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Section 1: 10-K (10-K)

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UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
 FORM 10-K
þ
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 
For the fiscal year ended December 31, 2017
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: 001-13779
392322598_wpclogo1.jpg

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.)
 
 
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:
Title of each class
Name of exchange on which registered
Common Stock, $0.001 Par Value
New York Stock Exchange
 
Securities registered pursuant to Section 12(g) of the Act: None
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes þ No o
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 þ
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 þ 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 þ 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. o
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 þ
Accelerated filer o
Non-accelerated filer o
 
 
(Do not check if a smaller reporting company)
 
 
 
Smaller reporting company o
Emerging growth company o
 
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. o
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act). Yes o No þ
State the aggregate market value of the voting and non-voting common equity held by non-affiliates computed by reference to the price at which the common equity was last sold, or the average bid and asked price of such common equity, as of last business day of the registrant’s most recently completed second fiscal quarter: $7.0 billion.
As of February 16, 2018 there were 106,930,816 shares of Common Stock of registrant outstanding.
DOCUMENTS INCORPORATED BY REFERENCE
The registrant incorporates by reference its definitive Proxy Statement with respect to its 2018 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 I
 
 
Item 1.
Item 1A.
Item 1B.
Item 2.
Item 3.
Item 4.
PART II
 
 
Item 5.
Item 6.
Item 7.
Item 7A.
Item 8.
Item 9.
Item 9A.
Item 9B.
PART III
 
 
Item 10.
Item 11.
Item 12.
Item 13.
Item 14.
PART IV
 
 
Item 15.
Item 16.
 


 
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Forward-Looking Statements

This Annual Report on Form 10-K, or this Report, including Management’s Discussion and Analysis of Financial Condition and Results of Operations in Item 7 of Part II of this Report, contains forward-looking statements within the meaning of the federal securities laws. These forward-looking statements generally are identified by the words “believe,” “project,” “expect,” “anticipate,” “estimate,” “intend,” “strategy,” “plan,” “may,” “should,” “will,” “would,” “will be,” “will continue,” “will likely result,” and similar expressions. These forward-looking statements include, but are not limited to, statements regarding: capital markets; our ability to sell shares under our “at-the-market” program and the use of proceeds from that program; tenant credit quality; the general economic outlook; our expected range of Adjusted funds from operations, or AFFO; our corporate strategy; our capital structure; our portfolio lease terms; our international exposure and acquisition volume, including the effects of the United Kingdom’s decision to exit the European Union; our expectations about tenant bankruptcies and interest coverage; statements regarding estimated or future economic performance and results, including our underlying assumptions, occupancy rate, credit ratings, and possible new acquisitions and dispositions; the outlook for the investment programs that we manage, including their earnings, as well as possible liquidity events for those programs; statements that we make regarding our ability to remain qualified for taxation as a real estate investment trust, or REIT; the impact of recently issued accounting pronouncements, the recently adopted Tax Cuts and Jobs Act in the United States, and other regulatory activity, such as the General Data Protection Regulation in the European Union or other data privacy initiatives; the amount and timing of any future dividends; our existing or future leverage and debt service obligations; our estimated future growth; our projected assets under management; our future capital expenditure levels; our future financing transactions; and our plans to fund our future liquidity needs. 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 factors could also have material adverse effects on our business, financial condition, liquidity, results of operations, AFFO, 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, or the SEC, including but not limited to those described in Item 1A. Risk Factors of this Report. 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 presentation, 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 II, Item 8. Financial Statements and Supplementary Data.


 
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PART I

Item 1. Business.

General Development of Business

W. P. Carey Inc., or W. P. Carey, together with our consolidated subsidiaries and predecessors, is an internally-managed diversified REIT and a leading owner of commercial real estate, net leased to companies located primarily in North America and Europe on a long-term basis. The vast majority of our revenues originate from lease revenue provided by our owned real estate portfolio, which is comprised primarily of single-tenant industrial, office, retail, and warehouse facilities that are critical to our tenants’ operations. Our portfolio is comprised of 887 properties, net leased to 210 tenants in 17 countries. As of December 31, 2017, approximately 68% of our contractual minimum annualized base rent, or ABR, was generated by properties located in North America and approximately 30% was generated by properties located in Europe.

We also earn fees and other income by managing the portfolios of certain non-traded investment programs through our investment management business. Founded in 1973, we originally operated as sponsor and advisor to a series of 17 non-traded investment programs under the Corporate Property Associates, or CPA, brand name. In September 2012, we reorganized as a REIT in connection with our merger with Corporate Property Associates 15 Incorporated, or CPA:15, which we refer to as the CPA:15 Merger. On January 31, 2014, Corporate Property Associates 16 – Global Incorporated, or CPA:16 – Global, merged into us, which added approximately $3.7 billion of real estate assets to our portfolio, and which we refer to as the CPA:16 Merger. As of June 30, 2017, we exited non-traded retail fundraising activities and no longer sponsor new investment programs, although we currently expect to continue managing our existing programs through the end of their respective life cycles.

Our shares of common stock are listed on the New York Stock Exchange under the ticker symbol “WPC.”

Headquartered in New York, we also have offices in Dallas, London, and Amsterdam. At December 31, 2017, we had 207 full-time employees.

Financial Information About Segments

Our business operates in two segments, Owned Real Estate and Investment Management, as described below and in Note 17.

Owned Real Estate

Lease revenues and equity income from our wholly- and co-owned real estate investments generate the vast majority of our earnings. We invest in commercial real estate properties that are net-leased to tenants, primarily located in the United States and Northern and Western Europe. Our leases are generally “triple-net,” which requires tenants to be responsible for substantially all of the costs associated with operating and maintaining the property. In addition, the vast majority of our leases specify a base rent with scheduled fixed or inflation-linked increases. See Our Portfolio below for more information regarding the characteristics of our properties.

Investment Management

We earn additional revenue by acting as the advisor to (i) two publicly owned, non-listed REITs that have also primarily invested in commercial real estate properties: Corporate Property Associates 17 – Global Incorporated, or CPA:17 – Global, and Corporate Property Associates 18 – Global Incorporated, or CPA:18 – Global, which we refer to together as the CPA REITs; (ii) two publicly owned, non-listed REITs that have invested in lodging and lodging-related properties: Carey Watermark Investors Incorporated, or CWI 1, and Carey Watermark Investors 2 Incorporated, or CWI 2, which we refer to together as the CWI REITs; and (iii) a private limited partnership formed for the purpose of developing, owning, and operating student housing properties and similar investments in Europe: Carey European Student Housing Fund I, L.P., or CESH I. At the date of this Report, all of these programs had substantially invested the funds raised in their offerings.

In August 2017, we resigned as the advisor to Carey Credit Income Fund (known since October 23, 2017 as Guggenheim Credit Income Fund), or CCIF, and by extension, its feeder funds, or the CCIF Feeder Funds, each of which is a business development company, or BDC. We refer to CCIF and the CCIF Feeder Funds collectively as the Managed BDCs.


 
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As used herein, “Managed REITs” refers to the CPA REITs together with the CWI REITS, while “Managed Programs” refers to the Managed REITs, CESH I, and prior to our resignation as their advisor, the Managed BDCs.

See Note 3 for a description of the fees that we earn under our advisory agreements with the Managed Programs.

Narrative Description of Business

Business Objectives and Strategy

Our primary business objective is to increase long-term stockholder value through accretive acquisitions and proactive asset management of our owned real estate portfolio, enabling us to grow our dividend.

Our investment strategy primarily focuses on owning and actively managing a diverse portfolio of commercial real estate that is net leased to credit-worthy companies. We believe that many companies prefer to lease rather than own their corporate real estate because it allows them to deploy their capital more effectively into their core competencies. We structure financing for companies in the form of sale-leaseback transactions, where we acquire a company’s critical real estate and then lease it back to them on a long-term, triple-net basis, which requires them to pay substantially all of the costs associated with operating and maintaining the property (such as real estate taxes, insurance, and facility maintenance). Compared to other types of real estate investments, sale-leaseback transactions typically produce a more predictable income stream and require minimal capital expenditures, which in turn generate revenues that provide our stockholders with a stable, growing source of income.

We actively manage our real estate portfolio to monitor tenant credit quality and lease renewal risks. We believe that diversification across property type, tenant, tenant industry, and geographic location, as well as diversification of our lease expirations and scheduled rent increases, are vital aspects of portfolio risk management and have accordingly constructed a portfolio of real estate that we believe is well-diversified across each of these categories.

In addition to our owned real estate portfolio, as of December 31, 2017, we also managed assets of approximately $13.1 billion through the Managed Programs. On June 15, 2017, in keeping with our long-term strategy of focusing exclusively on net lease investing for our own balance sheet, our board of directors, or our Board, approved a plan to exit non-traded retail fundraising activities carried out by our wholly-owned subsidiary Carey Financial LLC, or Carey Financial, which was a registered broker-dealer. As a result, Carey Financial ceased active fundraising on behalf of the Managed Programs on June 30, 2017 and deregistered as a broker-dealer as of October 11, 2017. In August 2017, we resigned as the advisor to the Managed BDCs, which became effective on September 11, 2017. We continue to act as the advisor to the remaining Managed Programs and currently expect to do so through the end of their respective life cycles (Note 3).

Investment Strategies

When considering potential net-lease investments for our owned real estate portfolio, we review various aspects of a transaction to determine whether the investment and lease structure will satisfy our investment criteria. We generally analyze the following main aspects of each transaction:

Tenant/Borrower Evaluation — We evaluate each potential tenant or borrower for its creditworthiness, typically considering factors such as management experience, industry position and fundamentals, operating history, and capital structure. We also rate each asset based on its market, liquidity, and criticality to the tenant’s operations, as well as other factors that may be unique to a particular investment. We seek opportunities where we believe the tenant may have a stable or improving credit profile or credit potential that has not been fully recognized by the market. We define creditworthiness as a risk-reward relationship appropriate to our investment strategies, which may or may not coincide with ratings issued by the credit rating agencies. We have a robust internal credit rating system and may designate a tenant as “implied investment grade” even if the credit rating agencies have not made a rating determination.


 
W. P. Carey 2017 10-K 4
                    



Properties Critical to Tenant/Borrower Operations — We generally focus on properties and facilities that we believe are critical to the ongoing operations of the tenant. We believe that these properties generally provide better protection, particularly in the event of a bankruptcy, since a tenant/borrower is less likely to risk the loss of a critically important lease or property in a bankruptcy proceeding or otherwise.

Diversification — We attempt to diversify our portfolio to avoid undue dependence on any one particular tenant, borrower, collateral type, geographic location, or industry. By diversifying our portfolio, we seek to reduce the adverse effect of a single underperforming investment or a downturn in any particular industry or geographic region. While we do not set any fixed diversity metrics in our portfolio, we believe that it is well-diversified.

Lease Terms — Generally, the net-leased properties we invest in are leased on a full-recourse basis to the tenants or their affiliates. In addition, the vast majority of our leases provide for scheduled rent increases over the term of the lease (see Our Portfolio below). These rent increases are either fixed (i.e., mandated on specific dates) or tied to increases in inflation indices (e.g., the Consumer Price Index, or CPI, or similar indices in the jurisdiction where 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 the gross revenues of the tenant above a stated level, which we refer to as percentage rent.

Real Estate Evaluation — We review and evaluate the physical condition of the property and the market in which it is located. We consider 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. We obtain third-party environmental and engineering reports and market studies when required. When considering an investment outside the United States, we will also consider factors particular to a country or region, including geopolitical risk, in addition to the risks normally associated with real property investments. See Item 1A. Risk Factors.

Transaction Provisions to Enhance and Protect Value — When negotiating leases with potential tenants, we attempt to include provisions that we believe help to protect the investment from material changes in the tenant’s operating and financial characteristics, which may affect the tenant’s ability to satisfy its obligations to us or reduce the value of the investment. Such provisions include covenants requiring our consent for certain activities, requiring indemnification protections and/or security deposits, and requiring the tenant to satisfy specific operating tests. We may also seek to enhance the likelihood that a tenant will satisfy their lease obligations through a letter of credit or guaranty from the tenant’s parent or other entity. Such credit enhancements, if obtained, provide us with additional financial security. However, in markets where competition for net-lease transactions is strong, some or all of these lease provisions may be difficult to obtain. In addition, in some circumstances, tenants may retain the option to repurchase the property, typically at the greater of the contract purchase price or the fair market value of the property at the time the option is exercised.

Competition — We face active competition from many sources, both domestically and internationally, for net-lease investment opportunities in commercial properties. In general, we believe that our management’s experience in real estate, credit underwriting, and transaction structuring will allow us to compete effectively for commercial properties. However, competitors may be willing to accept rates of return, lease terms, other transaction terms, or levels of risk that we find unacceptable.
 
Asset Management

We believe that proactive asset management is essential to maintaining and enhancing property values. Important aspects of asset management include entering into new or modified transactions to meet the evolving needs of current tenants, re-leasing properties, credit and real estate risk analysis, building expansions and redevelopments, and strategic dispositions.

We monitor compliance by tenants with their lease obligations and other factors that could affect the financial performance of our real estate investments on an ongoing basis, which typically involves ensuring that each tenant has paid real estate taxes, assessments, and other expenses relating to the properties it occupies and is maintaining appropriate insurance coverage. To ensure such compliance at our international properties, we often engage the expertise of third-party asset managers. We also review tenant financial statements and undertake regular physical inspections of the properties to verify their condition and maintenance. Additionally, we periodically analyze each tenant’s financial condition, the industry in which each tenant operates, and each tenant’s relative strength in its industry.


 
W. P. Carey 2017 10-K 5
                    



Financing Strategies

We seek to maintain a conservative capital structure that enhances equity returns and financial flexibility. We believe that we benefit from having access to multiple forms of capital, including common stock, preferred stock, unsecured debt, bank debt, and mortgage debt. We preserve flexibility and liquidity by maintaining significant capacity through our $1.5 billion revolving credit facility. We generally use our credit facility for short-term financing of new investments or maturing debt. Subsequently, we refinance credit facility borrowings with a mix of long-term debt and equity, while taking into account corporate leverage targets, the most advantageous sources of capital available to us, and optimal timing for new issuances. Since 2014, we have focused on transitioning to a more unencumbered balance sheet, and we expect our percentage of secured debt to gross assets to continue to decline as we repay maturing mortgages and acquire new assets unencumbered by mortgage debt. Although we expect to continue to have access to a wide variety of capital sources, there can be no assurance that such access will be available to us at all times.

Our Portfolio

At December 31, 2017, our portfolio had the following characteristics:

Number of properties — full or partial ownership interests in 887 net-leased properties and two hotels;
Total net-leased square footage — 84.9 million; and
Occupancy rate — approximately 99.8%.

For more information about our portfolio, see Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations — Portfolio Overview.
 
Tenant/Lease Information

At December 31, 2017, our tenants/leases had the following characteristics:

Number of tenants — 210;
Investment grade tenants as a percentage of total ABR — 19%;
Implied investment grade tenants as a percentage of total ABR — 8%;
Weighted-average lease term — 9.6 years;
99% of our leases provide rent adjustments as follows:
CPI and similar — 68%
Fixed — 27%
Other — 4%

Financial Information About Geographic Areas

See Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations — Portfolio Overview and Note 17 for financial information pertaining to our geographic operations.

