10-K 1 cpa172013q410-k.htm 10-K CPA 17 2013 Q4 10-K



 

UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
 
FORM 10-K
R
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 2013
or
o
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 
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
 
20-8429087
(State of incorporation)
 
(I.R.S. Employer Identification No.)
 
 
 
50 Rockefeller Plaza
 
 
New York, New York
 
10020
(Address of principal executive offices)
 
(Zip Code)
Investor Relations (212) 492-8920
(212) 492-1100
(Registrant’s 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 registrant’s 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
 
 
(Do not check if a smaller reporting company)
 
 
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 306,933,966 shares of common stock at June 30, 2013.
 
As of February 28, 2014, there were 320,172,436 shares of common stock of registrant outstanding.
 
DOCUMENTS INCORPORATED BY REFERENCE

The registrant incorporates by reference its definitive Proxy Statement with respect to its 2014 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
 
 
 
Page No.
 
 
 
 
 
 
PART IV
 
 
 
Forward-Looking Statements
 
This Annual Report on Form 10-K (“the Report”), including Management’s Discussion and Analysis of Financial Condition and Results of Operations (“MD&A”) 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, or 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 2013 10-K — 1




PART I

Item 1. Business.
 
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”) that invests 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, which is our “Operating Partnership.” We are a general partner and a limited partner and own a 99.99% capital interest in the Operating Partnership. W. P. Carey Holdings, LLC (“Carey Holdings”, also known as the “Special General Partner”), an indirect subsidiary of our sponsor, W. P. Carey Inc. (“WPC”), holds a special general partner interest in the Operating Partnership (“Special General Partner Interest”).
 
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 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 those fees associated with personnel provided for administration of our operations. The current advisory agreement is scheduled to expire on June 30, 2014, unless extended at our option. The advisor also currently serves in this capacity for Corporate Property Associates 18 – Global Incorporated, a publicly owned non-listed REIT with an investment strategy similar to ours (“CPA®:18 – Global” and, together with us, the “CPA® REITs”), and Carey Watermark Investors Incorporated, a publicly owned non-listed REIT that invests in hotel and lodging properties (“CWI”), and served in this capacity for Corporate Property Associates 16 – Global Incorporated (“CPA®:16 – Global”) until it merged with and into a subsidiary of the advisor in January 2014 (collectively, including us, the “Managed REITs”).

We were formed as a Maryland corporation in February 2007. We commenced our initial public offering in November 2007 and our follow-on offering in April 2011. 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, which ended in April 2011, and our follow-on offering, which closed in January 2013. Through December 31, 2013, we have issued approximately 28,000,000 shares ($264.7 million) through our distribution reinvestment and stock purchase plan (“DRIP”). We repurchased approximately 5,600,000 shares ($52.5 million) of our common stock under our redemption plan from inception through December 31, 2013. We intend to continue to use the remaining net proceeds of our follow-on offering 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, until we have fully invested the proceeds of our follow-on offering, 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.

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The advisor calculated our estimated net asset value per share (“NAV”) as of December 31, 2013 to be $9.50.
 
We have no employees. At December 31, 2013, the advisor employed 251 individuals who are available to perform services for us under our agreement with the advisor (Note 3).
 
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 our segment and geographic concentrations.
 
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, which are primarily 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 Portfolio
 
At December 31, 2013, substantially all of our portfolio was comprised of our full or partial ownership interests in 352 fully-occupied properties, a majority of which were triple-net leased to 99 tenants, and totaled approximately 34 million square feet. The remainder of our portfolio comprises interests in 71 self-storage properties, two hotel properties, and two shopping centers for an aggregate of approximately 6 million square feet. Our operating real estate includes full ownership interests in 66 self-storage properties and one of the hotels. The remaining five self-storage properties, the other hotel, and one of the shopping centers are accounted for under the equity method of accounting. The other shopping center is a build-to-suit project currently under construction. Our net lease portfolio, which excludes our self-storage facilities, hotels and shopping centers, had the following significant property and lease characteristics (percentages are based on annualized contractual minimum base rent as of December 31, 2013):

•
61% related to domestic properties and 39% related to international properties;
•
32% related to office properties, 23% related to warehouse/distribution properties, 21% related to retail properties, and 16% related to industrial properties;
•
25% related to the retail industry, 13% related to the media industry, and 13% related to the grocery industry; and
•
our leases have initial terms of 10 to 20 years, of which 39% are expected to expire within the next 10 years.

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

CPA®:17 – Global 2013 10-K — 3




properties. Additionally, the advisor periodically analyzes each tenant’s financial condition, the industry in which each tenant operates and each tenant’s 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, which terminated in April 2011. We have not yet completed the investment of all of the net proceeds from our follow-on offering. 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. 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 two most recent instances in which Managed REIT stockholders were provided with liquidity, Corporate Property Associates 15 Incorporated (“CPA®:15”) and CPA®:16 – Global merged with and into subsidiaries of our advisor in September 2012 and January 2014, respectively. Prior to that, the liquidating entity merged with another, later-formed REIT managed by WPC, as with the merger of Corporate Property 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 will generally borrow in the same currency that is used to pay rent on the property. This enables us to hedge a portion of our currency risk on international investments. We, through the subsidiaries we form to make investments, generally will seek to borrow on a non-recourse basis, in amounts that we believe will maximize the return to our stockholders, although we may also borrow at the corporate level. The use of non-recourse financing may allow us to improve returns to our stockholders and to limit our exposure on any investment to the amount invested. Non-recourse indebtedness means the indebtedness of the borrower or its subsidiaries that is secured only by the assets to which such indebtedness relates without recourse to the borrower or any of its subsidiaries, other than in case of customary carve-outs for which the borrower or its subsidiaries acts as guarantor in connection with such indebtedness, such as fraud, misappropriation, misapplication of funds, environmental conditions and material misrepresentation. Since non-recourse financing generally restricts the lender’s claim on the assets of the borrower, the lender generally may only take back the asset securing the debt, which protects our other assets. In some cases, particularly with respect to non-U.S. investments, the lenders may require that they have recourse to other assets owned by a subsidiary borrower, in addition to the asset securing the debt. Such recourse generally would not extend to assets of our other subsidiaries. Lenders typically seek to include in the terms of a loan change of control provisions making the termination or replacement of our advisor, or the dissolution of the advisor, events of default or events requiring the immediate repayment of the full outstanding balance of the loan. While we will attempt through negotiations not to include such provisions, lenders may require them.

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

CPA®:17 – Global 2013 10-K — 4




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.

Investment Strategies
 
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.

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, which require the tenant to pay substantially all of the costs associated with operating and maintaining the property. In analyzing potential investments, the advisor reviews various aspects of a transaction, including tenant underlying real estate fundamentals, to determine whether a potential investment and lease can be structured to satisfy our investment criteria. In evaluating net lease transactions, 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 its 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. Whether a prospective tenant or borrower is creditworthy will be determined by the advisor’s investment department and the 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 the tenants or their affiliates. In addition, the advisor 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 generally 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.
 
Real Estate Evaluation — The advisor reviews and evaluates the physical condition of the property and the market in which it is located. The advisor considers a variety of factors, including current market rents, replacement cost, residual valuation, property operating history, demographic characteristics of the location and accessibility, competitive properties, and suitability for re-leasing. The advisor obtains third-party environmental and engineering reports and market studies, if needed. The advisor will also consider 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 tenant’s lease obligations being satisfied through a guaranty of obligations from the tenant’s 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,

CPA®:17 – Global 2013 10-K — 5




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 currently have full or partial ownership interests in 71 self-storage properties through the date of this Report.
 
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 2013, 2012, and 2011, we invested in 66 self-storage properties and one hotel property. These properties are managed by third parties who receive management fees.
 
Real Estate Related Assets
 
We may acquire other real estate assets, including the following:

•
Opportunistic Investments — These may include short-term net leases, vacant property, land, multi-tenanted property, non-commercial property and property leased to non-related tenants.
•
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.
•
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.
•
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.
•
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.
•
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.

Investment Decisions
 
The advisor’s 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 and WPC. Before an investment is made, the transaction is generally reviewed by the advisor’s 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 advisor’s chief investment officer (up to, in the case of investments other than long-term net leases, an aggregate cap of $30.0 million or an aggregate 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

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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 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.

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 advisor’s 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.
 
We may also 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.

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 tenant’s 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 WPC or 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. Our other transactions with affiliates are discussed in Note 3 and our jointly-owned investments are described further in Note 6.
 
Financial Information About Geographic Areas
 
See Our Portfolio above and Note 16 for financial information pertaining to our geographic operations.
 
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

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SEC’s 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 SEC’s 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.

Item 1A. Risk Factors.
 
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.
 
Adverse changes in general economic conditions can adversely affect our business.

Our success is dependent upon economic conditions in the U.S. generally, and in the geographic areas in which a substantial number of our investments are located. Adverse changes in national economic conditions or in the economic conditions of the regions in which we conduct substantial business likely would have an adverse effect on real estate values and, accordingly, our financial performance and our ability to pay dividends.

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 2013 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 the remaining proceeds of our follow-on offering may adversely affect or cause a delay in our ability to deliver expected returns to investors and may adversely affect our performance.
 
Pending investment, the balance of the proceeds of our follow-on 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 remaining proceeds of our follow-on 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 follow-on offering or to invest in quality assets, our ability to achieve our investment objectives could be materially adversely affected.
 

CPA®:17 – Global 2013 10-K — 8




If we recognize substantial impairment charges on our properties or investments, our net income may be reduced.
 
We have previously recognized impairment charges, and in the future, we may 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 investment’s 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 11% of our annualized contractual minimum base rent as of December 31, 2013 pertained to our lease with Metro Cash & Carry Italia S.p.A (“Metro”) (Note 16). A failure by Metro 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 is scheduled to expire on June 30, 2014 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 advisor’s 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 advisor’s 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 advisor’s 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 advisor’s 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, LLC (“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

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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 SEC’s 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 WPC’s 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., a subsidiary of WPC (“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 may discourage certain business combination transactions.
 
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 loans 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 loans, our revenues and distributions to our stockholders may be adversely affected.
 

CPA®:17 – Global 2013 10-K — 10




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 arm’s-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 WPC 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 WPC 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 advisor’s 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
•
our advisor and its affiliates own approximately 1.9% of our outstanding common stock, which gives the advisor 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.
 
We face active competition from unrelated parties for the investments we make.
 
We face active competition for our investments from many sources, including insurance companies, credit companies, pension funds, private individuals, financial institutions, finance companies, 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 advisor’s 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 is higher than those of our competitors, we may be limited in the amount of new acquisitions we are able to make.
 

CPA®:17 – Global 2013 10-K — 11




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.

Our net asset value is computed by the advisor relying in part on information that the advisor provides to a third party.

Our net asset value is computed by the advisor relying in part upon an annual third-party valuation of our real estate. Any valuation includes the use of estimates and our valuation may be influenced by the information provided to the third party by the advisor. Because net asset value is an estimate and can change as interest rate and real estate markets fluctuate, there is no assurance that a stockholder will realize such net asset value in connection with any liquidity event.

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®:18 – Global, and to a lesser extent CWI, that invest in real estate. WPC and CPA®:18 – Global 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®:18 – 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®:18 – Global, or CWI and there are no restrictions on WPC’s 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 (“FFO”) 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.

We could be adversely affected if our advisor completed an internalization with another CPA® REIT.

If WPC were to sell or otherwise transfer its advisory business to another CPA® REIT, we could be adversely affected because the advisor could be incentivized to make decisions regarding investment allocation, asset management, liquidity transactions and other matters that are more favorable to its CPA® REIT owner than to us. If we terminate the advisory agreement and repurchase the special general partner’s interest in our Operating Partnership, which we would have the right to do in such circumstances, the costs to us could be substantial and we may have difficulty finding a replacement advisor that would perform at a level at least as high as that of our advisor.

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.
 

CPA®:17 – Global 2013 10-K — 12




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, or following this offering will be, an investment company as defined in section 3(a)(1)(A) of the Investment Company Act and described in the first bullet point above. 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 partnership’s 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 and B 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. In August 2011, the SEC issued a concept release soliciting public comment on a wide range of

CPA®:17 – Global 2013 10-K — 13




issues relating to Section (3)(c)(5)(C), including the nature of the assets that qualify for purposes of the exemption and whether mortgage REITs should be regulated in a manner similar to investment companies. There can be no assurance that the laws and regulations governing the Investment Company Act status of REITs, including the guidance of the SEC or its staff regarding this exemption, will not change in a manner that adversely affects our operations. 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.

To maintain compliance with the Investment Company Act exemption, we may be unable to sell assets we would otherwise want to sell and may need to sell assets we would otherwise wish to retain. In addition, we may have to acquire additional income or loss generating assets that we might not otherwise have acquired or may have to forego opportunities to acquire interests in companies that we would otherwise want to acquire and would be important to our investment strategy. If we were required to register as an investment company we would be prohibited from engaging in our business as currently contemplated because the Investment Company Act imposes significant limitations on leverage. In addition, we would have to seek to restructure the advisory agreement because the compensation that it contemplates would not comply with the Investment Company Act. Criminal and civil actions could also be brought against us if we failed to comply with the Investment Company Act. In addition, our contracts would be unenforceable unless a court were to require enforcement, and a court could appoint a receiver to take control of us and liquidate our business.

Because the operating partnership relies on the exemption from investment company registration provided by Section 3(c)(5)(C), and the operating partnership is a majority owned subsidiary of us, our interests in the operating partnership will not constitute investment securities for purposes of the 40% test. Our interests in the operating partnership is our only material asset; therefore, we believe that we will satisfy the 40% test.
 
We use derivative financial instruments to hedge against interest rate and currency fluctuations, which could reduce the overall returns on your investment.
 
We 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.
 
Because we invest in properties located outside the U.S., we are exposed to additional risks.
 
We have invested in and may continue to invest in properties located outside the U.S. At December 31, 2013, our directly-owned real estate properties located outside of the U.S. represented 46% of current annualized contractual minimum base rent. These investments may be affected by factors particular to the laws of the jurisdiction in which the property is located. These investments may expose us to risks that are different from and in addition to those commonly found in the U.S., including:
 
•
changing governmental rules and policies;
•
enactment of laws relating to the foreign ownership of property and laws relating to the ability of foreign entities to remove invested capital or profits earned from activities within the country to the U.S.;
•
expropriation of investments;
•
legal systems under which our ability to enforce contractual rights and remedies may be more limited than would be the case under U.S. law;
•
difficulty in conforming obligations in other countries and the burden of complying with a wide variety of foreign laws, which may be more stringent than U.S. laws, including tax requirements and land use, zoning, and environmental laws, as well as changes in such laws;
•
adverse market conditions caused by changes in national or local economic or political conditions;
•
tax requirements vary by country and we may be subject to additional taxes as a result of our international investments;
•
changes in relative interest rates;
•
changes in the availability, cost and terms of mortgage funds resulting from varying national economic policies;
•
changes in real estate and other tax rates and other operating expenses in particular countries;
•
changes in land use and zoning laws;
•
more stringent environmental laws or changes in such laws; and
•
restrictions and/or significant costs in repatriating cash and cash equivalents held in foreign bank accounts.
 

CPA®:17 – Global 2013 10-K — 14




In addition, the lack of publicly available information in certain jurisdictions in accordance with GAAP could impair our ability to analyze transactions and may cause us to forego an investment opportunity. It may also impair our ability to 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. Our advisor’s 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.
 
Also, we may engage third-party asset managers in international jurisdictions to monitor compliance with legal requirements and lending agreements with respect to properties we own. Failure to comply with applicable requirements may expose us or our operating subsidiaries to additional liabilities.
 
Moreover, we are subject to changes in foreign exchange rates due to potential fluctuations in exchange rates between foreign currencies and the U.S. dollar. Our principal foreign currency exposures are to the euro and, to the lesser extent, the British pound sterling and Japanese yen. We attempt to mitigate a portion of the risk of currency fluctuation by financing our properties in the local currency denominations, although there can be no assurance that this will be effective. Because we generally place both our debt obligation to the lender and the tenant’s rental obligation to us in the same currency, our results of foreign operations benefit from a weaker U.S. dollar and are adversely affected by a stronger U.S. dollar relative to foreign currencies; that is, absent other considerations, a weaker U.S. dollar will tend to increase both our revenues and our expenses, while a stronger U.S. dollar will tend to reduce both our revenues and our expenses.
 
Because we use debt to finance investments, our cash flow could be adversely affected.
 
Historically, most of our investments have been made by borrowing a portion of the total investment and securing the loan with a mortgage on the property. We generally borrow on a non-recourse basis to limit our exposure on any property to the amount of equity invested in the property. If we are unable to make our debt payments as required, a lender could foreclose on the property or properties securing its debt. Additionally, lenders for our international mortgage loan transactions typically incorporate various covenants and other provisions that can cause a technical loan default, including a loan to value ratio, a debt service coverage ratio and a material adverse change in the borrower’s or tenant’s business. Accordingly, if the real estate value declines or the tenant defaults, the lender would have the right to foreclose on its security. If any of these events were to occur, it could cause us to lose part or all of our investment, which in turn could cause the value of our portfolio, and revenues available for distribution to our stockholders, to be reduced.
 
Some of our financing may also require us to make a balloon payment at maturity. Our ability to make balloon payments on debt will depend upon our ability either to refinance the obligation when due, invest additional equity in the property or to sell the related property. When a balloon payment is due, we may be unable to refinance the balloon payment on terms as favorable as the original loan or sell the property at a price sufficient to cover the balloon payment. Our ability to accomplish these goals will be affected by various factors existing at the relevant time, such as the state of the national and regional economies, local real estate conditions, available mortgage or interest rates, availability of credit, our equity in the mortgaged properties, our financial condition, the operating history of the mortgaged properties and tax laws. A refinancing or sale could affect the rate of return to stockholders and the projected time of disposition of our assets.

Because most of our properties are occupied by a single tenant, our success is materially dependent upon their financial stability.
 
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 38% of total lease revenues in 2013. 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 11% of our annualized contractual minimum base rent in 2013 pertained to our lease with Metro. A failure by Metro 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.
 

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The bankruptcy or insolvency of tenants or borrowers may cause a reduction in our revenue and an increase in our expenses.
 
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 year’s 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 debtor’s 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 have had tenants (including several international tenants) file for bankruptcy protection in the past and have been involved in bankruptcy-related litigation. Four prior programs managed by the advisor 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

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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 project’s and our portfolio’s 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 property’s 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 tenant’s 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 tenant’s 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”), collectively known as the “Boards”, issued an Exposure Draft on a joint proposal that would dramatically transform lease accounting from the existing model. In May 2013, the Boards issued a revised exposure draft for public comment and the comment period ended in September 2013. In January 2014, the Boards began their redeliberations of the proposals included in the May 2013 Exposure Draft based on the comments received. 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 CPA® REITs’ accounting for leases as well as that of our and the CPA® 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.
 

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Because we are subject to possible liabilities relating to environmental matters, we could incur unexpected costs and our ability to sell or otherwise dispose of a property may be negatively impacted.
 
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 borrower’s 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;

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•
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

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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 Moody’s Investors Service, ratings lower than Baa3, and for Standard & Poor’s Ratings Services, 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.
 

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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

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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 REIT’s 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.
 

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The IRS may treat sale-leaseback transactions as loans, which could jeopardize our REIT qualification.
 
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 hotels 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 hotels. Instead, we must engage independent management companies to operate our hotels. Our taxable REIT subsidiaries (“TRSs”), engage independent management companies as the property managers for our hotels, as required by the REIT qualification rules. The management companies operating our hotels make and implement 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 companies operating the hotels may not be in the best interests of the hotels or us. Accordingly, we cannot assure you that the management companies operating our hotels 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 distributed 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 distributed 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 partnership’s 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

CPA®:17 – Global 2013 10-K — 23




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.


CPA®:17 – Global 2013 10-K — 24




Item 1B. Unresolved Staff Comments.
 
None.

Item 2. Properties.
 
Our principal corporate offices are located in the offices of the advisor 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 Hong Kong and 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 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.

Item 3. Legal Proceedings.
 
At December 31, 2013, 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 2013 10-K — 25




PART II

Item 5. Market for Registrant’s 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 February 28, 2014, there were 82,926 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 paid by us for the past two years are as follows:
 
Years Ended December 31,
 
2013
 
2012
First quarter
$
0.1625

 
$
0.1625

Second quarter
0.1625

 
0.1625

Third quarter
0.1625

 
0.1625

Fourth quarter
0.1625

 
0.1625

 
$
0.6500

 
$
0.6500

 
Unregistered Sales of Equity Securities
 
During the three months ended December 31, 2013, we issued 575,033 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 
 
 
Total number of
shares purchased (a)
 
Average price
paid per share
 
Total number of shares
purchased as part of
publicly announced plans or program (a)
 
Maximum number (or
approximate dollar value)
of shares that may yet be
purchased under the plans or program (a)
2013 Period
 
 
 
 
October
 
—

 
$
—

 
N/A
 
N/A
November
 
—

 
—

 
N/A
 
N/A
December
 
492,083

 
9.50

 
N/A
 
N/A
Total
 
492,083

 
 

 
 
 
 
___________
(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. We satisfied all of the above redemption requests received during the three months ended December 31, 2013. The redemption plan will terminate if and when our shares are listed on a national securities market or upon the occurrence of a liquidity event. We generally receive fees in connection with share redemptions.

CPA®:17 – Global 2013 10-K — 26




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,
 
2013
 
2012
 
2011
 
2010
 
2009 (b)
Operating Data (a)
 
 
 
 
 
 
 
 
 
Revenues from continuing operations
$
362,954

 
$
289,553

 
$
192,221

 
$
97,245

 
$
50,346

Income from continuing operations
61,682

 
66,230

 
68,362

 
46,282

 
2,180

Net income
69,169

 
68,153

 
70,446

 
45,787

 
2,180

Net income attributable to noncontrolling interests
(29,305
)
 
(26,542
)
 
(20,791
)
 
(15,333
)
 
(9,881
)
Net income (loss) attributable to CPA®:17 – Global
39,864

 
41,611

 
49,655

 
30,454

 
(7,701
)
Income (loss) per share:
 

 
 

 
 

 
 

 
 

Income (loss) from continuing operations attributable to CPA®:17 – Global
0.11

 
0.16

 
0.27

 
0.27

 
(0.14
)
Net income (loss) attributable to CPA®:17 – Global
0.13

 
0.17

 
0.28

 
0.27

 
(0.14
)
Cash distributions declared per share
0.6500

 
0.6500

 
0.6475

 
0.6400

 
0.6324

Balance Sheet Data
 
 
 
 
 
 
 
 
 
Total assets
$
4,713,369

 
$
4,416,299

 
$
3,045,812

 
$
1,998,255

 
$
1,067,872

Net investments in real estate (c)
3,562,095

 
3,097,865

 
2,374,773

 
1,426,907

 
698,332

Long-term obligations (d)
1,931,174

 
1,659,698

 
1,177,002

 
687,297

 
308,830

Other Information
 
 
 
 
 
 
 
 
 
Net cash provided by operating activities
$
184,185

 
$
157,275

 
$
101,515

 
$
69,518

 
$
35,348

Cash distributions paid
198,440

 
147,649

 
102,503

 
60,937

 
27,193

Payments of mortgage principal (e)
22,260

 
17,525

 
14,136

 
6,541

 
4,494

___________
(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 11) and deferred acquisition fee installments, including interest.
(e)
Represents scheduled mortgage principal payments.

CPA®:17 – Global 2013 10-K — 27




Item 7. Management’s 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, sales of properties and foreign currency exchange rates. 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 99.99% of the interests in, the Operating Partnership. The remaining interest in the Operating Partnership is held by a subsidiary of WPC.

2013 Economic Overview

In 2013, the economic recovery in the U.S. continued. While unemployment remained relatively high, the general business environment, the lending markets and the housing sector all improved. The CPI, which generally reflects changes in economic growth and inflation, increased 1.5% during 2013. This is a change from the negative growth, or recessionary conditions, experienced in 2009 and 2010. The slow but steady improvement in the economy caused the Federal Reserve to consider altering its current monetary policy and to slow or taper its acquisition of Treasury and other debt securities in anticipation of better economic conditions in coming quarters. This announcement in May 2013 resulted in a sharp increase in longer term interest rates, which in turn caused interest rate sensitive stocks, such as REITs, to decline. Despite this increase, both short- and long-term interest rates remain historically low. Commercial property yields, or capitalization rates, which typically react more slowly and tend to lag changes in interest rates, remained fairly steady throughout the course of the year. Competition for net-leased properties, particularly retail assets leased to investment grade tenants, remained strong despite the change in the cost of investment capital.

In Europe, the economic picture was more mixed. The northern European countries, where fiscal conditions are generally more stable, saw modest economic growth rates. However, many of the southern European countries - and those considered emerging economies, such as the eastern European countries - experienced very low growth or recessionary conditions. The harmonized index of consumer price, or HICP, increased 0.9% during 2013. In addition, the financial sector in Europe remains under stress and lending remains constrained. The euro has strengthened since the euro crisis in 2011 and the euro/dollar exchange rate was more stable in 2013. Capitalization rates in many European markets remain attractive, particularly relative to property assets with similar risk profiles in the U.S.

The impact of these economic conditions on us is discussed under Results of Operations below.

Significant Developments

Acquisition Activity — During 2013, we entered into investments at a total cost of approximately $516.7 million, including $164.2 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 2013, we obtained non-recourse mortgage financing totaling $313.1 million with a weighted-average annual interest rate and term of 4.6% and 10.3 years, respectively. Amounts are based on the exchange rate of the foreign currency at the date of financing, as applicable. Additionally, we refinanced two non-recourse mortgage loans totaling $23.4 million with new financing totaling $16.5 million and an annual interest rate and term of 4.9% and 10 years, respectively, related to nine self-storage properties acquired during prior years.

