W. P. Carey Inc. [WPC] Filings

10-Q 1 wpc-20230930.htm 10-Q wpc-20230930

UNITED STATES SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

☑ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended September 30, 2023

☐ 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: 001-13779

W. P. Carey Inc.

(Exact name of registrant as specified in its charter)


Maryland		45-4549771
(State of incorporation)		(I.R.S. Employer Identification No.)

One Manhattan West, 395 9th Avenue, 58th Floor
New York,	New York	10001
(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:

Title of each class

Trading Symbol(s)

Name of each exchange on which registered

Common Stock, $0.001 Par Value

WPC

New York Stock Exchange

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 ☑ No ☐

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted 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 such files). Yes ☑ No ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

Large accelerated filer

☑

Accelerated filer

☐

Non-accelerated filer

☐

Smaller reporting company

☐

Emerging growth company

☐

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☑

Registrant has 218,671,874 shares of common stock, $0.001 par value, outstanding at October 27, 2023.

INDEX


		Page No.
PART I — FINANCIAL INFORMATION
Item 1. Financial Statements (Unaudited)
	Consolidated Balance Sheets as of September 30, 2023 and December 31, 2022	3
	Consolidated Statements of Income for the Three and Nine Months Ended September 30, 2023 and 2022	4
	Consolidated Statements of Comprehensive Income for the Three and Nine Months Ended September 30, 2023 and 2022	5
	Consolidated Statements of Equity for the Three and Nine Months Ended September 30, 2023 and 2022	6
	Consolidated Statements of Cash Flows for the Nine Months Ended September 30, 2023 and 2022	8
	Notes to Consolidated Financial Statements	9
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations		42
Item 3. Quantitative and Qualitative Disclosures About Market Risk		67
Item 4. Controls and Procedures		69

PART II — OTHER INFORMATION
Item 1A. Risk Factors		70
Item 6. Exhibits		71
Signatures		72

W. P. Carey 9/30/2023 10-Q – 1

Forward-Looking Statements

This Quarterly Report on Form 10-Q (this “Report”), including Management’s Discussion and Analysis of Financial Condition and Results of Operations in Item 2 of Part I 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. These forward-looking statements include, but are not limited to, statements regarding: the NLOP Spin-Off (as defined herein), including the impact thereof; our corporate strategy and estimated or future economic performance and results, including our expectations surrounding the impact of the broader macroeconomic environment and the ability of tenants to pay rent, financial condition, liquidity, results of operations, and prospects; our future capital expenditure and leverage levels, debt service obligations, and plans to fund our liquidity needs; prospective statements regarding our access to the capital markets, including our “at-the-market” program (“ATM Program”) and settlement of our Equity Forwards (as defined herein); the outlook for the investment program that we manage, including possible liquidity events for the program; statements that we make regarding our ability to remain qualified for taxation as a real estate investment trust (“REIT”); and the impact of recently issued accounting pronouncements and regulatory activity.

These statements are based on the current expectations of our management. It is important to note that our actual results could be materially different from those projected in such forward-looking statements. There are a number of risks and uncertainties that could cause actual results to differ materially from these forward-looking statements. Other unknown or unpredictable risks or uncertainties, like the risks related to inflation and increased interest rates, the effects of pandemics and global outbreaks of contagious diseases (such as the COVID-19 pandemic) and domestic or geopolitical crises, such as terrorism, military conflict, war or the perception that hostilities may be imminent, political instability or civil unrest, or other conflict, could also have material adverse effects on our business, financial condition, liquidity, results of operations, and prospects. 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 that 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 (“SEC”), including but not limited to those described in Part I, Item 1A. Risk Factors in our Annual Report on Form 10-K for the year ended December 31, 2022, as filed with the SEC on February 10, 2023 (the “2022 Annual Report”), and in Part II, Item 1A. Risk Factors herein. Moreover, because we operate in a very competitive and rapidly changing environment, new risks are likely to emerge from time to time. Given these risks and uncertainties, potential investors are cautioned not to place undue reliance on these forward-looking statements as a prediction of future results, which speak only as of the date of this Report, unless noted otherwise. Except as required by federal securities laws and the rules and regulations of the SEC, 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 I, Item 1. Financial Statements (Unaudited).

W. P. Carey 9/30/2023 10-Q – 2

PART I — FINANCIAL INFORMATION

Item 1. Financial Statements.

