current gross revenues, our current share of these costs would be $0.8 million annually through 2016; however, we anticipate that our share of these costs will increase significantly as we continue to invest the proceeds of our offerings.
We own interests in entities ranging from 12% to 85%, as well as jointly-controlled tenancy-in-common interests in properties, with the remaining interests generally held by affiliates. We consolidate certain of these investments and account for the remainder under the equity method of accounting.
On May 2, 2011, we purchased interests in three investments, the Hellweg 2 investment, the U-Haul Moving Partners, Inc. and Mercury Partners, LP (U-Haul) investment and the Dicks Sporting Goods, Inc. (Dicks) investment, from one of our affiliates, CPA®:14, for an aggregate purchase price of $55.7 million (Note 6). The acquisitions were made pursuant to an agreement entered into between us and CPA®:14 in December 2010 and were conditioned upon completion of the merger of CPA®:14 into CPA®:16 Global (the CPA®:14/16 Merger). The purchase price was based on the appraised values of the underlying investment properties and the non-recourse mortgage debt on the properties. In connection with this acquisition, we recorded basis differences totaling $27.4 million, which represents our share of the excess of the fair value of the underlying investment properties and related mortgage loans over their respective carrying values, to be amortized into equity earnings over the remaining lives of the properties and mortgage loans. As part of the acquisition, we also purchased from CPA®:14 certain warrants, which were granted by Hellweg 2 to CPA®:14 in connection with the initial lease transaction, for a total cost of $1.6 million, which is based on the fair value of the warrants on the date of acquisition. These warrants give us participation rights to any distributions made by Hellweg 2. In addition, we are entitled to a cash distribution that equates to a certain percentage of the liquidity event price of Hellweg 2, should a liquidity event occur. Because these warrants are readily convertible to cash and provide for net cash settlement upon conversion, we account for them as derivative instruments, which are measured at fair value and record them as assets, with the changes in the fair value recognized in earnings.
Note 4. Net Investments in Properties and Real Estate Under Construction
Real Estate
Real estate, which consists of land and buildings leased to others, at cost, and which are subject to operating leases, is summarized as follows (in thousands):
|
|
December 31, |
| ||||
|
|
2012 |
|
2011 |
| ||
Land |
|
$ |
491,584 |
|
$ |
390,445 |
|
Buildings |
|
1,614,188 |
|
1,109,706 |
| ||
Less: Accumulated depreciation |
|
(77,245) |
|
(40,522) |
| ||
|
|
$ |
2,028,527 |
|
$ |
1,459,629 |
|
Notes to Consolidated Financial Statements
Acquisitions of Real Estate
2012 During 2012, we entered into the following investments, which were deemed to be real estate asset acquisitions, at a total cost of $400.8 million, including net lease intangible assets totaling $92.4 million (Note 7) and acquisition-related costs and fees:
· a domestic investment for $169.0 million with BCBS in eight office facilities;
· a domestic investment for $68.7 million with RLJ-McLarty-Landers Automotive Holdings, LLC in nine automotive dealerships;
· a foreign investment in Croatia for $45.8 million with Agrokor d.d. (Agrokor) in a retail property. Amount is based on the exchange rate of the euro on the date of acquisition;
· a domestic investment for $36.3 million with R.R. Donnelley & Sons Company in an office facility;
· a domestic investment for $25.0 million with South University in two office facilities;
· a domestic investment for $21.3 million with Cuisine Solutions, Inc in a manufacturing facility;
· a domestic investment for $15.7 million with Education Management Corp in an office facility;
· two additional domestic investments for a total cost of $14.0 million in a manufacturing and an office facility; and
· two follow-on transactions in an existing investment for a total cost of $5.0 million.
In connection with these investments, the purchase price was allocated to the assets acquired, based upon their fair values, and we capitalized acquisition-related costs and fees totaling $21.6 million.
Additionally, we acquired the following investments, which were deemed to be business combinations, at a total cost of $238.1 million, including land totaling $37.9 million, buildings totaling $163.0 million, and net lease intangible assets totaling $37.2 million (Note 7):
· a domestic investment for $174.8 million with KBR in a multi-tenant office facility;
· a foreign investment for $48.7 million with Wanbishi Archives Co. Ltd in a warehouse facility located in Japan. WPC has acquired a 3% minority interest in this purchase. Amount is based on the exchange rate of the Japanese yen on the date of acquisition; and
· a domestic investment for $14.6 million with Shale-Inland Holdings LLC in a multi-tenant industrial facility.
In connection with these investments, we expensed acquisition-related costs and fees totaling $12.8 million, which are included in General and administrative expenses in the consolidated financial statements. Additionally, we recognized revenues totaling $4.5 million and net losses totaling $11.9 million, primarily due to the acquisition-related costs and fees.
Assets disposed of during 2012 are discussed in Note 15. During 2012, 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 December 31, 2012 increased by 2.1% to $1.3218 from $1.2950 at December 31, 2011. The impact of this weakening was a $15.5 million increase in Real estate from December 31, 2011 to December 31, 2012.
Notes to Consolidated Financial Statements
2011 In September 2011, we entered into an investment in Italy whereby we purchased substantially all of the economic and voting interests in a real estate fund that owns 20 cash and carry retail stores located throughout Italy for a total cost of $395.5 million, including net lease intangible assets of $42.3 million. As this acquisition was deemed to be a real estate asset acquisition, we capitalized acquisition-related fees and expenses of $21.4 million. In connection with this investment, we assumed $222.7 million of indebtedness (Note 10). Amounts are based on the exchange rate of the euro on the date of acquisition. The retail stores are leased to Metro, and Metro AG, its German parent company, has guaranteed Metros obligations under the leases. The purchase price was allocated to the assets acquired and liabilities assumed, based upon their preliminary fair values. The following table summarizes the fair values of the assets acquired and liabilities assumed in the acquisition (in thousands).
Assets Acquired at Fair Value: |
|
|
| |
Land |
|
$ |
91,691 |
|
Building |
|
262,651 |
| |
Intangible assets |
|
57,750 |
| |
|
|
|
| |
Liabilities Assumed at Fair Value: |
|
|
| |
Non-recourse debt |
|
(222,680) |
| |
Accounts payable, accrued expenses and other liabilities |
|
(9,050) |
| |
Prepaid and deferred rental income |
|
(15,488) |
| |
Net Assets Acquired |
|
$ |
164,874 |
|
During 2011, we also entered into the following investments, which we deemed to be real estate asset acquisitions, at a total cost of $179.1 million, including net lease intangible assets totaling $43.2 million and acquisition-related costs and fees:
· a domestic investment for $99.6 million with Terminal Freezers, LLC in three cold storage facilities;
· an investment in Croatia for $32.7 million with Agrokor in a retail property. We are also committed to fund up to $23.6 million for the construction of two additional related retail properties (see Real Estate Under Construction, below). Amounts are based on the exchange rate of the euro on the date of acquisition;
· a domestic investment for $32.1 million with Harbor Freight Tools USA, Inc. in a distribution facility;
· a domestic parcel of land in the U.S. for $7.4 million that is leased to a developer for the construction of a restaurant; and
· three domestic follow-on transactions in existing investments for total costs of $7.4 million, excluding a tenant-funded improvement of $9.0 million. We recorded an additional $3.1 million related to one of these investments as net investments in direct financing leases (Note 5).
In connection with these investments, we capitalized acquisition-related costs and fees totaling $8.9 million.
In addition, during 2011, we entered into a domestic investment for $32.7 million with IShops, LLC to acquire a parcel of land, which includes a hotel property. We expensed acquisition-related costs and fees of $1.2 million as this transaction was accounted for as a business combination. Also, in connection with this transaction, as described below, we entered into a build-to-suit project with the developer to construct a shopping center on the land.
Operating Real Estate
Operating real estate, which consists primarily of our hotel and self-storage operations, at cost, is summarized as follows (in thousands):
|
|
December 31, |
| ||||
|
|
2012 |
|
2011 |
| ||
Land |
|
$ |
60,493 |
|
$ |
43,950 |
|
Buildings |
|
193,067 |
|
132,478 |
| ||
Furniture, fixtures, and equipment |
|
1,245 |
|
1,713 |
| ||
Less: Accumulated depreciation |
|
(7,757) |
|
(2,745) |
| ||
|
|
$ |
247,048 |
|
$ |
175,396 |
|
Notes to Consolidated Financial Statements
Acquisitions of Operating Real Estate
2012 During 2012, we acquired 14 self-storage properties from various sellers throughout the U.S. for a total cost of $82.9 million, including land of $16.5 million, building of $56.7 million, and lease intangible assets of $9.7 million (Note 7). As these acquisitions were deemed to be business combinations, we expensed the acquisition-related costs totaling $1.5 million, which are included in General and administrative expenses in the consolidated financial statements. Additionally, we recognized revenues of $2.2 million and net losses of $1.9 million, primarily due to the acquisition-related costs.
2011 During 2011, we acquired 43 self-storage properties throughout the U.S. from A-American Self Storage in several separate transactions for a total cost of $165.9 million, including net lease intangible assets of $13.4 million. In addition, we acquired an unrelated domestic self-storage property for $3.4 million, including net lease intangible assets of $0.1 million. As these acquisitions were deemed to be business combinations, we expensed the acquisition-related fees and expenses totaling $6.2 million, which are included in General and administrative expenses in the consolidated financial statements.
Allocation of Purchase Price
For our investments with Wanbishi, Agrokor, and the self-storage properties acquired during the three months ended December 31, 2012, the purchase price was allocated to the assets acquired and liabilities assumed based upon their preliminary estimated fair values, which are based on the best estimates of management at each respective date of acquisition. We are in the process of finalizing our assessment of the fair value of the assets acquired and liabilities assumed.
Pro Forma Financial Information (Unaudited)
The following consolidated pro forma financial information has been presented as if the business combinations that we made and the new financing that we obtained, since February 20, 2007 (inception) had occurred on January 1, 2009 for the year ended December 31, 2010. The pro forma financial information is not necessarily indicative of what the actual results would have been, nor does it purport to represent the results of operations for future periods.
(Dollars in thousands, except per share amounts):
|
|
Year Ended |
| |
|
|
December 31, 2010 |
| |
Pro forma total revenues |
|
$ |
154,808 |
|
|
|
|
| |
Pro forma net income (a) |
|
$ |
50,675 |
|
Less: Net income attributable to noncontrolling interests |
|
(15,878) |
| |
Pro forma net income attributable to CPA®:17 Global stockholders |
|
$ |
34,797 |
|
Pro forma earnings per share: (b) |
|
|
| |
Net income attributable to CPA®:17 Global stockholders |
|
$ |
0.36 |
|
___________
(a) Pro forma net income includes actual interest income generated from the proceeds of our initial public offering. A portion of these proceeds was used to fund the investments included in the foregoing pro forma financial information.
(b) The pro forma weighted average shares outstanding for the year ended December 31, 2010 totaled 142,366,962 shares and were determined as if all shares issued since our inception through December 31, 2010 were issued on January 1, 2010.
Real Estate Under Construction
Construction activity during the year ended December 31, 2012 included ten build-to-suit projects, of which four remained as open projects at year-end with unfunded commitments and six have been placed into service. In connection with these build-to-suit projects, we funded $121.0 million and placed assets totaling $142.1 million into service, which are classified as Real estate, at cost. Additionally, we capitalized interest totaling $2.1 million. The aggregate unfunded commitments on the remaining open projects totaled approximately $92.4 million at December 31, 2012.
Notes to Consolidated Financial Statements
2012 During 2012, we entered into four build-to-suit projects, which consisted of the following:
· one domestic project with IDL Wheel Tenant, LLC, a developer, for the construction of an entertainment complex for a total cost of up to $108.5 million, of which we funded $43.1 million through December 31, 2012. Additionally, we have a $50.0 million ADC arrangement that we account for as an equity method investment for the construction of an observation wheel on the entertainment complex (Note 6);
· one project with Syncreon Logistics Polska Sp. for the construction of an industrial facility located in Poland for a total cost of up to $8.3 million, of which we funded $2.4 million through December 31, 2012. Amounts are based on the exchange rate of the euro on the date of funding;
· one domestic project with Sabre Communications Corp. for the construction of a new facility for a total cost of up to $17.8 million, of which we funded $12.5 million through December 31, 2012; and
· one completed project with Nippon Sheet Glass Co., Ltd. for the construction of a warehouse located in Poland, which we funded, and placed assets totaling $25.2 million into service. Amounts are based on the exchange rate of the euro on the date of funding.
2011 During 2011, we entered into six build-to-suit projects, which consisted of the following:
· one domestic project with a developer, IShops LLC, for the construction of a shopping center, which includes a Walgreens store, for a total cost of up to $72.5 million, of which we funded $35.6 million during 2011 primarily related to the land described above. During 2012, we funded an additional $12.4 million;
· one completed project with Agrokor for the construction of two retail properties in Croatia for a total cost of up to $23.6 million, of which we funded $19.2 million and placed one property with assets totaling $13.3 million into service during 2011. During 2012, we funded an additional $2.2 million and placed the second property with assets totaling $8.3 million into service. Amounts are based on the exchange rate of the euro on the date of the funding;
· one completed domestic project with ICF International Inc. for the construction of an office facility for a total cost of up to $14.8 million, of which we funded $9.8 million during 2011. During 2012, we funded an additional $3.5 million and placed assets totaling $13.5 million into service;
· two completed domestic projects with Dollar General Corp. for a total cost of up to $9.1 million, of which we funded $8.4 million and placed one project of $8.1 million into service during 2011. During 2012, we funded an additional $0.7 million and placed the second project with assets totaling $1.6 million into service; and
· one completed domestic project with Faurecia USA Holdings, Inc. for the construction of a manufacturing facility for a total cost of up to $6.8 million, of which we funded $4.6 million during 2011. During 2012, we funded an additional $3.3 million and placed assets totaling $8.1 million into service.
2010 During 2010, we had one domestic project with Walgreens Las Vegas, for the construction of a shopping center for a total cost of up to $85.6 million, of which we funded $67.8 million during 2011 and 2010. During 2012, we funded an additional $15.7 million and placed assets totaling $85.4 million into service.
Amounts above are based on the estimated construction costs at the respective dates of acquisition, including acquisition-related costs and fees. In connection with these investments, which were deemed to be real estate acquisitions, we capitalized acquisition-related costs and fees totaling $16.4 million and $4.8 million during the years ended December 31, 2012 and 2011, respectively.
Asset Retirement Obligations
We have recorded asset retirement obligations for the removal of asbestos and environmental waste in connection with several of our acquisitions. We estimated the fair value of the asset retirement obligations based on the estimated economic lives of the properties and the estimated removal costs provided by the inspectors. The liability was discounted using the weighted-average interest rate on the associated fixed-rate mortgage loans at the time the liability was incurred.
CPA®:17 Global 2012 10-K 79
Notes to Consolidated Financial Statements
The following table provides a reconciliation of our asset retirement obligations, which are included in Accounts payable, accrued expenses and other liabilities on the consolidated balance sheets, for the years presented (in thousands):
|
|
December 31, | ||||
|
|
2012 |
|
2011 | ||
Balance - beginning of year |
|
$ |
11,453 |
|
$ |
1,508 |
Additions |
|
6,842 |
|
9,562 | ||
Accretion expense |
|
572 |
|
250 | ||
Foreign currency translation adjustments and other |
|
327 |
|
133 | ||
Balance - end of year |
|
$ |
19,194 |
|
$ |
11,453 |
Scheduled Future Minimum Rents
Scheduled future minimum rents, exclusive of renewals and expenses paid by tenants and future CPI-based adjustments, under non-cancelable operating leases at December 31, 2012 are as follows (in thousands):
Years Ending December 31, |
|
Total | |
2013 |
|
$ |
205,246 |
2014 |
|
208,077 | |
2015 |
|
209,202 | |
2016 |
|
210,725 | |
2017 |
|
211,151 | |
Thereafter |
|
2,541,199 | |
Total |
|
$ |
3,585,600 |
Note 5. Finance Receivables
Assets representing rights to receive money on demand or at fixed or determinable dates are referred to as finance receivables. Our finance receivable portfolios consist of our Net investments in direct financing leases and Notes receivable. Operating leases are not included in finance receivables as such amounts are not recognized as an asset in the consolidated balance sheets.
Net Investment in Direct Financing Leases
Net investment in direct financing leases is summarized as follows (in thousands):
|
|
December 31, | ||||
|
|
2012 |
|
2011 | ||
Minimum lease payments receivable |
|
$ |
819,881 |
|
$ |
823,894 |
Unguaranteed residual value |
|
466,829 |
|
456,145 | ||
|
|
1,286,710 |
|
1,280,039 | ||
Less: unearned income |
|
(810,838) |
|
(817,534) | ||
|
|
$ |
475,872 |
|
$ |
462,505 |
During 2011, we entered into five domestic net lease financing transactions, three of which were with Flanders Corporation for $53.9 million, one with Spear Precision & Packaging, Inc. for $8.0 million and one with American Air Liquide Holdings, Inc. for $2.2 million, in each case including acquisition-related fees and expenses. In connection with these investments, which were deemed to be real estate asset acquisitions, we capitalized acquisition-related fees and expenses of $3.1 million. We recorded an additional $2.1 million related to one of the Flanders Corporation investments as an operating lease (Note 4).
CPA®:17 Global 2012 10-K 80
Notes to Consolidated Financial Statements
Scheduled future minimum rents, exclusive of renewals and expenses paid by tenants and future CPI-based adjustments, under non-cancelable direct financing leases at December 31, 2012 are as follows (in thousands):
Years Ending December 31, |
|
Total | |
2013 |
|
$ |
51,002 |
2014 |
|
51,550 | |
2015 |
|
51,967 | |
2016 |
|
52,393 | |
2017 |
|
52,823 | |
Thereafter |
|
560,146 | |
Total |
|
$ |
819,881 |
Notes Receivable
2011 In June 2011, we provided financing of $30.0 million to a developer, BPS, in connection with the construction of a shopping center, which includes a Walgreens store, in Las Vegas, Nevada. In connection with the loan, we received an option to exchange the $30.0 million loan for an equity interest in BPS. This loan is collateralized by the property and personally guaranteed by each of the principals of BPS, has an annual interest rate of 0.5% and matures in September 2013. At December 31, 2011, the balance of this note receivable was $30.0 million. In October 2012, we exercised our option to acquire the 15% equity interest and reclassified the $30.0 million to an equity investment in real estate (Note 6).
2010 In December 2010, we provided financing of $40.0 million to China Alliance Properties Limited, a subsidiary of Shanghai Forte Land Co., Ltd (Forte). The financing was provided through a collateralized loan that is guaranteed by Fortes parent company, Fosun International Limited, and has an interest rate of 11% and matures in December 2015. At both December 31, 2012 and 2011, the balance of the note receivable was $40.0 million.
Credit Quality of Finance Receivables
We generally seek investments in facilities that we believe are critical to each tenants business and that we believe have a low risk of tenant defaults. At both December 31, 2012 and 2011, none of the balances of our finance receivables were past due and we had not established any allowances for credit losses. Additionally, there have been no modifications of finance receivables during the years ended December 31, 2012 and 2011. We evaluate the credit quality of our tenant receivables utilizing an internal 5-point credit rating scale, with 1 representing the highest credit quality and 5 representing the lowest. The credit quality evaluation of our tenant receivables was last updated in the fourth quarter of 2012.
A summary of our finance receivables by internal credit quality rating for the years presented is as follows (dollars in thousands):
|
|
|
|
|
|
Net Investments in Direct Financing Leases | ||||
|
|
Number of Tenants at December 31, |
|
at December 31, | ||||||
Internal Credit Quality Indicator |
|
2012 |
|
2011 |
|
2012 |
|
2011 | ||
1 |
|
1 |
|
1 |
|
$ |
2,239 |
|
$ |
2,225 |
2 |
|
2 |
|
3 |
|
60,218 |
|
85,857 | ||
3 |
|
8 |
|
6 |
|
413,415 |
|
374,423 | ||
4 |
|
- |
|
- |
|
- |
|
- | ||
5 |
|
- |
|
- |
|
- |
|
- | ||
|
|
|
|
|
|
$ |
475,872 |
|
$ |
462,505 |
CPA®:17 Global 2012 10-K 81
Notes to Consolidated Financial Statements
|
|
Number of Obligors at December 31, |
|
Notes Receivable at December 31, | ||||||
Internal Credit Quality Indicator |
|
2012 |
|
2011 |
|
2012 |
|
2011 | ||
1 |
|
- |
|
1 |
|
$ |
- |
|
$ |
30,000 |
2 |
|
- |
|
1 |
|
- |
|
40,000 | ||
3 |
|
1 |
|
- |
|
40,000 |
|
- | ||
4 |
|
- |
|
- |
|
- |
|
- | ||
5 |
|
- |
|
- |
|
- |
|
- | ||
|
|
|
|
|
|
$ |
40,000 |
|
$ |
70,000 |
At December 31, 2012 and 2011, Other assets, net included $1.0 million and $2.0 million, respectively, of accounts receivable related to amounts billed under these direct financing leases.
Note 6. Equity Investments in Real Estate
We own equity interests in single-tenant net leased properties that are generally leased to corporations 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 (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 from other-than-temporary impairments). Investments in unconsolidated investments are required to be evaluated periodically in which we compare an investments 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. Additionally, under ADC Arrangements we have provided two loans to third-party developers for the acquisition, development and construction of real estate projects which we account for as equity investments (Note 2).
The following table sets forth our ownership interests in our equity investments in real estate and their respective carrying values along with those ADC Arrangements that are recorded as equity investments (dollars in thousands):
|
|
Ownership Interest |
|
Carrying Value at December 31, | ||||
Lessee/Counterparty |
|
at December 31, 2012 |
|
2012 |
|
2011 | ||
C1000 Logistiek Vastgoed B.V. (a) (b) (c) |
|
85% |
|
$ |
81,516 |
|
$ |
89,063 |
U-Haul Moving Partners, Inc. and Mercury Partners, LP (d) (f) (i) |
|
12% |
|
28,019 |
|
28,956 | ||
BPS Parent, LLC (b) (g) |
|
15% |
|
26,253 |
|
- | ||
Hellweg Die Profi-Baumarkte GmbH & Co. KG (a) (e) (f) (h) |
|
33% |
|
22,827 |
|
16,817 | ||
Berry Plastics Corporation (h) (j) |
|
50% |
|
18,529 |
|
19,411 | ||
Tesco plc (a) (h) |
|
49% |
|
17,487 |
|
17,923 | ||
Eroski Sociedad Cooperativa - Mallorca (a) (e) (f) |
|
30% |
|
9,336 |
|
9,158 | ||
Dicks Sporting Goods, Inc. (h) |
|
45% |
|
5,010 |
|
5,739 | ||
|
|
|
|
208,977 |
|
187,067 | ||
Shelborne Property Associates, LLC (k) |
|
N/A |
|
63,896 |
|
- | ||
IDL Wheel Tenant, LLC (k) |
|
N/A |
|
2,260 |
|
- | ||
|
|
|
|
$ |
275,133 |
|
$ |
187,067 |
___________
(a) |
The carrying value of this investment is affected by the impact of fluctuations in the exchange rate of the euro. |
(b) |
Represents a tenancy-in-common interest, under which the investment is under common control by us and our investment partner. |
(c) |
We received distribution of $12.9 million and $92.6 million from this investment during 2012 and 2011, respectively. Of the 2011 distributions, $82.3 million was distributed in connection with a mortgage loan financing. |
(d) |
This investment is jointly-owned with WPC. |
(e) |
In May 2012, we made a contribution of $7.9 million to the investment to repurchase a portion of its outstanding mortgage loan. In connection with the purchase, the investment recognized a net gain on extinguishment of debt of $5.8 million, of which our share was $1.9 million. |
(f) |
We acquired our interest in this investment from CPA®:14 in May 2011 in connection with the CPA®:14/16 Merger (Note 3). |
CPA®:17 Global 2012 10-K 82
Notes to Consolidated Financial Statements
(g) |
In October 2012, we received a special distribution of $8.3 million in connection with a mortgage loan refinancing. |
(h) |
This investment is jointly-owned with CPA®:16 Global. |
(i) |
We received distributions of $2.1 million and $1.0 million from this investment during 2012 and 2011, respectively. |
(j) |
We received distributions of $2.3 million, $2.1 million, and $2.5 million from this investment during 2012, 2011, and 2010, respectively. |
(k) |
Represents a domestic ADC Arrangement that we account for under the equity method of accounting as the characteristics of the arrangement with the third-party developer are more similar to a jointly-owned investment or partnership rather than a loan (Note 2). |
The following tables present combined summarized investee financial information of our equity method investment properties. Amounts provided are the total amounts attributable to the investment properties and do not represent our proportionate share (in thousands):
|
|
December 31, | ||||
|
|
2012 |
|
2011 | ||
Real estate assets |
|
$ |
1,049,068 |
|
$ |
883,255 |
Other assets |
|
252,022 |
|
242,087 | ||
Total assets |
|
1,301,090 |
|
1,125,342 | ||
Debt |
|
(668,555) |
|
(697,289) | ||
Accounts payable, accrued expenses and other liabilities |
|
(86,592) |
|
(51,023) | ||
Total liabilities |
|
(755,147) |
|
(748,312) | ||
Noncontrolling interests |
|
(2,174) |
|
(506) | ||
Redeemable noncontrolling interests |
|
(21,747) |
|
- | ||
Partners/members equity |
|
$ |
522,022 |
|
$ |
376,524 |
|
|
Years Ended December 31, | |||||||
|
|
2012 |
|
2011 |
|
2010 | |||
Revenues |
|
$ |
111,151 |
|
$ |
82,072 |
|
$ |
15,961 |
Expenses |
|
(80,237) |
|
(63,267) |
|
(12,874) | |||
Income from continuing operations |
|
$ |
30,914 |
|
$ |
18,805 |
|
$ |
3,087 |
Net income attributable to equity method investments |
|
$ |
30,914 |
|
$ |
18,805 |
|
$ |
3,087 |
We recognized income from equity investments in real estate $7.8 million, $5.5 million, and $1.7 million for the years ended December 31, 2012, 2011, and 2010, respectively. Income from equity investments in real estate represents our proportionate share of the income or losses of these investments as well as certain depreciation and amortization adjustments related to other-than-temporary impairment charges and basis differentials from acquisitions of certain investments.
Acquisitions of Equity Investments
2012 In October 2012, we exercised an option to acquire the Walgreens Las Vegas property for approximately $39.3 million, of which $23.7 million had previously been funded (Walgreens Option) and exercised an option to acquire a 15% equity interest in a project that includes a multi-tenant retail development managed by BPS (Retail Option) (collectively, the Options). These Options were part of an overall investment of approximately $115.0 million in a two phase retail project consisting of (i) a Walgreens Retail Store and (ii) a Multi-Tenant Retail Project both located in Las Vegas, Nevada. We previously consolidated the entity which held title to both phases of the retail project as our loan to the entity provided us with control over those decisions that most significantly impacted the entitys economic performance. We also had the obligation to absorb losses and the rights to receive benefits from the entity that could potentially have been significant. Following the exercise of the Walgreens Option, we continued to consolidate the Walgreens Las Vegas property and capitalized the additional payment of approximately $15.5 million to the cost basis in the Walgreens Las Vegas property in our consolidated balance sheets. Concurrent with our exercise of the Walgreens Option, BPS repaid the remainder of our original loan. Upon repayment of the original loan, we lost control over those decisions which would most significantly impact the economic performance of the entity. Accordingly, we deconsolidated the Multi-Tenant Retail Project. This resulted in a gain on disposition of real estate of approximately $1.1 million.
CPA®:17 Global 2012 10-K 83
Notes to Consolidated Financial Statements
Pursuant to the terms of our agreement with BPS involving the $30.0 million loan we made to them, we had the ability to either (i) receive cash equal to the principal balance of our $30.0 million loan (Note 5), plus unpaid interest of approximately $2.9 million, or (ii) convert the loan to a preferred equity interest of 15% in the multi-tenant real estate project underlying the Retail Option. Upon exercise of the Retail Option during 2012, we recognized $2.9 million of previously deferred earnings attributable to the unpaid interest which was accruing under the $30.0 million loan. This income was realized upon the recapitalization of the multi-tenant real estate underlying the Retail Option and resulting change in control over those rights that most significantly impact the entitys economic performance. Following the exercise of the Retail Option, we account for our interest under the equity method of accounting as we do not have a controlling interest but exercise significant influence.
2011 In January 2011, we and our then affiliate, CPA®:15, acquired an interest in a tenancy-in-common in which we and CPA®:15 held interests of 85% and 15%, respectively, and that we account for under the equity method of accounting. The entity purchased properties from C1000, a Dutch supermarket chain, for $207.6 million. Our share of the purchase price was $176.5 million, which was funded in part with a $90.0 million short-term loan from the advisor that has since been repaid (Note 3). In connection with this transaction, the entity capitalized acquisition-related costs and fees totaling $12.5 million, of which our share was $10.6 million. In March 2011, the entity obtained non-recourse financing totaling $98.3 million and distributed the net proceeds to the investment partners, of which our share was $82.3 million. This mortgage loan bears interest at a variable rate equal to the three-month Euro Inter-bank offered rate (Euribor) plus 2% and matures in March 2013. Amounts above are based upon the exchange rate of the euro at the dates of acquisition and financing.
In May 2011, we acquired interests of 33%, 12% and 45% in the entities that lease properties to Hellweg 2, U-Haul and Dicks, respectively, from CPA®:14 for an aggregate purchase price of a $55.7 million (Note 3). These entities are jointly-owned with other affiliates. Because we do not control these entities but we exercise significant influence over them, we account for our interests in these entities as equity investments. The properties that the entities own and the mortgages encumbering the properties had a total fair value of $947.3 million and $581.6 million, respectively, at the date of acquisition. Amounts provided are the total amounts attributable to entities properties and do not represent the proportionate share that we purchased. In connection with this acquisition, we recorded basis differences totaling $27.4 million, which represents our share of the excess of the fair value of the underlying entities properties and mortgage loans over their respective carrying values, to be amortized into equity earnings over the remaining lives of the properties and mortgage loans. Amounts are based on the exchange rate of the euro at the date of acquisition, as applicable.
ADC Arrangements
2012 In December 2012, we funded a domestic build-to-suit project with Shelborne Property Associates, LLC for the construction of hotel property for a total estimated construction cost of up to $125.0 million, of which we funded $60.5 million through December 31, 2012. We account for this ADC Arrangement under the equity method of accounting as we will participate in the residual interests through the sale or refinancing of the property (Note 2). The loan is collateralized by the property and has an annual interest rate ranging from 6% to 8% for the first three years of the term; followed by seven one-year extensions of the term at the option of the borrower at which point, the annual interest rate would be 10%. At December 31, 2012, the related loan had an unfunded balance of $64.5 million.
In November 2012, we funded a domestic build-to-suit project with IDL Wheel Tenant, LLC for the construction of an observation wheel in an entertainment complex, which we have also acquired as a build-to-suit project (Note 4). The total estimated construction cost of the observation wheel is up to $50.0 million, of which we funded $1.8 million through December 31, 2012. We account for this ADC Arrangement under the equity method of accounting as we will participate in the residual interests through the sale or refinancing of the property. The loan is personally guaranteed by each of the principals of IDL Wheel Tenant, LLC and has an annual interest rate of 9% and matures in November 2017. As part of the arrangement, we agreed to fund a portion of the loan in euro and we locked the euro to U.S. dollar exchange rate to the developer at $1.278 at the time of the transaction. This component of the loan is deemed to be an embedded derivative (Note 9). At December 31, 2012, the related loan had an unfunded balance of $48.2 million.
Note 7. Intangible Assets and Liabilities
In connection with our acquisition of properties through December 31, 2012, we have net lease intangibles that are being amortized over periods ranging from one year to 37 years. In-place lease, tenant relationship, and above-market rent intangibles are included in Intangible assets, net in the consolidated financial statements. Below-market rent intangibles are included in Prepaid and deferred rental income in the consolidated financial statements.
CPA®:17 Global 2012 10-K 84
Notes to Consolidated Financial Statements
In connection with our investment activity during the year ended December 31, 2012, we have recorded intangibles as follows (in thousands):
|
|
Weighted-Average Life |
|
Amount | |
Amortizable Intangible Assets |
|
|
|
| |
Lease intangibles: |
|
|
|
| |
In-place lease |
|
10.6 |
|
$ |
180,060 |
Above-market rent |
|
16.2 |
|
14,864 | |
Below-market ground lease |
|
94.4 |
|
1,410 | |
Total intangible assets |
|
|
|
$ |
196,334 |
|
|
|
|
| |
Amortizable Below-Market Rent Intangible Liabilities |
|
|
|
| |
Below-market rent |
|
8.7 |
|
$ |
(56,978) |
Total intangible liabilities |
|
|
|
$ |
(56,978) |
Intangible assets and liabilities are summarized as follows (in thousands):
|
|
December 31, | ||||||||||||||||
|
|
2012 |
|
2011 | ||||||||||||||
|
|
Carrying |
|
Accumulated |
|
Total |
|
Carrying |
|
Accumulated |
|
Total | ||||||
Amortizable Intangible Assets |
|
|
|
|
|
|
|
|
|
|
|
| ||||||
Lease intangibles: |
|
|
|
|
|
|
|
|
|
|
|
| ||||||
In-place lease |
|
$ |
467,846 |
|
$ |
(44,762) |
|
$ |
423,084 |
|
$ |
286,913 |
|
$ |
(19,007) |
|
$ |
267,906 |
Other (a) |
|
89,132 |
|
(10,893) |
|
78,239 |
|
71,890 |
|
(5,659) |
|
66,231 | ||||||
Total intangible assets |
|
$ |
556,978 |
|
$ |
(55,655) |
|
$ |
501,323 |
|
$ |
358,803 |
|
$ |
(24,666) |
|
$ |
334,137 |
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
Amortizable Below-Market Rent Intangible Liabilities |
|
|
|
|
|
|
|
|
|
|
|
| ||||||
Below-market rent |
|
$ |
(84,130) |
|
$ |
3,675 |
|
$ |
(80,455) |
|
$ |
(26,809) |
|
$ |
1,187 |
|
$ |
(25,622) |
Total intangible liabilities |
|
$ |
(84,130) |
|
$ |
3,675 |
|
$ |
(80,455) |
|
$ |
(26,809) |
|
$ |
1,187 |
|
$ |
(25,622) |
___________
(a) Includes tenant relationships, above-market rent, and below-market ground lease.
Net amortization of intangibles, including the effect of foreign currency translation, was $28.0 million, $18.0 million, and $4.9 million for the years ended December 31, 2012, 2011, and 2010, respectively. Amortization of below-market and above-market rent intangibles is recorded as an adjustment to Lease revenues, while amortization of in-place lease and tenant relationship intangibles is included in Depreciation and amortization.
Based on the intangible assets and liabilities recorded at December 31, 2012, scheduled annual net amortization of intangibles for each of the next five years and thereafter is as follows (in thousands):
Years Ending December 31, |
|
Total | |
2013 |
|
$ |
34,551 |
2014 |
|
31,510 | |
2015 |
|
29,440 | |
2016 |
|
27,141 | |
2017 |
|
26,175 | |
Thereafter |
|
272,051 | |
Total |
|
$ |
420,868 |
CPA®:17 Global 2012 10-K 85
Notes to Consolidated Financial Statements
Note 8. 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 an interest rate cap and swaps; and Level 3, for securities and other derivative assets 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.
We did not have any transfers into or out of Level 1, Level 2 and Level 3 measurements during the years ended December 31, 2012 and 2011. Gains and losses (realized and unrealized) included in earnings are reported in Other income and (expenses) in the consolidated financial statements.
Our other financial instruments had the following carrying values and fair values as of the dates shown (in thousands):
|
|
|
|
December 31, 2012 |
|
December 31, 2011 | ||||||||
|
|
Level |
|
Carrying Value |
|
Fair Value |
|
Carrying Value |
|
Fair Value | ||||
Debt (a) |
|
3 |
|
$ |
1,633,452 |
|
$ |
1,674,019 |
|
$ |
1,154,254 |
|
$ |
1,184,309 |
Notes receivable (a) |
|
3 |
|
40,000 |
|
43,957 |
|
70,000 |
|
71,297 | ||||
CMBS (b) |
|
3 |
|
2,075 |
|
2,980 |
|
3,777 |
|
6,701 | ||||
Other securities (c) |
|
3 |
|
8,301 |
|
10,800 |
|
1,230 |
|
1,230 | ||||
___________
(a) |
We determined the estimated fair value of our other financial instruments using a discounted cash flow model with rates that take into account the credit of the tenant/obligor and interest rate risk. We also considered the value of the underlying collateral taking into account the quality of the collateral, the credit quality of the tenant/obligor, the time until maturity and the current market interest rate. |
(b) |
The carrying value of our CMBS represents historical cost, as we have deemed these securities to be held-to-maturity, and is inclusive of impairment charges recognized during 2012. There were no purchases or sales during the year ended December 31, 2012. |
(c) |
During June 2012, we acquired equity securities in a warehouse and logistics company for a total cost of $7.1 million, representing a follow-on transaction relating to a $1.2 million investment that we made during 2011. |
We estimate that our remaining financial assets and liabilities (excluding net investments in direct financing leases) had fair values that approximated their carrying values at both December 31, 2012 and 2011.
Items Measured at Fair Value on a Non-Recurring Basis
We perform an assessment, when required, of the value of certain of our real estate investments. As part of that assessment, we determine the valuation of these assets using widely accepted valuation techniques, including expected discounted cash flows or an income capitalization approach, which considers prevailing market capitalization rates. We review each investment based on the highest and best use of the investment and market participation assumptions. We determined that the significant inputs used to value these investments fall within Level 3. As a result of our assessments, we did not recognize any impairment charges on our real estate investments during the years ended December 31, 2012 or 2011. The valuation of real estate is subject to significant judgment and actual results may differ materially if market conditions or the underlying assumptions change.
CPA®:17 Global 2012 10-K 86
Notes to Consolidated Financial Statements
The following table presents information about our other assets that were measured on a fair value. All of the impairment charges were measured using unobservable inputs (Level 3) and were recorded based on market conditions and assumptions that existed at the time (in thousands):
|
|
Year Ended December 31, 2012 |
|
Year Ended December 31, 2011 |
|
Year Ended December 31, 2010 | ||||||||||||
|
|
Total |
|
Total |
|
Total |
|
Total |
|
Total |
|
Total | ||||||
|
|
Fair Value |
|
Impairment |
|
Fair Value |
|
Impairment |
|
Fair Value |
|
Impairment | ||||||
|
|
Measurements |
|
Charges |
|
Measurements |
|
Charges |
|
Measurements |
|
Charges | ||||||
Impairment Charges from Continuing Operations: |
|
|
|
|
|
|
|
|
|
|
|
| ||||||
Net investments in direct financing leases |
|
$ |
- |
|
$ |
- |
|
$ |
- |
|
$ |
(70) |
|
$ |
- |
|
$ |
- |
CMBS (a) |
|
- |
|
2,019 |
|
- |
|
- |
|
- |
|
- | ||||||
|
|
$ |
- |
|
$ |
2,019 |
|
$ |
- |
|
$ |
(70) |
|
$ |
- |
|
$ |
- |
___________
(a) During the first quarter of 2012, we incurred other-than-temporary impairment charges on our CMBS portfolio totaling $2.0 million to reduce the carrying values of three CMBS tranches to zero as a result of non-performance and the advisors assessment that the likelihood of receiving further interest payments or return of principal was remote.
Note 9. 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 three main components of economic risk that impact us: interest rate risk, credit risk and market risk. We are primarily subject to interest rate risk on our interest-bearing assets and liabilities. Credit risk is the risk of default on our operations and tenants inability or unwillingness to make contractually required payments. Market risk includes changes in the value of our properties and related loans as well as changes in the value of our other investments due to changes in interest rates or other market factors. In addition, we own investments in Europe and in Asia and are subject to the risks associated with changing foreign currency exchange rates.
Use of Derivative Financial Instruments
When we use derivative instruments, it is generally to reduce our exposure to fluctuations in interest rates and foreign currency exchange rate movements. We have not entered, and do not plan to enter, into financial instruments for trading or speculative purposes. In addition to derivative instruments that we entered into on our own behalf, we may also be a party to derivative instruments that are embedded in other contracts, and we may own common stock warrants, granted to us by lessees when structuring lease transactions, which are considered to be derivative instruments. The primary risks related to our use of derivative instruments are that a counterparty to a hedging arrangement could default on its obligation or that the credit quality of the counterparty may be downgraded to such an extent that it impairs our ability to sell or assign our side of the hedging transaction. While we seek to mitigate these risks by entering into hedging arrangements with counterparties that are large financial institutions that we deem to be creditworthy, it is possible that our hedging transactions, which are intended to limit losses, could adversely affect our earnings. Furthermore, if we terminate a hedging arrangement, we may be obligated to pay certain costs, such as transaction or breakage fees. We have established policies and procedures for risk assessment and the approval, reporting and monitoring of derivative financial instrument activities.
We measure derivative instruments at fair value and record them as assets or liabilities, depending on our rights or obligations under the applicable derivative contract. Derivatives that are not designated as hedges must be adjusted to fair value through earnings. For a derivative designated and that qualified as a cash flow hedge, the effective portion of the change in fair value of the derivative is recognized in Other comprehensive loss until the hedged item is recognized in earnings. The ineffective portion of a derivatives change in fair value is immediately recognized in earnings. For a derivative designated and that qualified as a net investment hedge, the effective portion of the change in the fair value and/or the net settlement of the derivative are reported in Other comprehensive loss as part of the cumulative foreign currency translation adjustment. The ineffective portion of the change in fair value of the derivative is recognized directly in earnings. Amounts are reclassified out of Other comprehensive loss into earnings when the hedged investment is either sold or substantially liquidated.
CPA®:17 Global 2012 10-K 87
Notes to Consolidated Financial Statements
The following table sets forth certain information regarding our derivative instruments for the years presented (in thousands):
|
|
|
|
Asset Derivatives Fair Value at December 31,
|
|
Liability Derivatives Fair Value at | ||||||||
|
|
Balance Sheet Location |
|
2012 |
|
2011 |
|
2012 |
|
2011 | ||||
Derivatives Designated as Hedging Instruments |
|
|
|
|
|
|
|
|
|
| ||||
Foreign currency forwards |
|
Other assets, net |
|
$ |
4,229 |
|
$ |
5,206 |
|
$ |
- |
|
$ |
- |
Foreign currency collars |
|
Other assets, net |
|
2,743 |
|
5,657 |
|
- |
|
- | ||||
Interest rate cap |
|
Other assets, net |
|
1 |
|
80 |
|
- |
|
- | ||||
Foreign currency forwards |
|
Accounts payable, accrued expenses and other liabilities |
|
- |
|
- |
|
(2,533) |
|
- | ||||
Interest rate swaps |
|
Accounts payable, accrued expenses and other liabilities |
|
- |
|
- |
|
(20,142) |
|
(8,682) | ||||
Derivatives Not Designated as Hedging Instruments |
|
|
|
|
|
|
|
|
|
| ||||
Embedded derivatives (a) |
|
Accounts payable, accrued expenses and other liabilities |
|
- |
|
- |
|
(1,141) |
|
- | ||||
Stock warrants (b) |
|
Other assets, net |
|
1,485 |
|
1,419 |
|
- |
|
- | ||||
Put options |
|
Other assets, net |
|
- |
|
224 |
|
- |
|
- | ||||
Put options |
|
Accounts payable, accrued expenses and other liabilities |
|
- |
|
- |
|
- |
|
(224) | ||||
Total derivatives |
|
|
|
$ |
8,458 |
|
$ |
12,586 |
|
$ |
(23,816) |
|
$ |
(8,906) |
___________
(a) |
In connection with the ADC Arrangement with IDL Wheel Tenant, LLC, we agreed to fund a portion of the loan in euro and we locked the euro to U.S. dollar exchange rate at $1.278 to the developer at the time of the transaction (Note 6). This component of the loan is deemed to be an embedded derivative. |
(b) |
As part of the purchase of an interest in Hellweg 2 from CPA®:14 in May 2011, we acquired warrants from CPA®:14, which were granted by Hellweg 2 to CPA®:14. These warrants give us participation rights to any distributions made by Hellweg 2 and we are entitled to a cash distribution that equals a certain percentage of the liquidity event price of Hellweg 2, should a liquidity event occur. |
CPA®:17 Global 2012 10-K 88
Notes to Consolidated Financial Statements
The following tables present the impact of derivative instruments on the consolidated financial statements (in thousands):
|
|
Amount of Gain (Loss) Recognized in | |||||||
|
|
Other Comprehensive Loss on Derivatives (Effective Portion) | |||||||
|
|
Years Ended December 31, | |||||||
Derivatives in Cash Flow Hedging Relationships |
|
2012 |
|
2011 |
|
2010 | |||
Interest rate cap (a) |
|
$ |
811 |
|
$ |
(244) |
|
$ |
(2,221) |
Interest rate swaps |
|
(11,046) |
|
(6,864) |
|
(1,073) | |||
Foreign currency collars |
|
(2,951) |
|
6,698 |
|
- | |||
Foreign currency forward contract |
|
(3,030) |
|
- |
|
- | |||
Put options |
|
192 |
|
- |
|
- | |||
|
|
|
|
|
|
| |||
Derivatives in Net Investment Hedging Relationships (b) |
|
|
|
|
|
| |||
Foreign currency contracts |
|
(734) |
|
(4,809) |
|
(1,081) | |||
Total |
|
$ |
(16,758) |
|
$ |
(5,219) |
|
$ |
(4,375) |
|
|
Amount of Gain (Loss) Reclassified from | |||||||
|
|
Other Comprehensive Loss into Income (Effective Portion) | |||||||
|
|
Years Ended December 31, | |||||||
Derivatives in Cash Flow Hedging Relationships |
|
2012 |
|
2011 |
|
2010 | |||
Foreign currency collars (c) |
|
$ |
1,918 |
|
$ |
624 |
|
$ |
- |
Foreign currency forwards (c) |
|
366 |
|
- |
|
- | |||
Interest rate cap |
|
(890) |
|
- |
|
- | |||
Interest rate swaps |
|
(4,867) |
|
- |
|
- | |||
Total |
|
$ |
(3,473) |
|
$ |
624 |
|
$ |
- |
___________
(a) |
Includes a gain attributable to noncontrolling interests of $0.4 million for the year ended December 31, 2012 and losses attributable to noncontrolling interests of $0.1 million and $1.0 million for the years ended December 31, 2011 and 2010, respectively. |
(b) |
The effective portion of the change in fair value and the settlement of these contracts are reported in the foreign currency translation adjustment section of Other comprehensive loss until the underlying investment is sold, at which time we reclassify the gain or loss to earnings. |
(c) |
Gains (losses) reclassified from Other comprehensive loss into income (loss) for contracts and collars that have matured are included in Other income and (expenses). |
|
|
|
|
Amount of Gain (Loss) Recognized in | |||||||
|
|
|
|
Income on Derivatives | |||||||
|
|
Location of Gain (Loss) |
|
Years Ended December 31, | |||||||
Derivatives Not in Cash Flow Hedging Relationships |
|
Recognized in Income |
|
2012 |
|
2011 |
|
2010 | |||
Embedded derivatives |
|
Other income and (expenses) |
|
$ |
(1,141) |
|
$ |
- |
|
$ |
- |
Put options |
|
Other income and (expenses) |
|
(2) |
|
- |
|
- | |||
Foreign currency contracts |
|
Other income and (expenses) |
|
254 |
|
432 |
|
- | |||
Stock warrants |
|
Other income and (expenses) |
|
66 |
|
(198) |
|
- | |||
Interest rate swap (a) |
|
Interest expense |
|
(34) |
|
- |
|
- | |||
Total |
|
|
|
$ |
(857) |
|
$ |
234 |
|
$ |
- |
___________
(a) Relates to the ineffective portion of the hedging relationship.
See below for information on our purposes for entering into derivative instruments and for information on derivative instruments owned by unconsolidated investments, which are excluded from the tables above.
CPA®:17 Global 2012 10-K 89
Notes to Consolidated Financial Statements
Interest Rate Swaps and Cap
We are exposed to the impact of interest rate changes primarily through our borrowing activities. To limit this exposure, we attempt to obtain mortgage financing on a long-term, fixed-rate basis. However, from time to time, we or our investment partners may obtain variable-rate non-recourse mortgage loans and, as a result, may enter into interest rate swap agreements or interest rate cap agreements with counterparties. Interest rate swaps, which effectively convert the variable-rate debt service obligations of the loan to a fixed rate, are agreements in which one party exchanges a stream of interest payments for a counterpartys stream of cash flow over a specific period. The notional, or face, amount on which the swaps are based is not exchanged. An interest rate cap limits the effective borrowing rate of variable-rate debt obligations while allowing participants to share in downward shifts in interest rates. Our objective in using these derivatives is to limit our exposure to interest rate movements.
The interest rate swaps and caps that we had outstanding on our consolidated investments at December 31, 2012 were designated as cash flow hedges and are summarized as follows (currency in thousands):
|
|
|
|
Notional |
|
Effective |
|
Effective |
|
Expiration |
|
Fair Value at |
| ||
|
|
Type |
|
Amount |
|
Interest Rate |
|
Date |
|
Date |
|
December 31, 2012 (a) |
| ||
6-Month Euribor |
|
Pay-fixed swap |
|
|
164,250 |
|
4.2% |
|
9/2011 |
|
9/2016 |
|
$ |
(11,200 |
) |
3-Month Euribor |
|
Pay-fixed swap |
|
|
5,845 |
|
5.8% |
|
7/2010 |
|
11/2017 |
|
(658 |
) | |
3-Month Euribor |
|
Pay-fixed swap |
|
|
3,852 |
|
4.3% |
|
6/2012 |
|
5/2017 |
|
(189 |
) | |
3-Month LIBOR (b) |
|
Interest rate cap |
|
$ |
119,260 |
|
N/A |
|
8/2009 |
|
8/2014 |
|
1 |
| |
1-Month LIBOR |
|
Pay-fixed swap |
|
$ |
92,400 |
|
3.9% |
|
2/2012 |
|
2/2017 |
|
(2,644 |
) | |
3-Month LIBOR |
|
Pay-fixed swap |
|
$ |
25,793 |
|
6.6% |
|
1/2010 |
|
12/2019 |
|
(3,822 |
) | |
1-Month LIBOR |
|
Pay-fixed swap |
|
$ |
9,000 |
|
5.0% |
|
3/2012 |
|
3/2022 |
|
(429 |
) | |
1-Month LIBOR |
|
Pay-fixed swap |
|
$ |
4,459 |
|
4.6% |
|
6/2012 |
|
7/2022 |
|
(111 |
) | |
1-Month LIBOR |
|
Pay-fixed swap |
|
$ |
4,292 |
|
4.8% |
|
10/2012 |
|
11/2022 |
|
(99 |
) | |
1-Month LIBOR |
|
Pay-fixed swap |
|
$ |
4,120 |
|
6.0% |
|
1/2011 |
|
1/2021 |
|
(550 |
) | |
1-Month LIBOR |
|
Pay-fixed swap |
|
$ |
1,600 |
|
4.8% |
|
12/2011 |
|
12/2021 |
|
(84 |
) | |
1-Month LIBOR |
|
Pay-fixed swap |
|
$ |
20,075 |
|
4.8% |
|
12/2012 |
|
12/2022 |
|
(356 |
) | |
|
|
|
|
|
|
|
|
|
|
|
|
$ |
(20,141 |
) |
___________
(a) Amounts are based upon the exchange rate of the euro at December 31, 2012, as applicable.
