W. P. Carey Announces Third Quarter 2013 Financial Results

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Nov 05, 2013, 09:02 ET

NEW YORK, Nov. 5, 2013 /PRNewswire/ -- W. P. Carey Inc. (NYSE: WPC), a real estate investment trust ("REIT"), today reported financial results for the third quarter ended September 30, 2013.

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During the third quarter of 2013, the Company:

Reported Funds from operations—as adjusted ("AFFO") of $1.03 per diluted share
Announced a merger agreement with Corporate Property Associates 16 – Global Incorporated ("CPA^®:16 – Global")
Structured $428.9 million of investments on behalf of the Managed REITs
Raised its annualized dividend rate to $3.44 per share, WPC's 50^th consecutive quarterly increase

QUARTERLY RESULTS

AFFO for the third quarter of 2013 was $71.1 million or $1.03 per diluted share, compared to $33.9 million or $0.82 per diluted share for the third quarter of 2012. AFFO for the nine months ended September 30, 2013 was $216.0 million or $3.09 per diluted share, compared to $101.8 million or $2.48 per diluted share for the comparable period in 2012. The increased AFFO in the three and nine months ended September 30, 2013 as compared to the same periods in 2012 was primarily due to income from the properties we acquired in our merger with Corporate Property Associates 15 – Incorporated ("CPA^®:15") on September 28, 2012 (the "CPA^®:15 Merger") partially offset by the cessation of asset management revenue received from CPA^®:15 after the CPA^®:15 Merger was completed. Per share data for the 2013 periods also reflects the issuance of 28.2 million shares in connection with the CPA^®:15 Merger to the stockholders of CPA^®:15. Further information concerning AFFO, a non-GAAP supplemental performance metric, is presented in the accompanying tables and related notes.
Total revenues net of reimbursed expenses for the third quarter of 2013 were $114.7 million, compared to $49.4 million for the third quarter of 2012. Total revenues net of reimbursed expenses for the nine months ended September 30, 2013 were $316.7 million, compared to $143.8 million for the comparable period in 2012. Reimbursed expenses are excluded from total revenues because they have no impact on net income.
Net Income for the third quarter of 2013 was $18.5 million, compared to $2.6 million for the same period in 2012. Net Income for the nine months ended September 30, 2013 was $75.9 million, compared to $46.7 million for the prior year period.
For the quarter ended September 30, 2013, we received approximately $14.5 million in cash distributions from our equity ownership in the Managed REITs including $7.3 million in Available Cash distributions related to our special general partnership interests in the Managed REITs.

W. P. CAREY OWNED PORTFOLIO UPDATE

In September 2013, W. P. Carey acquired an office facility of the Department of State for Communities and Local Government, a department of the UK Government, located in Manchester, UK. The total acquisition cost of the facility was approximately $63.3 million (GBP40.0 million/EUR47.0 million). Year to date, W. P. Carey has completed five transactions for a total investment of $248.5 million.
During the third quarter of 2013, W. P. Carey disposed of three properties for total proceeds of $7.6 million.
The W. P. Carey owned portfolio currently consists primarily of 421 leased properties comprising 39.4 million square feetleased to 125 corporate tenants. The average lease term of the portfolio is 8.7 years and the occupancy rate is 99.0%.

W. P. CAREY MANAGED PORTFOLIO UPDATE

W. P. Carey is the advisor to the CPA^® REITs and Carey Watermark Investors Incorporated ("CWI"), which had aggregate real estate assets of $8.6 billion, cash of approximately $0.8 billion and total assets of $9.3 billion as of September 30, 2013. The average occupancy rate for the 78.6 million square feet owned by the CPA^® REITs was 98.8%.
- CPA^®:17 – GLOBAL: During the third quarter of 2013, we structured eight new investment transactions totaling $209.3 million on behalf of CPA^®:17 – Global. Year to date, through October 31, 2013, we have structured $437.6 million of new investments on behalf of CPA^®:17 – Global.
- CPA^®:18 – GLOBAL: Year to date, through October 31, 2013, CPA^®:18 – Global, our newest publicly-registered non-traded REIT offering, has raised approximately $65.6 million.
- CWI: Through the closing of its initial public offering on September 15, 2013, CWI, our lodging-focused non-traded REIT offering, raised approximately $582.4 million, inclusive of reinvested distributions through the distribution reinvestment plan. Year to date, through October 31, 2013, CWI has invested in 11 hotels for a total of $606.7 million, inclusive of two hotels during the third quarter of 2013 for $161.8 million.
  