W. P. CAREY INC.

CONSOLIDATED BALANCE SHEETS (UNAUDITED)

(in thousands, except share and per share amounts)


	September 30, 2023		December 31, 2022
Assets
Investments in real estate:
Land, buildings and improvements — net lease and other	$	13,390,692	$	13,338,857
Land, buildings and improvements — operating properties	1,222,062		1,095,892
Net investments in finance leases and loans receivable	1,172,671		771,761
In-place lease intangible assets and other	2,696,403		2,659,750
Above-market rent intangible assets	771,071		833,751
Investments in real estate	19,252,899		18,700,011
Accumulated depreciation and amortization	(3,438,183)		(3,269,057)
Assets held for sale, net	102,015		57,944
Net investments in real estate	15,916,731		15,488,898
Equity method investments	351,537		327,502
Cash and cash equivalents	136,438		167,996
Other assets, net	1,191,350		1,080,227
Goodwill	1,034,183		1,037,412
Total assets (a)	$	18,630,239	$	18,102,035
Liabilities and Equity
Debt:
Senior unsecured notes, net	$	5,902,854	$	5,916,400
Unsecured term loans, net	1,083,597		552,539
Unsecured revolving credit facility	516,513		276,392
Non-recourse mortgages, net	784,750		1,132,417
Debt, net	8,287,714		7,877,748
Accounts payable, accrued expenses and other liabilities	638,965		623,843
Below-market rent and other intangible liabilities, net	153,049		184,584
Deferred income taxes	171,929		178,959
Dividends payable	233,331		228,257
Total liabilities (a)	9,484,988		9,093,391
Commitments and contingencies (Note 12)

Preferred stock, $0.001 par value, 50,000,000 shares authorized; none issued	—		—
Common stock, $0.001 par value, 450,000,000 shares authorized; 213,925,817 and 210,620,949 shares, respectively, issued and outstanding	214		211
Additional paid-in capital	11,970,559		11,706,836
Distributions in excess of accumulated earnings	(2,616,638)		(2,486,633)
Deferred compensation obligation	62,046		57,012
Accumulated other comprehensive loss	(281,820)		(283,780)
Total stockholders’ equity	9,134,361		8,993,646
Noncontrolling interests	10,890		14,998
Total equity	9,145,251		9,008,644
Total liabilities and equity	$	18,630,239	$	18,102,035

__________

(a)See Note 2 for details related to variable interest entities (“VIEs”).

See Notes to Consolidated Financial Statements.

W. P. Carey 9/30/2023 10-Q – 3

W. P. CAREY INC.

CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED)

(in thousands, except share and per share amounts)


	Three Months Ended September 30,				Nine Months Ended September 30,
	2023		2022		2023		2022
Revenues
Real Estate:
Lease revenues	$	369,159	$	331,902	$	1,090,619	$	953,981
Income from finance leases and loans receivable	27,575		20,637		75,641		56,794
Operating property revenues	49,218		21,350		140,780		30,279
Other lease-related income	2,310		8,192		20,723		24,905
	448,262		382,081		1,327,763		1,065,959
Investment Management:
Asset management revenue	194		1,197		836		8,084
Reimbursable costs from affiliates	97		344		322		2,414
	291		1,541		1,158		10,498
	448,553		383,622		1,328,921		1,076,457
Operating Expenses
Depreciation and amortization	144,771		132,181		444,728		362,654
Operating property expenses	26,570		9,357		74,738		15,335
General and administrative	23,258		22,299		74,494		66,224
Reimbursable tenant costs	20,498		18,874		62,997		52,538
Impairment charges — real estate	15,173		—		15,173		26,385
Property expenses, excluding reimbursable tenant costs	13,021		11,244		31,164		36,874
Stock-based compensation expense	9,050		5,511		25,811		23,102
Merger and other expenses	4,152		17,667		5,595		17,329
Reimbursable costs from affiliates	97		344		322		2,414
Impairment charges — Investment Management goodwill	—		29,334		—		29,334
	256,590		246,811		735,022		632,189
Other Income and Expenses
Interest expense	(76,974)		(59,022)		(219,658)		(151,492)
Earnings from equity method investments	4,978		11,304		14,569		23,477
Non-operating income	4,862		9,263		13,997		23,783
Other gains and (losses)	2,859		(15,020)		9,593		(1,021)
Gain (loss) on sale of real estate, net	2,401		(4,736)		181,958		37,631
Gain on change in control of interests	—		33,931		—		33,931
	(61,874)		(24,280)		459		(33,691)
Income before income taxes	130,089		112,531		594,358		410,577
Provision for income taxes	(5,090)		(8,263)		(30,338)		(21,598)
Net Income	124,999		104,268		564,020		388,979
Net loss attributable to noncontrolling interests	41		660		20		622
Net Income Attributable to W. P. Carey	$	125,040	$	104,928	$	564,040	$	389,601

Basic Earnings Per Share	$	0.58	$	0.52	$	2.64	$	1.98
Diluted Earnings Per Share	$	0.58	$	0.51	$	2.63	$	1.98
Weighted-Average Shares Outstanding
Basic	215,097,114		203,093,553		214,052,907		196,382,433
Diluted	215,252,969		204,098,116		214,427,425		197,264,509

See Notes to Consolidated Financial Statements.

