NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
Note 1. Organization
Corporate Property Associates 18 – Global Incorporated (“CPA:18 – Global”), is a publicly owned, non-traded REIT, that invests primarily in a diversified portfolio of income-producing commercial real estate properties net leased to companies, both domestically and internationally. In addition, our portfolio includes self-storage and student housing investments. We were formed in 2012 and are managed by W. P. Carey Inc. (“WPC”) through one of its subsidiaries (collectively our “Advisor”). As a REIT, we are not subject to U.S. federal income taxes on income and gains that we distribute to our stockholders as long as we satisfy certain requirements, principally relating to the nature of our income and the level of our distributions, among other factors. We earn revenue primarily by leasing the properties we own to single corporate tenants, predominantly on a triple-net lease basis, which requires the tenant to pay substantially all of the costs associated with operating and maintaining the property. We derive self-storage revenue from rents received from customers who rent storage space primarily under month-to-month leases for personal or business use. We earn student housing operating revenue primarily from leases of one year or less with individual students. Revenue is subject to fluctuation due to the timing of new lease transactions, lease terminations, lease expirations, contractual rent adjustments, tenant defaults, sales of properties, and changes in foreign currency exchange rates.
Substantially all of our assets and liabilities are held by CPA:18 Limited Partnership (the “Operating Partnership”), and as of March 31, 2022 we owned 99.97% of general and limited partnership interests in the Operating Partnership. The remaining interest in the Operating Partnership is held by a subsidiary of WPC.
On February 27, 2022, we entered into a merger agreement with WPC and certain of its subsidiaries (the “Merger Agreement”), pursuant to which we will merge with and into one of WPC’s indirect subsidiaries in exchange for shares of WPC’s common stock and cash (the “Proposed Merger”). On April 4, 2022, WPC filed a registration statement on Form S-4 with the SEC to register the shares of its common stock to be issued in the Proposed Merger. On April 25, 2022, WPC filed a Form S-4/A, which was declared effective by the SEC on April 27, 2022. We filed the definitive proxy statement/prospectus with the SEC on April 27, 2022 and commenced mailing the proxy statement/prospectus to our stockholders in early May 2022. The Proposed Merger and related transactions are subject to a number of closing conditions, including approval by our stockholders at a special meeting scheduled for July 26, 2022. If this approval is obtained and the other closing conditions are met, we currently expect the transaction to close in early August 2022, although there can be no assurance that the Proposed Merger will be completed at such time or at all.
Subject to the terms and conditions contained in the Merger Agreement, at the effective time of the Proposed Merger, each share of our common stock issued and outstanding immediately prior to the effective time of the Proposed Merger will be canceled and, in exchange for cancellation of such share, the rights attaching to such share will be converted automatically into the right to receive (i) 0.0978 shares of WPC common stock and (ii) $3.00 in cash, which we refer to herein as the Merger Consideration. Each share of our common stock owned by WPC immediately prior to the effective time of the Proposed Merger will automatically be canceled and retired, and will cease to exist, for no Merger Consideration. In light of the Proposed Merger, effective February 27, 2022, our board of directors suspended our Distribution Reinvestment Plan (“DRIP”), as well as repurchases of shares of our common stock from our stockholders under our quarterly redemption program (except for special circumstance redemptions). During the three months ended March 31, 2022, we incurred expenses related to the Proposed Merger totaling approximately $2.0 million, which is included in Merger and other expenses in our condensed consolidated statements of income.
As of March 31, 2022, our net lease portfolio was comprised of full or partial ownership interests in 52 properties, substantially all of which were fully occupied and triple-net leased to 47 tenants totaling 10.4 million square feet. The remainder of our portfolio was comprised of our full or partial ownership interests in 65 self-storage properties, three student housing development projects (two of which will become subject to net lease agreements upon their completion) and one student housing operating property, totaling approximately 5.1 million square feet.
We operate in three reportable business segments: Net Lease, Self Storage, and Other Operating Properties. Our Net Lease segment includes our investments in net-leased properties, whether they are accounted for as operating leases or direct financing leases. Our Self Storage segment is comprised of our investments in self-storage properties. Our Other Operating Properties segment is comprised of our investments in student housing properties. In addition, we have an All Other category that is comprised of our notes receivable investment. Our reportable business segments and All Other category are the same as our reporting units (Note 13).
CPA:18 – Global 3/31/2022 10-Q – 7
We raised aggregate gross proceeds in our initial public offering of approximately $1.2 billion through April 2, 2015, which is the date we closed our offering. We have fully invested the proceeds from our offering. In addition, from inception through March 31, 2022, $223.6 million and $64.9 million of distributions to our shareholders were reinvested in our Class A and Class C common stock, respectively, through our DRIP.
Note 2. Basis of Presentation
Basis of Presentation
Our interim condensed consolidated financial statements have been prepared in accordance with the instructions to Form 10-Q and, therefore, do not necessarily include all information and footnotes necessary for a complete statement of our condensed consolidated financial position, results of operations, and cash flows in accordance with generally accepted accounting principles in the United States (“GAAP”). The year-end condensed balance sheet data was derived from audited financial statements, but does not include all disclosures required by GAAP. In the opinion of management, the unaudited financial information for the interim periods presented in this Report reflects all normal and recurring adjustments necessary for a fair presentation of financial position, results of operations, and cash flows. Our interim condensed consolidated financial statements should be read in conjunction with our audited consolidated financial statements and accompanying notes for the year ended December 31, 2021, which are included in the 2021 Annual Report, as certain disclosures that would substantially duplicate those contained in the audited consolidated financial statements have not been included in this Report. Operating results for interim periods are not necessarily indicative of operating results for an entire year.
The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts and the disclosure of contingent amounts in our condensed consolidated financial statements and the accompanying notes. Actual results could differ from those estimates.
Basis of Consolidation
Our condensed consolidated financial statements reflect all of our accounts, including those of our controlled subsidiaries. The portions of equity in consolidated subsidiaries that are not attributable, directly or indirectly, to us are presented as noncontrolling interests. All significant intercompany accounts and transactions have been eliminated.
When we obtain an economic interest in an entity, we evaluate the entity to determine if it should be deemed a VIE and, if so, whether we are the primary beneficiary and are therefore required to consolidate the entity. There have been no significant changes in our VIE policies from what was disclosed in the 2021 Annual Report.