Available Information
 
We will supply to any stockholder, upon written request and without charge, a copy of this Report as filed with the SEC. 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, as well as any amendments to those reports, are available for free on our website, http://www.wpcarey.com, as soon as reasonably practicable after they are filed with or furnished to the SEC. We are providing our website address solely for the information of investors and do not intend for it to be an active link. We do not intend to incorporate the information contained on our website into this Report or other documents filed with or furnished to the SEC.

Our SEC filings are available to be read or copied at the SEC’s Public Reference Room at 100 F Street, NE, 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 website at http://www.sec.gov.


 
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Our Code of Business Conduct and Ethics, which applies to all employees, including our chief executive officer and chief financial officer, is available on our website at http://www.wpcarey.com. We intend to make available on our website any future amendments or waivers to our Code of Business Conduct and Ethics within four business days after any such amendments or waivers. Generally, we also post the dates of our upcoming scheduled financial press releases, telephonic investor calls, and investor presentations on the Investor Relations portion of our website at least ten days prior to the event. Our investor calls are open to the public and remain available on our website for at least two weeks thereafter.

Item 1A. Risk Factors.
 
Our business, results of operations, financial condition, and ability to pay dividends could be materially adversely affected by various risks and uncertainties, including those enumerated 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.

Risks Related to Our Business

We face active competition for investments.

We face active competition for our investments from many sources, including insurance companies, credit companies, pension funds, private individuals, financial institutions, finance companies, and investment companies. These institutions may accept greater risk or lower returns, allowing them to offer more attractive terms to prospective tenants. We believe that the investment community remains risk averse and that the net lease financing market is perceived as a relatively conservative investment vehicle. Accordingly, we expect increased competition for investments, both domestically and internationally. Further capital inflows into our marketplace will place additional pressure on the returns that we can generate from our investments, as well as our willingness and ability to execute transactions. In addition, the vast majority of our current investments are in single-tenant commercial properties that are subject to triple-net leases. Many factors, including changes in tax laws or accounting rules, may make these types of sale-leaseback transactions less attractive to potential sellers and lessees, which could negatively affect our ability to increase the amount of assets of this type under management.

A significant amount of our leases will expire within the next five years and we may have difficulty re-leasing or selling our properties if tenants do not renew their leases.
 
Within the next five years, approximately 27% of our leases, based on our ABR as of December 31, 2017, are due to expire. If these leases are not renewed or if the properties cannot be re-leased on terms that yield comparable payments, our lease revenues could be substantially adversely affected. In addition, when attempting to re-lease such properties, we may incur significant costs and the terms of any new or renewed leases will depend on prevailing market conditions at that time. We may also seek to sell such properties and incur losses due to prevailing market conditions. Some of our properties are designed for the particular needs of a tenant; thus, we may be required to renovate or make rent concessions in order to lease the property to another tenant. If we need to sell such properties, we may have difficulty selling it to a third party due to the property’s unique design. Real estate investments are generally less liquid than many other financial assets, which may limit our ability to quickly adjust our portfolio in response to changes in economic or other conditions. These and other limitations may affect our ability to re-lease or sell properties without adversely affecting returns to stockholders.

We are not required to meet any diversification standards; therefore, our investments may become subject to concentration risks.

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. Therefore, our investments may become concentrated in type or geographic location, which could subject us to significant concentration risks with potentially adverse effects on our investment objectives.


 
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Because we invest in properties located outside the United States, we are exposed to additional risks.
 
We have invested, and may continue to invest, in properties located outside the United States. At December 31, 2017, our directly owned real estate properties located outside of the United States represented 34% of our ABR. These investments may be affected by factors particular to the local jurisdiction where the property is located and may expose us to additional risks, including:
 
enactment of laws relating to the foreign ownership of property (including expropriation of investments), or laws and regulations relating to our ability to repatriate invested capital, profits, or cash and cash equivalents back to the United States;
legal systems where the ability to enforce contractual rights and remedies may be more limited than under U.S. law;
difficulty in complying with conflicting obligations in various jurisdictions and the burden of observing a variety of evolving foreign laws, regulations, and governmental rules and policies, which may be more stringent than U.S. laws and regulations (including land use, zoning, environmental, financial, and privacy laws and regulations), including the General Data Protection Regulation in the European Union that becomes effective on May 25, 2018;
tax requirements vary by country and existing foreign tax laws and interpretations may change (e.g., the on-going implementation of the European Union’s Anti-Tax Avoidance Directive), which may result in additional taxes on our international investments;
changes in operating expenses in particular countries or regions; and
geopolitical risk and adverse market conditions caused by changes in national or regional economic or political conditions (which may impact relative interest rates and the availability, cost, and terms of mortgage funds).

The failure of our compliance and internal control systems to properly mitigate such additional risks, or of our operating infrastructure to support such international investments, could result in operational failures, regulatory fines, or other governmental sanctions.
In addition, the lack of publicly available information in certain jurisdictions in accordance with U.S. generally accepted accounting principles, or 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 reporting obligations to financial institutions or governmental and regulatory agencies. Certain of these risks may be greater in emerging markets and less developed countries. Further, our expertise to date is primarily in the United States and certain countries in Europe. We have less experience in other international markets and may not be as familiar with the potential risks to investments in these areas, which could cause us and the entities we manage to incur losses.
 
We may engage third-party asset managers in international jurisdictions to monitor compliance with legal requirements and lending agreements. Failure to comply with applicable requirements may expose us, our operating subsidiaries, or the entities we manage to additional liabilities. Our operations in the United Kingdom, the European Economic Area, Australia, and other countries are subject to significant compliance, disclosure, and other obligations. The European Union’s Alternative Investment Fund Managers Directive, or AIFMD, as transposed into national law within the states of the European Economic Area, established a new regulatory regime for alternative investment fund managers, including private equity and hedge fund managers. AIFMD generally applies to managers with a registered office in the European Economic Area managing one or more alternative investments funds. Compliance with the requirements of AIFMD may impose additional compliance burdens and expense on us and could reduce our operating flexibility.
 
We are also subject to potential fluctuations in exchange rates between foreign currencies and the U.S. dollar because we translate revenue denominated in foreign currency into U.S. dollars for our financial statements (our principal exposure is to the euro). Our results of foreign operations are adversely affected by a stronger U.S. dollar relative to foreign currencies (i.e., absent other considerations, a stronger U.S. dollar will reduce both our revenues and our expenses).

Economic conditions and regulatory changes leading up to and following the United Kingdom’s exit from the European Union could have a material adverse effect on our business and results of operations.

On March 29, 2017, the United Kingdom invoked Article 50 of the Treaty on European Union and initiated the process to leave the European Union (a process commonly referred to as “Brexit”). The effects of Brexit will depend on the agreements that the United Kingdom makes to retain access to European Union markets, either during the transitional period or more permanently. The real estate industry faces substantial uncertainty regarding the impact of Brexit. Adverse consequences could include, but are not limited to: global economic uncertainty and deterioration, volatility in currency exchange rates, adverse changes in regulation of the real estate industry, disruptions to the markets we invest in and the tax jurisdictions we operate in (which may

 
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adversely impact tax benefits or liabilities in these or other jurisdictions), and/or negative impacts on the operations and financial conditions of our tenants. In addition, Brexit could lead to legal uncertainty and potentially divergent national laws and regulations as the United Kingdom determines which European Union laws to replace or replicate. Any of these effects of Brexit, among others, could have a material negative impact on us and the Managed Programs. Given the ongoing negotiations to determine the terms of the United Kingdom’s future relationship with the European Union, we cannot predict how the Brexit process will be implemented and are continuing to assess the potential impact, if any, of these events on our operations, financial condition, and results of operations.

We may incur substantial impairment charges.
 
We may incur substantial impairment charges, which we are required to recognize: (i) 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; (ii) for direct financing leases, whenever the unguaranteed residual value of the underlying property has declined on an other-than-temporary basis; and (iii) for equity investments, whenever 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 on an other-than-temporary basis. By their nature, the timing or extent of impairment charges are not predictable. We may incur non-cash impairment charges in the future, which may reduce our net income.

Impairments of goodwill could also adversely affect our financial condition and results of operations. We assess our goodwill and other intangible assets for impairment at least annually and more frequently when required by GAAP. We are required to record an impairment charge if circumstances indicate that the asset carrying values exceed their fair values. Our assessment of goodwill or other intangible assets could indicate that an impairment of the carrying value of such assets may have occurred, resulting in a material, non-cash write-down of such assets, which could have a material adverse effect on our results of operations and future earnings.

Our level of indebtedness and the limitations imposed on us by our debt agreements could have significant adverse consequences.

Our consolidated indebtedness as of December 31, 2017 was approximately $4.3 billion, representing a leverage ratio of approximately 5.9. This consolidated indebtedness was comprised of (i) $2.5 billion in Unsecured Senior Notes, (ii) $1.2 billion in non-recourse mortgages, and (iii) $605.1 million outstanding under our Senior Unsecured Credit Facility. Our level of indebtedness and the limitations imposed by our debt agreements could have significant adverse consequences, including the following:

it may increase our vulnerability to general adverse economic conditions and limit our flexibility in planning for, or reacting to, changes in our business and industry;
we may be required to use a substantial portion of our cash flow from operations for the payment of principal and interest on indebtedness, thereby reducing our ability to fund working capital, acquisitions, capital expenditures, and general corporate requirements;
we may be at a disadvantage compared to our competitors with comparatively less indebtedness;
it could cause us to violate restrictive covenants in our debt agreements, which would entitle lenders and other debtholders to accelerate the maturity of such debt;
debt service requirements and financial covenants relating to our indebtedness may limit our ability to maintain our REIT qualification;
we may be unable to hedge our debt; counterparties may fail to honor their obligations under our hedge agreements; our hedge agreements may not effectively protect us from interest rate or currency fluctuation risk; and we will be exposed to existing, and potentially volatile, interest or currency exchange rates upon the expiration of our hedge agreements;
because a portion of our debt bears interest at variable rates, increases in interest rates could materially increase our interest expense;
we may be forced to dispose of one or more of our properties, possibly on disadvantageous terms, in order to service our debt or if we fail to meet our debt service obligations;
upon any default on our secured indebtedness, lenders may foreclose on the properties or our interests in the entities that own the properties securing such indebtedness and receive an assignment of rents and leases; and
we may be unable to raise additional funds as needed or on favorable terms, which could, among other things, adversely affect our ability to capitalize upon acquisition opportunities or meet operational needs.


 
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If any one of these events were to occur, our business, financial condition, liquidity, results of operations, earnings, and prospects, as well as our ability to satisfy all of our debt obligations (including those under our Senior Unsecured Credit Facility, our Unsecured Senior Notes, or other similar debt securities that we issue), could be materially and adversely affected. Furthermore, foreclosures could create taxable income without accompanying cash proceeds, which could hinder our ability to meet the REIT distribution requirements imposed by the Internal Revenue Code.

Despite our substantial outstanding indebtedness, we may still incur significantly more indebtedness in the future. Although the agreements governing our indebtedness do limit our ability to incur additional indebtedness, these restrictions are subject to a number of qualifications and exceptions and, under certain circumstances, debt incurred in compliance with these restrictions could be substantial. To the extent that we incur substantial additional indebtedness in the future, the risks associated with our substantial leverage described herein, including our inability to meet all of our debt service obligations, would be exacerbated.

We may not be able to generate sufficient cash flow to meet all of our existing or potential future debt service obligations.

Our ability to generate sufficient cash flow determines whether we will be able to (i) meet our existing or potential future debt service obligations (including those under our Senior Unsecured Credit Facility and our Unsecured Senior Notes, or other similar debt securities that we issue); (ii) refinance our existing or potential future indebtedness; and (iii) fund our operations, working capital, acquisitions, capital expenditures, and other important business uses. Our future cash flow is subject to, among other factors, general economic, industry, financial, competitive, operating, legislative, and regulatory conditions, many of which are beyond our control.

We cannot assure you that our business will generate sufficient cash flow from operations or that future sources of cash will be available to us on favorable terms, or at all; in amounts sufficient to enable us to meet all of our existing or potential future debt service obligations; or to fund our other important business uses or liquidity needs. Furthermore, if we incur additional indebtedness in connection with future acquisitions or development projects, our existing or potential future debt service obligations could increase significantly and our ability to meet those obligations could depend on returns from such acquisitions or projects, which cannot be assured.

We may need to refinance all or a portion of our indebtedness at or prior to maturity. Our ability to refinance our indebtedness or obtain additional financing will depend on, among other things: (i) our business, financial condition, liquidity, results of operations, AFFO, prospects, and then-current market conditions; and (ii) restrictions in the agreements governing our indebtedness. As a result, we may not be able to refinance any of our indebtedness or obtain additional financing on favorable terms.

If we do not generate sufficient cash flow from operations and additional borrowings or refinancings are not available to us, we may be unable to meet all of our existing or potential future debt service obligations. As a result, we would be forced to take other actions to meet those obligations, such as selling properties, raising equity, or delaying capital expenditures, any of which could have a material adverse effect on us. Furthermore, we cannot assure you that we will be able to effect any of these actions on favorable terms, or at all.

The effective subordination of our Unsecured Senior Notes, or other similar debt securities that we issue, may limit our ability to meet all of our debt service obligations.

As of December 31, 2017, we had consolidated indebtedness of $4.3 billion outstanding, of which $1.2 billion was secured indebtedness issued by certain of our subsidiaries, and no preferred equity. Our Unsecured Senior Notes are unsecured and unsubordinated obligations and rank equally in right of payment with each other and with all of our unsecured and unsubordinated indebtedness. However, our Unsecured Senior Notes are effectively subordinated in right of payment to all of our secured indebtedness to the extent of the value of the collateral securing such indebtedness. While the indentures governing our Unsecured Senior Notes limit our ability to incur secured indebtedness in the future, they do not prohibit us from incurring such indebtedness if we and our subsidiaries are in compliance with certain financial ratios and other requirements at the time of incurrence. In the event of a bankruptcy, liquidation, dissolution, reorganization, or similar proceeding with respect to us, the holders of any secured indebtedness will be entitled to proceed directly against the collateral that secures such indebtedness. Therefore, the collateral will not be available for satisfaction of any amounts owed under our unsecured indebtedness, including our Unsecured Senior Notes or similar debt securities that we issue, until such secured indebtedness is satisfied in full.


 
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Our Unsecured Senior Notes are also effectively subordinated to all liabilities, whether secured or unsecured, and any preferred equity of our subsidiaries, which is particularly important because we have no significant operations or assets other than our equity interests in our subsidiaries. In the event of a bankruptcy, liquidation, dissolution, reorganization, or similar proceeding with respect to any of our subsidiaries, we (as a common equity owner of such subsidiary) and therefore holders of our debt (including our Unsecured Senior Notes or similar debt securities that we issue), will be subject to the prior claims of such subsidiary's creditors, including trade creditors and preferred equity holders.

The indentures governing our Unsecured Senior Notes contain restrictive covenants that may limit our ability to expand or fully pursue our business strategies.

The indentures governing our Unsecured Senior Notes contain financial and operating covenants that, among other things, may limit our ability to take specific actions, even if we believe them to be in our best interest (e.g., subject to certain exceptions, our ability to consummate a merger, consolidation, or a transfer of all or substantially all of our consolidated assets to another person is restricted).