W. P. Carey 9/30/2023 10-Q – 4

W. P. CAREY INC.

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (UNAUDITED)

(in thousands)


	Three Months Ended September 30,				Nine Months Ended September 30,
	2023		2022		2023		2022
Net Income	$	124,999	$	104,268	$	564,020	$	388,979
Other Comprehensive (Loss) Income
Foreign currency translation adjustments	(8,844)		(56,053)		7,092		(109,198)
Unrealized gain (loss) on derivative instruments	6,816		23,610		(5,384)		50,956
Reclassification of unrealized gain on investments to net income	—		—		—		(18,688)
	(2,028)		(32,443)		1,708		(76,930)
Comprehensive Income	122,971		71,825		565,728		312,049

Amounts Attributable to Noncontrolling Interests
Net loss	41		660		20		622
Foreign currency translation adjustments	139		543		252		543
Comprehensive loss attributable to noncontrolling interests	180		1,203		272		1,165
Comprehensive Income Attributable to W. P. Carey	$	123,151	$	73,028	$	566,000	$	313,214

See Notes to Consolidated Financial Statements.

W. P. Carey 9/30/2023 10-Q – 5

W. P. CAREY INC.

CONSOLIDATED STATEMENTS OF EQUITY (UNAUDITED)

(in thousands, except share and per share amounts)


	W. P. Carey Stockholders
						Distributions				Accumulated
	Common Stock			Additional		in Excess of		Deferred		Other		Total
	$0.001 Par Value			Paid-in		Accumulated		Compensation		Comprehensive		W. P. Carey		Noncontrolling
	Shares	Amount		Capital		Earnings		Obligation		Loss		Stockholders		Interests		Total
Balance at July 1, 2023	213,901,170	$	214	$	11,959,060	$	(2,510,816)	$	62,046	$	(279,931)	$	9,230,573	$	16,359	$	9,246,932
Shares issued upon delivery of vested restricted share awards	24,647	—		(61)								(61)				(61)
Amortization of stock-based compensation expense				9,050								9,050				9,050
Acquisition of noncontrolling interest				2,510								2,510		(2,510)		—
Distributions to noncontrolling interests												—		(2,779)		(2,779)
Dividends declared ($1.071 per share)						(230,862)						(230,862)				(230,862)
Net income						125,040						125,040		(41)		124,999
Other comprehensive loss:
Foreign currency translation adjustments										(8,705)		(8,705)		(139)		(8,844)
Unrealized gain on derivative instruments										6,816		6,816				6,816
Balance at September 30, 2023	213,925,817	$	214	$	11,970,559	$	(2,616,638)	$	62,046	$	(281,820)	$	9,134,361	$	10,890	$	9,145,251


	W. P. Carey Stockholders
						Distributions				Accumulated
	Common Stock			Additional		in Excess of		Deferred		Other		Total
	$0.001 Par Value			Paid-in		Accumulated		Compensation		Comprehensive		W. P. Carey		Noncontrolling
	Shares	Amount		Capital		Earnings		Obligation		Loss		Stockholders		Interests		Total
Balance at July 1, 2022	192,891,792	$	193	$	10,201,614	$	(2,352,839)	$	57,012	$	(266,157)	$	7,639,823	$	1,639	$	7,641,462
Shares issued to stockholders of CPA:18 – Global in connection with CPA:18 Merger	13,786,302	14		1,205,736								1,205,750				1,205,750
Shares issued under forward equity, net	1,337,500	1		97,454								97,455				97,455
Shares issued upon delivery of vested restricted share awards	17,124	—		(12)								(12)				(12)
Amortization of stock-based compensation expense				5,511								5,511				5,511
Acquisition of noncontrolling interests in connection with the CPA:18 Merger												—		14,367		14,367
Distributions to noncontrolling interests												—		(111)		(111)
Dividends declared ($1.061 per share)						(222,350)						(222,350)				(222,350)
Net income						104,928						104,928		(660)		104,268
Other comprehensive loss:
Foreign currency translation adjustments										(55,510)		(55,510)		(543)		(56,053)
Unrealized gain on derivative instruments										23,610		23,610				23,610
Balance at September 30, 2022	208,032,718	$	208	$	11,510,303	$	(2,470,261)	$	57,012	$	(298,057)	$	8,799,205	$	14,692	$	8,813,897

(Continued)