(b) The applicable interest rate of the related debt was 2.86%, which was below the interest rate of the cap of 4.0% at December 31, 2012. The notional amount and fair value of $53.7 million and less than $0.1 million, respectively, attributable to noncontrolling interests is included in this swap.
Foreign Currency Contracts
We are exposed to foreign currency exchange rate movements, primarily in the euro and, to a lesser extent, the British pound sterling and the Japanese yen. We manage foreign currency exchange rate movements by generally placing both our debt obligation to the lender and the tenants rental obligation to us in the same currency. This reduces our overall exposure to the actual equity that we have invested and the equity portion of our cash flow. However, we are subject to foreign currency exchange rate movements to the extent of the difference in the timing and amount of the rental obligation and the debt service. We may also face challenges with repatriating cash from our foreign investments. We may encounter instances where it is difficult to repatriate cash because of jurisdictional restrictions or because repatriating cash may result in current or future tax liabilities. Realized and unrealized gains and losses recognized in earnings related to foreign currency transactions are included in Other income and (expenses) in the consolidated financial statements.
In order to hedge certain of our foreign currency cash flow exposures, we enter into foreign currency forward contracts and collars. A foreign currency forward contract is a commitment to deliver a certain amount of currency at a certain price on a specific date in the future. By entering into forward contracts, we are locked into a future currency exchange rate for the term of the contract. A foreign currency collar consists of a written call option and a purchased put option to sell the foreign currency. These instruments lock the range in which the foreign currency exchange rate will fluctuate.
CPA®:17 Global 2012 10-K 90
Notes to Consolidated Financial Statements
The following table presents the foreign currency derivative contracts we had outstanding and their designations at December 31, 2012 (currency in thousands, except strike price):
|
|
Notional |
|
Strike |
|
Effective |
|
Expiration |
|
Fair Value at |
| |||
Type |
|
Amount |
|
Price |
|
Date |
|
Date |
|
December 31, 2012 (a) |
| |||
Designated as Cash Flow Hedging Instruments |
|
|
|
|
|
|
|
|
|
|
| |||
Collars |
|
|
35,446 |
|
$ |
1.40 - 1.44 |
|
9/2011 |
|
3/2013 - 9/2014 |
|
$ |
2,743 |
|
Forward contracts |
|
|
45,000 |
|
1.39 |
|
7/2011 |
|
7/2013 |
|
2,882 |
| ||
Forward contracts |
|
|
30,523 |
|
1.34 - 1.35 |
|
9/2011 |
|
3/2013 - 3/2015 |
|
570 |
| ||
Forward contracts |
|
|
56,700 |
|
1.28 - 1.29 |
|
5/2012 |
|
12/2014 - 6/2017 |
|
(2,381 |
) | ||
Forward contracts |
|
|
17,100 |
|
1.34 |
|
12/2012 |
|
9/2017 - 3/2018 |
|
(174 |
) | ||
Forward contracts |
|
¥ |
1,612,963 |
|
.0122 - .0128 |
|
12/2012 |
|
6/2013 - 12/2017 |
|
799 |
| ||
|
|
|
|
|
|
|
|
|
|
$ |
4,439 |
| ||
___________
(a) Amounts are based upon the applicable exchange rate of the euro and the Japanese yen at December 31, 2012.
Other
Amounts reported in Other comprehensive loss related to interest rate swaps will be reclassified to interest expense as interest payments are made on our variable-rate debt. Amounts reported in Other comprehensive loss related to foreign currency contracts will be reclassified to Other income and (expenses) when the hedged foreign currency proceeds from foreign operations are repatriated to the U.S. At December 31, 2012, we estimate that an additional $6.8 million, inclusive of amounts attributable to noncontrolling interests of $0.5 million, and $14.3 million will be reclassified as interest expense and other income, respectively, during the next 12 months.
We measure our credit exposure on a counterparty basis as the net positive aggregate estimated fair value of our derivatives, net of collateral received, if any. No collateral was received as of December 31, 2012. At December 31, 2012, our total credit exposure and the maximum exposure to any single counterparty was $1.2 million, inclusive of noncontrolling interest.
Some of the agreements we have with our derivative counterparties contain certain credit contingent provisions that could result in a declaration of default against us regarding our derivative obligations if we either default or are capable of being declared in default on certain of our indebtedness. At December 31, 2012, we had not been declared in default on any of our derivative obligations. The estimated fair value of our derivatives that were in a net liability position was $23.0 million and $9.0 million at December 31, 2012 and 2011, respectively, which included accrued interest and any adjustment for nonperformance risk. If we had breached any of these provisions at either December 31, 2012 or 2011, we could have been required to settle our obligations under these agreements at their aggregate termination value of $25.1 million or $9.7 million, respectively.
Portfolio Concentration Risk
Concentrations of credit risk arise when a group of tenants is engaged in similar business activities or is subject to similar economic risks or conditions that could cause them to default on their lease obligations to us. We regularly monitor our portfolio to assess potential concentrations of credit risk. While we believe our portfolio is reasonably well diversified, it does contain concentrations in excess of 10%, based on the percentage of our annualized contractual minimum base rent for the fourth quarter of 2012, in certain areas, as shown in the table below. The percentages in the table below represent our directly-owned real estate properties and do not include our share of equity investments or noncontrolling interests.
CPA®:17 Global 2012 10-K 91
Notes to Consolidated Financial Statements
|
|
|
December 31, 2012 |
|
Region: |
|
|
|
|
New York |
|
|
10 |
% |
Other U.S. |
|
|
53 |
% |
Total U.S. |
|
|
63 |
% |
Italy |
|
|
11 |
% |
Other international |
|
|
26 |
% |
Total international |
|
|
37 |
% |
Total |
|
|
100 |
% |
|
|
|
|
|
Asset Type: |
|
|
|
|
Office |
|
|
32 |
% |
Warehouse/Distribution |
|
|
26 |
% |
Retail |
|
|
24 |
% |
Industrial |
|
|
13 |
% |
All other |
|
|
5 |
% |
Total |
|
|
100 |
% |
|
|
|
|
|
Tenant Industry: |
|
|
|
|
Retail |
|
|
23 |
% |
Media - Printing & Publishing |
|
|
15 |
% |
Grocery |
|
|
14 |
% |
All other |
|
|
48 |
% |
Total |
|
|
100 |
% |
|
|
|
|
|
Guarantor/Tenant: |
|
|
|
|
Metro AG (Europe) |
|
|
11 |
% |
The New York Times Company (U.S.) |
|
|
10 |
% |
There were no significant concentrations, individually or in the aggregate, related to our unconsolidated jointly-owned investments.
Note 10. Non-Recourse Debt
Non-Recourse Debt
Non-recourse debt consists of mortgage notes payable, which are collateralized by an assignment of real property and direct financing leases, with an aggregate carrying value of approximately $2.4 billion and $1.9 billion at December 31, 2012 and 2011, respectively. At December 31, 2012, our mortgage notes payable bore interest at fixed annual rates ranging from 2.0% to 8.0% and variable effective annual rates ranging from 2.9% to 6.6%, with maturity dates ranging from 2013 to 2031.
2012 During 2012, we obtained non-recourse mortgage financing totaling $469.6 million at a weighted-average annual interest rate and term of 4.3% and 8.6 years, respectively. Of the total:
· $349.9 million related to investments acquired during 2012, comprised of $128.2 million related to KBR, $92.4 million related to BCBS, $44.9 million related to the self-storage properties, and $84.4 million related to five other domestic investments;
· $53.0 million related to five domestic investments acquired during 2011;
· $52.9 million related to two foreign investments acquired during 2012, comprised of $31.6 million related to Wanbishi and $21.3 million related to Agrokor. Amounts are based on the exchange rate of the Japanese yen and euro, respectively, on the date of the financing; and
· $13.8 million related to two Polish investments acquired in 2011, based on the exchange rate of the euro on the date of the financing.
CPA®:17 Global 2012 10-K 92
Notes to Consolidated Financial Statements
Additionally, in connection with one of our self-storage investments and one build-to-suit investment during 2012, we assumed two non-recourse mortgage loans totaling $36.7 million.
2011 During 2011, we assumed $222.7 million of indebtedness with an annual interest rate equal to Euribor plus 2.15%, that has been fixed at 4.18% through an interest rate swap, and a term of five years in connection with the Metro investment. In connection with certain the self-storage investments and our investment in Croatia, we also assumed non-recourse mortgage loans totaling $50.4 million. Amounts are based on the exchange rate of the euro on the date of acquisition, as applicable.
Additionally, we obtained non-recourse mortgage financing totaling $243.5 million during 2011 at a weighted-average annual interest rate and term of 5.7% and 10.0 years, respectively. Of the total:
· $160.2 million related to investments acquired during 2011, comprised of $112.1 million related to six domestic investments, and $48.1 million related to the self-storage properties;
· $60.6 million related to four domestic investments acquired during 2010; and
· $13.7 million related to a United Kingdom investment acquired in 2009, based on the exchange rate of the British pound sterling on the date of financing.
· $9.0 million incremental borrowing related to the March 2009 The New York Times Company transaction, inclusive of amounts attributable to noncontrolling interests of $4.1 million. In March 2011, we modified the non-recourse mortgage loan obtained in August 2009, which had an outstanding balance of $116.0 million at the date of refinancing, with new non-recourse financing of $125.0 million that matures in April 2018 and has option to extend the maturity to April 2019. The new financing bears interest at an annual interest rate equal to the LIBOR plus 2.5% that has been capped at 6.25% through the use of an interest rate cap designated as a cash flow hedge, which matures in March 2014 (Note 9).
Scheduled Debt Principal Payments
Scheduled debt principal payments during each of the next five calendar years following December 31, 2012 and thereafter are as follows (in thousands):
Years Ending December 31, |
|
Total |
| |
2013 |
|
$ |
55,612 |
|
2014 |
|
36,106 |
| |
2015 |
|
67,030 |
| |
2016 |
|
294,198 |
| |
2017 |
|
345,036 |
| |
Thereafter through 2031 |
|
843,200 |
| |
|
|
1,641,182 |
| |
Unamortized discount, net (a) |
|
(7,730 |
) | |
Total |
|
$ |
1,633,452 |
|
___________
(a) Represents the unamortized discount on three notes.
Certain amounts in the table above are based on the applicable foreign currency exchange rate at December 31, 2012. Additionally, due to the weakening of the U.S. dollar relative to foreign currencies during 2012, debt increased by $8.3 million from December 31, 2011 to December 31, 2012.
Note 11. Commitments and Contingencies
Various claims and lawsuits arising in the normal course of business are pending against us. The results of these proceedings are not expected to have a material adverse effect on our consolidated financial position or results of operations. See Note 4 for certain unfunded construction commitments.
CPA®:17 Global 2012 10-K 93
Notes to Consolidated Financial Statements
Note 12. Impairment Charges
The following table summarizes impairment charges recognized on our consolidated and unconsolidated real estate investments and held-to-maturity securities for all years presented (in thousands):
|
|
Years Ended December 31, |
| |||||||
|
|
2012 |
|
2011 |
|
2010 |
| |||
Net investments in direct financing leases (a) |
|
$ |
- |
|
$ |
(70) |
|
$ |
- |
|
CMBS (b) |
|
2,019 |
|
- |
|
- |
| |||
Total impairment charges included in expenses |
|
2,019 |
|
(70) |
|
- |
| |||
Total impairment charges included in income from continuing operations |
|
$ |
2,019 |
|
$ |
(70) |
|
$ |
- |
|
___________
(a) During 2011, we recorded an out-of-period adjustment to reduce impairment charges by $0.1 million.
(b) During the first quarter of 2012, we incurred other-than-temporary impairment charges on our CMBS portfolio totaling $2.0 million to reduce the carrying values of three CMBS tranches to zero as a result of non-performance and the advisors assessment that the likelihood of receiving further interest payments or return of principal was remote.
Note 13. Equity
Distributions
Distributions paid to stockholders consist of ordinary income, capital gains, return of capital or a combination thereof for income tax purposes. The following table presents annualized distributions per share reported for tax purposes and serves as a designation of capital gain distributions, if applicable, pursuant to Internal Revenue Code Section 857(b)(3)(C) and Treasury Regulation § 1.857-6(e):
|
|
Years Ended December 31, |
| |||||||
|
|
2012 |
|
2011 |
|
2010 |
| |||
Ordinary income |
|
$ |
0.3022 |
|
$ |
0.3981 |
|
$ |
0.3391 |
|
Capital gain |
|
- |
|
- |
|
0.0003 |
| |||
Return of capital |
|
0.3478 |
|
0.2519 |
|
0.3006 |
| |||
Total distributions |
|
$ |
0.6500 |
|
$ |
0.6500 |
|
$ |
0.6400 |
|
In September 2012, our board of directors approved a daily distribution of $0.0017663 per share, which equates to an annualized yield of 6.5% on our public offering price of $10.00 per share, for each day during the period an investor was a stockholder of record from and including October 1, 2012 through December 31, 2012, which was paid on January 15, 2013.
In December 2012, our board of directors approved a daily distribution of $0.0017663 per share, which equates to an annualized yield of 6.5% on our public offering price of $10.00 per share, for each day that an investor is a stockholder of record from and including January 1, 2013 through March 31, 2013, which will be paid in aggregate on or about April 15, 2013.
CPA®:17 Global 2012 10-K 94
Notes to Consolidated Financial Statements
Accumulated Other Comprehensive Loss
The following table presents the components of accumulated other comprehensive loss reflected in equity. Amounts include our proportionate share of other comprehensive loss from our unconsolidated investments (in thousands):
|
|
December 31, |
| |||||||
|
|
2012 |
|
2011 |
|
2010 |
| |||
Foreign currency translation adjustment |
|
$ |
(9,006) |
|
$ |
(22,329) |
|
$ |
(9,796 |
) |
Unrealized loss on derivative instruments |
|
(25,875) |
|
(8,752) |
|
(3,642 |
) | |||
Unrealized appreciation (depreciation) on marketable securities |
|
1,020 |
|
(15) |
|
- |
| |||
Impairment loss on commercial mortgage-backed securities |
|
(1,505) |
|
(1,505) |
|
(1,505 |
) | |||
Accumulated other comprehensive loss |
|
$ |
(35,366) |
|
$ |
(32,601) |
|
$ |
(14,943 |
) |
Note 14. Income Taxes
We have elected to be taxed as a REIT under Sections 856 through 860 of the Internal Revenue Code. We believe we have operated, and we intend to continue to operate, in a manner that allows us to continue to qualify as a REIT. Under the REIT operating structure, we are permitted to deduct distributions paid to our stockholders and generally will not be required to pay U.S. federal income taxes. Accordingly, no provision has been made for U.S. federal income taxes in the consolidated financial statements.
We conduct business in the various states and municipalities within the U.S., in Asia, and in Europe, and as a result, we file income tax returns in the U.S. federal jurisdiction and various state and certain foreign jurisdictions.
We account for uncertain tax positions in accordance with ASC 740, Income Taxes. The following table presents a reconciliation of the beginning and ending amount of unrecognized tax benefits (in thousands):
|
|
Years Ended December 31, |
| ||||
|
|
2012 |
|
2011 |
| ||
Beginning balance |
|
$ |
589 |
|
$ |
215 |
|
Additions based on tax positions related to the current year |
|
345 |
|
374 |
| ||
Reduction for tax positions of prior years |
|
(287) |
|
- |
| ||
Ending balance |
|
$ |
647 |
|
$ |
589 |
|
At December 31, 2012 and 2011, we had unrecognized tax benefits as presented in the table above that, if recognized, would have a favorable impact on our effective income tax rate in future periods. At both December 31, 2012 and 2011, we had less than $0.1 million of accrued interest related to uncertain tax positions.
Our tax returns are subject to audit by taxing authorities. Such audits can often take years to complete and settle. The tax years 2008 through 2012 remain open to examination by the major taxing jurisdictions to which we are subject.
During 2010, we elected to treat our corporate subsidiary that engages in hotel operations as a TRS. This subsidiary owns a hotel that is managed on our behalf by a third-party hotel management company. A TRS is subject to corporate federal income taxes. This subsidiary has recognized de minimus profit since inception.
As of December 31, 2012 and 2011, we had net operating losses (NOLs) in foreign jurisdictions of approximately $25.7 million and $14.5 million, respectively, translating to a deferred tax asset before valuation allowance of $6.2 million and $3.3 million, respectively. Our NOLs will begin to expire in 2015 in certain foreign jurisdictions. The utilization of NOLs may be subject to certain limitations under the tax laws of the relevant jurisdiction. Management determined that as of December 31, 2012 and 2011, $6.2 million and $3.3 million, respectively, of deferred tax assets related to losses in foreign jurisdictions did not satisfy the recognition criteria set forth in accounting guidance for income taxes and established valuation allowances for these amounts.
Note 15. Discontinued Operations
From time to time, we decide to sell a property. We may make a decision to dispose of a property when it is vacant as a result of tenants vacating space, tenants electing not to renew their leases, tenant insolvency, or lease rejection in the bankruptcy process. In
CPA®:17 Global 2012 10-K 95
Notes to Consolidated Financial Statements
such cases, we assess whether we can obtain the highest value from the property by selling it, as opposed to re-leasing it. When it is appropriate to do so, upon the evaluation of the disposition of long-lived assets, we classify the property as an asset held for sale on our consolidated balance sheet and the current and prior period results of operations of the property are reclassified as discontinued operations.
The results of operations for properties that are held for sale or have been sold and which we have no continuing involvement are reflected in the consolidated financial statements as discontinued operations for all periods presented and are summarized as follows (in thousands, net of tax):
|
|
Years Ended December 31, |
| |||||||
|
|
2012 |
|
2011 |
|
2010 |
| |||
Revenues |
|
$ |
108 |
|
$ |
1,154 |
|
$ |
59 |
|
Expenses |
|
(24) |
|
(377) |
|
(28 |
) | |||
Gain on sale of real estate |
|
740 |
|
778 |
|
- |
| |||
Income from discontinued operations |
|
$ |
824 |
|
$ |
1,555 |
|
$ |
31 |
|
2012 During 2012, we sold 12 domestic properties for a total cost of $12.7 million, net of selling costs, and recognized a net gain on the sales of the properties totaling $0.7 million.
2011 In June 2011, we sold two Canadian properties for $19.8 million, net of selling costs, and recognized a net gain on the sale of $0.8 million. Amounts are based on the exchange rate of the Canadian dollar on the date of the sale.
Note 16. Segment Information
We have determined that we operate in one reportable segment, real estate ownership, with domestic and foreign investments. Geographic information for this segment is as follows (in thousands):
Year Ended December 31, 2012 |
|
|
Domestic |
|
Foreign (a) |
|
Total |
| |||
Revenues |
|
|
$ |
209,900 |
|
$ |
84,143 |
|
$ |
294,043 |
|
Total long-lived assets (b) |
|
|
2,355,667 |
|
1,243,521 |
|
3,599,188 |
| |||
|
|
|
|
|
|
|
|
| |||
Year Ended December 31, 2011 |
|
|
Domestic |
|
Foreign (a) |
|
Total |
| |||
Revenues |
|
|
$ |
136,869 |
|
$ |
59,252 |
|
$ |
196,121 |
|
Total long-lived assets (b) |
|
|
1,581,922 |
|
1,126,988 |
|
2,708,910 |
| |||
|
|
|
|
|
|
|
|
| |||
Year Ended December 31, 2010 |
|
|
Domestic |
|
Foreign (a) |
|
Total |
| |||
Revenues |
|
|
$ |
72,330 |
|
$ |
27,133 |
|
$ |
99,463 |
|
Total long-lived assets (b) |
|
|
1,055,878 |
|
623,107 |
|
1,678,985 |
|
___________
(a) All years include operations in Croatia, Germany, Hungary, Poland, the Netherlands, Spain and the United Kingdom; 2012 and 2011 also include operations in Italy; and 2012 includes operations in Japan.
(b) Consists of Net investment in properties; Real estate under construction; Net investment in direct financing leases; Equity investments in real estate; and Intangible assets, net.
CPA®:17 Global 2012 10-K 96
Notes to Consolidated Financial Statements
Note 17. Selected Quarterly Financial Data (Unaudited)
(Dollars in thousands, except per share amounts)
|
|
Three Months Ended |
| |||||||||||||
|
|
March 31, 2012 |
|
|
June 30, 2012 |
|
|
September 30, 2012 |
|
|
December 31, 2012 |
| ||||
Revenues (a) |
|
$ |
65,804 |
|
|
$ |
68,721 |
|
|
$ |
69,365 |
|
|
$ |
90,153 |
|
Expenses (a) |
|
(33,351 |
) |
|
(34,549 |
) |
|
(35,907 |
) |
|
(62,576 |
) | ||||
Net income |
|
16,763 |
|
|
21,152 |
|
|
18,929 |
|
|
11,309 |
| ||||
Less: Net income attributable to noncontrolling interests |
|
(5,640 |
) |
|
(6,886 |
) |
|
(6,634 |
) |
|
(7,382 |
) | ||||
Net income attributable to CPA®:17 Global stockholders |
|
11,123 |
|
|
14,266 |
|
|
12,295 |
|
|
3,927 |
| ||||
|
|
|
|
|
|
|
|
|
|
|
|
| ||||
Earnings per share attributable to CPA®:17 Global stockholders |
|
0.05 |
|
|
0.06 |
|
|
0.05 |
|
|
0.01 |
| ||||
Distributions declared per share |
|
0.1625 |
|
|
0.1625 |
|
|
0.1625 |
|
|
0.1625 |
| ||||
|
|
|
|
|
|
|
|
|
|
|
|
| ||||
|
|
Three Months Ended |
| |||||||||||||
|
|
March 31, 2011 |
|
|
June 30, 2011 |
|
|
September 30, 2011 |
|
|
December 31, 2011 |
| ||||
Revenues (a) |
|
$ |
42,158 |
|
|
$ |
44,878 |
|
|
$ |
49,115 |
|
|
$ |
59,970 |
|
Expenses (a) |
|
(14,461 |
) |
|
(18,614 |
) |
|
(24,048 |
) |
|
(30,206 |
) | ||||
Net income |
|
16,648 |
|
|
18,005 |
|
|
14,987 |
|
|
20,806 |
| ||||
Less: Net income attributable to noncontrolling interests |
|
(4,213 |
) |
|
(5,158 |
) |
|
(4,683 |
) |
|
(6,737 |
) | ||||
Net income attributable to CPA®:17 Global stockholders |
|
12,435 |
|
|
12,847 |
|
|
10,304 |
|
|
14,069 |
| ||||
|
|
|
|
|
|
|
|
|
|
|
|
| ||||
Earnings per share attributable to CPA®:17 Global stockholders |
|
0.08 |
|
|
0.08 |
|
|
0.06 |
|
|
0.06 |
| ||||
Distributions declared per share |
|
0.1600 |
|
|
0.1625 |
|
|
0.1625 |
|
|
0.1625 |
|
___________
(a) Certain amounts from previous quarters have been reclassified to discontinued operations (Note 15).
CPA®:17 Global 2012 10-K 97
CORPORATE PROPERTY ASSOCIATES 17 GLOBAL INCORPORATED
SCHEDULE III REAL ESTATE and ACCUMULATED DEPRECIATION
December 31, 2012
(in thousands)
|
|
|
|
Initial Cost to Company |
|
Cost Capitalized |
|
Increase (Decrease) |
|
Gross Amount at which Carried at Close of Period(c) |
|
Accumulated |
|
Date |
|
Life on which |
| |||||||||||||||
Description |
|
Encumbrances |
|
Land |
|
Buildings |
|
Acquisition(a) |
|
Investments(b) |
|
Land |
|
Buildings |
|
Total |
|
Depreciation(c) |
|
Acquired |
|
is Computed |
| |||||||||
Real Estate Under Operating Leases: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||
Industrial facility in Norfolk, NE |
|
$ |
1,711 |
|
$ |
625 |
|
$ |
1,713 |
|
$ |
- |
|
$ |
107 |
|
$ |
625 |
|
$ |
1,820 |
|
$ |
2,445 |
|
$ |
278 |
|
Jun. 2008 |
|
30 yrs. |
|
Residential and office facilities in Soest, Germany and warehouse/distribution facility in Bad Wünnenbeg, Germany |
|
27,835 |
|
3,193 |
|
45,932 |
|
- |
|
(7,671 |
) |
2,666 |
|
38,788 |
|
41,454 |
|
4,629 |
|
Jul. 2008 |
|
36 yrs. |
| |||||||||
Educational facility in Chicago, IL |
|
15,014 |
|
6,300 |
|
20,509 |
|
- |
|
(527 |
) |
6,300 |
|
19,982 |
|
26,282 |
|
2,997 |
|
Jul. 2008 |
|
30 yrs. |
| |||||||||
Office and industrial facility in Alvarado, TX and industrial facility in Bossier City, LA |
|
20,075 |
|
2,725 |
|
25,233 |
|
6,434 |
|
(3,395 |
) |
2,725 |
|
28,272 |
|
30,997 |
|
2,804 |
|
Aug. 2008 |
|
25 - 40 yrs. |
| |||||||||
Industrial facility in Waldaschaff, Germany |
|
7,211 |
|
10,373 |
|
16,708 |
|
- |
|
(10,009 |
) |
6,426 |
|
10,646 |
|
17,072 |
|
2,704 |
|
Aug. 2008 |
|
15 yrs. |
| |||||||||
Retail facilities in Phoenix, AZ and Columbia, MD |
|
37,644 |
|
14,500 |
|
48,865 |
|
- |
|
(2,062 |
) |
14,500 |
|
46,803 |
|
61,303 |
|
4,973 |
|
Sep. 2008 |
|
40 yrs. |
| |||||||||
Transportation facility in Birmingham, United Kingdom |
|
13,460 |
|
3,591 |
|
15,810 |
|
949 |
|
66 |
|
3,578 |
|
16,838 |
|
20,416 |
|
1,275 |
|
Sep. 2009 |
|
40 yrs. |
| |||||||||
Retail facilities in Gorzow, Poland |
|
7,725 |
|
1,095 |
|
13,947 |
|
- |
|
(1,448 |
) |
984 |
|
12,610 |
|
13,594 |
|
1,024 |
|
Oct. 2009 |
|
40 yrs. |
| |||||||||
Office facility in Hoffman Estates, IL |
|
19,444 |
|
5,000 |
|
21,764 |
|
- |
|
- |
|
5,000 |
|
21,764 |
|
26,764 |
|
1,669 |
|
Dec. 2009 |
|
40 yrs. |
| |||||||||
Office facility in The Woodlands, TX |
|
26,708 |
|
1,400 |
|
41,502 |
|
- |
|
- |
|
1,400 |
|
41,502 |
|
42,902 |
|
3,198 |
|
Dec. 2009 |
|
40 yrs. |
| |||||||||
Retail facilities located throughout Spain |
|
48,094 |
|
32,574 |
|
52,101 |
|
- |
|
(4,661 |
) |
30,653 |
|
49,361 |
|
80,014 |
|
3,668 |
|
Dec. 2009 |
|
20 yrs. |
| |||||||||
Industrial facility in Union Township, OH |
|
6,545 |
|
1,000 |
|
10,793 |
|
2 |
|
- |
|
1,000 |
|
10,795 |
|
11,795 |
|
787 |
|
Feb. 2010 |
|
40 yrs. |
| |||||||||
Industrial facilities in San Diego, Fresno, Orange, Colton, Los Angeles, and Pomona, CA; Phoenix, AZ; Safety Harbor, FL; Durham, NC; and Columbia, SC |
|
13,913 |
|
19,001 |
|
13,059 |
|
- |
|
- |
|
19,001 |
|
13,059 |
|
32,060 |
|
1,064 |
|
Mar. 2010 |
|
27 - 40 yrs. |
| |||||||||
Industrial facility in Evansville, IN |
|
17,225 |
|
150 |
|
9,183 |
|
11,745 |
|
- |
|
150 |
|
20,928 |
|
21,078 |
|
1,149 |
|
Mar. 2010 |
|
40 yrs. |
| |||||||||
Warehouse/distribution facilities in Plymouth, Southampton, Luton, Liverpool, Taunton, Cannock, and Bristol, United Kingdom |
|
- |
|
8,639 |
|
2,019 |
|
- |
|
542 |
|
9,070 |
|
2,130 |
|
11,200 |
|
204 |
|
Apr. 2010 |
|
28 yrs. |
| |||||||||
CPA®:17 Global 2012 10-K 98
SCHEDULE III REAL ESTATE and ACCUMULATED DEPRECIATION (Continued)
December 31, 2012
(in thousands)
|
|
|
|
Initial Cost to Company |
|
Cost Capitalized |
|
Increase (Decrease) |
|
Gross Amount at which Carried at Close of Period(c) |
|
Accumulated |
|
Date |
|
Life on which |
| ||||||
Description |
|
Encumbrances |
|
Land |
|
Buildings |
|
Acquisition(a) |
|
Investments(b) |
|
Land |
|
Buildings |
|
Total |
|
Depreciation(c) |
|
Acquired |
|
is Computed |
|
Warehouse/distribution facilities in Zagreb, Croatia |
|
51,266 |
|
31,941 |
|
45,904 |
|
- |
|
(113 |
) |
31,890 |
|
45,842 |
|
77,732 |
|
4,075 |
|
Apr. 2010 |
|
30 yrs. |
|
Office facilities in Tampa, FL |
|
35,206 |
|
18,300 |
|
32,856 |
|
23 |
|
- |
|
18,323 |
|
32,856 |
|
51,179 |
|
2,122 |
|
May 2010 |
|
40 yrs. |
|
Warehouse/distribution facility in Bowling Green, KY |
|
28,000 |
|
1,400 |
|
3,946 |
|
33,809 |
|
- |
|
1,400 |
|
37,755 |
|
39,155 |
|
1,259 |
|
May 2010 |
|
40 yrs. |
|
Retail facility in Elorrio, Spain |
|
- |
|
19,924 |
|
3,981 |
|
- |
|
2,217 |
|
21,810 |
|
4,312 |
|
26,122 |
|
278 |
|
Jun. 2010 |
|
40 yrs. |
|
Warehouse/distribution facility in Gadki, Poland |
|
5,091 |
|
1,134 |
|
1,183 |
|
7,611 |
|
(641 |
) |
1,058 |
|
8,229 |
|
9,287 |
|
360 |
|
Aug. 2010 |
|
40 yrs. |
|
Office and industrial facilities in Elberton, GA |
|
- |
|
560 |
|
2,467 |
|
- |
|
- |
|
560 |
|
2,467 |
|
3,027 |
|
166 |
|
Sep. 2010 |
|
40 yrs. |
|
Warehouse/distribution facilities in Unadilla and Rincon, GA |
|
27,000 |
|
1,595 |
|
44,446 |
|
- |
|
- |
|
1,595 |
|
44,446 |
|
46,041 |
|
2,407 |
|
Nov. 2010 |
|
40 yrs. |
|
Office facility in Hartland, WI |
|
3,716 |
|
1,402 |
|
2,041 |
|
- |
|
- |
|
1,402 |
|
2,041 |
|
3,443 |
|
126 |
|
Nov. 2010 |
|
35 yrs. |
|
Warehouse/distribution facilities in Zagreb, Dugo Selo, Kutina, Slavonski Brod, and Samobor, Croatia |
|
22,770 |
|
6,700 |
|
24,114 |
|
194 |
|
336 |
|
6,779 |
|
24,565 |
|
31,344 |
|
1,706 |
|
Dec. 2010 |
|
30 yrs. |
|
Warehouse/distribution facilities located throughout the U.S. |
|
113,887 |
|
31,735 |
|
129,011 |
|
- |
|
(9,680 |
) |
28,511 |
|
122,555 |
|
151,066 |
|
7,125 |
|
Dec. 2010 |
|
40 yrs. |
|
Office facility in Madrid, Spain |
|
- |
|
22,230 |
|
81,508 |
|
- |
|
630 |
|
22,367 |
|
82,001 |
|
104,368 |
|
4,100 |
|
Dec. 2010 |
|
40 yrs. |
|
Office facility in Houston, TX |
|
3,698 |
|
1,838 |
|
2,432 |
|
- |
|
20 |
|
1,838 |
|
2,452 |
|
4,290 |
|
196 |
|
Dec. 2010 |
|
25 yrs. |
|
Retail facility in Las Vegas, NV |
|
- |
|
26,934 |
|
31,037 |
|
25,467 |
|
(44,166 |
) |
5,070 |
|
34,202 |
|
39,272 |
|
348 |
|
Dec. 2010 |
|
40 yrs. |
|
Warehouse/distribution facilities in Oxnard and Watsonville, CA |
|
46,166 |
|
16,036 |
|
67,300 |
|
- |
|
(7,149 |
) |
16,036 |
|
60,151 |
|
76,187 |
|
3,349 |
|
Jan. 2011 |
|
10 - 40 yrs. |
|
Warehouse/distribution facility in Dillon, SC |
|
20,433 |
|
1,355 |
|
15,620 |
|
- |
|
- |
|
1,355 |
|
15,620 |
|
16,975 |
|
717 |
|
Mar. 2011 |
|
40 yrs. |
|
Industrial facility in Middleburg Heights, OH |
|
- |
|
600 |
|
1,690 |
|
- |
|
- |
|
600 |
|
1,690 |
|
2,290 |
|
74 |
|
Mar. 2011 |
|
40 yrs. |
|
Office facility in Martinsville, VA |
|
9,000 |
|
600 |
|
1,998 |
|
10,876 |
|
- |
|
600 |
|
12,874 |
|
13,474 |
|
326 |
|
May 2011 |
|
40 yrs. |
|
Land in Chicago, IL |
|
5,234 |
|
7,414 |
|
- |
|
- |
|
- |
|
7,414 |
|
- |
|
7,414 |
|
- |
|
Jun. 2011 |
|
N/A |
|
Industrial facility in Fraser, MI |
|
4,459 |
|
928 |
|
1,392 |
|
5,803 |
|
- |
|
928 |
|
7,195 |
|
8,123 |
|
135 |
|
Sep. 2011 |
|
35 yrs. |
|
Retail facilities located throughout Italy |
|
217,106 |
|
91,691 |
|
262,377 |
|
- |
|
(7,554 |
) |
89,104 |
|
257,410 |
|
346,514 |
|
8,851 |
|
Sep. 2011 |
|
29 - 40 yrs. |
|
Retail facilities in Pozega and Sesvete, Croatia |
|
23,439 |
|
2,687 |
|
24,820 |
|
15,378 |
|
(1,339 |
) |
3,585 |
|
37,961 |
|
41,546 |
|
1,356 |
|
Nov. 2011 |
|
30 yrs. |
|
Land in Orlando, FL |
|
- |
|
32,739 |
|
- |
|
- |
|
- |
|
32,739 |
|
- |
|
32,739 |
|
- |
|
Dec. 2011 |
|
N/A |
|
Land in Hudson, NY |
|
879 |
|
2,080 |
|
- |
|
- |
|
- |
|
2,080 |
|
- |
|
2,080 |
|
- |
|
Dec. 2011 |
|
N/A |
|
Office facilities in Aurora, Eagan, and Virginia, MN |
|
92,400 |
|
13,546 |
|
110,173 |
|
- |
|
993 |
|
13,546 |
|
111,166 |
|
124,712 |
|
3,672 |
|
Jan. 2012 |
|
32 - 40 yrs. |
|
SCHEDULE III REAL ESTATE and ACCUMULATED DEPRECIATION (Continued)
December 31, 2012
(in thousands)
|
|
|
|
Initial Cost to Company |
|
Cost Capitalized |
|
Increase (Decrease) |
|
Gross Amount at which Carried at Close of Period(c) |
|
Accumulated |
|
Date |
|
Life on which |
| |||||||||||||||
Description |
|
Encumbrances |
|
Land |
|
Buildings |
|
Acquisition(a) |
|
Investments(b) |
|
Land |
|
Buildings |
|
Total |
|
Depreciation(c) |
|
Acquired |
|
is Computed |
| |||||||||
Warehouse/distribution facility in Tarnobrzeg, Poland |
|
- |
|
1,323 |
|
5,245 |
|
18,636 |
|
1,317 |
|
1,395 |
|
25,126 |
|
26,521 |
|
209 |
|
Apr. 2012 |
|
40 yrs. |
| |||||||||
Office facility in St. Louis, MO |
|
4,292 |
|
954 |
|
4,665 |
|
- |
|
- |
|
954 |
|
4,665 |
|
5,619 |
|
55 |
|
Jul. 2012 |
|
38 yrs. |
| |||||||||
Industrial facility in Avon, OH |
|
- |
|
926 |
|
4,975 |
|
- |
|
- |
|
926 |
|
4,975 |
|
5,901 |
|
63 |
|
Aug. 2012 |
|
35 yrs. |
| |||||||||
Industrial facility in Elk Grove Village, IL |
|
- |
|
1,269 |
|
11,317 |
|
- |
|
- |
|
1,269 |
|
11,317 |
|
12,586 |
|
179 |
|
Aug. 2012 |
|
40 yrs. |
| |||||||||
Education facilities in Montgomery, AL and Savannah, GA |
|
16,997 |
|
5,255 |
|
16,960 |
|
- |
|
- |
|
5,255 |
|
16,960 |
|
22,215 |
|
172 |
|
Sep. 2012 |
|
40 yrs. |
| |||||||||
Automotive dealerships in Huntsville, AL; Bentonville, AR; Bossier City, LA; Lees Summit, MO; Fayetteville, TN; and Fort Worth, TX |
|
37,838 |
|
17,283 |
|
32,225 |
|
- |
|
- |
|
17,283 |
|
32,225 |
|
49,508 |
|
475 |
|
Sep. 2012 |
|
16 yrs. |
| |||||||||
Office facility in Warrenville, IL |
|
20,000 |
|
3,698 |
|
28,635 |
|
- |
|
- |
|
3,698 |
|
28,635 |
|
32,333 |
|
229 |
|
Sep. 2012 |
|
40 yrs. |
| |||||||||
Industrial facility in Sterling, VA |
|
- |
|
3,118 |
|
14,007 |
|
- |
|
- |
|
3,118 |
|
14,007 |
|
17,125 |
|
51 |
|
Oct. 2012 |
|
35 yrs. |
| |||||||||
Office facility in Houston, TX |
|
128,200 |
|
19,331 |
|
123,084 |
|
- |
|
3,089 |
|
19,331 |
|
126,173 |
|
145,504 |
|
529 |
|
Nov. 2012 |
|
30 yrs. |
| |||||||||
Office facility in Eagan, MN |
|
- |
|
2,104 |
|
11,462 |
|
- |
|
- |
|
2,104 |
|
11,462 |
|
13,566 |
|
33 |
|
Dec. 2012 |
|
35 yrs. |
| |||||||||
Warehouse/distribution facility in Saitama Prefecture, Japan |
|
30,264 |
|
17,292 |
|
28,575 |
|
- |
|
(2,002) |
|
16,537 |
|
27,328 |
|
43,865 |
|
79 |
|
Dec. 2012 |
|
26 yrs. |
| |||||||||
Retail facilities in Karlovac, Porec, Metkovic, Vodnjan, Umag, Bjelovar, Krapina, and Novigrad, Croatia |
|
21,273 |
|
5,059 |
|
28,294 |
|
- |
|
(80) |
|
5,046 |
|
28,227 |
|
33,273 |
|
- |
|
Dec. 2012 |
|
32 - 40 yrs. |
| |||||||||
|
|
$ |
1,231,218 |
|
$ |
523,147 |
|
$ |
1,538,878 |
|
$ |
136,927 |
|
$ |
(93,180) |
|
$ |
491,584 |
|
$ |
1,614,188 |
|
$ |
2,105,772 |
|
$ |
77,245 |
|
|
|
|
|
CPA®:17 Global 2012 10-K 100
SCHEDULE III REAL ESTATE and ACCUMULATED DEPRECIATION (Continued)
December 31, 2012
(in thousands)
|
|
|
|
Initial Cost to Company |
|
Cost Capitalized |
|
(Decrease) Increase |
|
Gross Amount at |
|
Date |
| ||||||||
Description |
|
Encumbrances |
|
Land |
|
Buildings |
|
Acquisition(a) |
|
Investments(b) |
|
Total(c) |
|
Acquired |
| ||||||
Direct Financing Method: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
Office and industrial facility in Nagold, Germany |
|
$ |
12,204 |
|
$ |
6,012 |
|
$ |
41,493 |
|
$ |
- |
|
$ |
(23,188) |
|
$ |
24,317 |
|
Aug. 2008 |
|
Industrial facilities in Sanford and Mayodan, NC |
|
22,276 |
|
3,100 |
|
35,766 |
|
- |
|
(851) |
|
38,015 |
|
Dec. 2008 |
| ||||||
Industrial facility in Glendale Heights, IL |
|
18,658 |
|
3,820 |
|
11,148 |
|
18,245 |
|
1,590 |
|
34,803 |
|
Jan. 2009 |
| ||||||
Office facility in New York City, NY |
|
119,185 |
|
- |
|
233,720 |
|
- |
|
8,455 |
|
242,175 |
|
Mar. 2009 |
| ||||||
Industrial facilities in San Diego, Fresno, Orange, Colton, and Pomona, CA; Holly Hill, FL; Rockmart, GA; Ooltewah, TN; and Dallas, TX |
|
9,966 |
|
1,730 |
|
20,778 |
|
- |
|
(305) |
|
22,203 |
|
Mar. 2010 |
| ||||||
Warehouse/distribution facilities in Plymouth, Newport, Southampton, Luton, Liverpool, Bristol, and Leeds, United Kingdom |
|
- |
|
508 |
|
24,009 |
|
- |
|
1,316 |
|
25,833 |
|
Apr. 2010 |
| ||||||
Warehouse/distribution facilities in Zagreb, Croatia |
|
10,393 |
|
1,804 |
|
11,618 |
|
- |
|
105 |
|
13,527 |
|
Dec. 2010 |
| ||||||
Warehouse/distribution facility in Oxnard, CA |
|
5,736 |
|
- |
|
8,957 |
|
- |
|
93 |
|
9,050 |
|
Jan. 2011 |
| ||||||
Warehouse/distribution facilities in Bartow, FL; Momence, IL; Smithfield, NC; Hudson, NY; and Ardmore, OK |
|
23,527 |
|
3,750 |
|
50,177 |
|
- |
|
1,770 |
|
55,697 |
|
Apr. 2011 |
| ||||||
Industrial facility in Clarksville, TN |
|
4,832 |
|
600 |
|
7,291 |
|
- |
|
122 |
|
8,013 |
|
Aug. 2011 |
| ||||||
Industrial facility in Countryside, IL |
|
2,022 |
|
425 |
|
1,800 |
|
- |
|
14 |
|
2,239 |
|
Dec. 2011 |
| ||||||
|
|
$ |
228,799 |
|
$ |
21,749 |
|
$ |
446,757 |
|
$ |
18,245 |
|
$ |
(10,879) |
|
$ |
475,872 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Initial Cost to Company |
|
Costs Capitalized |
|
Increase (Decrease) |
|
Gross Amount at which Carried |
|
|
|
|
|
Life on which |
| |||||||||||||||||||||
Description |
|
Encumbrances |
|
Land |
|
Buildings |
|
Personal |
|
Subsequent to |
|
in Net |
|
Land |
|
Buildings |
|
Personal |
|
Total |
|
Accumulated |
|
Date |
|
Income is |
| |||||||||||
Operating Real Estate: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||
Hotel in Hillsboro, OR |
|
$ |
5,367 |
|
$ |
1,330 |
|
$ |
10,483 |
|
$ |
364 |
|
$ |
1,420 |
|
$ |
(539) |
|
$ |
1,330 |
|
$ |
10,483 |
|
$ |
1,245 |
|
$ |
13,058 |
|
$ |
872 |
|
May 2010 |
|
39 yrs. |
|
Self-storage facility in Forth Worth, TX |
|
1,538 |
|
610 |
|
2,672 |
|
- |
|
- |
|
- |
|
610 |
|
2,672 |
|
- |
|
3,282 |
|
136 |
|
Apr. 2011 |
|
33 yrs. |
| |||||||||||
Self-storage facility in Baxter, CA |
|
1,149 |
|
1,040 |
|
1,166 |
|
- |
|
15 |
|
- |
|
1,040 |
|
1,181 |
|
- |
|
2,221 |
|
63 |
|
Jun. 2011 |
|
33 yrs. |
| |||||||||||
Self-storage facility in Apple Valley, CA |
|
2,300 |
|
400 |
|
3,910 |
|
- |
|
48 |
|
- |
|
400 |
|
3,958 |
|
- |
|
4,358 |
|
171 |
|
Jun. 2011 |
|
35 yrs. |
| |||||||||||
Self-storage facility in Apple Valley, CA |
|
1,446 |
|
230 |
|
2,196 |
|
- |
|
9 |
|
- |
|
230 |
|
2,205 |
|
- |
|
2,435 |
|
100 |
|
Jun. 2011 |
|
33 yrs. |
| |||||||||||
Self-storage facility in Bakersfield, CA |
|
849 |
|
370 |
|
3,133 |
|
- |
|
144 |
|
- |
|
370 |
|
3,277 |
|
- |
|
3,647 |
|
164 |
|
Jun. 2011 |
|
30 yrs. |
| |||||||||||
Self-storage facility in Bakersfield, CA |
|
2,130 |
|
690 |
|
3,238 |
|
- |
|
43 |
|
- |
|
690 |
|
3,281 |
|
- |
|
3,971 |
|
143 |
|
Jun. 2011 |
|
34 yrs. |
| |||||||||||
Self-storage facility in Bakersfield, CA |
|
2,013 |
|
690 |
|
3,298 |
|
- |
|
59 |
|
- |
|
690 |
|
3,357 |
|
- |
|
4,047 |
|
142 |
|
Jun. 2011 |
|
35 yrs. |
| |||||||||||
Self-storage facility in Bakersfield, CA |
|
1,714 |
|
480 |
|
3,297 |
|
- |
|
16 |
|
- |
|
480 |
|
3,313 |
|
- |
|
3,793 |
|
191 |
|
Jun. 2011 |
|
35 yrs. |
| |||||||||||
Self-storage facility in Fresno, CA |
|
2,638 |
|
601 |
|
7,300 |
|
- |
|
- |
|
- |
|
601 |
|
7,300 |
|
- |
|
7,901 |
|
516 |
|
Jun. 2011 |
|
30 yrs. |
| |||||||||||
Self-storage facility in Grand Terrace, CA |
|
728 |
|
950 |
|
1,903 |
|
- |
|
1 |
|
- |
|
950 |
|
1,904 |
|
- |
|
2,854 |
|
115 |
|
Jun. 2011 |
|
25 yrs. |
| |||||||||||
Self-storage facility in Harbor City, CA |
|
1,293 |
|
1,487 |
|
810 |
|
- |
|
7 |
|
- |
|
1,487 |
|
817 |
|
- |
|
2,304 |
|
49 |
|
Jun. 2011 |
|
30 yrs. |
| |||||||||||
Self-storage facility in San Diego, CA |
|
6,273 |
|
7,951 |
|
3,926 |
|
- |
|
120 |
|
- |
|
7,951 |
|
4,046 |
|
- |
|
11,997 |
|
205 |
|
Jun. 2011 |
|
30 yrs. |
| |||||||||||
Self-storage facility in Palm Springs, CA |
|
2,511 |
|
1,287 |
|
3,124 |
|
- |
|
37 |
|
- |
|
1,287 |
|
3,161 |
|
- |
|
4,448 |
|
159 |
|
Jun. 2011 |
|
30 yrs. |
| |||||||||||
Self-storage facility in Palmdale, CA |
|
2,773 |
|
940 |
|
4,263 |
|
- |
|
53 |
|
- |
|
940 |
|
4,316 |
|
- |
|
5,256 |
|
204 |
|
Jun. 2011 |
|
32 yrs. |
| |||||||||||
Self-storage facility in Palmdale, CA |
|
2,081 |
|
1,220 |
|
2,954 |
|
- |
|
28 |
|
- |
|
1,220 |
|
2,982 |
|
- |
|
4,202 |
|
136 |
|
Jun. 2011 |
|
33 yrs. |
| |||||||||||
Self-storage facility in Riverside, CA |
|
1,124 |
|
560 |
|
1,492 |
|
- |
|
10 |
|
- |
|
560 |
|
1,502 |
|
- |
|
2,062 |
|
75 |
|
Jun. 2011 |
|
30 yrs. |
| |||||||||||
Self-storage facility in Rosamond, CA |
|
1,700 |
|
460 |
|
3,220 |
|
- |
|
19 |
|
- |
|
460 |
|
3,239 |
|
- |
|
3,699 |
|
147 |
|
Jun. 2011 |
|
33 yrs. |
| |||||||||||
Self-storage facility in Rubidoux, CA |
|
1,247 |
|
514 |
|
1,653 |
|
- |
|
11 |
|
- |
|
514 |
|
1,664 |
|
- |
|
2,178 |
|
76 |
|
Jun. 2011 |
|
33 yrs. |
| |||||||||||
Self-storage facility in South Gate, CA |
|
1,774 |
|
1,597 |
|
2,067 |
|
- |
|
36 |
|
- |
|
1,597 |
|
2,103 |
|
- |
|
3,700 |
|
106 |
|
Jun. 2011 |
|
30 yrs. |
| |||||||||||
Self-storage facility in Kona, HI |
|
832 |
|
1,000 |
|
1,108 |
|
- |
|
11 |
|
- |
|
1,000 |
|
1,119 |
|
- |
|
2,119 |
|
66 |
|
Jun. 2011 |
|
30 yrs. |
| |||||||||||
Self-storage facility in Chicago, IL |
|
2,342 |
|
600 |
|
4,124 |
|
- |
|
32 |
|
- |
|
600 |
|
4,156 |
|
- |
|
4,756 |
|
189 |
|
Jun. 2011 |
|
25 yrs. |
|
CPA®:17 Global 2012 10-K 101
SCHEDULE III REAL ESTATE and ACCUMULATED DEPRECIATION (Continued)
December 31, 2012
(in thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
|
|
|
Initial Cost to Company |
|
Costs Capitalized |
|
Increase (Decrease) |
|
Gross Amount at which Carried |
|
|
|
|
|
Life on which |
|
| |||||||||||||||||||||
Description |
|
Encumbrances |
|
Land |
|
Buildings |
|
Personal |
|
Subsequent to |
|
in Net |
|
Land |
|
Buildings |
|
Personal |
|
Total |
|
Accumulated |
|
Date |
|
Income is |
|
| |||||||||||
Self-storage facility in Chicago, IL |
|
1,322 |
|
400 |
|
2,074 |
|
- |
|
55 |
|
- |
|
400 |
|
2,129 |
|
- |
|
2,529 |
|
99 |
|
Jun. 2011 |
|
30 yrs. |
| ||||||||||||
Self-storage facility in Rockford, IL |
|
1,363 |
|
548 |
|
1,881 |
|
- |
|
5 |
|
- |
|
548 |
|
1,886 |
|
- |
|
2,434 |
|
114 |
|
Jun. 2011 |
|
25 yrs. |
| ||||||||||||
Self-storage facility in Rockford, IL |
|
250 |
|
114 |
|
633 |
|
- |
|
- |
|
- |
|
114 |
|
633 |
|
- |
|
747 |
|
38 |
|
Jun. 2011 |
|
25 yrs. |
| ||||||||||||
Self-storage facility in Rockford, IL |
|
1,319 |
|
380 |
|
2,321 |
|
- |
|
- |
|
- |
|
380 |
|
2,321 |
|
- |
|
2,701 |
|
139 |
|
Jun. 2011 |
|
25 yrs. |
| ||||||||||||
Self-storage facility in Kihei, HI |
|
5,740 |
|
2,523 |
|
7,481 |
|
- |
|
4 |
|
- |
|
2,523 |
|
7,485 |
|
- |
|
10,008 |
|
265 |
|
Aug. 2011 |
|
40 yrs. |
| ||||||||||||
Self-storage facility in Bakersfield, CA |
|
1,900 |
|
1,060 |
|
3,138 |
|
- |
|
10 |
|
(464) |
|
1,060 |
|
2,684 |
|
- |
|
3,744 |
|
152 |
|
Aug. 2011 |
|
25 yrs. |
| ||||||||||||
Self-storage facility in Bakersfield, CA |
|
2,025 |
|
767 |
|
2,230 |
|
- |
|
36 |
|
- |
|
767 |
|
2,266 |
|
- |
|
3,033 |
|
126 |
|
Aug. 2011 |
|
25 yrs. |
| ||||||||||||
Self-storage facility in National City, CA |
|
2,550 |
|
3,158 |
|
1,483 |
|
- |
|
31 |
|
- |
|
3,158 |
|
1,514 |
|
- |
|
4,672 |
|
75 |
|
Aug. 2011 |
|
28 yrs. |
| ||||||||||||
Self-storage facility in Mundelein, IL |
|
3,600 |
|
1,080 |
|
5,287 |
|
- |
|
21 |
|
- |
|
1,080 |
|
5,308 |
|
- |
|
6,388 |
|
301 |
|
Aug. 2011 |
|
25 yrs. |
| ||||||||||||
Self-storage facility in Pearl City, HI |
|
3,450 |
|
- |
|
5,141 |
|
- |
|
9 |
|
- |
|
- |
|
5,150 |
|
- |
|
5,150 |
|
365 |
|
Aug. 2011 |
|
20 yrs. |
| ||||||||||||
Self-storage facility in Palm Springs, CA |
|
2,999 |
|
1,019 |
|
2,131 |
|
- |
|
8 |
|
- |
|
1,019 |
|
2,139 |
|
- |
|
3,158 |
|
103 |
|
Sep. 2011 |
|
28 yrs. |
| ||||||||||||
Self-storage facility in Rockford, IL |
|
1,298 |
|
394 |
|
3,390 |
|
- |
|
10 |
|
(139) |
|
394 |
|
3,261 |
|
- |
|
3,655 |
|
218 |
|
Sep. 2011 |
|
20 yrs. |
| ||||||||||||
Self-storage facility in Lake Street, IL |
|
799 |
|
535 |
|
1,757 |
|
- |
|
4 |
|
- |
|
535 |
|
1,761 |
|
- |
|
2,296 |
|
118 |
|
Sep. 2011 |
|
20 yrs. |
| ||||||||||||
Self-storage facility in Chicago, IL |
|
3,200 |
|
1,049 |
|
5,672 |
|
- |
|
30 |
|
- |
|
1,049 |
|
5,702 |
|
- |
|
6,751 |
|
238 |
|
Sep. 2011 |
|
30 yrs. |
| ||||||||||||
Self-storage facility in Bakersfield, CA |
|
3,383 |
|
1,068 |
|
2,115 |
|
- |
|
25 |
|
464 |
|
1,068 |
|
2,604 |
|
- |
|
3,672 |
|
106 |
|
Nov. 2011 |
|
40 yrs. |
| ||||||||||||
Self-storage facility in Beaumont, CA |
|
4,627 |
|
1,616 |
|
2,873 |
|
- |
|
21 |
|
- |
|
1,616 |
|
2,894 |
|
- |
|
4,510 |
|
106 |
|
Nov. 2011 |
|
40 yrs. |
| ||||||||||||
Self-storage facility in Borrego, CA |
|
2,208 |
|
299 |
|
1,766 |
|
- |
|
36 |
|
- |
|
299 |
|
1,802 |
|
- |
|
2,101 |
|
68 |
|
Nov. 2011 |
|
40 yrs. |
| ||||||||||||
Self-storage facility in Foxborough, CA |
|
2,252 |
|
190 |
|
1,756 |
|
- |
|
32 |
|
- |
|
190 |
|
1,788 |
|
- |
|
1,978 |
|
65 |
|
Nov. 2011 |
|
40 yrs. |
| ||||||||||||
Self-storage facility in Mill Street, CA |
|
2,116 |
|
698 |
|
1,397 |
|
- |
|
18 |
|
- |
|
698 |
|
1,415 |
|
- |
|
2,113 |
|
49 |
|
Nov. 2011 |
|
40 yrs. |
| ||||||||||||
Self-storage facility in Peoria, IL |
|
2,385 |
|
549 |
|
2,424 |
|
- |
|
20 |
|
- |
|
549 |
|
2,444 |
|
- |
|
2,993 |
|
117 |
|
Nov. 2011 |
|
35 yrs. |
| ||||||||||||
Self-storage facility in Peoria, IL |
|
1,820 |
|
409 |
|
1,816 |
|
- |
|
10 |
|
- |
|
409 |
|
1,826 |
|
- |
|
2,235 |
|
81 |
|
Nov. 2011 |
|
35 yrs. |
| ||||||||||||
Self-storage facility in Forest Hills, IL |
|
1,466 |
|
439 |
|
998 |
|
- |
|
10 |
|
139 |
|
439 |
|
1,147 |
|
- |
|
1,586 |
|
51 |
|
Nov. 2011 |
|
35 yrs. |
| ||||||||||||
Self-storage facility in Hesperia, CA |
|
900 |
|
648 |
|
1,377 |
|
- |
|
- |
|
- |
|
648 |
|
1,377 |
|
- |
|
2,025 |
|
52 |
|
Dec. 2011 |
|
40 yrs. |
| ||||||||||||
Self-storage facility in Mobile, AL |
|
1,975 |
|
1,078 |
|
3,799 |
|
- |
|
- |
|
- |
|
1,078 |
|
3,799 |
|
- |
|
4,877 |
|
185 |
|
Jun. 2012 |
|
12 yrs. |
| ||||||||||||
Self-storage facility in Slidell, AL |
|
2,400 |
|
620 |
|
3,434 |
|
- |
|
- |
|
- |
|
620 |
|
3,434 |
|
- |
|
4,054 |
|
80 |
|
Jun. 2012 |
|
32 yrs. |
| ||||||||||||
Self-storage facility in Harrells Ferry, LA |
|
800 |
|
401 |
|
955 |
|
- |
|
- |
|
- |
|
401 |
|
955 |
|
- |
|
1,356 |
|
37 |
|
Jun. 2012 |
|
18 yrs. |
| ||||||||||||
Self-storage facility in Dawnadele, LA |
|
2,125 |
|
820 |
|
3,222 |
|
- |
|
- |
|
- |
|
820 |
|
3,222 |
|
- |
|
4,042 |
|
90 |
|
Jun. 2012 |
|
25 yrs. |
| ||||||||||||
Self-storage facility in Gulfport, MS |
|
1,200 |
|
591 |
|
2,539 |
|
- |
|
- |
|
- |
|
591 |
|
2,539 |
|
- |
|
3,130 |
|
117 |
|
Jun. 2012 |
|
15 yrs. |
| ||||||||||||
Self-storage facility in Rockford, IL |
|
1,897 |
|
1,076 |
|
1,763 |
|
- |
|
- |
|
- |
|
1,076 |
|
1,763 |
|
- |
|
2,839 |
|
50 |
|
Jul. 2012 |
|
20 yrs. |
| ||||||||||||
Self-storage facility in Fayetteville, NC |
|
3,626 |
|
1,677 |
|
3,116 |
|
- |
|
- |
|
- |
|
1,677 |
|
3,116 |
|
- |
|
4,793 |
|
45 |
|
Sep. 2012 |
|
34 yrs. |
| ||||||||||||
Self-storage facility in Carrollwood, FL |
|
3,800 |
|
599 |
|
6,273 |
|
- |
|
- |
|
- |
|
599 |
|
6,273 |
|
- |
|
6,872 |
|
14 |
|
Nov. 2012 |
|
40 yrs. |
| ||||||||||||
Self-storage facility in St. Petersburg, FL |
|
4,100 |
|
2,253 |
|
3,512 |
|
- |
|
- |
|
- |
|
2,253 |
|
3,512 |
|
- |
|
5,765 |
|
8 |
|
Nov. 2012 |
|
40 yrs. |
| ||||||||||||
Self-storage facility in Palm Harbor, FL |
|
7,100 |
|
2,192 |
|
7,237 |
|
- |
|
- |
|
- |
|
2,192 |
|
7,237 |
|
- |
|
9,429 |
|
17 |
|
Nov. 2012 |
|
40 yrs. |
| ||||||||||||
Self-storage facility in Midland, TX |
|
4,300 |
|
1,026 |
|
5,546 |
|
- |
|
- |
|
- |
|
1,026 |
|
5,546 |
|
- |
|
6,572 |
|
10 |
|
Dec. 2012 |
|
20 yrs. |
| ||||||||||||
Self-storage facility in Midland, TX |
|
5,830 |
|
2,136 |
|
6,665 |
|
- |
|
- |
|
- |
|
2,136 |
|
6,665 |
|
- |
|
8,801 |
|
12 |
|
Dec. 2012 |
|
20 yrs. |
| ||||||||||||
Self-storage facility in Odessa, TX |
|
3,970 |
|
975 |
|
4,924 |
|
- |
|
- |
|
- |
|
975 |
|
4,924 |
|
- |
|
5,899 |
|
9 |
|
Dec. 2012 |
|
20 yrs. |
| ||||||||||||
Self-storage facility in Odessa, TX |
|
5,400 |
|
1,099 |
|
6,510 |
|
- |
|
- |
|
- |
|
1,099 |
|
6,510 |
|
- |
|
7,609 |
|
12 |
|
Dec. 2012 |
|
20 yrs. |
| ||||||||||||
|
|
$ |
147,317 |
|
$ |
60,493 |
|
$ |
191,973 |
|
$ |
364 |
|
$ |
2,514 |
|
$ |
(539) |
|
$ |
60,493 |
|
$ |
193,067 |
|
$ |
1,245 |
|
$ |
254,805 |
|
$ |
7,757 |
|
|
|
|
|
CPA®:17 Global 2012 10-K 102
CORPORATE PROPERTY ASSOCIATES 17 GLOBAL INCORPORATED
NOTES to SCHEDULE III REAL ESTATE and ACCUMULATED DEPRECIATION
(in thousands)
___________
(a) Consists of the costs of improvements subsequent to purchase and acquisition costs including construction costs on build-to-suit transactions, legal fees, appraisal fees, title costs, and other related professional fees. For business combinations, transaction costs are excluded.