In addition, our current debt agreements require us to meet specified financial ratios and the indentures governing our Unsecured Senior Notes require us to (i) limit the amount of our total debt and the amount of our secured debt before incurring new debt, (ii) maintain at all times a specified ratio of unencumbered assets to unsecured debt, and (iii) meet a debt service coverage ratio before incurring new debt. These covenants may restrict our ability to expand or fully pursue our business strategies. Our ability to comply with these and other provisions of our debt agreements may be affected by changes in our operating and financial performance, changes in general business and economic conditions, adverse regulatory developments, or other events beyond our control. The breach of any of these covenants could result in a default under our indebtedness, which could result in the acceleration of the maturity of such indebtedness and potentially other indebtedness. If any of our indebtedness is accelerated prior to maturity, we may not be able to repay such indebtedness or refinance such indebtedness on favorable terms, or at all.

The market price of our Unsecured Senior Notes may be volatile.

The market price of our Unsecured Senior Notes may be highly volatile and subject to wide fluctuations. The market price of our Unsecured Senior Notes may fluctuate as a result of factors (such as changes in interest rates) that are beyond our control or unrelated to our historical and projected business, financial condition, liquidity, results of operations, earnings, or prospects. It is impossible to assure investors that the market price of our Unsecured Senior Notes will not fall in the future and it may be difficult for investors to resell our Unsecured Senior Notes at prices they find attractive, or at all. Furthermore, while the euro-denominated 2.0% Senior Notes have been listed on the New York Stock Exchange and the euro-denominated 2.25% Senior Notes have been listed on the Global Exchange Market, no assurance can be given that such listings can be maintained or that it will ensure an active trading market for these notes. In addition, there is currently no public market for the other Unsecured Senior Notes. Therefore, if an active trading market does not exist for our Unsecured Senior Notes, investors may not be able to resell them on favorable terms when desired, or at all. The liquidity of the trading market, if any, and the future market price of our Unsecured Senior Notes will depend on many factors, including, among other things, prevailing interest rates; our business, financial condition, liquidity, results of operations, AFFO, and prospects; the market for similar securities; and the state of the overall securities market. It is possible that the market for the Unsecured Senior Notes will be subject to disruptions, which may have a negative effect on the holders of our Unsecured Senior Notes, regardless of our business, financial condition, liquidity, results of operations, AFFO, or prospects.

Volatility and disruption in capital markets could materially and adversely impact us.

The capital markets may experience extreme volatility and disruption, which could make it more difficult to raise capital. If we cannot access the capital markets upon favorable terms or at all, we may be required to liquidate one or more investments, including when an investment has not yet realized its maximum return, which could also result in adverse tax consequences and affect our ability to capitalize on acquisition opportunities and/or meet operational needs. Moreover, market turmoil could lead to decreased consumer confidence and widespread reduction of business activity, which may materially and adversely impact us, including our ability to acquire and dispose of properties.


 
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A downgrade in our credit ratings could materially adversely affect our business and financial condition as well as the market price of our Unsecured Senior Notes.

We plan to manage our operations to maintain investment grade status with a capital structure consistent with our current profile, but there can be no assurance that we will be able to maintain our current credit ratings. Our credit ratings could change based upon, among other things, our historical and projected business, financial condition, liquidity, results of operations, AFFO, and prospects. These ratings are subject to ongoing evaluation by credit rating agencies and we cannot provide any assurance that our ratings will not be changed or withdrawn by a rating agency in the future. If any of the credit rating agencies downgrades or lowers our credit rating, or if any credit rating agency indicates that it has placed our rating on a “watch list” for a possible downgrading or lowering, or otherwise indicates that its outlook for our rating is negative, it could have a material adverse effect on our costs and availability of capital, which could in turn have a material adverse effect on us and on our ability to satisfy our debt service obligations (including those under our Senior Unsecured Credit Facility, our Unsecured Senior Notes, or other similar debt securities that we issue) and to pay dividends on our common stock. Furthermore, any such action could negatively impact the market price of our Unsecured Senior Notes.

Because we used property-level debt to finance investments, our cash flow could be adversely affected.
 
Prior to 2014, most of our investments were made by borrowing a portion of the total investment and securing the loan with a mortgage on the property. We generally borrowed 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 incorporated various covenants and other provisions (including loan to value ratio, debt service coverage ratio, and material adverse changes in the borrower’s or tenant’s business) that can cause a technical loan default. 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 could reduce the value of our portfolio and revenues available for distribution to our stockholders.
 
Some of our property-level financing may also require us to make a balloon payment at maturity. Our ability to make such balloon payments may depend upon our ability to refinance the obligation, invest additional equity, or sell the underlying property. When a balloon payment is due, however, we may be unable to refinance the balloon payment on terms as favorable as the original loan, make the payment with existing cash or cash resources, or sell the property at a price sufficient to cover the payment. Our ability to accomplish these goals will be affected by various factors existing at the relevant time, such as the state of 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 disposition timeline of our assets.

Certain of our leases permit tenants to purchase a property at a predetermined price, which could limit our realization of any appreciation or result in a loss.
 
We have granted certain tenants a right to repurchase the properties they lease from us. The purchase price may be a fixed price or it may be based on a formula or the market value at the time of exercise. If a tenant exercises its right to purchase the property and the property’s market value has increased beyond that price, we would not be able to fully realize the appreciation on that property. Additionally, if the price at which the tenant can purchase the property is less than our carrying value (e.g., where the purchase price is based on an appraised value), we may incur a loss. In addition, we may also be unable to reinvest proceeds from these dispositions in investments with similar or better investment returns.
 
Our ability to fully 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. While our leases generally provide for recourse against the tenant in these instances, a bankrupt or financially troubled tenant may be more likely to defer maintenance and it may be more difficult to enforce remedies against such a tenant. In addition, to the extent tenants are unable to successfully conduct their operations, their ability to pay rent may be adversely affected. Although we endeavor to monitor compliance by tenants with their lease obligations and other factors that could affect the financial performance of our properties on an ongoing basis, we may not always be able to ascertain or forestall deterioration in the condition of a property or the financial circumstances of a tenant.
 

 
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The value of our real estate is subject to fluctuation.
 
We are subject to all of the general risks associated with the ownership of real estate. While the revenues from our leases are not directly dependent upon the value of the real estate owned, significant declines in real estate values could adversely affect us in many ways, including a decline in the residual values of properties at lease expiration, possible lease abandonments by tenants, and a decline in the attractiveness of triple-net lease transactions to potential sellers. We also face the risk that lease revenue will be insufficient to cover all corporate operating expenses and the debt service payments we incur. General risks associated with the ownership of real estate include:

adverse changes in general or local economic conditions;
changes in the supply of, or demand for, similar or competing properties;
changes in interest rates and operating expenses;
competition for tenants;
changes in market rental rates;
inability to lease or sell properties upon termination of existing leases;
renewal of leases at lower rental rates;
inability to collect rents from tenants due to financial hardship, including bankruptcy;
changes in tax, real estate, zoning, or environmental laws that adversely impact the value of real estate;
failure to comply with federal, state, and local legal and regulatory requirements, including the Americans with Disabilities Act and fire or life-safety requirements;
uninsured property liability, property damage, or casualty losses;
unexpected expenditures for capital improvements or to bring properties into compliance with applicable federal, state, and local laws;
exposure to environmental losses;
changes in foreign exchange rates; and
force majeure and other factors beyond the control of our management.

In addition, 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.
 
Because most of our properties are occupied by a single tenant, our success is materially dependent upon the tenant’s financial stability.

Most of our properties are occupied by a single tenant; 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 top ten tenants accounted for approximately 32% of total ABR at December 31, 2017. Lease payment defaults by tenants could negatively impact our net income and reduce the amounts available for distribution to stockholders. As some of our tenants may not have a recognized credit rating, these tenants may have a higher risk of lease defaults than tenants with a recognized credit rating. In addition, the bankruptcy or default of a tenant could cause the loss of lease payments, as well as an increase in the carrying cost of the property, until it can be re-leased or sold. We have had, and may in the future have, tenants file for bankruptcy protection. 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 the 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.

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 carrying cost of the property, litigation, a reduction in the value of our shares, and/or a decrease in amounts available for distribution to our stockholders.

Under U.S. bankruptcy law, a tenant that is the subject of bankruptcy proceedings has 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 such unexpired lease is assumed or rejected, the tenant or its trustee must perform the tenant’s obligations under the lease in a timely manner. However, under certain circumstances, the time period for performance of such obligations may be extended by an order of the bankruptcy court. If the tenant rejects the

 
W. P. Carey 2017 10-K 13
                    



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 the United States may not be as favorable to reorganization or the protection of a debtor’s rights as in the United States. Our right to terminate a lease for default may be more likely to be enforced in foreign jurisdictions where a debtor/tenant or its insolvency representative lacks the right to force the 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. In addition, in circumstances where the bankruptcy laws of the United States are considered to be more favorable to debtors and/or their reorganization, entities that are not ordinarily perceived as U.S. entities may seek to take advantage of U.S. bankruptcy laws (an entity would be eligible to be a debtor under the U.S. bankruptcy laws if it had a domicile, place of business, or assets in the United States).

We and certain of the CPA programs have had tenants file for bankruptcy protection and have been involved in bankruptcy-related litigation (including with several international tenants). Historically, four of the seventeen CPA programs temporarily 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 that we may invest in may also be subject to delinquency, foreclosure, and loss, which could result in losses to us.
 
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.
 
We own commercial properties and are subject to the risk of liabilities under federal, state, and local environmental laws. These responsibilities and liabilities also exist for properties owned by the Managed Programs, and if they become liable for these costs, their ability to pay for our services could be materially affected. Some of these laws could impose the following on us:
 
responsibility and liability for the cost of investigation and removal or remediation (including at appropriate disposal facilities) of hazardous or toxic substances in, on, or migrating from our property, generally without regard to our knowledge of, or responsibility for, the presence of these contaminants;
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;
responsibility for managing asbestos-containing building materials and third-party claims for exposure to those materials; and
claims being made against us by the Managed Programs for inadequate due diligence.
 
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 at any of our properties, or the failure to properly remediate a contaminated property, could (i) give rise to a lien in favor of the government for costs it may incur to address the contamination or (ii) 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 by environmental laws, could affect its ability to make rental payments to us. And although we endeavor to avoid doing so, we may be required, in connection with any future divestitures of property, to provide buyers with indemnifications against potential environmental liabilities.


 
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There may be competition among us and the CPA REITs for business opportunities.

The CPA REITs have investment and/or rate of return objectives similar to our own. Those entities may be in competition with us with respect to properties; potential purchasers, and sellers and lessees of properties. We have agreed to implement certain procedures to help manage any perceived or actual conflicts between us and the CPA REITs, including the following:

allocating funds based on numerous factors, including available cash, diversification/concentration, transaction size, tax, leverage, and fund life;
all transactions where we co-invest with a CPA REIT are subject to the approval of the independent directors of the applicable CPA REIT;
investment allocations are reviewed as part of the annual advisory contract renewal process of each CPA REIT; and
quarterly review of all of our investment activities and the investment activities of the CPA REITs by the independent directors of the CPA REITs.

Our participation in joint ventures creates additional risk.

From time to time, we have participated in joint ventures to purchase assets together with the CPA REITs, and we may do so in the future with the CPA REITs or with third parties. There are additional risks involved in joint venture transactions. As a co-investor in a joint venture, we may not be in a position to exercise sole decision-making authority relating to the property, joint venture, or our investment partner. In addition, there is the potential that our investment partner may become bankrupt or that we may have diverging or inconsistent economic or business interests. These diverging interests could, among other things, expose us to liabilities in the joint venture in excess of our proportionate share of those 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 members of our Board may owe to our partner in an affiliated transaction may make it more difficult for us to enforce our rights.
 
Revenue and earnings from our investment management business are subject to volatility, which may cause our investment management revenue to fluctuate.
 
Revenue from our investment management business, as well as the value of our interests in the Managed Programs and distribution income from those interests, may be significantly affected by the results of operations of the Managed Programs. Each of the CPA REITs has invested the majority of its assets in triple-net leased properties substantially similar to those we hold. Consequently, the results of operations of, and cash available for distribution by, each of the CPA REITs are likely to be substantially affected by the same market conditions, and are subject to the same risk factors, as the properties we own. Historically, four of the seventeen CPA programs temporarily reduced the rate of distributions to their investors as a result of adverse developments involving tenants.

At the date of this Report, the Managed Programs had substantially invested the funds raised in their offerings, and as a result, we expect the structuring revenue that we earn for structuring and negotiating investments on their behalf to continue to decline. In addition, asset management revenue may be affected by factors such as changes in the valuation of the Managed Programs’ portfolios. Further, our ability to earn revenue related to the disposition of properties is primarily tied to providing liquidity events for the Managed Programs, and our ability to do so under circumstances that will satisfy the applicable subordination requirements will depend on market conditions at the relevant time, which may vary considerably over time.

Finally, each of the Managed Programs has incurred and may continue to incur, significant debt that, either due to liquidity problems or restrictive covenants contained in their borrowing agreements, could restrict their ability to pay revenue owed to us when due. In addition, the revenue payable to us under each of our advisory agreements with the Managed REITs is subject to its variable annual cap based on a formula tied to the assets and income.


 
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Because the revenue streams from the advisory agreements we have with the Managed REITs are subject to limitation or cancellation, any such termination could have a material adverse effect on our business, results of operations, and financial condition.
 
The advisory agreements under which we provide services to the Managed REITs are renewable annually and may generally be terminated by each Managed REIT upon 60 days’ notice, with or without cause. Unless otherwise renewed, the advisory agreement with each of the Managed REITs is scheduled to expire on December 31, 2018. There can be no assurance that these agreements will not expire or be terminated. Upon certain terminations, the Managed REITs each have the right, but not the obligation, to repurchase our interests in their operating partnerships at fair market value. If such right is not exercised, we would remain as a limited partner of the respective operating partnerships. Nonetheless, any such termination would have a material adverse effect on our business, results of operations, and financial condition.

The recent changes in both U.S. and international accounting standards regarding operating leases may make the leasing of facilities less attractive to our potential 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. 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 the first quarter of 2016, both the Financial Accounting Standards Board and the International Accounting Standards Board issued new standards on lease accounting that bring most leases, both existing and new, onto the balance sheet for lessees. For lessors, however, the accounting remains largely unchanged and the distinction between operating and finance leases continues. The new standards also replace existing sale-leaseback guidance with new models applicable to both lessees and lessors. These changes impact most companies, but are particularly applicable to those that are significant users of real estate. The standards outlined a completely new model for accounting by lessees, whereby their rights and obligations under most leases, existing and new, would be capitalized and recorded on the balance sheet. For some companies, the new accounting guidance may influence whether, or the extent to which, they will enter into the type of sale-leaseback transactions in which we specialize. In addition, the new accounting guidance may also influence provisions of leases, such as the lease term.

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.

We believe that we and our subsidiaries are engaged primarily in the business of acquiring and owning interests in real estate. We do not hold ourselves out as being engaged primarily in the business of investing, reinvesting, or trading in securities. Accordingly, we do not believe that we are an investment company as defined under the Investment Company Act. If we were required to register as an investment company, we would have to comply with a variety of substantive requirements under the Investment Company Act that impose, among other things, (i) limitations on our capital structure (including our ability to use leverage), (ii) restrictions on specified investments, (iii) prohibitions on proposed transactions with “affiliated persons” (as defined in the Investment Company Act), and (iv) compliance with reporting, record keeping, voting, proxy disclosure, and other rules and regulations that would significantly increase our operating expenses.