W. P. Carey 9/30/2023 10-Q – 6

W. P. CAREY INC.

CONSOLIDATED STATEMENTS OF EQUITY (UNAUDITED)

(Continued)

(in thousands, except share and per share amounts)


	W. P. Carey Stockholders
						Distributions				Accumulated
	Common Stock			Additional		in Excess of		Deferred		Other		Total
	$0.001 Par Value			Paid-in		Accumulated		Compensation		Comprehensive		W. P. Carey		Noncontrolling
	Shares	Amount		Capital		Earnings		Obligation		Loss		Stockholders		Interests		Total
Balance at January 1, 2023	210,620,949	$	211	$	11,706,836	$	(2,486,633)	$	57,012	$	(283,780)	$	8,993,646	$	14,998	$	9,008,644
Shares issued under forward equity, net	3,081,867	3		249,860								249,863				249,863
Shares issued upon delivery of vested restricted share awards	218,266	—		(13,679)								(13,679)				(13,679)
Shares issued upon purchases under employee share purchase plan	4,735	—		294								294				294
Amortization of stock-based compensation expense				25,811								25,811				25,811
Deferral of vested shares, net				(4,521)				4,521				—				—
Acquisition of noncontrolling interests				3,663								3,663		(3,663)		—
Contributions from noncontrolling interests												—		2,886		2,886
Distributions to noncontrolling interests												—		(3,059)		(3,059)
Dividends declared ($3.207 per share)				2,295		(694,045)		513				(691,237)				(691,237)
Net income						564,040						564,040		(20)		564,020
Other comprehensive income:
Foreign currency translation adjustments										7,344		7,344		(252)		7,092
Unrealized loss on derivative instruments										(5,384)		(5,384)				(5,384)
Balance at September 30, 2023	213,925,817	$	214	$	11,970,559	$	(2,616,638)	$	62,046	$	(281,820)	$	9,134,361	$	10,890	$	9,145,251


	W. P. Carey Stockholders
						Distributions				Accumulated
	Common Stock			Additional		in Excess of		Deferred		Other		Total
	$0.001 Par Value			Paid-in		Accumulated		Compensation		Comprehensive		W. P. Carey		Noncontrolling
	Shares	Amount		Capital		Earnings		Obligation		Loss		Stockholders		Interests		Total
Balance at January 1, 2022	190,013,751	$	190	$	9,977,686	$	(2,224,231)	$	49,810	$	(221,670)	$	7,581,785	$	1,666	$	7,583,451
Shares issued to stockholders of CPA:18 – Global in connection with CPA:18 Merger	13,786,302	14		1,205,736								1,205,750				1,205,750
Shares issued under our prior ATM Program, net	2,740,295	3		218,098								218,101				218,101
Shares issued under forward equity, net	1,337,500	1		97,454								97,455				97,455
Shares issued upon delivery of vested restricted share awards	152,830	—		(6,612)								(6,612)				(6,612)
Shares issued upon purchases under employee share purchase plan	2,040	—		155								155				155
Amortization of stock-based compensation expense				23,102								23,102				23,102
Deferral of vested shares, net				(6,696)				6,696				—				—
Acquisition of noncontrolling interests in connection with the CPA:18 Merger												—		14,367		14,367
Distributions to noncontrolling interests												—		(176)		(176)
Dividends declared ($3.177 per share)				1,380		(635,631)		506				(633,745)				(633,745)
Net income						389,601						389,601		(622)		388,979
Other comprehensive loss:
Foreign currency translation adjustments										(108,655)		(108,655)		(543)		(109,198)
Unrealized gain on derivative instruments										50,956		50,956				50,956
Reclassification of unrealized gain on investments to net income										(18,688)		(18,688)				(18,688)
Balance at September 30, 2022	208,032,718	$	208	$	11,510,303	$	(2,470,261)	$	57,012	$	(298,057)	$	8,799,205	$	14,692	$	8,813,897

See Notes to Consolidated Financial Statements.

W. P. Carey 9/30/2023 10-Q – 7

W. P. CAREY INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)

(in thousands)