As of both March 31, 2022 and December 31, 2021, we considered ten entities to be VIEs, all of which we consolidated as we are considered the primary beneficiary. The following table presents a summary of selected financial data of the consolidated VIEs included in the condensed consolidated balance sheets (in thousands):
| | | | | | | | | | | |
| March 31, 2022 | | December 31, 2021 |
| Real estate — Land, buildings and improvements | $ | 314,301 | | | $ | 324,908 | |
| Operating real estate — Land, buildings and improvements | 79,444 | | | 79,427 | |
| Net investments in sales-type leases | 32,742 | | | — | |
| Real estate under construction | 81,894 | | | 102,009 | |
| | | |
| In-place lease intangible assets | 100,094 | | | 101,450 | |
| Accumulated depreciation and amortization | (110,570) | | | (107,765) | |
| | | |
| | | |
| Total assets | 527,833 | | | 532,686 | |
| | | |
| Non-recourse secured debt, net | $ | 301,030 | | | $ | 321,747 | |
| | | |
| Total liabilities | 343,926 | | | 361,867 | |
CPA:18 – Global 3/31/2022 10-Q – 8
Notes to Condensed Consolidated Financial Statements (Unaudited)
Foreign Currencies
We are subject to fluctuations in exchange rates between foreign currencies and the U.S. dollar (primarily the euro, the Norwegian krone, and, to a lesser extent, the British pound sterling). The following table reflects the end-of-period rate of the U.S. dollar in relation to foreign currencies:
| | | | | | | | | | | | | | | | | |
| March 31, 2022 | | December 31, 2021 | | Percent Change |
| British Pound Sterling | $ | 1.3123 | | | $ | 1.3479 | | | (2.6) | % |
| Euro | 1.1101 | | | 1.1326 | | | (2.0) | % |
| Norwegian Krone | 0.1143 | | | 0.1134 | | | 0.8 | % |
Revenue Recognition
Lease revenue (including straight-line lease revenue) is only recognized when deemed probable of collection. Collectibility is assessed for each tenant receivable using various criteria including credit ratings, guarantees, past collection issues, and the current economic and business environment affecting the tenant. If collectibility of the contractual rent stream is not deemed probable, revenue will only be recognized upon receipt of cash from the tenant. Due to the adverse impact of the COVID-19 pandemic, we did not recognize uncollected rent within lease revenues of $2.1 million and $3.5 million during the three months ended March 31, 2022 and 2021, respectively.
Our straight-line rent receivables totaled $18.0 million and $20.8 million at March 31, 2022 and December 31, 2021, respectively.
Restricted Cash
The following table provides a reconciliation of cash and cash equivalents and restricted cash reported within the condensed consolidated balance sheets to the condensed consolidated statements of cash flows (in thousands):
| | | | | | | | | | | |
| March 31, 2022 | | December 31, 2021 |
Cash and cash equivalents | $ | 37,579 | | | $ | 52,133 | |
| Restricted cash | 28,895 | | | 29,595 | |
Total cash and cash equivalents and restricted cash | $ | 66,474 | | | $ | 81,728 | |
Deferred Income Taxes
Our deferred tax liabilities were $45.7 million and $45.0 million at March 31, 2022 and December 31, 2021, respectively, and are included in Accounts payable, accrued expenses and other liabilities in the condensed consolidated financial statements. Our deferred tax assets, net of valuation allowances, were $2.3 million and $2.1 million at March 31, 2022 and December 31, 2021, respectively, and are included in Other assets, net in the condensed consolidated financial statements.
Note 3. Agreements and Transactions with Related Parties
Proposed Merger
The Proposed Merger with WPC is described in Note 1.
Transactions with Our Advisor
We have an advisory agreement with our Advisor whereby our Advisor performs certain services for us under a fee arrangement, as discussed in detail in the 2021 Annual Report.
We have an unsecured revolving line of credit with WPC with a borrowing capacity of $50.0 million and a scheduled maturity date of March 31, 2023. The line of credit bears an interest rate equal to the rate that WPC can borrow funds under its senior credit facility (including an annual facility fee of 0.20%). The principal outstanding balance on the line of credit was $11.0 million as of March 31, 2022. No amounts were outstanding as of December 31, 2021. Subsequent to March 31, 2022 and through the date of this Report, we borrowed a net amount of $5.0 million under the line of credit (Note 14).
CPA:18 – Global 3/31/2022 10-Q – 9
Notes to Condensed Consolidated Financial Statements (Unaudited)
Jointly Owned Investments
As of both March 31, 2022 and December 31, 2021, we owned interests ranging from 50% to 99% in 16 jointly owned investments, with the remaining interests held by third parties or by WPC (four investments). Since no other parties hold any rights that supersede our control, we consolidate all of these joint ventures.
Other Transactions with our Affiliates
The following tables present a summary of fees we paid, expenses we reimbursed, and distributions we made to our Advisor and other affiliates in accordance with the terms of the relevant agreements, as discussed in the 2021 Annual Report (in thousands):
| | | | | | | | | | | | | | | |
| Three Months Ended March 31, | | |
| 2022 | | 2021 | | | | |
| Amounts Included in the Condensed Consolidated Statements of Income | | | | | | | |
| Asset management fees | $ | 3,058 | | | $ | 3,138 | | | | | |
| Available Cash Distributions | 2,587 | | | 1,539 | | | | | |
Personnel and overhead reimbursements | 1,046 | | | 630 | | | | | |
| Interest expense | 127 | | | 257 | | | | | |
| $ | 6,818 | | | $ | 5,564 | | | | | |
| Acquisition Fees Capitalized | | | | | | | |
| Capitalized personnel and overhead reimbursements | $ | — | | | $ | 20 | | | | | |
| | | | | | | |
| | | | | | | |
| $ | — | | | $ | 20 | | | | | |
The following table presents a summary of amounts included in Due to affiliates in the condensed consolidated financial statements (in thousands):
| | | | | | | | | | | |
| March 31, 2022 | | December 31, 2021 |
| Due to Affiliates | | | |
| Loan from WPC, including accrued interest | $ | 11,033 | | | $ | — | |
External joint-venture loans, accounts payable, and other (a) | 6,785 | | | 6,624 | |
| Asset management fees payable | 1,017 | | | 1,062 | |
| Acquisition fees, including accrued interest | 10 | | | 10 | |
| | | |
| $ | 18,845 | | | $ | 7,696 | |
___________
(a)Includes loans from our joint-venture partners to the jointly owned investments that we consolidate. As of both March 31, 2022 and December 31, 2021, amounts outstanding to our joint-venture partners, including accrued interest, were $5.5 million.
Asset Management Fees
For any portion of asset management fees our Advisor receives in shares, the number of shares issued is determined by dividing the dollar amount of fees by our most recently published estimated net asset value per share (“NAV”) per Class A share, which was $9.07 as of September 30, 2021. From January 1, 2021 through February 28, 2022, at our option our Advisor received all of its asset management fees in shares of our Class A common stock. In light of the Proposed Merger, in February 2022 our board of directors approved the payment of all asset management fees in cash instead of shares of our common stock, effective as of March 1, 2022. As of March 31, 2022, our Advisor owned 8,556,732 shares of our Class A common stock, or 5.7% of our total Class A and Class C shares outstanding. Asset management fees are included in Property expenses, excluding reimbursable tenant costs in the condensed consolidated financial statements.