Although we intend to monitor our portfolio, there can be no assurance that we will be able to maintain an exclusion or exemption from registration as an investment company under the Investment Company Act. In order to maintain compliance with an Investment Company Act exemption or exclusion, we may be unable to sell assets that 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 that would be important to our investment strategy. If we were required to register as an investment company, we may be prohibited from engaging in our business as currently conducted because,

 
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among other things, the Investment Company Act imposes significant limitations on an investment company’s leverage. Furthermore, if we fail to comply with the Investment Company Act, criminal and civil actions could be brought against us, our contracts could be unenforceable, and a court could appoint a receiver to take control of us and liquidate our business. Were any of these results to occur, your investment return, if any, may be reduced.

W. P. Carey is not currently registered as an Investment Adviser and our failure to do so could subject us to civil and/or criminal penalties.

If the SEC determines that W. P. Carey is an investment adviser, we will have to register as an investment adviser with the SEC pursuant to the Investment Advisers Act. Registration requirements and other obligations imposed upon investment advisers may be costly and burdensome. In addition, if we must register with the SEC as an investment adviser, we will become subject to the requirements of the Investment Advisers Act, which requires: (i) fiduciary duties to clients; (ii) substantive prohibitions and requirements; (iii) contractual requirements; (iv) record-keeping requirements; and (v) administrative oversight by the SEC, primarily by inspection. If we are deemed to be out of compliance with such rules and regulations, we may be subject to civil and/or criminal penalties.

We depend on key personnel for our future success, and the loss of key personnel or inability to attract and retain personnel could harm our business.
 
Our future success depends in large part on our ability to hire and retain a sufficient number of qualified personnel, including our executive officers. The nature of our executive officers’ experience and the extent of the relationships they have developed with real estate professionals and financial institutions are important to the success of our business. We cannot provide any assurances regarding their continued employment with us. The loss of the services of certain of our executive officers could detrimentally affect our business and prospects.
 
Our accounting policies and methods are fundamental to how we record and report our financial position and results of operations, and they require management to make estimates, judgments, and assumptions about matters that are inherently uncertain.
 
Our accounting policies and methods are fundamental to how we record and report our financial position and results of operations. We have identified several accounting policies as being critical to the presentation of our financial position and results of operations because they require management to make particularly subjective or complex judgments about matters that are inherently uncertain and because of the likelihood that materially different amounts would be recorded under different conditions or using different assumptions. Due to the inherent uncertainty of the estimates, judgments, and assumptions associated with these critical accounting policies, we cannot provide any assurance that we will not make significant subsequent adjustments to our consolidated financial statements. If our judgments, assumptions, and allocations prove to be incorrect, or if circumstances change, our business, financial condition, revenues, operating expense, results of operations, liquidity, ability to pay dividends, or stock price may be materially adversely affected.
 
Our charter and Maryland law contain provisions that may delay or prevent a change of control transaction.
 
Our charter, subject to certain exceptions, authorizes our Board to take such actions as are necessary and desirable to limit any person to beneficial or constructive ownership of 9.8%, in either value or number of shares, whichever is more restrictive, of our aggregate outstanding shares of (i) common and preferred stock (excluding any outstanding shares of our common or preferred stock not treated as outstanding for federal income tax purposes) or (ii) common stock (excluding any of our outstanding shares of common stock not treated as outstanding for federal income tax purposes). Our Board, in its sole discretion, may exempt a person from such ownership limits, provided that they obtain such representations, covenants, and undertakings as appropriate to determine that the exemption would not affect our REIT status. Our Board may also increase or decrease the common stock ownership limit and/or the aggregate stock ownership limit, so long as the change would not result in five or fewer persons beneficially owning more than 49.9% in value of our outstanding stock. The ownership limits and other stock ownership restrictions contained in our charter may delay or prevent a transaction or change of control that might involve a premium price for our common stock or otherwise be in the best interests of our stockholders.


 
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Our Board may modify our authorized shares of stock of any class or series and may create and issue a class or series of common stock or preferred stock without stockholder approval.
 
Our charter empowers our Board to, without stockholder approval, increase or decrease the aggregate number of shares of our stock or the number of shares of stock of any class or series that we have authority to issue; classify any unissued shares of common stock or preferred stock; reclassify any previously classified, but unissued, shares of common stock or preferred stock into one or more classes or series of stock; and issue such shares of stock so classified or reclassified. Our Board may determine the relative rights, preferences, and privileges of any class or series of common stock or preferred stock issued. As a result, we may issue series or classes of common stock or preferred stock with preferences, dividends, powers, and rights (voting or otherwise) senior to the rights of current holders of our common stock. The issuance of any such classes or series of common stock or preferred stock could also have the effect of delaying or preventing a change of control transaction that might otherwise be in the best interests of our stockholders.
 
Certain provisions of Maryland law could inhibit changes in control.
 
Certain provisions of the Maryland General Corporation Law may have the effect of inhibiting a third party from making a proposal to acquire us or impeding a change of control that could provide our stockholders with the opportunity to realize a premium over the then-prevailing market price of our common stock, including:
 
“business combination” provisions that, subject to limitations, prohibit certain business combinations between us and an “interested stockholder” (defined generally as any person who beneficially owns 10% or more of the voting power of our outstanding voting stock), or an affiliate thereof, for five years after the most recent date on which the stockholder becomes an interested stockholder, and thereafter imposes special appraisal rights and supermajority voting requirements on these combinations; and
“control share” provisions that provide that holders of “control shares” of our company (defined as voting shares which, when aggregated with all other shares owned or controlled by the stockholder, entitle the stockholder to exercise one of three increasing ranges of voting power in electing directors) acquired in a “control share acquisition” (defined as the direct or indirect acquisition of ownership or control of issued and outstanding “control shares”) have no voting rights except to the extent approved by our stockholders by the affirmative vote of at least two-thirds of all the votes entitled to be cast on the matter, excluding all interested shares.
 
The statute permits various exemptions from its provisions, including business combinations that are exempted by a board of directors prior to the time that the “interested stockholder” becomes an interested stockholder. Our Board has, by resolution, exempted any business combination between us and any person who is an existing, or becomes in the future, an “interested stockholder.” Consequently, the five-year prohibition and the supermajority vote requirements will not apply to business combinations between us and any such person. As a result, such person may be able to enter into business combinations with us that may not be in the best interest of our stockholders, without compliance with the supermajority vote requirements and the other provisions of the statute. Additionally, this resolution may be altered, revoked, or repealed in whole or in part at any time and we may opt back into the business combination provisions of the Maryland General Corporation Law. If this resolution is revoked or repealed, the statute may discourage others from trying to acquire control of us and increase the difficulty of consummating any offer. In the case of the control share provisions of the Maryland General Corporation Law, we have elected to opt out of these provisions of the Maryland General Corporation Law pursuant to a provision in our bylaws.
 
Additionally, Title 3, Subtitle 8 of the Maryland General Corporation Law permits our Board, without stockholder approval and regardless of what is currently provided in our charter or our bylaws, to implement certain governance provisions, some of which we do not currently have. We have opted out of Section 3-803 of the Maryland General Corporation Law, which permits a board of directors to be divided into classes pursuant to Title 3, Subtitle 8 of the Maryland General Corporation Law. Any amendment or repeal of this resolution must be approved in the same manner as an amendment to our charter. The remaining provisions of Title 3, Subtitle 8 of the Maryland General Corporation Law may have the effect of inhibiting a third party from making an acquisition proposal for our company or of delaying, deferring, or preventing a change in control of our company under circumstances that otherwise could provide the holders of our common stock with the opportunity to realize a premium over the then-current market price. Our charter, our bylaws, and Maryland law also contain other provisions that may delay, defer, or prevent a transaction or a change of control that might involve a premium price for our common stock or otherwise be in the best interests of our stockholders.
 

 
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Future issuances of debt and equity securities may negatively affect the market price of our common stock.

We may issue debt or equity securities or incur additional borrowings in the future. Future issuances of debt securities would rank senior to our common stock upon our liquidation and additional issuances of equity securities would dilute the holdings of our existing common stockholders (and any preferred stock may rank senior to our common stock for the purposes of making distributions), both of which may negatively affect the market price of our common stock.

Upon our liquidation, holders of our debt securities and other loans and preferred stock will receive a distribution of our available assets before common stockholders. If we incur debt in the future, our future interest costs could increase and adversely affect our liquidity, AFFO, and results of operations.

The issuance or sale of substantial amounts of our common stock (directly or through convertible or exchangeable securities, warrants, or options) to raise additional capital, or pursuant to our stock incentive plans, or the perception that such securities are available or that such issuances or sales are likely to occur, could materially and adversely affect the market price of our common stock and our ability to raise capital through future offerings of equity or equity-related securities. However, our future growth will depend, in part, upon our ability to raise additional capital, including through the issuance of equity securities. We are not required to offer any additional equity securities to existing common stockholders on a preemptive basis and our charter empowers our Board to make significant changes to our stock without stockholder approval. See the risk factor above titled “Our Board may modify our authorized shares of stock of any class or series and may create and issue a class or series of common stock or preferred stock without stockholder approval.” Our preferred stock, if any are issued, would likely have a preference on distribution payments, periodically or upon liquidation, which could eliminate or otherwise limit our ability to make distributions to common stockholders.

Because our decision to issue additional debt or equity securities or incur additional borrowings in the future will depend on market conditions and other factors beyond our control, we cannot predict or estimate the amount, timing, nature, or success of our future capital raising efforts. Thus, common stockholders bear the risk that our future issuances of debt or equity securities, or our incurrence of additional borrowings, will negatively affect the market price of our common stock.

The trading volume and market price of shares of our common stock may fluctuate or be adversely impacted by various factors.

Our current or historical trading volume and share prices are not indicative of the number of shares of our common stock that will trade going forward or how the market will value shares of our common stock in the future. In general, the trading volume and market price of our common stock may fluctuate significantly and be adversely impacted in response to a number of factors, including, but not limited to:

actual or anticipated variations in our operating results, earnings, or liquidity, or those of our competitors;
changes in our dividend policy;
publication of research reports about us, our competitors, our tenants, or the REIT industry;
changes in market valuations of similar companies;
speculation in the press or investment community;
our failure to meet, or the lowering of, our earnings estimates, or those of any securities analysts;
increases in market interest rates, which may lead investors to demand a higher dividend yield for our common stock and would result in increased interest expense on our debt;
our use of taxable REIT subsidiaries, or TRSs, may cause the market to value our common stock differently than the shares of other REITs, which may not use TRSs as extensively as we do;
adverse market reaction to the amount of maturing debt in the near and medium term and our ability to refinance such debt and the terms thereof;
adverse market reaction to any additional indebtedness we incur or equity or equity-related securities we issue in the future;
changes in our credit ratings;
actual or perceived conflicts of interest;
changes in key management personnel;
our compliance with GAAP and its policies;
our compliance with the listing requirements of the New York Stock Exchange;
our compliance with applicable laws and regulations or the impact of new laws and regulations;
the financial condition, liquidity, results of operations, and prospects of our tenants;
failure to maintain our REIT qualification;

 
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actions by institutional stockholders;
general market and economic conditions, including the current state of the credit and capital markets; and
the realization of any of the other risk factors presented in this Report or in subsequent reports that we file with the SEC.

The occurrence of cyber incidents, or a deficiency in our cyber security, could negatively impact our business by causing a disruption to our operations, a compromise or corruption of our confidential information, and/or damage to our business relationships, all of which could negatively impact our financial results.
 
A cyber incident is considered to be any adverse event that threatens the confidentiality, integrity, or availability of our information resources. More specifically, a cyber incident could be (i) an intentional attack, which could include gaining unauthorized access to systems to disrupt operations, corrupt data, or steal confidential information; or (ii) an unintentional accident or error. As our reliance on technology has increased, so have the risks posed to our systems, both internal and outsourced. We may also store or come into contact with sensitive information and data. If we or our partners fail to comply with applicable privacy or data security laws in handling this information, including the new General Data Protection Regulation in the European Union, we could face significant legal and financial exposure to claims of governmental agencies and parties whose privacy is compromised, including sizable fines and penalties. The three primary risks that could directly result from the occurrence of a cyber incident include operational interruption, damage to our relationship with our tenants, and private data exposure. In addition, the insurance we maintain that is intended to cover some of these risks may not be sufficient to cover the losses from any future breaches of our systems. We have implemented processes, procedures, and controls to help mitigate these risks, but these measures, as well as our increased awareness of a risk of a cyber incident, do not guarantee that our financial results will not be negatively impacted by such an incident.

There can be no assurance that we will be able to maintain cash dividends, and certain agreements relating to our indebtedness may prohibit or otherwise restrict our ability to pay dividends to holders of our common stock.

Our ability to continue to pay dividends in the future may be adversely affected by the risk factors described in this Report. More specifically, while we expect to continue our current dividend practices, we can give no assurance that we will be able to maintain dividend levels in the future for various reasons, including the following:

there is no assurance that rents from our properties will increase or that future acquisitions will increase our cash available for distribution to stockholders, and we may not have enough cash to pay such dividends due to changes in our cash requirements, capital plans, cash flow, or financial position;
our Board, in its sole discretion, determines whether, when, and in which amounts to make any future distributions to our stockholders based on a number of factors (including, but not limited to: our results of operations and financial condition; capital requirements and borrowing capacity; general economic conditions; tax considerations; maintenance of our REIT status and Maryland law; contractual limitations relating to our indebtedness, such as debt covenant restrictions that may impose limitations on cash payments, future acquisitions and divestitures; and other factors relevant from time to time) and therefore our dividend levels are not guaranteed and may fluctuate; and
the amount of dividends that our subsidiaries may distribute to us may be subject to restrictions imposed by state law or regulators, as well as the terms of any current or future indebtedness that these subsidiaries may incur.

Furthermore, certain agreements relating to our borrowings may, under certain circumstances, prohibit or otherwise restrict our ability to pay dividends to our common stockholders. Future dividends, if any, are expected to be based upon our earnings, financial condition, cash flows and liquidity, debt service requirements, capital expenditure requirements for our properties, financing covenants, and applicable law. If we do not have sufficient cash available to pay dividends, we may need to fund the shortage out of working capital or revenues from future acquisitions, if any, or borrow to provide funds for such dividends, which would reduce the amount of funds available for investment and increase our future interest costs. Our inability to pay dividends, or to pay dividends at expected levels, could adversely impact the market price of our common stock.


 
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Risks Related to REIT Structure
 
While we believe that we are properly organized as a REIT in accordance with applicable law, we cannot guarantee that the Internal Revenue Service will find that we have qualified as a REIT.
 
We believe that we are organized in conformity with the requirements for qualification as a REIT under the Internal Revenue Code beginning with our 2012 taxable year and that our current and anticipated investments and plan of operation will enable us to meet and continue to meet the requirements for qualification and taxation as a REIT. Investors should be aware, however, that the Internal Revenue Service or any court could take a position different from our own. Given the highly complex nature of the rules governing REITs, the ongoing importance of factual determinations, and the possibility of future changes in our circumstances, no assurance can be given that we will qualify as a REIT for any particular year.
 
Furthermore, our qualification and taxation as a REIT will depend on our satisfaction of certain asset, income, organizational, distribution, stockholder ownership, and other requirements on a continuing basis. Our ability to satisfy the quarterly asset tests under applicable Internal Revenue Code provisions and Treasury Regulations will depend on the fair market values of our assets, some of which are not susceptible to a precise determination. Our compliance with the REIT income and quarterly asset requirements also depends upon our ability to successfully manage the composition of our income and assets on an ongoing basis. While we believe that we will satisfy these tests, we cannot guarantee that this will be the case on a continuing basis.

If we fail to remain qualified as a REIT, we would be subject to federal income tax at corporate income tax rates and would not be able to deduct distributions to stockholders when computing our taxable income.
 