	Nine Months Ended September 30,
	2023		2022
Cash Flows — Operating Activities
Net income	$	564,020	$	388,979
Adjustments to net income:
Depreciation and amortization, including intangible assets and deferred financing costs	459,830		374,163
Gain on sale of real estate, net	(181,958)		(37,631)
Straight-line rent adjustments	(55,671)		(42,342)
Amortization of rent-related intangibles and deferred rental revenue	27,694		34,378
Stock-based compensation expense	25,811		23,102
Impairment charges — real estate	15,173		26,385
Distributions of earnings from equity method investments	15,107		26,276
Earnings from equity method investments	(14,569)		(23,477)
Decrease in allowance for credit losses	(6,113)		(27,777)
Deferred income tax benefit	(2,706)		(1,561)
Net realized and unrealized (gains) losses on equity securities, extinguishment of debt, foreign currency exchange rate movements, and other	(1,837)		22,322
Gain on change in control of interests	—		(33,931)
Impairment charges — Investment Management goodwill	—		29,334
Asset management revenue received in shares of CPA:18 – Global	—		(1,024)
Net changes in other operating assets and liabilities	(32,094)		(54,668)
Net Cash Provided by Operating Activities	812,687		702,528
Cash Flows — Investing Activities
Purchases of real estate	(908,271)		(1,013,950)
Proceeds from sales of real estate	187,678		170,341
Funding for real estate construction, redevelopments, and other capital expenditures on real estate	(90,149)		(83,721)
Capital contributions to equity method investments	(36,595)		(69,127)
Proceeds from repayment of loans receivable	28,000		34,000
Tenant-funded escrow for investing activities	21,717		—
Return of capital from equity method investments	10,081		7,447
Other investing activities, net	(4,987)		(16,945)
Cash paid to stockholders of CPA:18 – Global in the CPA:18 Merger	—		(423,435)
Cash and restricted cash acquired in connection with the CPA:18 Merger	—		331,063
Proceeds from redemption of WLT preferred stock (Note 9)	—		65,000
Funding of short-term loans to affiliates	—		(26,000)
Proceeds from repayment of short-term loans to affiliates	—		26,000
Investment in loan receivable	—		(20,098)
Net Cash Used in Investing Activities	(792,526)		(1,019,425)
Cash Flows — Financing Activities
Proceeds from Unsecured Revolving Credit Facility	2,217,896		1,460,226
Repayments of Unsecured Revolving Credit Facility	(1,977,451)		(1,357,254)
Dividends paid	(686,163)		(613,302)
Proceeds from term loans	546,014		283,139
Scheduled payments of mortgage principal	(251,028)		(51,548)
Proceeds from shares issued under forward equity, net of selling costs	249,806		97,456
Prepayments of mortgage principal	(99,388)		(10,381)
Payment of financing costs	(14,696)		(2,128)
Payments for withholding taxes upon delivery of equity-based awards	(13,679)		(6,612)
Distributions to noncontrolling interests	(3,059)		(176)
Contributions from noncontrolling interests	2,886		—
Other financing activities, net	(558)		11,781
Proceeds from issuance of Senior Unsecured Notes	—		334,775
Proceeds from shares issued under our prior ATM Program, net of selling costs	—		218,081
Net Cash (Used in) Provided by Financing Activities	(29,420)		364,057
Change in Cash and Cash Equivalents and Restricted Cash During the Period
Effect of exchange rate changes on cash and cash equivalents and restricted cash	(958)		(15,097)
Net (decrease) increase in cash and cash equivalents and restricted cash	(10,217)		32,063
Cash and cash equivalents and restricted cash, beginning of period	224,141		217,950
Cash and cash equivalents and restricted cash, end of period	$	213,924	$	250,013

See Notes to Consolidated Financial Statements.

W. P. Carey 9/30/2023 10-Q – 8

W. P. CAREY INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

Note 1. Business and Organization

W. P. Carey Inc. (“W. P. Carey”) is a REIT that, together with our consolidated subsidiaries, invests primarily in operationally-critical, single-tenant commercial real estate properties located in the United States and Northern and Western Europe on a long-term basis. We earn revenue principally by leasing the properties we own to companies on a triple-net lease basis, which generally requires each tenant to pay the costs associated with operating and maintaining the property.

Founded in 1973, our shares of common stock are listed on the New York Stock Exchange under the symbol “WPC.”

We elected to be taxed as a REIT under Section 856 through 860 of the Internal Revenue Code effective as of February 15, 2012. As a REIT, we are not subject to federal income taxes on 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 also own real property in jurisdictions outside the United States through foreign subsidiaries and are subject to income taxes on our pre-tax income earned from properties in such countries.

In September 2023, we announced a plan to exit the office assets within our portfolio by (i) spinning-off 59 office properties into Net Lease Office Properties (“NLOP”), so that it will become a separate publicly-traded REIT (the “Spin-Off”), and (ii) implementing an asset sale program to dispose of 87 office properties retained by us (the “Office Sale Program”), which is targeted to be substantially completed in early 2024. NLOP was a wholly-owned subsidiary of WPC as of September 30, 2023.

On November 1, 2023, we completed the Spin-Off, contributing 59 office properties to NLOP. Following the closing of the Spin-Off, NLOP operates as a separate publicly-traded REIT, which we externally manage pursuant to certain advisory agreements (the “NLOP Advisory Agreements”) (Note 17).