(b) The increase (decrease) in net investment is primarily due to (i) the amortization of unearned income from net investment in direct financing leases, which produces a periodic rate of return that at times may be greater or less than lease payments received, (ii) sales of properties, (iii) impairment charges, and (iv) changes in foreign currency exchange rates.
(c) Reconciliation of real estate and accumulated depreciation (see below):
|
|
Reconciliation of Real Estate Subject to Operating Leases |
| |||||||
|
|
Years Ended December 31, |
| |||||||
|
|
2012 |
|
2011 |
|
2010 |
| |||
Balance at beginning of year |
|
$ |
1,500,151 |
|
$ |
930,404 |
|
$ |
326,507 |
|
Additions |
|
513,407 |
|
531,795 |
|
610,795 |
| |||
Dispositions |
|
(56,200) |
|
(10,142) |
|
- |
| |||
Foreign currency translation adjustment |
|
15,468 |
|
(25,664) |
|
(6,898) |
| |||
Reclassification from real estate under construction |
|
140,324 |
|
73,758 |
|
- |
| |||
Reclassification to direct financing lease |
|
(7,378) |
|
- |
|
- |
| |||
Balance at close of year |
|
$ |
2,105,772 |
|
$ |
1,500,151 |
|
$ |
930,404 |
|
|
|
Reconciliation of Accumulated Depreciation for |
| |||||||
|
|
Real Estate Subject to Operating Leases |
| |||||||
|
|
Years Ended December 31, |
| |||||||
|
|
2012 |
|
2011 |
|
2010 |
| |||
Balance at beginning of year |
|
$ |
40,522 |
|
$ |
16,274 |
|
$ |
5,957 |
|
Depreciation expense |
|
37,265 |
|
25,046 |
|
10,484 |
| |||
Dispositions |
|
(447) |
|
(7) |
|
- |
| |||
Foreign currency translation adjustment |
|
625 |
|
(791) |
|
(167) |
| |||
Reclassification to direct financing lease |
|
(720) |
|
- |
|
- |
| |||
Balance at close of year |
|
$ |
77,245 |
|
$ |
40,522 |
|
$ |
16,274 |
|
|
|
Reconciliation of Operating Real Estate |
| |||||||
|
|
Years Ended December 31, |
| |||||||
|
|
2012 |
|
2011 |
|
2010 |
| |||
Balance at beginning of year |
|
$ |
178,141 |
|
$ |
12,177 |
|
$ |
- |
|
Additions |
|
77,203 |
|
165,964 |
|
12,177 |
| |||
Write-off of fully depreciated asset |
|
(539) |
|
- |
|
- |
| |||
Balance at close of year |
|
$ |
254,805 |
|
$ |
178,141 |
|
$ |
12,177 |
|
CPA®:17 Global 2012 10-K 103
|
|
Reconciliation of Accumulated |
| |||||||
|
|
Depreciation for Operating Real Estate |
| |||||||
|
|
Years Ended December 31, |
| |||||||
|
|
2012 |
|
2011 |
|
2010 |
| |||
Balance at beginning of year |
|
$ |
2,745 |
|
$ |
300 |
|
$ |
- |
|
Depreciation expense |
|
5,551 |
|
2,445 |
|
300 |
| |||
Write-off of fully depreciated asset |
|
(539) |
|
- |
|
- |
| |||
Balance at close of year |
|
$ |
7,757 |
|
$ |
2,745 |
|
$ |
300 |
|
At December 31, 2012, the aggregate cost of real estate, net of accumulated depreciation and accounted for as operating leases, owned by us and our consolidated subsidiaries for federal income tax purposes was $2.7 billion.
CPA®:17 Global 2012 10-K 104
SCHEDULE IV MORTGAGE LOANS ON REAL ESTATE
December 31, 2012
(dollars in thousands)
|
|
|
|
Final |
|
Face |
|
Carrying |
| ||
|
|
Interest |
|
Maturity |
|
Amount of |
|
Amount of |
| ||
Description |
|
Rate |
|
Date |
|
Mortgage |
|
Mortgage |
| ||
Financing agreement China Alliance Properties Limited |
|
11.0% |
|
Dec. 2015 |
|
$ |
40,000 |
|
$ |
40,000 |
|
|
|
|
|
|
|
$ |
40,000 |
|
$ |
40,000 |
|
NOTES TO SCHEDULE IV MORTGAGE LOANS ON REAL ESTATE
(in thousands)
|
|
Reconciliation of Mortgage |
| |||||||
|
|
Loans on Real Estate |
| |||||||
|
|
Years Ended December 31, |
| |||||||
|
|
2012 |
|
2011 |
|
2010 |
| |||
Balance at beginning of year |
|
$ |
70,000 |
|
$ |
89,560 |
|
$ |
- |
|
Additions |
|
- |
|
30,000 |
|
90,000 |
| |||
Repayment |
|
- |
|
(49,560) |
|
(440) |
| |||
Conversion to equity investment |
|
(30,000) |
|
- |
|
- |
| |||
Balance at close of year |
|
$ |
40,000 |
|
$ |
70,000 |
|
$ |
89,560 |
|
CPA®:17 Global 2012 10-K 105
Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure.
None.
Item 9A. Controls and Procedures.
Disclosure Controls and Procedures
Our disclosure controls and procedures include our controls and other procedures designed to provide reasonable assurance that information required to be disclosed in this and other reports filed under the Securities Exchange Act of 1934, as amended (the Exchange Act) is recorded, processed, summarized and reported within the required time periods specified in the SECs rules and forms and that such information is accumulated and communicated to management, including our chief executive officer and chief financial officer, to allow timely decisions regarding required disclosures. It should be noted that no system of controls can provide complete assurance of achieving a companys objectives and that future events may impact the effectiveness of a system of controls.
Our chief executive officer and chief financial officer, after conducting an evaluation, together with members of our management, of the effectiveness of the design and operation of our disclosure controls and procedures as of December 31, 2012, have concluded that our disclosure controls and procedures (as defined in Rule 13a-15(e) under the Exchange Act) were effective as of December 31, 2012 at a reasonable level of assurance.
Managements Report on Internal Control Over Financial Reporting
Management is responsible for establishing and maintaining adequate internal control over financial reporting (as such term is defined in Rule 13a-15(f) under the Exchange Act). Internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with U.S. GAAP.
Our internal control over financial reporting includes those policies and procedures that (i) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of our assets; (ii) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with U.S. GAAP, and that our receipts and expenditures are being made only in accordance with authorizations of our management and directors; and (iii) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of our assets that could have a material effect on the financial statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with policies or procedures may deteriorate.
We assessed the effectiveness of our internal control over financial reporting as of December 31, 2012. In making this assessment, we used criteria set forth in Internal Control - Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO). Based on our assessment, we concluded that, as of December 31, 2012, our internal control over financial reporting is effective based on those criteria.
This Annual Report does not include an attestation report of our independent registered public accounting firm regarding internal control over financial reporting. Managements report was not subject to attestation by our independent registered public accounting firm pursuant to SEC rules that permit us to provide only managements report in this Annual Report.
Changes in Internal Control over Financial Reporting
There have been no changes in our internal control over financial reporting during our most recently completed fiscal quarter that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
None.
CPA®:17 Global 2012 10-K 106
Item 10. Directors, Executive Officers and Corporate Governance.
This information will be contained in our definitive proxy statement for the 2013 Annual Meeting of Stockholders, to be filed within 120 days following the end of our fiscal year, and is incorporated by reference.
Item 11. Executive Compensation.
This information will be contained in our definitive proxy statement for the 2013 Annual Meeting of Stockholders, to be filed within 120 days following the end of our fiscal year, and is incorporated by reference.
Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters.
This information will be contained in our definitive proxy statement for the 2013 Annual Meeting of Stockholders, to be filed within 120 days following the end of our fiscal year, and is incorporated by reference.
Item 13. Certain Relationships and Related Transactions, and Director Independence.
This information will be contained in our definitive proxy statement for the 2013 Annual Meeting of Stockholders, to be filed within 120 days following the end of our fiscal year, and is incorporated by reference.
Item 14. Principal Accountant Fees and Services.
This information will be contained in our definitive proxy statement for the 2013 Annual Meeting of Stockholders, to be filed within 120 days following the end of our fiscal year, and is incorporated by reference.
CPA®:17 Global 2012 10-K 107
The following exhibits are filed with this Report, except where indicated.
Exhibit No. |
|
Description |
|
Method of Filing |
3.1 |
|
Articles of Incorporation of Registrant |
|
Incorporated by reference to Exhibit 3.1 to Registration Statement on Form S-11 (No. 333-140842) filed February 22, 2007 |
|
|
|
|
|
3.2 |
|
Articles of Amendment and Restatement of Corporate Property Associates 17 Global Incorporated (the Charter) |
|
Incorporated by reference to Exhibit 3.1 to Quarterly Report on Form 10-Q for the quarter ended September 30, 2007 filed December 14, 2007 |
|
|
|
|
|
3.3 |
|
Articles of Amendment to the Charter |
|
Incorporated by reference to Exhibit 3.1 to Current Report on Form 8-K filed January 29, 2013 |
|
|
|
|
|
3.4 |
|
Bylaws of Corporate Property Associates 17 Global Incorporated |
|
Incorporated by reference to Exhibit 3.2 to Quarterly Report on Form 10-Q for the quarter ended September 30, 2007 filed December 14, 2007 |
|
|
|
|
|
4.1 |
|
2007 Distribution Reinvestment and Stock Purchase Plan |
|
Incorporated by reference to Exhibit 4.1 to Quarterly Report on Form 10-Q for the quarter ended September 30, 2007 filed December 14, 2007 |
|
|
|
|
|
10.1 |
|
Amended and Restated Agreement of Limited Partnership of CPA®:17 Limited Partnership dated March 5, 2013 by and among, Corporate Property Associates 17 Global Incorporated and W. P. Carey Holdings, LLC |
|
Filed herewith |
|
|
|
|
|
10.2 |
|
Amended and Restated Advisory Agreement dated as of September 28, 2012 among Corporate Property Associates 17 Global Incorporated, CPA®:17 Limited Partnership and Carey Asset Management Corp. |
|
Incorporated by reference to Exhibit 10.1 to Quarterly Report on Form 10-Q filed on November 9, 2012 |
|
|
|
|
|
10.3 |
|
Asset Management Agreement dated as of July 1, 2008 between Corporate Property Associates 17 Global Incorporated and W. P. Carey & Co. B. V. |
|
Incorporated by reference to Exhibit 10.9 to Registration Statement on Form S-11 (No. 333-140842) filed on August 1, 2008 |
|
|
|
|
|
10.4 |
|
Form of Indemnification Agreement with independent directors |
|
Incorporated by reference to Exhibit 10.14 to Registration Statement on Form S-11 (No. 333-140842) filed on August 1, 2008 |
|
|
|
|
|
10.5 |
|
Lease Agreement by and between 620 Eight NYT (NY) Limited Partnership, as landlord, and NYT Real Estate Company LLC, as tenant, dated March 6, 2009 |
|
Incorporated by reference to Exhibit 10.11 to Registration Statement on Form S-11 (No. 333-140842) filed on April 2, 2009 |
CPA®:17 Global 2012 10-K 108
Exhibit No. |
|
Description |
|
Method of Filing |
10.6 |
|
Guaranty and Suretyship Agreement made by The New York Times Company (NYTC), and The New York Times Sales Company (NYT Sales), (NYTC and NYT Sales, collectively the Guarantor), to 620 Eighth NYT (NY) Limited Partnership (Landlord), dated March 6, 2009 |
|
Incorporated by reference to Exhibit 10.12 to Registration Statement on Form S-11 (No. 333-140842) filed on April 2, 2009 |
|
|
|
|
|
10.7 |
|
Assignment and Assumption of Sublease by and between NYT Real Estate Company LLC and 620 Eighth NYT (NY) Limited Partnership, dated March 6, 2009 |
|
Incorporated by reference to Exhibit 10.13 to Registration Statement on Form S-11 (No. 333-140842) filed on April 2, 2009 |
|
|
|
|
|
10.8 |
|
Wrap-Around Mortgage, Assignment of Rents, Security Agreement and Fixture Filing among NYT Real Estate Company LLC and New York State Urban Development Corporation, D/B/A Empire State Development Corporation and 620 Eighth NYT (NY) Limited Partnership, dated March 6, 2009 |
|
Incorporated by reference to Exhibit 10.14 to Registration Statement on Form S-11 (No. 333-140842) filed on April 2, 2009 |
|
|
|
|
|
10.9 |
|
Loan Agreement Dated as of August 31, 2009 by and between 620 Eighth NYT (NY) Limited Partnership and 620 Eighth Lender NYT (NY) Limited Partnership as Borrower and Bank of China, New York Branch as Lender |
|
Incorporated by reference to Exhibit 10.1 to Form 8-K/A filed on November 4, 2009 |
|
|
|
|
|
10.10 |
|
Dealer Manager Agreement by and between Corporate Property Associates 17 Global Incorporated and Carey Financial, LLC, dated April 7, 2011 |
|
Filed herewith |
|
|
|
|
|
21.1 |
|
List of Registrant Subsidiaries |
|
Filed herewith |
|
|
|
|
|
23.1 |
|
Consent of PricewaterhouseCoopers LLP |
|
Filed herewith |
|
|
|
|
|
31.1 |
|
Certification pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 |
|
Filed herewith |
|
|
|
|
|
31.2 |
|
Certification pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 |
|
Filed herewith |
|
|
|
|
|
32 |
|
Certifications pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 |
|
Filed herewith |
CPA®:17 Global 2012 10-K 109
Exhibit No. |
|
Description |
|
Method of Filing |
101 |
|
The following materials from Corporate Property Associates 17 Global Incorporateds Annual Report on Form 10-K for the year ended December 31, 2012, formatted in XBRL (eXtensible Business Reporting Language): (i) Consolidated Balance Sheets at December 31, 2012 and 2011, (ii) Consolidated Statements of Income for the years ended December 31, 2012, 2011 and 2010, (iii) Consolidated Statements of Comprehensive Income for the years ended December 31, 2012, 2011 and 2010, (iv) Consolidated Statements of Equity for the years ended December 31, 2012, 2011 and 2010, (v) Consolidated Statements of Cash Flows for the years ended December 31, 2012, 2011 and 2010, (vi) Notes to Consolidated Financial Statements, (vii) Schedule III - Real Estate and Accumulated Depreciation, (viii) Notes to Schedule III, (ix) Schedule IV - Mortgage Loans and Real Estate and (x) Notes to Schedule IV. * |
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Filed herewith |
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* Pursuant to Rule 406T of Regulation S-T, the Interactive Data Files on Exhibit 101 hereto are deemed not filed or part of a registration statement or prospectus for purposes of Sections 11 or 12 of the Securities Act of 1933, as amended, are deemed not filed for purposes of Section 18 of the Securities Exchange Act of 1934, as amended, and otherwise are not subject to liability under those sections.
CPA®:17 Global 2012 10-K 110
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
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Corporate Property Associates 17 Global Incorporated |
Date: March 8, 2013 |
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By: |
/s/ Mark J. DeCesaris |
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Mark J. DeCesaris |
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Chief Financial Officer |
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated.
Signature |
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Title |
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Date |
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/s/ Trevor P. Bond |
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Chief Executive Officer and Director |
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March 8, 2013 |
Trevor P. Bond |
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(Principal Executive Officer) |
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/s/ Mark J. DeCesaris |
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Chief Financial Officer |
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March 8, 2013 |
Mark J. DeCesaris |
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(Principal Financial Officer) |
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/s/ Hisham A. Kader |
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Chief Accounting Officer |
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March 8, 2013 |
Hisham A. Kader |
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(Principal Accounting Officer) |
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/s/ Marshall E. Blume |
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Director |
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March 8, 2013 |
Marshall E. Blume |
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/s/ Elizabeth P. Munson |
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Director |
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March 8, 2013 |
Elizabeth P. Munson |
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/s/ Richard J. Pinola |
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Director |
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March 8, 2013 |
Richard J. Pinola |
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/s/ James D. Price |
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Director |
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March 8, 2013 |
James D. Price |
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CPA®:17 Global 2012 10-K 111
The following exhibits are filed with this Report, except where indicated.
Exhibit No. |
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Description |
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Method of Filing |
3.1 |
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Articles of Incorporation of Registrant |
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Incorporated by reference to Exhibit 3.1 to Registration Statement on Form S-11 (No. 333-140842) filed February 22, 2007 |
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3.2 |
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Articles of Amendment and Restatement of Corporate Property Associates 17 Global Incorporated (the Charter) |
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Incorporated by reference to Exhibit 3.1 to Quarterly Report on Form 10-Q for the quarter ended September 30, 2007 filed December 14, 2007 |
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3.3 |
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Articles of Amendment to the Charter |
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Incorporated by reference to Exhibit 3.1 to Current Report on Form 8-K filed January 29, 2013 |
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3.4 |
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Bylaws of Corporate Property Associates 17 Global Incorporated |
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Incorporated by reference to Exhibit 3.2 to Quarterly Report on Form 10-Q for the quarter ended September 30, 2007 filed December 14, 2007 |
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4.1 |
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2007 Distribution Reinvestment and Stock Purchase Plan |
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Incorporated by reference to Exhibit 4.1 to Quarterly Report on Form 10-Q for the quarter ended September 30, 2007 filed December 14, 2007 |
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10.1 |
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Amended and Restated Agreement of Limited Partnership of CPA®:17 Limited Partnership dated March 5, 2013 by and among, Corporate Property Associates 17 Global Incorporated and W. P. Carey Holdings, LLC |
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Filed herewith |
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10.2 |
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Amended and Restated Advisory Agreement dated as of September 28, 2012 among Corporate Property Associates 17 Global Incorporated, CPA®:17 Limited Partnership and Carey Asset Management Corp. |
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Incorporated by reference to Exhibit 10.1 to Quarterly Report on Form 10-Q filed on November 9, 2012 |
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10.3 |
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Asset Management Agreement dated as of July 1, 2008 between Corporate Property Associates 17 Global Incorporated and W. P. Carey & Co. B. V. |
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Incorporated by reference to Exhibit 10.9 to Registration Statement on Form S-11 (No. 333-140842) filed on August 1, 2008 |
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10.4 |
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Form of Indemnification Agreement with independent directors |
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Incorporated by reference to Exhibit 10.14 to Registration Statement on Form S-11 (No. 333-140842) filed on August 1, 2008 |
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10.5 |
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Lease Agreement by and between 620 Eight NYT (NY) Limited Partnership, as landlord, and NYT Real Estate Company LLC, as tenant, dated March 6, 2009 |
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Incorporated by reference to Exhibit 10.11 to Registration Statement on Form S-11 (No. 333-140842) filed on April 2, 2009 |
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Exhibit No. |
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Description |
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Method of Filing |
10.6 |
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Guaranty and Suretyship Agreement made by The New York Times Company (NYTC), and The New York Times Sales Company (NYT Sales), (NYTC and NYT Sales, collectively the Guarantor), to 620 Eighth NYT (NY) Limited Partnership (Landlord), dated March 6, 2009 |
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Incorporated by reference to Exhibit 10.12 to Registration Statement on Form S-11 (No. 333-140842) filed on April 2, 2009 |
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10.7 |
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Assignment and Assumption of Sublease by and between NYT Real Estate Company LLC and 620 Eighth NYT (NY) Limited Partnership, dated March 6, 2009 |
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Incorporated by reference to Exhibit 10.13 to Registration Statement on Form S-11 (No. 333-140842) filed on April 2, 2009 |
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10.8 |
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Wrap-Around Mortgage, Assignment of Rents, Security Agreement and Fixture Filing among NYT Real Estate Company LLC and New York State Urban Development Corporation, D/B/A Empire State Development Corporation and 620 Eighth NYT (NY) Limited Partnership, dated March 6, 2009 |
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Incorporated by reference to Exhibit 10.14 to Registration Statement on Form S-11 (No. 333-140842) filed on April 2, 2009 |
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10.9 |
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Loan Agreement Dated as of August 31, 2009 by and between 620 Eighth NYT (NY) Limited Partnership and 620 Eighth Lender NYT (NY) Limited Partnership as Borrower and Bank of China, New York Branch as Lender |
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Incorporated by reference to Exhibit 10.1 to Form 8-K/A filed on November 4, 2009 |
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10.10 |
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Dealer Manager Agreement by and between Corporate Property Associates 17 Global Incorporated and Carey Financial, LLC, dated April 7, 2011 |
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Filed herewith |
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21.1 |
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List of Registrant Subsidiaries |
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Filed herewith |
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23.1 |
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Consent of PricewaterhouseCoopers LLP |
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Filed herewith |
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31.1 |
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Certification pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 |
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Filed herewith |
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31.2 |
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Certification pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 |
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Filed herewith |
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32 |
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Certifications pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 |
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Filed herewith |
Exhibit No. |
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Description |
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Method of Filing |
101 |
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The following materials from Corporate Property Associates 17 Global Incorporateds Annual Report on Form 10-K for the year ended December 31, 2012, formatted in XBRL (eXtensible Business Reporting Language): (i) Consolidated Balance Sheets at December 31, 2012 and 2011, (ii) Consolidated Statements of Income for the years ended December 31, 2012, 2011 and 2010, (iii) Consolidated Statements of Comprehensive Income for the years ended December 31, 2012, 2011 and 2010, (iv) Consolidated Statements of Equity for the years ended December 31, 2012, 2011 and 2010, (v) Consolidated Statements of Cash Flows for the years ended December 31, 2012, 2011 and 2010, (vi) Notes to Consolidated Financial Statements, (vii) Schedule III - Real Estate and Accumulated Depreciation, (viii) Notes to Schedule III, (ix) Schedule IV - Mortgage Loans and Real Estate and (x) Notes to Schedule IV. * |
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Filed herewith |
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* Pursuant to Rule 406T of Regulation S-T, the Interactive Data Files on Exhibit 101 hereto are deemed not filed or part of a registration statement or prospectus for purposes of Sections 11 or 12 of the Securities Act of 1933, as amended, are deemed not filed for purposes of Section 18 of the Securities Exchange Act of 1934, as amended, and otherwise are not subject to liability under those sections.
Exhibit 10.1
AMENDED AND RESTATED
AGREEMENT OF LIMITED PARTNERSHIP
OF CPA:17 LIMITED PARTNERSHIP
THIS AMENDED AND RESTATED AGREEMENT OF LIMITED PARTNERSHIP OF CPA:17 LIMITED PARTNERSHIP, a Delaware limited partnership (the Partnership), dated as of March 5, 2013, is entered into by and among Corporate Property Associates 17 - Global Incorporated, a Maryland corporation holding both general partner and limited partner interests in the Partnership (the General Partner), and W. P. Carey Holdings, LLC, a Delaware limited liability company holding a special general partner interest in the Partnership (the Special General Partner), together with any other Persons who become Partners in the Partnership as provided herein.
WHEREAS, the Partnership was formed when a Certificate of Limited Partnership was filed and accepted by the Secretary of State of the State of Delaware;
WHEREAS, the Partners entered into that certain Agreement of Limited Partnership of CPA:17 Limited Partnership, dated November 12, 2007, and have since entered into First, Second and Third amendments thereto (as amended to the date hereof, the Original Partnership Agreement);
WHEREAS, the General Partner and the Special General Partner desire to amend and restate the Original Partnership Agreement in order to consolidate the Original Partnership Agreement, including the amendments thereto, into a single document for ease of reference; and;
WHEREAS, Section 7.3.D.(4) of the Original Partnership Agreement provides that the General Partner may so amend the Original Partnership Agreement without the consent of the Limited Partners;
NOW, THEREFORE, BE IT RESOLVED, that for good and adequate consideration, the receipt of which is hereby acknowledged, the parties hereto agree to amend and restate the Original Partnership Agreement as follows:
ARTICLE 1
DEFINED TERMS
Section 1.1 Definitions.
The following definitions shall be for all purposes, unless otherwise clearly indicated to the contrary, applied to the terms used in this Agreement.
Act means the Delaware Revised Uniform Limited Partnership Act (6 Del. C. Section 17-101 et seq.), as it may be amended from time to time, and any successor to such statute.
Additional Funds shall have the meaning set forth in Section 4.3.A.
Additional Limited Partner means a Person admitted to the Partnership as a Limited Partner pursuant to Section 12.2 and who is shown as such on the books and records of the Partnership.
Adjusted Capital Account Deficit means, with respect to any Partner, the deficit balance, if any, in such Partners Capital Account as of the end of the relevant fiscal year, after giving effect to the following adjustments:
(i) such deficit shall be decreased by any amounts which such Partner is obligated to restore pursuant to this Agreement or is deemed to be obligated to restore pursuant to Regulations Section 1.704-1(b)(2)(ii)(c) or the penultimate sentence of each of Regulations Sections 1.704-2(i)(5) and 1.704-2(g)(1); and
(ii) such deficit shall be increased by the items described in Regulations Section 1.704-1(b)(2)(ii)(d)(4), (5) and (6).
The foregoing definition of Adjusted Capital Account Deficit is intended to comply with the provisions of Regulations Section 1.704-1(b)(2)(ii)(d) and shall be interpreted consistently therewith. A positive balance in a Partners Capital Account, after giving effect to the adjustments described above in clauses (i) and (ii), is referred to in this Agreement as an Adjusted Capital Account Balance.
Adjustment Date means, with respect to any Capital Contribution, the close of business on the Business Day last preceding the date of the Capital Contribution, provided, that if such Capital Contribution is being made by the General Partner in respect of the proceeds from the issuance of REIT Shares (or the issuance of the General Partners securities exercisable for, convertible into or exchangeable for REIT Shares), then the Adjustment Date shall be as of the close of business on the Business Day last preceding the date of the issuance of such securities.
Advisor means Carey Asset Management Corp., a Delaware corporation.
Advisory Agreement means that certain Advisory Agreement between the Advisor and the General Partner entered into contemporaneously with this Agreement.
Affiliate means, with respect to any Person, any Person directly or indirectly controlling, controlled by or under common control with such Person. Control of any Person means the power to direct the management and policies of such Person, directly or indirectly, whether through the ownership of voting securities, by contract or otherwise, and the terms controlling and controlled have meanings correlative to the foregoing.
Agreed Value means (i) in the case of any Contributed Property set forth in Exhibit A and as of the time of its contribution to the Partnership, the Agreed Value of such property as set forth in Exhibit A; (ii) in the case of any Contributed Property not set forth in Exhibit A and as of the time of its contribution to the Partnership, the fair market value of such property or other consideration as determined by the General Partner, reduced by any liabilities either assumed by the Partnership upon such contribution or to which such property is subject when contributed; and (iii) in the case of any property distributed to a Partner by the Partnership, the fair market value of such property as determined by the General Partner at the time such property is distributed, reduced by any liabilities either assumed by such Partner upon such distribution or to which such property is subject at the time of the distribution as determined under Section 752 of the Code and the Regulations thereunder.
Agreement means this Agreement of Limited Partnership, as it may be amended, modified, supplemented or restated from time to time.
Appraisal means with respect to any assets, the opinion of an independent third party experienced in the valuation of similar assets, selected by the General Partner and the Special General
Partner in good faith; such opinion may be in the form of an opinion by such independent third party that the value for such property or asset as set by the General Partner is fair, from a financial point of view, to the Partnership.
Assignee means a Person to whom one or more OP Units have been transferred in a manner permitted under this Agreement, but who has not become a Substituted Limited Partner, and who has the rights set forth in Section 11.5.
Available Cash means, with respect to any period for which such calculation is being made, the cash flow generated by Partnership operations and investments as determined in the reasonable discretion of the General Partner, taking into account all cash available for distribution from all sources excluding Capital Proceeds, after the payment of regular debt payments (including, without limitation, regularly scheduled payments of interest and amortization, but excluding balloon payments and early prepayment of debt principal) and Operating Expenses of the Partnership (as defined in the Advisory Agreement) but before the payment of distributions to Partners. Notwithstanding the foregoing, the operating cash flow of any entity in which the Partnership owns, directly or indirectly, less than a 100% interest shall be multiplied by the percentage ownership of such entity held, directly or indirectly, by the Partnership.
Available Cash from Long-Term Net Leased Properties means that portion of Available Cash attributable to long-term, net leased properties, as determined by the General Partner in its reasonable discretion.
Available Cash from Real Estate Related Loans means that portion of Available Cash attributable to the Partnerships investments in B notes, mortgage backed securities and real estate related loans, as determined by the General Partner in its reasonable discretion.
Available Cash from Real Estate Securities means that portion of Available Cash attributable to the Partnerships investments in readily marketable real estate securities (other than investments in B notes, mortgage backed securities and real estate related loans), as determined by the General Partner in its reasonable discretion.
Available Residual Cash means Available Cash, other than (i) Available Cash from Long-Term Net Leased Properties, (ii) Available Cash from Real Estate Related Loans, and (iii) Available Cash from Real Estate Securities.
Business Day means any day except a Saturday, Sunday or other day on which commercial banks in New York, New York are authorized or required by law to be closed.
Capital Account means, with respect to any Partner, the Capital Account maintained for such Partner in accordance with the following provisions:
(a) To each Partners Capital Account there shall be added such Partners Capital Contributions, such Partners share of Net Income and any items in the nature of income or gain which are specially allocated pursuant to Section 6.3, and the amount of any Partnership liabilities assumed by such Partner or which are secured by any property distributed to such Partner.
(b) From each Partners Capital Account there shall be subtracted the amount of cash and the Gross Asset Value of any property distributed to such Partner pursuant to any provision of this Agreement, such Partners distributive share of Net Loss and any items in the nature of expenses or losses which are specially allocated pursuant to Section 6.3, and the amount of any liabilities of such Partner
assumed by the Partnership or which are secured by any property contributed by such Partner to the Partnership (except to the extent already reflected in the amount of such Partners Capital Contribution).
(c) In the event any interest in the Partnership is transferred in accordance with the terms of this Agreement, the transferee shall succeed to the Capital Account of the transferor to the extent it relates to the transferred interest.
(d) In determining the amount of any liability for purposes of subsections (a) and (b) hereof, there shall be taken into account Code Section 752(c) and any other applicable provisions of the Code and Regulations.
(e) The foregoing provisions and the other provisions of this Agreement relating to the maintenance of Capital Accounts are intended to comply with Regulations Sections 1.704-1(b) and 1.704-2, and shall be interpreted and applied in a manner consistent with such Regulations. In the event the General Partner shall determine that it is prudent to modify the manner in which the Capital Accounts, or any debits or credits thereto (including, without limitation, debits or credits relating to liabilities which are secured by contributed or distributed property or which are assumed by the Partnership, the General Partner, or the Limited Partners) are computed in order to comply with such Regulations, the General Partner may make such modification, provided that it is not likely to have a material effect on the amounts distributable to any Person pursuant to Article 13 of this Agreement upon the dissolution of the Partnership. The General Partner also shall (i) make any adjustments that are necessary or appropriate to maintain equality between the Capital Accounts of the Partners and the amount of Partnership capital reflected on the Partnerships balance sheet, as computed for book purposes, in accordance with Regulations Section 1.704-1(b)(2)(iv)(q), and (ii) make any appropriate modifications in the event unanticipated events might otherwise cause this Agreement not to comply with Regulations Section 1.704-1(b) or Section 1.704-2.
Capital Contribution means, with respect to any Partner, the amount of money and the initial Gross Asset Value of any property (other than money) contributed to the Partnership by such Partner (net of any liabilities assumed by the Partnership relating to such property and any liability to which such property is subject).
Capital Proceeds means the gross receipts received by the Partnership from a Capital Transaction or Change of Control Event (including any borrowing or other transaction entered into in connection with, or as part of, a Capital Transaction or Change of Control Event), less any expenses related to the Capital Transaction or Change of Control Event.
Capital Transaction means any transaction outside the ordinary course of the Partnerships business involving the sale, exchange, other disposition, or refinancing of any Partnership asset.
Cash Amount means, with respect to any OP Units subject to a Redemption, an amount of cash equal to the Deemed Partnership Interest Value attributable to such OP Units.
Certificate means the Certificate of Limited Partnership relating to the Partnership filed in the office of the Secretary of the State of the State of Delaware, as amended from time to time in accordance with the terms hereof and the Act.
Change of Control shall be deemed to have occurred at such time as (i) the date a person or group (within the meaning of Sections 13(d) and 14(d) of the Exchange Act) becomes the ultimate beneficial owner (as defined in Rules 13d-3 and 13d-5 under the Exchange Act, except that a person or group shall be deemed to have beneficial ownership of all shares of voting stock that such person or group
has the right to acquire regardless of when such right is first exercisable), directly or indirectly, of voting stock representing more than 50% of the total voting power of the total voting stock of the General Partner; (ii) the date the General Partner sells, transfers or otherwise disposes of all or substantially all of its assets; or (iii) the date of the consummation of a merger or share exchange of the General Partner with another entity where the General Partners stockholders immediately prior to the merger or share exchange would not beneficially own, immediately after the merger or share exchange, shares representing 50% or more of all votes (without consideration of the rights of any class of stock to elect directors by a separate group vote) to which all stockholders of the corporation issuing cash or securities in the merger or share exchange would be entitled in the election of directors, or where members of the board of directors of the General Partner immediately prior to the merger or share exchange would not immediately after the merger or share exchange constitute a majority of the board of directors of the corporation issuing cash or securities in the merger or share exchange.
Change of Control Event means (i) the date on which another Person acquires more than fifty percent (50%) of the aggregate ordinary voting power represented by the equity securities of the General Partner by purchase or by merger provided that the indirect ownership of the General Partner immediately after the acquisition differs from the direct ownership of the General Partner immediately before the acquisition by more than a de minimis amount; or (ii) the date on which the General Partner merges with another Person provided that the ownership of the entity surviving the merger immediately after the merger differs from the ownership of the General Partner immediately before the merger by more than a de minimis amount.
Charter means the Articles of Incorporation of the General Partner filed with the State Department of Assessments and Taxation of Maryland on February 9, 2007, as amended or restated from time to time.
Code means the Internal Revenue Code of 1986, as amended from time to time or any successor statute thereto. Any reference herein to a specific section or sections of the Code shall be deemed to include a reference to any corresponding provision of future law.
Consent means the consent to, approval of, or vote on a proposed action by a Partner given in accordance with Article 14.
Consent of the Limited Partners means the Consent of a Majority in Interest of the Limited Partners, which Consent shall be obtained prior to the taking of any action for which it is required by this Agreement and may be given or withheld by a Majority in Interest of the Limited Partners, unless otherwise expressly provided herein, in their sole and absolute discretion.
Consent of the Partners means the Consent of Partners holding Percentage Interests that in the aggregate are equal to or greater than fifty percent (50%) of the aggregate Percentage Interests of all Partners, which Consent shall be obtained prior to the taking of any action for which it is required by this Agreement and may be given or withheld by such Partners, in their sole and absolute discretion.
Constructively Own means ownership under the constructive ownership rules described in Exhibit C.
Contributed Property means each property or other asset, in such form as may be permitted by the Act, but excluding cash, contributed or deemed contributed to the Partnership.
Debt means, as to any Person, as of any date of determination, (i) all indebtedness of such Person for borrowed money or for the deferred purchase price of property or services; (ii) all amounts
owed by such Person to banks or other Persons in respect of reimbursement obligations under letters of credit, surety bonds, guarantees and other similar instruments guaranteeing payment or other performance of obligations by such Person; (iii) all indebtedness for borrowed money or for the deferred purchase price of property or services secured by any lien on any property owned by such Person, to the extent attributable to such Persons interest in such property, even though such Person has not assumed or become liable for the payment thereof; and (iv) lease obligations of such Person which, in accordance with generally accepted accounting principles, should be capitalized.
Deemed Partnership Interest Value means, as of any date with respect to any class of Partnership Interests, the Deemed Value of the Partnership Interests of such class multiplied by the Partners relative Percentage Interest of such class.
Deemed Value of the Partnership Interests means, as of any date with respect to any class or series of Partnership Interests, (i) the total number of OP Units of the General Partner issued and outstanding as of the close of business on such date multiplied by the Fair Market Value determined as of such date of a share of common stock of the General Partner which corresponds to such Partnership Interest, as adjusted (x) pursuant to Section 7.5 (in the event the General Partner acquires material assets, other than on behalf of the Partnership) and (y) for stock dividends and distributions, stock splits and subdivisions, reverse stock splits and combinations, distribution of warrants or options and distributions of evidences of indebtedness or assets not received by the General Partner pursuant to a pro rata distribution by the Partnership; (ii) divided by the Percentage Interest of the General Partner on such date; provided, that if no outstanding shares of capital stock of the General Partner correspond to a class or series of Partnership Interests, the Deemed Value of the Partnership Interests with respect to such class or series shall be equal to an amount reasonably determined by the General Partner.
Depreciation means, for each fiscal year or other period, an amount equal to the depreciation, amortization or other cost recovery deduction allowable with respect to an asset for such year or other period, except that if the Gross Asset Value of an asset differs from its adjusted basis for federal income tax purposes at the beginning of such year or other period, Depreciation shall be an amount which bears the same ratio to such beginning Gross Asset Value as the federal income tax depreciation, amortization or other cost recovery deduction for such year or other period bears to such beginning adjusted tax basis; provided, however, that if the federal income tax depreciation, amortization or other cost recovery deduction for such year is zero, Depreciation shall be determined with reference to such beginning Gross Asset Value using any reasonable method selected by the General Partner.
ERISA means the Employee Retirement Income Security Act of 1974, as amended.
Exchange Act means the Securities Exchange Act of 1934, as amended, and the rules and regulations of the Securities and Exchange Commission promulgated thereunder and any successor statute thereto.