Distributions — We distributed $0.6500 per share for both the years ended December 31, 2013 and 2012.

Offering — We terminated our follow-on offering in January 2013.

CPA®:17 – Global 2013 10-K — 28





Net Asset Value — The advisor calculates our NAV annually as of year-end and the advisor had determined that our NAV as of December 31, 2013 was $9.50. The advisor generally calculates our estimated NAV by relying in part on an estimate of the fair market value of our real estate provided by a third party, adjusted to give effect to the estimated fair value of mortgage loans encumbering our assets (also provided by a third party) as well as other adjustments. Our NAV is based on a number of variables, including individual tenant credits, lease terms, lending credit spreads, foreign currency exchange rates and tenant defaults, among others. We do not control all of these variables and, as such, cannot predict how they will change in the future. For additional information on our calculation of NAV at December 31, 2013, please see our Current Report on Form 8-K dated March 14, 2014.

Financial Highlights
(In thousands)
 
Years Ended December 31,
 
2013
 
2012
 
2011
Total revenues
$
362,954

 
$
289,553

 
$
192,221

Net income attributable to CPA®:17 – Global
39,864

 
41,611

 
49,655

 
 
 
 
 
 
Cash distributions paid
198,440

 
147,649

 
102,503

 
 
 
 
 
 
Net cash provided by operating activities
184,185

 
157,275

 
101,515

Net cash used in investing activities
(534,776
)
 
(838,058
)
 
(758,551
)
Net cash provided by financing activities
109,239

 
1,150,361

 
670,616

 
 
 
 
 
 
Supplemental financial measures:
 
 
 
 
 
Funds from operations (a)
145,529

 
122,801

 
104,306

Modified funds from operations (a)
149,373

 
125,180

 
96,766

__________
(a)
We consider the performance metrics listed above, including FFO and Modified funds from operations (“MFFO”), which are supplemental measures that are 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 objective of funding distributions to stockholders. See Supplemental Financial Measures below for our definitions of these non-GAAP measures and reconciliations to their most directly comparable GAAP measures.

Total revenues, Net cash provided by operating activities, FFO, and MFFO all increased during 2013 as compared to 2012, primarily reflecting the increase in the number of our investments during 2013 and 2012.

Net income attributable to CPA®:17 – Global decreased during 2013 as compared to 2012 despite the contribution from the properties we acquired during 2013 and 2012. This contribution was more than offset by an increase in acquisition expenses recorded during 2013 (Note 4), an increase in general and administrative expense due to an amendment to our advisory agreement (Note 3), an increase in asset management fees due to the growth in our real estate assets, which increased the asset base from which the advisor earns a fee, and a transfer tax charge recognized during 2013 in connection with the restructuring of one of our jointly-owned investments (Note 6).

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.


CPA®:17 – Global 2013 10-K — 29




The following tables present other operating data that management finds useful in evaluating results of operations:
 
As of December 31,
 
2013
 
2012
 
2011
Occupancy rate — end of year (a)
100
%
 
100
%
 
100
%
Number of leased properties (a)
352

 
335

 
307

Number of operating properties (b)
75

 
59

 
45

 
 
 
 
 
 
 
Years Ended December 31,
 
2013
 
2012
 
2011
Acquisition volume — consolidated subsidiaries (in millions) (c)
$
351.5

 
$
1,035.5

 
$
936.6

Acquisition volume — equity investments (in millions)
165.2

 
—

 
176.5

Financing obtained (in millions) (d)
313.1

 
469.6

 
243.6

Funds raised (in millions) (e)
1.3

 
927.3

 
584.5

Average U.S. dollar/euro exchange rate (f)
$
1.3284

 
$
1.2861

 
$
1.3926

Change in the U.S. CPI (g)
1.5
%
 
1.7
%
 
3.0
%
___________
(a)
Reflects net-leased properties in which we had a full or partial ownership interest.
(b)
Operating properties are comprised of full or partial ownership interests in 71 self-storage properties, two hotel properties, and two shopping centers, all of which are managed by third parties. One of the shopping centers and one of the hotel properties are accounted for under the equity method of accounting. The other shopping center is a build-to-suit project under construction.
(c)
Includes build-to-suit transactions, which are reflected as the total commitment for the build-to-suit funding.
(d)
Amounts include refinancings of $16.5 million and $7.9 million in 2013 and 2012, respectively, and none in 2011.
(e)
Our follow-on offering closed on January 31, 2013.
(f)
The average conversion rate for the U.S. dollar in relation to the euro increased during the year ended December 31, 2013 as compared to 2012 and decreased during the year ended December 31, 2012 as compared to 2011, resulting in a positive impact on earnings in 2013 and a negative impact on earnings in 2012 for our euro-denominated investments.
(g)
Many of our domestic lease agreements include contractual increases indexed to the change in the U.S. CPI.


CPA®:17 – Global 2013 10-K — 30




The following table presents the comparative results of operations (in thousands):
 
Years Ended December 31,
 
2013
 
2012
 
Change
 
2012
 
2011
 
Change
Revenues
 
 
 
 
 
 
 
 
 
 
 
Lease revenues
$
285,334

 
$
230,710

 
$
54,624

 
$
230,710

 
$
172,899

 
$
57,811

Other operating income
 
 
 
 
 
 
 
 
 
 
 
Reimbursed tenant costs
17,690

 
4,435

 
13,255

 
4,435

 
2,705

 
1,730

Interest income and other
6,901

 
9,002

 
(2,101
)
 
9,002

 
6,660

 
2,342

Operating property revenues
53,029

 
45,406

 
7,623

 
45,406

 
9,957

 
35,449

 
77,620

 
58,843

 
18,777

 
58,843

 
19,322

 
39,521

 
362,954

 
289,553

 
73,401

 
289,553

 
192,221

 
97,332

Operating Expenses
 
 
 
 
 
 
 
 
 
 
 
Depreciation and amortization
 
 
 
 
 
 
 
 
 
 
 
Net-leased properties
78,822

 
57,562

 
21,260

 
57,562

 
38,569

 
18,993

Operating properties
15,125

 
11,542

 
3,583

 
11,542

 
4,396

 
7,146

 
93,947

 
69,104

 
24,843

 
69,104

 
42,965

 
26,139

Property expenses
 
 
 
 
 
 

 
 
 
 
Net-leased properties
11,762

 
7,400

 
4,362

 
7,400

 
2,729

 
4,671

Operating properties
839

 
575

 
264

 
575

 
337

 
238

Reimbursed tenant costs
17,690

 
4,435

 
13,255

 
4,435

 
2,705

 
1,730

Asset management fees
21,953

 
18,932

 
3,021

 
18,932

 
13,435

 
5,497

 
52,244

 
31,342

 
20,902

 
31,342

 
19,206

 
12,136

Operating property expenses
33,548

 
31,426

 
2,122

 
31,426

 
5,700

 
25,726

General and administrative
20,416

 
14,879

 
5,537

 
14,879

 
8,921

 
5,958

Acquisition expenses
16,884

 
14,834

 
2,050

 
14,834

 
7,664

 
7,170

Impairment charges
—

 
2,019

 
(2,019
)
 
2,019

 
(70
)
 
2,089

 
217,039

 
163,604

 
53,435

 
163,604

 
84,386

 
79,218

 
 
 
 
 
 
 

 
 
 
 
Operating Income
145,915

 
125,949

 
19,966

 
125,949

 
107,835

 
18,114

 
 
 
 
 
 
 

 
 
 
 
Other Income and Expenses
 
 
 
 
 
 

 
 
 
 
Net (loss) income from equity investments in real estate
(7,917
)
 
7,828

 
(15,745
)
 
7,828

 
5,527

 
2,301

Other income and (expenses)
12,077

 
5,638

 
6,439

 
5,638

 
7,029

 
(1,391
)
Interest expense
(88,656
)
 
(72,271
)
 
(16,385
)
 
(72,271
)
 
(50,982
)
 
(21,289
)
 
(84,496
)
 
(58,805
)
 
(25,691
)
 
(58,805
)
 
(38,426
)
 
(20,379
)
Income from continuing operations before income taxes
61,419

 
67,144

 
(5,725
)
 
67,144

 
69,409

 
(2,265
)
Benefit from (provision for) income taxes
263

 
(914
)
 
1,177

 
(914
)
 
(1,047
)
 
133

Income from continuing operations
61,682

 
66,230

 
(4,548
)
 
66,230

 
68,362

 
(2,132
)
Income from discontinued operations, net of tax
7,487

 
1,923

 
5,564

 
1,923

 
2,084

 
(161
)
Net Income
69,169

 
68,153

 
1,016

 
68,153

 
70,446

 
(2,293
)
Net income attributable to noncontrolling interests
(29,305
)
 
(26,542
)
 
(2,763
)
 
(26,542
)
 
(20,791
)
 
(5,751
)
Net Income Attributable to CPA®:17 – Global
$
39,864

 
$
41,611

 
$
(1,747
)
 
$
41,611

 
$
49,655

 
$
(8,044
)
 
 
 
 
 
 
 
 
 
 
 
 
MFFO
$
149,373

 
$
125,180

 
$
24,193

 
$
125,180

 
$
96,766

 
$
28,414

 

CPA®:17 – Global 2013 10-K — 31




Lease Composition and Leasing Activities

As of December 31, 2013, approximately 54.5% 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, 43.9% of our net leases on that same basis have fixed rent adjustments, for which contractual minimum base rent is scheduled to increase by an average of 1.3% 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.

2013 — During 2013, we restructured one existing lease of 10,136 square feet of leased space to provide for a tenant improvement allowance of $0.3 million. As a result of this restructuring, the average new rent for this leased space is $23.14 per square foot and the average former rent was $17.60 per square foot.

2012 — During 2012, we restructured 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.

2011 — During 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. There were no tenant improvement allowances or concessions related to any of these leases.


CPA®:17 – Global 2013 10-K — 32




Property Level Contribution

Property level contribution includes lease and operating property revenues, less property expenses, depreciation and amortization. When a property is leased on a net-lease basis, reimbursable tenant costs are recorded as both income and property expense and, therefore, have no impact on the property level contribution. The following table presents the property level contribution for our consolidated leased and operating properties and a reconciliation to our net operating income (in thousands):
 
 
Years Ended December 31,
 
 
2013
 
2012
 
Change
 
2012
 
2011
 
Change
Same Store Net-leased Properties:
 
 
 
 
 
 
 
 
 
 
 
 
Lease revenues
 
$
158,516

 
$
155,081

 
$
3,435

 
$
155,081

 
$
148,820

 
$
6,261

Depreciation and amortization
 
(33,049
)
 
(33,360
)
 
311

 
(33,360
)
 
(32,361
)
 
(999
)
Property expenses
 
(2,552
)
 
(1,917
)
 
(635
)
 
(1,917
)
 
(2,250
)
 
333

Property level contribution
 
122,915

 
119,804

 
3,111

 
119,804

 
114,209

 
5,595

 
 
 
 
 
 
 
 
 
 
 
 
 
Recently Acquired Net-leased Properties:
 
 
 
 
 
 
 
 
 
 
 
 
Lease revenues
 
126,818

 
75,629

 
51,189

 
75,629

 
24,079

 
51,550

Depreciation and amortization
 
(45,773
)
 
(24,202
)
 
(21,571
)
 
(24,202
)
 
(6,208
)
 
(17,994
)
Property expenses
 
(9,210
)
 
(5,483
)
 
(3,727
)
 
(5,483
)
 
(479
)
 
(5,004
)
Property level contribution
 
71,835

 
45,944

 
25,891

 
45,944

 
17,392

 
28,552

 
 
 
 
 
 
 
 
 
 
 
 
 
Operating Properties:
 
 
 
 
 
 
 
 
 
 
 
 
Revenues
 
53,029

 
45,406

 
7,623

 
45,406

 
9,957

 
35,449

Expenses
 
(33,548
)
 
(31,426
)
 
(2,122
)
 
(31,426
)
 
(5,700
)
 
(25,726
)
Depreciation and amortization
 
(15,125
)
 
(11,542
)
 
(3,583
)
 
(11,542
)
 
(4,396
)
 
(7,146
)
Property expenses
 
(839
)
 
(575
)
 
(264
)
 
(575
)
 
(337
)
 
(238
)
Property level contribution
 
3,517

 
1,863

 
1,654

 
1,863

 
(476
)
 
2,339

 
 
 
 
 
 
 
 
 
 
 
 
 
Total Property Level Contribution:
 
 
 
 
 
 
 
 
 
 
 
 
Lease revenues
 
285,334

 
230,710

 
54,624

 
230,710

 
172,899

 
57,811

Operating property revenues
 
53,029

 
45,406

 
7,623

 
45,406

 
9,957

 
35,449

Depreciation and amortization
 
(93,947
)
 
(69,104
)
 
(24,843
)
 
(69,104
)
 
(42,965
)
 
(26,139
)
Operating property expenses
 
(33,548
)
 
(31,426
)
 
(2,122
)
 
(31,426
)
 
(5,700
)
 
(25,726
)
Property expenses
 
(12,601
)
 
(7,975
)
 
(4,626
)
 
(7,975
)
 
(3,066
)
 
(4,909
)
Total Property Level Contribution
 
198,267

 
167,611

 
30,656

 
167,611

 
131,125

 
36,486

Add other income:
 
 
 
 
 
 
 
 
 
 
 
 
Non-rent related revenue and other
 
6,901

 
9,002

 
(2,101
)
 
9,002

 
6,660

 
2,342

Less other expenses:
 
 
 
 
 

 
 
 
 
 

Asset management fees
 
(21,953
)
 
(18,932
)
 
(3,021
)
 
(18,932
)
 
(13,435
)
 
(5,497
)
Acquisition expenses
 
(16,884
)
 
(14,834
)
 
(2,050
)
 
(14,834
)
 
(7,664
)
 
(7,170
)
General and administrative
 
(20,416
)
 
(14,879
)
 
(5,537
)
 
(14,879
)
 
(8,921
)
 
(5,958
)
Impairment charges
 
—

 
(2,019
)
 
2,019

 
(2,019
)
 
70

 
(2,089
)
Operating Income
 
$
145,915

 
$
125,949

 
$
19,966

 
$
125,949

 
$
107,835

 
$
18,114



CPA®:17 – Global 2013 10-K — 33




Same Store Net-leased Properties

Same store net-leased properties are those we owned for 36 months or more.

2013 vs. 2012 — For the year ended December 31, 2013 as compared to 2012, property level contribution for same store net-leased properties increased by $3.1 million, primarily due to an increase of lease revenues of $3.4 million. Lease revenues increased by $5.6 million as a result of CPI-related rent increases at several properties. This increase was partially offset by a decrease in lease revenues of $2.6 million as a result of lease restructurings at other properties.

2012 vs. 2011 — For the year ended December 31, 2012 as compared to 2011, property level contribution for same store net-leased properties increased by $5.6 million, primarily due to an increase of lease revenues of $6.3 million, which was partially offset by an increase in depreciation and amortization of $1.0 million. This net increase was primarily due to expansions on four existing properties, which contributed an increase to lease revenues of $6.6 million and an increase to depreciation and amortization of $1.2 million.

Recently Acquired Net-leased Properties

Recently acquired net-leased properties are those that we owned for less than 36 months.

2013 vs. 2012 — For the year ended December 31, 2013 as compared to 2012, property level contribution from net-leased properties acquired recently increased by $25.9 million, primarily as a result of 11 investments we entered into during the year ended December 31, 2013, which contributed an increase of $9.2 million, and two investments we entered into during the last quarter of 2012, which contributed an increase of $11.5 million.

2012 vs. 2011 — For the year ended December 31, 2012 as compared to 2011, property level contribution from net-leased properties acquired recently increased by $28.6 million, primarily as a result of 14 investments we entered into during the year ended December 31, 2012, of which two domestic investments for eight office facilities and a multi-tenant office facility contributed an increase of $15.1 million.

Operating Properties

Other real estate operations represent the results of operations (revenues and operating expenses) of our hotel investments and 71 self-storage properties, of which eight were acquired during 2013 and the remaining were acquired during prior years.

2013 vs. 2012 — For the year ended December 31, 2013 as compared to 2012, property level contribution from operating properties increased by $1.7 million, primarily due to an increase of $7.2 million in operating income related to our self-storage properties and an increase of $4.0 million in non-rent related income recognized from a parking garage adjacent to a multi-tenant facility that we acquired during the fourth quarter of 2012. These increases were partially offset by a decrease in operating losses of $9.5 million incurred by one of our hotel properties located in Orlando, Florida as a result of significant renovation-related disruption during a portion of the year. Generally, during the renovation period, a portion of total rooms are unavailable, which disrupts hotel operations and negatively impacts our net operating income.

2012 vs. 2011 — For the year ended December 31, 2012 as compared to 2011, property level contribution from operating properties increased by $2.3 million, primarily due to the acquisitions of 14 self-storage properties during 2012 and one hotel property during the fourth quarter of 2011.

Other Revenues and Expenses

Interest Income

Interest income primarily consists of interest earned on our note receivable and CMBS investments.

2013 vs. 2012 — For the year ended December 31, 2013 as compared to 2012, interest income decreased by $2.4 million, primarily due to a decrease of $3.0 million related to the conversion of a note receivable during the fourth quarter of 2012 (Note 6), partially offset by an increase of $0.7 million related to accretion in the carrying value of our CMBS.
 
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 received from a note receivable (Note 6), which was partially offset by a $0.6 million decrease related to our participation in a non-recourse mortgage loan that was repaid in full during the first quarter of 2011.

CPA®:17 – Global 2013 10-K — 34




 
Property Expenses — Asset Management Fees
 
2013 vs. 2012 — For the year ended December 31, 2013 as compared to 2012, asset management fees increased by $3.0 million as a result of 2013 and 2012 investment volume, which increased the asset base from which the advisor earns a fee.

2012 vs. 2011 — For the year ended December 31, 2012 as compared to 2011, asset management fees increased by $5.5 million as a result of 2012 and 2011 investment volume, which increased the asset base from which the advisor earns a fee.

General and Administrative
 
2013 vs. 2012 — For the year ended December 31, 2013 as compared to 2012, general and administrative expenses increased by $5.5 million, primarily due to increases in management expenses of $4.0 million. Management expenses increased due to an amendment to our advisory agreement in the fourth quarter of 2012 related to the basis of allocating advisor personnel expenses amongst WPC, the CPA® REITs and CWI (Note 3) based on each entity’s revenues and an increase in our revenue base from which the advisor allocates personnel expenses as a result of our 2013 and 2012 investment volume. 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.
 
2012 vs. 2011 — For the year ended December 31, 2012 as compared to 2011, general and administrative expenses increased by $6.0 million, primarily due to an increase in management expenses of $2.9 million and an increase in professional fees of $2.8 million. Professional fees include legal, accounting and investor-related expenses incurred in the normal course of business.
 
Acquisition Expenses

2013 vs. 2012 — For the year ended December 31, 2013 as compared to 2012, acquisition expenses increased by $2.1 million, primarily as a result of eight investments we entered into during the year ended December 31, 2013, that were accounted for as business combinations because we assumed existing leases on the properties (Note 4). Acquisition expenses represent direct costs incurred to acquire operating properties, which are accounted for as business combinations, whereby such costs are required to be expensed as incurred.

2012 vs. 2011 — For the year ended December 31, 2012 as compared to 2011, acquisition expenses increased by $7.2 million, primarily as a result of a domestic investment we entered into during the year ended December 31, 2012 for a multi-tenant office facility, which incurred acquisition-related costs and fees of $8.6 million.

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 of our CMBS tranches to zero as a result of non-performance and the advisor’s assessment that the likelihood of receiving further interest payments or return of principal was remote. At December 31, 2013, the carrying value of our remaining CMBS securities was $2.8 million (Note 9).
 

CPA®:17 – Global 2013 10-K — 35




Net (Loss) Income from Equity Investments in Real Estate
 
Net (loss) income from equity investments in real estate is recognized in accordance with each respective investment agreement and, where applicable, based upon an allocation of the investment’s net assets at book value as if the investment was hypothetically liquidated at the end of each reporting period. The table below presents the details of our net income from equity investments (in thousands). Same store equity investments represent investments we accounted for under the equity method and held for 36 months or more.
 
 
Years Ended December 31,
Type
 
2013
 
2012
 
Change
 
2012
 
2011
 
Change
Same store equity investments
 
$
8,256

 
$
6,587

 
$
1,669

 
$
6,587

 
$
6,568

 
$
19

Recently acquired equity investments
 
(16,173
)
 
1,241

 
(17,414
)
 
1,241

 
(1,041
)
 
2,282

Total net (loss) income from equity investments in real estate
 
$
(7,917
)
 
$
7,828

 
$
(15,745
)
 
$
7,828

 
$
5,527

 
$
2,301


2013 vs. 2012 — During the year ended December 31, 2013, we recognized a loss from equity investments in real estate of $7.9 million, as compared to income recognized from equity investments in real estate of $7.8 million during the year ended December 31, 2012. The loss in 2013 was primarily due to our share of the transfer tax charge related to the restructuring of our Hellweg Die Profi-Baumärkte GmbH & Co. KG (“Hellweg 2”) investment of $8.1 million (Note 6) and an other-than-temporary impairment charge of $3.8 million incurred on one of our jointly-owned investments (Note 9),

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 during 2012. These increases were partially offset by $1.5 million related to the amortization of basis differences on these investments during 2012.

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 or advances that are not denominated in the investment’s functional currency. 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 income or 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 or losses cannot always be estimated and are subject to fluctuation.
 
2013 vs. 2012 — For the year ended December 31, 2013 as compared to 2012, net Other income and (expenses) increased by $6.4 million, primarily due to a gain of $2.3 million recognized on a derivative that was measured at fair market value through earnings (Note 10) and an increase of $2.7 million of realized foreign currency transaction gains related to our foreign investments.

2012 vs. 2011 — For the year ended December 31, 2012 as compared to 2011, net Other income and (expenses) decreased by $1.4 million, primarily due to realized foreign currency transaction losses related to our foreign investments acquired during 2012 and 2011.
 
Interest Expense
 
2013 vs. 2012 — For the year ended December 31, 2013 as compared to 2012, interest expense increased by $16.4 million, primarily as a result of mortgage financing obtained or assumed in connection with our investment activity during 2013 and 2012.
 
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 or assumed in connection with our investment activity during 2012 and 2011.
 

CPA®:17 – Global 2013 10-K — 36




Benefit From (Provision for) Income Taxes

During the year ended December 31, 2013, we recognized benefit from income taxes of $0.3 million, primarily due a deferred income tax benefit of $3.6 million recognized, of which $1.8 million was in connection with an out-of-period adjustment (Note 2). This benefit was partially offset by recognized foreign income taxes of $2.4 million related to our foreign properties.

Discontinued Operations
 
Income from discontinued operations, net of tax represents the net income (revenue less expenses) from the operations of properties that were sold or held for sale (Note 15).

2013 — During the year ended December 31, 2013, we recognized income from discontinued operations, net of tax of $7.5 million, primarily due to a gain on the sale of a hotel property of $8.0 million, partially offset by a loss on extinguishment of the related debt of $1.0 million.

2012 — During the year ended December 31, 2012, we recognized income from discontinued operations, net of tax of $1.9 million, primarily due to a net gain on the sale of several properties of $0.7 million and income generated from operations of $1.2 million.
 
2011 — During the year ended December 31, 2011, we recognized income from discontinued operations of $2.1 million, primarily due to a net gain on the sale of several properties of $0.8 million and income generated from the operations of these properties totaling $1.3 million.
 
Net Income Attributable to Noncontrolling Interests
 
2013 vs. 2012 — For the year ended December 31, 2013 as compared to 2012, net income attributable to noncontrolling interests increased by $2.8 million, primarily due to an increase of $2.3 million in the distribution of available cash of the Operating Partnership (the “Available Cash Distribution”) paid to the advisor as a result of our 2013 and 2012 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.
 
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 the Available Cash Distribution paid to the advisor of $5.3 million as a result of our 2012 and 2011 investment activity.
 
Net Income Attributable to CPA®:17 – Global
 
2013 vs. 2012 — For the year ended December 31, 2013 as compared to 2012, the resulting net income attributable to CPA®:17 – Global decreased by $1.7 million.
 
2012 vs. 2011 — For the year ended December 31, 2012 as compared to 2011, the resulting net income attributable to CPA®:17 – Global decreased by $8.0 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, see Supplemental Financial Measures below.
 
2013 vs. 2012 — For the year ended December 31, 2013 as compared to 2012, MFFO increased by $24.2 million, primarily as a result of the increase in the number of our investments during 2013 and 2012.
 
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 3).


CPA®:17 – Global 2013 10-K — 37




Financial Condition
 
Sources and Uses of Cash During the Year
 
We expect to continue to invest the proceeds of our follow-on offering 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 advisor’s 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 follow-on offering, we have used, and may in the future 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
 
Net cash flow provided by operating activities increased by $26.9 million during the year ended December 31, 2013 compared to the same period in 2012, primarily as a result of the increase in the number of our investments during 2013 and 2012.

Investing Activities
 
Our investing activities are generally comprised of real estate-related transactions (purchases and sales), payment of deferred acquisition fees to the advisor related to asset acquisitions and capitalized property-related costs. During the year ended December 31, 2013, we used $404.9 million, primarily to acquire 19 investments and to fund construction costs on build-to-suit projects (Note 4). We contributed $156.2 million to jointly-owned investments, including $73.1 million to fund acquisition, development and construction loans (“ADC Arrangements”), $65.6 million to acquire equity interests in three new investments, and $17.0 million to an investment for the investee to repurchase its outstanding mortgage loan (Note 6). We received $7.5 million in distributions from our equity investments in real estate in excess of cumulative equity in net income. Funds totaling $67.3 million and $70.3 million, respectively, were invested in and released from lender-held investment accounts. We paid foreign value added taxes (“VAT”), totaling $29.1 million in connection with several international investments and recovered $40.9 million of foreign VAT during the year ended December 31, 2013, including amounts paid in prior years. We received $20.0 million in proceeds from the sale of one hotel property. Payments of deferred acquisition fees to the advisor totaled $14.4 million.
 