  On October 25, 2013, CWI filed a registration statement with the SEC for a possible public offering of up to an additional $350 million of its common stock. There can be no assurance that CWI will actually commence the follow-on offering or successfully sell the full number of shares registered, if any.

PROPOSED MERGER WITH CPA^®:16– GLOBAL

On July 25, 2013, we announced that our Board of Directors and the Board of Directors of our publicly held, non-traded REIT affiliate, CPA^®:16 – Global had each unanimously approved a merger agreement pursuant to which CPA^®:16 – Global will merge with and into a subsidiary of W. P. Carey in a transaction valued at approximately $4.0 billion, including debt. Following the proposed merger, the combined company is expected to have an equity market capitalization of approximately $6.5 billion and a total enterprise value of approximately $10.0 billion.
The proposed merger is subject to the approvals of the stockholders of both W. P. Carey and CPA^®:16 – Global and other customary closing conditions. If the proposed merger is approved and the other closing conditions are satisfied, we currently expect that the closing will occur during the first quarter of 2014, although there can be no assurance that the transaction will close at such time, if at all.

DIVIDENDS

As previously announced, the W. P. Carey Board of Directors raised the quarterly cash dividend to $0.86 per share for the third quarter of 2013. This represents a 2.4% increase from the second quarter of 2013 and a 32.3% increase over the third quarter of 2012. The dividend—our 50^th consecutive quarterly increase—was paid on October 15, 2013 to stockholders of record as of September 30, 2013.
W. P. Carey President and CEO Trevor Bond, noted, "The third quarter marks the conclusion of our first full year as a REIT and also included another significant milestone for the company with the announcement of our proposed merger with CPA^®:16 – Global. This transaction will further increase our real estate assets under ownership and reinforce our status as a leading global net-lease REIT. While we continue to closely monitor the current economic environment, we believe that the strength our business model and adhering to our established, conservative investment criteria will enable us to continue providing steady income to both our stockholders and investors in our Managed REITs."

Conference Call and Audio Webcast Scheduled for 11:00 AM (ET)
Please call at least 10 minutes prior to call to register.
Time: Tuesday, November 5, 2013 at 11:00 AM (ET)
Call-in Number: 800-860-2442
(International) +1-412-858-4600
Webcast: www.wpcarey.com/Q3earnings
Podcast: www.wpcarey.com/podcast
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Replay Number: 877-344-7529
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Replay Passcode: 10033805
Replay available until November 15, 2013 at 9:00 AM (ET).

W. P. Carey Inc.
Celebrating its 40^th anniversary, W. P. Carey Inc. is a publicly traded REIT (NYSE: WPC) that provides long-term sale-leaseback and build-to-suit financing for companies worldwide and owns and manages an investment portfolio totaling approximately $15.8 billion. The largest owner/manager of net lease assets, WPC's corporate finance-focused credit and real estate underwriting process is a constant that has been successfully leveraged across a wide variety of industries and property types. Its portfolio of long-term leases with creditworthy tenants has an established history of generating stable cash flows that have enabled the Company to deliver consistent dividend income to investors for nearly four decades. www.wpcarey.com

This press release contains forward-looking statements within the meaning of the Federal securities laws. Examples of such forward-looking statements include, but are not limited to, statements regarding the proposed merger and the statements made by Mr. Bond. A number of factors could cause W. P. Carey's actual results, performance or achievement to differ materially from those anticipated. Among those risks, trends and uncertainties are the general economic climate; the supply of and demand for office and industrial properties; interest rate levels; the availability of financing; and other risks associated with the acquisition and ownership of properties, including risks that the tenants will not pay rent, or that costs may be greater than anticipated. For further information on factors that could impact W. P. Carey or the combined company after the proposed merger, reference is made to W. P. Carey's filings with the Securities and Exchange Commission.

W. P. CAREY INC. Financial Highlights (Unaudited) (in thousands, except per share amounts)
These financial highlights include the non-GAAP financial measure, funds from operations – as adjusted ("AFFO"). A description of this non-GAAP financial measure and a reconciliation to the most directly comparable GAAP measure is provided on the following pages.