If, in any taxable year, we fail to qualify for taxation as a REIT and are not entitled to relief under the Internal Revenue Code, we will:
 
not be allowed a deduction for distributions to stockholders in computing our taxable income;
be subject to federal and state income tax, including any applicable alternative minimum tax (for taxable years ending prior to January 1, 2018), on our taxable income at regular corporate rates; and
be barred from qualifying as a REIT for the four taxable years following the year when we were disqualified.
 
Any such corporate tax liability could be substantial and would reduce the amount of cash available for distributions to our stockholders, which in turn could have an adverse impact on the value of our common stock. This adverse impact could last for five or more years because, unless we are entitled to relief under certain statutory provisions, we will be taxed as a corporation beginning the year in which the failure occurs and for the following four years.
 
If we fail to qualify for taxation as a REIT, we may need to borrow funds or liquidate some investments to pay the additional tax liability. Were this to occur, funds available for investment would be reduced. REIT qualification involves the application of highly technical and complex provisions of the Internal Revenue Code to our operations, as well as various factual determinations concerning matters and circumstances not entirely within our control. There are limited judicial or administrative interpretations of these provisions. Although we plan to continue to operate in a manner consistent with the REIT qualification rules, we cannot assure you that we will qualify in a given year or remain so qualified.
 
If we fail to make required distributions, we may be subject to federal corporate income tax.
 
We intend to declare regular quarterly distributions, the amount of which will be determined, and is subject to adjustment, by our Board. To continue to qualify and be taxed as a REIT, we will generally be required to distribute at least 90% of our REIT taxable income (determined without regard to the dividends-paid deduction and excluding net capital gain) each year to our stockholders. Generally, we expect to distribute all, or substantially all, of our REIT taxable income. If our cash available for distribution falls short of our estimates, we may be unable to maintain the proposed quarterly distributions that approximate our taxable income and we may fail to qualify for taxation as a REIT. In addition, our cash flows from operations may be insufficient to fund required distributions as a result of differences in timing between the actual receipt of income and the recognition of income for federal income tax purposes or the effect of nondeductible expenditures (e.g., capital expenditures, payments of compensation for which Section 162(m) of the Internal Revenue Code denies a deduction, the creation of reserves, or required debt service or amortization payments). To the extent we satisfy the 90% distribution requirement, but distribute less than 100% of our REIT taxable income, we will be subject to federal corporate income tax on our undistributed taxable income. We will also be subject to a 4.0% nondeductible excise tax if the actual amount that we pay out to our stockholders for a calendar year is less than a minimum amount specified under the Internal Revenue Code. In addition, in order to continue to

 
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qualify as a REIT, any C-corporation earnings and profits to which we succeed must be distributed as of the close of the taxable year in which we accumulate or acquire such C-corporation’s earnings and profits.
 
Because certain covenants in our debt instruments may limit our ability to make required REIT distributions, we could be subject to taxation.
 
Our existing debt instruments include, and our future debt instruments may include, covenants that limit our ability to make required REIT distributions. If the limits set forth in these covenants prevent us from satisfying our REIT distribution requirements, we could fail to qualify for federal income tax purposes as a REIT. If the limits set forth in these covenants do not jeopardize our qualification for taxation as a REIT, but prevent us from distributing 100% of our REIT taxable income, we will be subject to federal corporate income tax, and potentially a nondeductible excise tax, on the retained amounts.
 
Because we will be required to satisfy numerous requirements imposed upon REITs, we may be required to borrow funds, sell assets, or raise equity on terms that are not favorable to us.
 
In order to meet the REIT distribution requirements and maintain our qualification and taxation as a REIT, we may need to borrow funds, sell assets, or raise equity, even if the then-prevailing market conditions are not favorable for such transactions. If our cash flows are not sufficient to cover our REIT distribution requirements, it could adversely impact our ability to raise short- and long-term debt, sell assets, or offer equity securities in order to fund the distributions required to maintain our qualification and taxation as a REIT. Furthermore, the REIT distribution requirements may increase the financing we need to fund capital expenditures, future growth, and expansion initiatives, which would increase our total leverage.
 
In addition, if we fail to comply with certain asset ownership tests at the end of any calendar quarter, we must generally correct the failure within 30 days after the end of the calendar quarter or qualify for certain statutory relief provisions to avoid losing our REIT qualification. As a result, we may be required to liquidate otherwise attractive investments. These actions may reduce our income and amounts available for distribution to our stockholders.

Because the REIT rules require us to satisfy certain rules on an ongoing basis, our flexibility or ability to pursue otherwise attractive opportunities may be limited.
 
To qualify as a REIT for federal income tax purposes, we must continually satisfy tests concerning, among other things, the sources of our income, the nature and diversification of our assets, the amounts we distribute to our stockholders, and the ownership of our common stock. Compliance with these tests will require us to refrain from certain activities and may hinder our ability to make certain attractive investments, including the purchase of non-qualifying assets, the expansion of non-real estate activities, and investments in the businesses to be conducted by our TRSs, thereby limiting our opportunities and the flexibility to change our business strategy. Furthermore, acquisition opportunities in domestic and international markets may be adversely affected if we need or require target companies to comply with certain REIT requirements prior to closing on acquisitions.
 
To meet our annual distribution requirements, we may be required to distribute amounts that may otherwise be used for our operations, including amounts that may be invested in future acquisitions, capital expenditures, or debt repayment; and it is possible that we might be required to borrow funds, sell assets, or raise equity to fund these distributions, even if the then-prevailing market conditions are not favorable for such transactions.
 
Because the REIT provisions of the Internal Revenue Code limit our ability to hedge effectively, the cost of our hedging may increase and we may incur tax liabilities.
 
The REIT provisions of the Internal Revenue Code limit our ability to hedge assets and liabilities that are not incurred to acquire or carry real estate. Generally, income from hedging transactions that have been properly identified for tax purposes (which we enter into to manage interest rate risk with respect to borrowings to acquire or carry real estate assets) and income from certain currency hedging transactions related to our non-U.S. operations, do not constitute “gross income” for purposes of the REIT gross income tests (such a hedging transaction is referred to as a “qualifying hedge”). In addition, if we enter into a qualifying hedge, but dispose of the underlying property (or a portion thereof) or the underlying debt (or a portion thereof) is extinguished, we can enter into a hedge of the original qualifying hedge, and income from the subsequent hedge will also not constitute “gross income” for purposes of the REIT gross income tests. To the extent that we enter into other types of hedging transactions, the income from those transactions is likely to be treated as non-qualifying income for purposes of the REIT gross income tests. As a result of these rules, we may need to limit our use of advantageous hedging techniques or implement those hedges through a TRS. This could increase the cost of our hedging activities because our TRSs could be subject to tax on

 
W. P. Carey 2017 10-K 22
                    



income or gains resulting from such hedges or expose us to greater interest rate risks than we would otherwise want to bear. In addition, losses in any of our TRSs generally will not provide any tax benefit, except for being carried forward for use against future taxable income in the TRSs.
 
We use TRSs, which may cause us to fail to qualify as a REIT.
 
To qualify as a REIT for federal income tax purposes, we hold our non-qualifying REIT assets and conduct our non-qualifying REIT income activities in or through one or more TRSs. The net income of our TRSs is not required to be distributed to us and income that is not distributed to us will generally not be subject to the REIT income distribution requirement. However, there may be limitations on our ability to accumulate earnings in our TRSs and the accumulation or reinvestment of significant earnings in our TRSs could result in adverse tax treatment. In particular, if the accumulation of cash in our TRSs causes the fair market value of our TRS interests and certain other non-qualifying assets to exceed 25% of the fair market value of our assets, we would lose tax efficiency and could potentially fail to qualify as a REIT. For taxable years beginning after December 31, 2017, no more than 20% of the value of a REIT’s gross assets may consist of interests in TRSs.

Because the REIT rules limit our ability to receive distributions from TRSs, our ability to fund distribution payments using cash generated through our TRSs may be limited.
 
Our ability to receive distributions from our TRSs is limited by the rules we must comply with in order to maintain our REIT status. In particular, at least 75% of our gross income for each taxable year as a REIT must be derived from real estate-related sources, which principally includes gross income from the leasing of our properties. Consequently, no more than 25% of our gross income may consist of dividend income from our TRSs and other non-qualifying income types. Thus, our ability to receive distributions from our TRSs is limited and may impact our ability to fund distributions to our stockholders using cash flows from our TRSs. Specifically, if our TRSs become highly profitable, we might be limited in our ability to receive net income from our TRSs in an amount required to fund distributions to our stockholders commensurate with that profitability.
 
Transactions with our TRSs could cause us to be subject to a 100% penalty tax on certain income or deductions if those transactions are not conducted on an arm’s-length basis.
 
The Internal Revenue Code limits the deductibility of interest paid or accrued by a TRS to its parent REIT to assure that the TRS is subject to an appropriate level of corporate taxation. The Internal Revenue Code also imposes a 100% excise tax on certain transactions between a TRS and its parent REIT that are not conducted on an arm’s-length basis. We will monitor the value of investments in our TRSs in order to ensure compliance with TRS ownership limitations and will structure our transactions with our TRSs on terms that we believe are arm’s-length to avoid incurring the 100% excise tax described above. There can be no assurance, however, that we will be able to comply with the TRS ownership limitation or be able to avoid application of the 100% excise tax.
 
Because distributions payable by REITs generally do not qualify for reduced tax rates, the value of our common stock could be adversely affected.
 
Certain distributions payable by domestic or qualified foreign corporations to individuals, trusts, and estates in the United States are currently eligible for federal income tax at a maximum rate of 20%. Distributions payable by REITs, in contrast, are generally not eligible for this reduced rate, unless the distributions are attributable to dividends received by the REIT from other corporations that would otherwise be eligible for the reduced rate. This more favorable tax rate for regular corporate distributions could cause qualified investors to perceive investments in REITs to be less attractive than investments in the stock of corporations that pay distributions, which could adversely affect the value of REIT stocks, including our common stock.

Even if we continue to qualify as a REIT, certain of our business activities will be subject to corporate level income tax and foreign taxes, which will continue to reduce our cash flows, and we will have potential deferred and contingent tax liabilities.
 
Even if we qualify for taxation as a REIT, we may be subject to certain (i) federal, state, local, and foreign taxes on our income and assets, including alternative minimum taxes (for taxable years ending prior to January 1, 2018); (ii) taxes on any undistributed income and state, local, or foreign income; and (iii) franchise, property, and transfer taxes. In addition, we could be required to pay an excise or penalty tax under certain circumstances in order to utilize one or more relief provisions under the Internal Revenue Code to maintain qualification for taxation as a REIT, which could be significant in amount.
 

 
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Any TRS assets and operations would continue to be subject, as applicable, to federal and state corporate income taxes and to foreign taxes in the jurisdictions in which those assets and operations are located. Any of these taxes would decrease our earnings and our cash available for distributions to stockholders.
 
We will also be subject to a federal corporate level tax at the highest regular corporate rate (currently 21%) on all or a portion of the gain recognized from a sale of assets formerly held by any C corporation that we acquire on a carry-over basis transaction occurring within a five-year period after we acquire such assets, to the extent the built-in gain based on the fair market value of those assets on the effective date of the REIT election is in excess of our then tax basis. The tax on subsequently sold assets will be based on the fair market value and built-in gain of those assets as of the beginning of our holding period. Gains from the sale of an asset occurring after the specified period will not be subject to this corporate level tax. We expect to have only a de minimis amount of assets subject to these corporate tax rules and do not expect to dispose of any significant assets subject to these corporate tax rules.

Because dividends received by foreign stockholders are generally taxable, we may be required to withhold a portion of our distributions to such persons.
 
Ordinary dividends received by foreign stockholders that are not effectively connected with the conduct of a U.S. trade or business are generally subject to U.S. withholding tax at a rate of 30%, unless reduced by an applicable income tax treaty. Additional rules with respect to certain capital gain distributions will apply to foreign stockholders that own more than 10% of our common stock.
 
The ability of our Board to revoke our REIT election, without stockholder approval, may cause adverse consequences for our stockholders.
 
Our organizational documents permit our Board to revoke or otherwise terminate our REIT election, without the approval of our stockholders, if it determines that it is no longer in our best interest to continue to qualify as a REIT. If we cease to be a REIT, we will not be allowed a deduction for dividends paid to stockholders in computing our taxable income and we will be subject to federal income tax at regular corporate rates and state and local taxes, which may have adverse consequences on the total return to our stockholders.

Federal and state income tax laws governing REITs and related interpretations may change at any time, and any such legislative or other actions affecting REITs could have a negative effect on us and our stockholders.

Federal and state income tax laws governing REITs or the administrative interpretations of those laws may be amended at any time. Federal, state, and foreign tax laws are under constant review by persons involved in the legislative process, at the Internal Revenue Service and the U.S. Department of the Treasury, and at various state and foreign tax authorities. Changes to tax laws, regulations, or administrative interpretations, which may be applied retroactively, could adversely affect us or our stockholders. We cannot predict whether, when, in what forms, or with what effective dates, the tax laws, regulations, and administrative interpretations applicable to us or our stockholders may be changed. Accordingly, we cannot assure you that any such change will not significantly affect our ability to qualify for taxation as a REIT or the federal income tax consequences to you or us.

Recent changes to U.S. tax laws could have a negative impact on our business.
 
On December 22, 2017, the President signed a tax reform bill into law, referred to herein as the “Tax Cuts and Jobs Act,” which among other things:

reduces the corporate income tax rate from 35% to 21% (including with respect to our TRSs);    
reduces the rate of U.S. federal withholding tax on distributions made to non-U.S. shareholders by a REIT that are attributable to gains from the sale or exchange of U.S. real property interests from 35% to 21%;
allows for an immediate 100% deduction of the cost of certain capital asset investments (generally excluding real estate assets), subject to a phase-down of the deduction percentage over time;     
changes the recovery periods for certain real property and building improvements (e.g., to 15 years for qualified improvement property under the modified accelerated cost recovery system, to 30 years (previously 40 years) for residential real property, and 20 years (previously 40 years) for qualified improvement property under the alternative depreciation system);

 
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restricts the deductibility of interest expense by businesses (generally, to 30% of the business’s adjusted taxable income) except, among others, real property businesses electing out of such restriction; generally, we expect our business to qualify as such a real property business, but businesses conducted by our TRSs may not qualify, and we have not yet determined whether our subsidiaries can and/or will make such an election;
requires the use of the less favorable alternative depreciation system to depreciate real property in the event a real property business elects to avoid the interest deduction restriction above;    
restricts the benefits of like-kind exchanges that defer capital gains for tax purposes to exchanges of real property;
permanently repeals the “technical termination” rule for partnerships, meaning sales or exchanges of the interests in a partnership will be less likely to, among other things, terminate the taxable year of, and restart the depreciable lives of assets held by, such partnership for tax purposes;     
requires accrual method taxpayers to take certain amounts in income no later than the taxable year in which such income is taken into account as revenue in an applicable financial statement prepared under GAAP, which, with respect to certain leases, could accelerate the inclusion of rental income;    
eliminates the federal corporate alternative minimum tax;    
implements a one-time deemed repatriation tax on corporate profits (at a rate of 15.5% on cash assets and 8% on non-cash assets) held offshore, which profits are not taken into account for purposes of the REIT gross income tests;     
reduces the highest marginal income tax rate for individuals to 37% from 39.6% (excluding, in each case, the 3.8% Medicare tax on net investment income);    
generally allows a deduction for individuals equal to 20% of certain income from pass-through entities, including ordinary dividends distributed by a REIT (excluding capital gain dividends and qualified dividend income), generally resulting in a maximum effective federal income tax rate applicable to such dividends of 29.6% compared to 37% (excluding, in each case, the 3.8% Medicare tax on net investment income); and     
limits certain deductions for individuals, including deductions for state and local income taxes, and eliminates deductions for miscellaneous itemized deductions (including certain investment expenses).