On August 1, 2022, a non-traded REIT that we previously advised, Corporate Property Associates 18 – Global Incorporated (“CPA:18 – Global”) merged with and into one of our indirect subsidiaries (the “CPA:18 Merger”). At September 30, 2023, we were the advisor to Carey European Student Housing Fund I, L.P. (“CESH”), a limited partnership formed for the purpose of developing, owning, and operating student housing properties in Europe (Note 4). We refer to CPA:18 – Global (prior to the CPA:18 Merger) and CESH collectively as the “Managed Programs.”

Reportable Segments

Real Estate — Lease revenues from our real estate investments generate the vast majority of our earnings. We invest primarily in commercial properties located in the United States and Northern and Western Europe, which are leased to companies on a triple-net lease basis. At September 30, 2023, our portfolio was comprised of our full or partial ownership interests in 1,472 properties, totaling approximately 179 million square feet, substantially all of which were net leased to 395 tenants, with a weighted-average lease term of 11.0 years and an occupancy rate of 98.9%. In addition, at September 30, 2023, our portfolio was comprised of full or partial ownership interests in 98 operating properties, including 86 self-storage properties, ten hotels, and two student housing properties, totaling approximately 7.5 million square feet.

Investment Management — We manage the real estate investment portfolio for CESH, for which we earn asset management revenue. We may also be entitled to receive certain distributions pursuant to our advisory arrangements with CESH. At September 30, 2023, CESH wholly owned one build-to-suit project.

W. P. Carey 9/30/2023 10-Q – 9

Notes to Consolidated Financial Statements (Unaudited)

Note 2. Basis of Presentation

Basis of Presentation

Our interim consolidated financial statements have been prepared in accordance with the instructions to Form 10-Q and, therefore, do not necessarily include all information and footnotes necessary for a complete statement of our consolidated financial position, results of operations, and cash flows in accordance with generally accepted accounting principles in the United States (“GAAP”). In the opinion of management, the unaudited financial information for the interim periods presented in this Report reflects all normal and recurring adjustments necessary for a fair presentation of financial position, results of operations, and cash flows. Our interim consolidated financial statements should be read in conjunction with our audited consolidated financial statements and accompanying notes for the year ended December 31, 2022, which are included in the 2022 Annual Report, as certain disclosures that would substantially duplicate those contained in the audited consolidated financial statements have not been included in this Report. Operating results for interim periods are not necessarily indicative of operating results for an entire year.

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.

Basis of Consolidation

Our consolidated financial statements reflect all of our accounts, including those of our controlled subsidiaries. The portions of equity in consolidated subsidiaries that are not attributable, directly or indirectly, to us are 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 should be deemed a VIE and, if so, whether we are the primary beneficiary and are therefore required to consolidate the entity. There have been no significant changes in our VIE policies from what was disclosed in the 2022 Annual Report.

At September 30, 2023 and December 31, 2022, we considered 15 and 16 entities, respectively, to be VIEs, of which we consolidated 10 and 11, respectively, as we are considered the primary beneficiary. The following table presents a summary of selected financial data of the consolidated VIEs included in our consolidated balance sheets (in thousands):


	September 30, 2023		December 31, 2022
Land, buildings and improvements — net lease and other	$	171,802	$	590,390
Land, buildings and improvements — operating properties	12,655		143,390
Net investments in finance leases and loans receivable	595,524		144,103
In-place lease intangible assets and other	24,778		72,070
Above-market rent intangible assets	11,067		33,634
Accumulated depreciation and amortization	(24,281)		(176,379)
Total assets	822,159		843,500

Non-recourse mortgages, net	$	57,455	$	132,950
Below-market rent and other intangible liabilities, net	32		18,891
Total liabilities	96,957		199,633

At both September 30, 2023 and December 31, 2022, our five unconsolidated VIEs included our interests in (i) three unconsolidated real estate investments, which we account for under the equity method of accounting (we do not consolidate these entities because we are not the primary beneficiary and the nature of our involvement in the activities of these entities allows us to exercise significant influence on, but does not give us power over, decisions that significantly affect the economic performance of these entities), and (ii) two unconsolidated investments in equity securities, which we accounted for as investments in shares of the entities at fair value. As of September 30, 2023, and December 31, 2022, the net carrying amount of our investments in these entities was $727.2 million and $693.4 million, respectively, and our maximum exposure to loss in these entities was limited to our investments.

W. P. Carey 9/30/2023 10-Q – 10

Notes to Consolidated Financial Statements (Unaudited)

Reclassifications

Certain prior period amounts have been reclassified to conform to the current period presentation.