Financing Activities
 
During the year ended December 31, 2013, we paid distributions of $198.4 million to our stockholders, which were comprised of cash distributions of $101.8 million and distributions that were reinvested in shares of our common stock by stockholders through our DRIP of $96.6 million. We paid distributions of $26.8 million to affiliates that hold noncontrolling interests in various investments owned jointly with us. We received $98.0 million in net proceeds from investors, primarily through our DRIP, and $308.9 million in proceeds from mortgage financings related to 2013 and 2012 investment activity. We paid financing costs totaling $4.0 million and we made scheduled and unscheduled mortgage principal installments totaling $44.8 million. Funds totaling $5.4 million were released from lender-held investment accounts.

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 year ended December 31, 2013, we declared distributions to our stockholders totaling $203.6 million, which were comprised of cash distributions of $105.1 million and $98.5 million of distributions reinvested by stockholders through our DRIP. We funded 90% of these distributions from Net cash provided by operating activities, with the remainder being funded from proceeds of our follow-on offering. Since inception, we have funded 93% of our cumulative 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 in which we are raising funds or investing capital, we place primary emphasis on projections of cash flow from operations, together with cash distributions from our unconsolidated investments, rather than on 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

CPA®:17 – Global 2013 10-K — 38




expected returns from those investments we have already made, as well as our anticipated rate of return from future investments, 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, 2013, we received requests to redeem 1,918,540 shares of our common stock pursuant to our redemption plan, all of which were redeemed in the same period, at a weighted-average price of $9.48 per share, which is net of redemption fees, totaling $18.2 million. During the three months ended December 31, 2013, we received requests to redeem 492,083 shares of our common stock pursuant to our redemption plan, all of which were redeemed in the same period.
 
Summary of Financing
 
The table below summarizes our non-recourse debt (dollars in thousands):
 
December 31,
 
2013
 
2012
Carrying Value
 

 
 

Fixed rate
$
1,319,340

 
$
1,096,488

Variable rate (a)
596,261

 
536,964

Total
$
1,915,601

 
$
1,633,452

Percent of Total Debt
 

 
 

Fixed rate
69
%
 
67
%
Variable rate
31
%
 
33
%
 
100
%
 
100
%
Weighted-Average Interest Rate at End of Year
 

 
 

Fixed rate
5.3
%
 
5.5
%
Variable rate
4.0
%
 
4.0
%
___________
(a)
Variable-rate debt at December 31, 2013 primarily consisted of (i) $441.8 million that was effectively converted to fixed-rate debt through interest rate swap derivative instruments and (ii) $115.5 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, 2013, (iii) $34.0 million of floating-rate debt, and (iv) $4.9 million in mortgage loan obligations that bore interest at fixed rates but have interest rate reset features that may change the interest rates to then-prevailing market fixed rates at certain points during their term.
 
Cash Resources
 
At December 31, 2013, our cash resources consisted of cash and cash equivalents totaling $418.1 million. Of this amount, $37.4 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 $278.8 million at December 31, 2013, 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, other commitments, and distributions to our stockholders.
 
Cash Requirements
 
During the next 12 months, we expect that our cash payments will include acquiring new investments, funding capital commitments, paying distributions to our stockholders and to our affiliates that hold noncontrolling interests in entities we control and making scheduled and unscheduled mortgage loan principal payments, as well as other normal recurring operating expenses. Balloon payments totaling $24.6 million on our consolidated mortgage loan obligations are due during the next 12 months. 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. Capital commitments totaling $24.2 million are expected to be funded during the next 12 months.

We expect to fund future investments, capital commitments such as build-to-suit projects and ADC Arrangements, 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. We intend to continue to use the remaining net proceeds of our follow-on offering to acquire,

CPA®:17 – Global 2013 10-K — 39




own and manage a portfolio of commercial real estate properties leased to a diversified group of companies primarily on a single tenant net lease basis.
 
Off-Balance Sheet Arrangements and Contractual Obligations
 
The table below summarizes our debt, off-balance sheet arrangements and other contractual obligations at December 31, 2013 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):
 
Total
 
Less than
1 year
 
1-3 years
 
3-5 years
 
More than
5 years
Non-recourse debt — principal (a)
$
1,921,163

 
$
52,726

 
$
371,843

 
$
503,540

 
$
993,054

Deferred acquisition fees — principal
15,033

 
8,677

 
6,356

 
—

 
—

Interest on borrowings and deferred acquisition fees
550,795

 
92,473

 
171,668

 
118,316

 
168,338

Subordinated disposition fees (b)
202

 
—

 
—

 
—

 
202

Capital commitments (c)
94,294

 
24,206

 
69,635

 
453

 
—

Operating and other lease commitments (d)
80,194

 
3,191

 
6,516

 
6,895

 
63,592

Asset retirement obligations, net (e)

22,076

 
—

 
—

 
—

 
22,076

 
$
2,683,757

 
$
181,273

 
$
626,018

 
$
629,204

 
$
1,247,262

___________
(a)
Excludes $5.6 million of unamortized discount on two notes, which was included in Non-recourse debt at December 31, 2013.
(b)
Represents amounts that may be payable to the advisor in connection with sales of assets if minimum stockholder returns are satisfied (Note 3). There can be no assurance as to whether or when these fees will be paid.
(c)
Capital commitments include (i) current build-to-suit projects of $46.7 million (Note 4), (ii) capital commitments related to the ADC Arrangements of $46.8 million (Note 6), and (iii) $0.7 million related to other construction commitments.
(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. Amounts are allocated among WPC, the CPA® REITs and CWI based on gross revenues and are adjusted quarterly.
(e)
Represents the future amount of obligations estimated for the removal of asbestos and environmental waste in connection with several of our acquisitions upon the retirement or a sale of the asset (Note 4).
 
Amounts in the table above that relate to our foreign operations are based on the exchange rate of the local currencies at December 31, 2013, which consisted primarily of the euro. At December 31, 2013, we had no material capital lease obligations for which we were the lessee, either individually or in the aggregate.


CPA®:17 – Global 2013 10-K — 40




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, 2013 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):
Lessee
 
Ownership Interest
at December 31, 2013
 
Total Assets
 
Total Third-Party Debt
 
Maturity Date
State Farm
 
50%
 
$
114,647

 
$
72,800

 
9/2023
BPS Nevada, LLC (formerly known as BPS Parent, LLC)
 
15%
 
198,203

 
108,495

 
2/2023
Dick’s Sporting Goods, Inc.
 
45%
 
25,097

 
20,761

 
1/2022
Berry Plastics Corporation
 
50%
 
70,802

 
26,638

 
6/2020
C1000 Logistiek Vastgoed B.V. (a)
 
85%
 
199,237

 
95,608

 
3/2020
Madison Storage NYC, LLC and Veritas Group IX-NYC, LLC
 
45%
 
101,095

 
71,723

 
6/2017
Hellweg 2 (a)
 
37%
 
410,455

 
336,156

 
1/2017
Tesco plc (a)
 
49%
 
82,676

 
44,286

 
6/2016
U-Haul Moving Partners, Inc. and Mercury Partners, LP
 
12%
 
252,051

 
—

 
N/A
Agrokor d.d. (referred to as Agrokor 5) (a)
 
20%
 
104,919

 
—

 
N/A
Eroski Sociedad Cooperativa — Mallorca (a)
 
30%
 
32,787

 
—

 
N/A
Shelborne Property Associates, LLC
 
33%
 
108,421

 
—

 
N/A
IDL Wheel Tenant, LLC
 
N/A
 
6,017

 
—

 
N/A
 
 
 
 
$
1,706,407

 
$
776,467

 
 
___________
(a)
Dollar amounts shown are based on the exchange rate of the euro at December 31, 2013.
 
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.

We have recorded asset retirement obligations of $22.1 million as of December 31, 2013 for the removal of asbestos and environmental waste in connection with several of our acquisitions.

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

CPA®:17 – Global 2013 10-K — 41




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.
 
Accounting for Acquisitions
 
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 estimated fair values.
 
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 capitalization 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, we assume the exercise of such purchase option or long-term renewal options in the 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.
 
The remaining economic life of leased assets is estimated by relying in part upon third-party appraisals of the leased assets, industry standards and based on our experience. Different estimates of remaining economic life will affect the depreciation expense that is recorded.
 

CPA®:17 – Global 2013 10-K — 42




Intangible Assets
 
When we acquire properties subject to net leases, we determine the value of above- 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 tenant’s lease and any pre-existing relationship with each tenant 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 including tenant improvement allowances and rent concessions.

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.
 
Debt

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.

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 real estate, direct financing leases, assets held for sale and equity investments in real estate. We may also incur impairment charges on marketable securities 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 property’s asset group to the future net undiscounted cash flow that we expect the property’s asset group will generate, including any estimated proceeds from the eventual sale of the property’s 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 are approximately 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 property’s asset group is less than the carrying value, the carrying value of the

CPA®:17 – Global 2013 10-K — 43




property’s asset group is considered not recoverable. We then measure the impairment loss as the excess of the carrying value of the property’s asset group over its estimated fair value. The property’s asset group’s 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 estimated costs to sell. We base the expected sale price on the contract and the estimated costs to sell on information provided by brokers and legal counsel. We then compare the asset’s expected sales price, less estimated costs to sell, to its carrying value, and if the expected sales price, less estimated costs to sell, is less than the property’s carrying value, we reduce the carrying value to the expected sales price, less estimated costs to sell. 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 asset’s 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.

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 investments 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 investment’s net assets by our ownership interest percentage. For our equity investments in real estate, we calculate the estimated fair value of the underlying investment’s 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 investment’s debt, if any, is calculated based on market interest rates and other market information. The fair value of the underlying investment’s 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 security’s 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

CPA®:17 – Global 2013 10-K — 44




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.
 
Proposed Accounting Change

The following proposed accounting change may potentially impact our business if the outcome has a significant influence on sale-leaseback demand in the marketplace:
 
The Boards have issued an Exposure Draft on a joint proposal that would dramatically transform lease accounting from the existing model. 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 substantially 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. In May 2013, the Boards issued a revised exposure draft for public comment and the comment period ended in September 2013. In January 2014, the Boards began their redeliberations of the proposals included in the May 2013 Exposure Draft based on the comments received. As of the date of this Report, the proposed guidance has not yet been finalized, and as such we are unable to determine whether this proposal will have a material impact on our business.

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 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

CPA®:17 – Global 2013 10-K — 45




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 NAREIT’s 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 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 company’s operating performance after a company’s offering has been completed and properties have been acquired, as it excludes acquisition costs that have a negative effect on a company’s operating performance during the periods in which properties are acquired.
 
We define MFFO consistent with the IPA’s 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

CPA®:17 – Global 2013 10-K — 46




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, restructuring 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. Restructuring expenses are related to the restructuring of Hellweg 2 and we consider this expense not to be part of our normal business operation. 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 management’s analysis of the operating performance of the properties. By excluding restructuring expenses we facilitate the evaluation of operating performance of a recurring nature. 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.
 
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.

CPA®:17 – Global 2013 10-K — 47





FFO and MFFO were as follows (in thousands): 
 
Years Ended December 31,
 
2013
 
2012
 
2011
Net income attributable to CPA®:17 – Global
$
39,864

 
$
41,611

 
$
49,655

Adjustments:


 


 


Depreciation and amortization of real property
91,460

 
67,141

 
42,240

Impairment charges
—

 
—

 
(70
)
Gain on sale of real estate
(8,065
)
 
(1,832
)
 
(778
)
Proportionate share of adjustments to equity in net income of partially-owned entities to arrive at FFO:


 


 


Depreciation and amortization of real property
19,143

 
16,458

 
13,892

Impairment charges
3,778

 
—

 
13

Loss on sale of real estate
—

 
1

 
—

Proportionate share of adjustments for noncontrolling interests to arrive at FFO
(651
)
 
(578
)
 
(646
)
Total adjustments
105,665

 
81,190

 
54,651

FFO — as defined by NAREIT
145,529

 
122,801

 
104,306

Adjustments:
 

 
 

 
 

Other non-real estate depreciation, amortization and non-cash charges
(3,850
)
 
1,825

 
114

Straight-line and other rent adjustments (a)
(19,777
)
 
(15,315
)
 
(14,236
)
Impairment charges (b)
—

 
2,019

 
—

Loss on extinguishment of debt
1,578

 
—

 
—

Acquisition expenses (c)
19,481

 
17,173

 
9,335

Above- and below-market rent intangible lease amortization, net (d)
185

 
858

 
1,756

(Accretion of discounts) amortization of premiums on debt investments, net
(540
)
 
138

 
148

Realized gains on foreign currency, derivatives and other
(4,391
)
 
(3,724
)
 
(6,665
)
Unrealized losses on mark-to-market adjustments
6

 
—

 
—

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
73

 
28

 
(6
)
Straight-line and other rent adjustments (a)
(226
)
 
(45
)
 
(154
)
Gain on extinguishment of debt
—

 
(1,914
)
 
—

Acquisition expenses (c)
1,504

 
273

 
282

Restructuring charges (e)
8,095

 
—

 
—

Above- and below-market rent intangible lease amortization, net (d)
1,224

 
2

 
13

Realized losses (gains) on foreign currency, derivatives and other
13

 
—

 
(7
)
Unrealized losses on mark-to-market adjustments

234

 
—

 
—

Proportionate share of adjustments for noncontrolling interests to arrive at MFFO
235

 
1,061

 
1,880

Total adjustments
3,844

 
2,379

 
(7,540
)
MFFO
$
149,373

 
$
125,180

 
$
96,766

___________
(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 management’s 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)
Includes Acquisition expenses and amortization of deferred acquisition fees. In evaluating investments in real estate, management differentiates the costs to acquire the investment from the operations derived from the investment. Such

CPA®:17 – Global 2013 10-K — 48




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 and amortization of deferred acquisition fees, management believes MFFO provides useful supplemental information that is comparable for each type of real estate investment and is consistent with management’s 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 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)
In connection with the Hellweg 2 restructuring in October 2013, our share of the German real estate transfer tax incurred by Hellweg 2 was $8.1 million (Note 6).

CPA®:17 – Global 2013 10-K — 49





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 further market risk as a result of concentrations of tenants in certain industries and/or geographic regions. 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 note 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 fair 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 mortgage financing on a long-term, fixed-rate basis. However, from time to time, we or our investment partners may obtain variable-rate 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 counterparty’s 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, 2013, we estimated 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 in the consolidated financial statements, was in a net liability position of $9.8 million (Note 10).
 
At December 31, 2013, 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, 2013 ranged from 2.0% to 8.0%. The contractual interest rates on our variable-rate debt at December 31, 2013 ranged from 2.7% to 6.1%. 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, 2013 (in thousands):
 
2014
 
2015
 
2016
 
2017
 
2018
 
Thereafter
 
Total
 
Fair value
Fixed-rate debt
$
44,765

 
$
65,361

 
$
69,576

 
$
204,362

 
$
17,930

 
$
917,346

 
$
1,319,340

 
$
1,344,102

Variable-rate debt
$
7,961

 
$
6,976

 
$
229,930

 
$
151,238

 
$
130,010

 
$
75,708

 
$
601,823

 
$
600,763

 
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, 2013 by an aggregate increase of $74.9 million or an aggregate decrease of $91.7 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, 2013 but has interest rate reset features that will change the fixed interest

CPA®:17 – Global 2013 10-K — 50




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.
 
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 2013 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 tenant’s 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 obtain 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)
 
2014
 
2015
 
2016
 
2017
 
2018
 
Thereafter
 
Total
Euro (c)
 
$
104,000

 
$
104,027

 
$
104,029

 
$
104,028

 
$
104,028

 
$
1,076,446

 
$
1,596,558

British pound sterling (d)
 
5,954

 
5,953

 
5,954

 
5,954

 
5,954

 
72,354

 
102,123

Japanese yen (e)
 
2,816

 
2,816

 
2,878

 
2,898

 
2,898

 
9,403

 
23,709

 
 
$
112,770

 
$
112,796

 
$
112,861

 
$
112,880

 
$
112,880

 
$
1,158,203

 
$
1,722,390

 
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)
 
2014
 
2015
 
2016
 
2017
 
2018
 
Thereafter
 
Total
Euro (c)
 
$
58,923

 
$
77,948

 
$
264,837

 
$
154,078

 
$
19,221

 
$
76,797

 
$
651,804

British pound sterling (d)
 
488

 
488

 
14,130

 
—

 
—

 
—

 
15,106

Japanese yen (e)
 
494

 
494

 
495

 
25,243

 
—

 
—

 
26,726

 
 
$
59,905

 
$
78,930

 
$
279,462

 
$
179,321

 
$
19,221

 
$
76,797

 
$
693,636

___________
(a)
Amounts are based on the applicable exchange rates at December 31, 2013. 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, 2013.
(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 estimated property-level cash flow at December 31, 2013 of $9.4 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 estimated property-level cash flow at December 31, 2013 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 estimated property-level cash flow at December 31, 2013 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 $250.8 million and $164.4 million, respectively, are due on three and eight non-recourse mortgage loans, respectively, 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

CPA®:17 – Global 2013 10-K — 51




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 2013 10-K — 52




Item 8. Financial Statements and Supplementary Data.
 
 
 
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 2013 10-K — 53




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, 2013 and 2012, and the results of their operations and their cash flows for each of the three years in the period ended December 31, 2013 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 Company’s 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 14, 2014

CPA®:17 – Global 2013 10-K — 54




CORPORATE PROPERTY ASSOCIATES 17 – GLOBAL INCORPORATED 

CONSOLIDATED BALANCE SHEETS
(in thousands, except share and per share amounts)
 
December 31,
 
2013
 
2012
Assets
 

 
 

Investments in real estate:
 

 
 

Real estate, at cost (inclusive of $150,378 and $133,472, respectively, attributable to variable interest entities, or VIEs)
$
2,402,315

 
$
2,105,772

Operating real estate, at cost (inclusive of $12,557 and $0, respectively, attributable to VIEs)
283,370

 
254,805

Accumulated depreciation (inclusive of $8,235 and $3,801, respectively, attributable to VIEs)
(144,405
)
 
(85,002
)
Net investments in properties
2,541,280

 
2,275,575

Real estate under construction (inclusive of $25,268 and $12,629, respectively, attributable to VIEs)
127,935

 
71,285

Net investments in direct financing leases (inclusive of $244,084 and $242,175, respectively, attributable to VIEs)
479,916

 
475,872

Equity investments in real estate
412,964

 
275,133

Net investments in real estate
3,562,095

 
3,097,865

Note receivable
40,000

 
40,000

Cash and cash equivalents (inclusive of $339 and $1,529, respectively, attributable to VIEs)
418,108

 
652,330

In-place lease intangible assets, net (inclusive of $17,277 and $6,040, respectively, attributable to VIEs)
457,244

 
423,084

Other intangible assets, net
105,056

 
78,239

Other assets, net (inclusive of $17,118 and $14,780, respectively, attributable to VIEs)
130,866

 
124,781

Total assets
$
4,713,369

 
$
4,416,299

Liabilities and Equity
 

 
 

Liabilities:
 

 
 

Non-recourse debt (inclusive of $199,315 and $123,413, respectively, attributable to consolidated VIEs)
$
1,915,601

 
$
1,633,452

Accounts payable, accrued expenses and other liabilities (inclusive of $3,867 and $2,249, respectively, attributable to VIEs)
86,405

 
74,384

Deferred income taxes
7,108

 
—

Prepaid and deferred rental income and security deposits (inclusive of $5,353 and $5,710, respectively, attributable to VIEs)
148,446

 
118,017

Due to affiliates
20,211

 
29,527

Distributions payable
51,570

 
46,412

Total liabilities
2,229,341

 
1,901,792

Commitments and contingencies (Note 12)


 


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; 900,000,000 shares authorized; 322,918,083 and 310,548,664 shares issued, respectively; and 317,353,899 and 306,903,020 shares outstanding, respectively
323

 
310

Additional paid-in capital
2,904,927

 
2,786,855

Distributions in excess of accumulated earnings
(440,958
)
 
(277,224
)
Accumulated other comprehensive loss
(5,275
)
 
(35,366
)
Less: treasury stock at cost, 5,564,184 and 3,645,644 shares, respectively
(52,477
)
 
(34,293
)
Total CPA®:17 – Global stockholders’ equity
2,406,540

 
2,440,282

Noncontrolling interests
77,488

 
74,225

Total equity
2,484,028

 
2,514,507

Total liabilities and equity
$
4,713,369

 
$
4,416,299


See Notes to Consolidated Financial Statements. 

CPA®:17 – Global 2013 10-K — 55




CORPORATE PROPERTY ASSOCIATES 17 – GLOBAL INCORPORATED
 
CONSOLIDATED STATEMENTS OF INCOME
(in thousands, except share and per share amounts) 
 
Years Ended December 31,
 
2013
 
2012
 
2011
Revenues
 

 
 

 
 

Lease revenues:
 
 
 
 
 
Rental income
$
231,577

 
$
177,161

 
$
124,425

Interest income from direct financing leases
53,757

 
53,549

 
48,474

Total lease revenues
285,334

 
230,710

 
172,899

Other real estate income
49,076

 
44,613

 
9,841

Other operating income
21,872

 
5,188

 
2,879

Other interest income
6,672

 
9,042

 
6,602

 
362,954

 
289,553

 
192,221

Operating Expenses
 

 
 

 
 

Depreciation and amortization
93,947

 
69,104

 
42,965

Property expenses
52,244

 
31,342

 
19,206

Other real estate expenses
33,548

 
31,426

 
5,700

General and administrative
20,416

 
14,879

 
8,921

Acquisition expenses
16,884

 
14,834

 
7,664

Impairment charges
—

 
2,019

 
(70
)
 
217,039

 
163,604

 
84,386

Other Income and Expenses
 

 
 

 
 

Net (loss) income from equity investments in real estate
(7,917
)
 
7,828

 
5,527

Other income and (expenses)
12,077

 
5,638

 
7,029

Interest expense
(88,656
)
 
(72,271
)
 
(50,982
)
 
(84,496
)
 
(58,805
)
 
(38,426
)
Income from continuing operations before income taxes
61,419

 
67,144

 
69,409

Benefit from (provision for) income taxes
263

 
(914
)
 
(1,047
)
Income from continuing operations
61,682

 
66,230

 
68,362

Discontinued Operations
 

 
 

 
 

Income from operations of discontinued properties, net of tax
483

 
1,183

 
1,306

Gain on sale of real estate, net of tax
7,987

 
740

 
778

Loss on extinguishment of debt, net of tax
(983
)
 
—

 
—

Income from discontinued operations, net of tax
7,487

 
1,923

 
2,084

Net Income
69,169

 
68,153

 
70,446

Net income attributable to noncontrolling interests (inclusive of Available Cash Distributions to advisor of $16,899, $14,620, and $9,378, respectively)
(29,305
)
 
(26,542
)
 
(20,791
)
Net Income Attributable to CPA®:17 – Global
$
39,864

 
$
41,611

 
$
49,655

Earnings Per Share
 

 
 

 
 

Income from continuing operations attributable to CPA®:17 – Global
$
0.11

 
$
0.16

 
$
0.27

Income from discontinued operations attributable to CPA®:17 – Global
0.02

 
0.01

 
0.01

Net income attributable to CPA®:17 – Global
$
0.13

 
$
0.17

 
$
0.28

Weighted Average Shares Outstanding
313,010,828

 
249,283,354

 
175,271,595

Amounts Attributable to CPA®:17 – Global
 

 
 

 
 

Income from continuing operations, net of tax
$
32,377

 
$
39,688

 
$
47,571

Income from discontinued operations, net of tax
7,487

 
1,923

 
2,084

Net income attributable to CPA®:17 – Global
$
39,864

 
$
41,611

 
$
49,655


See Notes to Consolidated Financial Statements. 

CPA®:17 – Global 2013 10-K — 56




CORPORATE PROPERTY ASSOCIATES 17 – GLOBAL INCORPORATED
 
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(in thousands) 
 
Years Ended December 31,
 
2013
 
2012
 
2011
Net Income
$
69,169

 
$
68,153

 
$
70,446

Other Comprehensive Income (Loss):
 

 
 

 
 

Foreign currency translation adjustments
29,884

 
13,515

 
(12,753
)
Unrealized gain (loss) on derivative instruments
831

 
(16,758
)
 
(5,219
)
Change in unrealized appreciation (depreciation) on marketable securities
94

 
1,035

 
(15
)
 
30,809

 
(2,208
)
 
(17,987
)
Comprehensive Income
99,978

 
65,945

 
52,459

 
 
 
 
 
 
Amounts Attributable to Noncontrolling Interests:
 

 
 

 
 

Net income
(29,305
)
 
(26,542
)
 
(20,791
)
Foreign currency translation adjustments
(183
)
 
(192
)
 
220

Change in unrealized (gain) loss on derivative instruments
(535
)
 
(365
)
 
109

Comprehensive income attributable to noncontrolling interests
(30,023
)
 
(27,099
)
 
(20,462
)
 
 
 
 
 
 
Comprehensive Income Attributable to CPA®:17 – Global
$
69,955

 
$
38,846

 
$
31,997

 
See Notes to Consolidated Financial Statements.