As a REIT, we are required to distribute at least 90% of our taxable income to our shareholders annually. As a result of the changes to U.S. federal tax laws implemented by the Tax Cuts and Jobs Act, our taxable income and the amount of distributions to our stockholders required to maintain our REIT status, as well as our relative tax advantage as a REIT, could change.
 
The Tax Cuts and Jobs Act is a complex revision to the U.S. federal income tax laws with impacts on different categories of taxpayers and industries, which will require subsequent rulemaking and interpretation in a number of areas. In addition, many provisions in the Tax Cuts and Jobs Act, particularly those affecting individual taxpayers, expire at the end of 2025. The long-term impact of the Tax Cuts and Jobs Act on the overall economy, government revenues, our tenants, us, and the real estate industry cannot be reliably predicted at this time. Furthermore, the Tax Cuts and Jobs Act may negatively impact the operating results, financial condition, and future business plans for some or all of our tenants. The Tax Cuts and Jobs Act may also result in reduced government revenues, and therefore reduced government spending, which may negatively impact some of our tenants that rely on government funding. There can be no assurance that the Tax Cuts and Jobs Act will not negatively impact our operating results, financial condition, and future business operations.

Item 1B. Unresolved Staff Comments.

None.

Item 2. Properties.
 
Our principal corporate offices are located at 50 Rockefeller Plaza, New York, NY 10020 and our international offices are located in London and Amsterdam. We have additional office space domestically in Dallas. We lease all of these offices and believe these leases are suitable for our operations for the foreseeable future.
 
See Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations — Portfolio Overview — Net-Leased Portfolio for a discussion of the properties we hold for rental operations and Part II, Item 8. Financial Statements and Supplementary Data — Schedule III — Real Estate and Accumulated Depreciation for a detailed listing of such properties.

Item 3. Legal Proceedings.
 
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.


 
W. P. Carey 2017 10-K 25
                    



Item 4. Mine Safety Disclosures.
 
Not applicable.


 
W. P. Carey 2017 10-K 26
                    



PART II

Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities.
 
Common Stock and Distributions
 
Our common stock is listed on the New York Stock Exchange under the ticker symbol “WPC.” At February 16, 2018 there were 8,500 registered holders of record of our common stock. This figure does not reflect the beneficial ownership of shares of our common stock. The following table shows the high and low prices per share and quarterly cash distributions declared for the past two fiscal years:
 
 
2017
 
2016
Period
 
High
 
Low
 
Cash
Distributions
Declared
 
High
 
Low
 
Cash
Distributions
Declared
First quarter
 
$
64.74

 
$
58.95

 
$
0.9950

 
$
62.27

 
$
51.12

 
$
0.9742

Second quarter
 
68.95

 
60.22

 
1.0000

 
69.44

 
59.25

 
0.9800

Third quarter
 
70.38

 
65.29

 
1.0050

 
72.89

 
63.83

 
0.9850

Fourth quarter
 
72.41

 
67.32

 
1.0100

 
64.35

 
55.77

 
0.9900


Our Senior Unsecured Credit Facility (as described in Note 10) contains covenants that restrict the amount of distributions that we can pay.
 
Stock Price Performance Graph
 
The graph below provides an indicator of cumulative total stockholder returns for our common stock for the period December 31, 2012 to December 31, 2017, as compared with the S&P 500 Index and the FTSE NAREIT Equity REITs Index. The graph assumes a $100 investment on December 31, 2012, together with the reinvestment of all dividends.

392322598_wpc2017q41_chart-56988a02.jpg


 
W. P. Carey 2017 10-K 27
                    



 
At December 31,
 
2012
 
2013
 
2014
 
2015
 
2016
 
2017
W. P. Carey Inc.
$
100.00

 
$
124.05

 
$
149.98

 
$
134.38

 
$
143.16

 
$
177.27

S&P 500 Index
100.00

 
132.39

 
150.51

 
152.59

 
170.84

 
208.14

FTSE NAREIT Equity REITs Index
100.00

 
102.47

 
133.35

 
137.61

 
149.33

 
157.14

 
The stock price performance included in this graph is not indicative of future stock price performance.
 
Securities Authorized for Issuance Under Equity Compensation Plans
 
This information will be contained in our definitive proxy statement for the 2018 Annual Meeting of Stockholders, to be filed within 120 days following the end of our fiscal year, and is incorporated herein by reference.


 
W. P. Carey 2017 10-K 28
                    



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,
 
2017
 
2016
 
2015
 
2014
 
2013
Operating Data
 
 
 
 
 
 
 
 
 
Revenues from continuing operations (a) (b)
$
848,302

 
$
941,533

 
$
938,383

 
$
908,446

 
$
489,851

Income from continuing operations (a) (b) (c)
285,083

 
274,807

 
185,227

 
212,751

 
93,985

Net income (a) (c) (d)
285,083

 
274,807

 
185,227

 
246,069

 
132,165

Net income attributable to noncontrolling interests
(7,794
)
 
(7,060
)
 
(12,969
)
 
(6,385
)
 
(32,936
)
Net loss (income) attributable to redeemable noncontrolling interest

 

 

 
142

 
(353
)
Net income attributable to W. P. Carey (a) (c) (d)
277,289

 
267,747

 
172,258

 
239,826

 
98,876

 
 
 
 
 
 
 
 
 
 
Basic Earnings Per Share:
 

 
 

 
 

 
 

 
 

Income from continuing operations attributable to W. P. Carey
2.56

 
2.50

 
1.62

 
2.08

 
1.22

Net income attributable to W. P. Carey
2.56

 
2.50

 
1.62

 
2.42

 
1.43

 
 
 
 
 
 
 
 
 
 
Diluted Earnings Per Share:
 

 
 

 
 

 
 

 
 

Income from continuing operations attributable to W. P. Carey
2.56

 
2.49

 
1.61

 
2.06

 
1.21

Net income attributable to W. P. Carey
2.56

 
2.49

 
1.61

 
2.39

 
1.41

 
 
 
 
 
 
 
 
 
 
Cash distributions declared per share (e)
4.0100

 
3.9292

 
3.8261

 
3.6850

 
3.5000

Balance Sheet Data
 
 
 
 
 
 
 
 
 
Total assets
$
8,231,402

 
$
8,453,954

 
$
8,742,089

 
$
8,641,029

 
$
4,671,965

Net investments in real estate (f)
6,703,715

 
6,781,900

 
7,229,873

 
7,190,507

 
3,521,692

Unsecured Senior Notes, net
2,474,661

 
1,807,200

 
1,476,084

 
494,231

 

Senior credit facilities
605,129

 
926,693

 
734,704

 
1,056,648

 
575,000

Non-recourse mortgages, net
1,185,477

 
1,706,921

 
2,269,421

 
2,530,217

 
1,485,425

Other Information
 
 
 
 
 
 
 
 
 
Net cash provided by operating activities (g)
$
516,070

 
$
540,773

 
$
508,541

 
$
421,898

 
$
232,201

Cash distributions paid
431,182

 
416,655

 
403,555

 
347,902

 
220,395

 
__________
(a)
The years ended December 31, 2017, 2016, 2015, and 2014 reflect the impact of the CPA:16 Merger, which was completed on January 31, 2014 (Note 1).
(b)
Amounts for the years ended December 31, 2017, 2016, 2015, and 2014 include the operating results of properties sold or reclassified as held for sale during those years, in accordance with Accounting Standards Update, or ASU, 2014-08, which changed the criteria for reporting discontinued operations and which we adopted on January 1, 2014. For the year ended December 31, 2014, operating results of properties held for sale as of December 31, 2013 and sold during 2014, and properties we acquired in the CPA:16 Merger that were held for sale and sold during 2014, were included in income from discontinued operations. Prior to 2014, operating results of properties sold or held for sale were included in income from discontinued operations.
(c)
Amount for the year ended December 31, 2014 includes a Gain on change in control of interests of $105.9 million recognized in connection with the CPA:16 Merger (Note 1).
(d)
Amounts from year to year will not be comparable primarily due to fluctuations in gains/losses recognized on the sale of real estate and impairment charges.
(e)
The year ended December 31, 2013 includes a special distribution of $0.110 per share paid in January 2014 to stockholders of record at December 31, 2013.

 
W. P. Carey 2017 10-K 29
                    



(f)
In 2017, we reclassified certain line items in our consolidated balance sheets. As a result, Net investments in real estate as of December 31, 2016, 2015, 2014, and 2013 has been revised to conform to the current period presentation (Note 2).
(g)
On January 1, 2017, we adopted ASU 2016-09, which simplified various aspects of how share-based payments are accounted for and presented in the financial statements. As a result of adopting this guidance, we retrospectively reclassified (i) Payments for withholding taxes upon delivery of equity-based awards and exercises of stock options from Net cash provided by operating activities to Net cash (used in) provided by financing activities and (ii) Windfall tax benefit associated with stock-based compensation awards from Net cash (used in) provided by financing activities to Net cash provided by operating activities within our consolidated statements of cash flows for the years ended December 31, 2016, 2015, 2014, and 2013 (Note 2).

 
W. P. Carey 2017 10-K 30
                    



Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations.
 
Management’s Discussion and Analysis of Financial Condition and Results of Operations is intended to assist in understanding our financial statements and the reasons for changes in certain key components of our financial statements from period to period. This item also provides our perspective on our financial position and liquidity, as well as certain other factors that may affect our future results. The discussion also breaks down the financial results of our business by segment to provide a better understanding of how these segments and their results affect our financial condition and results of operations.

The following discussion should be read in conjunction with our consolidated financial statements in Item 8 of this Report and the matters described under Item 1A. Risk Factors.

Business Overview
 
We provide long-term financing via sale-leaseback and build-to-suit transactions for companies worldwide and, as of December 31, 2017, manage a global investment portfolio of 1,379 properties, including 887 net-leased properties and two operating properties within our owned real estate portfolio. We operate in two segments: Owned Real Estate and Investment Management, as described below.

Owned Real Estate Lease revenues and equity income from our wholly- and co-owned real estate investments generate the vast majority of our earnings. We invest in commercial real estate properties that are net-leased to tenants, primarily located in the United States and Northern and Western Europe. Our leases are generally “triple-net,” which requires tenants to be responsible for substantially all of the costs associated with operating and maintaining the property.

Investment Management — We earn additional revenue by acting as the advisor to the Managed Programs. On June 15, 2017, in keeping with our long-term strategy of focusing exclusively on net lease investing for our own balance sheet, our Board approved a plan to exit non-traded retail fundraising activities carried out by our wholly-owned broker-dealer subsidiary, Carey Financial, as of June 30, 2017. As a result, we will no longer be raising capital for new or existing funds that we manage, but we do expect to continue managing our existing Managed Programs through the end of their respective life cycles (Note 1).

Under our advisory agreements with the remaining Managed Programs, we perform various services on their behalf, including day-to-day management and transaction-related services. We structure and negotiate investments and debt placement transactions for the Managed Programs, for which we earn structuring revenue, although we expect structuring revenue to decline because the funds that we raised on behalf of the Managed Programs have been substantially invested and we will no longer be raising any additional funds for those programs or sponsoring any new programs in light of our decision to exit from the non-traded retail fundraising business. In addition, we manage the real estate investment portfolios of the Managed Programs, for which we earn asset management revenue. The Managed Programs also reimburse us for certain costs that we incur on their behalf, consisting primarily of certain personnel and overhead costs (and while we were still raising funds for their offerings, broker-dealer commissions and marketing costs). Prior to the cessation of non-traded retail fundraising activities, we also earned dealer manager fees in connection with the offerings of the Managed Programs. We paid all organization and offering costs on behalf of CESH I, but instead of being reimbursed for actual costs that we incurred, we received limited partnership units of CESH I.

As a result of our decision to exit non-traded retail fundraising activities, described above, we have revised how we view and present a component of our two reportable segments. As such, beginning with the second quarter of 2017, we include equity income generated through our (i) ownership of shares and limited partnership units of the Managed Programs (Note 7) and (ii) special general partner interests in the operating partnerships of the Managed REITs, through which we participate in their cash flows (Note 3), in our Investment Management segment. Previously, these items were recognized within our Owned Real Estate segment.

Significant Developments

Management Changes

On November 1, 2017, we announced that Mr. Mark J. DeCesaris, our Chief Executive Officer, was retiring from that position and from our Board as of December 31, 2017, and that our Board had appointed Mr. Jason E. Fox, our then President, to succeed Mr. DeCesaris as our Chief Executive Officer and as a Director, both effective as of January 1, 2018.


 
W. P. Carey 2017 10-K 31
                    



We also announced that Mr. John J. Park, our Director of Strategy and Capital Markets, would succeed Mr. Fox as President on that date.

Prior to becoming Chief Executive Officer, Mr. Fox, age 44, had served as our President since 2015, having previously served in various capacities in our Investment Department, including as Head of Global Investments, since joining W. P. Carey in 2002. Mr. Park, age 53, has served as our Director of Strategy and Capital Markets since March 2016, after serving in various capacities since joining W. P. Carey as an investment analyst in 1987.

Tax Cuts and Jobs Act

On December 22, 2017, the Tax Cuts and Jobs Act was signed into law by President Trump. The new tax legislation, which is expected to have a minimal impact on our operating results, cash flows, and financial condition, contains several key tax provisions, including the reduction of the U.S. corporate income tax rate from 35% to 21% effective January 1, 2018. Other key provisions that have implications to the real estate industry include the limitation of the tax deductibility of interest expense, acceleration of expensing of certain business assets, deductions for pass-through business income, and limitations on loss carryforwards. In addition, the effect of the international provisions of the Tax Cuts and Jobs Act establishes a territorial-style system for taxing foreign-source income of domestic multinational corporations and imposes a one-time repatriation of foreign earnings and profits for which the inclusions can be spread over an eight-year period.

As a result of the Tax Cuts and Jobs Act, for periods beginning on January 1, 2018:

Tax rates are permanently reduced on businesses conducted by taxable corporations. The Tax Cuts and Jobs Act is expected to have a favorable impact on the effective tax rate and net income as reported under GAAP for our TRSs;
New limitations on interest deductions are imposed with an exemption for electing real estate businesses. Generally, we expect our business to qualify as such a real property business, but businesses conducted by our TRSs may not qualify, and we have not yet determined whether our subsidiaries can and/or will make such an election;
Depreciation expensing rules provide taxpayers with 100% expensing deductions for qualifying new or used property acquired and placed in service between September 28, 2017 and December 31, 2022, with annual 20% step-downs generally from 2023-2026; however, this will have a limited impact on us due to the interest limitation exception election;
Our non-corporate shareholders may be entitled to deduct 20% of qualified REIT ordinary dividends without regard to wage limitations, asset-based limitations, qualified trade or business limitations, or qualified business income limitations;
Net operating loss, or NOL, carryforwards arising in tax years beginning after 2017 now may reduce only 80% of taxable income of any year, and NOL carryforwards can be carried forward indefinitely but can no longer be carried back to prior years; however, the Tax Cuts and Jobs Act does not restrict the usage of our existing NOLs, which arose through 2017; and
The territorial tax system taxes our income earned within the United States, as opposed to worldwide income, but will have a minimal impact on us due to the ability of REITs to deduct dividends paid.