Amounts due from affiliates are now included within Other assets, net in the consolidated balance sheets. Previously, such amounts were included within Due from affiliates in the consolidated balance sheets.

Revenue Recognition

There have been no significant changes in our policies for revenue from contracts under Accounting Standards Codification (“ASC”) 606 from what was disclosed in the 2022 Annual Report. ASC 606 does not apply to our lease revenues, which constitute a majority of our revenues, but primarily applies to revenues generated from our hotel operating properties and our Investment Management segment. Revenue from contracts for our Real Estate segment primarily represented hotel operating property revenues of $23.2 million and $3.7 million for the three months ended September 30, 2023 and 2022, respectively, and $63.3 million and $9.1 million for the nine months ended September 30, 2023 and 2022, respectively, generated from 13 hotels located in the United States (12 of which were reclassified from net leases to operating properties in the first quarter of 2023 (Note 5); three of these properties were sold during the third quarter of 2023 and five are classified as held for sale as of September 30, 2023). Revenue from contracts under ASC 606 from our Investment Management segment is discussed in Note 4.

Restricted Cash

The following table provides a reconciliation of cash and cash equivalents and restricted cash reported within the consolidated balance sheets to the consolidated statements of cash flows (in thousands):


	September 30, 2023		December 31, 2022
Cash and cash equivalents	$	136,438	$	167,996
Restricted cash (a)	77,486		56,145
Total cash and cash equivalents and restricted cash	$	213,924	$	224,141

__________

(a)Restricted cash is included within Other assets, net on our consolidated balance sheets.

Reference Rate Reform

During the first quarter of 2023, we applied the guidance in ASC 848, Reference Rate Reform and elected the practical expedient to transition certain contracts that reference London Interbank Offered Rate (“LIBOR”) to the Secured Overnight Financing Rate (“SOFR”), including our Senior Unsecured Credit Facility (Note 11) and certain derivative instruments. The application of this guidance did not have a material impact on our consolidated financial statements.

Note 3. Merger with CPA:18 – Global

CPA:18 Merger

On February 27, 2022, we and certain of our subsidiaries entered into a merger agreement with CPA:18 – Global, pursuant to which CPA:18 – Global would merge with and into one of our indirect subsidiaries in exchange for shares of our common stock and cash, subject to approval by the stockholders of CPA:18 – Global. The CPA:18 Merger and related transactions were approved by the stockholders of CPA:18 – Global on July 26, 2022 and completed on August 1, 2022.

At the effective time of the CPA:18 Merger, each share of CPA:18 – Global common stock issued and outstanding immediately prior to the effective time of the CPA:18 Merger was canceled and, in exchange for cancellation of such share, the rights attaching to such share were converted automatically into the right to receive (i) 0.0978 shares of our common stock and (ii) $3.00 in cash, which we refer to herein as the Merger Consideration. Each share of CPA:18 – Global common stock owned by us or any of our subsidiaries immediately prior to the effective time of the CPA:18 Merger was automatically canceled and retired, and ceased to exist, for no Merger Consideration. In exchange for the 141,099,002 shares of CPA:18 – Global common stock that we and our subsidiaries did not previously own, we paid total merger consideration of approximately $1.6 billion, consisting of (i) the issuance of 13,786,302 shares of our common stock with a fair value of $1.2 billion, based on the closing

W. P. Carey 9/30/2023 10-Q – 11

Notes to Consolidated Financial Statements (Unaudited)

price of our common stock on August 1, 2022 of $87.46 per share, (ii) cash consideration of $423.3 million, and (iii) cash of $0.1 million paid in lieu of issuing any fractional shares of our common stock. Pursuant to the terms of the definitive merger agreement, in connection with the closing of the CPA:18 Merger, we waived certain back-end fees that we would have otherwise been entitled to receive from CPA:18 – Global upon its liquidation pursuant to the terms of our pre-closing advisory agreement with CPA:18 – Global.

Immediately prior to the closing of the CPA:18 Merger, CPA:18 – Global’s portfolio was comprised of full or partial ownership interests in 42 leased properties (including seven properties in which we already owned a partial ownership interest), substantially all of which were net leased with a weighted-average lease term of 7.0 years, an occupancy rate of 99.3%, and an estimated contractual minimum annualized base rent (“ABR”) totaling $81.0 million, as well as 65 self-storage operating properties and two student housing operating properties totaling 5.1 million square feet. The related property-level debt was comprised of non-recourse mortgage loans with an aggregate consolidated fair value of approximately $900.2 million with a weighted-average annual interest rate of 5.1% as of August 1, 2022. From the closing of the CPA:18 Merger through September 30, 2022, lease revenues, operating property revenues, and net loss from properties acquired were $16.5 million, $15.4 million, and $0.5 million, respectively.