	Three Months Ended September 30,				Nine Months Ended September 30,
	2013		2012		2013		2012
Net Income	$	18,506	$	2,588	$	75,854	$	46,654

AFFO from real estate ownership	$	61,629	$	38,088	$	196,887	$	94,806
AFFO from investment management		9,516		(4,169)		19,151		7,004
Total AFFO	$	71,145	$	33,919	$	216,038	$	101,810

Per Share (Diluted)
Net Income	$	0.27	$	0.06	$	1.08	$	1.12

AFFO from real estate ownership	$	0.89	$	0.92	$	2.82	$	2.31
AFFO from investment management		0.14		(0.10)		0.27		0.17
Total AFFO	$	1.03	$	0.82	$	3.09	$	2.48

W. P. CAREY INC.

Consolidated Balance Sheets (Unaudited)
(in thousands)

			September 30, 2013		December 31, 2012
Assets
Investments in real estate:
	Real estate, at cost		$	2,515,475	$	2,334,488
	Operating real estate, at cost			83,896		99,703
	Accumulated depreciation			(170,085)		(136,068)
Net investments in properties				2,429,286		2,298,123
Net investments in direct financing leases				360,240		376,005
Assets held for sale				17,975		1,445
Equity investments in real estate and the Managed REITs				557,513		565,626
Net investments in real estate				3,365,014		3,241,199
Cash				93,620		123,904
Due from affiliates				42,249		36,002
Goodwill				327,973		329,132
In place lease, net				487,527		447,278
Above-market rent, net				261,900		279,885
Other intangible assets, net				15,519		10,200
Other assets, net				132,558		141,442
		Total assets	$	4,726,360	$	4,609,042

Liabilities and Equity
Liabilities:
Non-recourse debt			$	1,685,556	$	1,715,397
Senior credit facility				490,000		253,000
Accounts payable, accrued expenses and other liabilities				282,489		265,132
Income taxes, net				11,232		24,959
Distributions payable				59,439		45,700
		Total liabilities		2,528,716		2,304,188
Redeemable noncontrolling interest				7,316		7,531
Redeemable securities - related party				-		40,000

Equity:
W. P. Carey stockholders' equity:
Common stock				69		69
Preferred stock (None issued)				-		-
Additional paid-in capital				2,243,186		2,175,820
Distributions in excess of accumulated earnings				(273,850)		(172,182)
Deferred compensation obligation				11,354		8,358
Accumulated other comprehensive income (loss)				8,626		(4,649)
Less, treasury stock at cost				(60,270)		(20,270)
		Total W. P. Carey stockholders' equity		1,929,115		1,987,146
Noncontrolling interests				261,213		270,177
		Total equity		2,190,328		2,257,323
		Total liabilities and equity	$	4,726,360	$	4,609,042

W. P. CAREY INC.

CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED)
(in thousands, except share and per share amounts)

			Three Months Ended September 30,				Nine Months Ended September 30,
			2013		2012		2013		2012
Revenues
	Lease revenues:
		Rental income	$	68,391	$	14,245	$	199,778	$	43,401
		Interest income from direct financing leases		9,235		1,881		28,158		5,919
	Total lease revenues			77,626		16,126		227,936		49,320
	Asset management revenue from affiliates			10,961		15,850		31,330		47,088
	Structuring revenue from affiliates			14,775		8,316		27,539		19,576
	Dealer manager fees			3,787		4,012		7,329		11,878
	Reimbursed costs from affiliates			23,259		19,879		50,694		59,100
	Other real estate income			7,506		5,095		22,547		15,977
				137,914		69,278		367,375		202,939
Operating Expenses
	General and administrative			28,761		28,930		84,733		77,701
	Merger and acquisition expenses			3,630		25,897		6,879		30,616
	Reimbursable costs			23,259		19,879		50,694		59,100
	Depreciation and amortization			31,560		6,120		92,741		18,549
	Property expenses			5,746		2,069		16,307		7,112
	Other real estate expenses			1,654		1,557		5,064		4,619
	Impairment charges			1,416		-		1,416		-
				96,026		84,452		257,834		197,697
Other Income and Expenses
	Other interest income			367		252		1,053		910
	Net income from equity investments in real estate and the Managed REITs			9,180		10,477		52,377		52,808
	Gain on change in control of interests			-		20,794		-		20,794
	Other income and (expenses)			2,484		503		5,453		2,026
	Interest expense			(27,482)		(7,845)		(81,187)		(22,253)
				(15,451)		24,181		(22,304)		54,285
	Income from continuing operations before income taxes			26,437		9,007		87,237		59,527
	Provision for income taxes			(5,375)		(379)		(3,020)		(192)
	Income from continuing operations			21,062		8,628		84,217		59,335
Discontinued Operations
	Income (loss) from operations of discontinued properties			349		(458)		3,332		(1,060)
	Gain (loss) on sale of real estate			239		(409)		622		(888)
	Gain on extinguishment of debt			-		-		84		-
	Impairment charges			-		(5,535)		(4,950)		(12,262)
	Income (loss) from discontinued operations, net of tax			588		(6,402)		(912)		(14,210)
Net Income				21,650		2,226		83,305		45,125
	Net (income) loss attributable to noncontrolling interests			(2,912)		325		(7,312)		1,383
	Net (income) loss attributable to redeemable noncontrolling interest			(232)		37		(139)		146
Net Income Attributable to W. P. Carey			$	18,506	$	2,588	$	75,854	$	46,654