Financial Highlights
 
During the year ended December 31, 2017, we completed the following, as further described in the consolidated financial statements.

Owned Real Estate
    
Investments

We acquired two investments totaling $31.8 million (Note 4).
We completed five construction projects at a cost totaling $65.4 million. Construction projects include build-to-suit and expansion projects (Note 4).
We committed to fund an aggregate of $26.2 million for two build-to-suit projects in Poland, of which approximately $5.8 million was funded during the year ended December 31, 2017. We expect to complete one project in the second quarter of 2018 and the other project in the third quarter of 2018 (Note 4).


 
W. P. Carey 2017 10-K 32
                    



Dispositions

As part of our active capital recycling program, we sold 16 properties and a parcel of vacant land for total proceeds of $159.9 million, net of selling costs. In addition, we disposed of two properties with an aggregate carrying value of $31.3 million by transferring ownership to the mortgage lender, in satisfaction of non-recourse mortgage loans encumbering the properties totaling $28.1 million (net of $3.8 million of cash held in escrow that was retained by the mortgage lender). We recognized a net gain on sale of real estate of $33.9 million in connection with these dispositions (Note 16).

Financing and Capital Markets Transactions

On January 19, 2017, we completed a public offering of €500.0 million of 2.25% Senior Notes, at a price of 99.448% of par value, which were issued by our wholly owned subsidiary, WPC Eurobond B.V., and fully guaranteed by us. These 2.25% Senior Notes have a 7.5-year term and are scheduled to mature on July 19, 2024 (Note 10).
On February 22, 2017, we amended and restated our Senior Unsecured Credit Facility to increase its capacity to $1.85 billion, which is comprised of a $1.5 billion Unsecured Revolving Credit Facility maturing in four years with two six-month extension options, a €236.3 million Amended Term Loan maturing in five years, and a $100.0 million Delayed Draw Term Loan also maturing in five years. On that same date, we drew down our Amended Term Loan in full by borrowing €236.3 million (equivalent to $250.0 million) to repay and terminate our $250.0 million Prior Term Loan. On June 8, 2017, we drew down our Delayed Draw Term Loan in full by borrowing €88.7 million (equivalent to $100.0 million). We incur interest at London Interbank Offered Rate (LIBOR), or a LIBOR equivalent, plus 1.00% on the Unsecured Revolving Credit Facility, and at Euro Interbank Offered Rate (EURIBOR) plus 1.10% on both the Amended Term Loan and Delayed Draw Term Loan (Note 10).
We reduced our mortgage debt outstanding by repaying at maturity or prepaying $482.5 million of non-recourse mortgage loans with a weighted-average interest rate of 5.5%. Our weighted-average interest rate decreased from 3.9% during the year ended December 31, 2016 to 3.6% during the year ended December 31, 2017 (Note 10).
We issued 345,253 shares of our common stock under our current ATM program at a weighted-average price of $67.78 per share for net proceeds of $22.8 million (Note 13).

Composition

As of December 31, 2017, our Owned Real Estate portfolio consisted of 887 net-lease properties, comprising 84.9 million square feet leased to 210 tenants, and two hotels, which are classified as operating properties. As of that date, the weighted-average lease term of the net-lease portfolio was 9.6 years and the occupancy rate was 99.8%.

Investment Management

As of December 31, 2017, we managed CPA:17 – Global, CPA:18 – Global, CWI 1, CWI 2, and CESH I, at which date these Managed Programs had total assets under management of approximately $13.1 billion.

Non-Traded Retail Fundraising Platform Closure

On June 15, 2017, in keeping with our long-term strategy of focusing exclusively on net lease investing for our own balance sheet, our Board approved a plan to exit non-traded retail fundraising activities carried out by our wholly-owned broker-dealer subsidiary, Carey Financial, as of June 30, 2017. As a result, we will no longer be raising capital for new or existing funds that we manage, but we do expect to continue managing our existing Managed Programs through the end of their respective life cycles (Note 1).
In connection with our decision to exit non-traded retail fundraising activities, we recorded $9.4 million of restructuring expenses, primarily related to severance costs (Note 1, Note 12).
In August 2017, we resigned as the advisor to CCIF, and our advisory agreement with CCIF was terminated, effective as of September 11, 2017. CCIF was included in the Managed Programs prior to our resignation as its advisor (Note 1).


 
W. P. Carey 2017 10-K 33
                    



Investment Transactions

We structured new investments on behalf of the Managed Programs totaling $1.2 billion, from which we earned $33.3 million in structuring revenue.

CWI 2: We structured two investments in domestic hotels for $423.5 million, including acquisition-related costs. One of these investments is jointly-owned with CWI 1.
CESH I: We structured investments in six international student housing development projects and one build-to-suit expansion on an existing project for an aggregate of $287.7 million, including acquisition-related costs.
CPA:17 – Global: We structured investments in a portfolio of 19 properties, three build-to-suit expansions on existing properties, and one additional property, for an aggregate of $211.4 million, including acquisition-related costs. Approximately $152.8 million was invested in Europe and $58.6 million was invested in the United States.
CWI 1: We structured one investment in a domestic hotel for $165.2 million, including acquisition-related costs. This investment is jointly-owned with CWI 2.
CPA:18 – Global: We structured investments in four properties and three build-to-suit projects, including increases in funding commitments, for an aggregate of $160.7 million, including acquisition-related costs. Approximately $153.4 million was invested internationally and $7.3 million was invested in the United States.

Because the funds that we have raised on behalf of these Managed Programs have been substantially invested and we will no longer be raising any additional funds for those programs (or new programs) in light of our decision to exit the non-traded retail fundraising business, we expect to structure fewer investments on behalf of the Managed Programs going forward.

We also arranged mortgage financing totaling $1.0 billion for the Managed Programs, from which we earned $0.9 million in structuring revenue.

Investor Capital Inflows

In connection with our decision to exit non-traded retail fundraising activities, we ceased active fundraising for the Managed Programs on June 30, 2017 (Note 1). The offerings for CWI 2 and CESH I closed on July 31, 2017. In August 2017, we resigned as the advisor to CCIF, effective as of September 11, 2017.
We earned a total of $4.4 million in Dealer manager fees during 2017 related to the offerings for CWI 2, CESH I, and CCIF. For investor capital inflows related to the offerings for these funds, see Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations — Investment Management.

Distributions to Stockholders

We declared cash distributions totaling $4.01 per share in the aggregate amount of $428.2 million, comprised of four quarterly dividends per share declared of $0.995, $1.000, $1.005, and $1.010.


 
W. P. Carey 2017 10-K 34
                    



Consolidated Results

(in thousands, except shares)
 
Years Ended December 31,
 
2017
 
2016
 
2015
Revenues from Owned Real Estate
$
687,208

 
$
755,364

 
$
735,448

Reimbursable tenant costs
21,524

 
25,438

 
22,832

Revenues from Owned Real Estate (excluding reimbursable tenant costs)
665,684

 
729,926

 
712,616

 
 
 
 
 
 
Revenues from Investment Management
161,094

 
186,169

 
202,935

Reimbursable costs from affiliates
51,445

 
66,433

 
55,837

Revenues from Investment Management (excluding reimbursable costs from affiliates)
109,649

 
119,736

 
147,098

 
 
 
 
 
 
Total revenues
848,302

 
941,533

 
938,383

Total reimbursable costs
72,969

 
91,871

 
78,669

Total revenues (excluding reimbursable costs)
775,333

 
849,662

 
859,714

 
 
 
 
 
 
Net income from Owned Real Estate attributable to W. P. Carey (a)
192,139

 
202,557

 
107,712

Net income from Investment Management attributable to W. P. Carey (a)
85,150

 
65,190

 
64,546

Net income attributable to W. P. Carey
277,289

 
267,747

 
172,258

 
 
 
 
 
 
Cash distributions paid
431,182

 
416,655

 
403,555

 
 
 
 
 
 
Net cash provided by operating activities (b)
516,070

 
540,773

 
508,541

Net cash provided by (used in) investing activities
225,902

 
(269,806
)
 
(645,185
)
Net cash (used in) provided by financing activities (b)
(743,350
)
 
(265,806
)
 
121,273

 
 
 
 
 
 
Supplemental financial measures:
 
 
 

 
 

Adjusted funds from operations attributable to W. P. Carey (AFFO) — Owned Real Estate (a) (c)
456,865

 
463,411

 
434,498

Adjusted funds from operations attributable to W. P. Carey (AFFO) — Investment Management (a) (c)
116,114

 
84,286

 
96,704

Adjusted funds from operations attributable to W. P. Carey (AFFO) (c)
572,979

 
547,697

 
531,202

 
 
 
 
 
 
Diluted weighted-average shares outstanding
108,035,971

 
107,073,203

 
106,507,652

__________
(a)
As a result of our decision to exit non-traded retail fundraising activities as of June 30, 2017, we have revised how we view and present a component of our two reportable segments. As such, beginning with the second quarter of 2017, we include equity in earnings of equity method investments in the Managed Programs in our Investment Management segment (Note 1). Earnings from our investment in CCIF continue to be included in our Investment Management segment. Results of operations for prior periods have been reclassified to conform to the current period presentation.
(b)
On January 1, 2017, we adopted ASU 2016-09, which simplified various aspects of how share-based payments are accounted for and presented in the financial statements. As a result of adopting this guidance, we retrospectively reclassified certain amounts between Net cash provided by operating activities and Net cash (used in) provided by financing activities within our consolidated statements of cash flows for the years ended December 31, 2016 and 2015, as described in Note 2.
(c)
We consider AFFO, a supplemental measure that is not defined by GAAP, referred to as a non-GAAP measure, to be an important measure in the evaluation of our operating performance. See Supplemental Financial Measures below for our definition of this non-GAAP measure and a reconciliation to its most directly comparable GAAP measure.


 
W. P. Carey 2017 10-K 35
                    



Revenues and Net Income Attributable to W. P. Carey

2017 vs. 2016 — Total revenues decreased in 2017 as compared to 2016, due to decreases within both our Owned Real Estate and Investment Management segments. Owned Real Estate revenue declined primarily due to a decrease in lease revenues as a result of dispositions of properties since January 1, 2016 (Note 16), as well as higher lease termination income recognized during 2016, which was primarily related to a domestic property sold in February 2016. Investment Management revenue decreased primarily due to a decrease in structuring revenue due to lower investment volume for the Managed Programs during 2017 and a decrease in dealer manager fees due to our exit from non-traded retail fundraising activities in June 2017 (Note 1), partially offset by an increase in asset management revenue as a result of growth in assets under management for the Managed Programs.

Net income attributable to W. P. Carey increased in 2017 as compared to 2016, primarily due to lower interest expense and general and administrative expenses during 2017 as compared to 2016. During 2016, we recognized impairment charges on certain international properties (Note 8), as well as a related offsetting deferred tax benefit on those impairment charges, which reduced Net income attributable to W. P. Carey for that year. During 2016, we also recognized one-time restructuring and other compensation expenses, consisting primarily of severance costs, related to a reduction in force, or RIF (Note 12), that we implemented in March of that year, as well as an allowance for credit losses on a direct financing lease (Note 5). These positive factors were partially offset by lower aggregate gain on sale of real estate, as well as decreases in Owned Real Estate and Investment Management revenues. During 2017, we also recognized non-recurring restructuring expenses, primarily comprised of severance costs, related to our exit from non-traded retail fundraising activities (Note 12).

2016 vs. 2015 — Total revenues increased in 2016 as compared to 2015, primarily due to higher revenues within our Owned Real Estate segment, partially offset by lower revenues within our Investment Management segment. The growth in revenues within our Owned Real Estate segment was generated substantially from the lease termination income related to a domestic property sold in February 2016 (Note 16), as well as from properties acquired in 2015 and 2016. Investment Management revenue declined primarily due to a decrease in structuring revenue as a result of lower investment volume for the Managed Programs during 2016, partially offset by an increase in asset management revenue as a result of growth in assets under management for the Managed Programs.

Net income attributable to W. P. Carey increased in 2016 as compared to 2015, driven by increases in net income from both our Owned Real Estate and Investment Management segments. Within our Owned Real Estate segment, we had an increase in lease revenues and a decline in interest expense. Dispositions of properties from our Owned Real Estate segment generated higher lease termination income and increased gains on sales in 2016, which were partially offset by increased impairment charges. Net income from our Investment Management segment increased due to higher asset management revenue, a lower provision for income taxes, and higher distributions of Available Cash received from the Managed REITs (Note 3), partially offset by lower structuring revenue in 2016. Within both segments, we reduced general and administrative expenses in 2016, primarily as a result of implementing cost savings initiatives, including the RIF, for which we recognized one-time restructuring and other compensation expense.

Net Cash Provided by Operating Activities

2017 vs. 2016 — Net cash provided by operating activities decreased in 2017 as compared to 2016, primarily due to the lease termination income received in connection with the sale of a property during 2016, our receipt of asset management fees and structuring revenue in shares of common stock of certain of the Managed Programs rather than cash during 2017 (Note 3), and a decrease in operating cash flow as a result of property dispositions during 2016 and 2017. These decreases were partially offset by an increase in operating cash flow generated from properties acquired during 2016 and 2017, a decrease in interest expense, and lower general and administrative expenses in 2017.

2016 vs. 2015 — Net cash provided by operating activities increased in 2016 as compared to 2015, primarily due to the lease termination income received in connection with the sale of a property during 2016, an increase in operating cash flow generated from properties we acquired during 2015 and 2016, and higher distributions of Available Cash received from the Managed REITs. These increases were partially offset by a decrease in structuring revenue received in cash from the Managed Programs due to lower investment volume during 2016.


 
W. P. Carey 2017 10-K 36
                    



AFFO

2017 vs. 2016 — AFFO increased in 2017 as compared to 2016, primarily due to lower interest expense, lower general and administrative expenses, higher asset management revenue, and higher earnings from our equity interests in the Managed Programs, partially offset by lower structuring revenue due to lower investment volume for the Managed Programs during 2017 and lower lease revenues, as well as the lease termination income received in connection with the sale of a property in 2016.

2016 vs. 2015 — AFFO increased in 2016 as compared to 2015, primarily due to lower general and administrative expenses, higher asset management revenue, and lower interest expense, partially offset by lower structuring revenue due to lower investment volume for the Managed Programs during 2016.

Portfolio Overview

We intend to continue to acquire a diversified portfolio of income-producing commercial real estate properties and other real estate-related assets. We expect to make these investments both domestically and internationally. Portfolio information is provided on a pro rata basis, unless otherwise noted below, to better illustrate the economic impact of our various net-leased jointly owned investments. See Terms and Definitions below for a description of pro rata amounts.