CPA:18 – Global 3/31/2022 10-Q – 10
Notes to Condensed Consolidated Financial Statements (Unaudited)
Acquisition and Disposition Fees
Our Advisor receives acquisition fees, a portion of which is payable upon acquisition, while the remaining portion is subordinated to a preferred return of a non-compounded cumulative distribution of 5.0% per annum (based initially on our invested capital). The preferred return was achieved as of the periods ended March 31, 2022 and December 31, 2021. Unpaid installments of deferred acquisition fees are included in Due to affiliates in the condensed consolidated financial statements and bear interest at an annual rate of 2.0%.
The Advisor has waived its right to disposition fees with respect to sales and dispositions of single investments and portfolios of investments. In addition, as a condition of the Proposed Merger, WPC agreed to waive certain back-end fees that it would have been entitled to receive from us upon our liquidation pursuant to the terms of our advisory agreement and Operating Partnership agreement with WPC.
Personnel and Overhead Reimbursements
Under the advisory agreement, the amount of applicable personnel costs allocated to us is capped at 1.0% of our pro rata total revenues for each of 2022 and 2021. Our Advisor allocates overhead expenses to us based upon the percentage of the Advisor’s full-time employee equivalents that are attributable to us, to be reviewed annually by us and the Advisor. In general, personnel and overhead reimbursements are included in General and administrative expenses in the condensed consolidated financial statements.
Available Cash Distributions
WPC’s interest in the Operating Partnership entitles it to receive distributions of up to 10.0% of the available cash generated by the Operating Partnership (the “Available Cash Distribution”), which is defined as cash generated from operations, excluding capital proceeds, as reduced by operating expenses and debt service, excluding prepayments and balloon payments. Available Cash Distributions are included in Net income attributable to noncontrolling interests in the condensed consolidated financial statements.
Note 4. Real Estate, Operating Real Estate, and Real Estate Under Construction
Real Estate — Land, Buildings and Improvements
Real estate, which consists of land and buildings leased to others, which are subject to operating leases, is summarized as follows (in thousands):
| | | | | | | | | | | |
| March 31, 2022 | | December 31, 2021 |
| Land | $ | 186,806 | | | $ | 264,590 | |
| Buildings and improvements | 940,790 | | | 1,248,664 | |
| Less: Accumulated depreciation | (192,036) | | | (199,664) | |
| $ | 935,560 | | | $ | 1,313,590 | |
The carrying value of our Real Estate — Land, buildings and improvements decreased by $13.0 million from December 31, 2021 to March 31, 2022, reflecting the impact of exchange rate fluctuations during the same period (Note 2).
Depreciation expense, including the effect of foreign currency translation, on our real estate was $8.9 million for both the three months ended March 31, 2022 and 2021.
During the three months ended March 31, 2022, we reclassified nine properties classified as Real estate — Land, buildings and improvements to Net investments in sales-type leases. As a result, the carrying value of our Real estate — Land, buildings and improvements decreased by $321.4 million from December 31, 2021 to March 31, 2022 (Note 5). In addition, during the three months ended March 31, 2022, we sold two properties classified as Real estate — Land, buildings and improvements. As a result, the carrying value of our Real estate — Land, buildings and improvements decreased by $28.2 million from December 31, 2021 to March 31, 2022 (Note 12).
CPA:18 – Global 3/31/2022 10-Q – 11
Notes to Condensed Consolidated Financial Statements (Unaudited)
Operating Real Estate — Land, Buildings and Improvements
Operating real estate, which consists of our self-storage and student housing properties (not subject to net lease agreements), is summarized as follows (in thousands):
| | | | | | | | | | | |
| | March 31, 2022 | | December 31, 2021 |
| Land | $ | 80,481 | | | $ | 80,481 | |
| Buildings and improvements | 397,428 | | | 397,107 | |
| Less: Accumulated depreciation | (83,575) | | | (80,035) | |
| | $ | 394,334 | | | $ | 397,553 | |
Depreciation expense, including the effect of foreign currency translation, on our operating real estate was $3.5 million and $4.3 million for the three months ended March 31, 2022 and 2021, respectively.
Leases
Lease Income
Lease income recognized and included within Lease revenues — net-leased and Lease revenues — operating real estate in the condensed consolidated statements of income are as follows (in thousands):
| | | | | | | | | | | | | | | |
| Three Months Ended March 31, | | |
| 2022 | | 2021 | | | | |
| Lease revenues — net-leased | | | | | | | |
| Lease income — fixed | $ | 26,186 | | | $ | 23,972 | | | | | |
Lease income — variable (a) | 4,670 | | | 4,381 | | | | | |
Total operating lease income (b) | $ | 30,856 | | | $ | 28,353 | | | | | |
| | | | | | | |
| Lease revenues — operating real estate | | | | | | | |
| Lease income — fixed | $ | 20,497 | | | $ | 18,808 | | | | | |
Lease income — variable (c) | 693 | | | 539 | | | | | |
| Total operating real estate income | $ | 21,190 | | | $ | 19,347 | | | | | |
___________
(a)Includes (i) rent increases based on changes in the Consumer Price Index (“CPI”) and other comparable indices and (ii) reimbursements for property taxes, insurance, and common area maintenance services.
(b)Excludes interest income from direct financing leases of $0.2 million and $0.4 million for the three months ended March 31, 2022 and 2021, respectively (Note 5). Interest income from direct financing leases is included in Lease revenues — net-leased in the condensed consolidated statements of income. (c)Primarily comprised of late fees and administrative fees.
Real Estate Under Construction
The following table provides the activity of our Real estate under construction (in thousands):
| | | | | |
| Three Months Ended March 31, 2022 |
| Beginning balance | $ | 103,309 | |
Reclassification to Net investments in sales-type leases (Note 5) | (29,757) | |
| Capitalized funds | 9,550 | |
| Capitalized interest | 2,525 | |
| Foreign currency translation adjustments | (2,449) | |
| |
| Ending balance | $ | 83,178 | |
CPA:18 – Global 3/31/2022 10-Q – 12
Notes to Condensed Consolidated Financial Statements (Unaudited)
Capitalized Funds
During the three months ended March 31, 2022, total capitalized funds primarily related to construction draws for our student housing development projects, and includes $2.8 million of accrued costs, which is a non-cash investing activity.
Capitalized Interest
Capitalized interest includes interest incurred during construction as well as amortization of the mortgage discount and deferred financing costs, which totaled $2.5 million during the three months ended March 31, 2022, and is a non-cash investing activity.
Ending Balance
As of March 31, 2022, we had three ongoing student housing development projects, and aggregate unfunded commitments of approximately $48.0 million, excluding capitalized interest, accrued costs, and capitalized acquisition fees.
Note 5. Finance Receivables
Assets representing rights to receive money on demand or at fixed or determinable dates are referred to as finance receivables. Our finance receivables portfolio consists of our Net investments in sales-type leases, notes receivable (which are included in Other assets, net in the condensed consolidated financial statements) and our Net investments in direct financing leases (net of allowance for credit losses). Operating leases are not included in finance receivables.
Net Investments in Sales-Type Leases
On March 30, 2022, the tenant at 11 net-lease student housing properties in Spain and Portugal exercised its option to purchase the properties, following the announcement of the Proposed Merger, which triggered a change in control event. The tenant also elected to assume the existing non-recourse mortgages encumbering the properties. The purchase is expected to occur on or around June 30, 2022.