Fair Market Value means, with respect to any share of capital stock of the General Partner, (i) if such shares are listed or admitted to trading on any securities exchange or automated quotation system, the average of the daily market price for the ten (10) consecutive trading days immediately preceding the date with respect to which Fair Market Value must be determined hereunder or, if such date is not a Business Day, the immediately preceding Business Day, using as the market price for each such trading day the closing price, regular way, on such day, or if no such sale takes place on such day, the average of the closing bid and asked prices on such day, or (ii) if such shares are not listed or admitted to trading on any securities exchange or automated quotation system, the price at which such shares are then being offered to the public pursuant to any public offering of the General Partner or pursuant to its distribution reinvestment plan (before giving effect to any discounts in effect and made available to participants in
such plan); provided that, if there is no ongoing public offering or if the General Partner is not then offering its shares pursuant to a distribution reinvestment plan, the Fair Market Value of such shares shall be determined by the General Partner acting in good faith on the basis of the most recent, publicly reported net asset value of the General Partner and other information as it considers, in its reasonable judgment, appropriate. In the event the REIT Shares Amount for such shares includes rights that a holder of such shares would be entitled to receive, then the Fair Market Value of such rights shall be determined by the General Partner acting in good faith on the basis of such quotations and other information as it considers, in its reasonable judgment, appropriate; and provided, further that, in connection with determining the Deemed Value of the Partnership Interests for purposes of determining the number of additional OP Units issuable upon a Capital Contribution funded by an underwritten public offering of shares of capital stock of the General Partner, the Fair Market Value of such shares shall be the public offering price per share of such class of capital stock sold. Notwithstanding the foregoing, the General Partner in its reasonable discretion may use a different Fair Market Value for purposes of making the determinations under subparagraph (b) of the definition of Gross Asset Value and Section 4.3.D in connection with the contribution of Property or cash to the Partnership by a third party, provided such value shall be based upon the value per REIT Share (or per OP Unit) agreed upon by the General Partner and such third party for purposes of such contribution.
General Partner Interest means a Partnership Interest held by the General Partner. A General Partner Interest may be expressed as a number of OP Units.
General Partner Net Current Investment means the General Partners total Capital Contributions then paid to the Partnership, plus the amount of any Partnership liabilities assumed by the General Partner (or which are secured by Partnership property distributed to the General Partner), less (i) the amount of any liabilities of the General Partner assumed by the Partnership (or which are secured by property contributed by the General Partner to the Partnership), (ii) all amounts actually distributed to the General Partner pursuant to Section 5.1.B(2), and (iii) all amounts representing a return of capital to the General Partner, including, but not limited to, the portion of any redemption proceeds distributed to the General Partner pursuant to Section 11.8 which represents a return of capital to the General Partner.
General Partner Priority Return means an amount equal to six percent (6%) per annum of the Weighted Average General Partner Net Current Investment, payable to the General Partner annually on a cumulative basis.
General Partner Unpaid Priority Return means the excess, if any, of the General Partner Priority Return over all amounts previously paid to the General Partner under Section 5.1.A, or paid in respect of the General Partner Priority Return under Section 5.1.B(1) as of the time in question.
Gross Asset Value means, with respect to any asset, the assets adjusted basis for federal income tax purposes, except as follows:
(a) The initial Gross Asset Value of any asset contributed by a Partner to the Partnership shall be the gross fair market value of such asset, as determined by the contributing Partner and the General Partner (as set forth on Exhibit A attached hereto, as such Exhibit may be amended from time to time); provided, that if the contributing Partner is the General Partner, then, except with respect to the General Partners initial Capital Contribution which shall be determined as set forth on Exhibit A, the determination of the fair market value of the contributed asset shall be determined (i) by the price paid by the General Partner if the asset is acquired by the General Partner contemporaneously with its contribution to the Partnership, (ii) by Appraisal, if otherwise acquired by the General Partner, (iii) by the amount of cash if the asset is cash, and (iv) as reasonably determined by the General Partner if the asset is REIT Shares or other shares of capital stock of the General Partner.
(b) The Gross Asset Values of all Partnership assets shall be adjusted to equal their respective gross fair market values, as determined by the General Partner using such reasonable method of valuation as it may adopt, provided, however, that for such purpose, the net value of all of the Partnership assets, in the aggregate, shall be equal to the Deemed Value of the Partnership Interests of all classes of Partnership Interests then outstanding, regardless of the method of valuation adopted by the General Partner, immediately prior to the times listed below:
(i) the acquisition of an additional interest in the Partnership by a new or existing Partner in exchange for more than a de minimis Capital Contribution, if the General Partner reasonably determines that such adjustment is necessary or appropriate to reflect the relative economic interests of the Partners in the Partnership;
(ii) the distribution by the Partnership to a Partner of more than a de minimis amount of Partnership property as consideration for an interest in the Partnership if the General Partner reasonably determines that such adjustment is necessary or appropriate to reflect the relative economic interests of the Partners in the Partnership;
(iii) the liquidation of the Partnership within the meaning of Regulations Section 1.704-1(b)(2)(ii)(g);
(iv) at such other times as the General Partner shall reasonably determine necessary or advisable in order to comply with Regulations Sections 1.704-1(b) and 1.704-2; and
(v) in connection with the grant of an interest in the Partnership (other than a de minimis interest) as consideration for the provision of services to or for the benefit of the Partnership by an existing Partner acting in a partner capacity or by a new Partner acting in a partner capacity or in anticipation of becoming a Partner.
(c) The Gross Asset Value of any Partnership asset distributed to a Partner shall be the gross fair market value of such asset on the date of distribution as determined by the distributee and the General Partner, or if the distributee and the General Partner cannot agree on such a determination, by Appraisal.
(d) The Gross Asset Values of Partnership assets shall be increased (or decreased) to reflect any adjustments to the adjusted basis of such assets pursuant to Code Section 734(b) or Code Section 743(b), but only to the extent that such adjustments are taken into account in determining Capital Accounts pursuant to Regulations Section 1.704-1(b)(2)(iv)(m); provided, however, that Gross Asset Values shall not be adjusted pursuant to this subparagraph (d) to the extent that the General Partner reasonably determines that an adjustment pursuant to subparagraph (b) is necessary or appropriate in connection with a transaction that would otherwise result in an adjustment pursuant to this subparagraph (d).
(e) If the Gross Asset Value of a Partnership asset has been determined or adjusted pursuant to subparagraph (a), (b) or (d), such Gross Asset Value shall thereafter be adjusted by the Depreciation taken into account with respect to such asset for purposes of computing Net Income and Net Loss.
Immediate Family means, with respect to any natural Person, such natural Persons estate or heirs or current spouse or former spouse, parents, parents-in-law, children (whether natural, adopted or by marriage), siblings and grandchildren and any trust or estate, all of the beneficiaries of which consist of such Person or such Persons spouse or former spouse, parents, parents-in-law, children, siblings or grandchildren.
Incapacity or Incapacitated means, (i) as to any individual Partner, death, total physical disability or entry by a court of competent jurisdiction adjudicating him or her incompetent to manage his or her Person or his or her estate; (ii) as to any corporation which is a Partner, the filing of a certificate of dissolution, or its equivalent, for the corporation or the revocation of its charter; (iii) as to any partnership which is a Partner, the dissolution and commencement of winding up of the partnership; (iv) as to any estate which is a Partner, the distribution by the fiduciary of the estates entire interest in the Partnership; (v) as to any trustee of a trust which is a Partner, the termination of the trust (but not the substitution of a new trustee); or (vi) as to any Partner, the bankruptcy of such Partner. For purposes of this definition, bankruptcy of a Partner shall be deemed to have occurred when (a) the Partner commences a voluntary proceeding seeking liquidation, reorganization or other relief under any bankruptcy, insolvency or other similar law now or hereafter in effect, (b) the Partner is adjudged as bankrupt or insolvent, or a final and nonappealable order for relief under any bankruptcy, insolvency or similar law now or hereafter in effect has been entered against the Partner, (c) the Partner executes and delivers a general assignment for the benefit of the Partners creditors, (d) the Partner files an answer or other pleading admitting or failing to contest the material allegations of a petition filed against the Partner in any proceeding of the nature described in clause (b) above, (e) the Partner seeks, consents to or acquiesces in the appointment of a trustee, receiver or liquidator for the Partner or for all or any substantial part of the Partners properties, (f) any proceeding seeking liquidation, reorganization or other relief under any bankruptcy, insolvency or other similar law now or hereafter in effect has not been dismissed within 120 days after the commencement thereof, (g) the appointment without the Partners consent or acquiescence of a trustee, receiver or liquidator has not been vacated or stayed within 90 days of such appointment, or (h) an appointment referred to in clause (g) is not vacated within 90 days after the expiration of any such stay.
Indemnitee means (i) any Person subject to a claim or demand or made or threatened to be made a party to, or involved or threatened to be involved in, an action, suit or proceeding by reason of his or her status as (A) the General Partner or (B) a director, officer or employee of the Partnership or the General Partner, and (ii) such other Persons (including Affiliates of the General Partner or the Partnership) as the General Partner may designate from time to time (whether before or after the event giving rise to potential liability), in its sole and absolute discretion.
Investments means investments made by the Partnership, directly or indirectly, in a Property, Loan or Other Permitted Investment Asset.
IRS means the United States Internal Revenue Service.
Limited Partner means any Person named as a Limited Partner in Exhibit A attached hereto, as such Exhibit may be amended from time to time, or any Substituted Limited Partner or Additional Limited Partner, in such Persons capacity as a Limited Partner in the Partnership.
Limited Partner Interest means a Partnership Interest of a Limited Partner representing a fractional part of the Partnership Interests of all Limited Partners and includes any and all benefits to which the holder of such a Partnership Interest may be entitled as provided in this Agreement, together with all obligations of such Person to comply with the terms and provisions of this Agreement. A Limited Partner Interest may be expressed as a number of OP Units.
Liquidating Event shall have the meaning set forth in Section 13.1.
Liquidator shall have the meaning set forth in Section 13.2.A.
Loans means notes and other evidences of indebtedness or obligations acquired, originated or entered into, directly or indirectly, by the Partnership as lender, noteholder, participant, note purchaser or
other capacity, including but not limited to first or subordinate mortgage loans, construction loans, development loans, loan participations, B notes, loans secured by capital stock or any other assets or form of equity interest and any other type of loan or financial arrangement, such as providing or arranging for letters of credit, providing guarantees of obligations to third parties, or providing commitments for loans. Loans shall not include leases which are not recognized as leases for federal income tax reporting purposes.
Majority in Interest of the Limited Partners means Limited Partners holding in the aggregate Percentage Interests that are greater than fifty percent (50%) of the aggregate Percentage Interests of all Limited Partners.
Net Income or Net Loss means for each fiscal year of the Partnership, an amount equal to the Partnerships taxable income or loss for such fiscal year, determined in accordance with Code Section 703(a) (for this purpose, all items of income, gain, loss, or deduction required to be stated separately pursuant to Code Section 703(a)(1) shall be included in taxable income or loss), with the following adjustments:
(a) Any income of the Partnership that is exempt from federal income tax and not otherwise taken into account in computing Net Income or Net Loss pursuant to this definition of Net Income or Net Loss shall be added to such taxable income or loss;
(b) Any expenditures of the Partnership described in Code Section 705(a)(2)(B) or treated as Code Section 705(a)(2)(B) expenditures pursuant to Regulations Section 1.704-1(b)(2)(iv)(i), and not otherwise taken into account in computing Net Income or Net Loss pursuant to this definition of Net Income or Net Loss shall be subtracted from such taxable income or loss;
(c) In the event the Gross Asset Value of any Partnership asset is adjusted pursuant to subparagraph (b) or subparagraph (c) of the definition of Gross Asset Value, the amount of such adjustment shall be taken into account as gain or loss from the disposition of such asset for purposes of computing Net Income or Net Loss;
(d) Gain or loss resulting from any disposition of property with respect to which gain or loss is recognized for federal income tax purposes shall be computed by reference to the Gross Asset Value of the property disposed of, notwithstanding that the adjusted tax basis of such property differs from its Gross Asset Value;
(e) In lieu of the depreciation, amortization, and other cost recovery deductions taken into account in computing such taxable income or loss, there shall be taken into account Depreciation for such fiscal year;
(f) To the extent an adjustment to the adjusted tax basis of any Partnership asset pursuant to Code Section 734(b) or Code Section 743(b) is required pursuant to Regulations Section 1.704-1(b)(2)(iv)(m)(4) to be taken into account in determining Capital Accounts as a result of a distribution other than in liquidation of a Partners interest in the Partnership, the amount of such adjustment shall be treated as an item of gain (if the adjustment increases the basis of the asset) or loss (if the adjustment decreases the basis of the asset) from the disposition of the asset and shall be taken into account for purposes of computing Net Income or Net Loss; and
(g) Notwithstanding any other provision of this definition of Net Income or Net Loss, any items which are specially allocated pursuant to Section 6.3 shall not be taken into account in computing Net Income or Net Loss. The amounts of the items of Partnership income, gain, loss, or deduction
available to be specially allocated pursuant to Section 6.3 shall be determined by applying rules analogous to those set forth in this definition of Net Income or Net Loss.
Net Income from a Capital Transaction means that portion of Net Income attributable to a Capital Transaction.
Net Income from Long-Term Net Leased Properties means that portion of Net Income attributable to long-term, net leased properties, as determined by the General Partner in its reasonable discretion.
Net Income from Real Estate Related Loans means that portion of Net Income attributable to the Partnerships investments in B notes, mortgage backed securities and real estate related loans, as determined by the General Partner in its reasonable discretion.
Net Income from Real Estate Securities means that portion of Net Income attributable to the Partnerships investments in readily marketable real estate securities (other than B notes, mortgage backed securities and real estate related loans), as determined by the General Partner in its reasonable discretion.
Net Loss from a Capital Transaction means that portion of Net Loss attributable to a Capital Transaction.
Net Residual Income means Net Income, other than (i) Net Income from Long-Term Net Leased Properties, (ii) Net Income from Real Estate Related Loans, and (iii) Net Income from Real Estate Securities.
New Securities means (i) any rights, options, warrants or convertible or exchangeable securities having the right to subscribe for or purchase REIT Shares or other shares of common stock of the General Partner, or (ii) any Debt issued by the General Partner that provides any of the rights described in clause (i).
Nonrecourse Deductions shall have the meaning set forth in Regulations Section 1.704-2(b)(1), and the amount of Nonrecourse Deductions for a Partnership Year shall be determined in accordance with the rules of Regulations Section 1.704-2(c).
Nonrecourse Liability shall have the meaning set forth in Regulations Section 1.752-1(a)(2).
Notice of Redemption means the Notice of Redemption substantially in the form of Exhibit B to this Agreement.
OP Unit means a fractional share of the Partnership Interests of all Partners issued pursuant to Article 4.
Other Permitted Investment Asset means assets, other than cash, cash equivalents, short term bonds, auction rate securities and similar short term investments, acquired by the Partnership for investment purposes that is not a Loan or a Property and is consistent with the investment objectives and policies of the Partnership.
Partner means a General Partner, a Special General Partner, or a Limited Partner, and Partners means the General Partner, the Special General Partner and the Limited Partners.
Partner Minimum Gain means an amount, with respect to each Partner Nonrecourse Debt, equal to the Partnership Minimum Gain that would result if such Partner Nonrecourse Debt were treated as a Nonrecourse Liability, determined in accordance with Regulations Section 1.704-2(i)(3).
Partner Nonrecourse Debt shall have the meaning set forth in Regulations Section 1.704-2(b)(4).
Partner Nonrecourse Deductions shall have the meaning set forth in Regulations Section 1.704-2(i)(2), and the amount of Partner Nonrecourse Deductions with respect to a Partner Nonrecourse Debt for a Partnership Year shall be determined in accordance with the rules of Regulations Section 1.704-2(i)(2).
Partnership means the limited partnership formed under the Act and pursuant to this Agreement, and any successor thereto.
Partnership Interest means, an ownership interest in the Partnership of either a Limited Partner, the Special General Partner, or the General Partner and includes any and all benefits to which the holder of such a Partnership Interest may be entitled as provided in this Agreement, together with all obligations of such Person to comply with the terms and provisions of this Agreement. There may be one or more classes or series of Partnership Interests as provided in Section 4.3. Except as otherwise provided for in this Agreement, a Partnership Interest may be expressed as a number of OP Units. Unless otherwise expressly provided for in this Agreement or by the General Partner at the time of the original issuance of any Partnership Interests, all Partnership Interests (whether of a Limited Partner, a Special General Partner or a General Partner) shall be of the same class or series.
Partnership Minimum Gain shall have the meaning set forth in Regulations Section 1.704-2(b)(2), and the amount of Partnership Minimum Gain, as well as any net increase or decrease in Partnership Minimum Gain, for a Partnership Year shall be determined in accordance with the rules of Regulations Section 1.704-2(d).
Partnership Record Date means the record date established by the General Partner for the distribution of Available Cash pursuant to Section 5.1 which record date shall be the same as the record date established by the General Partner for a distribution to its stockholders of some or all of its portion of such distribution.
Partnership Year means the fiscal year of the Partnership, which shall be the calendar year.
Percentage Interest means, as to a Partner holding a class or series of Partnership Interests, its interest as determined, as of the first day of each Partnership Year, by dividing such Partners Adjusted Capital Account Balance by aggregate Adjusted Capital Account Balances of all Partners. For purposes of the preceding sentence, the Adjusted Capital Account Balances of the Partners shall be determined after giving effect to all allocations of Net Income and Net Loss for all preceding Partnership Years, including allocations of Net Income and Net Loss resulting from adjustments to the Gross Asset Value of the Partnerships assets pursuant to the definition of Gross Asset Value.
Person means an individual, corporation, partnership, limited liability company, trust, unincorporated organization, association or other entity.
Plan Asset Regulation means the regulations promulgated by the United States Department of Labor in Title 29, Code of Federal Regulations, Part 2510, Section 101.3, and any successor regulations thereto.
Pledge shall have the meaning set forth in Section 11.3.A.
Property or Properties means a partial or entire interest in real property (including leasehold interests) and personal or mixed property connected therewith. An Investment which obligates the Partnership to acquire a Property will be treated as a Property for purposes of this Agreement.
Qualifying Party means (a) an Additional Limited Partner; (b) a Family Member, or a lending institution as the pledgee of a Pledge, who is the transferee in a Permitted Transfer; or (c) a Substituted Limited Partner succeeding to all or part of the Limited Partner Interest of (i) an Additional Limited Partner or (ii) a Family Member, or a lending institution who is the pledgee of a Pledge, who is the transferee in a Permitted Transfer.
Qualified REIT Subsidiary means any Subsidiary of the General Partner that is a qualified REIT subsidiary within the meaning of Section 856(i) of the Code.
Qualified Transferee means an Accredited Investor as such term is defined in Rule 501 promulgated under the Securities Act.
Redemption shall have the meaning set forth in Section 8.6.A.
Regulations means the Treasury Regulations promulgated under the Code, as such regulations may be amended from time to time (including corresponding provisions of succeeding regulations).
Regulatory Allocations shall have the meaning set forth in Section 6.3.
REIT means a real estate investment trust, as defined under Sections 856 through 860 of the Code.
REIT Requirements shall have the meaning set forth in Section 5.1.
REIT Share means a share of common stock, par value $0.001 per share, of the General Partner.
REIT Shares Amount means, as of any date, an aggregate number of REIT Shares equal to the number of Tendered Units, as adjusted (x) pursuant to Section 7.5 (in the event the General Partner acquires material assets, other than on behalf of the Partnership) and (y) for stock dividends and distributions, stock splits and subdivisions, reverse stock splits and combinations, distributions of rights, warrants or options, and distributions of evidences of indebtedness or assets relating to assets not received by the General Partner pursuant to a pro rata distribution by the Partnership.
Securities Act means the Securities Act of 1933, as amended, and the rules and regulations of the Securities and Exchange Commission promulgated thereunder and any successor statute thereto.
Special General Partner Interest means a Partnership Interest held by the Special General Partner. A Special General Partner Interest may be expressed as a number of OP Units, but only to the extent that the Special General Partner makes Capital Contributions to the Partnership.
Specified Redemption Date means the day of receipt by the General Partner of a Notice of Redemption.
Subsidiary means, with respect to any Person, any corporation, partnership, limited liability company, joint venture or other entity of which a majority of (i) the voting power of the voting equity securities or (ii) the outstanding equity interests is owned, directly or indirectly, by such Person.
Subsidiary Partnership means any partnership or limited liability company that is a Subsidiary of the Partnership.
Substituted Limited Partner means a Person who is admitted as a Limited Partner to the Partnership pursuant to Section 11.4.
Tax Items shall have the meaning set forth in Section 6.4.A.
Tenant means any tenant from which the General Partner derives rent either directly or indirectly through partnerships, including the Partnership, or Qualified REIT Subsidiaries.
Tendered Units shall have the meaning set forth in Section 8.6.A.
Tendering Partner shall have the meaning set forth in Section 8.6.A.
Weighted Average General Partner Net Current Investment means the annual average balance of the General Partner Net Current Investment computed on a daily basis.
ARTICLE 2
ORGANIZATIONAL MATTERS
Section 2.1 Organization.
The Partnership is a limited partnership formed pursuant to the provisions of the Act and upon the terms and conditions set forth in this Agreement. Except as expressly provided herein, the rights and obligations of the Partners and the administration and termination of the Partnership shall be governed by the Act. The Partnership Interest of each Partner shall be personal property for all purposes.
Section 2.2 Name.
The name of the Partnership is CPA:17 Limited Partnership. The Partnerships business may be conducted under any other name or names deemed advisable by the General Partner, including the name of the General Partner or any Affiliate thereof. The words Limited Partnership, L.P., Ltd. or similar words or letters shall be included in the Partnerships name where necessary for the purposes of complying with the laws of any jurisdiction that so requires. The General Partner in its sole and absolute discretion may change the name of the Partnership at any time and from time to time and shall notify the Limited Partners of such change in the next regular communication to the Limited Partners.
Section 2.3 Registered Office and Agent; Principal Office.
The name and address of the registered office and registered agent of the Partnership is Corporation Service Company, 2711 Centerville Road, Suite 400, Wilmington, DE 19808. The principal office of the Partnership is located at 50 Rockefeller Plaza, New York, New York 10020, or such other place as the General Partner may from time to time designate by notice to the other Partners. The Partnership may maintain offices at such other place or places within or outside the State of Delaware as the General Partner deems advisable.
Section 2.4 Power of Attorney.
A. Each Limited Partner and each Assignee constitutes and appoints the General Partner, any Liquidator, and authorized officers and attorneys-in-fact of each, and each of those acting singly, in each case with full power of substitution, as its true and lawful agent and attorney-in-fact, with full power and authority in its name, place and stead to:
(1) execute, swear to, acknowledge, deliver, file and record in the appropriate public offices (a) all certificates, documents and other instruments (including, without limitation, this Agreement and the Certificate and all amendments or restatements thereof) that the General Partner or the Liquidator deems appropriate or necessary to form, qualify or continue the existence or qualification of the Partnership as a limited partnership (or a partnership in which the Limited Partners have limited liability) in the State of Delaware and in all other jurisdictions in which the Partnership may conduct business or own property; (b) all instruments that the General Partner or any Liquidator deems appropriate or necessary to reflect any amendment, change, modification or restatement of this Agreement in accordance with its terms; (c) all conveyances and other instruments or documents that the General Partner or any Liquidator deems appropriate or necessary to reflect the dissolution and liquidation of the Partnership pursuant to the terms of this Agreement, including, without limitation, a certificate of cancellation; (d) all instruments relating to the admission, withdrawal, removal or substitution of any Partner pursuant to, or other events described in, Articles 11, 12 or 13 or the Capital Contribution of any Partner; and (e) all certificates, documents and other instruments relating to the determination of the rights, preferences and privileges of Partnership Interests; and
(2) execute, swear to, acknowledge and file all ballots, consents, approvals, waivers, certificates and other instruments appropriate or necessary, in the sole and absolute discretion of the General Partner or any Liquidator, to make, evidence, give, confirm or ratify any vote, consent, approval, agreement or other action which is made or given by the Partners hereunder or is consistent with the terms of this Agreement or appropriate or necessary, in the sole discretion of the General Partner or any Liquidator, to effectuate the terms or intent of this Agreement. Nothing contained herein shall be construed as authorizing the General Partner or any Liquidator to amend this Agreement except in accordance with Article 14 or as may be otherwise expressly provided for in this Agreement.
B. The foregoing power of attorney is hereby declared to be irrevocable and a power coupled with an interest, in recognition of the fact that each of the Partners will be relying upon the power of the General Partner and any Liquidator to act as contemplated by this Agreement in any filing or other action by it on behalf of the Partnership, and it shall survive and not be affected by the subsequent Incapacity of any Limited Partner or Assignee and the transfer of all or any portion of such Limited Partners or Assignees OP Units and shall extend to such Limited Partners or Assignees heirs, successors, assigns and personal representatives. Each such Limited Partner or Assignee hereby agrees to be bound by any representation made by the General Partner or any Liquidator, acting in good faith pursuant to such power of attorney; and each such Limited Partner or Assignee hereby waives any and all defenses which may be available to contest, negate or disaffirm the action of the General Partner or any Liquidator, taken in good faith under such power of attorney. Each Limited Partner or Assignee shall execute and deliver to the General Partner or any Liquidator, within 15 days after receipt of the General Partners or Liquidators request therefor, such further designation, powers of attorney and other instruments as the General Partner or the Liquidator, as the case may be, deems necessary to effectuate this Agreement and the purposes of the Partnership.
Section 2.5 Term.
The term of the Partnership commenced on the date of its formation and the Partnership shall have a perpetual existence unless it is dissolved pursuant to the provisions of Article 13 or as otherwise provided by law.
ARTICLE 3
PURPOSE
Section 3.1 Purpose and Business.
The purpose and nature of the business to be conducted by the Partnership is to (i) conduct any business that may be lawfully conducted by a limited partnership organized pursuant to the Act, (ii) enter into any partnership, joint venture or other similar arrangement to engage in any business described in the foregoing clause (i) or to own interests in any entity engaged, directly or indirectly, in any such business and (iii) do anything necessary or incidental to the foregoing, provided, however, that such business shall be limited to and conducted in such a manner as to permit the General Partner at all times to be classified as a REIT for federal income tax purposes, unless the General Partner ceases to qualify as a REIT for reasons other than the conduct of the business of the Partnership. In connection with the foregoing, and without limiting the General Partners right in its sole discretion to cease qualifying as a REIT, the Limited Partners acknowledge that the General Partners current status as a REIT inures to the benefit of all the Limited Partners and not solely the General Partner.
Section 3.2 Powers.
The Partnership is empowered to do any and all acts and things necessary, appropriate, proper, advisable, incidental to or convenient for the furtherance and accomplishment of the purposes and business described herein and for the protection and benefit of the Partnership, including, without limitation, full power and authority, directly or through its ownership interest in other entities, to enter into, perform and carry out contracts of any kind, borrow money and issue evidences of indebtedness, whether or not secured by mortgage, deed of trust, pledge or other lien, grant guarantees and/or indemnities, acquire, own, manage, improve and develop real property, and lease, sell, transfer and dispose of real property; provided, however, notwithstanding anything to the contrary in this Agreement, the Partnership shall not take, or refrain from taking, any action which, in the judgment of the General Partner, in its sole and absolute discretion, (i) could adversely affect the ability of the General Partner to continue to qualify as a REIT, (ii) absent the consent of the General Partner, which may be given or withheld in its sole and absolute discretion, could subject the General Partner to any taxes under Section 857 or Section 4981 of the Code, or (iii) could violate any law or regulation of any governmental body or agency having jurisdiction over the General Partner or its securities, unless any such action (or inaction) under the foregoing clauses (i), (ii) or (iii) shall have been specifically consented to by the General Partner in writing.
Section 3.3 Partnership only for Purposes Specified.
The Partnership shall be a partnership only for the purposes specified in Section 3.1, and this Agreement shall not be deemed to create a partnership among the Partners with respect to any activities whatsoever other than the activities within the purposes of the Partnership as specified in Section 3.1. Except as otherwise provided in this Agreement, no Partner shall have any authority to act for, bind, commit or assume any obligation or responsibility on behalf of the Partnership, its properties or any other Partner. No Partner, in its capacity as a Partner under this Agreement, shall be responsible or liable for any indebtedness or obligation of another Partner, nor shall the Partnership be responsible or liable for
any indebtedness or obligation of any Partner, incurred either before or after the execution and delivery of this Agreement by such Partner, except as to those responsibilities, liabilities, indebtedness or obligations incurred pursuant to and as limited by the terms of this Agreement and the Act.
Section 3.4 Representations and Warranties by the Parties.
A. Each Partner that is an individual represents and warrants to each other Partner that (i) such Partner has the legal capacity to enter into this Agreement and perform such Partners obligations hereunder, (ii) the consummation of the transactions contemplated by this Agreement to be performed by such Partner will not result in a breach or violation of, or a default under, any agreement by which such Partner or any of such Partners property is or are bound, or any statute, regulation, order or other law to which such Partner is subject, (iii) such Partner is a United States person within the meaning of Section 7701(a)(30) of the Code, and (iv) this Agreement is binding upon, and enforceable against, such Partner in accordance with its terms.
B. Each Partner that is not an individual represents and warrants to each other Partner that (i) its execution and delivery of this Agreement and all transactions contemplated by this Agreement to be performed by it have been duly authorized by all necessary action, including without limitation, that of its general partner(s), committee(s), trustee(s), beneficiaries, directors and/or stockholder(s), as the case may be, as required, (ii) the consummation of such transactions shall not result in a breach or violation of, or a default under, its certificate of limited partnership, partnership agreement, trust agreement, limited liability company operating agreement, charter or bylaws, as the case may be, any agreement by which such Partner or any of such Partners properties or any of its partners, beneficiaries, trustees or stockholders, as the case may be, is or are bound, or any statute, regulation, order or other law to which such Partner or any of such Partners properties or any of its partners, trustees, beneficiaries or stockholders, as the case may be, is or are subject, (iii) such Partner is a United States person within the meaning of Section 7701(a)(30) of the Code and (iv) this Agreement is binding upon, and enforceable against, such Partner in accordance with its terms.
C. Each Partner represents, warrants, and agrees that it has acquired and continues to hold its interest in the Partnership for its own account for investment only and not for the purpose of, or with a view toward, the resale or distribution of all or any part thereof, nor with a view toward selling or otherwise distributing such interest or any part thereof at any particular time or under any predetermined circumstances. Each Partner further represents and warrants that it is a sophisticated investor, able and accustomed to handling sophisticated financial matters for itself, particularly real estate investments, and that it has a sufficiently high net worth that it does not anticipate a need for the funds it has invested in the Partnership in what it understands to be a highly speculative and illiquid investment. Each Partner represents, warrants and agrees that such Partner is an accredited investor (as such term is defined in Rule 501(a) of Regulation D under the Securities Act).
D. Each Partner acknowledges that (i) the OP Units (and any REIT Shares that might be exchanged therefor) have not been registered under the Securities Act and may not be transferred unless they are subsequently registered under the Securities Act or an exemption from such registration is available (it being understood that the Partnership has no intention of so registering the OP Units), (ii) a restrictive legend in the form set forth in Exhibit D shall be placed on the certificates representing the OP Units, and (iii) a notation shall be made in the appropriate records of the Partnership indicating that the OP Units are subject to restrictions on transfer.
E. Each Limited Partner further represents, warrants, covenants and agrees as follows:
(1) Except as provided in Exhibit E, at any time such Partner actually or Constructively Owns a 25% or greater capital interest or profits interest in the Partnership, it does not and will not, without the prior written consent of the General Partner, actually own or Constructively Own (a) with respect to any Tenant that is a corporation, any stock of such Tenant, and (b) with respect to any Tenant that is not a corporation, any interests in either the assets or net profits of such Tenant.
(2) Except as provided in Exhibit F, at any time such Partner actually or Constructively Owns a 25% or greater capital interest or profits interest in the Partnership, it does not, and agrees that it will not without the prior written consent of the General Partner, actually own or Constructively Own, any stock in the General Partner, other than any REIT Shares or other shares of capital stock of the General Partner such Partner may acquire as a result of an exchange of Tendered Units pursuant to Section 8.6, subject to the ownership limitations set forth in the General Partners Charter.
(3) Upon request of the General Partner, it will disclose to the General Partner the amount of REIT Shares or other shares of capital stock of the General Partner that it actually owns or Constructively Owns.
(4) It understands that if, for any reason, (a) the representations, warranties or agreements set forth in E(1) or (2) above are violated, or (b) the Partnerships actual or Constructive Ownership of REIT Shares or other shares of capital stock of the General Partner violates the limitations set forth in the Charter, then (x) some or all of the Redemption rights of the Partners may become non-exercisable, and (y) some or all of the REIT Shares owned by the Partners may be automatically transferred to a trust for the benefit of a charitable beneficiary, as provided in the Charter.
(5) Without the consent of the General Partner, which may be given or withheld in its sole discretion, no Partner shall take any action that would cause the Partnership at any time to have more than 100 partners (including as partners those persons indirectly owning an interest in the Partnership through a partnership, limited liability company, S corporation or grantor trust (such entity, a flow through entity), but only if substantially all of the value of such persons interest in the flow through entity is attributable to the flow through entitys interest (direct or indirect) in the Partnership).
F. The representations and warranties contained in Sections 3.4 shall survive the execution and delivery of this Agreement by each Partner and the dissolution and winding-up of the Partnership.
G. Each Partner hereby acknowledges that no representations as to potential profit, cash flows, funds from operations or yield, if any, in respect of the Partnership or the General Partner have been made by any Partner or any employee or representative or Affiliate of any Partner, and that projections and any other information, including, without limitation, financial and descriptive information and documentation, which may have been in any manner submitted to such Partner shall not constitute any representation or warranty of any kind or nature, express or implied.
Section 3.5 Certain ERISA Matters.
Each Partner acknowledges that the Partnership is intended to qualify as a real estate operating company (as such term is defined in the Plan Asset Regulation). The General Partner may structure
investments in, relationships with and conduct with respect to Investments and any other assets of the Partnership so that the Partnership will be a real estate operating company (as such term is defined in the Plan Asset Regulation).
ARTICLE 4
CAPITAL CONTRIBUTIONS
Section 4.1 Capital Contributions of the Partners.
At the time of their respective execution of this Agreement, the Partners shall make or shall have made Capital Contributions as set forth in Exhibit A to this Agreement. The Partners shall own OP Units of the class or series and in the amounts set forth in Exhibit A and shall have a Percentage Interest in the Partnership as set forth in Exhibit A, which Percentage Interest shall be adjusted in Exhibit A from time to time by the General Partner to the extent necessary to reflect accurately exchanges, redemptions, Capital Contributions, the issuance of additional OP Units or similar events having an effect on a Partners Percentage Interest. Except as required by law, as otherwise provided in Sections 4.3, 4.4 and 10.5, or as otherwise agreed to by a Partner and the Partnership, no Partner shall be required or permitted to make any additional Capital Contributions or loans to the Partnership.
Section 4.2 Loans by Third Parties.
Subject to Section 4.3, the Partnership may incur Debt, or enter into other similar credit, guarantee, financing or refinancing arrangements for any purpose (including, without limitation, in connection with any further acquisition of Investments) with any Person that is not the General Partner upon such terms as the General Partner determines appropriate; provided that, the Partnership shall not incur any Debt that is recourse to the General Partner, except to the extent otherwise agreed to by the General Partner in its sole discretion.
Section 4.3 Additional Funding and Capital Contributions.
A. General. The General Partner may, at any time and from time to time determine that the Partnership requires additional funds (Additional Funds) for the acquisition of additional Investments or for such other Partnership purposes as the General Partner may determine. Additional Funds may be raised by the Partnership, at the election of the General Partner, in any manner provided in, and in accordance with, the terms of this Section 4.3. No Person shall have any preemptive, preferential or similar right or rights to subscribe for or acquire any Partnership Interest, except as set forth in this Section 4.3.
B. Issuance of Additional Partnership Interests. The General Partner, in its sole and absolute discretion, may raise all or any portion of the Additional Funds by accepting additional Capital Contributions of cash. The General Partner may also accept additional Capital Contributions of real property or any other non-cash assets. In connection with any such additional Capital Contributions (of cash or property), the General Partner is hereby authorized to cause the Partnership from time to time to issue to Partners (including the General Partner) or other Persons (including, without limitation, in connection with the contribution of property to the Partnership) additional OP Units or other Partnership Interests in one or more classes, or one or more series of any of such classes, with such designations, preferences and relative, participating, optional or other special rights, powers, and duties, including rights, powers, and duties senior to then existing Limited Partner Interests, all as shall be determined by the General Partner in its sole and absolute discretion subject to Delaware law, and as set forth by amendment to this Agreement, including without limitation, (i) the allocations of items of Partnership income, gain, loss, deduction, and credit to such class or series of Partnership Interests; (ii) the right of
each such class or series of Partnership Interests to share in Partnership distributions; (iii) the rights of each such class or series of Partnership Interests upon dissolution and liquidation of the Partnership; and (iv) the right to vote, including, without limitation, the Limited Partner approval rights set forth in Section 11.2.A; provided, that no such additional OP Units or other Partnership Interests shall be issued to the General Partner unless either (a)(1) the additional Partnership Interests are issued in connection with the grant, award, or issuance of shares of the General Partner pursuant to Section 4.3.C below, which shares have designations, preferences, and other rights (except voting rights) such that the economic interests attributable to such shares are substantially similar to the designations, preferences and other rights of the additional Partnership Interests issued to the General Partner in accordance with this Section 4.3.B, and (2) the General Partner shall make a Capital Contribution to the Partnership in an amount equal to the net proceeds raised in connection with such issuance, or (b) the additional Partnership Interests are issued to all Partners holding Partnership Interests in the same class in proportion to their respective Percentage Interests in such class. The General Partners determination that consideration is adequate shall be conclusive insofar as the adequacy of consideration relates to whether the Partnership Interests are validly issued and paid. In the event that the Partnership issues additional Partnership Interests pursuant to this Section 4.3.B, the General Partner shall make such revisions to this Agreement (including but not limited to the revisions described in Section 5.4 and Section 8.6) as it determines are necessary to reflect the issuance of such additional Partnership Interests. Without limiting the foregoing, the General Partner is expressly authorized to cause the Partnership to issue OP Units for less than fair market value, so long as the General Partner concludes in good faith that such issuance of Partnership Interests is in the best interests of the Partnership.
C. Issuance of REIT Shares or Other Securities by the General Partner. The General Partner shall not issue any additional REIT Shares, other shares of capital stock of the General Partner or New Securities (other than REIT Shares issued pursuant to Section 8.6 or such shares, stock or securities pursuant to a dividend or distribution (including any stock split) to all of its stockholders or all of its stockholders who hold a particular class of stock of the General Partner) unless (i) the General Partner shall cause the Partnership to issue to the General Partner, Partnership Interests or rights, options, warrants or convertible or exchangeable securities of the Partnership having designations, preferences and other rights, all such that the economic interests thereof are substantially similar to those of the REIT Shares, other shares of capital stock of the General Partner or New Securities issued by the General Partner and (ii) the General Partner shall make a Capital Contribution of the net proceeds from the issuance of such additional REIT Shares, other shares of capital stock or New Securities, as the case may be, and from the exercise of the rights contained in such additional New Securities, as the case may be. Without limiting the foregoing, the General Partner is expressly authorized to issue REIT Shares, other shares of capital stock of the General Partner or New Securities for no tangible value or for less than fair market value, and the General Partner is expressly authorized to cause the Partnership to issue to the General Partner corresponding Partnership Interests, so long as (x) the General Partner concludes in good faith that such issuance of Partnership Interests is in the interests of the Partnership; and (y) the General Partner contributes all proceeds, if any, from such issuance and exercise to the Partnership. In connection with the General Partners initial offering of REIT Shares, any other issuance of REIT Shares, other capital stock of the General Partner or New Securities, the General Partner shall contribute to the Partnership, any net proceeds raised in connection with such issuance; provided, that the General Partner may use a portion of the net proceeds from any offering to acquire OP Units or other assets (provided such other assets are contributed to the Partnership pursuant to the terms of this Agreement; and provided further that if the net proceeds actually received by the General Partner are less than the gross proceeds of such issuance as a result of any underwriters discount or other expenses paid or incurred in connection with such issuance then, except to the extent such net proceeds are used to acquire OP Units, the General Partner shall be deemed to have made a Capital Contribution to the Partnership in the amount equal to the sum of the net proceeds of such issuance plus the amount of such underwriters discount and other
expenses paid by the General Partner (which discount and expense shall be treated as an expense for the benefit of the Partnership for purposes of Section 7.4)).
D. Percentage Interest Adjustments in the Case of Capital Contributions for OP Units. Upon the acceptance of additional Capital Contributions in exchange for OP Units, the Percentage Interest in such OP Units shall be equal to a fraction, the numerator of which is equal to the amount of cash and the Agreed Value of the Property contributed as of the time such additional Capital Contributions are made (an Adjustment Date) and the denominator of which is equal to the sum of (i) the Deemed Value of the Partnership Interests of such class or series (computed as of the Business Day immediately preceding the Adjustment Date) and (ii) the aggregate Agreed Value of additional Capital Contributions contributed by all Partners and/or third parties to the Partnership on such Adjustment Date in such class or series of Partnership Interests. The Percentage Interest of each other Partner holding Partnership Interests of such class or series not making a full pro rata Capital Contribution shall be adjusted to equal a fraction, the numerator of which is equal to the sum of (i) the Deemed Partnership Interest Value of such Limited Partner in respect of such class or series (computed as of the Business Day immediately preceding the Adjustment Date) and (ii) the Agreed Value of additional Capital Contributions, if any, made by such Partner to the Partnership in such class or series of Partnership Interests as of such Adjustment Date, and the denominator of which is equal to the sum of (i) the Deemed Value of the Partnership Interests of such class or series (computed as of the Business Day immediately preceding the Adjustment Date), plus (ii) the aggregate Agreed Value of additional Capital Contributions contributed by all Partners and/or third parties to the Partnership on such Adjustment Date in such class or series. Provided, however, solely for purposes of calculating a Partners Percentage Interest pursuant to this Section 4.3.D, (i) in the case of cash Capital Contributions by the General Partner funded by an offering of REIT Shares or other shares of capital stock of the General Partner and (ii) in the case of the contribution of properties by the General Partner which were acquired by the General Partner in exchange for REIT Shares or other shares of capital stock of the General Partner immediately prior to such contribution, the General Partner shall be issued a number of OP Units equal and corresponding to the number of such shares issued by the General Partner in exchange for such cash or Investments, the OP Units held by the other Partners shall not be adjusted, and the Partners Percentage Interests shall be adjusted accordingly. The General Partner shall promptly give each Partner written notice of its Percentage Interest, as adjusted.
E. Reinvestment of Special General Partner Distributions. The Special General Partner, in its sole and absolute discretion, may elect, on an annual basis, to reinvest all, or any portion, of the distributions of Available Cash and Capital Proceeds it receives under Section 5.1 in the Partnership in exchange for the issuance of OP Units. If the Special General Partner elects to reinvest any portion of Available Cash and Capital Proceeds distributed to the Special General Partner under this Agreement, the Special General Partner shall be treated no differently than any Limited Partner making a Capital Contribution to the Partnership under Section 4.3.
Section 4.4 Other Contribution Provisions.
With the consent of the General Partner, in its sole discretion, one or more Limited Partners may enter into agreements with the Partnership, in the form of a guarantee or contribution agreement, which have the effect of providing a guarantee of certain obligations of the Partnership.
Section 4.5 No Preemptive Rights.
Except to the extent expressly granted by the Partnership pursuant to another agreement, no Person shall have any preemptive, preferential or other similar right with respect to (i) providing funds to the Partnership or (ii) issuance or sale of any OP Units or other Partnership Interests.
Section 4.6 No Interest; No Return.
No Partner shall be entitled to interest on its Capital Contribution or on such Partners Capital Account. Except as provided herein or by law, no Partner shall have any right to demand or receive the return of its Capital Contribution from the Partnership.
Section 4.7 Profits Interest of Special General Partner.
To the extent that the Special General Partner receives a Partnership Interest with a disproportionate interest in Partnership Net Income or Net Loss, such Partnership Interest shall be treated as a profits interest received for services rendered, or to be rendered, within the meaning of IRS Rev. Proc. 93-27, 1993-2 C.B. 343.
ARTICLE 5
DISTRIBUTIONS
Section 5.1 Requirement and Characterization of Distributions.
The General Partner shall cause the Partnership to distribute at least quarterly all, or such portion as the General Partner may in its discretion determine, Available Cash and Capital Proceeds generated by the Partnership to the Partners who are Partners on the applicable Partnership Record Date with respect to such distribution, in the following order and priority; provided, however, that the Partnership, acting as agent for the General Partner, shall transfer any amounts relating to the Partnerships investment in a closed-ended, real estate, investment fund, named M DUE (the Italian Fund Investment) to the General Partner in accordance with Section 5.1.A.(1) promptly following receipt thereof:
A. Available Cash.
(1) First, ninety (90%) of all amounts received by the Partnership from the Italian Fund Investment shall be transferred to the General Partner promptly after the Partnership receives such amounts;
(2) Second, Available Cash from Long-Term Net Leased Properties shall be distributed ten percent (10%) to the Special General Partner, and ninety percent (90%) to the Partners in proportion to their respective Percentage Interests; provided, however, that distributions to the General Partner shall be reduced by all amounts previously received by the Partnership on behalf of the General Partner and transferred to the General Partner during the applicable quarter pursuant to Section 5.1.A.(1), as such amounts do not constitute Available Cash or Capital Proceeds;
(3) Third, Available Cash from Real Estate Related Loans shall be distributed one hundred percent (100%) to the Special General Partner in an amount equal to the lesser of (i) ten percent (10%) of Available Cash from Real Estate Related Loans, or (ii) twenty percent (20%) of Available Cash from Real Estate Related Loans in excess of five percent (5%) of Available Cash from Real Estate Related Loans; and any remaining Available Cash from Real Estate Related Loans shall be distributed to the Partners in proportion to their respective Percentage Interests;
(4) Fourth, Available Cash from Real Estate Securities shall be distributed one hundred percent (100%) to the Partners in proportion to their respective Percentage Interests; and
(5) Fifth, Available Residual Cash shall be distributed ten percent (10%) to the Special General Partner, and ninety percent (90%) to the Partners in proportion to their respective Percentage Interests.
B. Distribution of Capital Proceeds. Subject to Section 5.1C, and Section 13.2, distributions of Capital Proceeds shall be made as follows:
(1) First, Capital Proceeds shall be distributed one hundred percent (100%) to the General Partner until the General Partner has received distributions under this Section 5.1.B(1) equal to the General Partner Unpaid Priority Return;
(2) Second, Capital Proceeds shall be distributed one hundred percent (100%) to the General Partner until the General Partner Net Current Investment has been reduced to zero; and
(3) Third, any remaining Capital Proceeds shall be distributed fifteen percent (15%) to the Special General Partner and eighty-five percent (85%) to the Partners in proportion to their respective Percentage Interests.
Notwithstanding any other provision of this Article 5 to the contrary, the General Partner shall take such reasonable efforts, as determined by it in its sole and absolute discretion and consistent with its qualification as a REIT, to cause the Partnership to distribute sufficient amounts to enable the General Partner, for so long as the General Partner has determined to qualify as a REIT, to pay stockholder dividends that will (a) satisfy the requirements for qualifying as a REIT under the Code and Regulations (REIT Requirements), and (b) except to the extent otherwise determined by the General Partner, avoid the imposition of any federal income or excise tax liability on the General Partner.
C. Distribution of Capital Proceeds Change of Control Event. As soon as possible following the occurrence of a Change of Control Event, the General Partner, or its successor in interest, shall cause the Partnership, or its successor in interest, to make a special distribution of Capital Proceeds to the Special General Partner in an amount equal to the Capital Proceeds distributable solely to the Special General Partner under Section 5.1.B if the Partnership sold all of its assets for their fair value (less the amount of all indebtedness secured by such assets and less any fees payable to the Advisor under the Advisory Agreement) immediately prior to the Change of Control Event and distributed the net proceeds from such sale to the Partners pursuant to Section 5.1.B. The fair value of any Property shall be its value as determined by an Appraisal. To avoid duplicating distributions made to the Special General Partner, the General Partner shall take into account distributions made to the Special General Partner pursuant to this Section 5.1C pursuant to this Section 5.1.C in determining the appropriate amount of any subsequent distributions of Capital Proceeds to the Special General Partner under Section 5.1.B(3).
Section 5.2 Distributions in Kind.
Except as expressly provided herein, no right is given to any Partner to demand and receive property other than cash. The General Partner may determine, in its sole and absolute discretion, to make a distribution in-kind to the Partners of Partnership assets, and such assets shall be distributed in such a fashion as to ensure that the fair market value is distributed and allocated in accordance with Articles 5, 6 and 10.
Section 5.3 Distributions upon Liquidation.
Notwithstanding Section 5.1, proceeds from a Liquidating Event shall be distributed to the Partners in accordance with Section 13.2.
Section 5.4 Distributions to Reflect Issuance of Additional Partnership Interests.
In the event that the Partnership issues additional Partnership Interests to the General Partner, the Special General Partner, or any Additional Limited Partner pursuant to Section 4.3.B, 4.3.C, or 4.3E, the General Partner shall make such revisions to this Article 5 as it determines are necessary to reflect the issuance of such additional Partnership Interests. In the absence of any agreement to the contrary, an Additional Limited Partner shall be entitled to the distributions set forth in Section 5.1 (without regard to this Section 5.4) with respect to the period during which the closing of its contribution to the Partnership occurs, multiplied by a fraction the numerator of which is the number of days from and after the date of such closing through the end of the applicable period, and the denominator of which is the total number of days in such period.
Section 5.5 Distribution Limitation.
Notwithstanding any other provision in this Article 5, the General Partner shall have the power, in its reasonable discretion, to adjust the distributions to the Special General Partner to the extent necessary to avoid violations of the 2%/25% Guidelines as described in the Advisory Agreement.
ARTICLE 6
ALLOCATIONS
Section 6.1 Timing and Amount of Allocations of Net Income and Net Loss.