Basic Earnings Per Share
	Income from continuing operations attributable to W. P. Carey		$	0.26	$	0.22	$	1.11	$	1.49
	Income (loss) from discontinued operations attributable to W. P. Carey			0.01		(0.16)		(0.01)		(0.35)
	Net income attributable to W. P. Carey		$	0.27	$	0.06	$	1.10	$	1.14

Diluted Earnings Per Share
	Income from continuing operations attributable to W. P. Carey		$	0.26	$	0.21	$	1.09	$	1.47
	Income (loss) from discontinued operations attributable to W. P. Carey			0.01		(0.15)		(0.01)		(0.35)
	Net income attributable to W. P. Carey		$	0.27	$	0.06	$	1.08	$	1.12

Weighted Average Shares Outstanding
	Basic		68,397,176		40,366,298		68,719,264		40,398,433
	Diluted		69,400,825		41,127,404		69,846,320		41,029,578

Amounts Attributable to W. P. Carey
	Income from continuing operations, net of tax		$	18,021	$	8,990	$	76,920	$	60,864
	Income (loss) from discontinued operations, net of tax			485		(6,402)		(1,066)		(14,210)
	Net income attributable to W. P. Carey		$	18,506	$	2,588	$	75,854	$	46,654

W. P. CAREY INC. Reconciliation of Net Income to Funds From Operations –– as adjusted (AFFO) (Unaudited) (in thousands, except share and per share amounts)

				Three Months Ended September 30,				Nine Months Ended September 30,
				2013		2012		2013		2012
Real Estate Ownership
Net income from real estate ownership attributable to W. P. Carey				$	13,695	$	1,927	$	73,494	$	39,388
	Adjustments:
		Depreciation and amortization of real property			30,483		5,510		90,340		17,330
		Impairment charges			1,416		5,534		6,366		12,262
		Gain on sale of real estate, net			(239)		(59)		(289)		(1,564)
		Proportionate share of adjustments to equity in net income of partially-owned entities to arrive at FFO			2,365		888		(10,785)		(12,899)
		Proportionate share of adjustments for noncontrolling interests to arrive at FFO			(4,252)		(400)		(12,766)		(1,268)
			Total adjustments		29,773		11,473		72,866		13,861
FFO (as defined by NAREIT) - Real Estate Ownership					43,468		13,400		146,360		53,249
	Adjustments:
		Gain on change in control of interests			-		(20,794)		-		(20,794)
		Gain on extinguishment of debt			(143)		-		(210)		-
		Other gains, net			(32)		-		(302)		-
		Other depreciation, amortization and non-cash charges			(707)		(130)		(422)		(106)
		Stock-based compensation			259		-		1,344		-
		Deferred tax expense			(732)		(917)		(1,778)		(2,101)
		Acquisition expenses^(a)			1,076		-		3,985		-
		Realized losses on foreign currency, derivatives and other^(b)			67		115		221		657
		Amortization of deferred financing costs			713		509		1,773		1,375
		Straight-line and other rent adjustments			(1,930)		(200)		(6,376)		(2,198)
		Above- and below-market rent intangible lease amortization, net ^(a)			7,330		51		21,823		162
		Merger expenses^(c)			2,463		35,570		2,792		40,289
		Proportionate share of adjustments to equity in net income of partially-owned entities to arrive at AFFO			306		(25)		863		(804)
			AFFO adjustments to equity earnings from equity investments		10,961		10,650		30,928		25,263
		Proportionate share of adjustments for noncontrolling interests to arrive at AFFO			(1,470)		(141)		(4,114)		(186)
			Total adjustments		18,161		24,688		50,527		41,557
AFFO - Real Estate Ownership				$	61,629	$	38,088	$	196,887	$	94,806