In accordance with Accounting Standards Codification (“ASC”) 842, Leases, we reclassified these net-lease assets (as described below) to Net investments in sales-type leases totaling $430.5 million on our condensed consolidated balance sheets as of March 31, 2022 (representing the aggregate sales price based on the exchange rate of the euro at period end), since the tenant exercised its purchase option. In connection with this transaction, we reclassified the following amounts to Net investments in sales-type leases: (i) $332.2 million from Real estate — Land, buildings and improvements, (ii) $29.8 million from Real estate under construction, and (iii) $10.7 million from Accumulated depreciation and amortization. In addition, we (i) reclassified $2.6 million of straight-line rent receivables on these properties within Other assets, net on our condensed consolidated balance sheets to Gain on sale of real estate, net (as a reduction to Gain on sale of real estate, net) on our condensed consolidated statements of income, and (ii) accrued $2.6 million of closing costs and taxes within Accounts payable, accrued expenses and other liabilities on our condensed consolidated balance sheets. We recognized an aggregate Gain on sale of real estate, net, of $73.5 million (inclusive of amounts attributable to noncontrolling interests totaling $3.8 million) during the three months ended March 31, 2022 related to this transaction.
Notes Receivable
As of both March 31, 2022 and December 31, 2021, our notes receivable was comprised of a $28.0 million mezzanine tranche of 10-year commercial mortgage-backed securities on the Cipriani banquet halls in New York, New York, with a maturity date of July 2024. The mezzanine tranche is subordinated to a $60.0 million senior loan on the properties. Interest-only payments at a rate of 10% per annum are due through its maturity date. On July 28, 2020, we were notified that the borrower had defaulted on the mortgage loan senior to our mezzanine tranche, and since that date through March 31, 2022 we have received $4.8 million from the borrower, which is recognized as a liability within Accounts payable, accrued expenses and other liabilities in our condensed consolidated balance sheets. The senior loan lender has the right to call such amounts paid by the borrower but has not as of the date of this Report. We are currently evaluating our rights and options in connection with the senior loan default and therefore have not recognized these amounts within interest income for the three months ended March 31, 2022 or 2021.
CPA:18 – Global 3/31/2022 10-Q – 13
Notes to Condensed Consolidated Financial Statements (Unaudited)
Net Investments in Direct Financing Leases
Net investments in our direct financing lease investments is summarized as follows (in thousands):
| | | | | | | | | | | |
| March 31, 2022 | | December 31, 2021 |
| Lease payments receivable | $ | 4,984 | | | $ | 5,192 | |
| Unguaranteed residual value | 10,550 | | | 10,550 | |
| 15,534 | | | 15,742 | |
| Less: unearned income | (4,081) | | | (4,293) | |
| | | |
| $ | 11,453 | | | $ | 11,449 | |
Interest income from direct financing leases was $0.2 million and $0.4 million for the three months ended March 31, 2022 and 2021, respectively, and is included in Lease revenues — net-leased in our condensed consolidated statements of income.
We did not record an allowance for credit losses during the three months ended March 31, 2022 and 2021, and did not have an allowance for credit losses as of March 31, 2022 and December 31, 2021.
Credit Quality of Finance Receivables
We generally invest in facilities that we believe are critical to a tenant’s business and therefore have a lower risk of tenant default. During the three months ended March 31, 2022, we reclassified certain assets to Net investments in sales-type leases (which are considered finance receivables), as described above under Net Investments in Sales-Type Leases. As of both March 31, 2022 and December 31, 2021, we had no significant finance receivable balances that were past due. Additionally, there were no material modifications of finance receivables during the three months ended March 31, 2022.
We evaluate the credit quality of our finance receivables utilizing an internal five-point credit rating scale, with one representing the highest credit quality and five representing the lowest. A credit quality of one through three indicates a range of investment grade to stable. A credit quality of four through five indicates inclusion on the watch list to risk of default. The credit quality evaluation of our finance receivables is updated quarterly.
A summary of our finance receivables by internal credit quality rating is as follows (dollars in thousands):
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Number of Tenants/Obligors at | | Carrying Value at |
| Internal Credit Quality Indicator | | March 31, 2022 | | December 31, 2021 | | March 31, 2022 | | December 31, 2021 |
| 1 – 3 | | 2 | | 1 | | $ | 441,968 | | | $ | 11,449 | |
| 4 | | 1 | | 1 | | 28,000 | | | 28,000 | |
| 5 | | — | | — | | — | | | — | |
| | 0 | | | | $ | 469,968 | | | $ | 39,449 | |
Note 6. Intangible Assets and Liabilities
In-place lease and above-market rent intangibles are included in In-place lease and other intangible assets in the condensed consolidated financial statements. Below-market rent intangibles are included in Accounts payable, accrued expenses and other liabilities in the condensed consolidated financial statements. Goodwill is included in our Net Lease segment and included in Other assets, net in the condensed consolidated financial statements.
CPA:18 – Global 3/31/2022 10-Q – 14
Notes to Condensed Consolidated Financial Statements (Unaudited)
Intangible assets and liabilities are summarized as follows (in thousands):
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | March 31, 2022 | | December 31, 2021 |
| Amortization Period (Years) | | Gross Carrying Amount | | Accumulated Amortization | | Net Carrying Amount | | Gross Carrying Amount | | Accumulated Amortization | | Net Carrying Amount |
Finite-Lived Intangible Assets | | | | | | | | | | | | | |
| In-place lease | 9 – 23 | | $ | 232,975 | | | $ | (159,030) | | | $ | 73,945 | | | $ | 240,432 | | | $ | (162,497) | | | $ | 77,935 | |
| Above-market rent | 9 – 30 | | 9,516 | | | (5,505) | | | 4,011 | | | 10,294 | | | (6,081) | | | 4,213 | |
| | | 242,491 | | | (164,535) | | | 77,956 | | | 250,726 | | | (168,578) | | | 82,148 | |
| Goodwill | | | | | | | | | | | | | |
| Goodwill | | | 25,985 | | | — | | | 25,985 | | | 26,021 | | | — | | | 26,021 | |
| Total intangible assets | | | $ | 268,476 | | | $ | (164,535) | | | $ | 103,941 | | | $ | 276,747 | | | $ | (168,578) | | | $ | 108,169 | |
| | | | | | | | | | | | | |
Finite-Lived Intangible Liabilities | | | | | | | | | | | | | |
| Below-market rent | 9 – 30 | | $ | (14,613) | | | $ | 8,990 | | | $ | (5,623) | | | $ | (14,654) | | | $ | 8,755 | | | $ | (5,899) | |
| Total intangible liabilities | | | $ | (14,613) | | | $ | 8,990 | | | $ | (5,623) | | | $ | (14,654) | | | $ | 8,755 | | | $ | (5,899) | |
Net amortization of intangibles, including the effect of foreign currency translation, was $3.5 million and $3.6 million for the three months ended March 31, 2022 and 2021, respectively. Amortization of below-market rent and above-market rent intangibles is recorded as an adjustment to rental income; and amortization of in-place lease intangibles is included in Depreciation and amortization on our condensed consolidated statements of income.