Two of the net lease properties that we acquired in the CPA:18 Merger were classified as Assets held for sale, with an aggregate fair value of $85.0 million at acquisition (Note 5). From the closing of the CPA:18 Merger through September 30, 2022, lease revenues from these properties totaled $2.1 million. We sold one of these properties in August 2022 for total proceeds, net of selling costs, of $44.5 million, and recognized a loss on sale of $0.2 million (Note 15). We sold the other property in October 2023 for gross proceeds of approximately $30.4 million (Note 1 7).

Purchase Price Allocation

We accounted for the CPA:18 Merger as a business combination under the acquisition method of accounting. After consideration of all applicable factors pursuant to the business combination accounting rules, we were considered the “accounting acquirer” due to various factors, including the fact that our stockholders held the largest portion of the voting rights in the combined company upon completion of the CPA:18 Merger. There have been no changes to the purchase price allocation for the CPA:18 Merger from what was disclosed in the 2022 Annual Report. Costs related to the CPA:18 Merger have been expensed as incurred and classified within Merger and other expenses in the consolidated statements of income, totaling $17.1 million for the nine months ended September 30, 2022.

Goodwill

The $172.3 million of goodwill recorded in the CPA:18 Merger was primarily due to the premium we paid over CPA:18 – Global’s estimated fair value. Management believes the premium is supported by several factors, including that the CPA:18 Merger (i) concludes our exit from the non-traded REIT business, (ii) adds a high-quality diversified portfolio of net lease assets that is well-aligned with our existing portfolio, (iii) enhances certain portfolio metrics, and (iv) adds an attractive portfolio of self-storage operating properties.

The fair value of the 13,786,302 shares of our common stock issued in the CPA:18 Merger as part of the consideration paid for CPA:18 – Global of $1.6 billion was derived from the closing market price of our common stock on the acquisition date. As required by GAAP, the fair value related to the assets acquired and liabilities assumed, as well as the shares exchanged, has been computed as of the date we gained control, which was the closing date of the CPA:18 Merger, in a manner consistent with the methodology described above.

Goodwill is not deductible for income tax purposes.

Equity Investments

During the third quarter of 2022, we recognized a gain on change in control of interests of approximately $22.5 million, which was the difference between the carrying value of approximately $65.8 million and the fair value of approximately $88.3 million of our previously held equity interest in 8,556,732 shares of CPA:18 – Global’s common stock.

W. P. Carey 9/30/2023 10-Q – 12

Notes to Consolidated Financial Statements (Unaudited)

The CPA:18 Merger also resulted in our acquisition of the remaining interests in four investments in which we already had a joint interest and accounted for under the equity method. Upon acquiring the remaining interests in these investments, we owned 100% of these investments and thus accounted for the acquisitions of these interests utilizing the purchase method of accounting. Due to the change in control of the four jointly owned investments that occurred, we recorded a gain on change in control of interests of approximately $11.4 million during the third quarter of 2022, which was the difference between our carrying values and the fair values of our previously held equity interests on August 1, 2022 of approximately $17.2 million and approximately $28.6 million, respectively. Subsequent to the CPA:18 Merger, we consolidate these wholly owned investments.

Pro Forma Financial Information

The following consolidated pro forma financial information has been presented as if the CPA:18 Merger had occurred on January 1, 2021 for the three and nine months ended September 30, 2022. The pro forma financial information is not necessarily indicative of what the actual results would have been had the CPA:18 Merger on that date, nor does it purport to represent the results of operations for future periods.

(in thousands)


	Three Months Ended September 30,		Nine Months Ended September 30,
	2022		2022
Pro forma total revenues	$	397,915	$	1,187,887

Note 4. Agreements and Transactions with Related Parties

Advisory Agreements and Partnership Agreements with the Managed Programs

We currently have advisory arrangements with CESH, pursuant to which we earn fees and are entitled to receive reimbursement for certain fund management expenses. Upon completion of the CPA:18 Merger on August 1, 2022 (Note 1, Note 3), our advisory agreements with CPA:18 – Global were terminated, and we ceased earning revenue from CPA:18 – Global.

The following tables present a summary of revenue earned, reimbursable costs, and distributions of Available Cash received/accrued from the Managed Programs for the periods indicated, included in the consolidated financial statements (in thousands):


	Three Months Ended September 30,				Nine Months Ended September 30,
	2023		2022		2023		2022
Asset management revenue (a) (b)	$	194	$	1,197	$	836	$	8,084
Reimbursable costs from affiliates (a)	97		344		322		2,414
Distributions of Available Cash (c)	—		3,345		—		8,746
Interest income on loans to affiliates (d)	—