CPA®:17 – Global 2013 10-K — 57




CORPORATE PROPERTY ASSOCIATES 17 – GLOBAL INCORPORATED
 
CONSOLIDATED STATEMENTS OF EQUITY
Years Ended December 31, 2013, 2012, and 2011
(in thousands, except share and per share amounts) 
 
 CPA®:17 – Global
 
 
 
 
 
Total
Outstanding
Shares
 
Common
Stock 
 
Additional
Paid-In
Capital
 
Distributions
in Excess of
Accumulated
Earnings
 
Accumulated
Other
Comprehensive
Loss
 
Treasury
Stock
 
Total
CPA®:17
– Global
Stockholders
 
Noncontrolling
Interests
 
Total
Balance at January 1, 2011
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

Shares issued, net of offering costs
10,252,652

 
11

 
96,842

 
 
 
 
 
 
 
96,853

 
 
 
96,853

Shares issued to affiliates
2,116,767

 
2

 
21,230

 
 
 
 
 
 
 
21,232

 
 
 
21,232

Contributions from noncontrolling interests
 
 
 
 
 
 
 
 
 
 
 
 
—

 
 
 
—

Distributions declared ($0.6500 per share)
 
 
 
 
 
 
(203,598
)
 
 
 
 
 
(203,598
)
 
 
 
(203,598
)
Distributions to noncontrolling interests
 
 
 
 
 
 
 
 
 
 
 
 
—

 
(26,760
)
 
(26,760
)
Net income
 
 
 
 
 
 
39,864

 
 
 
 
 
39,864

 
29,305

 
69,169

Other comprehensive income:
 
 
 
 
 
 
 
 
 
 
 
 

 
 
 
 
Foreign currency translation adjustments
 
 
 
 
 
 
 
 
29,701

 
 
 
29,701

 
183

 
29,884

Change in unrealized gain on derivative instruments
 
 
 
 
 
 
 
 
296

 
 
 
296

 
535

 
831

Change in unrealized appreciation on marketable securities
 
 
 
 
 
 
 
 
94

 
 
 
94

 
 
 
94

Repurchase of shares
(1,918,540
)
 
 
 
 
 
 
 
 
 
(18,184
)
 
(18,184
)
 
 
 
(18,184
)
Balance at December 31, 2013
317,353,899

 
$
323

 
$
2,904,927

 
$
(440,958
)
 
$
(5,275
)
 
$
(52,477
)
 
$
2,406,540

 
$
77,488

 
$
2,484,028

 
See Notes to Consolidated Financial Statements.


CPA®:17 – Global 2013 10-K — 58




CORPORATE PROPERTY ASSOCIATES 17 – GLOBAL INCORPORATED

CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
 
Years Ended December 31,
 
2013
 
2012
 
2011
Cash Flows — Operating Activities
 

 
 

 
 

Net income
$
69,169

 
$
68,153

 
$
70,446

Adjustments to net income:
 

 
 

 
 

Depreciation and amortization, including intangible assets and deferred financing costs
96,907

 
72,486

 
46,720

Loss from equity investments in real estate in excess of distributions received
18,521

 
419

 
1,868

Unrealized (gain) loss on foreign currency transactions and others
(2,452
)
 
2,221

 
3

Realized gain on foreign currency transactions and others
(3,690
)
 
(1,128
)
 
(6,055
)
Straight-line rent adjustment and amortization of rent-related intangibles
(19,464
)
 
(14,185
)
 
(11,616
)
Impairment charges
—

 
2,019

 
(70
)
Gain on sale of real estate
(8,059
)
 
(1,832
)
 
(787
)
Loss on extinguishment of debt
538

 
—

 
—

Non-cash asset management fee expense
21,953

 
18,935

 
13,435

Accretion of commercial mortgage-backed securities
(632
)
 
—

 
—

Settlement of derivative asset (liability)
2,964

 
—

 
(5,131
)
Deferred income taxes
(3,706
)
 
—

 
—

Net changes in other operating assets and liabilities
12,136

 
10,187

 
(7,298
)
Net Cash Provided by Operating Activities
184,185

 
157,275

 
101,515

 
 
 
 
 
 
Cash Flows — Investing Activities
 

 
 

 
 

Distributions received from equity investments in real estate in excess of equity income
7,463

 
23,616

 
90,571

Acquisitions of real estate and direct financing leases
(404,914
)
 
(799,175
)
 
(658,546
)
Capital contributions to equity investments in real estate
(156,228
)
 
(73,656
)
 
(228,519
)
VAT paid in connection with acquisition of real estate
(29,071
)
 
(15,594
)
 
(4,592
)
VAT refunded in connection with acquisition of real estate
40,933

 
7,314

 
29,336

Proceeds from sale of real estate
19,973

 
59,323

 
19,821

Funds placed in escrow
(67,294
)
 
(52,266
)
 
(196,291
)
Funds released from escrow
70,330

 
35,159

 
186,958

Payment of deferred acquisition fees to an affiliate
(14,354
)
 
(15,708
)
 
(14,455
)
Proceeds from repayment of notes receivable
—

 
—

 
49,560

Purchase of notes receivable
—

 
—

 
(30,000
)
Investment in securities
(1,614
)
 
(7,071
)
 
(2,394
)
Net Cash Used in Investing Activities
(534,776
)
 
(838,058
)
 
(758,551
)
 
 
 
 
 
 
Cash Flows — Financing Activities
 

 
 

 
 

Distributions paid
(198,440
)
 
(147,649
)
 
(102,503
)
Contributions from noncontrolling interests
—

 
762

 
1,197

Distributions to noncontrolling interests
(26,760
)
 
(24,427
)
 
(23,214
)
Scheduled payments of mortgage principal
(22,260
)
 
(17,525
)
 
(14,136
)
Prepayment of mortgage principal
(22,570
)
 
(11,224
)
 
—

Proceeds from mortgage financing
308,873

 
469,709

 
243,517

Funds placed in escrow
20

 
8,691

 
17,919

Funds released from escrow
(5,409
)
 
(6,780
)
 
(8,932
)
Proceeds from loans from affiliates
—

 
—

 
90,000

Repayments of loan from affiliate
—

 
—

 
(90,000
)
Payment of financing costs and mortgage deposits, net of deposits refunded
(4,006
)
 
(1,667
)
 
(9,423
)
Proceeds from issuance of shares, net of issuance costs
97,975

 
897,660

 
575,251

Purchase of treasury stock
(18,184
)
 
(17,189
)
 
(9,060
)
Net Cash Provided by Financing Activities
109,239

 
1,150,361

 
670,616

Change in Cash and Cash Equivalents During the Year
 

 
 

 
 

Effect of exchange rate changes on cash
7,130

 
2,026

 
4,401

Net (decrease) increase in cash and cash equivalents
(234,222
)
 
471,604

 
17,981

Cash and cash equivalents, beginning of year
652,330

 
180,726

 
162,745

Cash and cash equivalents, end of year
$
418,108

 
$
652,330

 
$
180,726


See Notes to Consolidated Financial Statements.

CPA®:17 – Global 2013 10-K — 59




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.
 
Substantially all of our assets and liabilities are held by the Operating Partnership and at December 31, 2013, we owned 99.99% of general and limited partnership interests in the Operating Partnership. The remaining interest in the Operating Partnership is held by a subsidiary of WPC.

At December 31, 2013, our portfolio was comprised of our full or partial ownership interests in 352 fully-occupied properties, substantially all of which were triple-net leased to 99 tenants, and totaled approximately 34 million square feet (unaudited). In addition, our portfolio was comprised of our full or partial ownership interests in 71 self-storage properties, two hotel properties, and two shopping centers for an aggregate of approximately 6 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.
 
Public Offerings

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, which ended in April 2011, and our follow-on offering, which closed on January 31, 2013. Through December 31, 2013, we have issued approximately 28,000,000 shares ($264.7 million) through our DRIP. We repurchased approximately 5,600,000 shares ($52.5 million) of our common stock under our redemption plan from inception through December 31, 2013.

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
 
Our consolidated financial statements reflect all of our accounts, including those of our controlled subsidiaries. The portion of equity in a consolidated 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. and, if so, whether we are deemed to be the primary beneficiary and are therefore required to consolidate the entity. We apply accounting guidance for consolidation of VIEs to certain entities in which the equity investors do not have the characteristics of a controlling financial interest or do not have sufficient equity at risk for the entity to finance its activities without additional subordinated financial support from other parties. Fixed price purchase and renewal options within a lease as well as certain decision-making rights within a loan can cause us to consider an entity a 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 2013 10-K — 60

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 but rather a voting interest entity, 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 leased properties leased to companies 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 fully own this entity. We continue to consolidate the accounts of Walgreens Las Vegas (Note 6).
 
Reclassifications
 
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.
 
Accounting for Acquisitions
 
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.
 
Purchase Price Allocation

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, buildings, and site improvements, and 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 estimated fair values. Land is typically valued utilizing the sales comparison (or market approach). Buildings are valued, as if vacant, 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 cash net operating income for each property in the portfolio during the remaining anticipated lease term, and the estimated residual value. The estimated residual value of each property is based on a hypothetical sale of the property upon expiration of a lease factoring in the re-tenanting of such property at estimated current market rental rates, applying a selected capitalization rate and deducting estimated costs of sale. For self-storage assets, the hypothetical sales price is derived by capitalizing the estimated

CPA®:17 – Global 2013 10-K — 61

Notes to Consolidated Financial Statements

net operating income. Estimated cash net operating income factors in the gross potential revenue of the business less economic vacancy rates and expected operational expenses. 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, 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 record above- 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 below-market fixed rate renewal periods in the respective leases. We include the value of below-market leases in Accounts payable, accrued expenses and other liabilities in the consolidated financial statements.
 
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 is 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 given to tenants. 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. 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- and below-market lease values to lease revenue and in-place lease and tenant relationship values to amortization expense. We amortize the capitalized value of in-place lease intangibles and tenant relationships over the lease term.
 
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 capitalize improvements and significant renovations that increase the useful life of the properties, while we expense replacements, maintenance and repairs that do not improve or extend the lives of the respective assets as incurred.

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.
 

CPA®:17 – Global 2013 10-K — 62

Notes to Consolidated Financial Statements

Acquisition, Development and Construction Loans
 
We provide funding to developers for the acquisition, development and construction of real estate. 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 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). Once the investment or partnership begins operations, we use the hypothetical liquidation at book value method to calculate income or loss 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, less estimated costs to sell. 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.
 
Debt Securities
 
We have investments, such as CMBS and a debenture, 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

CPA®:17 – Global 2013 10-K — 63

Notes to Consolidated Financial Statements

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 prepaid expenses, deferred rental income, tenant receivables, deferred charges, escrow balances held by lenders, restricted cash balances, debt securities, derivative assets and corporate fixed assets in Other assets. We include derivative instruments; miscellaneous amounts held on behalf of tenants; and deferred revenue, including unamortized below-market rent intangibles in Other liabilities. Deferred charges 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 three equal annual installments following the quarter on which a property was purchased. The timing of the payment of such fees is impacted by certain 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 General Partner Interest as a noncontrolling interest (Note 3). The Special General Partner 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. 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 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, 2013, 2012 and 2011, 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 approximately $23.2 million, $14.1 million and $9.5 million, respectively, which are included in Property expenses in the consolidated financial statements.
 
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.
 

CPA®:17 – Global 2013 10-K — 64

Notes to Consolidated Financial Statements

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.

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. 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 determine an interest rate to be applied for capitalizing interest based on the interest rate of any debt linked to the project or a blended rate of the mortgages outstanding in the fund if there is no debt on the project.
 
Depreciation
 
We compute depreciation of building and related improvements using the straight-line method over the estimated remaining useful lives of the properties (not to exceed 40 years) and furniture, fixtures, and equipment (generally up to seven 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. We may also incur impairment charges on marketable securities. Our policies for evaluating whether these assets are impaired are presented below.
 

CPA®:17 – Global 2013 10-K — 65

Notes to Consolidated Financial Statements

Real Estate
 
For real estate assets, which include finite-lived intangibles, 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 property’s asset group to the future net undiscounted cash flow that we expect the property’s asset group will generate, including any estimated proceeds from the eventual sale of the property’s 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 property’s asset group is less than the carrying value, the property’s asset group is considered to be impaired. We then measure the loss as the excess of the carrying value of the property’s asset group over its estimated fair value.
 
Assets Held for Sale
 
When we classify an asset as held for sale, we compare the asset’s 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 property’s 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 amount of the residual value.
 
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. For our equity investments in real estate, we calculate the estimated fair value of the underlying investment’s 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 investment’s debt, if any, is calculated based on market interest rates and other market information. The fair value of the underlying investment’s other financial assets and liabilities (excluding net investment in direct financing leases) have fair values that generally 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.
 
If the CMBS’ 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

CPA®:17 – Global 2013 10-K — 66

Notes to Consolidated Financial Statements

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.

Foreign Currency
 
Translation

We have interests in real estate investments in the European Union, United Kingdom, and Japan for which the functional currency is the euro, the British pound sterling, and the Japanese yen, respectively. We perform the translation from the euro, the British pound sterling, or the Japanese yen 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 such translation as a component of other comprehensive income 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 intercompany transactions that are scheduled for settlement, consisting primarily of accrued interest and the translation to the reporting currency of subordinated intercompany debt with scheduled principal payments, are included in the determination of net income.

Intercompany foreign currency transactions of a long-term nature (that is, settlement is not planned or anticipated in the foreseeable future), which the entities to the transactions are consolidated or accounted for by the equity method in our financial statements, are not included in net income.

Net realized gains or (losses) are recognized on foreign currency transactions in connection with the transfer of cash from foreign operations of subsidiaries to the parent company. For the years ended December 31, 2013, 2012 and 2011, we recognized net realized gains on such transactions of $3.1 million, $1.1 million and $6.0 million, respectively.

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 income (loss) until the hedged item is recognized in earnings. The ineffective portion of a derivative’s 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 income (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 income (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 and 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.
 

CPA®:17 – Global 2013 10-K — 67

Notes to Consolidated Financial Statements

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 taxes on our income and gains that we distribute to our stockholders as long as we satisfy certain requirements, principally relating to the nature of our income and the level of our distributions, as well as other factors. We believe that we have operated, and we intend to continue to operate, in a manner that allows us to continue to qualify as a REIT. Deferred income taxes are recorded for the corporate subsidiaries based on earnings reported. The provision for income taxes differs from the amounts currently payable because of temporary differences in the recognition of certain income and expense items for financial reporting and tax reporting purposes. Income taxes are computed under the asset and liability method. The asset and liability method requires the recognition of deferred tax assets and liabilities for the expected future tax consequences of temporary differences between tax bases and financial bases of assets and liabilities (Note 14).
 
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.
 
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, and timing differences of rent recognition and certain expense deductions, 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.
 
Deferred Income Taxes
 
We recognize deferred income taxes in certain of our taxable subsidiaries. Deferred income taxes are generally the result of temporary differences (items that are treated differently for tax purposes than for U.S. GAAP purposes as described in Note 14). In addition, deferred tax assets arise from unutilized tax net operating losses generated in prior years. We provide a valuation allowance against our deferred income tax assets when we believe that it is more likely than not that all or some portion of the deferred income tax asset may not be realized. Whenever a change in circumstances causes a change in the estimated realizability of the related deferred income tax asset, the resulting increase or decrease in the valuation allowance is included in deferred income tax expense.

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. Income per basic share of common stock is calculated by dividing net income by the weighted-average number of shares of common stock issued and outstanding during such period.
 

CPA®:17 – Global 2013 10-K — 68

Notes to 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.

Recent Accounting Requirements

The following Accounting Standards Updates (“ASUs”), promulgated by the FASB are applicable to us as indicated:

ASU 2013-01, Balance Sheet (Topic 210): Clarifying the Scope of Disclosures about Offsetting Assets and Liabilities — In January 2013, the FASB issued an update to ASU 2011-11, Balance Sheet (Topic 210): Disclosures about Offsetting Assets and Liabilities. ASU 2013-01 clarifies that the scope of ASU 2011-11 applies to derivatives accounted for in accordance with Topic 815, Derivatives and Hedging, including bifurcated embedded derivatives, repurchase agreements and reverse repurchase agreements, and securities borrowing and securities lending transactions that are either offset in accordance with Section 210-20-45 or Section 815-10-45 or subject to an enforceable master netting or similar arrangement. These amendments did not have a significant impact on our financial position or results of operations and were applicable to us for our interim and annual reports beginning in 2013.

ASU 2013-02, Other Comprehensive Income (Topic 220): Reporting of Amounts Reclassified Out of Accumulated Other Comprehensive Income — In February 2013, the FASB issued ASU 2013-02 requiring entities to disclose additional information about items reclassified out of accumulated other comprehensive income. This ASU impacts the form of our disclosures only, is applicable to us for our interim and annual reports beginning in 2013, and has been applied retrospectively. The related additional disclosures are located in Note 13.

ASU 2013-04, Liabilities (Topic 405): Obligations Resulting from Joint and Several Liability Arrangements for Which the Total Amount of the Obligation is Fixed at the Reporting Date, a Consensus of the FASB Emerging Issues Task Force — In February 2013, the FASB issued ASU 2013-04, which requires entities to measure obligations resulting from joint and several liability arrangements (in our case, tenancy-in-common arrangements, Note 6) for which the total amount of the obligation is fixed as the sum of the amount the entity agreed to pay on the basis of its arrangement among its co-obligors and any additional amount the reporting entity expects to pay on behalf of its co-obligors. This ASU is applicable to us for our interim and annual reports beginning in 2014 and shall be applied retrospectively; however, we elected to adopt this ASU early in 2013 and it did not have a significant impact on our financial position or results of operations for any of the periods presented.

ASU 2013-10, Derivatives and Hedging (Topic 815): Inclusion of the Fed Funds Effective Swap Rate (or Overnight Index Swap Rate) as a Benchmark Interest Rate for Hedge Accounting Purposes, a Consensus of the FASB Emerging Issues Task Force — In July 2013, the FASB issued ASU 2013-10, which permits the Fed Funds Effective Swap Rate, also referred to as the “Overnight Index Swap Rate,” to be used as a U.S. benchmark interest rate for hedge accounting purposes under Topic 815, in addition to the U.S. government and LIBOR swap rate. The update also removes the restriction on the use of different benchmark rates for similar hedges. This ASU is applicable to us for qualifying new or redesignated hedging relationships entered into on or after July 17, 2013. Through the date of this Report, we had not entered into any transactions to which this ASU applies.

Out-of-Period Adjustment
 
In the fourth quarter of 2013, we identified an error in the consolidated financial statements related to accounting for deferred foreign income taxes in connection with the initial acquisition accounting for 15 properties acquired during 2008-2012 (Note 14). We concluded that this adjustment was not material to our financial position or results of operations for the current period or any of the prior periods. As such, we recorded an out-of-period adjustment of $1.7 million and $7.7 million to reflect the cumulative deferred tax assets and liabilities, respectively, associated with the initial basis differential that resulted from the tax-basis carry-over of these properties as well as an aggregate corresponding increase to total assets of $9.3 million, primarily comprised of $4.1 million to Goodwill and $5.2 million to Net investments in properties. Additionally, this adjustment resulted in a net increase of $2.9 million to Net income attributable to CPA®:17 – Global, comprised of a deferred tax benefit of $1.8 million, an increase to Net income from equity investments in real estate of $1.7 million, an increase of $0.4 million to Net income attributable to noncontrolling interests, and an increase to $0.2 million to Depreciation and amortization.


CPA®:17 – Global 2013 10-K — 69

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 under a fee arrangement. On September 28, 2012, we amended and restated certain terms in that advisory agreement, as described below. The fee structure related to asset management fees, initial acquisition fees, subordinated acquisition fees and subordinated disposition fees was unchanged by the amendment and restatement, and the advisor remained entitled to 10% of the available cash of the Operating Partnership, referred to as the “Available Cash Distribution”, as described below. The current advisory agreement is scheduled to expire on June 30, 2014 unless otherwise extended. We also have certain agreements with affiliates regarding jointly-owned investments. In addition, we reimbursed the advisor for organization and offering costs incurred in connection with our follow-on offering through its closing on January 31, 2013 and for certain administrative duties performed on our behalf. 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,
 
2013
 
2012
 
2011
Amounts Included in the Consolidated Statements of Income:
 

 
 

 
 

Asset management fees
$
21,953

 
$
18,932

 
$
13,435

Available Cash Distribution
16,899

 
14,620

 
9,378

Acquisition expenses
11,448

 
12,092

 
—

Personnel and overhead reimbursements
9,243

 
5,205

 
2,258

Office rent reimbursements
1,293

 
756

 
411

Interest expense on deferred acquisition fees and loan from affiliate
827

 
930

 
1,194

 
$
61,663

 
$
52,535

 
$
26,676

Other Acquisition Fees Capitalized:
 
 
 
 
 
Current acquisition fees
$
4,777

 
$
17,448

 
$
24,559

Deferred acquisition fees
3,063

 
14,162

 
17,398

 
$
7,840

 
$
31,610

 
$
41,957


 
December 31,
 
2013
 
2012
Due to Affiliates:
 
 
 
Deferred acquisition fees, including interest
$
15,573

 
$
26,732

Accounts payable
2,200

 
339

Asset management fees payable
1,972

 
1,651

Reimbursable costs
264

 
603

Subordinated disposition fees
202

 
202

 
$
20,211

 
$
29,527

 
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 the achievement of a preferred return, a non-compounded cumulative distribution 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 is 4.5% of the total cost of those investments and is comprised of a current portion of 2.5%, typically paid upon acquisition, and a deferred portion of 2%, typically paid over three years and subject to the 5% preferred return described above. 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. Unpaid installments of deferred acquisition fees are included in Due to affiliates in the consolidated financial statements.


CPA®:17 – Global 2013 10-K — 70

Notes to Consolidated Financial Statements

The advisor may be entitled to receive a disposition fee in an amount equal to the lesser of (i) 50.0% of the competitive real estate commission (as defined in the advisory agreement) or (ii) 3.0% of the contract sales price of the investment being sold; however, payment of such fees is subordinated to the 5% preferred return. These fees, which are paid at the discretion of our board of directors, are deferred and are payable to the advisor only in connection with a liquidity event.

Asset Management Fees and Available Cash Distribution

As defined in the advisory agreement, we pay the advisor asset management fees that vary based on the nature of the underlying investment. We pay 0.5% per annum of average market value for long-term net leases and certain other types of real estate investments, and 1.5% to 1.75% per annum 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, which was $9.50 as of December 31, 2013. For 2013, 2012, and 2011, the advisor elected to receive its asset management fees in shares of our common stock, which vest over a period of three years. At December 31, 2013, the advisor owned 6,061,989 shares (1.9%) of our common stock. We also pay the advisor, depending on the type of investments we own, up to 10% 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 Available Cash Distributions are included in Property expenses and Net income attributable to noncontrolling interests, respectively, in the consolidated financial statements.
 
Personnel and Overhead Reimbursements

Under the terms of the advisory agreement, the advisor allocates a portion of its personnel and overhead expenses to us and the other Managed REITs. Effective as of October 1, 2012, the advisor allocates these expenses on the basis of our trailing four quarters of reported revenues and those of WPC, the CPA® REITs, and CWI. Prior to that date, these costs were allocated on the basis of time charges incurred by the advisor’s personnel on behalf of the CPA® REITs and CWI.

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 managing 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 and dispositions. 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 12-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 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.
 
Organization and Offering Expenses

Through the termination of our follow-on offering on January 31, 2013, we incurred expenses in connection with the offerings of our securities. These expenses were deducted from the gross proceeds of our offerings. Total organization and offering expenses, including underwriting compensation, did not exceed 15% of the gross proceeds of our offering and our DRIP, consistent with applicable regulatory requirements. Under the terms of a dealer manager agreement between Carey Financial, a wholly-owned subsidiary of our advisor, and us, Carey Financial received a selling commission of $0.65 per share sold and a dealer manager fee of $0.35 per share sold in our public offering. Carey Financial re-allowed all or a portion of selling commissions to selected dealers participating in the offering and re-allowed up to the full dealer manager fee to the selected dealers. Total underwriting compensation paid in connection with our offering, including selling commissions, the dealer manager fee, and reimbursements made by Carey Financial to selected dealers and investment advisors, did not exceed the limitations prescribed by the FINRA, which limit underwriting compensation to 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,

CPA®:17 – Global 2013 10-K — 71

Notes to Consolidated Financial Statements

accounting, printing and escrow costs). The advisor agreed to be responsible for the payment of organization and offering expenses (excluding selling commissions and dealer manager fees) that exceed 4% of the gross offering proceeds.

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. The total costs paid by the advisor and its affiliates in connection with the organization and offering of our securities were $20.9 million from inception through January 31, 2013 and were fully reimbursed upon termination of our follow-on offering on that date.
 
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 Logistiek Vastgoed B.V. (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.
 
Jointly-Owned Investments and Other Transactions with Affiliates

At December 31, 2013, we owned interests ranging from 12% to 85% in jointly-owned investments, 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. We also owned interests in jointly-controlled tenancy-in-common interests in properties, which we account for under the equity method of accounting.

On December 18, 2013, we and our affiliate, CPA®:18 – Global, acquired a retail portfolio from Agrokor d.d. (referred to as Agrokor 5) through a jointly-owned investment for $97.0 million, of which our share was $19.4 million. We account for this investment under the equity method of accounting (Note 6).

On August 20, 2013, we and our affiliate, CPA®:18 – Global, acquired an office facility located in Austin, Texas from State Farm through a jointly-owned investment for $115.6 million, of which our share was $57.8 million. We account for this investment under the equity method of accounting (Note 6).
 
On May 2, 2011, we purchased interests in three investments, the Hellweg 2 investment, the U-Haul Moving Partners, Inc. and Mercury Partners, LP investment, and the Dick’s Sporting Goods, Inc. 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 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.