Note 7. Fair Value Measurements
The fair value of an asset is defined as the exit price, which is the amount that would either be received when an asset is sold or paid to transfer a liability in an orderly transaction between market participants at the measurement date. The guidance establishes a three-tier fair value hierarchy based on the inputs used in measuring fair value. These tiers are: Level 1, for which quoted market prices for identical instruments are available in active markets, such as money market funds, equity securities, and U.S. Treasury securities; Level 2, for which there are inputs other than quoted prices included within Level 1 that are observable for the instrument, such as certain derivative instruments including interest rate caps, interest rate swaps, foreign currency forward contracts and foreign currency collars; and Level 3, for securities that do not fall into Level 1 or Level 2 and for which little or no market data exists, therefore requiring us to develop our own assumptions.
Items Measured at Fair Value on a Recurring Basis
The methods and assumptions described below were used to estimate the fair value of each class of financial instrument. For significant Level 3 items, we have also provided the unobservable inputs.
Derivative Assets and Liabilities — Our derivative assets and liabilities, which are included in Other assets, net and Accounts payable, accrued expenses and other liabilities, respectively, in the condensed consolidated financial statements, are comprised of interest rate swaps, interest rate caps, and foreign currency collars (Note 8).
The valuation of our derivative instruments is determined using a discounted cash flow analysis on the expected cash flows of each derivative. This analysis reflects the contractual terms of the derivatives, including the period to maturity, as well as observable market-based inputs, including interest rate curves, spot and forward rates, and implied volatilities. We incorporate credit valuation adjustments to appropriately reflect both our own nonperformance risk and the respective counterparty’s nonperformance risk in the fair value measurements. In adjusting the fair value of our derivative instruments for the effect of nonperformance risk, we have considered the impact of netting and any applicable credit enhancements, such as collateral postings, thresholds, mutual puts, and guarantees. These derivative instruments were classified as Level 2 as these instruments are custom, over-the-counter contracts with various bank counterparties that are not traded in an active market.
CPA:18 – Global 3/31/2022 10-Q – 15
Notes to Condensed Consolidated Financial Statements (Unaudited)
We did not have any transfers into or out of Level 1, Level 2, and Level 3 measurements during the three months ended March 31, 2022 and 2021. Gains and losses (realized and unrealized) recognized on items measured at fair value on a recurring basis included in earnings are reported within Other gains and (losses) on our condensed consolidated financial statements.
Our other financial instruments had the following carrying values and fair values as of the dates shown (dollars in thousands):
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | March 31, 2022 | | December 31, 2021 |
| | Level | | Carrying Value | | Fair Value | | Carrying Value | | Fair Value |
Non-recourse secured debt, net (a) (b) | 3 | | $ | 1,179,301 | | | $ | 1,171,205 | | | $ | 1,253,045 | | | $ | 1,266,234 | |
Notes receivable (c) | 3 | | 28,000 | | | 28,000 | | | 28,000 | | | 28,000 | |
___________
(a)As of March 31, 2022 and December 31, 2021, the carrying value of Non-recourse secured debt, net includes unamortized deferred financing costs of $5.9 million and $6.7 million, respectively, and unamortized premium, net of $5.1 million and $4.3 million, respectively (Note 9). (b)We determined the estimated fair value of our Non-recourse secured debt, net using a discounted cash flow model that estimates the present value of the future loan payments by discounting such payments at current estimated market interest rates. The estimated market interest rates take into account interest rate risk and the value of the underlying collateral, which includes quality of the collateral, the credit quality of the tenant/obligor, and the time until maturity.
(c)We determined the estimated fair value of our Notes receivable using a discounted cash flow model with rates that take into account the credit of the tenant/obligor, order of payment tranches, and interest rate risk. We also considered the value of the underlying collateral, taking into account the quality of the collateral, the credit quality of the tenant/obligor, the time until maturity, and the current market interest rate.
We estimated that our other financial assets and liabilities (excluding net investments in direct financing leases) had fair values that approximated their carrying values as of both March 31, 2022 and December 31, 2021.
Items Measured at Fair Value on a Non-Recurring Basis (Including Impairment Charges)
We periodically assess whether there are any indicators that the value of our real estate investments may be impaired or that their carrying value may not be recoverable. There have been no significant changes in our impairment policies from what was disclosed in the 2021 Annual Report.
During the three months ended March 31, 2022, we recognized an impairment charge of $9.2 million (inclusive of $4.6 million attributable to a noncontrolling interest) on an international office facility in order to reduce its carrying value to its estimated fair value ($49.9 million). The estimated fair value is based on the estimated selling price of property and the fair value of the non-recourse mortgage encumbering the property also approximates the fair value of the property. This impairment charge is included within Impairment charges and Net income attributable to noncontrolling interests on our consolidated statements of income, and reduced Real estate — Land, buildings and improvements and Noncontrolling interests on our consolidated balance sheets.
Note 8. Risk Management and Use of Derivative Financial Instruments
Risk Management
In the normal course of our ongoing business operations, we encounter economic risk. There are four main components of economic risk that impact us: interest rate risk, credit risk, market risk, and foreign currency risk. We are primarily subject to interest rate risk on our interest-bearing liabilities. Credit risk is the risk of default on our operations and our tenants’ inability or unwillingness to make contractually required payments. Market risk includes changes in the value of our properties and related loans, as well as changes in the value of our other investments due to changes in interest rates or other market factors. We own international investments, primarily in Europe, and are subject to risks associated with fluctuating foreign currency exchange rates.
CPA:18 – Global 3/31/2022 10-Q – 16
Notes to Condensed Consolidated Financial Statements (Unaudited)
Derivative Financial Instruments
There have been no significant changes in our derivative financial instrument policies from what was disclosed in the 2021 Annual Report. At both March 31, 2022 and December 31, 2021, no cash collateral had been posted or received for any of our derivative positions.