Net Income and Net Loss of the Partnership shall be determined and allocated with respect to each Partnership Year of the Partnership as of the end of each such year. Subject to the other provisions of this Article 6, an allocation to a Partner of a share of Net Income or Net Loss shall be treated as an allocation of the same share of each item of income, gain, loss or deduction that is taken into account in computing Net Income or Net Loss.
Section 6.2 General Allocations.
A. Allocation of Net Income and Net Loss Other Than From a Capital Transaction.
(1) Net Income other than from a Capital Transaction. Except as otherwise provided in Section 6.3, Net Income other than from a Capital Transaction for any Partnership Year shall be allocated to the Partners in the following manner and order of priority:
(a) First, Net Income from the Italian Fund Investment shall be allocated ten percent (10%) to the Special General Partner, and ninety percent (90%) to the Partners in proportion to their respective Percentage Interests;
(b) Second, Net Income from Long-Term Net Leased Properties shall be allocated ten percent (10%) to the Special General Partner, and ninety percent (90%) to the Partners in proportion to their respective Percentage Interests;
(c) Third, Net Income from Real Estate Related Loans shall be allocated one hundred percent (100%) to the Special General Partner in an amount equal to the lesser of (i) ten percent (10%) of Net Income from Real Estate Related Loans, or (ii) twenty percent (20%) of Net Income from Real Estate Related Loans in excess of five percent (5%) of Net Income from Real Estate Related Loans; and any remaining Net Income from Real Estate Related Loans shall be allocated to the Partners in proportion to their respective Percentage Interests;
(d) Fourth, Net Income from Real Estate Securities shall be allocated one hundred percent (100%) to the Partners in proportion to their respective Percentage Interests; and
(e) Fifth, Net Residual Income shall be allocated ten percent (10%) to the Special General Partner, and ninety percent (90%) to the Partners in proportion to their respective Percentage Interests.
(2) Net Loss other than from a Capital Transaction. Except as otherwise provided in Section 6.3, Net Loss other than from a Capital Transaction for any Partnership Year shall be allocated to the Partners in the following manner and order of priority:
(a) First, to the Partners, in proportion to their relative allocations of Net Income other than from a Capital Transaction pursuant to Section 6.2.A(1) until the aggregate allocations of Net Loss other than from a Capital Transaction pursuant to this Section 6.2.A(2) for all Partnership Years equal the aggregate allocations of Net Income other than from a Capital Transaction pursuant to Section 6.2.A(1) for all prior Partnership Years;
(b) Second, to the Partners in proportion to their respective Adjusted Capital Account Balances until the Adjusted Capital Account Balance of each such Partner is zero; and
(c) Third, to each of the Partners in proportion to their respective Percentage Interests.
B. Allocation of Net Income and Net Loss From a Capital Transaction
(1) Net Income from a Capital Transaction. Except as otherwise provided in Section 6.3, Net Income from a Capital Transaction for any Partnership Year shall be allocated to the Partners in the following manner and order of priority:
(a) First, to the Partners, in proportion to their relative allocations of Net Loss from a Capital Transaction pursuant to Section 6.2.B(2)(b) and (c) until the aggregate allocations of Net Income from a Capital Transaction pursuant to this Section 6.2.B(1)(a) for all Partnership Years equal the aggregate allocations of Net Loss from a Capital Transaction pursuant to Section 6.2.B(2)(b) and (c) for all prior Partnership Years;
(b) Second, after taking into account Section 6.2.B(1)(a), one hundred percent (100%) to those Partners with negative balances in their Capital Accounts in excess of their shares of Partnership Minimum Gain and Partner Minimum Gain attributable to Partner Nonrecourse Debt, in proportion to such excess negative balances, until no Partner has a negative balance in its Capital Account in excess of its share of Partnership Minimum Gain and Partner Minimum Gain attributable to Partner Nonrecourse Debt;
(c) Third, one hundred percent (100%) to the General Partner until the Adjusted Capital Account Balance of the General Partner equals the sum of the General Partner Net Current Investment and the General Partner Unpaid Priority Return; and
(d) Fourth, fifteen percent (15%) to the Special General Partner, and eighty-five percent (85%) to the Partners in proportion to their respective Percentage Interests.
(2) Net Loss from a Capital Transaction. Except as otherwise provided in Section 6.3, Net Loss from a Capital Transaction for any Partnership Year shall be allocated to the Partners in the following manner and order of priority:
(a) First, to the Partners, in proportion to their relative allocations of Net Income from a Capital Transaction pursuant to Section 6.2.B(1)(d) until the aggregate allocations of Net Loss from a Capital Transaction pursuant to this Section 6.2.B(2)(a) for all Partnership Years equal the aggregate allocations of Net Income from a Capital Transaction pursuant to Section 6.2.B(1)(d) for all prior Partnership Years;
(b) Second, to the Partners in proportion to their respective Adjusted Capital Account Balances until the Adjusted Capital Account Balance of each such Partner is zero; and
(c) Third, to the Partners in proportion to their respective Percentage Interests.
C. Allocations to Reflect Issuance of Additional Partnership Interests. In the event that the Partnership issues additional Partnership Interests to the General Partner, the Special General Partner, a Limited Partner or any Additional Limited Partner pursuant to Section 4.3, the General Partner shall make such revisions to this Section 6.2 as it determines are necessary to reflect the terms of the issuance of such additional Partnership Interests, including making preferential allocations to certain classes of Partnership Interests, in accordance with any method selected by the General Partner.
D. Allocations Related to a Change of Control Event. If a Change of Control Event occurs, the Partnership shall allocate Net Income from a Capital Transaction first to the Special General Partner in an amount equal to the Net Income from a Capital Transaction allocable to the Special General Partner under Section 6.2B(1) if the Partnership sold all of its assets on the date of the Change of Control Event for their fair value (less the amount of all indebtedness secured by such assets and less any fees payable to the Advisor under the Advisory Agreement) immediately prior to the Change of Control Event and allocated the gain from such sale to the Partners pursuant to Section 6.2.B(1). To avoid duplicating allocations to the Special General Partner, the General Partner shall take into account allocations made to the Special General Partner pursuant to this Section 6.2.D in determining the appropriate amount of any subsequent allocations of Net Income from a Capital Transaction to the Special General Partner under Section 6.2.B(1).
Section 6.3 Regulatory Allocations.
Notwithstanding the foregoing provisions of this Article 6:
(i) Minimum Gain Chargeback. Except as otherwise provided in Regulations Section 1.704-2(f), notwithstanding the provisions of Section 6.2, or any other provision of this Article 6, if there is a net decrease in Partnership Minimum Gain during any Partnership Year, each Partner shall be specially allocated items of Partnership income and gain for such year (and, if necessary, subsequent years) in an amount equal to such Partners share of the net decrease in Partnership Minimum Gain, as determined under Regulations Section 1.704-2(g). Allocations pursuant to the previous sentence shall be made in proportion to the respective amounts required to be allocated to each Partner pursuant thereto. The items to be allocated shall be determined in accordance with Regulations Sections 1.704-2(f)(6) and 1.704-2(j)(2). This Section 6.3(i) is intended to qualify as a minimum gain chargeback within the meaning of Regulation Section 1.704-2(f) which shall be controlling in the event of a conflict between such Regulation and this Section 6.3(i).
(ii) Partner Minimum Gain Chargeback. Except as otherwise provided in Regulations Section 1.704-2(i)(4), and notwithstanding the provisions of Section 6.2, or any other provision of this Article 6 (except Section 6.3(i)), if there is a net decrease in Partner Minimum Gain attributable to a Partner Nonrecourse Debt during any Partnership Year, each Partner who has a share of the Partner Minimum Gain attributable to such Partner Nonrecourse Debt, determined in accordance with Regulations Section 1.704-2(i)(5), shall be specially allocated items of Partnership income and gain for such year (and, if necessary, subsequent years) in an amount equal to such Partners share of the net decrease in Partner Minimum Gain attributable to such Partner Nonrecourse Debt, determined in accordance with Regulations Section 1.704-2(i)(4). Allocations pursuant to the previous sentence shall be made in proportion to the respective amounts required to be allocated to each Partner pursuant thereto. The items to be so allocated shall be determined in accordance with Regulations Sections 1.704-2(i)(4) and 1.704-2(j)(2). This Section 6.3(ii) is intended to qualify as a chargeback of partner nonrecourse debt minimum gain within the meaning of Regulation Section 1.704-2(i) which shall be controlling in the event of a conflict between such Regulation and this Section 6.3(ii).
(iii) Nonrecourse Deductions and Partner Nonrecourse Deductions. Any Nonrecourse Deductions for any Partnership Year shall be specially allocated to the Partners in accordance with their respective Percentage Interests. Any Partner Nonrecourse Deductions for any Partnership Year shall be specially allocated to the Partner(s) who bears the economic risk of loss with respect to the Partner Nonrecourse Debt to which such Partner Nonrecourse Deductions are attributable, in accordance with Regulations Sections 1.704-2(b)(4) and 1.704-2(i).
(iv) Qualified Income Offset. If any Partner unexpectedly receives an adjustment, allocation or distribution described in Regulations Section 1.704-1(b)(2)(ii)(d)(4), (5) or (6), items of Partnership income and gain shall be allocated, in accordance with Regulations Section 1.704-1(b)(2)(ii)(d), to the Partner in an amount and manner sufficient to eliminate, to the extent required by such Regulations, the Adjusted Capital Account Deficit of the Partner as quickly as possible provided that an allocation pursuant to this Section 6.3(iv) shall be made if and only to the extent that such Partner would have an Adjusted Capital Account Deficit after all other allocations provided in this Article 6 have been tentatively made as if this Section 6.3(iv) were not in this Agreement. It is intended that this Section 6.3(iv) qualify and be construed as a qualified income offset within the meaning of Regulations 1.704-1(b)(2)(ii)(d), which shall be controlling in the event of a conflict between such Regulations and this Section 6.3(iv).
(v) Gross Income Allocation. In the event any Partner has a deficit Capital Account at the end of any Partnership Year which is in excess of the sum of (1) the amount (if any) such Partner is obligated to restore to the Partnership, and (2) the amount such Partner is deemed to be obligated to restore pursuant to Regulations Section 1.704-1(b)(2)(ii)(c) or the penultimate sentences of Regulations Sections 1.704-2(g)(1) and 1.704-2(i)(5), each such Partner shall be specially allocated items of Partnership income and gain in the amount of such excess as quickly as possible, provided, that an allocation pursuant to this Section 6.3(v) shall be made if and only to the extent that such Partner would have a deficit Capital Account in excess of such sum after all other allocations provided in this Article 6 have been tentatively made as if this Section 6.3(v) and Section 6.3(iv) were not in this Agreement.
(vi) Limitation on Allocation of Net Loss. To the extent any allocation of Net Loss would cause or increase an Adjusted Capital Account Deficit as to any Partner, such allocation of Net Loss shall be reallocated among the other Partners in accordance with their respective Percentage Interests, subject to the limitations of this Section 6.3(vi).
(vii) Section 754 Adjustment. To the extent an adjustment to the adjusted tax basis of any Partnership asset pursuant to Code Section 734(b) or Code Section 743(b) is required, pursuant to
Regulations Section 1.704-1(b)(2)(iv)(m)(2) or Regulations Section 1.704-1(b)(2)(iv)(m)(4), to be taken into account in determining Capital Accounts as the result of a distribution to a Partner in complete liquidation of his interest in the Partnership, the amount of such adjustment to the Capital Accounts shall be treated as an item of gain (if the adjustment increases the basis of the asset) or loss (if the adjustment decreases such basis) and such gain or loss shall be specially allocated to the Partners in accordance with their interests in the Partnership in the event that Regulations Section 1.704-1(b)(2)(iv)(m)(2) applies, or to the Partners to whom such distribution was made in the event that Regulations Section 1.704-1(b)(2)(iv)(m)(4) applies.
(viii) Curative Allocation. The allocations set forth in Sections 6.3(i),(ii),(iii),(iv),(v),(vi), and (vii)(the Regulatory Allocations) are intended to comply with certain regulatory requirements, including the requirements of Regulations Sections 1.704-1(b) and 1.704-2. Notwithstanding the provisions of Sections 6.1 and 6.2, the Regulatory Allocations shall be taken into account in allocating other items of income, gain, loss and deduction among the Partners so that, to the extent possible, the net amount of such allocations of other items and the Regulatory Allocations to each Partner shall be equal to the net amount that would have been allocated to each such Partner if the Regulatory Allocations had not occurred. For purposes of determining a Partners proportional share of the excess nonrecourse liabilities of the Partnership within the meaning of Regulations Section 1.752-3(a)(3), each Partners interest in Partnership profits shall be such Partners Percentage Interest.
Section 6.4 Tax Allocations.
A. In General. Except as otherwise provided in this Section 6.4, for income tax purposes each item of income, gain, loss and deduction (collectively, Tax Items) shall be allocated among the Partners in the same manner as its correlative item of book income, gain, loss or deduction is allocated pursuant to Sections 6.2 and 6.3.
B. Allocations Respecting Section 704(c) Revaluations. Notwithstanding Section 6.4.A, Tax Items with respect to Partnership property that is contributed to the Partnership by a Partner with a Gross Asset Value that differs from its adjusted tax basis in the hands of the Contributing Partner immediately preceding the date of contribution shall be allocated among the Partners for income tax purposes pursuant to Regulations promulgated under Section 704(c) of the Code, so as to take into account the variation between book Capital Accounts and tax capital accounts. The Partnership shall account for such variation under the traditional method under Regulations Section 1.704-3(b) with respect to Partnership property that is contributed to the Partnership in connection with the General Partners initial offering. With respect to other properties contributed to the Partnership, the Partnership shall account for such variation under any reasonable method consistent with Section 704(c) of the Code and the applicable regulations as chosen by the General Partner. In the event the Gross Asset Value of any Partnership asset is adjusted pursuant to subparagraph (b) of the definition of Gross Asset Value (provided in Article 1), subsequent allocations of Tax Items with respect to such asset shall take account of the variation, if any, between the adjusted basis of such asset and its Gross Asset Value in the same manner as under Section 704(c) of the Code and the applicable regulations consistent with the requirements of Regulations Section 1.704-1(b)(2)(iv)(g) using any method approved under Section 704(c) of the Code and the applicable regulations as chosen by the General Partner.
ARTICLE 7
MANAGEMENT AND OPERATIONS OF BUSINESS
Section 7.1 Management.
A. Except as otherwise expressly provided in this Agreement, all management powers over the business and affairs of the Partnership are and shall be exclusively vested in the General Partner, and no Limited Partner shall have any right to participate in or exercise control or management power over the business and affairs of the Partnership. The General Partner may not be removed by the Limited Partners with or without cause, except with the consent of the General Partner. In addition to the powers now or hereafter granted a general partner of a limited partnership under applicable law or which are granted to the General Partner under any other provision of this Agreement, the General Partner, subject to the other provisions hereof including Sections 7.3 and 11.2, shall have full power and authority to do all things deemed necessary or desirable by it to conduct the business of the Partnership (including, without limitation, all actions consistent with allowing the General Partner at all times to qualify as a REIT unless the General Partner voluntarily terminates its REIT status), to exercise all powers set forth in Section 3.2 and to effectuate the purposes set forth in Section 3.1, including, without limitation:
(1) the making of any expenditures, the lending or borrowing of money (including, without limitation, making prepayments on loans and borrowing money to permit the Partnership to make distributions to its Partners in such amounts as will permit the General Partner (so long as the General Partner has determined to qualify as a REIT) to avoid the payment of any federal income tax (including, for this purpose, any excise tax pursuant to Section 4981 of the Code) and to make distributions to its stockholders sufficient to permit the General Partner to maintain REIT status), the assumption or guarantee of, or other contracting for, indebtedness and other liabilities, the issuance of evidences of indebtedness (including the securing of same by mortgage, deed of trust or other lien or encumbrance on all or any of the Partnerships assets) and the incurring of any obligations it deems necessary for the conduct of the activities of the Partnership;
(2) the making of tax, regulatory and other filings, or rendering of periodic or other reports to governmental or other agencies having jurisdiction over the business or assets of the Partnership, the registration of any class of securities of the Partnership under the Exchange Act, and the listing of any debt securities of the Partnership on any exchange;
(3) subject to the provisions of Section 11.2, the acquisition, disposition, mortgage, pledge, encumbrance, hypothecation or exchange of any assets of the Partnership or the merger or other combination of the Partnership with or into another entity;
(4) the acquisition, disposition, mortgage, pledge, encumbrance or hypothecation of all or any assets of the Partnership, and the use of the assets of the Partnership (including, without limitation, cash on hand) for any purpose consistent with the terms of this Agreement and on any terms it sees fit, including, without limitation, the financing of the conduct or the operations of the General Partner or the Partnership, the lending of funds to other Persons (including, without limitation, the General Partner or any Subsidiaries of the Partnership) and the repayment of obligations of the Partnership, any of its Subsidiaries and any other Person in which it has an equity investment, and the making of capital contributions to its Subsidiaries;
(5) the management, operation, leasing, landscaping, repair, alteration, demolition or improvement of any real property or improvements owned by the Partnership or any Subsidiary of the Partnership;
(6) the negotiation, execution, and performance of any contracts, leases, conveyances or other instruments that the General Partner considers useful or necessary to the conduct of the Partnerships operations or the implementation of the General Partners powers under this Agreement, including contracting with contractors, developers, consultants, accountants, legal counsel, other professional advisors and other agents and the payment of their expenses and compensation out of the Partnerships assets;
(7) the distribution of Partnership cash or other Partnership assets in accordance with this Agreement;
(8) the establishment of one or more divisions of the Partnership, the selection and dismissal of employees of the Partnership (including, without limitation, employees having titles such as president, vice president, secretary and treasurer), and agents, outside attorneys, accountants, consultants and contractors of the Partnership, the determination of their compensation and other terms of employment or hiring, including waivers of conflicts of interest and the payment of their expenses and compensation out of the Partnerships assets;
(9) the maintenance of such insurance for the benefit of the Partnership and the Partners and directors and officers of the Partnership or the General Partner as it deems necessary or appropriate;
(10) the formation of, or acquisition of an interest in, and the contribution of property to, any further limited or general partnerships, limited liability companies, joint ventures, corporations or other relationships that it deems desirable (including, without limitation, the acquisition of interests in, and the contributions of property to any Subsidiary and any other Person in which it has an equity investment from time to time); provided, that, as long as the General Partner has determined to continue to qualify as a REIT, the Partnership may not engage in any such formation, acquisition or contribution that could cause the General Partner to fail to qualify as a REIT;
(11) the control of any matters affecting the rights and obligations of the Partnership, including the settlement, compromise, submission to arbitration or any other form of dispute resolution, or abandonment of, any claim, cause of action, liability, debt or damages, due or owing to or from the Partnership, the commencement or defense of suits, legal proceedings, administrative proceedings, arbitration or other forms of dispute resolution, and the representation of the Partnership in all suits or legal proceedings, administrative proceedings, arbitrations or other forms of dispute resolution, the incurring of legal expense, and the indemnification of any Person against liabilities and contingencies to the extent permitted by law;
(12) the undertaking of any action in connection with the Partnerships direct or indirect investment in any Person (including, without limitation, contributing or loaning Partnership funds to, incurring indebtedness on behalf of, or guarantying the obligations of any such Persons);
(13) subject to the other provisions in this Agreement, the determination of the fair market value of any Partnership property distributed in kind using such reasonable method of valuation as it may adopt, provided, that such methods are otherwise consistent with requirements of this Agreement;
(14) the management, operation, leasing, landscaping, repair, alteration, demolition or improvement of any real property or improvements owned by the Partnership or any
Subsidiary of the Partnership or any Person in which the Partnership has made a direct or indirect equity investment;
(15) holding, managing, investing and reinvesting cash and other assets of the Partnership;
(16) the collection and receipt of revenues and income of the Partnership;
(17) the exercise, directly or indirectly through any attorney-in-fact acting under a general or limited power of attorney, of any right, including the right to vote, appurtenant to any asset or investment held by the Partnership;
(18) the exercise of any of the powers of the General Partner enumerated in this Agreement on behalf of or in connection with any Subsidiary of the Partnership or any other Person in which the Partnership has a direct or indirect interest, or jointly with any such Subsidiary or other Person;
(19) the exercise of any of the powers of the General Partner enumerated in this Agreement on behalf of any Person in which the Partnership does not have an interest pursuant to contractual or other arrangements with such Person;
(20) the making, execution and delivery of any and all deeds, leases, notes, deeds to secure debt, mortgages, deeds of trust, security agreements, conveyances, contracts, guarantees, warranties, indemnities, waivers, releases or legal instruments or agreements in writing necessary or appropriate in the judgment of the General Partner for the accomplishment of any of the powers of the General Partner enumerated in this Agreement;
(21) the issuance of additional Partnership Interests, as appropriate, in connection with the contribution of Additional Funds pursuant to Section 4.3;
(22) the distribution of cash to acquire OP Units held by a Limited Partner in connection with a Limited Partners exercise of its Redemption Right under Section 8.6 hereof;
(23) the amendment and restatement of Exhibit A hereto to reflect accurately at all times the Capital Contributions and Percentage Interests of the Partners as the same are adjusted from time to time to the extent necessary to reflect redemptions, Capital Contributions, the issuance of OP Units, the admission of any Additional Limited Partner or any Substituted Limited Partner or otherwise, which amendment and restatement, notwithstanding anything in this Agreement to the contrary, shall not be deemed an amendment to this Agreement, as long as the matter or event being reflected in Exhibit A hereto otherwise is authorized by this Agreement;
(24) the taking of any and all acts and things necessary or prudent to ensure that the Partnership will not be classified as a publicly traded partnership under Section 7704 of the Code; and
(25) the delegation to another Person of any powers now or hereafter granted to the General Partner.
B. Each of the Limited Partners agrees that the General Partner is authorized to execute, deliver and perform the above-mentioned agreements and transactions on behalf of the
Partnership without any further act, approval or vote of the Partners, notwithstanding any other provisions of this Agreement (except as provided in Section 7.3 or 11.2), the Act or any applicable law, rule or regulation to the fullest extent permitted under the Act or other applicable law, rule or regulation. The execution, delivery or performance by the General Partner or the Partnership of any agreement authorized or permitted under this Agreement shall not constitute a breach by the General Partner of any duty that the General Partner may owe the Partnership or the Limited Partners or any other Persons under this Agreement or of any duty stated or implied by law or equity.
C. At all times from and after the date hereof, the General Partner may cause the Partnership to obtain and maintain (i) casualty, liability and other insurance on the Investments and (ii) liability insurance for the Indemnities hereunder.
D. At all times from and after the date hereof, the General Partner may cause the Partnership to establish and maintain working capital and other reserves in such amounts as the General Partner, in its sole and absolute discretion, deems appropriate and reasonable from time to time.
E. Each of the Limited Partners acknowledges that, in exercising its authority under this Agreement, the General Partner may, but shall be under no obligation to, take into account the tax consequences to any Partner (including the General Partner) of any action taken (or not taken) by the General Partner. The General Partner and the Partnership shall not have liability to a Partner under this Agreement as a result of any income tax liability incurred by a Limited Partner as a result of an action (or inaction) by the General Partner pursuant to its authority under this Agreement. There may be circumstances in which the fiduciary duties that the General Partner owes to the Limited Partners conflicts with any duties that the officers and directors of General Partner owe to its stockholders. For so long as the General Partner owns a controlling interest in the Partnership, any such conflict that cannot be resolved in a manner not adverse to either the stockholders or the Limited Partners shall be resolved in favor of the General Partners stockholders.
F. Except as otherwise provided herein, to the extent the duties of the General Partner require expenditures of funds to be paid to third parties, the General Partner shall not have any obligations hereunder except to the extent that Partnership funds are reasonably available to it for the performance of such duties, and nothing herein contained shall be deemed to authorize or require the General Partner, in its capacity as such, to expend its individual funds for payment to third parties or to undertake any individual liability or obligation on behalf of the Partnership.
Section 7.2 Certificate of Limited Partnership.
To the extent that such action is determined by the General Partner to be reasonable and necessary or appropriate, the General Partner shall file amendments to and restatements of the Certificate and do all the things to maintain the Partnership as a limited partnership (or a partnership in which the limited partners have limited liability) under the laws of the State of Delaware and to maintain the Partnerships qualification to do business as a foreign limited partnership in each other state, the District of Columbia or other jurisdiction, in which the Partnership may elect to do business or own property. Subject to the terms of Section 8.5.A(4), the General Partner shall not be required, before or after filing, to deliver or mail a copy of the Certificate or any amendment thereto to any Limited Partner. The General Partner shall use all reasonable efforts to cause to be filed such other certificates or documents as may be reasonable and necessary or appropriate for the formation, continuation, qualification and operation of a limited partnership (or a partnership in which the limited partners have limited liability) in the State of Delaware, any other state, or the District of Columbia or other jurisdiction, in which the Partnership may elect to do business or own property.
Section 7.3 Restrictions on General Partners Authority.
A. The General Partner may not take any action in contravention of an express prohibition or limitation of this Agreement without the written Consent of the Limited Partners and the Special General Partner, and may not (i) perform any act that would subject a Limited Partner to liability as a general partner in any jurisdiction or any other liability except as provided herein or under the Act; or (ii) enter into any contract, mortgage, loan or other agreement that prohibits or restricts, or has the effect of prohibiting or restricting, the ability of a Limited Partner to exercise its rights to a Redemption in full, except in each case with the written consent of such Limited Partner.
B. The General Partner shall not, without the prior Consent of the Partners (in addition to any Consent of the Limited Partners required by any other provision hereof), or except as provided in Section 7.3.D, amend, modify or terminate this Agreement.
C. The General Partner may not cause the Partnership to take any action which the General Partner would be prohibited from taking directly under the General Partners bylaws as in effect from time to time.
D. Notwithstanding Section 7.3.B, the General Partner shall have the exclusive power to amend this Agreement as may be required to facilitate or implement any of the following purposes:
(1) to add to the obligations of the General Partner or surrender any right or power granted to the General Partner or any Affiliate of the General Partner for the benefit of the Limited Partners;
(2) to reflect the issuance of additional Partnership Interests pursuant to Sections 4.3.B, 5.4 and 6.2B. or the admission, substitution, termination, or withdrawal of Partners in accordance with this Agreement (which may be effected through the replacement of Exhibit A with an amended Exhibit A);
(3) to set forth or amend the designations, rights, powers, duties and preferences of the holders of any additional Partnership Interests issued pursuant to Article 4;
(4) to reflect a change that is of an inconsequential nature and does not adversely affect the Limited Partners in any material respect, or to cure any ambiguity, correct or supplement any provision in this Agreement not inconsistent with law or with other provisions, or make other changes with respect to matters arising under this Agreement that will not be inconsistent with law or with the provisions of this Agreement;
(5) to satisfy any requirements, conditions, or guidelines contained in any order, directive, opinion, ruling or regulation of a federal or state agency or contained in federal or state law;
(6) to reflect such changes as are reasonably necessary for the General Partner to maintain its status as a REIT, including changes which may be necessitated due to a change in applicable law (or an authoritative interpretation thereof) or a ruling of the IRS;
(7) to modify, as set forth in the definition of Capital Account, the manner in which Capital Accounts are computed; and
(8) to amend or modify any provision of this Agreement to reflect a statutory or regulatory change regarding the federal income tax treatment of the profits interest of the Special General Partner or to ensure that the receipt of the Special General Partners profits interest will not result in taxation to the Special General Partner.
The General Partner will provide notice to the Limited Partners when any action under this Section 7.3.D is taken.
E. Notwithstanding Sections 7.3.B and 7.3.D, this Agreement shall not be amended with respect to any Partner adversely affected, and no action may be taken by the General Partner, without the Consent of such Partner adversely affected if such amendment or action would (i) convert a Limited Partners interest in the Partnership into a general partners interest (except as the result of the General Partner acquiring such interest), (ii) modify the limited liability of a Limited Partner, (iii) alter rights of the Partner to receive distributions pursuant to Article 5 or Section 13.2.A(4), or the allocations specified in Article 6 (except as permitted pursuant to Sections 4.3, 5.4, 6.2.B and Section 7.3.D(3)), (iv) materially alter or modify the rights to a Redemption or the REIT Shares Amount as set forth in Section 8.6, and related definitions hereof, or (v) amend this Section 7.3.E. Further, no amendment may alter the restrictions on the General Partners authority set forth elsewhere in this Section 7.3 or in Section 11.2.A without the Consent specified in such section. This Section 7.3.E does not require unanimous consent of all Partners adversely affected unless the amendment is to be effective against all partners adversely affected.
Section 7.4 Reimbursement of the General Partner.
A. Except as provided in this Section 7.4 and elsewhere in this Agreement (including the provisions of Articles 5 and 6 regarding distributions, payments and allocations to which it may be entitled), the General Partner shall not be compensated for its services as general partner of the Partnership.
B. The Partnership shall be responsible for and shall pay all expenses relating to the Partnerships and the General Partners organization, the ownership of its assets and its operations. The General Partner is hereby authorized to pay compensation for accounting, administrative, legal, technical, management and other services rendered to the Partnership. Except to the extent provided in this Agreement, the General Partner and its Affiliates shall be reimbursed on a monthly basis, or such other basis as the General Partner may determine in its sole and absolute discretion, for all expenses that the General Partner and its Affiliates incur relating to the ownership and operation of, or for the benefit of, the Partnership (including, without limitation, administrative expenses); provided, that the amount of any such reimbursement shall be reduced by any interest earned by the General Partner with respect to bank accounts or other instruments or accounts held by it on behalf of the Partnership. The Partners acknowledge that all such expenses of the General Partner are deemed to be for the benefit of the Partnership. Such reimbursement shall be in addition to any reimbursement made as a result of indemnification pursuant to Section 7.7 hereof. In the event that certain expenses are incurred for the benefit of the Partnership and other entities (including the General Partner), such expenses will be allocated to the Partnership and such other entities in such a manner as the General Partner in its sole and absolute discretion deems fair and reasonable. All payments and reimbursements hereunder shall be characterized for federal income tax purposes as expenses of the Partnership incurred on its behalf, and not as expenses of the General Partner.
C. If the General Partner shall elect to purchase from its stockholders REIT Shares for the purpose of delivering such REIT Shares to satisfy an obligation under any dividend reinvestment program adopted by the General Partner, any employee stock purchase plan adopted by the General
Partner, or any similar obligation or arrangement undertaken by the General Partner in the future or for the purpose of retiring such REIT Shares, the purchase price paid by the General Partner for such REIT Shares and any other expenses incurred by the General Partner in connection with such purchase shall be considered expenses of the Partnership and shall be advanced to the General Partner or reimbursed to the General Partner, subject to the condition that: (i) if such REIT Shares subsequently are sold by the General Partner, the General Partner shall pay to the Partnership any proceeds received by the General Partner for such REIT Shares (which sales proceeds shall include the amount of dividends reinvested under any dividend reinvestment or similar program; provided, that a transfer of REIT Shares for OP Units pursuant to Section 8.6 would not be considered a sale for such purposes); and (ii) if such REIT Shares are not retransferred by the General Partner within thirty (30) days after the purchase thereof, or the General Partner otherwise determines not to retransfer such REIT Shares, the General Partner, shall cause the Partnership to redeem a number of OP Units held by the General Partner equal to the number of such REIT Shares, as adjusted (x) pursuant to Section 7.5 (in the event the General Partner acquires material assets, other than on behalf of the Partnership) and (y) for stock dividends and distributions, stock splits and subdivisions, reverse stock splits and combinations, distributions of rights, warrants or options, and distributions of evidences of indebtedness or assets relating to assets not received by the General Partner pursuant to a pro rata distribution by the Partnership (in which case such advancement or reimbursement of expenses shall be treated as having been made as a distribution in redemption of such number of OP Units held by the General Partner).
D. As set forth in Section 4.3, the General Partner shall be treated as having made a Capital Contribution in the amount of all expenses that it incurs relating to the General Partners offering of REIT Shares, other shares of capital stock of the General Partner or New Securities.
E. If and to the extent any reimbursements to the General Partner pursuant to this Section 7.4 constitute gross income of the General Partner (as opposed to the repayment of advances made by the General Partner on behalf of the Partnership), such amounts shall constitute guaranteed payments within the meaning of Section 707(c) of the Code, shall be treated consistently therewith by the Partnership and all Partners, and shall not be treated as distributions for purposes of computing the Partners Capital Accounts.
Section 7.5 Outside Activities of the General Partner.
A. Except in connection with a transaction authorized in Section 11.2, without the Consent of the Limited Partners, the General Partner shall not, directly or indirectly, enter into or conduct any business, other than in connection with the ownership, acquisition and disposition of Partnership Interests as a General Partner and the management of the business of the Partnership, its operation as a public reporting company with a class (or classes) of securities registered under the Exchange Act, its operation as a REIT and such activities as are incidental to the same. Without the Consent of the Limited Partners, the General Partner shall not, directly or indirectly, participate in or otherwise acquire any interest in any real or personal property, except its General Partner Interest, its minority interest in any Subsidiary Partnership(s) that the General Partner holds in order to maintain such Subsidiary Partnerships status as a partnership, and such bank accounts, similar instruments or other short term investments as it deems necessary to carry out its responsibilities contemplated under this Agreement and the Charter. In the event the General Partner desires to contribute cash to any Subsidiary Partnership to acquire or maintain an interest of 1% or less in the capital of such partnership, the General Partner may acquire or maintain an interest of 1% or less in the capital of such partnership, and the General Partner may acquire such cash from the Partnership as a loan or in exchange for a reduction in the General Partners OP Units, in an amount equal to the amount of such cash divided by the Fair Market Value of a REIT Share on the day such cash is received by the General Partner. Notwithstanding the foregoing, the General Partner may acquire Investments or other assets in exchange for REIT Shares or cash, to the extent such
Investments or other assets are immediately contributed by the General Partner to the Partnership, pursuant to the terms described in Section 4.3.D. Any Limited Partner Interests acquired by the General Partner, whether pursuant to exercise by a Limited Partner of its right of Redemption, or otherwise, shall be automatically converted into a General Partner Interest comprised of an identical number of OP Units with the same rights, priorities and preferences as the class or series so acquired. The General Partner may also own one hundred percent (100%) of the stock or interests of one or more Qualified REIT Subsidiaries or limited liability companies, respectively, provided that any such entity shall be subject to the limitations of this Section 7.5.A. If, at any time, the General Partner acquires material assets (other than Partnership Interests or other assets on behalf of the Partnership) the definition of REIT Shares Amount and the definition of Deemed Value of Partnership Interests shall be adjusted, as reasonably determined by the General Partner, to reflect the relative Fair Market Value of a share of capital stock of the General Partner relative to the Deemed Partnership Interest Value of the related Partnership Unit. The General Partners General Partner Interest in the Partnership, its minority interest in any Subsidiary Partnership(s) (held directly or indirectly through a Qualified REIT Subsidiary) that the General Partner holds in order to maintain such Subsidiary Partnerships status as a partnership, and interests in such short-term liquid investments, bank accounts or similar instruments as the General Partner deems necessary to carry out its responsibilities contemplated under this Agreement and the Charter are interests which the General Partner is permitted to acquire and hold for purposes of this Section 7.5.A.
B. In the event the General Partner exercises its rights under the Charter to purchase REIT Shares, other common stock of the General Partner or New Securities, as the case may be, then the General Partner shall cause the Partnership to purchase from it a number of OP Units equal to the number of REIT Shares, other capital stock of the General Partner or New Securities, as the case may be, so purchased on the same terms that the General Partner purchased such REIT Shares, other capital stock of the General Partner or New Securities, as the case may be.
Section 7.6 Contracts with Affiliates.
A. The Partnership may lend or contribute to Persons in which it has an equity investment, and such Persons may borrow funds from the Partnership, on terms and conditions established in the sole and absolute discretion of the General Partner. The foregoing authority shall not create any right or benefit in favor of any Person.
B. Except as provided in Section 7.5.A, the Partnership may transfer assets to joint ventures, other partnerships, corporations or other business entities in which it is or thereby becomes a participant upon such terms and subject to such conditions consistent with this Agreement and applicable law as the General Partner in its sole discretion deems advisable.
C. The General Partner, in its sole and absolute discretion and without the approval of the Limited Partners, may propose and adopt on behalf of the Partnership employee benefit plans funded by the Partnership for the benefit of employees of the General Partner, the Partnership, Subsidiaries of the Partnership or any Affiliate of any of them in respect of services performed, directly or indirectly, for the benefit of the Partnership, the General Partner, or any of the Partnerships Subsidiaries.
D. Except as expressly permitted by this Agreement, neither the General Partner nor any of its Affiliates shall sell, transfer or convey any property to, or purchase any property from, the Partnership, directly or indirectly, except pursuant to transactions that are determined by the General Partner in good faith to be fair and reasonable.
E. The General Partner is expressly authorized to enter into, in the name and on behalf of the Partnership, a right of first opportunity arrangement and other conflict avoidance agreements
with various Affiliates of the Partnership and the General Partner, on such terms as the General Partner, in its sole and absolute discretion, believes are advisable.
Section 7.7 Indemnification.
A. To the fullest extent permitted by law, the Partnership shall indemnify an Indemnitee from and against any and all losses, claims, damages, liabilities, joint or several, expenses (including legal fees and expenses), judgments, fines, settlements, and other amounts arising from any and all claims, demands, actions, suits or proceedings, civil, criminal, administrative or investigative, that relate to the operations of the Partnership as set forth in this Agreement in which any Indemnitee may be involved, or is threatened to be involved, as a party or otherwise, unless (1) Section 12.2.2 of the Charter of the General Partner prohibits the corporation from indemnifying the Indemnitee for a tax matter, in which case the Partnership shall likewise be prohibited from indemnifying the Indemnitee for the matter, or (2) it is established that: (i) the act or omission of the Indemnitee was material to the matter giving rise to the proceeding and either was committed in bad faith, fraud or was the result of active and deliberate dishonesty; (ii) the Indemnitee actually received an improper personal benefit in money, property or services; or (iii) in the case of any criminal proceeding, the Indemnitee had reasonable cause to believe that the act or omission was unlawful. Without limitation, the foregoing indemnity shall extend to any liability of any Indemnitee, pursuant to a loan guaranty or otherwise, for any indebtedness of the Partnership or any Subsidiary of the Partnership (including, without limitation, any indebtedness which the Partnership or any Subsidiary of the Partnership has assumed or taken subject to), and the General Partner is hereby authorized and empowered, on behalf of the Partnership, to enter into one or more indemnity agreements consistent with the provisions of this Section 7.7 in favor of any Indemnitee having or potentially having liability for any such indebtedness. The termination of any proceeding by judgment, order, settlement, conviction or upon a plea of nolo contendere or its equivalent, or any entry of an order of probation prior to judgment, does not create a presumption that the Indemnitee did not meet the requisite standard of conduct set forth in this Section 7.7.A. Any indemnification pursuant to this Section 7.7 shall be made only out of the assets of the Partnership, and any insurance proceeds from the liability policy covering the General Partner and any Indemnitee, and neither the General Partner nor any Limited Partner shall have any obligation to contribute to the capital of the Partnership or otherwise provide funds to enable the Partnership to fund its obligations under this Section 7.7, except to the extent otherwise expressly agreed to by such Partner and the Partnership.
B. Reasonable expenses incurred by an Indemnitee who is a party to a proceeding may be paid or reimbursed by the Partnership in advance of the final disposition of the proceeding upon receipt by the Partnership of (i) a written affirmation by the Indemnitee of the Indemnitees good faith belief that the standard of conduct necessary for indemnification by the Partnership as authorized in this Section 7.7 has been met, and (ii) a written undertaking by or on behalf of the Indemnitee to repay the amount if it shall ultimately be determined that the standard of conduct has not been met.
C. The indemnification provided by this Section 7.7 shall be in addition to any other rights to which an Indemnitee or any other Person may be entitled under any agreement, pursuant to any vote of the Partners, as a matter of law or otherwise, and shall continue as to an Indemnitee who has ceased to serve in such capacity unless otherwise provided in a written agreement pursuant to which such Indemnitee is indemnified.
D. The Partnership may, but shall not be obligated to, purchase and maintain insurance, on behalf of the Indemnitees and such other Persons as the General Partner shall determine, against any liability that may be asserted against or expenses that may be incurred by such Person in connection with the Partnerships activities, regardless of whether the Partnership would have the power to indemnify such Person against such liability under the provisions of this Agreement.
E. For purposes of this Section 7.7, the Partnership shall be deemed to have requested an Indemnitee to serve as fiduciary of an employee benefit plan whenever the performance by it of its duties to the Partnership also imposes duties on, or otherwise involves services by, it to the plan or participants or beneficiaries of the plan; excise taxes assessed on an Indemnitee with respect to an employee benefit plan pursuant to applicable law shall constitute fines within the meaning of Section 7.7; and actions taken or omitted by the Indemnitee with respect to an employee benefit plan in the performance of its duties for a purpose reasonably believed by it to be in the interest of the participants and beneficiaries of the plan shall be deemed to be for a purpose which is not opposed to the best interests of the Partnership.
F. In no event may an Indemnitee subject the Limited Partners to personal liability by reason of the indemnification provisions set forth in this Agreement.
G. An Indemnitee shall not be denied indemnification in whole or in part under this Section 7.7 because the Indemnitee had an interest in the transaction with respect to which the indemnification applies if the transaction was otherwise permitted by the terms of this Agreement.
H. The provisions of this Section 7.7 are for the benefit of the Indemnitees, their heirs, successors, assigns and administrators and shall not be deemed to create any rights for the benefit of any other Persons. Any amendment, modification or repeal of this Section 7.7 or any provision hereof shall be prospective only and shall not in any way affect the limitations on the Partnerships liability to any Indemnitee under this Section 7.7 as in effect immediately prior to such amendment, modification or repeal with respect to claims arising from or relating to matters occurring, in whole or in part, prior to such amendment, modification or repeal, regardless of when such claims may arise or be asserted.
I. If and to the extent any reimbursements to the General Partner pursuant to this Section 7.7 constitute gross income of the General Partner (as opposed to the repayment of advances made by the General Partner on behalf of the Partnership) such amounts shall constitute guaranteed payments within the meaning of Section 707(c) of the Code, shall be treated consistently therewith by the Partnership and all Partners, and shall not be treated as distributions for purposes of computing the Partners Capital Accounts.
J. Any indemnification hereunder is subject to, and limited by, the provisions of Section 10-107 of the Act and Section 12.2.2 of the Charter.
K. In the event the Partnership is made a party to any litigation or otherwise incurs any loss or expense as a result of or in connection with any Partners personal obligations or liabilities unrelated to Partnership business, such Partner shall indemnify and reimburse the Partnership for all such loss and expense incurred, including legal fees, and the Partnership interest of such Partner may be charged therefor. The liability of a Partner under this Section 7.7.K shall not be limited to such Partners Partnership Interest, but shall be enforceable against such Partner personally.
Section 7.8 Liability of the General Partner.
A. Notwithstanding anything to the contrary set forth in this Agreement, none of the General Partner nor any of its officers, directors, agents or employees shall be liable or accountable in damages or otherwise to the Partnership, any Partners or any Assignees, or their successors or assigns, for losses sustained, liabilities incurred or benefits not derived as a result of errors in judgment or mistakes of fact or law or any act or omission if the General Partner acted in good faith.
B. The Limited Partners expressly acknowledge that the General Partner is acting for the benefit of the Partnership, the Limited Partners and the General Partners stockholders collectively. The General Partner is under no obligation to give priority to the separate interests of the Limited Partners or the General Partners stockholders (including, without limitation, the tax consequences to Limited Partners or Assignees or to stockholders) in deciding whether to cause the Partnership to take (or decline to take) any actions. If there is a conflict between the interests of the stockholders of the General Partner on one hand and the Limited Partners on the other, the General Partner shall endeavor in good faith to resolve the conflict in a manner not adverse to either the stockholders of the General Partner or the Limited Partners; provided, however, that for so long as the General Partner, owns a controlling interest in the Partnership, any such conflict that cannot be resolved in a manner not adverse to either the stockholders of the General Partner or the Limited Partners shall be resolved in favor of the stockholders. The General Partner shall not be liable under this Agreement to the Partnership or to any Partner for monetary damages for losses sustained, liabilities incurred, or benefits not derived by Limited Partners in connection with such decisions; provided, that the General Partner has acted in good faith.
C. Subject to its obligations and duties as General Partner set forth in Section 7.1.A, the General Partner may exercise any of the powers granted to it by this Agreement and perform any of the duties imposed upon it hereunder either directly or by or through its agents. The General Partner shall not be responsible for any misconduct or negligence on the part of any such agent appointed by it in good faith.
D. Any amendment, modification or repeal of this Section 7.8 or any provision hereof shall be prospective only and shall not in any way affect the limitations on the liability of the General Partner and any of its officers, directors, agents and employees liability to the Partnership and the Limited Partners under this Section 7.8 as in effect immediately prior to such amendment, modification or repeal with respect to claims arising from or relating to matters occurring, in whole or in part, prior to such amendment, modification or repeal, regardless of when such claims may arise or be asserted.
Section 7.9 Other Matters Concerning the General Partner.
A. The General Partner may rely and shall be protected in acting or refraining from acting upon any resolution, certificate, statement, instrument, opinion, report, notice, request, consent, order, bond, debenture, or other paper or document believed by it to be genuine and to have been signed or presented by the proper party or parties.
B. The General Partner may consult with legal counsel, accountants, appraisers, management consultants, investment bankers and other consultants and advisers selected by it, and any act taken or omitted to be taken in reliance upon the opinion of such Persons as to matters which such General Partner reasonably believes to be within such Persons professional or expert competence shall be conclusively presumed to have been done or omitted in good faith and in accordance with such opinion.
C. The General Partner shall have the right, in respect of any of its powers or obligations hereunder, to act through any of its duly authorized officers and a duly appointed attorney or attorneys-in-fact. Each such attorney shall, to the extent provided by the General Partner in the power of attorney, have full power and authority to do and perform all and every act and duty which is permitted or required to be done by the General Partner hereunder.
D. Notwithstanding any other provisions of this Agreement or any non-mandatory provision of the Act, any action of the General Partner on behalf of the Partnership or any decision of the
General Partner to refrain from acting on behalf of the Partnership, undertaken in the good faith belief that such action or omission is necessary or advisable in order to protect the ability of the General Partner, for so long as the General Partner has determined to qualify as a REIT, to (i) continue to qualify as a REIT or (ii) avoid the General Partner incurring any taxes under Section 857 or Section 4981 of the Code, is expressly authorized under this Agreement and is deemed approved by all of the Limited Partners.
Section 7.10 Title to Partnership Assets.
Title to Partnership assets, whether real, personal or mixed and whether tangible or intangible, shall be deemed to be owned by the Partnership as an entity, and no Partners, individually or collectively, shall have any ownership interest in such Partnership assets or any portion thereof. Title to any or all of the Partnership assets may be held in the name of the Partnership, the General Partner or one or more subsidiaries or nominees, as the General Partner may determine, including Affiliates of the General Partner. The General Partner hereby declares and warrants that any Partnership assets for which legal title is held in the name of the General Partner or any nominee or Affiliate of the General Partner shall be held by the General Partner for the use and benefit of the Partnership in accordance with the provisions of this Agreement; provided, however, that the General Partner shall use its best efforts to cause beneficial and record title to such assets to be vested in the Partnership, a subsidiary or a nominee thereof, as soon as reasonably practicable. All Partnership assets shall be recorded as the property of the Partnership in its books and records, irrespective of the name in which legal title to such Partnership assets is held.
Section 7.11 Reliance by Third Parties.
Notwithstanding anything to the contrary in this Agreement, any Person dealing with the Partnership shall be entitled to assume that the General Partner has full power and authority to encumber, sell or otherwise use in any manner any and all assets of the Partnership and to enter into any contracts on behalf of the Partnership, and such Person shall be entitled to deal with the General Partner as if it were the Partnerships sole party in interest, both legally and beneficially. Each Limited Partner hereby waives any and all defenses or other remedies which may be available against such Person to contest, negate or disaffirm any action of the General Partner in connection with any such dealing. In no event shall any Person dealing with the General Partner or its representatives be obligated to ascertain that the terms of this Agreement have been complied with or to inquire into the necessity or expedience of any act or action of the General Partner or its representatives. Each and every certificate, document or other instrument executed on behalf of the Partnership by the General Partner or its representatives shall be conclusive evidence in favor of any and every Person relying thereon or claiming thereunder that (i) at the time of the execution and delivery of such certificate, document or instrument, this Agreement was in full force and effect, (ii) the Person executing and delivering such certificate, document or instrument was duly authorized and empowered to do so for and on behalf of the Partnership and (iii) such certificate, document or instrument was duly executed and delivered in accordance with the terms and provisions of this Agreement and is binding upon the Partnership.
Section 7.12 Management Assistance Provided by Special General Partner.
In addition to the requirement to obtain the Consent of the Special General Partner with respect to certain matters as provided for in this Agreement, the Special General Partner shall provide consulting services and assistance to the Partnership at various times, in conjunction with the Advisor, for no additional consideration, on matters relating to the following:
(1) the strategic planning of the Partnership;
(2) the creation of business plans of the Partnership;
(3) the sale, merger, or the sale of substantially all of the assets, of the Partnership; and
(4) any other matters concerning the Partnership as determined appropriate by the General Partner and the Special General Partner.
ARTICLE 8
RIGHTS AND OBLIGATIONS OF LIMITED PARTNERS
Section 8.1 Limitation of Liability.
The Limited Partners shall have no liability under this Agreement except as expressly provided in this Agreement or under the Act.
Section 8.2 Management of Business.
No Limited Partner or Assignee (other than the General Partner, any of its Affiliates or any officer, director, employee, partner, agent or trustee of the General Partner, the Partnership or any of their Affiliates, in their capacity as such) shall take part in the operations, management or control (within the meaning of the Act) of the Partnerships business, transact any business in the Partnerships name or have the power to sign documents for or otherwise bind the Partnership. The transaction of any such business by the General Partner, any of its Affiliates or any officer, director, employee, partner, agent or trustee of the General Partner, the Partnership or any of their Affiliates, in their capacity as such, shall not affect, impair or eliminate the limitations on the liability of the Limited Partners or Assignees under this Agreement.
Section 8.3 Outside Activities of Limited Partners.