Investment Management
Net income from investment management attributable to W. P. Carey				$	4,811	$	661	$	2,360	$	7,266
FFO (as defined by NAREIT) - Investment Management				$	4,811	$	661	$	2,360	$	7,266
	Adjustments:
		Other depreciation, amortization and other non-cash charges			264		247		779		735
		Stock-based compensation			7,594		9,805		24,087		19,560
		Deferred tax expense			(3,550)		(15,207)		(9,112)		(21,430)
		Realized (gains) losses on foreign currency^(b)			(7)		17		(3)		(6)
		Amortization of deferred financing costs			404		308		1,040		879
			Total adjustments		4,705		(4,830)		16,791		(262)
AFFO - Investment Management				$	9,516	$	(4,169)	$	19,151	$	7,004

Total Company
FFO (as defined by NAREIT)				$	48,279	$	14,061	$	148,720	$	60,515
FFO (as defined by NAREIT) per diluted share					0.70		0.34		2.13		1.47
AFFO				$	71,145	$	33,919	$	216,038	$	101,810
AFFO per diluted share					1.03		0.82		3.09		2.48
Diluted weighted average shares outstanding					69,400,825		41,127,404		69,846,320		41,029,578

__________

(a)	Prior to the second quarter of 2013, this amount was insignificant and therefore not included in the AFFO calculation.
(b)	These adjustments are significant and recurring subsequent to the CPA^®:15 Merger and were not included in the AFFO calculation for the three and nine months ended September 30, 2012.
(c)	The three and nine months ended September 30, 2012 include current income tax expense of $9.6 million related to the cancellation of CPA^®:15 shares held by us upon the CPA^®:15 Merger.

Non-GAAP Financial Disclosure

Funds from operations ("FFO") is a non-GAAP measure defined by the National Association of Real Estate Investment Trusts ("NAREIT"). NAREIT defines FFO as net income or loss (as computed in accordance with GAAP) excluding: depreciation and amortization expense from real estate assets, impairment charges on real estate, gains or losses from sales of depreciated real estate assets and extraordinary items; however FFO related to assets held for sale, sold or otherwise transferred and included in the results of discontinued operations are included. These adjustments also incorporate the pro rata share of unconsolidated subsidiaries. FFO is used by management, investors and analysts to facilitate meaningful comparisons of operating performance between periods and among our peers. Although NAREIT has published this definition of FFO, companies often modify this definition as they seek to provide financial measures that meaningfully reflect their distinctive operations. We modify the NAREIT computation of FFO to include other adjustments to GAAP net income to adjust for certain non-cash charges such as amortization of intangibles, deferred income tax benefits and expenses, straight-line rents, stock compensation, gains or losses from extinguishment of debt and deconsolidation of subsidiaries and unrealized foreign currency exchange gains and losses. Our assessment of our operations is focused on long-term sustainability and not on such non-cash items, which may cause short-term fluctuations in net income but have no impact on cash flows. Additionally, we exclude expenses related to the CPA^®:15 Merger and realized gain/losses on foreign exchange and derivatives which are not considered fundamental attributes of our business plan and do not affect our overall long-term operating performance. We refer to our modified definition of FFO as AFFO. We exclude these items from GAAP net income as they are not the primary drivers in our decision making process and excluding those items provides investors a view of our portfolio performance over time and make it more comparable to other REITs which are currently not engaged in acquisitions and mergers. We use AFFO as one measure of our operating performance when we formulate corporate goals, evaluate the effectiveness of our strategies, and determine executive compensation. We believe that AFFO is a useful supplemental measure for investors to consider because it will help them to better assess the sustainability of our operating performance without potentially distorting the impact of these short-term fluctuations. However, there are limits on the usefulness of AFFO to investors. For example, impairment charges and unrealized foreign currency losses that we exclude may become actual realized losses upon the ultimate disposition of the properties in the form of lower cash proceeds or other considerations.

COMPANY CONTACT:	PRESS CONTACTS:
Kristin Brown	Kristina McMenamin	Guy Lawrence
W. P. Carey Inc.	W. P. Carey Inc.	Ross & Lawrence
212-492-8989	212-492-8995	212-308-3333
[email protected]	[email protected]	[email protected]