The following table sets forth certain information regarding our derivative instruments (in thousands):
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Derivatives Designated as Hedging Instruments | | Balance Sheet Location | | Derivative Assets Fair Value at | | Derivative Liabilities Fair Value at |
| | March 31, 2022 | | December 31, 2021 | | March 31, 2022 | | December 31, 2021 |
| Interest rate caps | | Other assets, net | | $ | 601 | | | $ | 133 | | | $ | — | | | $ | — | |
| Foreign currency collars | | Other assets, net | | 527 | | | 594 | | | — | | | — | |
| Interest rate swaps | | Other assets, net | | 207 | | | — | | | — | | | — | |
| Interest rate swaps | | Accounts payable, accrued expenses and other liabilities | | — | | | — | | | (105) | | | (1,304) | |
| | | | 1,335 | | | 727 | | | (105) | | | (1,304) | |
| Derivatives Not Designated as Hedging Instruments | | | | | | | | | | |
| Interest rate swap | | Accounts payable, accrued expenses and other liabilities | | — | | | — | | | — | | | (3) | |
| | | | — | | | — | | | — | | | (3) | |
| Total derivatives | | | | $ | 1,335 | | | $ | 727 | | | $ | (105) | | | $ | (1,307) | |
The following tables present the impact of our derivative instruments in the condensed consolidated financial statements (in thousands):
| | | | | | | | | | | | | | | | | | |
| | Amount of Gain (Loss) Recognized on Derivatives in Other Comprehensive Income (Loss) |
| | Three Months Ended March 31, | | |
| Derivatives in Cash Flow Hedging Relationships | | 2022 | | 2021 | | | | |
| Interest rate swaps | | $ | 1,406 | | | $ | 956 | | | | | |
| Interest rate caps | | 509 | | | (24) | | | | | |
| Foreign currency collars | | (66) | | | 445 | | | | | |
| Total | | $ | 1,849 | | | $ | 1,377 | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | |
| | | | Amount of Gain (Loss) on Derivatives Reclassified from Other Comprehensive Loss into Income |
Derivatives in Cash Flow Hedging Relationships | | Location of Gain (Loss) Recognized in Income | | Three Months Ended March 31, | | |
| | 2022 | | 2021 | | | | |
| Interest rate swaps | | Interest expense | | $ | (200) | | | $ | (499) | | | | | |
| Foreign currency collars | | Other gains and (losses) | | 142 | | | 1 | | | | | |
| Interest rate caps | | Interest expense | | (36) | | | (28) | | | | | |
| Total | | | | $ | (94) | | | $ | (526) | | | | | |
Amounts reported in Other comprehensive loss related to our interest derivative contracts will be reclassified to Interest expense as interest is incurred on our variable-rate debt. Amounts reported in Other comprehensive loss related to foreign currency derivative contracts will be reclassified to Other gains and (losses) when the hedged foreign currency contracts are settled. As of March 31, 2022, we estimated that an additional $0.4 million and $0.5 million will be reclassified as Interest expense and Other gains and (losses), respectively, during the next 12 months.
CPA:18 – Global 3/31/2022 10-Q – 17
Notes to Condensed Consolidated Financial Statements (Unaudited)
The following table presents the impact of our derivative instruments in the condensed consolidated financial statements (in thousands):
| | | | | | | | | | | | | | | | | | | | | | | | |
| | | | Amount of Gain on Derivatives Recognized in Income |
| Derivatives Not in Cash Flow Hedging Relationships | | Location of Gain (Loss) Recognized in Income | | Three Months Ended March 31, | | |
| | 2022 | | 2021 | | | | |
| Foreign currency collars | | Other gains and (losses) | | $ | 54 | | | $ | 45 | | | | | |
| Interest rate swap | | Interest expense | | 4 | | | 6 | | | | | |
| Derivatives in Cash Flow Hedging Relationships | | | | | | | | | | |
| Interest rate swaps | | Interest expense | | 200 | | | 499 | | | | | |
| Interest rate caps | | Interest expense | | (1) | | | — | | | | | |
| Total | | | | $ | 257 | | | $ | 550 | | | | | |
Interest Rate Swaps and Caps
We are exposed to the impact of interest rate changes primarily through our borrowing activities. To limit this exposure, we attempt to obtain mortgage financing on a long-term, fixed-rate basis. However, from time to time, we or our joint investment partners have obtained, and may in the future obtain, variable-rate non-recourse secured debt and, as a result, we have entered into, and may continue to enter into interest rate swap agreements or interest rate cap agreements with counterparties. Interest rate swaps, which effectively convert the variable-rate debt service obligations of a loan to a fixed rate, are agreements in which one party exchanges a stream of interest payments for a counterparty’s stream of cash flow over a specific period. The notional, or face, amount on which the swaps are based is not exchanged. Interest rate caps limit the effective borrowing rate of variable-rate debt obligations while allowing participants to share in downward shifts in interest rates. Our objective in using these derivatives is to limit our exposure to interest rate movements.
The interest rate swaps and caps that our consolidated subsidiaries had outstanding as of March 31, 2022 are summarized as follows (currency in thousands):
| | | | | | | | | | | | | | | | | | | | | | | |
| Interest Rate Derivatives | | Number of Instruments | | Notional
Amount | | Fair Value at March 31, 2022 (a) |
| Interest rate caps | | 6 | | 95,663 | | EUR | | $ | 601 | |
| Interest rate swaps | | 5 | | 35,692 | | USD | | 102 | |
| | | | | | | $ | 703 | |
___________
(a)Fair value amount is based on the exchange rate of the euro as of March 31, 2022, as applicable.
Foreign Currency Collars
We are exposed to foreign currency exchange rate movements, primarily in the euro, the Norwegian krone, and, to a lesser extent, the British pound sterling. We manage foreign currency exchange rate movements by generally placing our debt service obligation on an investment in the same currency as the tenant’s rental obligation to us. This reduces our overall exposure to the net cash flow from that investment. However, we are subject to foreign currency exchange rate movements to the extent that there is a difference in the timing and amount of the rental obligation and the debt service. Realized and unrealized gains and losses recognized in earnings related to foreign currency transactions are included in Other gains and (losses) in the condensed consolidated financial statements.
In order to hedge certain of our foreign currency cash flow exposures, we enter into foreign currency collars. A foreign currency collar guarantees that the exchange rate of the currency will not fluctuate beyond the range of the options’ strike prices. Our foreign currency collars have maturities of 61 months or less.
CPA:18 – Global 3/31/2022 10-Q – 18
Notes to Condensed Consolidated Financial Statements (Unaudited)
The following table presents the foreign currency derivative contracts we had outstanding and their designations as of March 31, 2022 (currency in thousands):
| | | | | | | | | | | | | | | | | | | | | | | |
| Foreign Currency Derivatives | | Number of Instruments | | Notional
Amount | | Fair Value at March 31, 2022 |
| Designated as Cash Flow Hedging Instruments | | | | | | | |
| Foreign currency collars | | 4 | | 2,600 | | EUR | | $ | 477 | |
| Foreign currency collars | | 3 | | 3,750 | | NOK | | 50 | |
| | | | | | | $ | 527 | |
Credit Risk-Related Contingent Features
We measure our credit exposure on a counterparty basis as the net positive aggregate estimated fair value of our derivatives, net of any collateral received. No collateral was received as of March 31, 2022. At March 31, 2022, our total credit exposure was $1.3 million and the maximum exposure to any single counterparty was $0.6 million.
Some of the agreements we have with our derivative counterparties contain cross-default provisions that could trigger a declaration of default on our derivative obligations if we default, or are capable of being declared in default, on certain of our indebtedness. As of March 31, 2022, we had not been declared in default on any of our derivative obligations. The estimated fair value of our derivatives in a net liability position was $0.1 million and $1.4 million as of March 31, 2022 and December 31, 2021, respectively, which included accrued interest and any nonperformance risk adjustments. If we had breached any of these provisions as of March 31, 2022 or December 31, 2021, we could have been required to settle our obligations under these agreements at their aggregate termination value of $0.1 million and $1.4 million, respectively.