Subject to any agreements entered into by a Limited Partner or its Affiliates with the General Partner, Partnership or a Subsidiary, any Limited Partner and any officer, director, employee, agent, trustee, Affiliate or stockholder of any Limited Partner shall be entitled to and may have business interests and engage in business activities in addition to those relating to the Partnership, including business interests and activities in direct competition with the Partnership or that are enhanced by the activities of the Partnership. Neither the Partnership nor any Partners shall have any rights by virtue of this Agreement in any business ventures of any Limited Partner or Assignee. Subject to such agreements, none of the Limited Partners nor any other Person shall have any rights by virtue of this Agreement or the partnership relationship established hereby in any business ventures of any other Person, other than the Limited Partners benefiting from the business conducted by the General Partner, and such Person shall have no obligation pursuant to this Agreement to offer any interest in any such business ventures to the Partnership, any Limited Partner or any such other Person, even if such opportunity is of a character which, if presented to the Partnership, any Limited Partner or such other Person, could be taken by such Person.
Section 8.4 Return of Capital.
Except pursuant to the rights of Redemption set forth in Section 8.6, no Limited Partner shall be entitled to the withdrawal or return of his or her Capital Contribution, except to the extent of distributions made pursuant to this Agreement or upon termination of the Partnership as provided herein. No Limited Partner or Assignee shall have priority over any other Limited Partner or Assignee either as to the return of Capital Contributions, or as otherwise expressly provided in this Agreement, or as to profits, losses, distributions or credits.
Section 8.5 Rights of Limited Partners Relating to the Partnership.
A. In addition to other rights provided by this Agreement or by the Act, and except as limited by Section 8.5.C, each Limited Partner shall have the right, for a purpose reasonably related to such Limited Partners interest as a limited partner in the Partnership, upon written demand with a statement of the purpose of such demand and at such Limited Partners expense:
(1) to obtain a copy of the most recent annual and quarterly reports filed with the Securities and Exchange Commission by the General Partner pursuant to the Exchange Act, and each communication sent to the stockholders of the General Partner;
(2) to obtain a copy of the Partnerships federal, state and local income tax returns for each Partnership Year;
(3) to obtain a current list of the name and last known business, residence or mailing address of each Partner;
(4) to obtain a copy of this Agreement and the Certificate and all amendments thereto, together with executed copies of all powers of attorney pursuant to which this Agreement, the Certificate and all amendments thereto have been executed; and
(5) to obtain true and full information regarding the amount of cash and a description and statement of any other property or services contributed by each Partner and which each Partner has agreed to contribute in the future, and the date on which each became a Partner.
B. The Partnership shall notify each Limited Partner in writing of any adjustment made in the calculation of the REIT Shares Amount within a reasonable time after the date such change becomes effective.
C. Notwithstanding any other provision of this Section 8.5, the General Partner may keep confidential from the Limited Partners, for such period of time as the General Partner determines in its sole and absolute discretion to be reasonable, any information that (i) the General Partner believes to be in the nature of trade secrets or other information the disclosure of which the General Partner in good faith believes is not in the best interests of the Partnership or (ii) the Partnership or the General Partner is required by law or by agreements with unaffiliated third parties to keep confidential.
Section 8.6 Redemption Rights.
A. At any time after one year following the date of issuance of any OP Units to a Limited Partner or a Special General Partner, such Partner shall have the right (subject to the terms and conditions set forth herein and in any other such agreement, as applicable) to require the Partnership to redeem all or a portion of the OP Units held by such Partner (such OP Units being hereafter referred to as Tendered Units) in exchange for the Cash Amount (a Redemption); provided that the terms of such OP Units do not provide that such OP Units are not entitled to a right of Redemption. Unless otherwise expressly provided in this Agreement or in a separate agreement entered into between the Partnership and the holders of such OP Units, all OP Units shall be entitled to a right of Redemption hereunder. The Tendering Partner shall have no right, with respect to any OP Units so redeemed, to receive any distributions paid on or after the Specified Redemption Date. Any Redemption shall be exercised pursuant to a Notice of Redemption delivered to the General Partner by the Special General Partner or Limited Partner who is exercising the right (the Tendering Partner). The Cash Amount shall be payable
to the Tendering Partner within ten (10) days of the Specified Redemption Date in accordance with the instructions set forth in the Notice of Redemption.
B. Notwithstanding Section 8.6.A above, if the Special General Partner or a Limited Partner has delivered to the General Partner a Notice of Redemption then the General Partner may, in its sole and absolute discretion (subject to the limitations on ownership and transfer of REIT Shares set forth in the Charter), elect to acquire some or all of the Tendered Units from the Tendering Partner in exchange for the REIT Shares Amount (as of the Specified Redemption Date) and, if the General Partner so elects, the Tendering Partner shall sell the Tendered Units to the General Partner in exchange for the REIT Shares Amount. In such event, the Tendering Partner shall have no right to cause the Partnership to redeem such Tendered Units. The General Partner shall promptly give such Tendering Partner written notice of its election, and the Tendering Partner may elect to withdraw its redemption request at any time prior to the acceptance of the cash or REIT Shares Amount by such Tendering Partner.
C. The REIT Shares Amount, if applicable, shall be delivered as duly authorized, validly issued, fully paid and nonassessable REIT Shares and, if applicable, free of any pledge, lien, encumbrance or restriction, other than those provided in the Charter, the Bylaws of the General Partner, the Securities Act, relevant state securities or blue sky laws and any applicable registration rights agreement with respect to such REIT Shares entered into by the Tendering Partner. Notwithstanding any delay in such delivery (but subject to Section 8.6.E), the Tendering Partner shall be deemed the owner of such REIT Shares for all purposes, including without limitation, rights to vote or consent, and receive dividends, as of the Specified Redemption Date.
D. The Special General Partner and each Limited Partner covenants and agrees with the General Partner that all Tendered Units shall be delivered to the General Partner free and clear of all liens, claims and encumbrances whatsoever and should any such liens, claims and/or encumbrances exist or arise with respect to such Tendered Units, the General Partner shall be under no obligation to acquire the same. The Special General Partner and each Limited Partner further agrees that, in the event any state or local property transfer tax is payable as a result of the transfer of its Tendered Units to the General Partner (or its designee), such Partner shall assume and pay such transfer tax.
E. Notwithstanding the provisions of Section 8.6.A, 8.6.B, 8.6.C or any other provision of this Agreement, the Special General Partner or a Limited Partner (i) shall not be entitled to effect a Redemption for cash or an exchange for REIT Shares to the extent the ownership or right to acquire REIT Shares pursuant to such exchange by such Partner on the Specified Redemption Date could cause such Partner or any other Person, or, in the opinion of counsel selected by the General Partner, may cause such Partner or any other Person, to violate the restrictions on ownership and transfer of REIT Shares set forth in the Charter and (ii) shall have no rights under this Agreement to acquire REIT Shares which would otherwise be prohibited under the Charter. To the extent any attempted Redemption or exchange for REIT Shares would be in violation of this Section 8.6.E, it shall be null and void ab initio and such Partner shall not acquire any rights or economic interest in the cash otherwise payable upon such Redemption or the REIT Shares otherwise issuable upon such exchange.
F. Notwithstanding anything herein to the contrary (but subject to Section 8.6.E), with respect to any Redemption or exchange for REIT Shares pursuant to this Section 8.6:
(1) All OP Units acquired by the General Partner pursuant thereto shall automatically, and without further action required, be converted into and deemed to be Limited Partner Interests comprised of the same number and class of OP Units.
(2) The Special General Partner and each Limited Partner may not effect a Redemption for less than one thousand (1,000) OP Units or, if such Partner holds less than one thousand (1,000) OP Units, such Partner may effect a Redemption only with respect to all OP Units held by such Partner.
(3) A Tendering Partner may not effect more than two (2) Redemptions in a single calendar year.
(4) Without the consent of the General Partner, the Special General Partner and each Limited Partner may not effect a Redemption during the period after the Partnership Record Date with respect to a distribution and before the record date established by the General Partner for a distribution to its stockholders of some or all of its portion of such distribution.
(5) The consummation of any Redemption or exchange for REIT Shares shall be subject to the expiration or termination of the applicable waiting period, if any, under the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended.
(6) Each Tendering Partner shall continue to own all OP Units subject to any Redemption or exchange for REIT Shares, and be treated as a Partner with respect to such OP Units for all purposes of this Agreement, until such OP Units are transferred to the General Partner and paid for or exchanged on the Specified Redemption Date. Until a Specified Redemption Date, the Tendering Partner shall have no rights as a stockholder of the General Partner with respect to such Tendering Partners OP Units.
G. In the event that the Partnership issues additional Partnership Interests to any Additional Limited Partner pursuant to Section 4.3.B, the General Partner shall make such revisions to this Section 8.6 as it determines are necessary to reflect the issuance of such additional Partnership Interests.
H. Notwithstanding any other provision of this Agreement, the General Partner is authorized to take any action that it determines to be necessary or appropriate to cause the partnership to comply with any withholding requirements established under the Code or any other federal, state or local law that apply upon a Redemption or exchange of Tendered Units. If a Tendering Partner believes that it is exempt from withholding upon a Redemption or exchange of Tendered Units, such Partner must furnish the General Partner a FIRPTA certificate or other documentation requested by the General Partner is a form acceptable to the General Partner. If the Partnership or the General Partner is required to withhold and pay over to any taxing authority any amount upon a Redemption or exchange of Tendered Units and the Cash Amount or the REIT Shares Amount, as the case may be, equals or exceeds the amount of tax required to be withheld, the amount withheld shall be treated as an amount received by such Partner in redemption of its Tendered Units. If the Cash Amount or the REIT Shares Amount, as the case may be, is less than the amount of tax required to be withheld, the Tendering Partner shall not receive any Cash Amount or REIT Shares Amount, and the Tendering Partner shall contribute the excess of the amount of tax required to be withheld over the Cash Amount or REIT Shares Amount before such excess taxes are required to be paid to the taxing authority.
ARTICLE 9
BOOKS, RECORDS, ACCOUNTING AND REPORTS
Section 9.1 Records and Accounting.
The General Partner shall keep, or cause to be kept, at the principal office of the Partnership appropriate books and records with respect to the Partnerships business, including without limitation, all books and records necessary to provide to the Special General Partner and the Limited Partners any information, lists and copies of documents required to be provided pursuant to Section 9.3. Any records maintained by or on behalf of the Partnership in the regular course of its business may be kept on, or be in the form of any information storage device, provided, that the records so maintained are convertible into clearly legible written form within a reasonable period of time. The books of the Partnership shall be maintained, for financial and tax reporting purposes, on an accrual basis in accordance with generally accepted accounting principles.
Section 9.2 Fiscal Year.
The fiscal year of the Partnership shall be the calendar year.
Section 9.3 Reports.
A. As soon as practicable, but in no event later than 105 days after the close of each Partnership Year, or such earlier date as they are filed with the Securities and Exchange Commission, the General Partner shall cause to be delivered to the Special General Partner and each Limited Partner as of the close of the Partnership Year, an annual report containing financial statements of the Partnership, or of the General Partner if such statements are prepared solely on a consolidated basis with the General Partner, for such Partnership Year, presented in accordance with generally accepted accounting principles, such statements to be audited by a nationally recognized firm of independent public accountants selected by the General Partner.
B. As soon as practicable, but in no event later than 45 days after the close of each calendar quarter (except the last calendar quarter of each year), or such earlier date as they are filed with the Securities and Exchange Commission, the General Partner shall cause to be delivered to the Special General Partner and each Limited Partner as of the last day of the calendar quarter, a report containing unaudited financial statements of the Partnership, or of the General Partner, if such statements are prepared solely on a consolidated basis with the applicable law or regulation, or as the General Partner determines to be appropriate.
Section 9.4 Nondisclosure of Certain Information.
Notwithstanding the provisions of Sections 9.1 and 9.3, the General Partner may keep confidential from the Special General Partner and the Limited Partners any information that the General Partner believes to be in the nature of trade secrets or other information the disclosure of which the General Partner in good faith believes is not in the best interest of the Partnership or which the Partnership is required by law or by agreements with unaffiliated third parties to keep confidential.
ARTICLE 10
TAX MATTERS
Section 10.1 Preparation of Tax Returns.
The General Partner shall arrange for the preparation and timely filing of all returns of Partnership income, gains, deductions, losses and other items required of the Partnership for federal and applicable state income tax purposes and shall use all reasonable efforts to furnish, within 90 days of the close of each taxable year, the tax information reasonably required by the Special General Partner and the Limited Partners for federal and applicable state income tax reporting purposes. The Special General Partner and each Limited Partner shall promptly provide the General Partner with any information reasonably requested by the General Partner relating to any Contributed Property contributed (directly or indirectly) by such Partner to the Partnership.
Section 10.2 Tax Elections.
Except as otherwise provided herein, the General Partner shall, in its sole and absolute discretion, determine whether to make any available election pursuant to the Code, including the election under Section 754 of the Code. The General Partner shall have the right to seek to revoke any such election (including without limitation, any election under Section 754 of the Code) upon the General Partners determination in its sole and absolute discretion that such revocation is the best interests of the Partners.
Section 10.3 Tax Matters Partner.
A. The General Partner shall be the tax matters partner of the Partnership for federal income tax purposes. Pursuant to Section 6230(e) of the Code, upon receipt of notice from the IRS of the beginning of an administrative proceeding with respect to the Partnership, the tax matters partner shall furnish the IRS with the name, address and profit interest of the Special General Partner and each of the Limited Partners and Assignees; provided, however, that such information is provided to the Partnership by the Partners and Assignees.
B. The tax matters partner is authorized, but not required:
(1) to enter into any settlement with the IRS with respect to any administrative or judicial proceedings for the adjustment of Partnership items required to be taken into account by a Partner for income tax purposes (such administrative proceedings being referred to as a tax audit and such judicial proceedings being referred to as judicial review), and in the settlement agreement the tax matters partner may expressly state that such agreement shall bind all Partners, except that such settlement agreement shall not bind any Partner (i) who (within the time prescribed pursuant to the Code and Regulations) files a statement with the IRS providing that the tax matters partner shall not have the authority to enter into a settlement agreement on behalf of such Partner or (ii) who is a notice partner (as defined in Section 6231 of the Code) or a member of a notice group (as defined in Section 6223(b)(2) of the Code);
(2) in the event that a notice of a final administrative adjustment at the Partnership level of any item required to be taken into account by a Partner for tax purposes (a final adjustment) is mailed to the tax matters partner, to seek judicial review of such final adjustment, including the filing of a petition for readjustment with the Tax Court or the United States Claims Court, or the filing of a complaint for refund with the District Court of the United States for the district in which the Partnerships principal place of business is located;
(3) to intervene in any action brought by any other Partner for judicial review of a final adjustment;
(4) to file a request for an administrative adjustment with the IRS at any time and, if any part of such request is not allowed by the IRS, to file an appropriate pleading (petition or complaint) for judicial review with respect to such request;
(5) to enter into an agreement with the IRS to extend the period for assessing any tax which is attributable to any item required to be taken into account by a Partner for tax purposes, or an item affected by such item; and
(6) to take any other action on behalf of the Partners of the Partnership in connection with any tax audit or judicial review proceeding to the extent permitted by applicable law or regulations.
The taking of any action and the incurring of any expense by the tax matters partner in connection with any such proceeding, except to the extent required by law, is a matter in the sole and absolute discretion of the tax matters partner and the provisions relating to indemnification of the General Partner set forth in Section 7.7 shall be fully applicable to the tax matters partner in its capacity as such.
C. The tax matters partner shall receive no compensation for its services. All third party costs and expenses incurred by the tax matters partner in performing its duties as such (including legal and accounting fees) shall be borne by the Partnership. Nothing herein shall be construed to restrict the Partnership from engaging an accounting firm to assist the tax matters partner in discharging its duties hereunder, so long as the compensation paid by the Partnership for such services is reasonable.
Section 10.4 Organizational Expenses.
The Partnership shall elect to deduct expenses, if any, incurred by it in organizing the Partnership as provided in Section 709 of the Code.
Section 10.5 Withholding.
The Special General Partner and each Limited Partner hereby authorize the Partnership to withhold from or pay on behalf of or with respect to such Partner any amount of federal, state, local, or foreign taxes that the General Partner determines that the Partnership is required to withhold or pay with respect to any amount distributable or allocable to such Partner pursuant to this Agreement, including, without limitation, any taxes required to be withheld or paid by the Partnership pursuant to Sections 1441, 1442, 1445 or 1446 of the Code. Any amount paid on behalf of or with respect to the Special General Partner or a Limited Partner shall constitute a receivable of the Partnership from such Partner, which receivable shall be paid by such Partner within 15 days after notice from the General Partner that such payment must be made unless (i) the Partnership withholds such payment from a distribution which would otherwise be made to the Partner or (ii) the General Partner determines, in its sole and absolute discretion, that such payment may be satisfied out of the available funds of the Partnership which would, but for such payment, be distributed to the Partner. Any amounts withheld pursuant to the foregoing clauses (i) or (ii) shall be treated as having been distributed to such Partner. The Special General Partner and each Limited Partner hereby unconditionally and irrevocably grants to the Partnership a security interest in such Partners Partnership Interest to secure such Partners obligation to pay to the Partnership any amounts required to be paid pursuant to this Section 10.5. Any amounts payable by the Special General Partner or a Limited Partner hereunder shall bear interest at the base rate on corporate loans at large United States money center commercial banks, as published from time to time in the Wall Street
Journal, plus two percentage points (but not higher than the maximum lawful rate) from the date such amount is due (i.e., 15 days after demand) until such amount is paid in full. The Special General Partner and each Limited Partner shall take such actions as the Partnership or the General Partner shall request in order to perfect or enforce the security interest created hereunder.
ARTICLE 11
TRANSFERS AND WITHDRAWALS
Section 11.1 Transfer.
A. The term transfer, when used in this Article 11 with respect to a Partnership Interest, shall be deemed to refer to a transaction by which a Partner purports to assign its Partnership Interest to another Person and includes a sale, assignment, gift (outright or in trust), pledge, encumbrance, hypothecation, mortgage, exchange or any other disposition by law or otherwise. The term transfer when used in this Article 11 does not include any Redemption or exchange for REIT Shares pursuant to Section 8.6, except as otherwise provided herein. No part of the interest of a Limited Partner shall be subject to the claims of any creditor, any spouse for alimony or support, or to legal process, and may not be voluntarily or involuntarily alienated or encumbered except as may be specifically provided for in this Agreement or consented to by the General Partner and the Special General Partner.
B. No Partnership Interest shall be transferred, in whole or in part, except in accordance with the terms and conditions set forth in this Article 11. Any transfer or purported transfer of a Partnership Interest not made in accordance with this Article 11 shall be null and void ab initio unless otherwise consented to by the General Partner and the Special General Partner in their sole and absolute discretion.
Section 11.2 Transfer of the Partnership Interest of the General Partner and the Special General Partner.
A. The General Partner shall not (i) withdraw from the Partnership, (ii) directly or indirectly transfer all or any portion of its interest in the Partnership, or (iii) engage in any merger, consolidation, or other combination with or into another Person, sale of all or substantially all of its assets or any reclassification or recapitalization of its outstanding equity interests (an Extraordinary Transaction), without the Consent of the Partners, which may be given or withheld by each Partner in his, her or its sole and absolute discretion. In addition, if an Extraordinary Transaction would result in the termination of the Advisory Agreement, the Partnership must either (i) purchase the Special General Partner Interest as provided under Section 11.7, or (ii) obtain the Consent of the Special General Partner. Upon any transfer of a Partnership Interest in accordance with the provisions of this Section 11.2, the transferee shall become a Substitute General Partner for all purposes herein, and shall be vested with the powers and rights of the transferor General Partner, and shall be liable for all obligations and responsible for all duties of the General Partner, once such transferee has executed such instruments as may be necessary to effectuate such admission and to confirm the agreement of such transferee to be bound by all the terms and provisions of this Agreement with respect to the Partnership Interest so acquired. It is a condition to any transfer otherwise permitted hereunder that the transferee assumes, by operation of law or express agreement, all of the obligations of the transferor General Partner under this Agreement with respect to such transferred Partnership Interest, and no such transfer (other than pursuant to a statutory merger or consolidation wherein all obligations and liabilities of the transferor General Partner are assumed by a successor corporation by operation of law) shall relieve the transferor General Partner of its obligations under this Agreement without the Consent of the Limited Partners, in their reasonable discretion. In the event the General Partner withdraws from the Partnership in violation of this Agreement or otherwise, or otherwise dissolves or terminates, or upon the Incapacity of the General
Partner, all of the remaining Partners may elect to continue the Partnership business by selecting a Substitute General Partner in accordance with the Act.
B. Notwithstanding any other provision of this Agreement, the Special General Partner shall not transfer all or any portion of its Partnership Interest to any transferee without the consent of the General Partner, which consent may be withheld in the sole and absolute discretion of the General Partner. Notwithstanding the preceding sentence, however, the Special General Partner shall have the right, at any time, to transfer its Partnership Interest to the General Partner, an Affiliate of the General Partner, W. P. Carey Inc. or an Affiliate of W. P. Carey Inc.
Section 11.3 Limited Partners Rights to Transfer.
A. Prior to the first anniversary of the Effective Date, no Limited Partner shall transfer all or any portion of its Partnership Interest to any transferee without the consent of the General Partner and the Special General Partner, which consent may be withheld in their sole and absolute discretion; provided, however, that any Limited Partner may, at any time, without the consent of the General Partner and the Special General Partner, (i) transfer all or any portion of its Partnership Interest to the General Partner, (ii) transfer all or any portion of its Partnership Interest to an Affiliate, another original Limited Partner or to an Immediate Family Member, subject to the provisions of Section 11.6, (iii) transfer all or any portion of its Partnership Interest to a trust for the benefit of a charitable beneficiary or to a charitable foundation, subject to the provisions of Section 11.6, and (iv) subject to the provisions of Section 11.6, pledge (a Pledge) all or any portion of its Partnership Interest to a lending institution, which is not an Affiliate of such Limited Partner, as collateral or security for a bona fide loan or other extension of credit, and transfer such pledged Partnership Interest to such lending institution in connection with the exercise of remedies under such loan or extension or credit, and the transfer of such pledged Partnership Interest by the lender to any transferee. Each Limited Partner or Assignee (resulting from a transfer made pursuant to clauses (i)-(iv) of the proviso of the preceding sentence) shall have the right to transfer all or any portion of its Partnership Interest, subject to the provisions of Section 11.6 and the satisfaction of each of the following conditions (in addition to the right of each such Limited Partner or Assignee to continue to make any such transfer permitted by clauses (i)-(iv) of such proviso without satisfying either of the following conditions):
(1) General Partner Right of First Refusal. The transferring Partner shall give written notice of the proposed transfer to the General Partner, which notice shall state (i) the identity of the proposed transferee, and (ii) the amount and type of consideration proposed to be received for the transferred OP Units. The General Partner shall have ten (10) business days upon which to give the transferring Partner notice of its election to acquire the OP Units on the proposed terms. If it so elects, it shall purchase the OP Units on such terms within ten (10) business days after giving notice of such election. If it does not so elect, the transferring Partner may transfer such OP Units to a third party, on economic terms no more favorable to the transferee than the proposed terms, subject to the other conditions of this Section 11.3.
(2) Qualified Transferee. Any transfer of a Partnership Interest shall be made only to Qualified Transferees. It is a condition to any transfer otherwise permitted hereunder that the transferee assumes by operation of law or express agreement all of the obligations of the transferor Limited Partner under this Agreement with respect to such transferred Partnership Interest and no such transfer (other than pursuant to a statutory merger or consolidation wherein all obligations and liabilities of the transferor Partner are assumed by a successor corporation by operation of law) shall relieve the transferor Partner of its obligations under this Agreement without the approval of the General Partner, in its reasonable discretion. Notwithstanding the foregoing, any transferee of any transferred Partnership Interest shall be subject to any and all ownership limitations contained in the Charter, which may limit or
restrict such transferees ability to exercise its Redemption rights, and to the representations in Section 3.4.D. Any transferee, whether or not admitted as a Substituted Limited Partner, shall take subject to the obligations of the transferor hereunder. Unless admitted as a Substituted Limited Partner, no transferee, whether by a voluntary transfer, by operation of law or otherwise, shall have any rights hereunder, other than the rights of an Assignee as provided in Section 11.5.
B. If a Limited Partner is subject to Incapacity, the executor, administrator, trustee, committee, guardian, conservator, or receiver of such Limited Partners estate shall have all the rights of a Limited Partner, but not more rights than those enjoyed by other Limited Partners, for the purpose of settling or managing the estate, and such power as the Incapacitated Limited Partner possessed to transfer all or any part of his or its interest in the Partnership. The Incapacity of a Limited Partner, in and of itself, shall not dissolve or terminate the Partnership.
C. The General Partner may prohibit any transfer otherwise permitted under Section 11.3 by a Limited Partner of his or her OP Units if, in the opinion of legal counsel to the Partnership, such transfer would require the filing of a registration statement under the Securities Act by the Partnership or would otherwise violate any federal or state securities laws or regulations applicable to the Partnership or the Partnership Unit.
Section 11.4 Substituted Limited Partners.
A. No Limited Partner shall have the right to substitute a transferee as a Limited Partner in his or her place (including any transferee permitted by Section 11.3). The General Partner shall, however, have the right to consent to the admission of a transferee of the interest of a Limited Partner pursuant to this Section 11.4 as a Substituted Limited Partner, which consent may be given or withheld by the General Partner in its sole and absolute discretion. The General Partners failure or refusal to permit a transferee of any such interests to become a Substituted Limited Partner shall not give rise to any cause of action, whether at law or in equity, against the Partnership or any Partner.
B. A transferee who has been admitted as a Substituted Limited Partner in accordance with this Article 11 shall have all the rights and powers and be subject to all the restrictions and liabilities of a Limited Partner under this Agreement. The admission of any transferee as a Substituted Limited Partner shall be subject to the transferee executing and delivering to the General Partner an acceptance of all of the terms and conditions of this Agreement (including without limitation, the provisions of Section 2.4 and such other documents or instruments as may be required to effect the admission), each in form and substance satisfactory to the General Partner) and the acknowledgment by such transferee that each of the representations and warranties set forth in Section 3.4 are true and correct with respect to such transferee as of the date of the transfer of the Partnership Interest to such transferee and will continue to be true to the extent required by such representations and warranties.
C. Upon the admission of a Substituted Limited Partner, the General Partner shall amend Exhibit A to reflect the name, address, number of OP Units, and Percentage Interest of such Substituted Limited Partner and to eliminate or adjust, if necessary, the name, address and interest of the predecessor of such Substituted Limited Partner.
Section 11.5 Assignees.
If the General Partner, in its sole and absolute discretion, does not consent to the admission of any permitted transferee under Section 11.3 as a Substituted Limited Partner, as described in Section 11.4, such transferee shall be considered an Assignee for purposes of this Agreement. An Assignee shall be entitled to all the rights of an assignee of a limited partnership interest under the Act, including the right
to receive distributions from the Partnership and the share of Net Income, Net Loss, gain and loss attributable to the OP Units assigned to such transferee, the rights to transfer the OP Units provided in this Article 11, the right of Redemption provided in Section 8.6, but shall not be deemed to be a holder of OP Units for any other purpose under this Agreement, and shall not be entitled to effect a Consent with respect to such OP Units on any matter presented to the Limited Partners for approval (such Consent remaining with the transferor Limited Partner). In the event any such transferee desires to make a further assignment of any such Partnership Units, such transferee shall be subject to all the provisions of this Article 11 to the same extent and in the same manner as any Limited Partner desiring to make an assignment of OP Units. Notwithstanding anything contained in this Agreement to the contrary, as a condition to becoming an Assignee, any prospective Assignee must first execute and deliver to the Partnership an acknowledgment that each of the representations and warranties set forth in Section 3.4 are true and correct with respect to such prospective Assignee as of the date of the prospective assignment of the Partnership Interest to such prospective Assignee and will continue to be true to the extent required by such representations or warranties.
Section 11.6 General Provisions.
A. No Limited Partner may withdraw from the Partnership other than as a result of (i) a permitted transfer of all of such Limited Partners OP Units in accordance with this Article 11 and the transferee(s) of such Partnership Units being admitted to the Partnership as a Substituted Limited Partner or (ii) pursuant to the exercise of its right of Redemption of all of such Limited Partners OP Units under Section 8.6; provided that after such transfer, exchange or redemption such Limited Partner owns no Partnership Interest.
B. Any Limited Partner who shall transfer all of such Limited Partners OP Units in a transfer permitted pursuant to this Article 11 where such transferee was admitted as a Substituted Limited Partner or pursuant to the exercise of its rights of Redemption of all of such Limited Partners OP Units under Section 8.6 shall cease to be a Limited Partner; provided that after such transfer, exchange or redemption such Limited Partner owns no Partnership Interest.
C. Transfers pursuant to this Article 11 may only be made on the first day of a fiscal quarter of the Partnership, unless the General Partner otherwise agrees.
D. If any Partnership Interest is transferred, assigned or redeemed during any quarterly segment of the Partnerships Partnership Year in compliance with the provisions of this Article 11 or transferred or redeemed pursuant to Section 8.6, on any day other than the first day of a Partnership Year, then Net Income, Net Loss, each item thereof and all other items attributable to such Partnership Interest for such Partnership Year shall be divided and allocated between the transferor Partner and the transferee Partner by taking into account their varying interests during the Partnership Year using a method selected by the General Partner that is in accordance with Section 706(d) of the Code. Except as otherwise agreed by the General Partner, all distributions of Available Cash with respect to which the Partnership Record Date is before the date of such transfer, assignment, exchange or redemption shall be made to the transferor Partner, and all distributions of Available Cash thereafter, in the case of a transfer or assignment other than a redemption, shall be made to the transferee Partner.
E. In addition to any other restrictions on transfer herein contained, including without limitation the provisions of this Article 11, in no event may any transfer or assignment of a Partnership Interest by any Partner (including pursuant to a Redemption or exchange for REIT Shares by the Partnership or the General Partner) be made (i) to any person or entity who lacks the legal right, power or capacity to own a Partnership Interest; (ii) in violation of applicable law; (iii) except with the consent of the General Partner, which may be given or withheld in its sole and absolute discretion, of any
component portion of a Partnership Interest, such as the Capital Account, or rights to distributions, separate and apart from all other components of a Partnership Interest; (iv) except with the consent of the General Partner, which may be given or withheld in its sole and absolute discretion, if in the opinion of legal counsel to the Partnership such transfer could cause a termination of the Partnership for federal or state income tax purposes (except as a result of the Redemption or exchange for REIT Shares of all Partnership Interests held by all Limited Partners or pursuant to a transaction expressly permitted under Section 11.2); (v) if in the opinion of counsel to the Partnership such transfer could cause the Partnership to cease to be classified as a partnership for federal income tax purposes (except as a result of the Redemption or exchange for REIT Shares of all Partnership Interests held by all Limited Partners); (vi) if such transfer could, in the opinion of counsel to the Partnership, cause the Partnership to become, with respect to any employee benefit plan subject to Title I of ERISA, a party-in-interest (as defined in Section 3(14) of ERISA) or a disqualified person (as defined in Section 4975(c) of the Code); (vii) if such transfer could, in the opinion of counsel to the Partnership, cause any portion of the assets of the Partnership to constitute assets of any employee benefit plan pursuant to Department of Labor Regulations Section 2510.2-101; (viii) if such transfer requires the registration of such Partnership Interest pursuant to any applicable federal or state securities laws; (ix) except with the consent of the General Partner, which may be given or withheld in its sole and absolute discretion, if such transfer (1) could be treated as effectuated through an established securities market or a secondary market (or the substantial equivalent thereof) within the meaning of Section 7704 of the Code, (2) could cause the Partnership to become a publicly traded partnership, as such term is defined in Sections 469(k)(2) or 7704(b) of the Code, (3) could be in violation of Section 3.4.E(5), or (4) could cause the Partnership to fail one or more of the Safe Harbors (as defined below); (x) if such transfer subjects the Partnership to be regulated under the Investment Company Act of 1940, the Investment Advisors Act of 1940 or the Employee Retirement Income Security Act of 1974, each as amended; (xi) except with the consent of the General Partner, which may be given or withheld in its sole discretion, if the transferee or assignee of such Partnership Interest is unable to make the representations set forth in Section 3.4.C; (xii) if such transfer is made to a lender to the Partnership or any Person who is related (within the meaning of Section 1.752-4(b) of the Regulations) to any lender to the Partnership whose loan constitutes a Nonrecourse Liability, except with the consent of the General Partner, which may be given or withheld in its sole and absolute discretion; and provided, that, as a condition to granting such consent the lender may be required to enter into an arrangement with the Partnership and the General Partner to redeem or exchange for the REIT Shares Amount any OP Units in which a security interest is held simultaneously with the time at which such lender would be deemed to be a partner in the Partnership for purposes of allocating liabilities to such lender under Section 752 of the Code; or (xiii) if in the opinion of legal counsel for the Partnership such transfer could adversely affect the ability of the General Partner to continue to qualify as a REIT or, except with the consent of the General Partner, which may be given or withheld in its sole and absolute discretion, subject the General Partner to any additional taxes under Section 857 or Section 4981 of the Code.
F. The General Partner shall monitor the transfers of interests in the Partnership (including any acquisition of OP Units by the Partnership or the General Partner) to determine (i) if such interests could be treated as being traded on an established securities market or a secondary market (or the substantial equivalent thereof) within the meaning of Section 7704 of the Code and (ii) whether such transfers of interests could result in the Partnership being unable to qualify for the safe harbors set forth in Regulations Section 1.7704-1 (or such other guidance subsequently published by the IRS setting forth safe harbors under which interests will not be treated as readily tradable on a secondary market (or the substantial equivalent thereof) within the meaning of Section 7704 of the Code) (the Safe Harbors). The General Partner shall have the authority (but shall not be required) to take any steps it determines are necessary or appropriate in its sole and absolute discretion to prevent any trading of interests which could cause the Partnership to become a publicly traded partnership within the meaning of Code Section 7704,
or any recognition by the Partnership of such transfers, or to ensure that one or more of the Safe Harbors is met.
Section 11.7 Call Right Attributable to the Special General Partner Interest.
A. In the event of a Trigger Event (as defined in Section 11.7B hereof), the Partnership shall have the right (the Call Right) to redeem all, or any portion, of the Special General Partner Interest. The Partnership shall exercise the Call Right by providing the Special General Partner with written notice of its desire to exercise the Call Right within sixty (60) days of the occurrence of a Trigger Event. The purchase price to be paid by the Partnership for the portion of the Special General Partner Interest that is subject to the Call Right shall equal the fair market value of such Interest as determined by Appraisal, and, subject to Section 11.C below, shall be paid in cash or in REIT Shares (at the option of the Special General Partner) within one hundred twenty (120) days after the Partnership provides the written notice required under this Section 11.7.A.
B. For purposes of this Section 11.7, a Trigger Event means at any time after the second anniversary of the Effective Date, the:
(1) non-renewal of the Advisory Agreement upon the expiration of its then current term;
(2) termination of the Advisory Agreement for any reason under circumstances where an Affiliate of the Advisor does not serve as the advisor under any replacement advisory agreement; or
(3) resignation of the Advisor under the Advisory Agreement.
C. In the event that the Partnership exercises the Call Right as a result of a termination of the Advisory Agreement for Cause (as defined in the Advisory Agreement), the Partnership shall have the option to redeem all or a portion of the Special General Partner Interest by issuing its promissory note with (i) a term of five (5) years; (ii) annual installments of principal payable ratably over the term of the note; and (iii) a market rate of interest.
Section 11.8 Put Right of General Partner.
The General Partner shall have the right at any time (the GP Put Right) to require the Partnership to redeem any portion of the General Partner Interest for the purpose of providing the General Partner with sufficient funds to enable it to make redemptions of its stock. The General Partner shall exercise the GP Put Right at any time by providing the Partnership with written notice of its desire to exercise the GP Put Right. The purchase price to be paid by the Partnership for the portion of the General Partner Interest that the General Partner desires to be redeemed shall equal the fair market value of such portion as determined by Appraisal, and shall be paid in cash within one hundred twenty (120) days after the General Partner provides the written notice required under this Section 11.8. In the event that the General Partner exercises the GP Put Right, the OP Units held by the General Partner shall be reduced as appropriate.
ARTICLE 12
ADMISSION OF PARTNERS
Section 12.1 Admission of Successor General Partner.
A successor to all of the General Partners General Partner Interest pursuant to Section 11.2 who is proposed to be admitted as a successor General Partner shall be admitted to the Partnership as the General Partner, effective upon such transfer. Any such transferee shall carry on the business of the Partnership without dissolution. In each case, the admission shall be subject to the successor General Partner executing and delivering to the Partnership an acceptance of all of the terms and conditions of this Agreement and such other documents or instruments as may be required to effect the admission. In the case of such admission on any day other than the first day of a Partnership Year, all items attributable to the General Partner Interest for such Partnership Year shall be allocated between the transferring General Partner and such successor as provided in Article 11.
Section 12.2 Admission of Additional Limited Partners.
A. After the admission to the Partnership of the initial Limited Partners on the date hereof, a Person who makes a Capital Contribution to the Partnership in accordance with this Agreement shall be admitted to the Partnership as an Additional Limited Partner only upon furnishing to the General Partner (i) evidence of acceptance in form satisfactory to the General Partner of all of the terms and conditions of this Agreement, including, without limitation, the power of attorney granted in Section 2.4 and (ii) such other documents or instruments as may be required in the discretion of the General Partner in order to effect such Persons admission as an Additional Limited Partner.
B. Notwithstanding anything to the contrary in this Section 12.2, no Person shall be admitted as an Additional Limited Partner without the consent of the General Partner, which consent may be given or withheld in the General Partners sole and absolute discretion. The admission of any Person as an Additional Limited Partner shall become effective on the date upon which the name of such Person is recorded on the books and records of the Partnership, following the receipt of the Capital Contribution in respect of such Limited Partner and the consent of the General Partner to such admission. If any Additional Limited Partner is admitted to the Partnership on any day other than the first day of a Partnership Year, then Net Income, Net Loss, each item thereof and all other items allocable among Partners and Assignees for such Partnership Year shall be allocated among such Limited Partner and all other Partners and Assignees by taking into account their varying interests during the Partnership Year using a method selected by the General Partner that is in accordance with Section 706(d) of the Code. All distributions of Available Cash with respect to which the Partnership Record Date is before the date of such admission shall be made solely to Partners and Assignees other than the Additional Limited Partner (other than in its capacity as an Assignee) and, except as otherwise agreed to by the Additional Limited Partners and the General Partner, all distributions of Available Cash thereafter shall be made to all Partners and Assignees including such Additional Limited Partner.
Section 12.3 Amendment of Agreement and Certificate of Limited Partnership.
For the admission to the Partnership of any Partner, the General Partner shall take all steps necessary and appropriate under the Act to amend the records of the Partnership and, if necessary, to prepare as soon as practical an amendment of this Agreement (including an amendment of Exhibit A) and, if required by law, shall prepare and file an amendment to the Certificate and may for this purpose exercise the power of attorney granted pursuant to Section 2.4.
ARTICLE 13
DISSOLUTION AND LIQUIDATION
Section 13.1 Dissolution.
The Partnership shall not be dissolved by the admission of Substituted Limited Partners or Additional Limited Partners or by the admission of a successor General Partner in accordance with the terms of this Agreement. Upon the withdrawal of the General Partner, any successor General Partner (selected as described in Section 13.1.B below) shall continue the business of the Partnership. The Partnership shall dissolve, and its affairs shall be wound up, upon the first to occur of any of the following (each a Liquidating Event):
A. the expiration of its term as provided in Section 2.5;
B. an event of withdrawal of the General Partner, as defined in the Act, unless, within 90 days after the withdrawal, all of the remaining Partners agree in writing, in their sole and absolute discretion, to continue the business of the Partnership and to the appointment, effective as of the date of withdrawal, of a substitute General Partner;
C. subject to compliance with Section 11.2 an election to dissolve the Partnership made by the General Partner, in its sole and absolute discretion;
D. entry of a decree of judicial dissolution of the Partnership pursuant to the provisions of the Act;
E. any sale or other disposition of all or substantially all of the assets of the Partnership or a related series of transactions that, taken together, result in the sale or other disposition of all or substantially all of the assets of the Partnership;
F. the Incapacity of the General Partner, unless all of the remaining Partners in their sole and absolute discretion agree in writing to continue the business of the Partnership and to the appointment, effective as of a date prior to the date of such Incapacity, of a substitute General Partner;
G. the redemption or exchange for REIT Shares of all Partnership Interests (other than those of the General Partner) pursuant to this Agreement; or
H. a final and non-appealable judgment is entered by a court of competent jurisdiction ruling that the General Partner is bankrupt or insolvent, or a final and non-appealable order for relief is entered by a court with appropriate jurisdiction against the General Partner, in each case under any federal or state bankruptcy or insolvency laws as now or hereafter in effect, unless prior to the entry of such order or judgment all of the remaining Partners agree in writing to continue the business of the Partnership and to the appointment, effective as of a date prior to the date of such order or judgment, of a substitute General Partner.
Section 13.2 Winding Up.
A. Upon the occurrence of a Liquidating Event, the Partnership shall continue solely for the purposes of winding up its affairs in an orderly manner, liquidating its assets, and satisfying the claims of its creditors and Partners. No Partner shall take any action that is inconsistent with, or not necessary to or appropriate for, the winding up of the Partnerships business and affairs. The General
Partner (or, in the event there is no remaining General Partner, any Person elected by a Majority in Interest of the Limited Partners (the Liquidator)) shall be responsible for overseeing the winding up and dissolution of the Partnership and shall take full account of the Partnerships liabilities and property and the Partnership property shall be liquidated as promptly as is consistent with obtaining the fair value thereof, and the proceeds therefrom (which may, to the extent determined by the General Partner, include shares of stock in the General Partner) shall be applied and distributed in the following order:
(1) First, to the payment and discharge of all of the Partnerships debts and liabilities to creditors other than the Partners;
(2) Second, to the payment and discharge of all of the Partnerships debts and liabilities to the General Partner;
(3) Third, to the payment and discharge of all of the Partnerships debts and liabilities to the other Partners; and
(4) The balance, if any, to the General Partner, the Special General Partner and the Limited Partners in proportion to their positive Capital Account balances, determined after taking into account all Capital Account adjustments for all prior periods and the Partnership taxable year during which the liquidation occurs (other than those made as a result of the liquidating distribution set forth in this Section 13.2.A(4)).
B. Notwithstanding the provisions of Section 13.2.A which require liquidation of the assets of the Partnership, but subject to the order of priorities set forth therein, if prior to or upon dissolution of the Partnership the Liquidator determines that an immediate sale of part or all of the Partnerships assets would be impractical or would cause undue loss to the Partners, the Liquidator may, in its sole and absolute discretion, defer for a reasonable time the liquidation of any assets except those necessary to satisfy liabilities of the Partnership (including to those Partners as creditors) and/or distribute to the Partners, in lieu of cash, as tenants in common and in accordance with the provisions of Section 13.2.A, undivided interests in such Partnership assets as the Liquidator deems not suitable for liquidation. Any such distributions in-kind shall be made only if, in the good faith judgment of the Liquidator, such distributions in-kind are in the best interest of the Partners, and shall be subject to such conditions relating to the disposition and management of such properties as the Liquidator deems reasonable and equitable and to any agreements governing the operation of such properties at such time. The Liquidator shall determine the fair market value of any property distributed in kind using such reasonable method of valuation as it may adopt.
Section 13.3 Capital Contribution Obligation.
A. Except as otherwise provided in Section 13.3.B, if any Partner has a deficit balance in its Capital Account (after giving effect to all contributions, distributions and allocations for the taxable years, including the year during which such liquidation occurs), such Partner shall have no obligation to make any contribution to the capital of the Partnership with respect to such deficit, and such deficit at any time shall not be considered a debt owed to the Partnership or to any other Person for any purpose whatsoever, except to the extent otherwise expressly agreed to by such Partner and the Partnership.
B. Notwithstanding any other provision in this Agreement, the Special General Partner shall make a cash contribution to restore a deficit balance in its Capital Account, within ninety (90) days after the earlier of a liquidation of the Partnership or a liquidation of its interest in the Partnership, but only to the extent that the Special General Partner has received cash distributions from the Partnership
during the life of the Partnership in excess of its net allocations from the Partnership of income and gain. The Special General Partners potential obligation under this Section 13.3.B is intended to be treated as a limited deficit capital account restoration provision for purposes of Regulations Section 1.704-1(b)(2)(ii)(b)(3).
Section 13.4 Compliance with Timing Requirements of Regulations.
In the discretion of the Liquidator or the General Partner, a pro rata portion of the distributions that would otherwise be made to the General Partner and Limited Partners pursuant to this Article 13 may be:
(1) distributed to a trust established for the benefit of the General Partner and Limited Partners for the purposes of liquidating Partnership assets, collecting amounts owed to the Partnership, and paying any contingent or unforeseen liabilities or obligations of the Partnership or of the General Partner arising out of or in connection with the Partnership. The assets of any such trust shall be distributed to the General Partner and Limited Partners from time to time, in the reasonable discretion of the Liquidator or the General Partner, in the same proportions and the amount distributed to such trust by the Partnership would otherwise have been distributed to the General Partner and Limited Partners pursuant to this Agreement; or
(2) withheld or escrowed to provide a reasonable reserve for Partnership liabilities (contingent or otherwise) and to reflect the unrealized portion of any installment obligations owed to the Partnership, provided, that such withheld or escrowed amounts shall be distributed to the General Partner and Limited Partners in the manner and priority set forth in Section 13.2.A as soon as practicable.
Section 13.5 Deemed Distribution and Recontribution.
Notwithstanding any other provision of this Article 13, in the event the Partnership is liquidated within the meaning of Regulations Section 1.704-1(b)(2)(ii)(g) but no Liquidating Event has occurred, the Partnerships property shall not be liquidated, the Partnerships liabilities shall not be paid or discharged, and the Partnerships affairs shall not be wound up. Instead, the Partnership shall be deemed to have contributed all of its assets and liabilities to a new partnership in exchange a for an interest in the new partnership. Immediately thereafter, the Partnership shall be deemed to distribute interests in the new partnership to the General Partner and Limited Partners in proportion to their respective interests in the Partnership in liquidation of the Partnership.
Section 13.6 Rights of Limited Partners.
Except as otherwise provided in this Agreement, each Limited Partner shall look solely to the assets of the Partnership for the return of his Capital Contribution and shall have no right or power to demand or receive property from the General Partner. No Limited Partner shall have priority over any other Limited Partner as to the return of his Capital Contributions, distributions or allocations.
Section 13.7 Notice of Dissolution.
In the event a Liquidating Event occurs or an event occurs that would, but for provisions of Section 13.1, result in a dissolution of the Partnership, the General Partner shall, within 30 days thereafter, provide written notice thereof to each of the Partners and to all other parties with whom the Partnership regularly conducts business (as determined in the discretion of the General Partner) and shall
publish notice thereof in a newspaper of general circulation in each place in which the Partnership regularly conducts business (as determined in the discretion of the General Partner).
Section 13.8 Cancellation of Certificate of Limited Partnership.
Upon the completion of the liquidation of the Partnership cash and property as provided in Section 13.2, the Partnership shall be terminated and the Certificate and all qualifications of the Partnership as a foreign limited partnership in jurisdictions shall be cancelled and such other actions as may be necessary to terminate the Partnership shall be taken.
Section 13.9 Reasonable Time for Winding-Up.
A reasonable time shall be allowed for the orderly winding-up of the business and affairs of the Partnership and the liquidation of its assets pursuant to Section 13.2, in order to minimize any losses otherwise attendant upon such winding-up, and the provisions of this Agreement shall remain in effect between the Partners during the period of liquidation.
Section 13.10 Waiver of Partition.
Each Partner hereby waives any right to partition of the Partnership property.
ARTICLE 14
AMENDMENT OF PARTNERSHIP AGREEMENT; CONSENTS
Section 14.1 Amendments.
A. The actions requiring consent or approval of the Partners or of the Limited Partners pursuant to this Agreement, including Section 7.3, or otherwise pursuant to applicable law, are subject to the procedures in this Article 14.
B. Amendments to this Agreement requiring the consent or approval of Limited Partners may be proposed by the General Partner or by Limited Partners holding twenty-five percent (25%) or more of the Partnership Interests held by Limited Partners. Following such proposal, the General Partner shall submit any proposed amendment to the Partners or to the Limited Partners, as applicable. The General Partner shall seek the written consent of the Limited Partners on the proposed amendment or shall call a meeting to vote thereon and to transact any other business that it may deem appropriate. For purposes of obtaining a written consent, the General Partner may require a response within a reasonable specified time, but not less than 15 days, and failure to respond in such time period shall constitute a consent which is consistent with the General Partners recommendation (if so recommended) with respect to the proposal; provided, that, an action shall become effective at such time as requisite consents are received even if prior to such specified time.
Section 14.2 Action by the Partners.
A. Meetings of the Partners may be called by the General Partner and shall be called upon the receipt by the General Partner of a written request by Limited Partners holding twenty-five percent (25%) or more of the Partnership Interests held by Limited Partners. The notice shall state the nature of the business to be transacted. Notice of any such meeting shall be given to all Partners not less than seven days nor more than 30 days prior to the date of such meeting. Partners may vote in person or by proxy at such meeting. Whenever the vote or Consent of the Limited Partners or of the Partners is
permitted or required under this Agreement, such vote or Consent may be given at a meeting of Partners or may be given in accordance with the procedure prescribed in Section 14.1.
B. Any action required or permitted to be taken at a meeting of the Partners may be taken without a meeting if a written consent setting forth the action so taken is signed by the percentage as is expressly required by this Agreement for the action in question. Such consent may be in one instrument or in several instruments, and shall have the same force and effect as a vote of the Percentage Interests of the Partners (expressly required by this Agreement). Such consent shall be filed with the General Partner. An action so taken shall be deemed to have been taken at a meeting held on the effective date so certified.
C. Each Limited Partner may authorize any Person or Persons to act for him by proxy on all matters in which a Limited Partner is entitled to participate, including waiving notice of any meeting, or voting or participating at a meeting. Every proxy must be signed by the Limited Partner or his attorney-in-fact. No proxy shall be valid after the expiration of 11 months from the date thereof unless otherwise provided in the proxy. Every proxy shall be revocable at the pleasure of the Limited Partner executing it.