Portfolio Summary
 
As of December 31,
 
2017
 
2016
 
2015
Number of net-leased properties
887

 
903

 
869

Number of operating properties (a)
2

 
2

 
3

Number of tenants (net-leased properties)
210

 
217

 
222

Total square footage (net-leased properties, in thousands)
84,899

 
87,866

 
90,120

Occupancy (net-leased properties)
99.8
%
 
99.1
%
 
98.8
%
Weighted-average lease term (net-leased properties, in years)
9.6

 
9.7

 
9.0

Number of countries (b)
17

 
19

 
19

Total assets (consolidated basis, in thousands)
$
8,231,402

 
$
8,453,954

 
$
8,742,089

Net investments in real estate (consolidated basis, in thousands) (c)
6,703,715

 
6,781,900

 
7,229,873


 
Years Ended December 31,
 
2017
 
2016
 
2015
Financing obtained — consolidated (in millions) (d)
$
633.4

 
$
384.6

 
$
1,541.7

Financing obtained — pro rata (in millions) (d)
633.4

 
367.6

 
1,541.7

Acquisition volume (in millions) (e) (f)
31.8

 
530.3

 
688.7

Construction projects completed (in millions) (e) (g)
65.4

 
13.8

 
53.2

Average U.S. dollar/euro exchange rate
1.1292

 
1.1067

 
1.1099

Average U.S. dollar/British pound sterling exchange rate
1.2882

 
1.3558

 
1.5286

Change in the U.S. CPI (h)
2.1
%
 
2.0
%
 
0.7
%
Change in the Germany CPI (h)
1.7
%
 
1.7
%
 
0.3
%
Change in the United Kingdom CPI (h)
2.9
%
 
1.6
%
 
0.2
%
Change in the Spain CPI (h)
1.1
%
 
1.6
%
 
0.1
%
 
__________
(a)
At both December 31, 2017 and 2016, operating properties consisted of two hotel properties with an average occupancy of 82.7% for 2017. During 2016, we sold our remaining self-storage property. At December 31, 2015, operating properties consisted of two hotel properties and one self-storage property.
(b)
We sold all of our investments in Malaysia and Thailand during 2017 (Note 16).
(c)
In 2017, we reclassified certain line items in our consolidated balance sheets. As a result, Net investments in real estate as of December 31, 2016 and 2015 has been revised to conform to the current period presentation (Note 2).

 
W. P. Carey 2017 10-K 37
                    



(d)
Both the consolidated and pro rata amounts for 2017 include the issuance of €500.0 million of 2.25% Senior Notes in January 2017, as well as the amendment and restatement of our Senior Unsecured Credit Facility in February 2017, which increased our borrowing capacity under that facility by approximately $100.0 million (Note 10). Both the consolidated and pro rata amounts for 2016 include the issuance of $350.0 million of 4.25% Senior Notes in September 2016. The consolidated amount for 2016 includes the refinancing of a non-recourse mortgage loan for $34.6 million, while the pro rata amount for 2016 includes our proportionate share of that refinancing of $17.6 million. Amount for 2015 represents the exercise of the accordion feature under our then-existing Senior Unsecured Credit Facility in January 2015, which increased our borrowing capacity under our Unsecured Revolving Credit Facility by $500.0 million, and the issuances of €500.0 million of 2.0% Senior Notes and $450.0 million of 4.0% Senior Notes in January 2015.
(e)
Amounts are the same on both a consolidated and pro rata basis.
(f)
Amount for 2017 excludes a commitment for $3.6 million of building improvements in connection with an acquisition (Note 4). Amount for 2016 excludes an aggregate commitment for $128.1 million of build-to-suit financing (Note 4). Amount for 2016 also excludes $1.9 million for land acquired in connection with build-to-suit or expansion projects (Note 4). Amount for 2015 includes acquisition-related costs for investments that were considered to be business combinations, which were required to be expensed in the consolidated financial statements. We did not complete any investments that were considered to be business combinations during 2017 or 2016.
(g)
Amount for 2017 includes projects that were partially completed in 2016.
(h)
Many of our lease agreements include contractual increases indexed to changes in the CPI or similar indices in the jurisdictions in which the properties are located.

Net-Leased Portfolio

The tables below represent information about our net-leased portfolio at December 31, 2017 on a pro rata basis and, accordingly, exclude all operating properties. See Terms and Definitions below for a description of pro rata amounts and ABR.

Top Ten Tenants by ABR
(dollars in thousands)
Tenant/Lease Guarantor
 
Property Type
 
Tenant Industry
 
Location
 
Number of Properties
 
ABR
 
ABR Percent
 
Weighted-Average Lease Term (Years)
Hellweg Die Profi-Baumärkte GmbH & Co. KG (a)
 
Retail
 
Retail Stores
 
Germany
 
53

 
$
36,375

 
5.3
%
 
16.2

U-Haul Moving Partners Inc. and Mercury Partners, LP
 
Self Storage
 
Cargo Transportation, Consumer Services
 
United States
 
78

 
31,853

 
4.7
%
 
6.3

State of Andalucia (a)
 
Office
 
Sovereign and Public Finance
 
Spain
 
70

 
29,163

 
4.3
%
 
17.0

Pendragon PLC (a)
 
Retail
 
Retail Stores, Consumer Services
 
United Kingdom
 
70

 
22,266

 
3.3
%
 
12.3

Marriott Corporation
 
Hotel
 
Hotel, Gaming and Leisure
 
United States
 
18

 
20,065

 
2.9
%
 
5.9

Forterra Building Products (a) (b)
 
Industrial
 
Construction and Building
 
United States and Canada
 
49

 
17,496

 
2.6
%
 
18.3

OBI Group (a)
 
Office, Retail
 
Retail Stores
 
Poland
 
18

 
16,565

 
2.4
%
 
6.4

True Value Company
 
Warehouse
 
Retail Stores
 
United States
 
7

 
15,680

 
2.3
%
 
5.0

UTI Holdings, Inc.
 
Education Facility
 
Consumer Services
 
United States
 
5

 
14,484

 
2.1
%
 
4.2

ABC Group Inc. (c)
 
Industrial, Office, Warehouse
 
Automotive
 
Canada, Mexico, and United States
 
14

 
14,110

 
2.1
%
 
18.9

Total
 
 
 
 
 
 
 
382

 
$
218,057

 
32.0
%
 
11.5

__________
(a)
ABR amounts are subject to fluctuations in foreign currency exchange rates.
(b)
Of the 49 properties leased to Forterra Building Products, 44 are located in the United States and five are located in Canada.
(c)
Of the 14 properties leased to ABC Group Inc., six are located in Canada, four are located in Mexico, and four are located in the United States, subject to three master leases all denominated in U.S. dollars.

 
W. P. Carey 2017 10-K 38
                    



Portfolio Diversification by Geography
(in thousands, except percentages)
Region
 
ABR
 
ABR Percent
 
Square Footage (a)
 
Square Footage Percent
United States
 
 
 
 
 
 
 
 
South
 
 
 
 
 
 
 
 
Texas
 
$
56,704

 
8.3
%
 
8,192

 
9.6
%
Florida
 
29,419

 
4.3
%
 
2,657

 
3.1
%
Georgia
 
21,535

 
3.2
%
 
3,293

 
3.9
%
Tennessee
 
15,520

 
2.3
%
 
2,306

 
2.7
%
Other (b)
 
11,310

 
1.7
%
 
2,279

 
2.7
%
Total South
 
134,488

 
19.8
%
 
18,727

 
22.0
%
 
 
 
 
 
 
 
 
 
East
 
 
 
 
 
 
 
 
North Carolina
 
19,856

 
2.9
%
 
4,518

 
5.3
%
Pennsylvania
 
18,880

 
2.8
%
 
2,525

 
3.0
%
New Jersey
 
18,768

 
2.8
%
 
1,097

 
1.3
%
New York
 
18,258

 
2.7
%
 
1,178

 
1.4
%
Massachusetts
 
15,481

 
2.3
%
 
1,390

 
1.6
%
Virginia
 
7,630

 
1.1
%
 
1,025

 
1.2
%
Connecticut
 
6,949

 
1.0
%
 
1,135

 
1.3
%
Other (b)
 
18,019

 
2.6
%
 
3,782

 
4.5
%
Total East
 
123,841

 
18.2
%
 
16,650

 
19.6
%
 
 
 
 
 
 
 
 
 
West
 
 
 
 
 
 
 
 
California
 
41,296

 
6.1
%
 
3,213

 
3.8
%
Arizona
 
26,860

 
3.9
%
 
3,049

 
3.6
%
Colorado
 
9,941

 
1.5
%
 
864

 
1.0
%
Other (b)
 
26,665

 
3.9
%
 
3,230

 
3.8
%
Total West
 
104,762

 
15.4
%
 
10,356

 
12.2
%
 
 
 
 
 
 
 
 
 
Midwest
 
 
 
 
 
 
 
 
Illinois
 
21,839

 
3.2
%
 
3,295

 
3.9
%
Michigan
 
12,244

 
1.8
%
 
1,456

 
1.7
%
Indiana
 
9,331

 
1.4
%
 
1,418

 
1.7
%
Minnesota
 
8,896

 
1.3
%
 
947

 
1.1
%
Ohio
 
8,621

 
1.3
%
 
1,911

 
2.3
%
Other (b)
 
24,307

 
3.5
%
 
4,385

 
5.2
%
Total Midwest
 
85,238

 
12.5
%
 
13,412

 
15.9
%
United States Total
 
448,329

 
65.9
%
 
59,145

 
69.7
%
 
 
 
 
 
 
 
 
 
International
 
 
 
 
 
 
 
 
Germany
 
58,860

 
8.6
%
 
5,967

 
7.0
%
United Kingdom
 
34,465

 
5.1
%
 
2,324

 
2.7
%
Spain
 
30,920

 
4.5
%
 
2,927

 
3.4
%
Poland
 
18,623

 
2.7
%
 
2,189

 
2.6
%
The Netherlands
 
15,654

 
2.3
%
 
2,233

 
2.6
%
France
 
14,772

 
2.2
%
 
1,266

 
1.5
%
Finland
 
13,237

 
1.9
%
 
1,121

 
1.3
%
Canada
 
12,807

 
1.9
%
 
2,196

 
2.6
%
Australia
 
12,786

 
1.9
%
 
3,272

 
3.9
%
Other (c)
 
20,219

 
3.0
%
 
2,259

 
2.7
%
International Total
 
232,343

 
34.1
%
 
25,754

 
30.3
%
 
 
 
 
 
 
 
 
 
Total
 
$
680,672

 
100.0
%
 
84,899

 
100.0
%

 
W. P. Carey 2017 10-K 39
                    



Portfolio Diversification by Property Type
(in thousands, except percentages)
Property Type
 
ABR
 
ABR Percent
 
Square Footage (a)
 
Square Footage Percent
Industrial
 
$
202,354

 
29.7
%
 
38,318

 
45.1
%
Office
 
170,284

 
25.0
%
 
11,134

 
13.1
%
Retail
 
112,544

 
16.5
%
 
9,690

 
11.4
%
Warehouse
 
94,999

 
14.0
%
 
17,878

 
21.1
%
Self Storage
 
31,853

 
4.7
%
 
3,535

 
4.2
%
Other (d)
 
68,638

 
10.1
%
 
4,344

 
5.1
%
Total
 
$
680,672

 
100.0
%
 
84,899

 
100.0
%
__________
(a)
Includes square footage for any vacant properties.
(b)
Other properties within South include assets in Alabama, Louisiana, Arkansas, Mississippi, and Oklahoma. Other properties within East include assets in Kentucky, South Carolina, Maryland, New Hampshire, and West Virginia. Other properties within West include assets in Utah, Washington, Nevada, Oregon, New Mexico, Wyoming, Alaska, and Montana. Other properties within Midwest include assets in Missouri, Kansas, Wisconsin, Nebraska, Iowa, South Dakota, and North Dakota.
(c)
Includes assets in Norway, Hungary, Austria, Mexico, Sweden, Belgium, and Japan.
(d)
Includes ABR from tenants with the following property types: education facility, hotel, theater, fitness facility, and net-lease student housing.


 
W. P. Carey 2017 10-K 40
                    



Portfolio Diversification by Tenant Industry
(in thousands, except percentages)
Industry Type
 
ABR
 
ABR Percent
 
Square Footage
 
Square Footage Percent
Retail Stores (a)
 
$
120,061

 
17.6
%
 
14,916

 
17.6
%
Consumer Services
 
71,640

 
10.5
%
 
5,604

 
6.6
%
Automotive
 
56,162

 
8.3
%
 
9,044

 
10.7
%
Sovereign and Public Finance
 
43,522

 
6.4
%
 
3,411

 
4.0
%
Construction and Building
 
37,093

 
5.4
%
 
8,142

 
9.6
%
Hotel, Gaming, and Leisure
 
35,368

 
5.2
%
 
2,254

 
2.7
%
Beverage, Food, and Tobacco
 
31,230

 
4.6
%
 
6,876

 
8.1
%
Cargo Transportation
 
29,063

 
4.3
%
 
3,860

 
4.5
%
Healthcare and Pharmaceuticals
 
28,329

 
4.2
%
 
2,048

 
2.4
%
High Tech Industries
 
28,264

 
4.2
%
 
2,490

 
2.9
%
Containers, Packaging, and Glass
 
27,517

 
4.0
%
 
5,325

 
6.3
%
Media: Advertising, Printing, and Publishing
 
24,153

 
3.5
%
 
1,588

 
1.9
%
Capital Equipment
 
22,720

 
3.3
%
 
3,731

 
4.4
%
Business Services
 
14,294

 
2.1
%
 
1,739

 
2.0
%
Grocery
 
11,515

 
1.7
%
 
1,228

 
1.5
%
Durable Consumer Goods
 
11,509

 
1.7
%
 
2,485

 
2.9
%
Wholesale
 
10,893

 
1.6
%
 
1,799

 
2.1
%
Aerospace and Defense
 
10,609

 
1.6
%
 
1,115

 
1.3
%
Banking
 
10,453

 
1.5
%
 
702

 
0.8
%
Chemicals, Plastics, and Rubber
 
9,379

 
1.4
%
 
1,108

 
1.3
%
Metals and Mining
 
9,209

 
1.4
%
 
1,341

 
1.6
%
Non-Durable Consumer Goods
 
8,159

 
1.2
%
 
1,883

 
2.2
%
Oil and Gas
 
8,006

 
1.2
%
 
333

 
0.4
%
Telecommunications
 
7,068

 
1.0
%
 
418

 
0.5
%
Other (b)
 
14,456

 
2.1
%
 
1,459

 
1.7
%
Total
 
$
680,672

 
100.0
%
 
84,899

 
100.0
%
__________
(a)
Includes automotive dealerships.
(b)
Includes ABR from tenants in the following industries: insurance, electricity, media: broadcasting and subscription, forest products and paper, and environmental industries. Also includes square footage for vacant properties.


 
W. P. Carey 2017 10-K 41
                    



Lease Expirations
(in thousands, except percentages and number of leases)
Year of Lease Expiration (a)
 
Number of Leases Expiring
 
ABR
 
ABR Percent
 
Square Footage
 
Square Footage Percent
2018 (b)
 
4

 
$
9,394

 
1.4
%
 
912

 
1.1
%
2019
 
20

 
27,820

 
4.1
%
 
2,419

 
2.8
%
2020
 
24

 
33,439

 
4.9
%
 
3,343

 
3.9
%
2021
 
80

 
40,900

 
6.0
%
 
6,301

 
7.4
%
2022
 
41

 
70,270

 
10.3
%
 
9,451

 
11.1
%
2023
 
21

 
41,567

 
6.1
%
 
5,811

 
6.8
%
2024 (c)
 
43

 
96,171

 
14.1
%
 
11,592

 
13.7
%
2025
 
41

 
31,053

 
4.6
%
 
3,439

 
4.1
%
2026
 
19

 
19,020

 
2.8
%
 
3,159

 
3.7
%
2027
 
26

 
42,998

 
6.3
%
 
6,052

 
7.1
%
2028
 
11

 
22,312

 
3.3
%
 
2,551

 
3.0
%
2029
 
10

 
18,834

 
2.8
%
 
2,562

 
3.0
%