Note 9. Non-Recourse Secured Debt, Net
As of March 31, 2022, the weighted-average interest rate for our total non-recourse secured debt was 3.8% (fixed-rate and variable-rate non-recourse secured debt were 3.9% and 3.6%, respectively), with maturity dates ranging from April 2022 to April 2039.
Repayments
On January 21, 2022, we prepaid a non-recourse mortgage loan of $36.3 million with an interest rate of 2.2%, in connection with the disposition of a portion of an office facility encumbered by the loan (Note 12).
On February 1, 2022, we prepaid $22.3 million outstanding on a non-recourse mortgage loan with an interest rate of 4.6%. The remaining principal balance on this non-recourse mortgage loan was $29.1 million as of March 31, 2022.
On February 28, 2022, we repaid a non-recourse mortgage loan at maturity with a principal balance of approximately $9.3 million and interest rate of 1.6%.
CPA:18 – Global 3/31/2022 10-Q – 19
Notes to Condensed Consolidated Financial Statements (Unaudited)
Scheduled Debt Principal Payments
Scheduled debt principal payments during the remainder of 2022, each of the next four calendar years following December 31, 2022, and thereafter are as follows (in thousands):
| | | | | | | | |
| Years Ending December 31, | | Total |
2022 (remainder) (a) | | $ | 170,371 | |
| 2023 | | 370,777 | |
| 2024 | | 195,200 | |
| 2025 | | 341,890 | |
| 2026 | | 90,840 | |
| Thereafter through 2039 | | 11,062 | |
| Total principal payments | | 1,180,140 | |
| Unamortized deferred financing costs | | (5,933) | |
| Unamortized premium, net | | 5,094 | |
| Total | | $ | 1,179,301 | |
___________
(a)Includes a non-recourse mortgage loan (with a principal balance of $51.4 million as of March 31, 2022), for which, in April 2022, we extended the maturity date by approximately one year, from April 30, 2022 to April 28, 2023.
Certain amounts in the table above are based on the applicable foreign currency exchange rate at March 31, 2022.
The carrying value of our Non-recourse secured debt, net decreased by $7.8 million in the aggregate from December 31, 2021 to March 31, 2022, reflecting the impact of exchange rate fluctuations during the same period (Note 2).
Covenants
Our non-recourse mortgage loan agreements include customary financial maintenance covenants that require us to maintain certain ratios and benchmarks at the end of each quarter. Our compliance with such covenants depends on many factors that could be impacted by current or future economic conditions, including the adverse impact of the COVID-19 pandemic. Other than the covenant breach discussed below, we were in compliance with our covenants at March 31, 2022.
As of March 31, 2022, we were in breach of a tenant payment covenant on two of our non-recourse mortgage loans (aggregate principal balance of $61.4 million as of that date) encumbering properties leased to a tenant in the hotel industry. As a result of the breach, as of March 31, 2022, the lender declared a “cash trap” in which any surplus cash in our rent account will be transferred to a reserve account with the lender.
Note 10. Commitments and Contingencies
As of March 31, 2022, we were not involved in any material litigation. Various claims and lawsuits arising in the normal course of business are pending against us. The results of these proceedings are not expected to have a material adverse effect on our condensed consolidated financial statements of income or results of operations.
See Note 4 for unfunded construction commitments.
CPA:18 – Global 3/31/2022 10-Q – 20
Notes to Condensed Consolidated Financial Statements (Unaudited)
Note 11. Earnings Per Share and Equity
Basic and Diluted Earnings Per Share
The following table presents earnings per share (in thousands, except share and per share amounts):
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended March 31, |
| 2022 | | 2021 |
| Basic and Diluted Weighted-Average
Shares Outstanding | | Allocation of Net Income | | Basic and Diluted Earnings Per Share | | Basic and Diluted Weighted-Average
Shares Outstanding | | Allocation of Net Income | | Basic and Diluted Earnings Per Share |
| Class A common stock | 119,067,927 | | | $ | 54,830 | | | $ | 0.46 | | | 119,516,815 | | | $ | 403 | | | $ | — | |
| Class C common stock | 30,695,542 | | | 14,138 | | | 0.46 | | | 32,187,435 | | | 108 | | | — | |
| Net income attributable to CPA:18 – Global | | | $ | 68,968 | | | | | | | $ | 511 | | | |
The allocation of Net income attributable to CPA:18 – Global is calculated based on the basic and diluted weighted-average shares outstanding for Class A and Class C common stock for each respective period.
Distributions
For the three months ended March 31, 2022, our board of directors declared quarterly distributions of $0.0625 per share for both our Class A and Class C common stock, which were paid on April 14, 2022 to stockholders of record on March 31, 2022, in the amount of $9.4 million.
Reclassifications Out of Accumulated Other Comprehensive Loss
The following tables present a reconciliation of changes in Accumulated other comprehensive loss by component for the periods presented (in thousands):
| | | | | | | | | | | | | | | | | |
| Three Months Ended March 31, 2022 |
| Gains and (Losses) on Derivative Instruments | | Foreign Currency Translation Adjustments | | Total |
| Beginning balance | $ | (862) | | | $ | (50,932) | | | $ | (51,794) | |
| Other comprehensive loss before reclassifications | 1,755 | | | (7,606) | | | (5,851) | |
| Amounts reclassified from accumulated other comprehensive loss to: | | | | | |
| Interest expense | 236 | | | — | | | 236 | |
| Other gains and (losses) | (142) | | | — | | | (142) | |
| Net current-period other comprehensive loss | 1,849 | | | (7,606) | | | (5,757) | |
| Net current-period other comprehensive loss attributable to noncontrolling interests | (14) | | | 248 | | | 234 | |
| Ending balance | $ | 973 | | | $ | (58,290) | | | $ | (57,317) | |
CPA:18 – Global 3/31/2022 10-Q – 21
Notes to Condensed Consolidated Financial Statements (Unaudited)
| | | | | | | | | | | | | | | | | |
| Three Months Ended March 31, 2021 |
| Gains and (Losses) on Derivative Instruments | | Foreign Currency Translation Adjustments | | Total |
| Beginning balance | $ | (3,363) | | | $ | (16,567) | | | $ | (19,930) | |
| Other comprehensive loss before reclassifications | 851 | | | (20,158) | | | (19,307) | |
| Amounts reclassified from accumulated other comprehensive loss to: | | | | | |
| Interest expense | 527 | | | — | | | 527 | |
| Other gains and (losses) | (1) | | | — | | | (1) | |
| Net current-period other comprehensive loss | 1,377 | | | (20,158) | | | (18,781) | |
| Net current-period other comprehensive loss attributable to noncontrolling interests | (2) | | | 1,314 | | | 1,312 | |
| Ending balance | $ | (1,988) | | | $ | (35,411) | | | $ | (37,399) | |
See Note 8 for additional information on our derivative activity recognized within Other comprehensive loss for the periods presented.