D. Each meeting of Partners shall be conducted by the General Partner or such other Person as the General Partner may appoint pursuant to such rules for the conduct of the meeting as the General Partner or such other Person deems appropriate.
E. On matters on which Limited Partners are entitled to vote, each Limited Partner shall have a vote equal to the number of OP Units held.
ARTICLE 15
GENERAL PROVISIONS
Section 15.1 Addresses and Notice.
Any notice, demand, request or report required or permitted to be given or made to a Partner or Assignee under this Agreement shall be in writing and shall be deemed given or made when delivered in person or when sent by first class United States mail or by other means of written communication to the Partner or Assignee at the address set forth in Exhibit A or such other address as the Partners shall notify the General Partner in writing.
Section 15.2 Titles and Captions.
All article or section titles or captions in this Agreement are for convenience only. They shall not be deemed part of this Agreement and in no way define, limit, extend or describe the scope or intent of any provisions hereof. Except as specifically provided otherwise, references to Articles and Sections are to Articles and Sections of this Agreement.
Section 15.3 Pronouns and Plurals.
Whenever the context may require, any pronoun used in this Agreement shall include the corresponding masculine, feminine or neuter forms, and the singular form of nouns, pronouns and verbs shall include the plural and vice versa.
Section 15.4 Further Action.
The parties shall execute and deliver all documents, provide all information and take or refrain from taking action as may be necessary or appropriate to achieve the purposes of this Agreement.
Section 15.5 Binding Effect.
This Agreement shall be binding upon and inure to the benefit of the parties hereto and their heirs, executors, administrators, successors, legal representatives and permitted assigns.
Section 15.6 Creditors.
Other than as expressly set forth herein with respect to Indemnitees, none of the provisions of this Agreement shall be for the benefit of, or shall be enforceable by, any creditor of the Partnership.
Section 15.7 Waiver.
No failure or delay by any party to insist upon the strict performance of any covenant, duty, agreement or condition of this Agreement or to exercise any right or remedy consequent upon any breach thereof shall constitute waiver of any such breach or any other covenant, duty, agreement or condition.
Section 15.8 Counterparts.
This Agreement may be executed in counterparts, all of which together shall constitute one agreement binding on all the parties hereto, notwithstanding that all such parties are not signatories to the original or the same counterpart. Each party shall become bound by this Agreement immediately upon affixing its signature hereto.
Section 15.9 Applicable Law.
This Agreement shall be construed in accordance with and governed by the laws of the State of Delaware, without regard to the principles of conflicts of law.
Section 15.10 Invalidity of Provisions.
If any provision of this Agreement is or becomes invalid, illegal or unenforceable in any respect, the validity, legality and enforceability of the remaining provisions contained herein shall not be affected thereby.
Section 15.11 Entire Agreement.
This Agreement contains the entire understanding and agreement among the Partners with respect to the subject matter hereof and supersedes any other prior written or oral understandings or agreements among them with respect thereto.
Section 15.12 No Rights as Stockholders.
Nothing contained in this Agreement shall be construed as conferring upon the holders of OP Units any rights whatsoever as stockholders of the General Partner, including without limitation any right to receive dividends or other distributions made to stockholders of the General Partner or to vote or to
consent or to receive notice as stockholders in respect of any meeting of stockholders for the election of directors of the General Partner or any other matter.
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IN WITNESS WHEREOF, the parties hereto have executed this Amended and Restated Agreement of Limited Partnership as of the date first written above.
General Partner: |
CORPORATE PROPERTY ASSOCIATES 17- GLOBAL INCORPORATED, a Maryland company | |
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By: |
/s/ Susan C. Hyde |
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Name: Susan C. Hyde |
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Title: Managing Director and Secretary |
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Special General Partner: |
W. P. CAREY HOLDINGS, LLC, a Delaware limited liability company | |
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By: CAREY REIT II, INC., as the sole member | |
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By: |
/s/ Thomas E. Zacharias |
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Name: Thomas E. Zacharias |
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Title: Chief Operating Officer |
Exhibit 10.10
CAREY FINANCIAL, LLC
DEALER MANAGER AGREEMENT
April 7, 2011
Carey Financial, LLC
50 Rockefeller Plaza
New York, New York 10020
RE: CORPORATE PROPERTY ASSOCIATES 17 - GLOBAL INCORPORATED
Ladies and Gentlemen:
Corporate Property Associates 17 - Global Incorporated (the Company) is a Maryland corporation that is taxed as a real estate investment trust (a REIT) for federal income tax purposes. The Company proposes to offer in a follow on offering (a) up to 100,000,000 shares of common stock, $.001 par value per share (the Shares), for a purchase price of $10.00 per Share (subject in certain circumstances to discounts based upon the volume of shares purchased and for certain categories of purchasers), in the primary offering (the Primary Offering), and (b) up to 50,000,000 Shares for a purchase price of $9.50 per Share for issuance through the Companys distribution reinvestment program (the DRIP and together with the Primary Offering, the Offering), all upon the other terms and subject to the conditions set forth in the Prospectus (as defined in Section 1(a)). The Company has reserved the right to reallocate the Shares offered in the Offering between the DRIP and the Primary Offering.
Upon the terms and subject to the conditions contained in this Dealer Manager Agreement (this Agreement), the Company hereby appoints Carey Financial, LLC, a Delaware limited liability company (the Dealer Manager), to act as the exclusive dealer manager for the Offering, and the Dealer Manager desires to accept such engagement.
1. Representations And Warranties Of The Company. The Company hereby represents, warrants and agrees during the term of this Agreement as follows:
(a) Registration Statement and Prospectus. In connection with the Offering, the Company has prepared and filed with the Securities and Exchange Commission (the Commission) a registration statement (File No. 333-170225) on Form S-11 for the registration of the Shares under the Securities Act of 1933, as amended (the Securities Act), and the rules and regulations of the Commission promulgated thereunder (the Securities Act Rules and Regulations); one or more amendments to such registration statement have been or may be so prepared and filed. The registration statement on Form S-11 and the prospectus contained therein, as finally amended at the date the registration statement is declared effective by the Commission (the Effective Date) are respectively hereinafter referred to as the Registration Statement and the Prospectus, except that:
(i) if the Company files a post-effective amendment to such registration statement, then the term Registration Statement shall, from and after the declaration of the effectiveness of such post-effective amendment by the Commission, refer to such registration statement as
amended by such post-effective amendment, and the term Prospectus shall refer to the amended prospectus then on file with the Commission; and
(ii) if the prospectus filed by the Company pursuant to either Rule 424(b) or 424(c) of the Securities Act Rules and Regulations shall differ from the prospectus on file at the time the Registration Statement or the most recent post-effective amendment thereto, if any, shall have become effective, then the term Prospectus shall refer to such prospectus filed pursuant to either Rule 424(b) or 424(c), as the case may be, from and after the date on which it shall have been filed. As used herein, the terms Registration Statement, preliminary Prospectus and Prospectus shall include the documents, if any, incorporated by reference therein.
(iii) the documents incorporated or deemed to be incorporated by reference in the Prospectus, at the time they are hereafter filed with the Commission, will comply in all material respects with the requirements of the Securities Exchange Act of 1934, as amended (the Exchange Act) and the rules and regulations promulgated thereunder (the Exchange Act Rules and Regulations), and, when read together with the other information in the Prospectus, at the time the Registration Statement became effective and as of the applicable Effective Date of each post-effective amendment to the Registration Statement, did not and will not include an untrue statement of a material fact or omit to state a material fact required to be stated therein or necessary in order to make the statements therein, in the light of the circumstances under which they were made, not misleading.
As used herein, the term Effective Date also shall refer to the effective date of each post-effective amendment to the Registration Statement, unless the context otherwise requires.
Further, if a separate prospectus is filed and becomes effective with respect solely to the DRIP (a DRIP Prospectus), the term Prospectus shall refer to such DRIP Prospectus from and after the declaration of effectiveness of such DRIP Prospectus.
(b) Compliance With the Securities Act. During the term of this Agreement:
(i) the Registration Statement, the Prospectus and any amendments or supplements thereto have complied, and will comply, in all material respects with the Securities Act, the Securities Act Rules and Regulations, the requirements of the Securities Exchange Act of 1934, as amended (the Exchange Act) and the rules and regulations promulgated thereunder (the Exchange Act Rules and Regulations); and
(ii) the Registration Statement does not, and any amendment thereto will not, in each case as of the applicable Effective Date, include any untrue statement of material fact or omit to state any material fact required to be stated therein or necessary to make the statements therein, in light of the circumstances under which they were made, not misleading and the Prospectus does not, and any amendment or supplement thereto will not, as of the applicable filing date, include any untrue statement of a material fact or omit to state any material fact required to be stated therein or necessary to make the statements therein, in light of the circumstances under which they are made, not misleading; provided, however, that the foregoing provisions of this Section 1(b) will not extend to any statements contained in or omitted from the Registration Statement or the Prospectus that are based upon written information furnished to the Company by the Dealer Manager expressly for use in the Registration Statement or Prospectus.
(c) Securities Matters. There has not been:
(i) any request by the Commission for any further amendment to the Registration Statement or the Prospectus or for any additional information;
(ii) any issuance by the Commission of any stop order suspending the effectiveness of the Registration Statement or the institution or, to the Companys knowledge, threat of any proceeding for that purpose; or
(iii) any notification with respect to the suspension of the qualification of the Shares for sale in any jurisdiction or any initiation or, to the Companys knowledge, threat of any proceeding for such purpose.
The Company is in compliance in all material respects with all federal and state securities laws, rules and regulations applicable to it and its activities, including, without limitation, with respect to the Offering and the sale of the Shares.
(d) Corporate Status and Good Standing. The Company is a corporation duly organized and validly existing under the laws of the State of Maryland and is in good standing with the State Department of Assessments and Taxation of Maryland, with all requisite power and authority to enter into this Agreement and to carry out its obligations hereunder.
(e) Authorization of Agreement. This Agreement is duly and validly authorized, executed and delivered by or on behalf of the Company and constitutes a valid and binding agreement of the Company enforceable in accordance with its terms, except as such enforceability may be limited by bankruptcy, insolvency, reorganization, moratorium or other similar laws of the United States, any state or any political subdivision thereof which affect creditors rights generally or by equitable principles relating to the availability of remedies or except to the extent that the enforceability of the indemnity and contribution provisions contained in this Agreement may be limited under applicable securities laws.
The execution and delivery of this Agreement and the performance of this Agreement, the consummation of the transactions contemplated herein and the fulfillment of the terms hereof, do not and will not conflict with, or result in a breach of any of the terms and provisions of, or constitute a default under:
(i) the Companys or any of its subsidiaries charter, bylaws, or other organizational documents, as the case may be;
(ii) any indenture, mortgage, deed of trust, voting trust agreement, note, lease or other agreement or instrument to which the Company or any of its subsidiaries is a party or by which the Company or any of its subsidiaries or any of their properties is bound except, for purposes of this clause (ii) only, for such conflicts, breaches or defaults that do not result in and could not reasonably be expected to result in, individually or in the aggregate, a Company MAE (as defined below in this Section 1(e)); or
(iii) any statute, rule or regulation or order of any court or other governmental agency or body having jurisdiction over the Company, any of its subsidiaries or any of their properties.
No consent, approval, authorization or order of any court or other governmental agency or body has been or is required for the performance of this Agreement or for the consummation by the
Company of any of the transactions contemplated hereby (except as have been obtained under the Securities Act, the Exchange Act, from the Financial Industry Regulatory Authority (FINRA) or as may be required under state securities or applicable blue sky laws in connection with the offer and sale of the Shares or under the laws of states in which the Company may own real properties in connection with its qualification to transact business in such states or as may be required by subsequent events which may occur). Neither the Company nor any of its subsidiaries is in violation of its charter, bylaws or other organizational documents, as the case may be.
As used in this Agreement, Company MAE means any event, circumstance, occurrence, fact, condition, change or effect, individually or in the aggregate, that is, or could reasonably be expected to be, materially adverse to (A) the condition, financial or otherwise, earnings, business affairs or business prospects of the Company and its subsidiaries considered as one enterprise, or (B) the ability of the Company to perform its obligations under this Agreement or the validity or enforceability of this Agreement or the Shares.
(f) Actions or Proceedings. As of the initial Effective Date, there are no actions, suits or proceedings against, or investigations of, the Company or its subsidiaries pending or, to the knowledge of the Company, threatened, before any court, arbitrator, administrative agency or other tribunal:
(i) asserting the invalidity of this Agreement;
(ii) seeking to prevent the issuance of the Shares or the consummation of any of the transactions contemplated by this Agreement;
(iii) that might materially and adversely affect the performance by the Company of its obligations under or the validity or enforceability of, this Agreement or the Shares;
(iv) that might result in a Company MAE, or
(v) seeking to affect adversely the federal income tax attributes of the Shares except as described in the Prospectus.
The Company promptly will give notice to the Dealer Manager of the occurrence of any action, suit, proceeding or investigation of the type referred to above arising or occurring on or after the initial Effective Date.
(g) Hazardous Materials. The Company does not have any knowledge of:
(i) the unlawful presence of any hazardous substances, hazardous materials, toxic substances or waste materials (collectively, Hazardous Materials) on any of the properties owned by it or its subsidiaries or subject to mortgage loans owned by the Company or any of its subsidiaries; or
(ii) any unlawful spills, releases, discharges or disposal of Hazardous Materials that have occurred or are presently occurring off such properties as a result of any construction on or operation and use of such properties, which presence or occurrence in the case of clauses (i) and (ii) would result in, individually or in the aggregate, a Company MAE.
In connection with the properties owned by the Company and its subsidiaries or subject to mortgage loans owned by the Company or any of its subsidiaries, the Company has no knowledge
of any material failure to comply with all applicable local, state and federal environmental laws, regulations, ordinances and administrative and judicial orders relating to the generation, recycling, reuse, sale, storage, handling, transport and disposal of any Hazardous Materials.
(h) Sales Literature. Any supplemental sales literature or advertisement (including, without limitation any broker-dealer use only material), regardless of how labeled or described, used in addition to the Prospectus in connection with the Offering which previously has been, or hereafter is, furnished or approved by the Company (collectively, Approved Sales Literature), shall, to the extent required, be filed with and approved by the appropriate securities agencies and bodies, provided that the Dealer Manager will make all FINRA filings, to the extent required. Any and all Approved Sales Literature, when used in connection with the Prospectus, did not or will not at the time provided for use include any untrue statement of a material fact or omit to state a material fact required to be stated therein or necessary to make the statements therein, in light of the circumstances under which they were made, not misleading.
(i) Authorization of Shares. The Shares have been duly authorized and, upon payment therefor as provided in this Agreement and the Prospectus, will be validly issued, fully paid and nonassessable and will conform to the description thereof contained in the Prospectus.
(j) Taxes. Any taxes, fees and other governmental charges in connection with the execution and delivery of this Agreement or the execution, delivery and sale of the Shares have been or will be paid when due.
(k) Investment Company. The Company is not, and neither the offer or sale of the Shares nor any of the activities of the Company will cause the Company to be, an investment company or under the control of an investment company as such terms are defined in the Investment Company Act of 1940, as amended.
(l) Tax Returns. The Company has filed or will file all material federal, state and foreign income tax returns required to be filed by or on behalf of the Company on or before the due dates therefor (taking into account all extensions of time to file) and has paid or provided for the payment of all such material taxes, except those being contested in good faith, indicated by such tax returns and all assessments received by the Company to the extent that such taxes or assessments have become due.
(m) REIT Qualifications. The Company has made a timely election to be subject to tax as a REIT pursuant to Sections 856 through 860 of the Internal Revenue Code of 1986, as amended (the Code) for its taxable year ended December 31, 2007 and has not revoked such election. The Company has been organized and operated in conformity with the requirements for qualification and taxation as a REIT. The Companys current and proposed method of operation as described in the Registration Statement and the Prospectus will enable it to continue to meet the requirements for qualification and taxation as a REIT under the Code.
(n) Independent Registered Public Accounting Firm. The accountants who have certified certain financial statements appearing in the Prospectus are an independent registered public accounting firm within the meaning of the Securities Act and the Securities Act Rules and Regulations. Such accountants have not been engaged by the Company to perform any prohibited activities (as defined in Section 10A of the Exchange Act).
(o) Preparation of the Financial Statements. The financial statements filed with the Commission as a part of the Registration Statement and included in the Prospectus present fairly the consolidated
financial position of the Company and its subsidiaries as of and at the dates indicated and the results of their operations and cash flows for the periods specified. Such financial statements have been prepared in conformity with generally accepted accounting principles as applied in the United States applied on a consistent basis throughout the periods involved, except as may be expressly stated in the related notes thereto. No other financial statements or supporting schedules are required to be included in the Registration Statement or any applicable Prospectus.
(p) Material Adverse Change. Since the respective dates as of which information is given in the Registration Statement and the Prospectus, except as may otherwise be stated therein or contemplated thereby, there has not occurred a Company MAE, whether or not arising in the ordinary course of business.
(q) Government Permits. The Company and its subsidiaries possess such certificates, authorities or permits issued by the appropriate state, federal or foreign regulatory agencies or bodies necessary to conduct the business now operated by them, other than those the failure to possess or own would not have, individually or in the aggregate, a Company MAE. Neither the Company nor any of its subsidiaries has received any notice of proceedings relating to the revocation or modification of any such certificate, authority or permit which, individually or in the aggregate, if the subject of an unfavorable decision, ruling or finding, would result in a Company MAE.
(r) Properties. Except as otherwise disclosed in the Prospectus and except as would not result in, individually or in the aggregate, a Company MAE:
(i) all properties and assets described in the Prospectus are owned with good and marketable title by the Company and its subsidiaries; and
(ii) all liens, charges, encumbrances, claims or restrictions on or affecting any of the properties and assets of any of the Company or its subsidiaries which are required to be disclosed in the Prospectus are disclosed therein.
2. Representations and Warranties of the Dealer Manager. The Dealer Manager represents and warrants to the Company during the term of this Agreement that:
(a) Organization Status. The Dealer Manager is a limited liability company duly organized, validly existing and in good standing under the laws of the State of Delaware, with all requisite power and authority to enter into this Agreement and to carry out its obligations hereunder.
(b) Authorization of Agreement. This Agreement has been duly authorized, executed and delivered by the Dealer Manager, and assuming due authorization, execution and delivery of this Agreement by the Company, will constitute a valid and legally binding agreement of the Dealer Manager enforceable against the Dealer Manager in accordance with its terms, except as enforceability may be limited by applicable bankruptcy, insolvency or similar laws affecting the enforcement of creditors rights generally or by equitable principles relating to enforceability and except that rights to indemnity and contribution hereunder may be limited by applicable law and public policy.
(c) Absence of Conflict or Default. The execution and delivery of this Agreement, the consummation of the transactions herein contemplated and compliance with the terms of this Agreement by the Dealer Manager will not conflict with or constitute a default under:
(i) its organizational documents;
(ii) any indenture, mortgage, deed of trust or lease to which the Dealer Manager is a party or by which it may be bound, or to which any of the property or assets of the Dealer Manager is subject; or
(iii) any rule, regulation, writ, injunction or decree of any government, governmental instrumentality or court, domestic or foreign, having jurisdiction over the Dealer Manager or its assets, properties or operations, except in the case of clause (ii) or (iii) for such conflicts or defaults that would not individually or in the aggregate have a material adverse effect on the condition (financial or otherwise), business, properties or results of operations of the Dealer Manager.
(d) Broker-Dealer Registration; FINRA Membership. The Dealer Manager is, and during the term of this Agreement will be, duly registered as a broker-dealer pursuant to the provisions of the Exchange Act, a member in good standing of FINRA, and a broker or dealer duly registered as such in those states where the Dealer Manager is required to be registered in order to carry out the Offering as contemplated by this Agreement. Moreover, the Dealer Managers employees and representatives have all required licenses and registrations to act under this Agreement. There is no provision in the Dealer Managers FINRA membership agreement that would restrict the ability of the Dealer Manager to carry out the Offering as contemplated by this Agreement.
3. Offering and Sale of the Shares. Upon the terms and subject to the conditions set forth in this Agreement, the Company hereby appoints the Dealer Manager as its agent and distributor to solicit and to retain the Selected Dealers (as defined in Section 3(a)) to solicit subscriptions for the Shares at the subscription price to be paid in cash. The Dealer Manager hereby accepts such agency and exclusive distributorship and agrees to use its reasonable best efforts to sell or cause to be sold the Shares in such quantities and to such persons in accordance with such terms as are set forth in this Agreement, the Prospectus and the Registration Statement.
The Dealer Manager shall do so during the period commencing on the initial Effective Date and ending on the earliest to occur of the following: (1) the later of (x) two years after the initial Effective Date of the Registration Statement and (y) at the Companys election, the date on which the Company is permitted to extend the Offering in accordance with the rules of the Commission; (2) the acceptance by the Company of subscriptions for 150,000,000 Shares; (3) the termination of the Offering by the Company, which the Company shall have the right to terminate in its sole and absolute discretion at any time; (4) the termination of the effectiveness of the Registration Statement; and (5) the liquidation or dissolution of the Company (such period being the Offering Period).
The number of Shares, if any, to be reserved for sale by each Selected Dealer may be determined by mutual agreement, from time to time, by the Dealer Manager and the Company. In the absence of such determination, the Company shall, subject to the provisions of Section 3(b), accept Subscription Agreements based upon a first-come, first accepted reservation or other similar method. Under no circumstances will the Dealer Manager be obligated to underwrite or purchase any Shares for its own account and, in soliciting purchases of Shares, the Dealer Manager shall act solely as the Companys agent and not as an underwriter or principal.
(a) Selected Dealers. The Shares offered and sold through the Dealer Manager under this Agreement shall be offered and sold only by the Dealer Manager and other securities dealers the Dealer Manager may retain (collectively the Selected Dealers); provided, however, that:
(i) the Dealer Manager reasonably believes that all Selected Dealers are registered with the Commission, members of FINRA and are duly licensed or registered by the regulatory authorities in the jurisdictions in which they will offer and sell Shares; and
(ii) all such engagements are evidenced by written agreements, the terms and conditions of which substantially conform to the form of Selected Dealer Agreement substantially in the form of Exhibit A hereto (the Selected Dealer Agreement).
(b) Subscription Documents. Each person desiring to purchase Shares through the Dealer Manager, or any other Selected Dealer, will be required to complete and execute the subscription documents described in the Prospectus.
Payments for Shares shall be made payable to Corporate Property Associates 17 - Global Incorporated and the Selected Dealer shall forward original checks together with an original Subscription Agreement, executed and initialed by the subscriber as provided for in the Subscription Agreement, to Corporate Property Associates 17 - Global Incorporated, c/o Phoenix American Financial Services Inc., at the address provided in the Subscription Agreement.
(c) Completed Sale. A sale of a Share shall be deemed by the Company to be completed for purposes of Section 3(d) if and only if:
(i) the Company or an agent of the Company has received a properly completed and executed subscription agreement, together with payment of the full purchase price of each purchased Share, from an investor who satisfies the applicable suitability standards and minimum purchase requirements set forth in the Registration Statement as determined by the Selected Dealer or the Dealer Manager, as applicable, in accordance with the provisions of this Agreement;
(ii) the Company has accepted such subscription; and
(iii) such investor has been admitted as a shareholder of the Company.
In addition, no sale of Shares shall be completed until at least five (5) business days after the date on which the subscriber receives a copy of the Prospectus. The Dealer Manager hereby acknowledges and agrees that the Company, in its sole and absolute discretion, may accept or reject any subscription, in whole or in part, for any reason whatsoever or no reason, and no commission or dealer manager fee will be paid to the Dealer Manager with respect to that portion of any subscription which is rejected.
(d) Dealer-Manager Compensation.
(i) Subject to the volume discounts and other special circumstances described in or otherwise provided in the Plan of Distribution section of the Prospectus or this Section 3(d), the Company agrees to pay the Dealer Manager selling commissions in the amount of six and a half percent (6.5%) of the selling price of each Share for which a sale is completed from the Shares offered in the Primary Offering. The Company will not pay selling commissions for sales of Shares pursuant to the DRIP, and the Company will pay reduced selling commissions or may eliminate commissions on certain sales of Shares, including the reduction or elimination of selling commissions in accordance with, and on the terms set forth in, the Prospectus. The Dealer Manager will re-allow all the selling commissions, subject to federal and state securities laws, to the Selected Dealer who sold
the Shares, and may re-allow up to 0.5% per share of the Dealer Manager Fee (as defined below) to the Selected Dealer who sold the Shares, as described more fully in the Selected Dealer Agreement.
(ii) Subject to the special circumstances described in or otherwise provided in the Plan of Distribution section of the Prospectus or this Section 3(d), as compensation for acting as the dealer manager, the Company will pay the Dealer Manager, a dealer manager fee in an amount of up to three and a half percent (3.5%) of the selling price of each Share for which a sale is completed from the Shares offered in the Primary Offering (the Dealer Manager Fee). No Dealer Manager Fee will be paid in connection with Shares sold pursuant to the DRIP.
The Dealer Manager may retain or re-allow a portion of the Dealer Manager Fee, subject to federal and state securities laws, to the Selected Dealer who sold the Shares, as described more fully in the Selected Dealer Agreement.
(iii) All sales commissions and Dealer Manager fees payable to the Dealer Manager will be paid at least within ten (10) business days after the investor subscribing for the Share is admitted as a shareholder of the Company, in an amount equal to the sales commissions payable with respect to such Shares.
(iv) In no event shall the total aggregate underwriting compensation payable to the Dealer Manager and any Selected Dealers participating in the Offering, including, but not limited to, selling commissions and the Dealer Manager Fee exceed ten percent (10.0%) of gross offering proceeds from the Primary Offering in the aggregate.
(v) Notwithstanding anything to the contrary contained herein, if the Company pays any selling commission to the Dealer Manager for sale by a Selected Dealer of one or more Shares and the subscription is rescinded as to one or more of the Shares covered by such subscription, then the Company shall decrease the next payment of selling commissions or other compensation otherwise payable to the Dealer Manager by the Company under this Agreement by an amount equal to the commission rate established in this Section 3(d), multiplied by the number of Shares as to which the subscription is rescinded. If no payment of selling commissions or other compensation is due to the Dealer Manager after such withdrawal occurs, then the Dealer Manager shall pay the amount specified in the preceding sentence to the Company within a reasonable period of time not to exceed thirty (30) days following receipt of notice by the Dealer Manager from the Company stating the amount owed as a result of rescinded subscriptions.
(e) Reasonable Bona Fide Due Diligence Expenses. In addition to any payments to the Dealer Manager pursuant to Section 3(d), the Company shall reimburse the Dealer Manager or any Selected Dealer for reasonable bona fide due diligence expenses incurred by the Dealer Manager or any Selected Dealer to the extent permitted pursuant to the rules and regulations of FINRA, provided, however, that no due diligence expenses shall be reimbursed by the Company pursuant to this Section 3(e) which would cause the aggregate of all of the Companys expenses described in Section 3(f) and compensation paid to the Dealer Manager and any Selected Dealer pursuant to Section 3(d) to exceed 15% of the gross proceeds from the sale of the Shares. Also, the Company shall only reimburse the Dealer Manager or any Selected Dealer for such approved bona fide due diligence expenses to the extent such expenses have actually been incurred and are supported by detailed and itemized invoice(s) provided to the Company.
(f) Company Expenses. Subject to the limitations described above, the Company agrees to pay all costs and expenses incident to the Offering, whether or not the transactions contemplated hereunder are consummated or this Agreement is terminated, including expenses, fees and taxes in connection with:
(i) the registration fee, the preparation and filing of the Registration Statement (including without limitation financial statements, exhibits, schedules and consents), the Prospectus, and any amendments or supplements thereto, and the printing and furnishing of copies of each thereof to the Dealer Manager and to Selected Dealers (including costs of mailing and shipment);
(ii) the preparation, issuance and delivery of certificates, if any, for the Shares, including any stock or other transfer taxes or duties payable upon the sale of the Shares;
(iii) all fees and expenses of the Companys legal counsel, independent public or certified public accountants and other advisors;
(iv) the qualification of the Shares for offering and sale under state laws in the states that the Company shall designate as appropriate and the determination of their eligibility for sale under state law as aforesaid and the printing and furnishing of copies of blue sky surveys;
(v) the filing fees in connection with filing for review by FINRA of all necessary documents and information relating to the Offering and the Shares;
(vi) the fees and expenses of any transfer agent or registrar for the Offered Shares and miscellaneous expenses referred to in the Registration Statement;
(vii) all costs and expenses incident to the travel and accommodation of the personnel of Carey Asset Management Corp., advisor to the Company (the Advisor), and the personnel of any sub-advisor designated by the Advisor and acting on behalf of the Company, in making road show presentations and presentations to Selected Dealers and other broker-dealers and financial advisors with respect to the offering of the Shares; and
(viii) the performance of the Companys other obligations hereunder.
Notwithstanding the foregoing, the Company shall not directly pay, or reimburse the Advisor for, the costs and expenses described in this Section 3(f) if the payment or reimbursement of such expenses would cause the aggregate of the Companys organization and offering expenses as defined by FINRA Rule 2310 (including the Company expenses paid or reimbursed pursuant to this Section 3(f), all items of underwriting compensation including Dealer Manager expenses described in Section 3(d) and due diligence expenses described in Section 3(e)) to exceed 15.0% of the gross proceeds from the sale of the Shares.
4. Conditions to the Dealer Managers Obligations. The Dealer Managers obligations hereunder shall be subject to the following terms and conditions:
(a) The representations and warranties on the part of the Company contained in this Agreement hereof shall be true and correct in all material respects and the Company shall have complied with its covenants, agreements and obligations contained in this Agreement in all material respects;
(b) The Registration Statement shall have become effective and no stop order suspending the effectiveness of the Registration Statement shall have been issued by the Commission and, to the
best knowledge of the Company, no proceedings for that purpose shall have been instituted, threatened or contemplated by the Commission; and any request by the Commission for additional information (to be included in the Registration Statement or Prospectus or otherwise) shall have been complied with to the reasonable satisfaction of the Dealer Manager.
5. Covenants of the Company. The Company covenants and agrees with the Dealer Manager as follows:
(a) Registration Statement. The Company will use its best efforts to cause the Registration Statement and any subsequent amendments thereto to become effective as promptly as possible and will furnish a copy of any proposed amendment or supplement of the Registration Statement or the Prospectus to the Dealer Manager.
(b) Commission Orders. If the Commission shall issue any stop order or any other order preventing or suspending the use of the Prospectus, or shall institute any proceedings for that purpose, then the Company will promptly notify the Dealer Manager and use its best efforts to prevent the issuance of any such order and, if any such order is issued, to use its best efforts to obtain the removal thereof as promptly as possible.
(c) Blue Sky Qualifications. The Company will use its best efforts to qualify the Shares for offering and sale under the securities or blue sky laws of such jurisdictions as the Dealer Manager and the Company shall mutually agree upon and to make such applications, file such documents and furnish such information as may be reasonably required for that purpose. The Company will, at the Dealer Managers request, furnish the Dealer Manager with a copy of such papers filed by the Company in connection with any such qualification. The Company will promptly advise the Dealer Manager of the issuance by such securities administrators of any stop order preventing or suspending the use of the Prospectus or of the institution of any proceedings for that purpose, and will use its best efforts to prevent the issuance of any such order and if any such order is issued, to use its best efforts to obtain the removal thereof as promptly as possible. The Company will furnish the Dealer Manager with a Blue Sky Survey dated as of the initial Effective Date, which will be supplemented to reflect changes or additions to the information disclosed in such survey.
(d) Amendments and Supplements. If, at any time when a Prospectus relating to the Shares is required to be delivered under the Securities Act, any event shall have occurred to the knowledge of the Company, or the Company receives notice from the Dealer Manager that it believes such an event has occurred, as a result of which the Prospectus or any Approved Sales Literature as then amended or supplemented would include any untrue statement of a material fact, or omit to state a material fact necessary to make the statements therein, in light of the circumstances under which they were made, not misleading, or if it is necessary at any time to amend the Registration Statement or supplement the Prospectus relating to the Shares to comply with the Securities Act, then the Company will promptly notify the Dealer Manager thereof (unless the information shall have been received from the Dealer Manager) and will prepare and file with the Commission an amendment or supplement which will correct such statement or effect such compliance to the extent required, and shall make available to the Dealer Manager thereof sufficient copies for its own use and/or distribution to the Selected Dealers.
(e) Requests from Commission. The Company will promptly advise the Dealer Manager of any request made by the Commission or a state securities administrator for amending the Registration Statement, supplementing the Prospectus or for additional information.
(f) Copies of Registration Statement. The Company will furnish the Dealer Manager with one signed copy of the Registration Statement, including its exhibits, and such additional copies of the
Registration Statement, without exhibits, and the Prospectus and all amendments and supplements thereto, which are finally approved by the Commission, as the Dealer Manager may reasonably request for sale of the Shares.
(g) Qualification to Transact Business. The Company will take all steps necessary to ensure that at all times the Company will validly exist as a Maryland corporation and will be qualified to do business in all jurisdictions in which the conduct of its business requires such qualification and where such qualification is required under local law.
(h) Authority to Perform Agreements. The Company undertakes to obtain all consents, approvals, authorizations or orders of any court or governmental agency or body which are required for the Companys performance of this Agreement and under the Bylaws and the Articles of Amendment and Restatement in the form included as exhibits to the Registration Statement for the consummation of the transactions contemplated hereby and thereby, respectively, or the conducting by the Company of the business described in the Prospectus.
(i) Sales Literature. The Company will furnish to the Dealer Manager as promptly as shall be practicable upon request any Approved Sales Literature (provided that the use of said material has been first approved for use to the extent required by all appropriate regulatory agencies). Any supplemental sales literature or advertisement, regardless of how labeled or described, used in addition to the Prospectus in connection with the Offering which is furnished or approved by the Company (including, without limitation, Approved Sales Literature) shall, to the extent required, be filed with and, to the extent required, approved by the appropriate securities agencies and bodies, provided that the Dealer Manager will make all FINRA filings, to the extent required.
(j) Use of Proceeds. The Company will apply the proceeds from the sale of the Shares as set forth in the Prospectus.
(k) Customer Information. The Dealer Manager and the Company shall, when applicable:
(i) abide by and comply with (A) the privacy standards and requirements of the Gramm-Leach-Bliley Act of 1999 (the GLB Act) and applicable regulations promulgated thereunder, (B) the privacy standards and requirements of any other applicable federal or state law, including but not limited to, the Fair Credit Reporting Act (FCRA), and (C) its own internal privacy policies and procedures, each as may be amended from time to time;
(ii) refrain from the use or disclosure of nonpublic personal information (as defined under the GLB Act) of all customers who have opted out of such disclosures except as necessary to service the customers or as otherwise necessary or required by applicable law;
(iii) except as expressly permitted under the FCRA, the Dealer Manager and the Company shall not disclose any information that would be considered a consumer report under the FCRA; and
(iv) determine which customers have opted out of the disclosure of nonpublic personal information by periodically reviewing and, if necessary, retrieving an aggregated list of such customers from the Selected Dealers (the List) to identify customers that have exercised their opt-out rights. If either party uses or discloses nonpublic personal information of any customer for purposes other than servicing the customer, or as otherwise required by applicable law, that party will consult the List to determine
whether the affected customer has exercised his or her opt-out rights. Each party understands that it is prohibited from using or disclosing any nonpublic personal information of any customer that is identified on the List as having opted out of such disclosures.
(l) Dealer Managers Review of Proposed Amendments and Supplements. Prior to amending or supplementing the Registration Statement, any preliminary prospectus or the Prospectus (including any amendment or supplement through incorporation of any report filed under the Exchange Act), the Company shall furnish to the Dealer Manager for review, a reasonable amount of time prior to the proposed time of filing or use thereof, a copy of each such proposed amendment or supplement, and the Company shall not file or use any such proposed amendment or supplement without the Dealer Managers consent, which consent shall not be unreasonably withheld or delayed.
6. Covenants of the Dealer Manager. The Dealer Manager covenants and agrees with the Company as follows:
(a) Compliance With Laws. With respect to the Dealer Managers participation and the participation by each Selected Dealer in the offer and sale of the Shares (including, without limitation, any resales and transfers of Shares), the Dealer Manager agrees, and each Selected Dealer in its Selected Dealer Agreement will agree, to comply in all material respects with all applicable requirements of the Securities Act, the Securities Act Rules and Regulations, the Exchange Act, the Exchange Act Rules and Regulations and all other federal regulations applicable to the Offering, the sale of Shares and with all applicable state securities or blue sky laws, and the Rules of FINRA applicable to the Offering, from time to time in effect, specifically including, but not in any way limited to, NASD Conduct Rules 2340, 2420, 2730, 2740, 2750 and FINRA Rule 2310 therein. The Dealer Manager will not offer the Shares for sale in any jurisdiction unless and until it has been advised that the Shares are either registered in accordance with, or exempt from, the securities and other laws applicable thereto.
In addition, the Dealer Manager shall, in accordance with applicable law or as prescribed by any state securities administrator, provide, or require in the Selected Dealer Agreement that the Selected Dealer shall provide, to any prospective investor copies of any prescribed document which is part of the Registration Statement and any supplements thereto during the course of the Offering and prior to the sale. The Company may provide the Dealer Manager with certain Approved Sales Literature to be used by the Dealer Manager and the Selected Dealers in connection with the solicitation of purchasers of the Shares. The Dealer Manager agrees not to deliver the Approved Sales Literature to any person prior to the initial Effective Date. If the Dealer Manager elects to use such Approved Sales Literature after the initial Effective Date, then the Dealer Manager agrees that such material shall not be used by it in connection with the solicitation of purchasers of the Shares and that it will direct Selected Dealers not to make such use unless accompanied or preceded by the Prospectus, as then currently in effect, and as it may be amended or supplemented in the future.
The Dealer Manager agrees that it will not use any Approved Sales Literature other than those provided to the Dealer Manager by the Company for use in the Offering. The use of any other sales material is expressly prohibited.
(b) No Additional Information. In offering the Shares for sale, the Dealer Manager shall not, and each Selected Dealer shall agree not to, give or provide any information or make any representation other than those contained in the Prospectus or the Approved Sales Literature.
(c) Sales of Shares. The Dealer Manager shall, and each Selected Dealer shall agree to, solicit purchases of the Shares only in the jurisdictions in which the Dealer Manager and such Selected Dealer are legally qualified to so act and in which the Dealer Manager and each Selected Dealer have been advised by the Company or counsel to the Company that such solicitations can be made.
(d) Subscription Agreement. The Dealer Manager will comply in all material respects with the subscription procedures and The Offering/Plan of Distribution set forth in the Prospectus. Subscriptions will be submitted by the Dealer Manager and each Selected Dealer to the Company only on the form which is included as Annex A to the Prospectus. The Dealer Manager understands and acknowledges, and each Selected Dealer shall acknowledge, that the Subscription Agreement must be executed and initialed by the subscriber as provided for by the Subscription Agreement.
(e) Suitability. The Dealer Manager will offer Shares, and in its agreement with each Selected Dealer will require that the Selected Dealer offer Shares, only to persons that it has reasonable grounds to believe meet the financial qualifications set forth in the Prospectus or in any suitability letter or memorandum sent to it by the Company and will only make offers to persons in the states in which it is advised in writing by the Company that the Shares are qualified for sale or that such qualification is not required. In offering Shares, the Dealer Manager will comply, and in its agreements with the Selected Dealers, the Dealer Manager will require that the Selected Dealers comply, with the provisions of all applicable rules and regulations relating to suitability of investors, including without limitation the FINRA Rules and the provisions of Article III.C. of the Statement of Policy Regarding Real Estate Investment Trusts of the North American Securities Administrators Association, Inc., as revised and amended on May 7, 2007 and as may be further revised and amended (the NASAA Guidelines).
The Dealer Manager agrees that in recommending the purchase of the Shares in the Primary Offering to an investor, the Dealer Manager and each person associated with the Dealer Manager that make such recommendation shall have, and each Selected Dealer in its Selected Dealer Agreement shall agree with respect to investors to which it makes a recommendation shall agree that it shall have, reasonable grounds to believe, on the basis of information obtained from the investor concerning the investors investment objectives, other investments, financial situation and needs, and any other information known by the Dealer Manager, the person associated with the Dealer Manager or the Selected Dealer that:
(i) the investor is or will be in a financial position appropriate to enable the investor to realize to a significant extent the benefits described in the Prospectus, including the tax benefits where they are a significant aspect of the Company;
(ii) the investor has a fair market net worth sufficient to sustain the risks inherent in the program, including loss of investment and lack of liquidity; and
(iii) an investment in the Shares offered in the Primary Offering is otherwise suitable for the investor.
The Dealer Manager agrees as to investors to whom it makes a recommendation with respect to the purchase of the Shares in the Primary Offering (and each Selected Dealer in its Selected Dealer Agreement shall agree, with respect to Investors to whom it makes such recommendations) to maintain in the files of the Dealer Manager (or the Selected Dealer, as applicable) documents disclosing the basis upon which the determination of suitability was reached as to each investor.
In making the determinations as to financial qualifications and as to suitability required by the NASAA Guidelines, the Dealer Manager and Selected Dealers may rely on (A) representations from investment advisers who are not affiliated with a Selected Dealer, banks acting as trustees or fiduciaries, and (B) information it has obtained from a prospective investor, including such information as the investment objectives, other investments, financial situation and needs of the person or any other information known by the Dealer Manager (or Selected Dealer, as applicable), after due inquiry. Notwithstanding the foregoing, the Dealer Manager shall not, and each Selected Dealer shall agree not to, execute any transaction in the Company in a discretionary account without prior written approval of the transaction by the customer.
(f) Selected Dealer Agreements. All engagements of the Selected Dealers will be evidenced by a Selected Dealer Agreement.
(g) Electronic Delivery. If it intends to use electronic delivery to distribute the Prospectus to any person, that it will comply with all applicable requirements of the Commission, the Blue Sky laws and/or FINRA and any other laws or regulations related to the electronic delivery of documents.
(h) AML Compliance. The Dealer Manager represents to the Company that it has established and implemented an anti-money laundering compliance program (AML Program) in accordance with Section 352 of the USA PATRIOT Act of 2001 (the PATRIOT Act) and FINRA Rule 3310, that complies with applicable anti-money laundering laws and regulations, including, but not limited to, the customer identification program requirements of Section 326 of the PATRIOT Act, and the suspicious activity reporting requirements of Section 356 of the PATRIOT Act, and the laws, regulations and Executive Orders administered by the Office of Foreign Assets Control (OFAC) of the U.S. Department of Treasury (collectively, AML/OFAC Laws). The Dealer Manager hereby covenants to remain in compliance with the AML/OFAC Laws and shall, upon request by the Company, provide a certification to the Company that, as of the date of such certification, its AML Program is compliant with the AML/OFAC Laws.
(i) Customer Information. The Dealer Manager will use its best efforts to provide the Company with any and all subscriber information that the Company requests in order for the Company to satisfy its obligations under the AML/OFAC Laws and comply with the requirements under Section 5(k) above.
(j) Recordkeeping. The Dealer Manager will comply, and will require each Selected Dealer to comply, with the record keeping requirements of the Exchange Act, including, but not limited to, Rules 17a-3 and 17a-4 promulgated under the Exchange Act, and shall maintain, for at least six years or for a period of time not less than that required in order to comply with all applicable federal, state and other regulatory requirements, whichever is later, such records with respect to each investor who purchases Shares, information used to determine that the investor meets the suitability standards imposed on the offer and sale of the Shares, the amount of Shares sold, and a representation of the investor that the investor is investing for the investors own account or, in lieu of such representation, information indicating that the investor for whose account the investment was made met the suitability standards.
(k) Suspension or Termination of Offering. The Dealer Manager agrees, and will require that each of the Selected Dealers agree, to suspend or terminate the offering and sale of the Shares upon request of the Company at any time and to resume the offering and sale of the Shares upon subsequent request of the Company.
7. Indemnification.
(a) Indemnified Parties Defined. For the purposes of this Agreement, an Indemnified Party shall mean a person or entity entitled to indemnification under Section 7, as well as such persons or entitys officers, directors, employees, members, partners, affiliates, agents and representatives, and each person, if any, who controls such person or entity within the meaning of Section 15 of the Securities Act or Section 20 of the Exchange Act.
(b) Indemnification of the Dealer Manager and Selected Dealers. The Company will indemnify, defend and hold harmless the Dealer Manager and the Selected Dealers, and their respective Indemnified Parties, from and against any losses, claims, expenses (including reasonable legal and other expenses incurred in investigating and defending such claims or liabilities), damages or liabilities, joint or several, to which any such Selected Dealers or the Dealer Manager, or their respective Indemnified Parties, may become subject under the Securities Act, the Exchange Act or otherwise, insofar as such losses, claims, expenses, damages or liabilities (or actions in respect thereof) arise out of or are based upon:
(i) in whole or in part, any material inaccuracy in a representation or warranty contained herein by the Company, any material breach of a covenant contained herein by the Company, or any material failure by the Company to perform its obligations hereunder or to comply with state or federal securities laws applicable to the Offering;
(ii) any untrue statement or alleged untrue statement of a material fact contained (A) in any Registration Statement or any post-effective amendment thereto or in the Prospectus or any amendment or supplement to the Prospectus, (B) in any Approved Sales Literature or (C) in any blue sky application or other document executed by the Company or on its behalf specifically for the purpose of qualifying any or all of the Offered Shares for sale under the securities laws of any jurisdiction or based upon written information furnished by the Company under the securities laws thereof (any such application, document or information being hereinafter called a Blue Sky Application); or
(iii) the omission or alleged omission to state a material fact required to be stated in the Registration Statement or any post-effective amendment thereof to make the statements therein not misleading or the omission or alleged omission to state a material fact required to be stated in the Prospectus or any amendment or supplement to the prospectus to make the statements therein, in light of the circumstances under which they were made, not misleading.
The Company will reimburse each Selected Dealer or the Dealer Manager, and their respective Indemnified Parties, for any reasonable legal or other expenses incurred by such Selected Dealer or the Dealer Manager, and their respective Indemnified Parties, in connection with investigating or defending such loss, claim, expense, damage, liability or action; provided, however, that the Company will not be liable in any such case to the extent that any such loss, claim, expense, damage or liability arises out of, or is based upon an untrue statement or alleged untrue statement or omission or alleged omission made in reliance upon and in conformity with written information furnished to the Company by the Dealer Manager expressly for use in the Registration Statement or any post-effective amendment thereof or the Prospectus or any such amendment thereof or supplement thereto. This indemnity agreement will be in addition to any liability which the Company may otherwise have.
Notwithstanding the foregoing, as required by Section II.G. of the NASAA Guidelines, the indemnification and agreement to hold harmless provided in this Section 7(b) is further limited to the extent that no such indemnification by the Company of a Selected Dealer or the Dealer Manager, or their respective Indemnified Parties, shall be permitted under this Agreement for, or arising out of, an alleged violation of federal or state securities laws, unless one or more of the following conditions are met: (a) there has been a successful adjudication on the merits of each count involving alleged securities law violations as to the particular Indemnified Party; (b) such claims have been dismissed with prejudice on the merits by a court of competent jurisdiction as to the particular Indemnified Party; or (c) a court of competent jurisdiction approves a settlement of the claims against the particular Indemnified Party and finds that indemnification of the settlement and the related costs should be made, and the court considering the request for indemnification has been advised of the position of the Commission and of the published position of any state securities regulatory authority in which the securities were offered or sold as to indemnification for violations of securities laws.
(c) Dealer Manager Indemnification of the Company. The Dealer Manager will indemnify, defend and hold harmless the Company and each of its Indemnified Parties and each person who has signed the Registration Statement, from and against any losses, claims, expenses (including the reasonable legal and other expenses incurred in investigating and defending any such claims or liabilities), damages or liabilities to which any of the aforesaid parties may become subject under the Securities Act, the Exchange Act or otherwise, insofar as such losses, claims, expenses, damages (or actions in respect thereof) arise out of or are based upon:
(i) in whole or in part, any material inaccuracy in a representation or warranty contained herein by the Dealer Manager or any material breach of a covenant contained herein by the Dealer Manager;
(ii) any untrue statement or any alleged untrue statement of a material fact contained (A) in any Registration Statement or any post-effective amendment thereto or in the Prospectus or any amendment or supplement to the Prospectus, (B) in any Approved Sales Literature, or (C) any Blue Sky Application; or
(iii) the omission or alleged omission to state a material fact required to be stated in the Registration Statement or any post-effective amendment thereof to make the statements therein not misleading, or the omission or alleged omission to state a material fact required to be stated in the Prospectus or any amendment or supplement to the Prospectus to make the statements therein, in light of the circumstances under which they were made, not misleading; provided, however, that in each case described in clauses (ii) and (iii) to the extent, but only to the extent, that such untrue statement or omission was made in reliance upon and in conformity with written information furnished to the Company by the Dealer Manager expressly for use in the Registration Statement or any such post-effective amendments thereof or the Prospectus or any such amendment thereof or supplement thereto;
(iv) any use of sales literature, including broker-dealer use only materials, by the Dealer Manager that is not Approved Sales Literature; or
(v) any untrue statement made by the Dealer Manager or omission by the Dealer Manager to state a fact necessary in order to make the statements made, in light of the circumstances under which they were made, not misleading in connection with the Offering, in each case, other than statements or omissions made in conformity with the Registration
Statement, the Prospectus, any Approved Sales Literature or any other materials or information furnished by or on behalf on the Company.
The Dealer Manager will reimburse the aforesaid parties for any reasonable legal or other expenses incurred in connection with investigation or defense of such loss, claim, expense, damage, liability or action. This indemnity agreement will be in addition to any liability which the Dealer Manager may otherwise have.
(d) Selected Dealer Indemnification of the Company. By virtue of entering into the Selected Dealer Agreement, each Selected Dealer severally will agree to indemnify, defend and hold harmless the Company, the Dealer Manager, each of their respective Indemnified Parties, and each person who signs the Registration Statement, from and against any losses, claims, expenses, damages or liabilities to which the Company, the Dealer Manager, or any of their respective Indemnified Parties, or any person who signed the Registration Statement, may become subject, under the Securities Act or otherwise, as more fully described in the Selected Dealer Agreement.