CPA®:17 – Global 2013 10-K — 72

Notes to Consolidated Financial Statements

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,
 
2013
 
2012
Land
$
553,389

 
$
491,584

Buildings
1,848,926

 
1,614,188

Less: Accumulated depreciation
(129,051
)
 
(77,245
)
 
$
2,273,264

 
$
2,028,527


Acquisitions of Real Estate During 2013
 
During 2013, we entered into the following domestic investments, which were deemed to be real estate asset acquisitions because we entered into new leases in connection with the acquisitions, at a total cost of $44.4 million, including net lease intangible assets of $8.1 million (Note 8) and acquisition-related costs and fees of $2.2 million, which were capitalized:

•
two parcels of land for $18.2 million, which were then leased to a provider of private school education that intends to construct two buildings on the site located in Chicago, Illinois;
•
an automotive dealership for $15.3 million located in Lewisville, Texas; and
•
an investment of $10.9 million for a manufacturing and office facility located in Portage, Wisconsin.

Additionally, we acquired the following investments, which were deemed to be business combinations because we assumed the existing leases on the properties, at a total cost of $234.6 million, including land of $29.7 million, buildings of $157.7 million, and net lease intangible assets of $48.8 million (Note 8):

•
an international investment of $78.1 million for a logistics facility located in Poland. Amount is based on the exchange rate of the euro on the date of acquisition;
•
an international investment of $38.6 million for an R&D/office facility located in the Netherlands. Amount is based on the exchange rate of the euro on the date of acquisition;
•
an international investment of $26.6 million for an office headquarters facility located in Germany. Amount is based on the exchange rate of the euro on the date of acquisition;
•
a domestic investment of $41.7 million for an office facility located in Houston, Texas;
•
a domestic investment of $17.0 million for an office headquarters facility located in Tempe, Arizona;
•
a domestic investment of $15.7 million for an entertainment complex located in Dallas, Texas;
•
a domestic investment of $9.0 million for an office facility located in Auburn Hills, Michigan; and
•
a domestic investment of $7.9 million for a building with a ground lease located in Northbrook, Illinois.

In connection with these investments, we expensed acquisition-related costs and fees of $15.1 million, which are included in Acquisition expenses in the consolidated financial statements.

During the year ended December 31, 2013, we funded an additional $9.7 million for build-to-suit projects that were placed into service and $8.8 million for building improvements with existing tenants.

During 2013, 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, 2013 increased by 4.2% to $1.3768 from $1.3218 at December 31, 2012. The impact of this weakening was a $29.9 million increase in the carrying value of Real estate from December 31, 2012 to December 31, 2013.

Asset dispositions are discussed in Note 15.


CPA®:17 – Global 2013 10-K — 73

Notes to Consolidated Financial Statements

Allocation of Purchase Price
 
For our investment located in Tempe, Arizona that was acquired during the three months ended December 31, 2013, 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.

Acquisitions of Real Estate During 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 8) and acquisition-related costs and fees:
 
•
a domestic investment of $169.0 million for eight office facilities located in various cities in Minnesota;
•
a domestic investment of $68.7 million for nine automotive dealerships in various states;
•
an international investment of $45.8 million for a portfolio of retail properties located in Croatia. Amount is based on the exchange rate of the euro on the date of acquisition;
•
a domestic investment of $36.3 million for an office facility located in Warrenville, Illinois;
•
a domestic investment of $25.0 million for two office facilities located in Montgomery, Alabama and Savannah, Georgia;
•
a domestic investment of $21.3 million for a manufacturing facility located in Sterling, Virginia;
•
a domestic investment of $15.7 million office facility located in Eagan, Minnesota;
•
two additional domestic investments for a total cost of $14.0 million in a manufacturing and an office facility located in Avon, Ohio and St. Louis, Missouri, respectively; and
•
two follow-on transactions in an existing investment for a total cost of $5.0 million located in Alvarado, Texas.
 
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 because we assumed the existing leases on the properties, 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 8):
 
•
a domestic investment of $174.8 million for a multi-tenant office facility located in Houston, Texas;
•
a foreign investment of $48.7 million for a warehouse facility located in Japan. WPC acquired a 3% minority interest in this investment. Amount is based on the exchange rate of the Japanese yen on the date of acquisition; and
•
a domestic investment of $14.6 million for a multi-tenant industrial facility located in Elk Grove Village, Illinois.
 
In connection with these investments, we expensed acquisition-related costs and fees totaling $12.8 million, which are included in Acquisition 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.


CPA®:17 – Global 2013 10-K — 74

Notes to Consolidated Financial Statements

Acquisitions of Real Estate During 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. 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 Metro’s 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

Buildings
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

 
In addition, 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, we entered into a build-to-suit project with the developer to construct a shopping center on the land.

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, 2013 are as follows (in thousands):
Years Ending December 31, 
 
Total
2014
 
$
236,286

2015
 
237,463

2016
 
238,841

2017
 
239,980

2018
 
242,033

Thereafter
 
2,776,405

Total
 
$
3,971,008


Operating Real Estate
 
Operating real estate, which consists primarily of our domestic hotel and self-storage operations, at cost, is summarized as follows (in thousands):
 
December 31,
 
2013
 
2012
Land
$
66,066

 
$
60,493

Buildings
217,304

 
193,067

Furniture, fixtures, and equipment
—

 
1,245

Less: Accumulated depreciation
(15,354
)
 
(7,757
)
 
$
268,016

 
$
247,048

 

CPA®:17 – Global 2013 10-K — 75

Notes to Consolidated Financial Statements

Acquisitions of Operating Real Estate During 2013
 
2013 — During 2013, we acquired eight self-storage properties for $31.9 million. The total cost includes buildings of $20.8 million, land of $6.9 million, and lease intangible assets of $4.2 million (Note 8). As these acquisitions were deemed to be business combinations, we expensed the acquisition-related costs of $0.6 million, which are included in Acquisition expenses in the consolidated financial statements.

Acquisitions of Operating Real Estate During 2012

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, buildings of $56.7 million, and lease intangible assets of $9.7 million (Note 8). As these acquisitions were deemed to be business combinations, we expensed the acquisition-related costs totaling $1.5 million, which are included in Acquisition 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.

Assets dispositions are discussed in Note 15.

Real Estate Under Construction
 
The following table provides the activity of our Real estate under construction (in thousands):
 
Years Ended December 31,
 
2013
 
2012
Beginning balance
$
71,285

 
$
90,176

Capitalized funds (a)
90,007

 
121,003

Placed into service (b)
(42,225
)
 
(142,085
)
Capitalized interest (c)
5,208

 
2,100

Building improvements and other
3,660

 
91

Ending balance (d)
$
127,935

 
$
71,285

__________
(a)
At December 31, 2013, we had five build-to-suit projects, of which three remained as open projects, and the balance included acquisition-related costs and fees of $2.3 million, which were capitalized. At December 31, 2012, we had ten build-to-suit projects, of which four remained as open projects, and the balance included acquisition-related costs and fees of $16.4 million, which were capitalized.
(b)
During the year ended December 31, 2013, there were three build-to-suit projects, of which two are completed and one is partially-completed, that were placed into service. The two completed build-to-suit projects for $26.1 million were reclassified as Real estate, at cost, and the partially-completed build-to-suit project for $12.6 million was reclassified as Operating real estate, at cost, at December 31, 2013. During the year ended December 31, 2012, there were six build-to-projects that were placed into service totaling $142.1 million, which were reclassified as Real estate, at cost. The remaining $3.5 million was related to improvements on an existing building we own that was reclassified as Real estate, at cost, at December 31, 2013.
(c)
Includes amortization of the mortgage discount and deferred financing costs and interest on a third-party debt related to one of the build-to-suit projects totaling $3.2 million and less than $0.1 million for the years ended December 31, 2013 and 2012, respectively, that will be capitalized as part of the building’s value once the project is completed.
(d)
The aggregate unfunded commitment on the remaining open projects totaled approximately $46.7 million and $92.4 million at December 31, 2013 and 2012, 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 2013 10-K — 76

Notes to Consolidated Financial Statements

The following table provides the activity of our asset retirement obligations, which are included in Accounts payable, accrued expenses and other liabilities on the consolidated balance sheets (in thousands):
 
Years Ended December 31,
 
2013
 
2012
Beginning balance
$
19,194

 
$
11,453

Additions
1,619

 
6,842

Accretion expense (a)
1,203

 
890

Foreign currency translation adjustments and other
60

 
9

Ending balance
$
22,076

 
$
19,194

__________
(a) Accretion of the liability is included in Property expenses and recognized over the economic life of the properties.

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,
 
2013
 
2012
Minimum lease payments receivable
$
774,876

 
$
819,881

Unguaranteed residual value
468,548

 
466,829

 
1,243,424

 
1,286,710

Less: unearned income
(763,508
)
 
(810,838
)
 
$
479,916

 
$
475,872

 
At December 31, 2013 and 2012, Other assets, net included $0.8 million and $1.0 million, respectively, of accounts receivable related to amounts billed under these direct financing leases.

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).

Scheduled Future Minimum Rents

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, 2013 are as follows (in thousands):
Years Ending December 31, 
 
Total
2014
 
$
51,981

2015
 
52,415

2016
 
52,842

2017
 
53,271

2018
 
288,037

Thereafter
 
276,330

Total
 
$
774,876

 

CPA®:17 – Global 2013 10-K — 77

Notes to Consolidated Financial Statements

Notes Receivable
 
During 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).

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 Forte’s parent company, Fosun International Limited, and has an interest rate of 11% and matures in December 2015. At both December 31, 2013 and 2012, 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 tenant’s business and that we believe have a low risk of tenant defaults. At both December 31, 2013 and 2012, none of the balances of our finance receivables were past due and we had not established any allowances for credit losses. Additionally, there were no modifications of finance receivables during the years ended December 31, 2013 and 2012. We evaluate the credit quality of our finance receivables utilizing an internal five-point credit rating scale, with one representing the highest credit quality and five representing the lowest. The credit quality evaluation of our finance receivables was last updated in the fourth quarter of 2013.
 
A summary of our finance receivables by internal credit quality rating is as follows (dollars in thousands):
 
 
Number of Tenants / Obligors at 
 
 
 
 
 
 
December 31,
 
December 31,
Internal Credit Quality Indicator
 
2013
 
2012
 
2013
 
2012
1
 
—
 
1
 
$
—

 
$
2,239

2
 
1
 
2
 
2,250

 
60,218

3
 
8
 
9
 
430,713

 
453,415

4
 
3
 
—
 
86,953

 
—

5
 
—
 
—
 
—

 
—

 
 
 
 
 
 
$
519,916

 
$
515,872



Note 6. Equity Investments in Real Estate
 
We own equity interests in single-tenant net leased properties that are generally leased to companies through noncontrolling interests (i) in partnerships and limited liability companies that we do not control but over which we exercise significant influence or (ii) as tenants-in-common subject to common control. Generally, the underlying investments are jointly-owned with affiliates. We account for these investments under the equity method of accounting. Earnings for each investment are recognized in accordance with each respective investment agreement and where applicable, based upon an allocation of the investment’s net assets at book value as if the investment were hypothetically liquidated at the end of each reporting period. Investments in unconsolidated investments are required to be evaluated periodically. We periodically compare an investment’s carrying value to its estimated fair value and recognize an impairment charge to the extent that the carrying value exceeds fair value and such decline is determined to be other than temporary. Additionally, we provide funding to developers for ADC Arrangements. Under ADC Arrangements, we have provided two loans to third-party developers of real estate projects, which we account for as equity investments (Note 2).


CPA®:17 – Global 2013 10-K — 78

Notes to Consolidated Financial Statements

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
 
Co-owner(s)
 
at December 31, 2013
 
2013
 
2012
C1000 Logistiek Vastgoed B.V. (a) (b)
 
WPC
 
85%
 
$
84,119

 
$
81,516

U-Haul Moving Partners, Inc. and Mercury Partners, LP (c) (d)
 
WPC/
CPA®:16 – Global
 
12%
 
43,051

 
28,019

BPS Nevada, LLC (formerly known as BPS Parent, LLC) (e)
 
Third Party
 
15%
 
23,278

 
26,253

Madison Storage NYC, LLC and Veritas Group IX-NYC, LLC (f)
 
Third Party
 
45%
 
23,907

 
—

State Farm (g)
 
CPA®:18 – Global
 
50%
 
20,913

 
—

Agrokor 5 (a) (g)
 
CPA®:18 – Global
 
20%
 
19,217

 
—

Tesco plc (a) (d)
 
CPA®:16 – Global
 
49%
 
17,965

 
17,487

Berry Plastics Corporation (d)
 
CPA®:16 – Global
 
50%
 
17,659

 
18,529

Hellweg 2 (a) (d) (h)
 
WPC/
CPA®:16 – Global
 
37%
 
12,978

 
22,827

Eroski Sociedad Cooperativa – Mallorca (a)
 
WPC
 
30%
 
9,639

 
9,336

Dick’s Sporting Goods, Inc. (d)
 
CPA®:16 – Global
 
45%
 
4,646

 
5,010

Shelborne Property Associates, LLC (i)
 
Third Party
 
33%
 
129,575

 
63,896

IDL Wheel Tenant, LLC (j)
 
Third Party
 
N/A
 
6,017

 
2,260

 
 
 
 
 
 
$
412,964

 
$
275,133

___________
(a)
The carrying value of this investment is affected by the impact of fluctuations in the exchange rate of the euro.
(b)
This investment represents a tenancy-in-common interest, whereby the property is encumbered by debt for which we are jointly and severally liable. For this investment, the co-obligor is WPC and the total amount due under the arrangement was approximately $95.6 million and $93.2 million at December 31, 2013 and 2012, respectively. Of these amounts, $81.3 million and $79.2 million represent the amounts we agreed to pay and are included within the carrying value of this investment at December 31, 2013 and 2012, respectively.
(c)
In November 2013, we made a contribution of $17.0 million to this investment for the investee to repurchase its outstanding mortgage loan.
(d)
The portion of these investments owned by CPA®:16 – Global were acquired by WPC upon completion of the merger of CPA®:16 – Global with and into a subsidiary of WPC in January 2014.
(e)
In December 2013, we recognized an other-than-temporary impairment charge of $3.8 million on this investment (Note 9).
(f)
We acquired interests in Madison Storage NYC, LLC in June 2013 and Veritas Group IX-NYC, LLC in October 2013, both of which are VIEs. In addition to our 45% equity interest, we have a 40% indirect economic interest in this investment based upon certain contractual arrangements with our partner in this entity that enable or could require us to purchase their interest.
(g)
See “Acquisition of Equity Investment” below.
(h)
The decrease in carrying value is primarily due to our share of the German real estate transfer tax incurred by the investment. Please see “Hellweg 2 Restructuring” below for more information.
(i)
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. This investment is a VIE. We provided funding of $69.3 million to this investment during the year ended December 31, 2013. At December 31, 2013, the unfunded balance on the loan related to this investment was $2.5 million.
(j)
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. This investment is a VIE. We provided funding of $3.8 million to this investment and capitalized $0.2 million of interest related to the loan during the year ended December 31, 2013. At December 31, 2013, the unfunded balance on the loan related to this investment was $44.3 million.


CPA®:17 – Global 2013 10-K — 79

Notes to Consolidated Financial Statements

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,
 
2013
 
2012
Real estate assets
$
1,360,072

 
$
1,049,068

Other assets
346,335

 
252,022

Total assets
1,706,407

 
1,301,090

Debt
(776,467
)
 
(668,555
)
Accounts payable, accrued expenses and other liabilities
(92,119
)
 
(86,592
)
Total liabilities
(868,586
)
 
(755,147
)
Redeemable noncontrolling interests
—

 
(21,747
)
Partners’/members’ equity
$
837,821

 
$
524,196

 
Years Ended December 31,
 
2013
 
2012
 
2011
Revenues
$
132,760

 
$
111,151

 
$
82,072

Expenses
(135,339
)
 
(80,237
)
 
(63,267
)
Income from continuing operations
$
(2,579
)
 
$
30,914

 
$
18,805


We recorded our investments in BPS Nevada, LLC and Shelborne Property Associates, LLC on a one quarter lag, therefore, amounts in our financial statements for the years ended December 31, 2013 and 2012 are based on balances and results of operations from BPS Nevada, LLC and Shelborne Property Associates, LLC for the years ended September 30, 2013 and 2012. BPS Nevada, LLC was acquired in October 2012 and Shelborne Property Associates, LLC was acquired in December 2012, therefore, there was no earnings impact during 2011 for these investments.

We recognized a net loss from equity investments in real estate of $7.9 million for the year ended December 31, 2013 and net income from equity investments in real estate of $7.8 million and $5.5 million for the years ended December 31, 2012 and 2011, respectively. Net income or loss from equity investments is based on the hypothetical liquidation at book value model as well as certain depreciation and amortization adjustments related to basis differentials from acquisitions of certain investments. Aggregate distributions from our interests in other unconsolidated real estate investments were $18.1 million, $31.9 million and $101.8 million for the years ended December 31, 2013, 2012 and 2011, respectively. At December 31, 2013 and 2012, the unamortized basis differences on our equity investments were $25.9 million and $28.7 million, respectively. Net amortization of the basis differences reduced the carrying values of our equity investments by $3.9 million, $3.5 million, and $2.0 million for the years ended December 31, 2013, 2012, and 2011, respectively.

Hellweg 2 Restructuring

In 2007, CPA®:14, CPA®:15 and CPA®:16 – Global, acquired a 33%, 40% and 27% interest, respectively, in an entity (“Purchaser”) for the purposes of acquiring a 25% interest in a property holding company (“PropCo”) that owns 37 do-it yourself stores located in Germany. This is referred to as the Hellweg 2 transaction. The remaining 75% interest in PropCo was owned by a third party (“Partner”). In November 2010, CPA®:14, CPA®:15 and CPA®:16 – Global obtained a 70% additional interest in PropCo from the Partner resulting in Purchaser owning approximately 95% of PropCo. In 2011, we acquired CPA®:14’s interests and in 2012, WPC acquired CPA®:15’s interests. We account for our investment under the equity method of accounting.

In October 2013, we acquired the Partner’s remaining 5% equity interest in PropCo, which resulted in PropCo incurring a German real estate transfer tax of $21.9 million, of which our share was approximately $8.1 million and was recorded within Net (loss) income from equity investments in real estate in our consolidated statements of income for the year ended December 31, 2013. PropCo intends to appeal the real estate transfer tax upon assessment, but there is no certainty it will be successful in appealing its obligation.


CPA®:17 – Global 2013 10-K — 80

Notes to Consolidated Financial Statements

Acquisitions of Equity Investments During 2013

In December 2013, we and CPA®:18 – Global acquired a retail portfolio, referred to as Agrokor 5, from Agrokor d.d. through a jointly-owned investment for a total cost of $97.0 million, which includes capitalized acquisition-related costs and fees totaling $6.3 million. We acquired a 20% interest in this venture for $19.4 million and account for this investment under the equity method of accounting.

In August 2013, we and CPA®:18 – Global acquired an office facility from State Farm through a jointly-owned investment for a total cost of $115.6 million, which includes capitalized acquisition-related costs and fees totaling $5.6 million. We acquired a 50% interest in this venture for $57.8 million and account for this investment under the equity method of accounting. In connection with this transaction, the jointly-owned investment obtained non-recourse financing totaling $72.8 million, of which our share is $36.4 million, which is included within the carrying value of this investment. This mortgage loan bears a fixed annual interest rate of 4.5% and matures in September 2023.

Acquisitions of Equity Investments During 2012

In October 2012, we exercised an option to acquire the Walgreens property located in Las Vegas, NV (“Walgreens Las Vegas”) 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 entity’s 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, included in Other income and (expenses).
 
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 entity’s 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.
 
ADC Arrangements

We account for the following ADC Arrangements under the equity method of accounting as we will participate in the residual interests through the sale or refinancing of the property (Note 2):

In December 2012, we funded a domestic build-to-suit project with Shelborne Property Associates, LLC for the construction of a hotel property for a total estimated construction cost of up to $125.0 million, which was subsequently increased to $137.0 million as of December 31, 2013. We funded $69.3 million through December 31, 2013. 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, 2013, the related loan had an unfunded balance of $2.5 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 $3.8 million through December 31, 2013. 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

CPA®:17 – Global 2013 10-K — 81

Notes to Consolidated Financial Statements

the loan is deemed to be an embedded derivative (Note 10). At December 31, 2013, the related loan had an unfunded balance of $44.3 million.

Note 7. Cash Flow Information

Supplemental Non-cash Investing and Financing Activities:

A summary of our non-cash investing and financing activities for the periods presented is as follows (dollars in thousands):
 
Years Ended December 31,
 
2013
 
2012
 
2011
Deferred acquisition fees payable (Note 3, 4)
$
3,183

 
$
14,472

 
$
17,394

Reclassification to Real estate, at cost (Note 4)
38,945

 
142,085

 
69,368

Reclassification from Real estate, at cost (Note 4)
(9,825
)
 
(7,378
)
 
—

Reclassification to Operating real estate, at cost (Note 4)
12,557

 
—

 
—

Reclassification from Operating real estate, at cost (Note 4)
(13,166
)
 
—

 
—

Reclassification from Real estate under construction (Note 4)
(42,225
)
 
(142,085
)
 
(69,368
)
Reclassification to Net investments in direct financing leases
—

 
8,957

 
—

Reclassification to In-place lease intangible assets, net
548

 
(1,579
)
 
—

Reclassification from In-place lease intangible assets, net
—

 
—

 
—

Reclassification to Assets held for sale
13,166

 
—

 
—

Build-to-suit construction costs incurred but unpaid
—

 
—

 
1,112

Hellweg 2 purchase option (Note 6)
—

 
32,338

 
—

Conversion of note receivable to equity investment in real estate (Note 6)
2,047

 
—

 
—

Asset retirement obligations (Note 4)
1,619

 
6,842

 
9,562

Non-recourse mortgage loans assumed on acquisition (Note 11)
—

 
36,747

 
273,074

Fourth quarter distributions declared
51,570

 
46,412

 
32,288


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. 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

Buildings
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 flow information
(In thousands)
 
Years Ended December 31,
 
2013
 
2012
 
2011
Interest paid, net of amounts capitalized
$
84,003

 
$
68,972

 
$
46,722

Interest capitalized
$
2,481

 
$
1,719

 
$
3,543

Income taxes paid
$
2,920

 
$
1,502

 
$
401




CPA®:17 – Global 2013 10-K — 82

Notes to Consolidated Financial Statements

Note 8. Intangible Assets and Liabilities
 
In connection with our acquisitions of properties, we have recorded net lease intangibles that are being amortized over periods ranging from one year to 40 years. In addition, we have several ground leases with lives up to 94 years. In-place lease intangibles are included in In-place lease intangible assets, net in the consolidated balance sheets. Tenant relationship, above-market rent, below-market ground lease (as lessee) intangibles, and goodwill are included in Other intangible assets, net in the consolidated balance sheets. Below-market rent and above-market ground lease (as lessor) intangibles are included in Prepaid and deferred rental income and security deposits in the consolidated balance sheets.
 
In connection with our investment activity during 2013, we have recorded net lease intangibles comprised as follows (life in years, dollars in thousands):
 
Weighted-Average Life
 
Amount
Amortizable Intangible Assets
 
 
 

In-place lease
17.5
 
$
61,081

Above-market rent
16.6
 
20,270

Below-market ground lease
54.6
 
5,714

 
 
 
87,065

Unamortizable Intangible Assets
 
 
 
Goodwill
N/A
 
4,062

 
 
 
91,127

Amortizable Intangible Liabilities
 
 
 

Below-market rent
19.3
 
$
(25,765
)
Above-market ground lease
48.6
 
(157
)
Total intangible liabilities
 
 
$
(25,922
)

The following table presents a reconciliation of our goodwill (in thousands):
 
 
Total
Balance at January 1, 2013
 
$
—

Out-of-period adjustment (Note 2)
 
4,062

Balance at December 31, 2013
 
$
4,062



CPA®:17 – Global 2013 10-K — 83

Notes to Consolidated Financial Statements

Intangible assets and liabilities are summarized as follows (in thousands):
 
December 31,
 
2013
 
2012
 
Gross Carrying Amount
 
Accumulated
Amortization
 
Net Carrying Amount
 
Gross Carrying Amount
 
Accumulated
Amortization
 
Net Carrying Amount
Amortizable Intangible Assets
 

 
 

 
 

 
 

 
 

 
 

In-place lease
$
537,271

 
$
(80,027
)
 
$
457,244

 
$
467,846

 
$
(44,762
)
 
$
423,084

Above-market rent
97,109

 
(12,413
)
 
84,696

 
74,491

 
(7,584
)
 
66,907

Tenant relationship
13,552

 
(4,299
)
 
9,253

 
13,231

 
(3,307
)
 
9,924

Below-market ground leases
7,124

 
(79
)
 
7,045

 
1,410

 
(2
)
 
1,408

 
$
655,056

 
$
(96,818
)
 
$
558,238

 
$
556,978

 
$
(55,655
)
 
$
501,323

Unamortizable Intangible Assets
 
 
 
 
 
 
 
 
 
 
 
Goodwill
4,062

 
—

 
4,062

 
—

 
—

 
—

Total intangible assets
$
659,118

 
$
(96,818
)
 
$
562,300

 
$
556,978

 
$
(55,655
)
 
$
501,323

 
 
 
 
 
 
 
 
 
 
 
 
Amortizable Intangible Liabilities
 

 
 

 
 

 
 

 
 

 
 

Below-market rent
$
(110,606
)
 
$
8,163

 
$
(102,443
)
 
$
(84,130
)
 
$
3,675

 
$
(80,455
)
Above-market ground lease
(157
)
 
3

 
(154
)
 
—

 
—

 
—

Total intangible liabilities
$
(110,763
)
 
$
8,166

 
$
(102,597
)
 
$
(84,130
)
 
$
3,675

 
$
(80,455
)

Net amortization of intangibles, including the effect of foreign currency translation, was $35.7 million, $28.0 million, and $17.8 million for the years ended December 31, 2013, 2012, and 2011, respectively. Amortization of below-market rent and above-market rent intangibles is recorded as an adjustment to Lease revenues, amortization of below-market ground lease intangibles is included in General and administrative expenses, and amortization of in-place lease, above-market ground lease, and tenant relationship intangibles is included in Depreciation and amortization.
 