Note 12. Property Dispositions
We may decide to dispose of a property due to a variety of circumstances, including but not limited to, vacancy, tenants electing not to renew their leases, tenant insolvency, or lease rejection in the bankruptcy process. In such cases, we assess whether we can obtain the highest value from the property by selling it, as opposed to re-leasing it. We may also sell a property when we receive an unsolicited offer or negotiate a price for an investment that is consistent with our strategy for that investment. When it is appropriate to do so, we classify the property as an asset held for sale on our condensed consolidated balance sheet. Our property dispositions are also discussed in Note 4.
2022 — Real Estate — Land, Buildings and Improvements
On January 21, 2022, we sold a portion of an office facility in Rotterdam, the Netherlands, for total proceeds, net of selling costs of $22.4 million and recognized a loss on sale of less than $0.1 million (inclusive of income taxes of $0.1 million recognized upon sale). In connection with this disposition, and using additional sources of cash, we prepaid the $36.3 million non-recourse mortgage loan encumbering the full property. Amounts are based on the exchange rate of the euro on the date of the transaction.
On March 24, 2022, we sold a vacant warehouse facility in Houston, Texas, for total proceeds, net of selling costs of $7.3 million and recognized a gain on sale of $3.8 million.
CPA:18 – Global 3/31/2022 10-Q – 22
Notes to Condensed Consolidated Financial Statements (Unaudited)
Note 13. Segment Reporting
We operate in three reportable business segments: Net Lease, Self Storage, and Other Operating Properties. Our Net Lease segment includes our investments in net-leased properties, whether they are accounted for as operating leases or direct financing leases. Our Self Storage segment is comprised of our investments in self-storage properties. Our Other Operating Properties segment is comprised of our investments in student housing operating properties. In addition, we have an All Other category that is comprised of our notes receivable investment. The following tables present a summary of comparative results and assets for these business segments (in thousands):
| | | | | | | | | | | | | | | |
| Three Months Ended March 31, | | |
| 2022 | | 2021 | | | | |
| Net Lease | | | | | | | |
Revenues (a) | $ | 31,233 | | | $ | 28,802 | | | | | |
| Operating expenses | (27,066) | | | (17,793) | | | | | |
| Gain on sale of real estate, net | 77,286 | | | — | | | | | |
| Interest expense | (8,928) | | | (7,877) | | | | | |
| Other gains and (losses) | 42 | | | 243 | | | | | |
| (Provision for) benefit from income taxes | (143) | | | 1,210 | | | | | |
| Net loss (income) attributable to noncontrolling interests | 600 | | | (473) | | | | | |
| Net income attributable to CPA:18 – Global | $ | 73,024 | | | $ | 4,112 | | | | | |
| Self Storage | | | | | | | |
| Revenues | $ | 19,972 | | | $ | 16,268 | | | | | |
| Operating expenses | (9,566) | | | (9,092) | | | | | |
| Interest expense | (2,605) | | | (3,266) | | | | | |
| Other gains and (losses) | (10) | | | (56) | | | | | |
| Provision for income taxes | (32) | | | (66) | | | | | |
| | | | | | | |
Net income attributable to CPA:18 – Global | $ | 7,759 | | | $ | 3,788 | | | | | |
| Other Operating Properties | | | | | | | |
| Revenues | $ | 1,493 | | | $ | 3,299 | | | | | |
| Operating expenses | (1,271) | | | (2,510) | | | | | |
| | | | | | | |
| Interest expense | (143) | | | (570) | | | | | |
| Other gains and (losses) | — | | | (3) | | | | | |
| (Provision for) benefit from income taxes | (802) | | | 35 | | | | | |
| Net (income) loss attributable to noncontrolling interests | (47) | | | 45 | | | | | |
| Net (loss) income attributable to CPA:18 – Global | $ | (770) | | | $ | 296 | | | | | |
All Other | | | | | | | |
Revenues (b) | $ | — | | | $ | — | | | | | |
| | | | | | | |
| | | | | | | |
| | | | | | | |
| | | | | | | |
| | | | | | | |
| Net income attributable to CPA:18 – Global | $ | — | | | $ | — | | | | | |
| Corporate | | | | | | | |
| | | | | | | |
| | | | | | | |
| | | | | | | |
| | | | | | | |
| | | | | | | |
| | | | | | | |
Unallocated Corporate Overhead (c) | $ | (8,458) | | | $ | (6,146) | | | | | |
| Net income attributable to noncontrolling interests — Available Cash Distributions | $ | (2,587) | | | $ | (1,539) | | | | | |
| Total Company | | | | | | | |
Revenues (a) (b) | $ | 52,698 | | | $ | 48,369 | | | | | |
| Operating expenses | (45,060) | | | (34,276) | | | | | |
| Gain on sale of real estate, net | 77,271 | | | — | | | | | |
Interest expense | (11,708) | | | (11,747) | | | | | |
Other gains and (losses) (c) | (910) | | | (969) | | | | | |
| (Provision for) benefit from income taxes | (1,289) | | | 1,101 | | | | | |
| Net income attributable to noncontrolling interests | (2,034) | | | (1,967) | | | | | |
| Net income attributable to CPA:18 – Global | $ | 68,968 | | | $ | 511 | | | | | |
CPA:18 – Global 3/31/2022 10-Q – 23
Notes to Condensed Consolidated Financial Statements (Unaudited)
| | | | | | | | | | | |
| Total Assets |
| March 31, 2022 | | December 31, 2021 |
| Net Lease | $ | 1,602,214 | | | $ | 1,586,662 | |
| Self Storage | 337,246 | | | 337,052 | |
| Other Operating Properties | 163,284 | | | 160,746 | |
| All Other | 28,000 | | | 28,000 | |
| Corporate | 14,703 | | | 30,409 | |
| Total Company | $ | 2,145,447 | | | $ | 2,142,869 | |
__________
(a)The three months ended March 31, 2022 and 2021 include straight-line rent adjustments of less than $0.1 million and $1.1 million, respectively. Straight-line lease revenue is included within Lease revenues — net-leased within our condensed consolidated financial statements.
(b)On July 28, 2020, we were notified that the borrower had defaulted on the mortgage loan senior to our mezzanine tranche, and since that date we have not recognized interest income (Note 5). (c)Included in unallocated corporate overhead are expenses and other gains and (losses) that are calculated and reported at the portfolio level and not evaluated as part of any segment’s operating performance. Such items include asset management fees, general and administrative expenses, and gains and losses on foreign currency transactions and derivative instruments. Asset management fees totaled $3.1 million for both the three months ended March 31, 2022 and 2021 (Note 3).
Note 14. Subsequent Events
Borrowing Under Line of Credit with WPC
Subsequent to March 31, 2022 and through the date of this Report, we borrowed a net amount of $5.0 million under the unsecured revolving line of credit with WPC (Note 3).
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