(e) Action Against Parties; Notification. Promptly after receipt by any Indemnified Party under this Section 7 of notice of the commencement of any action, such Indemnified Party will, if a claim in respect thereof is to be made against any indemnifying party under this Section 7, promptly notify the indemnifying party of the commencement thereof; provided, however, that the failure to give such notice shall not relieve the indemnifying party of its obligations hereunder except to the extent it shall have been actually prejudiced by such failure. In case any such action is brought against any Indemnified Party, and it notifies an indemnifying party of the commencement thereof, the indemnifying party will be entitled, to the extent it may wish, jointly with any other indemnifying party similarly notified, to participate in the defense thereof, with separate counsel.
Such participation shall not relieve such indemnifying party of the obligation to reimburse the Indemnified Party for reasonable legal and other expenses incurred by such Indemnified Party in defending itself, except for such expenses incurred after the indemnifying party has deposited funds sufficient to effect the settlement, with prejudice, of, and unconditional release of all liabilities from, the claim in respect of which indemnity is sought. Any such indemnifying party shall not be liable to any such Indemnified Party on account of any settlement of any claim or action effected without the consent of such indemnifying party, such consent not to be unreasonably withheld or delayed.
(f) Reimbursement of Fees and Expenses. An indemnifying party under Section 7 of this Agreement shall be obligated to reimburse an Indemnified Party for reasonable legal and other expenses as follows:
(i) In the case of the Company indemnifying the Dealer Manager, the advancement of funds to the Dealer Manager for legal expenses and other costs incurred as a result of any legal action for which indemnification is being sought shall be permissible (in accordance with Section II.G. of the NASAA Guidelines) only if all of the following conditions are satisfied: (A) the legal action relates to acts or omissions with respect to the performance of duties or services on behalf of the Company; (B) the legal action is initiated by a third party who is not a shareholder of the Company or the legal action is initiated by a shareholder of the Company acting in his or her capacity as such and a court of competent jurisdiction specifically approves such advancement; and (C) the Dealer Manager undertakes to repay the advanced funds to the Company, together with the applicable legal rate of interest thereon, in cases in which the Dealer Manager is found not to be entitled to indemnification.
(ii) In any case of indemnification other than that described in Section 7(f)(i) above, the indemnifying party shall pay all legal fees and expenses reasonably incurred by the Indemnified Party in the defense of such claims or actions; provided, however, that the indemnifying party shall not be obligated to pay legal expenses and fees to more than one law firm in connection with the defense of similar claims arising out of the same alleged acts or omissions giving rise to such claims notwithstanding that such actions or claims are alleged or brought by one or more parties against more than one Indemnified Party. If such claims or actions are alleged or brought against more than one Indemnified Party, then the indemnifying party shall only be obliged to reimburse the expenses and fees of the one law firm (in addition to local counsel) that has been participating by a majority of the indemnified parties against which such action is finally brought; and if a majority of such indemnified parties is unable to agree on which law firm for which expenses or fees will be reimbursable by the indemnifying party, then payment shall be made to the first law firm of record representing an Indemnified Party against the action or claim. Such law firm shall be paid only to the extent of services performed by such law firm and no reimbursement shall be payable to such law firm on account of legal services performed by another law firm.
8. Contribution.
(a) If Indemnification is Unavailable. If the indemnification provided for in Section 7 is for any reason unavailable to or insufficient to hold harmless an Indemnified Party in respect of any losses, liabilities, claims, damages or expenses referred to therein, then each indemnifying party shall contribute to the aggregate amount of such losses, liabilities, claims, damages and expenses incurred by such Indemnified Party, as incurred:
(i) in such proportion as is appropriate to reflect the relative benefits received by the Company, the Dealer Manager and the Selected Dealer, respectively, from the proceeds received in Primary Offering pursuant to this Agreement and the relevant Selected Dealer Agreement; or
(ii) if the allocation provided by clause (i) is not permitted by applicable law, in such proportion as is appropriate to reflect not only the relative benefits referred to in clause (i) above but also the relative fault of the Company, the Dealer Manager and the Selected Dealer, respectively, in connection with the statements or omissions which resulted in such losses, liabilities, claims, damages or expenses, as well as any other relevant equitable considerations.
(b) Relative Benefits. The relative benefits received by the Company, the Dealer Manager and the Selected Dealer, respectively, in connection with the proceeds received in the Primary Offering pursuant to this Agreement and the relevant Selected Dealer Agreement shall be deemed to be in the same respective proportion as the total net proceeds from the Primary Offering pursuant to this Agreement and the relevant Selected Dealer Agreement (before deducting expenses), received by the Company, and the total selling commissions and dealer manager fees received by the Dealer Manager and the Selected Dealer, respectively, in each case as set forth on the cover of the Prospectus bear to the aggregate offering price of the Shares sold in the Primary Offering as set forth on such cover.
(c) Relative Fault. The relative fault of the Company, the Dealer Manager and the Selected Dealer, respectively, shall be determined by reference to, among other things, whether any such untrue or alleged untrue statement of a material fact or omission or alleged omission to state a material fact
related to information supplied by the Company, by the Dealer Manager or by the Selected Dealer, respectively, and the parties relative intent, knowledge, access to information and opportunity to correct or prevent such statement or omission.
(d) Pro Rata is Unreasonable. The Company, the Dealer Manager and the Selected Dealer (by virtue of entering into the Selected Dealer Agreement) agree that it would not be just and equitable if contribution pursuant to this Section 8 were determined by pro rata allocation or by any other method of allocation which does not take account of the equitable contributions referred to above in this Section 8. The aggregate amount of losses, liabilities, claims, damages and expenses incurred by an Indemnified Party and referred to above in this Section 8 shall be deemed to include any legal or other expenses reasonably incurred by such Indemnified Party in investigating, preparing or defending against any litigation, or any investigation or proceeding by any governmental agency or body, commenced or threatened, or any claim whatsoever based upon any such untrue statement or omission or alleged omission.
(e) Limits. Notwithstanding the provisions of this Section 8, the Dealer Manager and the Selected Dealer shall not be required to contribute any amount by which the total price at which the Shares sold in the Primary Offering to the public by them exceeds the amount of any damages which the Dealer Manager and the Selected Dealer have otherwise been required to pay by reason of any untrue or alleged untrue statement or omission or alleged omission.
(f) Fraudulent Misrepresentation. No party guilty of fraudulent misrepresentation (within the meaning of Section 11(f) of the Securities Act) shall be entitled to contribution from any party who was not guilty of such fraudulent misrepresentation.
(g) Benefits of Contribution. For the purposes of this Section 8, the Dealer Managers officers, directors, employees, members, partners, agents and representatives, and each person, if any, who controls the Dealer Manager within the meaning of Section 15 of the Securities Act or Section 20 of the Exchange Act shall have the same rights to contribution of the Dealer Manager, and each officers, directors, employees, members, partners, agents and representatives of the Company, each officer of the Company who signed the Registration Statement and each person, if any, who controls the Company, within the meaning of Section 15 of the Securities Act or Section 20 of the Exchange Act shall have the same rights to contribution of the Company. The Selected Dealers respective obligations to contribute pursuant to this Section 8 are several in proportion to the number of Shares sold by each Selected Dealer in the Primary Offering and not joint.
9. Termination of this Agreement.
(a) Term; Expiration. This Agreement shall become effective on the initial Effective Date and the obligations of the parties hereunder shall not commence until the initial Effective Date. This Agreement may be terminated by either party upon 60 calendar days written notice to the other party. This Agreement shall automatically expire on the termination date of the Offering as described in the Prospectus.
(b) Delivery of Records Upon Expiration or Early Termination. Upon the expiration or early termination of this Agreement for any reason, the Dealer Manager shall:
(i) promptly forward any and all funds, if any, in its possession which were received from investors for the sale of Shares for deposit;
(ii) to the extent not previously provided to the Company a list of all investors who have subscribed for or purchased shares and all broker-dealers with whom the Dealer Manager has entered into a Selected Dealer Agreement;
(iii) notify Selected Dealers of such termination; and
(iv) promptly deliver to the Company copies of any sales literature designed for use specifically for the Offering that it is then in the process of preparing. Upon expiration or earlier termination of this Agreement, the Company shall pay to the Dealer Manager all compensation to which the Dealer Manager is or becomes entitled under Section 3(d) at such time as such compensation becomes payable.
10. Miscellaneous
(a) Survival. The following provisions of the Agreement shall survive the expiration or earlier termination of this Agreement: Section 3(d) (Dealer-Manager Compensation); Section 5(l) (Dealer-Managers Review of Proposed Amendments and Supplements); Section 6(i) (AML Compliance); Section 7 (Indemnification); Section 8 (Contribution); Section 9 (Termination of This Agreement) and this Section 10 (Miscellaneous). Notwithstanding anything else that may be to the contrary herein, the expiration or earlier termination of this Agreement shall not relieve a party for liability for any breach occurring prior to such expiration or earlier termination. In no event shall the Dealer Manager be entitled to payment of any compensation in connection with the Offering that is not completed according to this Agreement; provided, however, that the reimbursement of out-of-pocket accountable expenses actually incurred by the Dealer Manager or person associated with the Dealer Manager shall not be presumed to be unfair or unreasonable and shall be payable under normal circumstances.
(b) Notices. All notices or other communications required or permitted hereunder, except as herein otherwise specifically provided, shall be in writing and shall be deemed given or delivered: (i) when delivered personally or by commercial messenger; (ii) one business day following deposit with a recognized overnight courier service, provided such deposit occurs prior to the deadline imposed by such service for overnight delivery; (iii) when transmitted, if sent by facsimile copy, provided confirmation of receipt is received by sender and such notice is sent by an additional method provided hereunder; in each case above provided such communication is addressed to the intended recipient thereof as set forth below:
If to the Company:
Corporate Property Associates 17 - Global Incorporated
50 Rockefeller Plaza
New York, New York 10020
Attention: Mr. Thomas Zacharias
with a copy to:
Clifford Chance US LLP
31 West 52nd Street
New York, New York 10019
Facsimile No.: (212) 878-8375
Attention: Kathleen L. Werner, Esq.
If to the Dealer Manager:
Carey Financial, LLC
50 Rockefeller Plaza
New York, New York 10020
Facsimile No.: (212) 492-8922
Attention: Mr. Richard J. Paley
with a copy to:
Kunzman & Bollinger, Inc.
5100 N. Brookline Avenue, Suite 600
Oklahoma City, Oklahoma 73112
Facsimile No: (405) 942-3501
Attention: Wallace W. Kunzman, Jr.
Any party may change its address specified above by giving each party notice of such change in accordance with this Section 10(b).
(c) Successors and Assigns. No party shall assign (voluntarily, by operation of law or otherwise) this Agreement or any right, interest or benefit under this Agreement without the prior written consent of each other party. Subject to the foregoing, this Agreement shall be fully binding upon, inure to the benefit of, and be enforceable by, the parties hereto and their respective successors and assigns.
(d) Invalid Provision. The invalidity or unenforceability of any provision of this Agreement shall not affect the other provisions hereof, and this Agreement shall be construed in all respects as if such invalid or unenforceable provision were omitted.
(e) Applicable Law. This Agreement and any disputes relative to the interpretation or enforcement hereto shall be governed by and construed under the internal laws, as opposed to the conflicts of laws provisions, of the State of New York.
(f) Waiver. EACH OF THE PARTIES HERETO WAIVES ALL RIGHT TO TRIAL BY JURY IN ANY ACTION, SUIT, PROCEEDING OR COUNTERCLAIM (WHETHER BASED UPON CONTRACT, TORT OR OTHERWISE) RELATED TO OR ARISING OUT OF THIS AGREEMENT. The parties hereto each hereby irrevocably submits to the exclusive jurisdiction of the courts of the State of New York and the Federal courts of the United States of America located in the Borough of Manhattan, New York City, in respect of the interpretation and enforcement of the terms of this Agreement, and in respect of the transactions contemplated hereby, and each hereby waives, and agrees not to assert, as a defense in any action, suit or proceeding for the interpretation or enforcement hereof, that it is not subject thereto or that such action, suit or proceeding may not be brought or is not maintainable in said courts or that the venue thereof may not be appropriate or that this Agreement may not be enforced in or by such courts, and the parties hereto each hereby irrevocably agrees that all claims with respect to such action or proceeding shall be heard and determined in such a New York State or Federal court.
(g) Attorneys Fees. If a dispute arises concerning the performance, meaning or interpretation of any provision of this Agreement or any document executed in connection with this Agreement, then the prevailing party in such dispute shall be awarded any and all costs and expenses incurred by the prevailing party in enforcing, defending or establishing its rights hereunder or thereunder,
including, without limitation, court costs and attorneys and expert witness fees. In addition to the foregoing award of costs and fees, the prevailing also shall be entitled to recover its attorneys fees incurred in any post-judgment proceedings to collect or enforce any judgment.
(h) No Partnership. Nothing in this Agreement shall be construed or interpreted to constitute the Dealer Manager or the Selected Dealer as being in association with or in partnership with the Company or one another, and instead, this Agreement only shall constitute the Selected Dealer as a broker authorized by the Company to sell and to manage the sale by others of the Shares according to the terms set forth in the Registration Statement, the Prospectus or this Agreement. Nothing herein contained shall render the Dealer Manager or the Company liable for the obligations of any of the Selected Dealers or one another.
(i) Third Party Beneficiaries. Except for the persons and entities referred to in Section 7 (Indemnification) and Section 8 (Contribution), there shall be no third party beneficiaries of this Agreement, and no provision of this Agreement is intended to be for the benefit of any person or entity not a party to this Agreement, and no third party shall be deemed to be a beneficiary of any provision of this Agreement. Except for the persons and entities referred to in Section 7 and Section 8, no third party shall by virtue of any provision of this Agreement have a right of action or an enforceable remedy against any party to this Agreement. Each of the persons and entities referred to in Section 7 and Section 8 shall be a third party beneficiary of this Agreement.
(j) Entire Agreement. This Agreement contains the entire agreement and understanding among the parties hereto with respect to the subject matter hereof, and supersedes all prior and contemporaneous agreements, understandings, inducements and conditions, express or implied, oral or written, of any nature whatsoever with respect to the subject matter hereof. The express terms hereof control and supersede any course of performance and/or usage of the trade inconsistent with any of the terms hereof. This Agreement may not be modified or amended other than by an agreement in writing.
(k) Nonwaiver. The failure of any party to insist upon or enforce strict performance by any other party of any provision of this Agreement or to exercise any right under this Agreement shall not be construed as a waiver or relinquishment to any extent of such partys right to assert or rely upon any such provision or right in that or any other instance; rather, such provision or right shall be and remain in full force and effect.
(l) Access to Information. The Company may authorize the Companys transfer agent to provide information to the Dealer Manager and each Selected Dealer regarding recordholder information about the clients of such Selected Dealer who have invested with the Company on an on-going basis for so long as such Selected Dealer has a relationship with such clients. The Dealer Manager shall require in the Selected Dealer Agreement that Selected Dealers not disclose any password for a restricted website or portion of website provided to such Selected Dealer in connection with the Offering and not disclose to any person, other than an officer, director, employee or agent of such Selected Dealers, any material downloaded from such a restricted website or portion of a restricted website.
(m) Counterparts. This Agreement may be executed (including by facsimile transmission) with counterpart signature pages or in counterpart copies, each of which shall be deemed an original but all of which together shall constitute one and the same instrument comprising this Agreement.
(n) Absence of Fiduciary Relationships. The parties acknowledge and agree that:
(i) the Dealer Managers responsibility to the Company is solely contractual in nature; and
(ii) the Dealer Manager does not owe the Company, any of its affiliates or any other person or entity any fiduciary (or other similar) duty as a result of this Agreement or any of the transactions contemplated hereby.
If the foregoing is in accordance with your understanding of our agreement, kindly sign and return it to us, whereupon this instrument will become a binding agreement between you and the Company in accordance with its terms.
[Signatures on following page]
IN WITNESS WHEREOF, the parties hereto have each duly executed this Dealer Manager Agreement as of the day and year set forth above.
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THE COMPANY: | ||
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CORPORATE PROPERTY ASSOCIATES 17 - GLOBAL INCORPORATED | ||
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By: |
/s/ Richard J. Paley | |
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Name: |
Richard J. Paley |
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Title: |
Executive Director |
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Accepted as of the date first above written: |
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THE DEALER MANAGER: | ||
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CAREY FINANCIAL, LLC | ||
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By: |
/s/ C. Jay Steigerwald III | |
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Name: |
C. Jay Steigerwald III |
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Title: |
SVP National Accounts |
[Signature Page to Dealer Manager Agreement]
EXHIBIT A
FORM OF SELECTED DEALER AGREEMENT
Exhibit 21.1
CORPORATE PROPERTY ASSOCIATES 17 GLOBAL INCORPORATED
LIST OF REGISTRANT SUBSIDIARIES
|
|
|
|
State or Country of |
Name of Subsidiary |
|
Ownership |
|
Incorporation |
601 Jefferson Manager (De) LLC |
|
100% |
|
Delaware |
601 Jefferson Tower (TX) LLC |
|
100% |
|
Delaware |
620 Eighth (NY) BOC-17 LLC |
|
100% |
|
Delaware |
620 Eighth GP NYT (NY) LLC |
|
100% |
|
Delaware |
620 Eighth Lender NYT (NY) Limited Partnership |
|
55% |
|
Delaware |
620 Eighth NYT (NY) Limited Partnership |
|
55% |
|
Delaware |
Agro LDCII d.o.o. |
|
100% |
|
Croatia |
Agro Zagreb 17-13 B.V. |
|
100% |
|
The Netherlands |
AIRLIQ (TX) LLC |
|
100% |
|
Delaware |
Airliq II (IL) LLC |
|
100% |
|
Delaware |
Alamo WPC Storage (TX) LLC |
|
100% |
|
Delaware |
American GL Cathedral Storage 17 (CA) LLC |
|
100% |
|
Delaware |
American GL Pearl Storage 17 (HI) LLC |
|
100% |
|
Delaware |
American JH Storage 17 (Multi) LLC |
|
100% |
|
Delaware |
American Subsequent Storage 17 (Multi) LLC |
|
100% |
|
Delaware |
American WPC Storage (Multi) LLC |
|
100% |
|
Delaware |
Ang (Multi) LLC |
|
100% |
|
Delaware |
Ang II (Multi) LLC |
|
100% |
|
Delaware |
Ang III (Multi) LLC |
|
100% |
|
Delaware |
Araxos Sp. Z.o.o. |
|
100% |
|
Poland |
Asia FT 1 LLC |
|
100% |
|
Delaware |
Bak Central Storage 17 (CA) LLC |
|
100% |
|
Delaware |
Bak North Storage 17 (CA) LLC |
|
100% |
|
Delaware |
Bak South Storage 17 (CA) LLC |
|
100% |
|
Delaware |
Basque 17-11 B.V. |
|
100% |
|
Netherlands |
Bear T (OH) LLC |
|
100% |
|
Delaware |
Beaumont Storage 17 (CA) LLC |
|
100% |
|
Delaware |
BG Cold (GA) LLC |
|
100% |
|
Delaware |
BG Ground Terminal (CA) LLC |
|
100% |
|
Delaware |
BG Terminal (CA) LLC |
|
100% |
|
Delaware |
BG Terminal Investor (CA) LLC |
|
100% |
|
Delaware |
Bohr Bolt (OH) LLC |
|
100% |
|
Delaware |
Bohr Bolt II (OH) LLC |
|
100% |
|
Delaware |
Borrego Storage 17 (CA) LLC |
|
100% |
|
Delaware |
Bplast 17 Member (DE) LLC |
|
100% |
|
Delaware |
Bplast Expansion Landlord (IN) LLC |
|
100% |
|
Delaware |
Bplast Expansion Member (IN) 17 LLC |
|
100% |
|
Delaware |
Bplast Landlord (DE) LLC |
|
50% |
|
Delaware |
Bplast Two Landlord (IN) LLC |
|
50% |
|
Delaware |
Bplast Two Member (IN) 17 LLC |
|
100% |
|
Delaware |
Breof BNK3A Independence LP |
|
100% |
|
Delaware |
Breof BNK3A Memorial LP |
|
100% |
|
Delaware |
Cantina 17 Landlord (IL) LLC |
|
100% |
|
Delaware |
Cantina 17 Manager (IL) LLC |
|
100% |
|
Delaware |
Carey 17 Harmon LLC |
|
100% |
|
Delaware |
LIST OF REGISTRANT SUBSIDIARIES (Continued)
|
|
|
|
State or Country of |
Name of Subsidiary |
|
Ownership |
|
Incorporation |
Carey 17 ORL (LLC) |
|
100% |
|
Delaware |
Carey 17 Wlgrn LLC |
|
100% |
|
Delaware |
Cherry Valley Storage 17 (IL) LLC |
|
100% |
|
Delaware |
CLA (MO) LLC |
|
100% |
|
Delaware |
Conduit B.V. |
|
100% |
|
Netherlands |
CP GAL Plainfield, LLC |
|
45% |
|
Delaware |
CPA 17 Asia Holdings LLC |
|
100% |
|
Delaware |
CPA 17 International Holding and Financing LLC |
|
100% |
|
Delaware |
CPA 17 Pan-European Holding Cooperatif UA |
|
100% |
|
Netherlands |
CPA 17 SB1 Lender LLC |
|
100% |
|
Delaware |
CPA 17 SB2 Lender LLC |
|
100% |
|
Delaware |
CPA 17 SBOP JV Member LLC |
|
100% |
|
Delaware |
CPA 17 SBPROP JV Member LLC |
|
100% |
|
Delaware |
CPA:17 Limited Partnership |
|
100% |
|
Delaware |
CPA:17 Paying Agent LLC |
|
100% |
|
Delaware |
CQ Landlord (MI) LLC |
|
100% |
|
Delaware |
CQ Landlord (Multi) LLC |
|
100% |
|
Delaware |
CQ Mezz Manager (Multi) LLC |
|
100% |
|
Delaware |
Croatia 4 Holdings 17-22 B.V. |
|
100% |
|
Netherlands |
CU-SOL (VA) LLC |
|
100% |
|
Delaware |
Dragon Godo Kaisha |
|
100% |
|
Japan |
Drill GmbH & Co. KG |
|
33% |
|
Germany |
East Peoria Storage 17 (IL) LLC |
|
100% |
|
Delaware |
ED Landlord (GA) LLC |
|
100% |
|
Delaware |
Ed Landlord Four |
|
100% |
|
Delaware |
Ed Landlord Two |
|
100% |
|
Delaware |
Eros 17-10 B.V. |
|
100% |
|
Netherlands |
Eros II Basque 17-15 B.V. |
|
100% |
|
The Netherlands |
Eros II Spain 17-16 B.V. |
|
30% |
|
The Netherlands |
Fayetteville Storage 17 (NC) LLC |
|
100% |
|
Delaware |
FIS (MI) LLC |
|
100% |
|
Delaware |
Flagland Spain, S.L. |
|
100% |
|
Spain |
Flan 1 (IL) LLC |
|
100% |
|
Delaware |
Flan 4 (Multi) LLC |
|
100% |
|
Delaware |
Flan Hud (NY) LLC |
|
100% |
|
Delaware |
Flex (NE) LLC |
|
100% |
|
Delaware |
Flex Member (NE) LLC |
|
100% |
|
Delaware |
Forest Hills Storage 17 (IL) LLC |
|
100% |
|
Delaware |
Foxborough Storage 17 (CA) LLC |
|
100% |
|
Delaware |
FRO Man Member 17 (NC) LLC |
|
100% |
|
Delaware |
FRO Spin (NC) LLC |
|
60% |
|
Delaware |
Fuel Invest 17-23 BV |
|
100% |
|
Netherlands |
Further Agro Adriatic 17-17 B.V. |
|
100% |
|
Netherlands |
Goldyard S.L. |
|
30% |
|
Spain |
Gorzow Beaver 17-3 BV |
|
100% |
|
Netherlands |
Granite Landlord (GA) LLC |
|
100% |
|
Delaware |
Health Landlord (MN) LLC |
|
100% |
|
Delaware |
LIST OF REGISTRANT SUBSIDIARIES (Continued)
|
|
|
|
State or Country of |
Name of Subsidiary |
|
Ownership |
|
Incorporation |
Hesperia Storage 17 (CA) LLC |
|
100% |
|
Delaware |
HF Landlord (SC) LLC |
|
100% |
|
Delaware |
HF Member (SC) LLC |
|
100% |
|
Delaware |
HF Two Landlord (SC) LLC |
|
100% |
|
Delaware |
Hillsboro Hotel Landlord LLC |
|
100% |
|
Delaware |
Hillsboro Hotel Operator TRS, Inc. |
|
100% |
|
Delaware |
HLWG B Note Purchaser (DE) LLC |
|
33% |
|
Delaware |
Icall BTS (VA) LLC |
|
100% |
|
Delaware |
ID Center (FL) LLC |
|
100% |
|
Delaware |
ID Wheel (FL) LLC |
|
100% |
|
Delaware |
Industrial Center 7 Sp. Zoo |
|
100% |
|
Poland |
INGESCORP 2008, Sociedad Limitada |
|
100% |
|
Spain |
JPTampa (FL) LLC |
|
100% |
|
Delaware |
JPTampa Management (FL) LLC |
|
100% |
|
Delaware |
KRO (IL) LLC |
|
100% |
|
Delaware |
Lake Street Storage 17 (HI) LLC |
|
100% |
|
Delaware |
Laurken (IL) LLC |
|
100% |
|
Delaware |
Loznica D.o.o |
|
100% |
|
Croatia |
LT Fit (AZ-MD) LLC |
|
100% |
|
Delaware |
M DUE |
|
100% |
|
Italy |
Madde Investment Sp.z.o.o. |
|
100% |
|
Poland |
Merge (WI) LLC |
|
100% |
|
Delaware |
Metro Italy 17-21 B.V. |
|
100% |
|
Netherlands |
Mill Storage 17 (CA) LLC |
|
100% |
|
Delaware |
Morisek Hoffman (IL) LLC |
|
100% |
|
Delaware |
MSTEEL (IL) LLC |
|
100% |
|
Delaware |
Northwest Storage 17 (IL) LLC |
|
100% |
|
Delaware |
Odessa Storage 17 (TX) LLC |
|
100% |
|
Delaware |
ORL 17-LB (FL) LLC |
|
100% |
|
Delaware |
Pend (WI) LLC |
|
100% |
|
Delaware |
Peoria Storage 17 (IL) LLC |
|
100% |
|
Delaware |
PILLS 17-12 B.V. |
|
100% |
|
Netherlands |
Pole Landlord (LA-TX) LLC |
|
100% |
|
Delaware |
RRD (IL) LLC |
|
100% |
|
Delaware |
SAB (IA) LLC |
|
100% |
|
Delaware |
Shelborne Operating Associates LLC |
|
33% |
|
Delaware |
Shelborne Property Associates LLC |
|
33% |
|
Delaware |
Sopot Adriatic d.o.o. |
|
100% |
|
Croatia |
Southeast Storage 17 (Multi) LLC |
|
100% |
|
Delaware |
SP Label (TN) LLC |
|
100% |
|
Delaware |
Stocksanden SL |
|
100% |
|
Spain |
Stor-Move UH 14 Business Trust |
|
100% |
|
Massachusetts |
Sunpro (KY) LLC |
|
100% |
|
Delaware |
Tampa Storage 17 (FL) LLC |
|
100% |
|
Delaware |
TDG Cold 17-14 B.V. |
|
100% |
|
The Netherlands |
Tech (GER) 17-1 BV |
|
100% |
|
Netherlands |
Tech Landlord (GER) LLC |
|
70% |
|
Delaware |
LIST OF REGISTRANT SUBSIDIARIES (Continued)
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|
|
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State or Country of |
Name of Subsidiary |
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Ownership |
|
Incorporation |
Tele Madrid 17-18 BV |
|
100% |
|
Netherlands |
Townline Storage 17 (IL) LLC |
|
100% |
|
Delaware |
TSO-Hungary KFT |
|
49% |
|
Hungary |
USO Landlord (TX) LLC |
|
100% |
|
Delaware |
Wanbi Investor LLC |
|
100% |
|
Delaware |
WGN (GER) LLC |
|
67% |
|
Delaware |
Wheeler Dealer 17 Multi, LLC |
|
100% |
|
Delaware |
Wlgrn (NV) LLC |
|
100% |
|
Delaware |
WPC 17-19 BV |
|
100% |
|
Netherlands |
WPC 17-20 BV |
|
100% |
|
Netherlands |
WPC 17-24 B.V. |
|
100% |
|
Netherlands |
WPC 17-9 BV |
|
100% |
|
Netherlands |
Zakup Agro 4 d.o.o. |
|
100% |
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Croatia |
Exhibit 23.1
CONSENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
We hereby consent to the incorporation by reference in the Registration Statement on Form S-3 (No. 333-186182) of Corporate Property Associates 17 Global Incorporated of our report dated March 8, 2013 relating to the financial statements and financial statement schedules, which appears in this Form 10-K.
/s/ PricewaterhouseCoopers LLP
New York, New York
March 8, 2013
Exhibit 31.1
Certification Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
I, Trevor P. Bond, certify that:
1. I have reviewed this Annual Report on Form 10-K of Corporate Property Associates 17 Global Incorporated;
2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
4. The registrants other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
(a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
(b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
(c) Evaluated the effectiveness of the registrants disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
(d) Disclosed in this report any change in the registrants internal control over financial reporting that occurred during the registrants most recent fiscal quarter (the registrants fourth fiscal quarter in the case of an Annual Report) that has materially affected, or is reasonably likely to materially affect, the registrants internal control over financial reporting; and
5. The registrants other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrants auditors and the audit committee of the registrants board of directors (or persons performing the equivalent functions):
(a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrants ability to record, process, summarize and report financial information; and
(b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrants internal control over financial reporting.
Date: March 8, 2013 |
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/s/ Trevor P. Bond |
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Trevor P. Bond |
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Chief Executive Officer |
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Exhibit 31.2
Certification Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
I, Mark J. DeCesaris, certify that:
1. I have reviewed this Annual Report on Form 10-K of Corporate Property Associates 17 Global Incorporated;
2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
4. The registrants other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
(a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
(b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
(c) Evaluated the effectiveness of the registrants disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
(d) Disclosed in this report any change in the registrants internal control over financial reporting that occurred during the registrants most recent fiscal quarter (the registrants fourth fiscal quarter in the case of an Annual Report) that has materially affected, or is reasonably likely to materially affect, the registrants internal control over financial reporting; and
5. The registrants other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrants auditors and the audit committee of the registrants board of directors (or persons performing the equivalent functions):
(a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrants ability to record, process, summarize and report financial information; and
(b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrants internal control over financial reporting.
Date: March 8, 2013 |
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/s/ Mark J. DeCesaris |
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Mark J. DeCesaris |
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Chief Financial Officer |
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Exhibit 32
Certifications Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
In connection with the Annual Report of Corporate Property Associates 17 Global Incorporated on Form 10-K for the year ended December 31, 2012 as filed with the Securities and Exchange Commission on the date hereof (the Report), each of the undersigned officers of Corporate Property Associates 17 Global Incorporated, does hereby certify, to the best of such officers knowledge and belief, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that:
1. The Report fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934; and
2. The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of Corporate Property Associates 17 Global Incorporated.
Date: March 8, 2013
/s/ Trevor P. Bond |
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Trevor P. Bond |
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Chief Executive Officer |
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Date: March 8, 2013 |
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/s/ Mark J. DeCesaris |
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Mark J. DeCesaris |
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Chief Financial Officer |
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The certification set forth above is being furnished as an exhibit solely pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 and is not being filed as part of the Report as a separate disclosure document of Corporate Property Associates 17 Global Incorporated or the certifying officers.
A signed original of this written statement required by Section 906, or other document authenticating, acknowledging, or otherwise adopting the signature that appears in typed form within the electronic version of this written statement required by Section 906, has been provided to Corporate Property Associates 17 Global Incorporated and will be retained by Corporate Property Associates 17 Global Incorporated and furnished to the Securities and Exchange Commission or its staff upon request.
Impairment Charges (Tables)
|
12 Months Ended | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Dec. 31, 2012
|
|||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Impairment Charges | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Schedule Of Asset Impairments |
|
Net Investments in Properties and Real Estate Under Construction (Narratives) (Details) (USD $)
|
3 Months Ended | 12 Months Ended | 12 Months Ended | 12 Months Ended | 1 Months Ended | 12 Months Ended | 12 Months Ended | 12 Months Ended | ||||||||||||||||||||||||||||||||||||||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Dec. 31, 2012
|
Sep. 30, 2012
|
Jun. 30, 2012
|
Mar. 31, 2012
|
Dec. 31, 2011
|
Sep. 30, 2011
|
Jun. 30, 2011
|
Mar. 31, 2011
|
Dec. 31, 2012
|
Dec. 31, 2011
|
Dec. 31, 2010
|
Dec. 31, 2012
I-Drive Live
|
Dec. 31, 2012
Real Estate
|
Dec. 31, 2011
Real Estate
|
Dec. 31, 2012
Real Estate
BCBS
property
|
Dec. 31, 2012
Real Estate
RLJ-Mclarty-Landers Automotive Holdings, LLC
property
|
Dec. 31, 2012
Real Estate
Agrokor IV
property
|
Dec. 31, 2012
Real Estate
R.R Donnellly & Sons Company
property
|
Dec. 31, 2012
Real Estate
South University
property
|
Dec. 31, 2012
Real Estate
Cuisine Solutions Inc.
property
|
Dec. 31, 2012
Real Estate
Education Management Corp
property
|
Dec. 31, 2012
Real Estate
Manufacturing and office facilities
property
|
Dec. 31, 2011
Real Estate
IShops LLC
property
|
Sep. 30, 2011
Real Estate
Metro Italy
property
|
Dec. 31, 2011
Real Estate
Terminal Freezer LLC
property
|
Dec. 31, 2011
Real Estate
Agrokor III
property
|
Dec. 31, 2011
Real Estate
Harbor Freight Tools USA
property
|
Dec. 31, 2011
Real Estate
Parcel of land
property
|
Dec. 31, 2012
Real Estate
Two follow-on properties
property
|
Dec. 31, 2011
Real Estate
Three follow-on properties
property
|
Dec. 31, 2012
Operating Real Estate
|
Dec. 31, 2011
Operating Real Estate
A-American Self Storage
property
|
Dec. 31, 2012
Operating Real Estate
Self Storage
property
|
Dec. 31, 2011
Operating Real Estate
Self Storage
|
Dec. 31, 2012
Real Estate Under Construction
|
Dec. 31, 2011
Real Estate Under Construction
|
Dec. 31, 2012
Real Estate Under Construction
IShops LLC
|
Dec. 31, 2011
Real Estate Under Construction
IShops LLC
property
|
Dec. 31, 2012
Real Estate Under Construction
Nippon Sheet Glass
|
Dec. 31, 2012
Real Estate Under Construction
I-Drive Live
property
|
Dec. 31, 2012
Real Estate Under Construction
Syncreon Logisitics Polska Sp.
property
|
Dec. 31, 2012
Real Estate Under Construction
Sabre Communications
property
|
Dec. 31, 2012
Real Estate Under Construction
Agrokor III
|
Dec. 31, 2011
Real Estate Under Construction
Agrokor III
property
|
Dec. 31, 2012
Real Estate Under Construction
ICF International Inc
|
Dec. 31, 2011
Real Estate Under Construction
ICF International Inc
property
|
Dec. 31, 2012
Real Estate Under Construction
Dollar General
|
Dec. 31, 2011
Real Estate Under Construction
Dollar General
property
|
Dec. 31, 2012
Real Estate Under Construction
Faurecia USA Holdings
|
Dec. 31, 2011
Real Estate Under Construction
Faurecia USA Holdings
property
|
Dec. 31, 2012
Real Estate Under Construction
Walgreens Las Vegas
|
Dec. 31, 2011
Real Estate Under Construction
Walgreens Las Vegas
|
Dec. 31, 2010
Real Estate Under Construction
Walgreens Las Vegas
property
|
Dec. 31, 2012
Real estate business combination
|
Dec. 31, 2012
Real estate business combination
KBR
property
|
Dec. 31, 2012
Real estate business combination
Wanbishi
property
|
Dec. 31, 2012
Real estate business combination
Shale-Inland Holdings LLC
property
|
Dec. 31, 2012
Real estate business combination
Shale-Inland Holdings LLC
|
|
Investments In Real Estate | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Investment purchase price | $ 400,800,000 | $ 179,100,000 | $ 169,000,000 | $ 68,700,000 | $ 45,800,000 | $ 36,300,000 | $ 25,000,000 | $ 21,300,000 | $ 15,700,000 | $ 14,000,000 | $ 32,700,000 | $ 395,500,000 | $ 99,600,000 | $ 32,700,000 | $ 32,100,000 | $ 7,400,000 | $ 5,000,000 | $ 7,400,000 | $ 82,900,000 | $ 165,900,000 | $ 82,200,000 | $ 3,400,000 | $ 72,500,000 | $ 108,500,000 | $ 8,300,000 | $ 17,800,000 | $ 23,600,000 | $ 14,800,000 | $ 9,100,000 | $ 6,800,000 | $ 85,600,000 | $ 238,100,000 | $ 174,800,000 | $ 48,700,000 | ||||||||||||||||||||||||
Noncontrolling interest | 3.00% | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Land | 16,500,000 | 37,900,000 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Buildings | 56,700,000 | 163,000,000 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Finite-lived intangible assets acquired | 92,400,000 | 43,200,000 | 42,300,000 | 9,700,000 | 13,400,000 | 9,700,000 | 100,000 | 37,200,000 | ||||||||||||||||||||||||||||||||||||||||||||||||||
Number of properties acquired | 8 | 9 | 1 | 1 | 2 | 1 | 1 | 2 | 1 | 20 | 3 | 1 | 1 | 1 | 2 | 3 | 43 | 14 | 1 | 1 | 1 | 1 | 2 | 1 | 2 | 1 | 1 | 1 | 1 | 1 | 14,600,000 | |||||||||||||||||||||||||||
Acquisition costs, capitalized | 3,100,000 | 21,600,000 | 8,900,000 | 21,400,000 | 16,400,000 | 4,800,000 | ||||||||||||||||||||||||||||||||||||||||||||||||||||
Acquisition costs, expensed | 1,200,000 | 1,500,000 | 1,500,000 | 6,200,000 | 12,800,000 | |||||||||||||||||||||||||||||||||||||||||||||||||||||
Revenues | 90,153,000 | 69,365,000 | 68,721,000 | 65,804,000 | 59,970,000 | 49,115,000 | 44,878,000 | 42,158,000 | 294,043,000 | 196,121,000 | 99,463,000 | 2,200,000 | 4,500,000 | |||||||||||||||||||||||||||||||||||||||||||||
Net income | 3,927,000 | 12,295,000 | 14,266,000 | 11,123,000 | 14,069,000 | 10,304,000 | 12,847,000 | 12,435,000 | 41,611,000 | 49,655,000 | 30,454,000 | (1,900,000) | (11,900,000) | |||||||||||||||||||||||||||||||||||||||||||||
Construction loan, principal | 50,000,000 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Tenant-funded improvements | 9,000,000 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Net investments in direct financing leases (inclusive of amounts attributable to consolidated VIEs of $242,175 and $240,112, respectively) | 475,872,000 | 462,505,000 | 475,872,000 | 462,505,000 | 3,100,000 | |||||||||||||||||||||||||||||||||||||||||||||||||||||
Non recourse debt assumed | 36,700,000 | 50,400,000 | 222,700,000 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||
Payments for construction in progress | 23,600,000 | 121,000,000 | 12,400,000 | 35,600,000 | 25,200,000 | 43,100,000 | 2,400,000 | 12,500,000 | 2,200,000 | 19,200,000 | 3,500,000 | 9,800,000 | 700,000 | 8,400,000 | 3,300,000 | 4,600,000 | 15,700,000 | 67,800,000 | ||||||||||||||||||||||||||||||||||||||||
Assets placed into service | 142,200,000 | 25,200,000 | 8,300,000 | 13,300,000 | 13,500,000 | 1,600,000 | 8,100,000 | 8,100,000 | 85,400,000 | |||||||||||||||||||||||||||||||||||||||||||||||||
Interest costs, capitalized | 1,719,000 | 3,543,000 | 315,000 | 2,100,000 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||
Unfunded commitments | 92,400,000 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Change in euro/dollar currency exchange rate percentage | 2.10% | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Foreign currency exchange rate | 1.3218 | 1.2950 | 1.3218 | 1.2950 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||
Foreign currency translation adjustments | $ 13,515,000 | $ (12,753,000) | $ (7,438,000) | $ 15,500,000 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||
Pro Forma Information [Abstract] | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Pro forma weighted average shares outstanding | 142,366,962 |
Statement of Cash Flows Supplemental Data (Details) (USD $)
In Thousands, unless otherwise specified |
Dec. 31, 2012
|
---|---|
Assets acquired at fair value [Abstract] | |
Land | $ 91,691 |
Buildings | 262,651 |
Intangible assets, net | 57,750 |
Liabilities assumed at fair value [Abstract] | |
Non-recourse debt | (222,680) |
Accounts payable, accrued expenses and other liabilities | (9,050) |
Prepaid and deferred rental income | (15,488) |
Net (liabilities assumed) assets acquired excluding cash | $ 164,874 |
Net Investments in Properties and Real Estate Under Construction (Details 1) (USD $)
In Thousands, unless otherwise specified |
Dec. 31, 2012
|
Dec. 31, 2011
|
---|---|---|
Investments in real estate: | ||
Accumulated depreciation (inclusive of amounts attributable to consolidated VIEs of $3,801 and $1,617, respectively) | $ (85,002) | $ (43,267) |
Net investments in properties | 2,275,575 | 1,635,025 |
Real Estate
|
||
Investments in real estate: | ||
Land | 491,584 | 390,445 |
Building | 1,614,188 | 1,109,706 |
Accumulated depreciation (inclusive of amounts attributable to consolidated VIEs of $3,801 and $1,617, respectively) | (77,245) | (40,522) |
Net investments in properties | 2,028,527 | 1,459,629 |
Operating Real Estate [Member]
|
||
Investments in real estate: | ||
Land | 60,493 | 43,950 |
Building | 193,067 | 132,478 |
Furniture, fixtures and equipment | 1,245 | 1,713 |
Accumulated depreciation (inclusive of amounts attributable to consolidated VIEs of $3,801 and $1,617, respectively) | (7,757) | (2,745) |
Net investments in properties | $ 247,048 | $ 175,396 |
Schedule IV-Mortgage Loans on Real Estate (Tables)
|
12 Months Ended | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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Dec. 31, 2012
|
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Mortgage Loans On Real Estate [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Mortgage Loans On Real Estate |
|
Finance Receivables (Tables)
|
12 Months Ended | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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Dec. 31, 2012
|
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Receivables | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Capital Leases Net Investment In Direct Financing Leases |
|
||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Schedule Of Future Minimum Lease Payments For Capital Leases |
|
||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Financing Receivable Credit Quality Indicators |
|
Fair Value Measurements (Details 1) (USD $)
In Thousands, unless otherwise specified |
Dec. 31, 2012
|
Dec. 31, 2011
|
---|---|---|
Fair Value, Inputs, Level 3 [Member]
|
||
Fair Value, Balance Sheet Grouping [Line Items] | ||
Debt | $ 1,674,019 | $ 1,184,309 |
Notes receivable | 43,957 | 71,297 |
CMBS | 2,980 | 6,701 |
Other securities | 10,800 | 1,230 |
Carrying (Reported) Amount, Fair Value Disclosure [Member]
|
||
Fair Value, Balance Sheet Grouping [Line Items] | ||
Debt | 1,633,452 | 1,154,254 |
Notes receivable | 40,000 | 70,000 |
CMBS | 2,075 | 3,777 |
Other securities | $ 8,301 | $ 1,230 |
Income Taxes (Narratives) (Details) (USD $)
In Millions, unless otherwise specified |
12 Months Ended | |||
---|---|---|---|---|
Dec. 31, 2012
|
Dec. 31, 2011
|
Dec. 31, 2012
Maximum
|
Dec. 31, 2012
Minimum
|
|
Income Tax Uncertainties [Abstract] | ||||
Unrecognized tax benefits, income tax penalties and interest accrued | $ 0.1 | $ 0.1 | ||
Open tax years | 2012 | 2008 | ||
Deferred Tax Assets, Net of Valuation Allowance [Abstract] | ||||
Operating Loss Carryforwards | 25.7 | 14.5 | ||
Deferred tax assets before valuation allowance | 6.2 | 3.3 | ||
Operating Loss Carryforwards Valuation Allowance | $ 6.2 | $ 3.3 |
Net Investments in Properties and Real Estate Under Construction (Details 3) (USD $)
In Thousands, except Per Share data, unless otherwise specified |
12 Months Ended |
---|---|
Dec. 31, 2010
|
|
Pro Forma Information [Abstract] | |
Pro Forma Revenue | $ 154,808 |
Pro forma net income | 50,675 |
Less: Net income attributable to noncontrolling interests | (15,878) |
Pro forma net income attributable to CPA 17 - Global stockholders | $ 34,797 |
Pro forma earnings per share | |
Net income attributable to CPA 17 - Global stockholders | $ 0.36 |
Equity (Narratives) (Details) (USD $)
|
1 Months Ended | |
---|---|---|
Dec. 31, 2012
|
Sep. 30, 2012
|
|
Distributions Per Share [Abstract] | ||
Distributions Per Share Declared | $ 0.0017663 | $ 0.0017663 |
Distributions Payable Date To Be Paid Month And Year | 2013-04 | 2013-01 |
Distributions Annualized Yield | 6.50% | 6.50% |
Initial public offering price per share | $ 10.00 |
Risk Management and Use of Derivative Financial Instruments (Details 6)
In Thousands, unless otherwise specified |
12 Months Ended | ||||||||||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Dec. 31, 2012
USD ($)
|
Dec. 31, 2012
Foreign Exchange Forward May [Member]
USD ($)
|
Dec. 31, 2012
Foreign Exchange Forward May [Member]
EUR (€)
|
Dec. 31, 2012
Foreign Exchange Forward May [Member]
Minimum
|
Dec. 31, 2012
Foreign Exchange Forward May [Member]
Maximum
|
Dec. 31, 2012
Foreign Currency Collars [Member]
USD ($)
|
Dec. 31, 2012
Foreign Currency Collars [Member]
EUR (€)
|
Dec. 31, 2012
Foreign Currency Collars [Member]
Minimum
|
Dec. 31, 2012
Foreign Currency Collars [Member]
Maximum
|
Dec. 31, 2012
Foreign Exchange Forward July [Member]
USD ($)
|
Dec. 31, 2012
Foreign Exchange Forward July [Member]
EUR (€)
|
Dec. 31, 2012
Foreign Exchange Forward September [Member]
USD ($)
|
Dec. 31, 2012
Foreign Exchange Forward September [Member]
EUR (€)
|
Dec. 31, 2012
Foreign Exchange Forward September [Member]
Minimum
|
Dec. 31, 2012
Foreign Exchange Forward September [Member]
Maximum
|
Dec. 31, 2012
Foreign Exchange Forward December [Member]
USD ($)
|
Dec. 31, 2012
Foreign Exchange Forward December [Member]
EUR (€)
|
Dec. 31, 2012
Foreign Exchange Forward December [Member]
Minimum
|
Dec. 31, 2012
Foreign Exchange Forward December [Member]
Maximum
|
Dec. 31, 2012
Foreign Exchange Forward December Yen [Member]
USD ($)
|
Dec. 31, 2012
Foreign Exchange Forward December Yen [Member]
JPY (¥)
|
Dec. 31, 2012
Foreign Exchange Forward December Yen [Member]
Minimum
|
Dec. 31, 2012
Foreign Exchange Forward December Yen [Member]
Maximum
|
|
Derivative Instrument Detail | |||||||||||||||||||||||
Notional amount, foreign currency derivatives | € 56,700 | € 35,446 | € 45,000 | € 30,523 | € 17,100 | ¥ 1,612,963 | |||||||||||||||||
Derivative, Floor Price | 1.28 | 1.28 | 1.40 | 1.40 | 1.39 | 1.39 | 1.34 | 1.34 | 1.34 | 1.34 | 0.0122 | 0.0122 | |||||||||||
Derivative, Cap Price | 1.29 | 1.29 | 1.44 | 1.44 | 1.35 | 1.35 | 0.0128 | 0.0128 | |||||||||||||||
Effective Date | May 01, 2012 | May 01, 2012 | Sep. 01, 2011 | Sep. 01, 2011 | Jul. 01, 2011 | Jul. 01, 2011 | Sep. 01, 2011 | Sep. 01, 2011 | Dec. 01, 2012 | Dec. 01, 2012 | Dec. 01, 2012 | Dec. 01, 2012 | |||||||||||
Expiration Date | Dec. 01, 2014 | Jun. 01, 2017 | Mar. 01, 2013 | Sep. 01, 2014 | Jul. 01, 2013 | Jul. 01, 2013 | Mar. 01, 2013 | Mar. 01, 2015 | Sep. 01, 2017 | Mar. 01, 2018 | Jun. 01, 2013 | Dec. 01, 2017 | |||||||||||
Fair value, foreign currency derivatives | $ 4,439 | $ (2,381) | $ 2,743 | $ 2,882 | $ 570 | $ (174) | $ 799 |
Equity (Details 1) (USD $)
|
12 Months Ended | ||
---|---|---|---|
Dec. 31, 2012
|
Dec. 31, 2011
|
Dec. 31, 2010
|
|
Distributions Per Share [Abstract] | |||
Ordinary income | $ 0.3022 | $ 0.3981 | $ 0.3391 |
Capital gain | $ 0 | $ 0 | $ 0.0003 |
Return of capital | $ 0.3478 | $ 0.2519 | $ 0.3006 |
Total distributions | $ 0.6500 | $ 0.6500 | $ 0.6400 |
Intangible Assets and Liabilities (Details 3) (USD $)
In Thousands, unless otherwise specified |
Dec. 31, 2012
|
---|---|
Finite-Lived Intangible Assets, Future Amortization Expense | |
2013 | $ 34,551 |
2014 | 31,510 |
2015 | 29,440 |
2016 | 27,141 |
2017 | 26,175 |
Thereafter intangible amortization expense | 272,051 |
Finite lived intangible assets liabilites, net | $ 420,868 |
Segment Information
|
12 Months Ended | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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Dec. 31, 2012
|
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Segment Reporting [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Segment Reporting | Note 16. Segment Information
We have determined that we operate in one reportable segment, real estate ownership, with domestic and foreign investments. Geographic information for this segment is as follows (in thousands):
____________
|
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