Based on the intangible assets and liabilities recorded at December 31, 2013, 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
2014
 
$
35,040

2015
 
33,214

2016
 
30,970

2017
 
29,287

2018
 
29,204

Thereafter
 
297,926

Total
 
$
455,641

 

Note 9. 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.


CPA®:17 – Global 2013 10-K — 84

Notes to Consolidated Financial Statements

Items Measured at Fair Value on a Recurring Basis

The methods and assumptions described below were used to estimate the fair value of each class of financial instrument. For significant Level 3 items, we have also provided the unobservable inputs along with their weighted-average ranges.

Derivative Assets — Our derivative assets, which are included in Other assets, net in the consolidated financial statements, are comprised of an interest rate cap, interest rate swaps, foreign currency collars, foreign currency forward contracts, stock warrants, embedded derivatives, and a swaption (Note 10). The interest rate cap, interest rate swaps, foreign currency collars, foreign currency forward contracts, embedded derivatives, and swaption were measured at fair value using readily observable market inputs, such as quotations on interest rates, and were classified as Level 2 as these instruments are custom, over-the-counter contracts with various bank counterparties that are not traded in an active market. The stock warrants and embedded credit derivatives were measured at fair value using internal valuation models that incorporate market inputs and our own assumptions about future cash flows. We classified these assets as Level 3 because these assets are not traded in an active market.

Derivative Liabilities — Our derivative liabilities, which are included in Accounts payable, accrued expenses and other liabilities in the consolidated financial statements, are comprised of interest rate swaps, foreign currency forward contracts, and embedded derivatives (Note 10). These interest rate swaps and foreign currency forward contracts were measured at fair value using readily observable market inputs, such as quotations on interest rates, and were classified as Level 2 because they are custom, over-the-counter contracts with various bank counterparties that are not traded in an active market. The embedded derivatives were measured at fair value using internal valuation models that incorporate market inputs and our own assumptions about future cash flows. We classified these liabilities as Level 3 because these liabilities are not traded in an active market.
 
We did not have any transfers into or out of Level 1, Level 2, and Level 3 measurements during the years ended December 31, 2013, 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, 2013
 
December 31, 2012
 
Level
 
Carrying Value
 
Fair Value
 
Carrying Value
 
Fair Value
Non-recourse debt (a)
3
 
$
1,915,601

 
$
1,944,865

 
$
1,633,452

 
$
1,674,019

Note receivable (a)
3
 
40,000

 
43,890

 
40,000

 
43,957

Deferred acquisition fees payable (b)
3
 
15,033

 
15,950

 
26,246

 
30,875

Other securities (c)
3
 
9,915

 
15,548

 
8,301

 
10,800

CMBS (d)
3
 
2,791

 
6,052

 
2,075

 
2,980

___________
(a)
We determined the estimated fair value of these 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)
We determined the estimated fair value of our deferred acquisition fees based on an estimate of discounted cash flows using two significant unobservable inputs, which are the leverage adjusted unsecured spread and an illiquidity adjustment of 380 basis points and 75 basis points, respectively. Significant increases or decreases to these inputs in isolation would result in a significant change in the fair value measurement.
(c)
Reflects equity securities and an interest in a foreign debenture, both of which are included in Other assets, net.
(d)
The carrying value of our CMBS is inclusive of impairment charges recognized during 2012, as well as accretion related to the estimated cash flows expected to be received. There were no purchases, sales or impairment charges recognized during the year ended December 31, 2013.

We estimated 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, 2013 and 2012.
 

CPA®:17 – Global 2013 10-K — 85

Notes to Consolidated Financial Statements

Items Measured at Fair Value on a Non-Recurring Basis (Including Impairment Charges)
 
We periodically assess whether there are any indicators that the value of our real estate investments may be impaired or that their carrying value may not be recoverable. For investments in real estate for which an impairment indicator is identified, we follow a two-step process to determine whether the investment is impaired and to determine the amount of the charge. First, we compare the carrying value of the property’s asset group to the future undiscounted net cash flows that we expect the property’s asset group will generate, including any estimated proceeds from the eventual sale of the property’s asset group. If this amount is less than the carrying value, the property’s asset group is considered to be impaired, and we then measure the impairment charge as the excess of the carrying value of the property’s asset group over the estimated fair value of the property’s asset group, which is primarily determined using market information such as recent comparable sales or broker quotes. If relevant market information is not available or is not deemed appropriate, we perform a future net cash flow analysis discounted for inherent risk associated with each investment. We determined that the significant inputs used to value these investments fall within Level 3 for fair value accounting. As a result of our assessments, we calculated impairment charges based on market conditions and assumptions that existed at the time. The valuation of real estate is subject to significant judgment and actual results may differ materially if market conditions or the underlying assumptions change.
 
The following table presents information about our other assets that were measured on a fair value basis. 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, 2013
 
Year Ended December 31, 2012
 
Year Ended December 31, 2011
 
Fair Value
Measurements
 
Total
Impairment
Charges
 
Fair Value
Measurements
 
Total
Impairment
Charges
 
Fair Value
Measurements
 
Total
Impairment
Charges
Impairment Charges from Continuing Operations:
 

 
 

 
 

 
 

 
 

 
 

Net investments in direct financing leases
$
—

 
$
—

 
$
—

 
$
—

 
$
—

 
$
(70
)
CMBS (a)
—

 
—

 
—

 
2,019

 
—

 
—

Total impairment charges included in expenses


 
—

 


 
2,019

 


 
(70
)
Equity investment in real estate
23,278

 
3,778

 
—

 
—

 
—

 
—

 
 
 
$
3,778

 
 
 
$
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 advisor’s assessment that the likelihood of receiving further interest payments or return of principal was remote.

Equity Investments in Real Estate

During 2013, we recognized an other-than-temporary impairment charge of $3.8 million to reduce the carrying value of a property held by a jointly-owned investment to its estimated fair value due to a bankruptcy filed by a major tenant. We are currently seeking a replacement tenant, but, to date, no replacement has been found. The fair value measurement related to the impairment charge was determined by estimating discounted cash flows using three significant unobservable inputs, which are the cash flow discount rate, the residual discount rate, and the residual capitalization rate equal to 6.0%, 6.25%, and 5.75%, respectively. Significant increases or decreases to these inputs in isolation would result in a significant change in the fair value measurement.

Note 10. 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 our 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.
 
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 include default by a counterparty to a hedging arrangement on its obligation and a downgrade in the credit quality of a counterparty to such an extent that our ability to sell or assign our side of the hedging transaction is impaired. 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.

CPA®:17 – Global 2013 10-K — 86

Notes to Consolidated Financial Statements

 
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 income (loss) until the hedged item is recognized in earnings. The ineffective portion of a derivative’s 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 income (loss) into earnings when the hedged investment is either sold or substantially liquidated.
 
The following table sets forth certain information regarding our derivative instruments for the years presented (in thousands):
Derivatives Designated
as Hedging Instruments
 
 
 
Asset Derivatives Fair Value at 
December 31, 
 
Liability Derivatives Fair Value at
December 31,
 
Balance Sheet Location
 
2013
 
2012
 
2013
 
2012
Foreign currency forward contracts
 
Other assets, net
 
$
2,002

 
$
4,229

 
$
—

 
$
—

Foreign currency collars
 
Other assets, net
 
429

 
2,743

 
—

 
—

Interest rate swaps
 
Other assets, net
 
1,895

 
—

 
—

 
—

Interest rate cap
 
Other assets, net
 
—

 
1

 
—

 
—

Foreign currency forward contracts
 
Accounts payable, accrued expenses and other liabilities
 
—

 
—

 
(11,928
)
 
(2,533
)
Interest rate swaps
 
Accounts payable, accrued expenses and other liabilities
 
—

 
—

 
(12,911
)
 
(20,142
)
Derivatives Not Designated
as Hedging Instruments
 
 
 
 

 
 

 
 

 
 

Embedded derivatives (a)
 
Accounts payable, accrued expenses and other liabilities
 
—

 
—

 
(2,164
)
 
(1,141
)
Embedded derivatives (b)
 
Other assets, net
 
2,314

 
—

 
—

 
—

Stock warrants (c)
 
Other assets, net
 
1,782

 
1,485

 
—

 
—

Foreign currency forward contracts
 
Other assets, net
 
1,521

 
—

 
—

 
—

Swaption (d)
 
Other assets, net
 
1,205

 
—

 
—

 
—

Total derivatives
 
 
 
$
11,148

 
$
8,458

 
$
(27,003
)
 
$
(23,816
)
 
___________
(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)
In December 2013, there was an amendment to the loan commitment for the refinancing of Agrokor d.d., known as the Agrokor 4 portfolio, which provided for an effective net settlement provision.
(c)
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.
(d)
In connection with the non-recourse debt financing related to our Cuisine Solutions, Inc. investment, we executed a swap and purchased a swaption, which grants us the right to enter into a new swap with a predetermined fixed rate should there be an extension of the loan maturity date.

All derivative transactions with an individual counterparty are governed by a master International Swap and Derivatives Association agreement, which can be considered as a master netting arrangement; however, we report all our derivative instruments on a gross basis on our consolidated balance sheets. At both December 31, 2013 and 2012, no cash collateral had been posted nor received for any of our derivative positions.


CPA®:17 – Global 2013 10-K — 87

Notes to Consolidated Financial Statements

The following tables present the impact of our derivative instruments on the consolidated financial statements (in thousands):
 
 
Amount of Gain (Loss) Recognized in
Other Comprehensive Income (Loss) on Derivatives (Effective Portion)
 
 
Years Ended December 31,
Derivatives in Cash Flow Hedging Relationships 
 
2013
 
2012
 
2011
Interest rate cap (a)
 
$
1,188

 
$
811

 
$
(244
)
Interest rate swaps
 
10,107

 
(11,046
)
 
(6,864
)
Foreign currency collars
 
(2,059
)
 
(2,951
)
 
6,698

Foreign currency forward contracts
 
(6,168
)
 
(3,030
)
 
—

Put options
 
—

 
192

 
—

 
 
 
 
 
 
 
Derivatives in Net Investment Hedging Relationships (b)
 
 

 
 

 
 

Foreign currency forward contracts
 
(2,237
)
 
(734
)
 
(4,809
)
Total
 
$
831

 
$
(16,758
)
 
$
(5,219
)
 
 
 
Amount of Gain (Loss) Reclassified from
Other Comprehensive Income (Loss) into Income (Effective Portion)
 
 
Years Ended December 31,
Derivatives in Cash Flow Hedging Relationships 
 
2013
 
2012
 
2011
Foreign currency collars (c)
 
$
(1,215
)
 
$
(1,918
)
 
$
(624
)
Foreign currency forward contracts (c)
 
(909
)
 
(366
)
 
—

Interest rate cap
 
1,189

 
890

 
—

Interest rate swaps
 
7,268

 
4,867

 
1,172

Total
 
$
6,333

 
$
3,473

 
$
548

 ___________
(a)
Includes a gain attributable to noncontrolling interests of $0.5 million and $0.4 million for the years ended December 31, 2013 and 2012, respectively, and a loss attributable to noncontrolling interests of $0.1 million for the year ended December 31, 2011.
(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 income (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 income (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
 
2013
 
2012
 
2011
Embedded credit derivatives
 
Other income and (expenses)
 
$
1,159

 
$
(1,141
)
 
$
—

Foreign currency forward contracts
 
Other income and (expenses)
 
1,266

 
254

 
432

Put options
 
Other income and (expenses)
 
—

 
(2
)
 
—

Stock warrants
 
Other income and (expenses)
 
297

 
66

 
(198
)
Swaption
 
Other income and (expenses)
 
428

 
—

 
—

Interest rate swaps (a)
 
Interest expense
 
212

 
(34
)
 
—

Total
 
 
 
$
3,362

 
$
(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 2013 10-K — 88

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 counterparty’s 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. A swaption gives us the right but not the obligation to enter into an interest rate swap, of which the terms and conditions are set on the trade date, on a specified date in the future. Our objective in using these derivatives is to limit our exposure to interest rate movements.
 
The interest rate swaps, cap, and swaption that we had outstanding on our consolidated subsidiaries at December 31, 2013 are summarized as follows (currency in thousands):
Interest Rate Derivatives
 
Number of Instruments
 
Notional
Amount
 
Fair Value at
December 31, 2013 (a)
Interest rate cap (b)
 
1
 
$
115,675

 
$
—

Interest rate swaps
 
6
 
€
186,403

 
(8,689
)
Interest rate swaps
 
10
 
$
210,218

 
(2,327
)
Swaption
 
1
 
$
13,230

 
1,205

 
 
 
 
 

 
$
(9,811
)
____________
(a)
Fair values are based upon the exchange rate of the euro at December 31, 2013, as applicable.
(b)
The applicable interest rate of the related debt was 2.8%, which was below the interest rate of the cap of 4.0% at December 31, 2013. The notional amount of $52.1 million attributable to noncontrolling interests is included in this swap and there is no fair value.

The interest rate swap that one of our unconsolidated jointly-owned investments had outstanding at December 31, 2013 and was designated as cash flow hedge is summarized as follows (currency in thousands):
Interest Rate Derivative
 
 Ownership Interest in Investee at December 31, 2013
 
Number of Instruments
 
Notional
Amount
 
Fair Value at
December 31, 2013 (a)
Interest rate swap
 
85%
 
1
 
€
14,471

 
$
21

____________
(a)
Fair value is based upon the exchange rate of the euro at December 31, 2013.

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 our debt service obligation on an investment in the same currency as the tenant’s rental obligation to us. This reduces our overall exposure to the net cash flow from that investment. 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. 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 and holding them to maturity, 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 may fluctuate.


CPA®:17 – Global 2013 10-K — 89

Notes to Consolidated Financial Statements

The following table presents the foreign currency derivative contracts we had outstanding and their designations at December 31, 2013 (currency in thousands):
Foreign Currency Derivatives
 
Number of Instruments
 
Notional
Amount
 
Fair Value at
December 31, 2013 (a)
Designated as Cash Flow Hedging Instruments
 
 
 
 
 
 
Foreign currency collars
 
3
 
€
14,946

 
$
429

Foreign currency forward contracts
 
77
 
€
169,417

 
(9,610
)
Foreign currency forward contracts
 
16
 
¥
746,411

 
2,002

Designated as Net Investment Hedging Instruments
 
 
 
 
 
 
Foreign currency forward contracts
 
1
 
€
45,000

 
(2,318
)
Not Designated as Hedging Instruments
 
 
 
 
 
 
Foreign currency forward contracts
 
1
 
¥
610,129

 
1,521

 
 
 
 
 
 
$
(7,976
)
___________
(a)
Fair values are based upon the applicable exchange rate of the euro or the Japanese yen at December 31, 2013.
 
Other

Amounts reported in Other comprehensive income (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 income (loss) related to foreign currency derivative 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, 2013, we estimate that an additional $8.0 million, inclusive of amounts attributable to noncontrolling interests of $0.4 million, and $0.3 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, 2013. At December 31, 2013, our total credit exposure was $3.1 million, inclusive of noncontrolling interest, and the maximum exposure to any single counterparty was $2.0 million.

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, 2013, 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 $25.1 million and $23.0 million at December 31, 2013 and 2012, respectively, which included accrued interest and any adjustment for nonperformance risk. If we had breached any of these provisions at either December 31, 2013 or December 31, 2012, we could have been required to settle our obligations under these agreements at their aggregate termination value of $27.1 million or $25.1 million, respectively.
 

CPA®:17 – Global 2013 10-K — 90

Notes to Consolidated Financial Statements

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 2013, 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.
 
December 31, 2013
Region:
 

Texas
10
%
Other U.S.
51
%
Total U.S.
61
%
Italy
11
%
Other international
28
%
Total international
39
%
Total
100
%
 
 

Asset Type:
 

Office
32
%
Warehouse/Distribution
23
%
Retail
21
%
Industrial
16
%
All other
8
%
Total
100
%
 
 

Tenant Industry:
 

Retail Stores
25
%
Grocery
13
%
Media: Printing and Publishing
13
%
All other
49
%
Total
100
%
 
 

Guarantor/Tenant:
 

Metro (Europe)
11
%

There were no significant concentrations, individually or in the aggregate, related to our unconsolidated jointly-owned investments.

Note 11. Non-Recourse Debt
 
Non-recourse debt consists of mortgage notes payable, which are collateralized by the assignment of real property and direct financing leases with an aggregate carrying value of approximately $2.9 billion and $2.4 billion at December 31, 2013 and 2012, respectively. At December 31, 2013, our mortgage notes payable bore interest at fixed annual rates ranging from 2.0% to 8.0% and variable contractual annual rates ranging from 2.7% to 6.1%, with maturity dates ranging from 2014 to 2038.

Financing Activity During 2013

During 2013, we obtained new non-recourse mortgage financings totaling $296.6 million with a weighted-average annual interest rate and term of 4.6% and 11.0 years, respectively. Of the total, $162.6 million related to net lease investments acquired

CPA®:17 – Global 2013 10-K — 91




during 2013, $115.5 million related to investments acquired during prior years, and $18.5 million related to eight self-storage properties acquired during 2013.

Additionally, we refinanced two non-recourse mortgage loans totaling $23.4 million with new financing totaling $16.5 million with an annual interest rate and term of 4.9% and 10 years, respectively, related to nine self-storage properties acquired during prior years.

Financing Activity During 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, $402.8 million related to investments acquired during 2012 and $66.8 million related to investments acquired during prior years.

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, excluding unamortized discount of $7.1 million.
 
Scheduled Debt Principal Payments
 
Scheduled debt principal payments during each of the next five calendar years following December 31, 2013 and thereafter are as follows (in thousands):
Years Ending December 31,
 
Total
2014
 
$
52,726

2015
 
72,337

2016
 
299,506

2017
 
355,600

2018
 
147,940

Thereafter through 2038
 
993,054

 
 
1,921,163

Unamortized discount, net 
 
(5,562
)
Total
 
$
1,915,601

 
Certain amounts in the table above are based on the applicable foreign currency exchange rate at December 31, 2013. Additionally, due to the weakening of the U.S. dollar relative to foreign currencies during 2013, the carrying value of our debt increased by $15.5 million from December 31, 2012 to December 31, 2013.

Note 12. Commitments and Contingencies
 
At December 31, 2013, 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. See Note 4 for unfunded construction commitments.  


CPA®:17 – Global 2013 10-K — 92

Notes to Consolidated Financial Statements

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,
 
2013
 
2012
 
2011
Ordinary income
$
0.3104

 
$
0.3022

 
$
0.3981

Capital gain
0.0110

 
—

 
—

Return of capital
0.3286

 
0.3478

 
0.2519

Total distributions paid
$
0.6500

 
$
0.6500

 
$
0.6500

 
We declared a quarterly cash distribution of $0.1625 per share in December 2013, which equated to $0.6500 per share on an annualized basis, that was paid on January 15, 2014 to stockholders of record at December 31, 2013.

Accumulated Other Comprehensive Loss
 
The following table presents the components of Accumulated other comprehensive loss reflected in equity, net of tax. Amounts include our proportionate share of other comprehensive loss from our unconsolidated investments (in thousands):
 
December 31,
 
2013
 
2012
 
2011
Foreign currency translation adjustments
$
20,695

 
$
(9,006
)
 
$
(22,329
)
Unrealized loss on derivative instruments
(25,579
)
 
(25,875
)
 
(8,752
)
Unrealized depreciation on marketable securities
(391
)
 
(485
)
 
(1,520
)
Accumulated other comprehensive loss
$
(5,275
)
 
$
(35,366
)
 
$
(32,601
)
 

Reclassifications Out of Accumulated Other Comprehensive Loss

The following tables present a reconciliation of changes in accumulated other comprehensive loss by component for the periods presented (in thousands):
 
Year Ended December 31, 2013
 
Unrealized
Gains (Losses)
on Derivative Instruments
 
Unrealized Appreciation (Depreciation) on Marketable Securities
 
Foreign Currency Translation Adjustments
 
Total
Beginning balance
$
(25,875
)
 
$
(485
)
 
$
(9,006
)
 
$
(35,366
)
Other comprehensive income (loss) before reclassifications
(5,502
)
 
94

 
29,884

 
24,476

Amounts reclassified from accumulated other comprehensive loss to:
 
 
 
 
 
 
 
Interest expense
8,457

 
—

 
—

 
8,457

Other income and (expenses)
(2,124
)
 
—

 
—

 
(2,124
)
Total
6,333

 
—

 
—

 
6,333

Net current-period Other comprehensive income
831

 
94

 
29,884

 
30,809

Net current-period Other comprehensive (income) loss attributable to noncontrolling interests
(535
)
 
—

 
(183
)
 
(718
)
Ending balance
$
(25,579
)
 
$
(391
)
 
$
20,695

 
$
(5,275
)


CPA®:17 – Global 2013 10-K — 93

Notes to Consolidated Financial Statements

 
Year Ended December 31, 2012
 
Unrealized
Gains (Losses)
on Derivative Instruments
 
Unrealized Appreciation (Depreciation) on Marketable Securities
 
Foreign Currency Translation Adjustments
 
Total
Beginning balance
$
(8,752
)
 
$
(1,520
)
 
$
(22,329
)
 
$
(32,601
)
Other comprehensive income (loss) before reclassifications
(20,231
)
 
281

 
13,515

 
(6,435
)
Amounts reclassified from accumulated other comprehensive loss to:
 
 
 
 
 
 
 
Interest expense
5,757

 
—

 
—

 
5,757

Other income and (expenses)
(2,284
)
 
754

 
—

 
(1,530
)
Total
3,473

 
754

 
—

 
4,227

Net current-period Other comprehensive (loss) income
(16,758
)
 
1,035

 
13,515

 
(2,208
)
Net current-period Other comprehensive (income) loss attributable to noncontrolling interests
(365
)
 
—

 
(192
)
 
(557
)
Ending balance
$
(25,875
)
 
$
(485
)
 
$
(9,006
)
 
$
(35,366
)

 
Year Ended December 31, 2011
 
Unrealized
Gains (Losses)
on Derivative Instruments
 
Unrealized Appreciation (Depreciation) on Marketable Securities
 
Foreign Currency Translation Adjustments
 
Total
Beginning balance
$
(3,642
)
 
$
(1,505
)
 
$
(9,795
)
 
$
(14,942
)
Other comprehensive income (loss) before reclassifications
(5,767
)
 
(15
)
 
(12,754
)
 
(18,536
)
Amounts reclassified from accumulated other comprehensive loss to:
 
 
 
 
 
 
 
Interest expense
1,172

 
—

 
—

 
1,172

Other income and (expenses)
(624
)
 
—

 
—

 
(624
)
Total
548

 
—

 
—

 
548

Net current-period Other comprehensive loss
(5,219
)
 
(15
)
 
(12,754
)
 
(17,988
)
Net current-period Other comprehensive (income) loss attributable to noncontrolling interests
109

 
—

 
220

 
329

Ending balance
$
(8,752
)
 
$
(1,520
)
 
$
(22,329
)
 
$
(32,601
)


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.
 

CPA®:17 – Global 2013 10-K — 94

Notes to Consolidated Financial Statements

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,
 
2013
 
2012
Beginning balance
$
647

 
$
589

Additions based on tax positions related to the current year
284

 
345

Reduction for tax positions of prior years
—

 
(287
)
Ending balance
$
931

 
$
647

 
At December 31, 2013 and 2012, 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. We recognize interest and penalties related to uncertain tax positions in income tax expense. At both December 31, 2013 and 2012, 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 2013 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. This hotel property was sold in October 2013 and we will dissolve this TRS once the final tax return has been filed.

Deferred Income Taxes

Our deferred tax assets net of valuation allowances and deferred tax liabilities were $3.0 million and $7.1 million, respectively, at December 31, 2013 and are primarily the result of temporary differences related to:

•
basis differences between tax and U.S. GAAP for real estate assets and equity investments. For income tax purposes, certain acquisitions have resulted in us assuming the seller’s basis, or the carry-over basis, in assets and liabilities for tax purposes. In accordance with purchase accounting requirements under U.S. GAAP, we record all of the acquired assets and liabilities at their estimated fair values at the date of acquisition. For our subsidiaries subject to income taxes in the U.S. or in foreign jurisdictions, we recognize deferred income tax liabilities representing the tax effect of the difference between the tax basis and the fair value of the tangible and intangible assets recorded at the date of acquisition for U.S. GAAP; and
•
tax net operating losses in foreign jurisdictions that may be realized in future periods if we generate sufficient taxable income.

During the fourth quarter of 2013, we recorded an out-of-period adjustment to reflect deferred tax assets net of valuation allowances and deferred tax liabilities of $1.7 million and $7.7 million, respectively, associated with basis differences on certain foreign properties acquired in prior periods. In addition, this adjustment included a deferred tax benefit of $1.8 million (Note 2).

At December 31, 2013 and 2012, we had net operating losses in foreign jurisdictions of approximately $58.8 million and $48.7 million, respectively, translating to a deferred tax asset before valuation allowance of $4.8 million and $11.0 million, respectively. Our net operating losses will begin to expire in 2015 in certain foreign jurisdictions. The utilization of net operating losses may be subject to certain limitations under the tax laws of the relevant jurisdiction. Management determined that as of December 31, 2013 and 2012, $9.0 million and $11.0 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 may 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 such cases, we assess whether we can obtain the highest value from the property by selling it, as opposed to re-leasing it. We may also sell a property when we receive an unsolicited offer or negotiate a price for an investment that is consistent with our strategy for that investment. When it is appropriate to do so, we classify the property as an asset held

CPA®:17 – Global 2013 10-K — 95




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 with which we have no continuing involvement are reflected in the consolidated financial statements as discontinued operations and are summarized as follows (in thousands, net of tax):
 
Years Ended December 31,
 
2013
 
2012
 
2011
Revenues
$
3,807

 
$
4,568

 
$
6,253

Expenses
(3,324
)
 
(3,385
)
 
(4,947
)
Gain on sale of real estate
7,987

 
740

 
778

Loss on the extinguishment of debt
(983
)
 
—

 
—

Income from discontinued operations
$
7,487

 
$
1,923

 
$
2,084


2013 — During 2013, we sold one hotel property for $20.0 million, net of selling costs, and recognized a gain on the sale of $8.0 million. We repaid the related outstanding non-recourse mortgage loan of $5.1 million and recognized a loss on the extinguishment of debt of $1.0 million.
 
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 sale of $0.7 million.

2011 — During 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.



CPA®:17 – Global 2013 10-K — 96




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, 2013
 
Domestic
 
Italy
 
Other International (a)
 
Total
Revenues
 
$
256,586

 
$
30,795

 
$
75,573

 
$
362,954

Income from continuing operations before income taxes
 
24,501

 
7,208

 
29,710

 
61,419

Net income attributable to noncontrolling interests
 
(28,296
)
 
—

 
(1,009
)
 
(29,305
)
Net income attributable to CPA®:17 – Global
 
2,806

 
7,128

 
29,930

 
39,864

Long-lived assets (b)
 
2,195,465

 
343,876

 
1,022,754

 
3,562,095

Non-recourse debt
 
1,319,094

 
223,937

 
372,570

 
1,915,601

 
 
 
 
 
 
 
 
 
Year Ended December 31, 2012
 
Domestic
 
Italy
 
Other International (a)
 
Total
Revenues
 
$
203,481

 
$
29,396

 
$
56,676

 
$
289,553

Income from continuing operations before income taxes
 
32,163

 
6,771

 
28,210

 
67,144

Net income attributable to noncontrolling interests
 
(25,897
)
 
—

 
(645
)
 
(26,542
)
Net income attributable to CPA®:17 – Global
 
7,841

 
6,733

 
27,037

 
41,611

Long-lived assets (b)
 
2,010,810

 
337,663

 
749,392

 
3,097,865

Non-recourse debt
 
1,135,321

 
217,106

 
281,025

 
1,633,452

 
 
 
 
 
 
 
 
 
Year Ended December 31, 2011
 
Domestic
 
Italy
 
Other International (a)
 
Total
Revenues
 
$
131,169

 
$
7,974

 
$
53,078

 
$
192,221

Income from continuing operations before income taxes
 
40,475

 
1,872

 
27,062

 
69,409

Net income attributable to noncontrolling interests
 
(20,217
)
 
—

 
(574
)
 
(20,791
)
Net income attributable to CPA®:17 – Global
 
20,536

 
1,844

 
27,275

 
49,655

Long-lived assets (b)
 
1,394,579

 
337,891

 
642,303

 
2,374,773

Non-recourse debt
 
726,283

 
212,704

 
215,267

 
1,154,254

___________
(a)
All years include operations in Croatia, Germany, Hungary, Poland, the Netherlands, Spain and the United Kingdom; 2013 and 2012 include operations in Japan; and 2013 includes an investment in India.
(b)
Consists of Net investments in properties; Real estate under construction; Net investments in direct financing leases; and Equity investments in real estate, as applicable. 

CPA®:17 – Global 2013 10-K — 97




Note 17. Selected Quarterly Financial Data (Unaudited)
 
(Dollars in thousands, except per share amounts)
 
Three Months Ended
 
March 31, 2013
 
June 30, 2013
 
September 30, 2013
 
December 31, 2013
Revenues (a)
$
86,725

 
$
88,993

 
$
91,619

 
$
95,617

Expenses (a)
48,725

 
49,011

 
58,622

 
60,681

Net income
22,108

 
20,735

 
11,541

 
14,785

Net income attributable to noncontrolling interests
(7,286
)
 
(7,932
)
 
(6,515
)
 
(7,572
)
Net income attributable to CPA®:17 – Global
14,822

 
12,803

 
5,026

 
7,213

 
 
 
 
 
 
 
 
Earnings per share attributable to CPA®:17 – Global
0.05

 
0.04

 
0.02

 
0.02

Distributions declared per share
0.1625

 
0.1625

 
0.1625

 
0.1625

 
 
 
 
 
 
 
 
 
Three Months Ended
 
March 31, 2012
 
June 30, 2012
 
September 30, 2012
 
December 31, 2012
Revenues (a)
$
64,764

 
$
67,565

 
$
68,141

 
$
89,083

Expenses (a)
32,676

 
33,897

 
35,160

 
61,871

Net income
16,763

 
21,152

 
18,929

 
11,309

Net income attributable to noncontrolling interests
(5,640
)
 
(6,886
)
 
(6,634
)
 
(7,382
)
Net income attributable to CPA®:17 – Global
11,123

 
14,266

 
12,295

 
3,927

 
 
 
 
 
 
 
 
Earnings per share attributable to CPA®:17 – Global
0.05

 
0.06

 
0.05

 
0.01

Distributions declared per share
0.1625

 
0.1625

 
0.1625

 
0.1625

___________ 
(a)
Certain amounts from previous quarters have been reclassified to discontinued operations (Note 15). 

CPA®:17 – Global 2013 10-K — 98




CORPORATE PROPERTY ASSOCIATES 17 – GLOBAL INCORPORATED
 
SCHEDULE II — VALUATION AND QUALIFYING ACCOUNTS
 For the Years Ended December 31, 2013, 2012 and 2011
(in thousands) 
Description
 
Balance at
Beginning
of Year
 
Change (a)
 
Balance at
End of Year
Year Ended December 31, 2013
 
 

 
 

 
 

Valuation reserve for deferred tax assets
 
$
11,005

 
$
(5,424
)
 
$
5,581

 
 
 
 
 
 
 
Year Ended December 31, 2012
 
 
 
 
 
 
Valuation reserve for deferred tax assets
 
$
3,844

 
$
7,161

 
11,005

 
 
 
 
 
 
 
Year Ended December 31, 2011
 
 
 
 
 
 
Valuation reserve for deferred tax assets
 
$
201

 
$
3,643

 
$
3,844

__________
(a)
The amount for the year ended December 31, 2013 includes the amount recorded in connection with the out-of-period adjustment related to deferred foreign income taxes (Note 2).


CPA®:17 – Global 2013 10-K — 99




CORPORATE PROPERTY ASSOCIATES 17 – GLOBAL INCORPORATED
 
SCHEDULE III — REAL ESTATE AND ACCUMULATED DEPRECIATION
December 31, 2013
(in thousands)
 
 
 
Initial Cost to 
Company
 
Cost Capitalized
Subsequent to
Acquisition (a)
 
Increase 
(Decrease)
in Net
Investments (b)
 
Gross Amount at which 
Carried at Close of Period (c)
 
Accumulated Depreciation (c)
 
Date of Construction
 
Date Acquired
 
Life on which
Depreciation in Latest
Statement of 
Income
is Computed
Description
Encumbrances
 
Land  
 
Buildings
 
 
 
Land
 
Buildings
 
Total
 
 
 
 
Real Estate Under Operating Leases:
 
 

 
 

 
 

 
 

 
 

 
 

 
 

 
 

 
 
 
 
 
 
Industrial facility in Norfolk, NE
$
1,646

 
$
625

 
$
1,713

 
$
—

 
$
107

 
$
625

 
$
1,820

 
$
2,445

 
$
339

 
1975
 
Jun. 2008
 
30 yrs.
Office facility in Soest, Germany and warehouse/distribution facility in Bad Wünnenbeg, Germany
28,307

 
3,193

 
45,932

 
—

 
(6,394
)
 
2,777

 
39,954

 
42,731

 
5,872

 
1982; 1996
 
Jul. 2008
 
36 yrs.
Educational facility in Chicago, IL
14,465

 
6,300

 
20,509

 
—

 
(527
)
 
6,300

 
19,982

 
26,282

 
3,663

 
1912
 
Jul. 2008
 
30 yrs.
Industrial facilities in Alvarado, TX and Bossier City, LA
31,003

 
2,725

 
25,233

 
28,116

 
(3,395
)
 
4,701

 
47,978

 
52,679

 
4,003

 
Various
 
Aug. 2008
 
25 - 40 yrs.
Industrial facility in Waldaschaff, Germany
7,078

 
10,373

 
16,708

 
—

 
(9,429
)
 
6,694

 
10,958

 
17,652

 
3,540

 
1937
 
Aug. 2008
 
15 yrs.
Retail facilities in Phoenix, AZ and Columbia, MD
37,147

 
14,500

 
48,865

 
—

 
(2,062
)
 
14,500

 
46,803

 
61,303

 
6,143

 
2006
 
Sep. 2008
 
40 yrs.
Transportation facility in Birmingham, United Kingdom
13,729

 
3,591

 
15,810

 
949

 
477

 
3,649

 
17,178

 
20,827

 
1,733

 
2009
 
Sep. 2009
 
40 yrs.
Retail facilities in Gorzow, Poland
7,878

 
1,095

 
13,947

 
—

 
(950
)
 
1,027

 
13,065

 
14,092

 
1,394

 
2007; 2008
 
Oct. 2009
 
40 yrs.
Office facility in Hoffman Estates, IL
19,187

 
5,000

 
21,764

 
—

 
—

 
5,000

 
21,764

 
26,764

 
2,213

 
2009
 
Dec. 2009
 
40 yrs.
Office facility in The Woodlands, TX
37,693

 
1,400

 
41,502

 
—

 
—

 
1,400

 
41,502

 
42,902

 
4,236

 
2009
 
Dec. 2009
 
40 yrs.
Retail facilities located throughout Spain
48,787

 
32,574

 
52,101

 
—

 
(926
)
 
32,035

 
51,714

 
83,749

 
5,161

 
Various
 
Dec. 2009
 
20 yrs.
Industrial facilities in Middleburg Heights and Union Township, OH
6,345

 
1,000

 
10,793

 
2

 
—

 
1,000

 
10,795

 
11,795

 
1,057

 
1997
 
Feb. 2010
 
40 yrs.
Industrial facilities in Phoenix, AZ; San Diego, Fresno, Orange, Colton, Los Angeles, and Pomona, CA; Safety Harbor, FL; Durham, NC; and Columbia, SC
13,624

 
19,001

 
13,059

 
—

 
—

 
19,001

 
13,059

 
32,060

 
1,448

 
Various
 
Mar. 2010
 
27 - 40 yrs.
Industrial facility in Evansville, IN
16,834

 
150

 
9,183

 
11,745

 
—

 
150

 
20,928

 
21,078

 
1,679

 
2009
 
Mar. 2010
 
40 yrs.
Warehouse/distribution facilities in Plymouth, Southampton, Luton, Liverpool, Taunton, Cannock, and Bristol, United Kingdom
—

 
8,639

 
2,019

 
—

 
775

 
9,251

 
2,182

 
11,433

 
286

 
Various
 
Apr. 2010
 
28 yrs.
 

CPA®:17 – Global 2013 10-K — 100




SCHEDULE III — REAL ESTATE AND ACCUMULATED DEPRECIATION (Continued)
December 31, 2013
(in thousands)
 
 
 
Initial Cost to 
Company
 
Cost Capitalized
Subsequent to
Acquisition (a)
 
Increase 
(Decrease)
in Net
Investments (b)
 
Gross Amount at which 
Carried at Close of Period (c)
 
Accumulated Depreciation (c)
 
Date of Construction
 
Date Acquired
 
Life on which
Depreciation in Latest
Statement of 
Income
is Computed
Description
Encumbrances
 
Land  
 
Buildings
 
 
 
Land
 
Buildings
 
Total
 
 
 
 
Warehouse/distribution facilities in Zagreb, Croatia
51,896

 
31,941

 
45,904

 
—

 
3,972

 
33,380

 
48,437

 
81,817

 
5,916

 
2001; 2009
 
Apr. 2010
 
30 yrs.
Office facilities in Tampa, FL
34,663

 
18,300

 
32,856

 
196

 
—

 
18,323

 
33,029

 
51,352

 
2,956

 
1985; 2000
 
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

 
2,202

 
2011
 
May 2010
 
40 yrs.
Retail facility in Elorrio, Spain
—

 
19,924

 
3,981

 
—

 
3,569

 
22,780

 
4,694

 
27,474

 
409

 
1996
 
Jun. 2010
 
40 yrs.
Warehouse/distribution facility in Gadki, Poland
5,214

 
1,134

 
1,183

 
7,611

 
(242
)
 
1,102

 
8,584

 
9,686

 
589

 
2011
 
Aug. 2010
 
40 yrs.
Office and industrial facilities in Elberton, GA
—

 
560

 
2,467

 
—

 
—

 
560

 
2,467

 
3,027

 
237

 
1997; 2002
 
Sep. 2010
 
40 yrs.
Warehouse/distribution facilities in Unadilla and Rincon, GA
26,514

 
1,595

 
44,446

 
—

 
—

 
1,595

 
44,446

 
46,041

 
3,519

 
2000; 2006
 
Nov. 2010
 
40 yrs.
Office facility in Hartland, WI
3,597

 
1,402

 
2,041

 
—

 
—

 
1,402

 
2,041

 
3,443

 
185

 
2001
 
Nov. 2010
 
35 yrs.
Warehouse/distribution facilities in Zagreb, Dugo Selo, Kutina, Slavonski Brod, and Samobor, Croatia
22,821

 
6,700

 
24,114

 
194

 
1,086

 
6,885

 
25,209

 
32,094

 
2,586

 
2002; 2003; 2007
 
Dec. 2010
 
30 yrs.
Warehouse/distribution facilities located throughout the U.S.
112,131

 
31,735

 
129,011

 
—

 
(9,680
)
 
28,511

 
122,555

 
151,066

 
10,607

 
Various
 
Dec. 2010
 
40 yrs.
Office facility in Madrid, Spain
—

 
22,230

 
81,508

 
—

 
5,006

 
23,298

 
85,446

 
108,744

 
6,401

 
2002
 
Dec. 2010
 
40 yrs.
Office facility in Houston, TX
3,574

 
1,838

 
2,432

 
—

 
20

 
1,838

 
2,452

 
4,290

 
294

 
1982
 
Dec. 2010
 
25 yrs.
Retail facility in Las Vegas, NV
40,000

 
26,934

 
31,037

 
26,048

 
(44,166
)
 
5,070

 
34,783

 
39,853

 
1,299

 
2012
 
Dec. 2010
 
40 yrs.
Warehouse/distribution facilities in Oxnard and Watsonville, CA
45,070

 
16,036

 
67,300

 
—

 
(7,149
)
 
16,036

 
60,151

 
76,187

 
5,023

 
Various
 
Jan. 2011
 
10 - 40 yrs.
Warehouse/distribution facility in Dillon, SC
19,822

 
1,355

 
15,620

 
—

 
(69
)
 
1,286

 
15,620

 
16,906

 
1,108

 
2001
 
Mar. 2011
 
40 yrs.
Warehouse/distribution facility in Middleburg Heights, OH
—

 
600

 
1,690

 
—

 
—

 
600

 
1,690

 
2,290

 
116

 
2002
 
Mar. 2011
 
40 yrs.
Office facility in Martinsville, VA
8,848

 
600

 
1,998

 
10,876

 
—

 
600

 
12,874

 
13,474

 
652

 
2011
 
May 2011
 
40 yrs.
Land in Chicago, IL
5,135

 
7,414

 
—

 
—

 
—

 
7,414

 
—

 
7,414

 
—

 
N/A
 
Jun. 2011
 
N/A
Industrial facility in Fraser, MI
4,337

 
928

 
1,392

 
5,803

 
—

 
928

 
7,195

 
8,123

 
341

 
2012
 
Sep. 2011
 
35 yrs.
Retail facilities located throughout Italy
223,937

 
91,691

 
262,377

 
—

 
6,409

 
92,811

 
267,666

 
360,477

 
16,601

 
Various
 
Sep. 2011
 
29 - 40 yrs.
Retail facilities in Pozega and Sesvete, Croatia
24,230

 
2,687

 
24,820

 
15,378

 
692

 
4,089

 
39,488

 
43,577

 
2,733

 
2011
 
Nov. 2011
 
30 yrs.
Land in Orlando, FL
—

 
32,739

 
—

 
—

 
—

 
32,739

 
—

 
32,739

 
—

 
N/A
 
Dec. 2011
 
N/A
Land in Hudson, NY
843

 
2,080

 
—

 
—

 
—

 
2,080

 
—

 
2,080

 
—

 
N/A
 
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

 
7,437

 
Various
 
Jan. 2012
 
32 - 40 yrs.
 

CPA®:17 – Global 2013 10-K — 101




SCHEDULE III — REAL ESTATE AND ACCUMULATED DEPRECIATION (Continued)
December 31, 2013
(in thousands) 
 
 
 
Initial Cost to 
Company
 
Cost Capitalized
Subsequent to
Acquisition (a)
 
Increase 
(Decrease)
in Net
Investments (b)
 
Gross Amount at which 
Carried at Close of Period (c)
 
Accumulated Depreciation (c)
 
Date of Construction
 
Date Acquired
 
Life on which
Depreciation in Latest
Statement of 
Income
is Computed
Description
Encumbrances
 
Land  
 
Buildings
 
 
 
Land
 
Buildings
 
Total
 
 
 
 
Industrial facility in Chimelow, Poland
13,419

 
1,323

 
5,245

 
18,841

 
2,334

 
1,443

 
26,300

 
27,743

 
875

 
2012
 
Apr. 2012
 
40 yrs.
Office facility in St. Louis, MO
4,202

 
954

 
4,665

 
—

 
—

 
954

 
4,665

 
5,619

 
185

 
1995
 
Jul. 2012
 
38 yrs.
Industrial facility in Avon, OH
3,745

 
926

 
4,975

 
—

 
—

 
926

 
4,975

 
5,901

 
215

 
2001
 
Aug. 2012
 
35 yrs.
Industrial facility in Elk Grove Village, IL
9,376

 
1,269

 
11,317

 
—

 
—

 
1,269

 
11,317

 
12,586

 
717

 
1961
 
Aug. 2012
 
40 yrs.
Education facilities in Montgomery, AL and Savannah, GA
16,667

 
5,255

 
16,960

 
—

 
—

 
5,255

 
16,960

 
22,215

 
688

 
1969; 2002
 
Sep. 2012
 
40 yrs.
Automotive dealerships in Huntsville, AL; Bentonville, AR; Bossier City, LA; Lee’s Summit, MO; Fayetteville, TN; and Fort Worth, TX
37,707

 
17,283

 
32,225

 
—

 
(15
)
 
17,269

 
32,224

 
49,493

 
1,901

 
Various
 
Sep. 2012
 
16 yrs.
Office facility in Warrenville, IL
19,667

 
3,698

 
28,635

 
—

 
—

 
3,698

 
28,635

 
32,333

 
1,054

 
2002
 
Sep. 2012
 
40 yrs.
Office and warehouse/distribution facilities in Zary, Poland
3,989

 
356

 
1,168

 
6,910

 
468

 
376

 
8,526

 
8,902

 
178

 
2013
 
Sep. 2012
 
40 yrs.
Industrial facility in Sterling, VA
14,790

 
3,118

 
14,007

 
5,071

 
—

 
3,118

 
19,078

 
22,196

 
663

 
1980
 
Oct. 2012
 
35 yrs.
Office facility in Houston, TX
128,200

 
19,331

 
123,084

 
3,726

 
2,899

 
19,331

 
129,709

 
149,040

 
4,764

 
1973
 
Nov. 2012
 
30 yrs.
Office facility in Eagan, MN
9,841

 
2,104

 
11,462

 
—

 
(84
)
 
1,994

 
11,488

 
13,482

 
377

 
2003
 
Dec. 2012
 
35 yrs.
Warehouse/distribution facility in Saitama Prefecture, Japan
24,700

 
17,292

 
28,575

 
—

 
(10,066
)
 
13,497

 
22,304

 
35,801

 
958

 
2006
 
Dec. 2012
 
26 yrs.
Retail facilities in Karlovac, Porec, Metkovic, Vodnjan, Umag, Bjelovar, Krapina, and Novigrad, Croatia
21,892

 
5,059

 
28,294

 
—

 
1,122

 
5,321

 
29,154

 
34,475

 
840

 
Various
 
Dec. 2012
 
32 - 40 yrs.
Industrial facility in Portage, WI
4,928

 
3,338

 
4,556

 
—

 
—

 
3,338

 
4,556

 
7,894

 
159

 
1970
 
Jan. 2013
 
30 yrs.
Retail facility in Dallas, TX
10,449

 
4,441

 
9,649

 
—

 
—

 
4,441

 
9,649

 
14,090

 
207

 
1913
 
Feb. 2013
 
40 yrs.
Land in Chicago, IL
—

 
15,459

 
—

 
—

 
—

 
15,459

 
—

 
15,459

 
—

 
N/A
 
Apr. 2013
 
N/A
Office facility in Northbrook, IL
5,835

 
—

 
942

 
—

 
—

 
—

 
942

 
942

 
36

 
2007
 
May 2013
 
40 yrs.
Industrial facility in Wageningen, Netherlands
22,660

 
4,790

 
24,301

 
—

 
1,554

 
5,046

 
25,599

 
30,645

 
310

 
2013
 
Jul. 2013
 
40 yrs.
Warehouse/distribution facility in Gadki, Poland
40,569

 
9,219

 
48,578

 
—

 
3,157

 
9,722

 
51,232

 
60,954

 
650

 
2007
 
Jul. 2013
 
40 yrs.
Automotive dealership in Lewisville, TX
9,450

 
3,269

 
9,605

 
—

 
—

 
3,269

 
9,605

 
12,874

 
112

 
2004
 
Aug. 2013
 
39 yrs.
Office facility in Auburn Hills, MI
6,242

 
789

 
7,163

 
—

 
—

 
789

 
7,163

 
7,952

 
33

 
2012
 
Oct. 2013
 
40 yrs.
Office facility in Haibach, Germany
12,215

 
2,544

 
11,114

 
—

 
261

 
2,593

 
11,326

 
13,919

 
104

 
1993
 
Oct. 2013
 
30 yrs.
Office facility in Houston, TX
31,200

 
7,898

 
37,474

 
—

 
1,619

 
7,898

 
39,093

 
46,991

 
47

 
1963
 
Dec. 2013
 
30 yrs.
Office facility in Tempe, AZ
14,800

 
—

 
16,996

 
—

 
—

 
—

 
16,996

 
16,996

 
—

 
2000
 
Dec. 2013
 
40 yrs.
 
$
1,503,298

 
$
575,250

 
$
1,710,424

 
$
175,275

 
$
(58,634
)
 
$
553,389

 
$
1,848,926

 
$
2,402,315

 
$
129,051

 
 
 
 
 
 

 

CPA®:17 – Global 2013 10-K — 102




SCHEDULE III — REAL ESTATE AND ACCUMULATED DEPRECIATION (Continued)
December 31, 2013
(in thousands)
 
 
 
Initial Cost to Company
 
Cost Capitalized
Subsequent to
Acquisition (a)
 
Increase 
(Decrease)
in Net
Investments (b)
 
Gross Amount at
which Carried at
Close of Period
Total
 
Date of Construction
 
Date Acquired
Description
Encumbrances
 
Land
 
Buildings
 
 
 
 
 
Direct Financing Method:
 

 
 

 
 

 
 

 
 

 
 

 
 
 
 
Office and industrial facility in Nagold, Germany
$
12,437

 
$
6,012

 
$
41,493

 
$
—

 
$
(22,705
)
 
$
24,800

 
1937; 1994
 
Aug. 2008
Industrial facilities in Sanford and Mayodan, NC
21,877

 
3,100

 
35,766

 
—

 
(1,211
)
 
37,655

 
1992; 1997; 1998
 
Dec. 2008
Industrial facility in Glendale Heights, IL
18,308

 
3,820

 
11,148

 
18,245

 
2,038

 
35,251

 
1991
 
Jan. 2009
Office facility in New York City, NY
115,506

 
—

 
233,720

 
—

 
10,364

 
244,084

 
2007
 
Mar. 2009
Industrial facilities in San Diego, Fresno, Orange, Colton, and Pomona, CA; Holly Hill, FL; Rockmart, GA; Ooltewah, TN; and Dallas, TX
9,824

 
1,730

 
20,778

 
—

 
(436
)
 
22,072

 
Various
 
Mar. 2010
Warehouse/distribution facilities in Plymouth, Newport, Southampton, Luton, Liverpool, Bristol, and Leeds, United Kingdom
—

 
508

 
24,009

 
—

 
1,405

 
25,922

 
Various
 
Apr. 2010
Warehouse/distribution facilities in Zagreb, Croatia
10,748

 
1,804

 
11,618

 
—

 
475

 
13,897

 
2002; 2003
 
Dec. 2010
Warehouse/distribution facility in Oxnard, CA
5,766

 
—

 
8,957

 
—

 
147

 
9,104

 
1975
 
Jan. 2011
Warehouse/distribution facilities in Bartow, FL; Momence, IL; Smithfield, NC; Hudson, NY; and Ardmore, OK
23,018

 
3,750

 
50,177

 
—

 
2,858

 
56,785

 
Various
 
Apr. 2011
Industrial facility in Clarksville, TN
4,688

 
600

 
7,291

 
—

 
205

 
8,096

 
1998
 
Aug. 2011
Industrial facility in Countryside, IL
2,013

 
425

 
1,800

 
—

 
25

 
2,250

 
1981
 
Dec. 2011
 
$
224,185

 
$
21,749

 
$
446,757

 
$
18,245

 
$
(6,835
)
 
$
479,916

 
 
 
 
 

CPA®:17 – Global 2013 10-K — 103




SCHEDULE III — REAL ESTATE AND ACCUMULATED DEPRECIATION (Continued)
December 31, 2013
(in thousands) 
 
 
 
 
Initial Cost to Company
 
Costs 
Capitalized
Subsequent to
Acquisition (a)
 
Increase 
(Decrease)
in Net
Investments (b)
 
Gross Amount at which Carried 
 at Close of Period (c)
 
 
 
Date of Construction
 
 
 
Life on which
Depreciation
in Latest
Statement of
Income is
Computed
Description
 
Encumbrances
 
Land
 
Buildings
 
Personal
Property
 
 
 
Land
 
Buildings
 
Personal
Property
 
Total
 
Accumulated
Depreciation (c)
 
 
Date
Acquired
 
Operating Real Estate - Hotel:
 
 

 
 

 
 

 
 

 
 

 
 

 
 

 
 

 
 

 
 

 
 
 
 
 
 
Orlando, FL
 
$
—

 
$
—

 
$
328

 
$
—

 
$
12,229

 
$
—

 
$
—

 
$
12,557

 
$
—

 
$
12,557

 
$
1,065

 
2013
 
Dec. 2011
 
15 yrs.

 


 


 


 


 


 


 


 


 


 


 


 

 

 

Operating Real Estate - Self-Storage Facilities:
 


 


 


 


 


 


 


 


 


 


 

 

 

Fort Worth, TX
 
1,538

 
610

 
2,672

 
—

 
3

 
—

 
610

 
2,675

 
—

 
3,285

 
218

 
2004
 
Apr. 2011
 
33 yrs.
Anaheim, CA
 
1,149

 
1,040

 
1,166

 
—

 
15

 
—

 
1,040

 
1,181

 
—

 
2,221

 
106

 
1988
 
Jun. 2011
 
33 yrs.
Apple Valley, CA
 
2,300

 
400

 
3,910

 
—

 
48

 
—

 
400

 
3,958

 
—

 
4,358

 
288

 
1989
 
Jun. 2011
 
35 yrs.
Apple Valley, CA
 
1,446

 
230

 
2,196

 
—

 
21

 
—

 
230

 
2,217

 
—

 
2,447

 
168

 
1989
 
Jun. 2011
 
33 yrs.
Bakersfield, CA
 
849

 
370

 
3,133

 
—

 
254

 
—

 
370

 
3,387

 
—

 
3,757

 
287

 
1972
 
Jun. 2011
 
30 yrs.
Bakersfield, CA
 
2,130

 
690

 
3,238

 
—

 
43

 
—

 
690

 
3,281

 
—

 
3,971

 
243

 
1987
 
Jun. 2011
 
34 yrs.
Bakersfield, CA
 
2,013

 
690

 
3,298

 
—

 
62

 
—

 
690

 
3,360

 
—

 
4,050

 
243

 
1990
 
Jun. 2011
 
35 yrs.
Bakersfield, CA
 
1,714

 
480

 
3,297

 
—

 
18

 
—

 
480

 
3,315

 
—

 
3,795

 
320

 
1974
 
Jun. 2011
 
35 yrs.
Fresno, CA
 
2,638

 
601

 
7,300

 
—

 
186

 
—

 
601

 
7,486

 
—

 
8,087

 
873

 
1976
 
Jun. 2011
 
30 yrs.
Grand Terrace, CA
 
728

 
950

 
1,903

 
—

 
7

 
—

 
950

 
1,910

 
—

 
2,860

 
192

 
1978
 
Jun. 2011
 
25 yrs.
Harbor City, CA
 
1,293

 
1,487

 
810

 
—

 
7

 
—

 
1,487

 
817

 
—

 
2,304

 
82

 
1987
 
Jun. 2011
 
30 yrs.
San Diego, CA
 
6,273

 
7,951

 
3,926

 
—

 
128

 
—

 
7,951

 
4,054

 
—

 
12,005

 
349

 
1986
 
Jun. 2011
 
30 yrs.
Palm Springs, CA
 
2,511

 
1,287

 
3,124

 
—

 
48

 
—

 
1,287

 
3,172

 
—

 
4,459

 
268

 
1989
 
Jun. 2011
 
30 yrs.
Palmdale, CA
 
2,773

 
940

 
4,263

 
—

 
213

 
—

 
940

 
4,476

 
—

 
5,416

 
348

 
1988
 
Jun. 2011
 
32 yrs.
Palmdale, CA
 
2,081

 
1,220

 
2,954

 
—

 
28

 
—

 
1,220

 
2,982

 
—

 
4,202

 
228

 
1988
 
Jun. 2011
 
33 yrs.
Riverside, CA
 
1,124

 
560

 
1,492

 
—

 
25

 
—

 
560

 
1,517

 
—

 
2,077

 
127

 
1985
 
Jun. 2011
 
30 yrs.
Rosamond, CA
 
1,700

 
460

 
3,220

 
—

 
19

 
—

 
460

 
3,239

 
—

 
3,699

 
247

 
1995
 
Jun. 2011
 
33 yrs.
Rubidoux, CA
 
1,247

 
514

 
1,653

 
—

 
13

 
—

 
514

 
1,666

 
—

 
2,180

 
127

 
1986
 
Jun. 2011
 
33 yrs.
South Gate, CA
 
1,774

 
1,597

 
2,067

 
—

 
66

 
—

 
1,597

 
2,133

 
—

 
3,730

 
181

 
1925
 
Jun. 2011
 
30 yrs.
 

CPA®:17 – Global 2013 10-K — 104




SCHEDULE III — REAL ESTATE AND ACCUMULATED DEPRECIATION (Continued)
December 31, 2013
(in thousands) 
 
 
 
 
Initial Cost to Company
 
Costs 
Capitalized
Subsequent to
Acquisition (a)
 
Increase 
(Decrease)
in Net
Investments (b)
 
Gross Amount at which Carried 
 at Close of Period (c)
 
 
 
Date of Construction
 
 
 
Life on which
Depreciation
in Latest
Statement of
Income is
Computed
Description
 
Encumbrances
 
Land
 
Buildings
 
Personal
Property
 
 
 
Land
 
Buildings
 
Personal
Property
 
Total
 
Accumulated
Depreciation (c)
 
 
Date
Acquired
 
Kailua-Kona, HI
 
832

 
1,000

 
1,108

 
—

 
11

 
—

 
1,000

 
1,119

 
—

 
2,119

 
112

 
1987
 
Jun. 2011
 
30 yrs.
Chicago, IL
 
2,342

 
600

 
4,124

 
—

 
37

 
—

 
600

 
4,161

 
—

 
4,761

 
318

 
1916
 
Jun. 2011
 
25 yrs.
Chicago, IL
 
1,322

 
400

 
2,074

 
—

 
127

 
—

 
400

 
2,201

 
—

 
2,601

 
172

 
1968
 
Jun. 2011
 
30 yrs.
Rockford, IL
 
1,363

 
548

 
1,881

 
—

 
5

 
—

 
548

 
1,886

 
—

 
2,434

 
191

 
1979
 
Jun. 2011
 
25 yrs.
Rockford, IL
 
250

 
114

 
633

 
—

 
—

 
—

 
114

 
633

 
—

 
747

 
63

 
1979
 
Jun. 2011
 
25 yrs.
Rockford, IL
 
1,319

 
380

 
2,321

 
—

 
—

 
—

 
380

 
2,321

 
—

 
2,701

 
233

 
1957
 
Jun. 2011
 
25 yrs.
Kihei, HI
 
5,623

 
2,523

 
7,481

 
—

 
144

 
—

 
2,523

 
7,625

 
—

 
10,148

 
461

 
1991
 
Aug. 2011
 
40 yrs.
Bakersfield, CA
 
1,900

 
1,060

 
3,138

 
—

 
10

 
(464
)
 
1,060

 
2,684

 
—

 
3,744

 
260

 
1979
 
Aug. 2011
 
25 yrs.
Bakersfield, CA
 
2,025

 
767

 
2,230

 
—

 
36

 
—

 
767

 
2,266

 
—

 
3,033

 
220

 
1979
 
Aug. 2011
 
25 yrs.
National City, CA
 
2,550

 
3,158

 
1,483

 
—

 
31

 
—

 
3,158

 
1,514

 
—

 
4,672

 
131

 
1987
 
Aug. 2011
 
28 yrs.
Mundelein, IL
 
3,600

 
1,080

 
5,287

 
—

 
54

 
—

 
1,080

 
5,341

 
—

 
6,421

 
515

 
1991
 
Aug. 2011
 
25 yrs.
Pearl City, HI
 
3,450

 
—

 
5,141

 
—

 
189

 
—

 
—

 
5,330

 
—

 
5,330

 
634

 
1977
 
Aug. 2011
 
20 yrs.
Palm Springs, CA
 
2,826

 
1,019

 
2,131

 
—

 
33

 
—

 
1,019

 
2,164

 
—

 
3,183

 
183

 
1987
 
Sep. 2011
 
28 yrs.
Loves Park, IL
 
1,271

 
394

 
3,390

 
—

 
10

 
(139
)
 
394

 
3,261

 
—

 
3,655

 
382

 
1997
 
Sep. 2011
 
20 yrs.
Mundelein, IL
 
782

 
535

 
1,757

 
—

 
44

 
—

 
535

 
1,801

 
—

 
2,336

 
207

 
1989
 
Sep. 2011
 
20 yrs.
Chicago, IL
 
3,200

 
1,049

 
5,672

 
—

 
30

 
(3
)
 
1,049

 
5,699

 
—

 
6,748

 
429

 
1988
 
Sep. 2011
 
30 yrs.
Bakersfield, CA
 
2,500

 
1,068

 
2,115

 
—

 
26

 
464

 
1,068

 
2,605

 
—

 
3,673

 
199

 
1971
 
Nov. 2011
 
40 yrs.
Beaumont, CA
 
2,610

 
1,616

 
2,873

 
—

 
21

 
—

 
1,616

 
2,894

 
—

 
4,510

 
198

 
1992
 
Nov. 2011
 
40 yrs.
Victorville, CA
 
1,200

 
299

 
1,766

 
—

 
36

 
—

 
299

 
1,802

 
—

 
2,101

 
129

 
1990
 
Nov. 2011
 
40 yrs.
Victorville, CA
 
1,021

 
190

 
1,756

 
—

 
32

 
—

 
190

 
1,788

 
—

 
1,978

 
122

 
1990
 
Nov. 2011
 
40 yrs.
San Bernardino, CA
 
1,000

 
698

 
1,397

 
—

 
18

 
—

 
698

 
1,415

 
—

 
2,113

 
92

 
1989
 
Nov. 2011
 
40 yrs.
Peoria, IL
 
2,230

 
549

 
2,424

 
—

 
20

 
—

 
549

 
2,444

 
—

 
2,993

 
218

 
1990
 
Nov. 2011
 
35 yrs.
East Peoria, IL
 
1,775

 
409

 
1,816

 
—

 
25

 
—

 
409

 
1,841

 
—

 
2,250

 
151

 
1986
 
Nov. 2011
 
35 yrs.
Loves Park, IL
 
1,000

 
439

 
998

 
—

 
93

 
139

 
439

 
1,230

 
—

 
1,669

 
95

 
1978
 
Nov. 2011
 
35 yrs.
Hesperia, CA
 
900

 
648

 
1,377

 
—

 
—

 
—

 
648

 
1,377

 
—

 
2,025

 
100

 
1989
 
Dec. 2011
 
40 yrs.
Mobile, AL
 
1,975

 
1,078

 
3,799

 
—

 
5

 
—

 
1,078

 
3,804

 
—

 
4,882

 
580

 
1974
 
Jun. 2012
 
12 yrs.
Slidell, LA
 
2,400

 
620

 
3,434

 
—

 
32

 
—

 
620

 
3,466

 
—

 
4,086

 
242

 
1998
 
Jun. 2012
 
32 yrs.
Baton Rouge, LA
 
800

 
401

 
955

 
—

 
11

 
—

 
401

 
966

 
—

 
1,367

 
112

 
1980
 
Jun. 2012
 
18 yrs.
Baton Rouge, LA
 
2,125

 
820

 
3,222

 
—

 
79

 
—

 
820

 
3,301

 
—

 
4,121

 
283

 
1980
 
Jun. 2012
 
25 yrs.
Gulfport, MS
 
1,200

 
591

 
2,539

 
—

 
14

 
—

 
591

 
2,553

 
—

 
3,144

 
350

 
1977
 
Jun. 2012
 
15 yrs.
Cherry Valley, IL
 
1,858

 
1,076

 
1,763

 
—

 
2

 
—

 
1,076

 
1,765

 
—

 
2,841

 
173

 
1988
 
Jul. 2012
 
20 yrs.
Fayetteville, NC
 
3,120

 
1,677

 
3,116

 
—

 
—

 
—

 
1,677

 
3,116

 
—

 
4,793

 
179

 
2001
 
Sep. 2012
 
34 yrs.
Tampa, FL
 
3,800

 
599

 
6,273

 
—

 
12

 
—

 
599

 
6,285

 
—

 
6,884

 
177

 
1999
 
Nov. 2012
 
40 yrs.


CPA®:17 – Global 2013 10-K — 105




SCHEDULE III — REAL ESTATE AND ACCUMULATED DEPRECIATION (Continued)
December 31, 2013
(in thousands) 
 
 
 
 
Initial Cost to Company
 
Costs 
Capitalized
Subsequent to
Acquisition (a)
 
Increase 
(Decrease)
in Net
Investments (b)
 
Gross Amount at which Carried 
at Close of Period (c)
 
 
 
 
 
 
 
Life on which
Depreciation
in Latest
Statement of
Income is
Computed
Description
 
Encumbrances
 
Land
 
Buildings
 
Personal
Property
 
 
 
Land
 
Buildings
 
Personal
Property
 
Total
 
Accumulated
Depreciation (c)
 
Date of Construction
 
Date
Acquired
 
St. Petersburg, FL
 
4,100

 
2,253

 
3,512

 
—

 
—

 
(1
)
 
2,253

 
3,511

 
—

 
5,764

 
106

 
1990
 
Nov. 2012
 
40 yrs.
Palm Harbor, FL
 
7,100

 
2,192

 
7,237

 
—

 
79

 
—

 
2,192

 
7,316

 
—

 
9,508

 
218

 
2001
 
Nov. 2012
 
40 yrs.
Midland, TX
 
4,300

 
1,026

 
5,546

 
—

 
—

 
—

 
1,026

 
5,546

 
—

 
6,572

 
201

 
2008
 
Dec. 2012
 
20 yrs.
Midland, TX
 
5,830

 
2,136

 
6,665

 
—

 
—

 
—

 
2,136

 
6,665

 
—

 
8,801

 
233

 
2006
 
Dec. 2012
 
20 yrs.
Odessa, TX
 
3,970

 
975

 
4,924

 
—

 
—

 
—

 
975

 
4,924

 
—

 
5,899

 
178

 
2006
 
Dec. 2012
 
20 yrs.
Odessa, TX
 
5,400

 
1,099

 
6,510

 
—

 
—

 
—

 
1,099

 
6,510

 
—

 
7,609

 
239

 
2004
 
Dec. 2012
 
20 yrs.
Cathedral City, CA
 
1,457

 
—

 
2,275

 
—

 
—

 
—

 
—

 
2,275

 
—

 
2,275

 
71

 
1990
 
Mar. 2013
 
34 yrs.
Hilo, HI
 
3,965

 
296

 
4,996

 
—

 
—

 
—

 
296

 
4,996

 
—

 
5,292

 
65

 
2007
 
Jun. 2013
 
40 yrs.
Clearwater, FL
 
2,880

 
924

 
2,966

 
—

 
—

 
—

 
924

 
2,966

 
—

 
3,890

 
41

 
2001
 
Jul. 2013
 
32 yrs.
Winder, GA
 
415

 
546

 
30

 
—

 
—

 
—

 
546

 
30

 
—

 
576

 
1

 
2006
 
Jul. 2013
 
31 yrs.
Winder, GA
 
1,427

 
495

 
1,253

 
—

 
—

 
—

 
495

 
1,253

 
—

 
1,748

 
28

 
2001
 
Jul. 2013
 
25 yrs.
Orlando, FL
 
4,160

 
1,064

 
4,889

 
—

 
—

 
—

 
1,064

 
4,889

 
—

 
5,953

 
62

 
2000
 
Aug. 2013
 
35 yrs.
Palm Coast, FL
 
3,420

 
1,749

 
3,285

 
—

 
—

 
—

 
1,749

 
3,285

 
—

 
5,034

 
35

 
2001
 
Sep. 2013
 
29 yrs.
Holiday, FL
 
2,250

 
1,829

 
1,097

 
—

 
—

 
—

 
1,829

 
1,097

 
—

 
2,926

 
5

 
1975
 
Nov. 2013
 
23 yrs.
 
 
$
154,124

 
$
66,066

 
$
202,609

 
$
—

 
$
14,699

 
$
(4
)
 
$
66,066

 
$
217,304

 
$
—

 
$
283,370

 
$
15,354

 
 
 
 
 
 
___________
(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 was 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):


CPA®:17 – Global 2013 10-K — 106




CORPORATE PROPERTY ASSOCIATES 17 – GLOBAL INCORPORATED
 
NOTES TO SCHEDULE III — REAL ESTATE AND ACCUMULATED DEPRECIATION
(in thousands)
 
Reconciliation of Real Estate Subject to Operating Leases
 
Years Ended December 31,
 
2013
 
2012
 
2011
Beginning balance
$
2,105,772

 
$
1,500,151

 
$
930,404

Additions (a)
235,093

 
513,407

 
531,795

Dispositions
—

 
(56,200
)
 
(10,142
)
Foreign currency translation adjustment
31,932

 
15,468

 
(25,664
)
Reclassification from real estate under construction
29,518

 
140,324

 
73,758

Reclassification to direct financing lease
—

 
(7,378
)
 
—

Ending balance
$
2,402,315

 
$
2,105,772

 
$
1,500,151

__________
(a)
Amount for the year ended December 31, 2013 includes an out-of-period adjustment of $1.8 million related to deferred foreign income taxes (Note 2).
 
Reconciliation of Accumulated Depreciation for
Real Estate Subject to Operating Leases
 
Years Ended December 31,
 
2013
 
2012
 
2011
Beginning balance
$
77,245

 
$
40,522

 
$
16,274

Depreciation expense
49,785

 
37,265

 
25,046

Dispositions
—

 
(447
)
 
(7
)
Foreign currency translation adjustment
2,021

 
625

 
(791
)
Reclassification to direct financing lease
—

 
(720
)
 
—

Ending balance
$
129,051

 
$
77,245

 
$
40,522

 
Reconciliation of Operating Real Estate
 
Years Ended December 31,
 
2013
 
2012
 
2011
Beginning balance
$
254,805

 
$
178,141

 
$
12,177

Additions
29,066

 
77,203

 
165,964

Reclassification from real estate under construction
12,557

 
—

 
—

Disposition
(13,058
)
 
—

 
—

Write-off of fully depreciated asset
—

 
(539
)
 
—

Ending balance
$
283,370

 
$
254,805

 
$
178,141

 
 
Reconciliation of Accumulated
Depreciation for Operating Real Estate
 
Years Ended December 31,
 
2013
 
2012
 
2011
Beginning balance
$
7,757

 
$
2,745

 
$
300

Depreciation expense
8,470

 
5,551

 
2,445

Disposition
(873
)
 
—

 
—

Write-off of fully depreciated asset
—

 
(539
)
 
—

Ending balance
$
15,354

 
$
7,757

 
$
2,745


At December 31, 2013, 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 $3.0 billion. 

CPA®:17 – Global 2013 10-K — 107




SCHEDULE IV — MORTGAGE LOANS ON REAL ESTATE
December 31, 2013
(dollars in thousands)
 
 
Interest Rate
 
Final Maturity Date
 
Face Amount of Mortgage
 
Carrying Amount of Mortgage
Description
 
 
 
 
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,
 
2013
 
2012
 
2011
Balance
$
40,000

 
$
70,000

 
$
89,560

Additions
—

 
—

 
30,000

Repayment
—

 
—

 
(49,560
)
Conversion to equity investment
—

 
(30,000
)
 
—

Ending balance
$
40,000

 
$
40,000

 
$
70,000

 

CPA®:17 – Global 2013 10-K — 108




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 SEC’s 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 company’s 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, 2013, 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, 2013 at a reasonable level of assurance.
 
Management’s 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 accounting principles generally accepted in the United States of America.
 
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 accounting principles generally accepted in the United States of America, 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, 2013. In making this assessment, we used criteria set forth in Internal Control - Integrated Framework (1992) issued by the Committee of Sponsoring Organizations of the Treadway Commission. Based on our assessment, we concluded that, as of December 31, 2013, 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. Management’s report was not subject to attestation by our independent registered public accounting firm pursuant to SEC rules that permit us to provide only management’s 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.

Item 9B. Other Information.
 
None.

CPA®:17 – Global 2013 10-K — 109




PART III

Item 10. Directors, Executive Officers and Corporate Governance.
 
This information will be contained in our definitive proxy statement for the 2014 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 2014 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 2014 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 2014 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 Accounting Fees and Services.
 
This information will be contained in our definitive proxy statement for the 2014 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 2013 10-K — 110




Item 15. Exhibits and Financial Statement Schedules.
 
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
 
Incorporated by reference to Exhibit 10.1 to Annual Report on Form 10-K for the year ended December 31, 2013 filed March 8, 2013
 
 
 
 
 
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

CPA®:17 – Global 2013 10-K — 111





Exhibit No.

 
Description
 
Method of Filing
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
101

 
The following materials from Corporate Property Associates 17 – Global Incorporated’s Annual Report on Form 10-K for the year ended December 31, 2013, formatted in XBRL (eXtensible Business Reporting Language): (i) Consolidated Balance Sheets at December 31, 2013 and 2012, (ii) Consolidated Statements of Income for the years ended December 31, 2013, 2012 and 2011, (iii) Consolidated Statements of Comprehensive Income for the years ended December 31, 2013, 2012 and 2011, (iv) Consolidated Statements of Equity for the years ended December 31, 2013, 2012 and 2011, (v) Consolidated Statements of Cash Flows for the years ended December 31, 2013, 2012 and 2011, (vi) Notes to Consolidated Financial Statements, (vii) Schedule II — Valuation and Qualifying Accounts, (viii) Schedule III — Real Estate and Accumulated Depreciation, (ix) Notes to Schedule III, (x) Schedule IV — Mortgage Loans and Real Estate and (xi) Notes to Schedule IV.
 
Filed herewith


CPA®:17 – Global 2013 10-K — 112




SIGNATURES
 
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.
 
 
 
 
Corporate Property Associates 17 – Global Incorporated
Date:
March 14, 2014
 
 
 
 
By:  
/s/ Catherine D. Rice
 
 
 
Catherine D. Rice
 
 
 
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
 
Title
 
Date
 
 
 
 
 
/s/ Trevor P. Bond
 
Chief Executive Officer and Director
 
March 14, 2014
Trevor P. Bond
 
(Principal Executive Officer)
 
 
 
 
 
 
 
/s/ Catherine D. Rice
 
Chief Financial Officer
 
March 14, 2014
Catherine D. Rice
 
(Principal Financial Officer)
 
 
 
 
 
 
 
/s/ Hisham A. Kader
 
Chief Accounting Officer
 
March 14, 2014
Hisham A. Kader
 
(Principal Accounting Officer)
 
 
 
 
 
 
 
/s/ Marshall E. Blume
 
Director
 
March 14, 2014
Marshall E. Blume
 
 
 
 
 
 
 
 
 
/s/ Elizabeth P. Munson
 
Director
 
March 14, 2014
Elizabeth P. Munson
 
 
 
 
 
 
 
 
 
/s/ Richard J. Pinola
 
Director
 
March 14, 2014
Richard J. Pinola
 
 
 
 
 
 
 
 
 
/s/ James D. Price
 
Director
 
March 14, 2014
James D. Price
 
 
 
 

CPA®:17 – Global 2013 10-K — 113




EXHIBIT INDEX
  
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
 
Incorporated by reference to Exhibit 10.1 to Annual Report on Form 10-K for the year ended December 31, 2013 filed March 8, 2013
 

 
 
 
 
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





Exhibit No.

 
Description
 
Method of Filing
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
101

 
The following materials from Corporate Property Associates 17 – Global Incorporated’s Annual Report on Form 10-K for the year ended December 31, 2013, formatted in XBRL (eXtensible Business Reporting Language): (i) Consolidated Balance Sheets at December 31, 2013 and 2012, (ii) Consolidated Statements of Income for the years ended December 31, 2013, 2012 and 2011, (iii) Consolidated Statements of Comprehensive Income for the years ended December 31, 2013, 2012 and 2011, (iv) Consolidated Statements of Equity for the years ended December 31, 2013, 2012 and 2011, (v) Consolidated Statements of Cash Flows for the years ended December 31, 2013, 2012 and 2011, (vi) Notes to Consolidated Financial Statements, (vii) Schedule II — Valuation and Qualifying Accounts, (viii) Schedule III — Real Estate and Accumulated Depreciation, (ix) Notes to Schedule III, (x) Schedule IV — Mortgage Loans and Real Estate and (xi) Notes to Schedule IV.
 
Filed herewith