# W. P. Carey Inc. (WPC) FY 2021 MD&A Verbatim Item 7 Management's Discussion and Analysis from W. P. Carey Inc.'s 10-K for fiscal year 2021. SEC filing source: https://www.sec.gov/Archives/edgar/data/1025378/000102537822000041/wpc-20211231.htm Accession: 0001025378-22-000041 Filing date: 2022-02-11 Report date: 2021-12-31 Extracted structurally from real Item 7 body heading to real Item 7A/8 boundary. Confidence: high Company profile: /company/WPC/ All MD&A years: /company/WPC/mda/ Next year: /company/WPC/mda/fy2022/ (FY 2022) 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. Please see our Annual Report on Form 10-K for the year ended December 31, 2020 for discussion of our financial condition and results of operations for the year ended December 31, 2019. Refer to Item 1. Business for a description of our business. Significant Developments COVID-19 We continue to actively engage in discussions with our tenants regarding the impact of the COVID-19 pandemic on their business operations, liquidity, and financial position. Through the date of this Report, we have received from tenants over 99.8% of contractual base rent due during the fourth quarter of 2021 (based on contractual minimum annualized base rent (“ABR”) as of September 30, 2021). Given the ongoing uncertainty surrounding the impact of the COVID-19 pandemic, we are unable to predict its effect on our tenants’ continued ability to pay rent. Therefore, information provided in this Report regarding rent collections should not serve as an indication of expected future rent collections. Financial Highlights During the year ended December 31, 2021, we completed the following (as further described in the consolidated financial statements): Real Estate Investments •We acquired 28 investments totaling $1.5 billion (Note 4, Note 5). •We completed four construction projects at a cost totaling $88.2 million (Note 4). •We entered into an agreement to fund a construction loan of approximately $224.9 million for a retail complex in Las Vegas, Nevada. Through December 31, 2021, we have funded $103.7 million (Note 7). •We committed to fund six build-to-suit or expansion projects totaling $63.5 million (based on the exchange rate of the euro at December 31, 2021, as applicable). We currently expect to complete the projects in 2022 and 2023 (Note 4). Dispositions •As part of our active capital recycling program, we disposed of 24 properties for total proceeds, net of selling costs, of $163.6 million (Note 15). [[GREPCENT_TABLE]] [["","W. P. Carey 2021 10-K \u2013 22"]] [[/GREPCENT_TABLE]] Financing and Capital Markets Transactions •On February 25, 2021, we completed an underwritten public offering of $425.0 million of 2.250% Senior Notes due 2033, at a price of 98.722% of par value. These 2.250% Senior Notes due 2033 have a 12.1-year term and are scheduled to mature on April 1, 2033 (Note 10). •On March 8, 2021, we completed an underwritten public offering of €525.0 million of 0.950% Senior Notes due 2030, at a price of 99.335% of par value, issued by our wholly owned finance subsidiary, WPC Eurobond B.V., and fully and unconditionally guaranteed by us. These 0.950% Senior Notes due 2030 have a 9.2-year term and are scheduled to mature on June 1, 2030. We used the net proceeds from this offering to redeem the €500.0 million of 2.0% Senior Notes due 2023, for which we paid a “make-whole” amount of $26.2 million (based on the exchange rate of the euro as of the date of redemption) (Note 10). •On October 15, 2021, we completed an underwritten public offering of $350.0 million of 2.450% Senior Notes due 2032, at a price of 99.048% of par value, in our inaugural green bond offering. These 2.450% Senior Notes due 2032 have a 10.3-year term and are scheduled to mature on February 1, 2032. We intend to fully allocate an amount equal to the net proceeds from this offering to the financing and refinancing, in whole or in part, of one or more recently completed or future eligible green projects (as defined in the prospectus supplement for the offering) (Note 10). •On June 7, 2021, we offered 6,037,500 shares of common stock through our June 2021 Equity Forwards, for gross proceeds of approximately $454.6 million. In addition, on August 9, 2021, we offered 5,175,000 shares of common stock through our August 2021 Equity Forwards, for gross proceeds of approximately $403.7 million. During the year ended December 31, 2021, we settled portions of our Equity Forwards by delivering 9,798,209 shares of common stock to certain forward purchasers for net proceeds of $697.0 million. As of December 31, 2021, 3,925,000 shares remained outstanding under our Equity Forwards (Note 12). •We issued 4,690,073 shares of our common stock under our ATM Program at a weighted-average price of $73.42 per share, for net proceeds of $340.0 million (Note 12). •We reduced our mortgage debt outstanding by prepaying or repaying at or close to maturity a total of $777.8 million of non-recourse mortgage loans (including prepayment penalties totaling $45.2 million) with a weighted-average interest rate of 4.8% (Note 10). Investment Management Assets Under Management •As of December 31, 2021, we managed total assets of approximately $2.7 billion on behalf of CPA:18 – Global and CESH. We expect that the vast majority of our Investment Management earnings going forward will be generated from asset management fees and our ownership interests in CPA:18 – Global and CESH. Dividends to Stockholders We declared cash dividends totaling $4.205 per share, comprised of four quarterly dividends per share of $1.048, $1.050, $1.052, and $1.055. [[GREPCENT_TABLE]] [["","W. P. Carey 2021 10-K \u2013 23"]] [[/GREPCENT_TABLE]] Consolidated Results (in thousands, except shares) [[GREPCENT_TABLE]] [["","Years Ended December 31,"],["","2021","","2020"],["Revenues from Real Estate","$","1,312,126","","","$","1,177,997"],["Revenues from Investment Management","19,398","","","31,322"],["Total revenues","1,331,524","","","1,209,319"],["Net income from Real Estate attributable to W. P. Carey","384,766","","","459,512"],["Net income (loss) from Investment Management attributable to W. P. Carey","25,222","","","(4,153)"],["Net income attributable to W. P. Carey","409,988","","","455,359"],["Dividends declared","781,626","","","732,020"],["Net cash provided by operating activities","926,479","","","801,538"],["Net cash used in investing activities","(1,566,727)","","","(539,932)"],["Net cash provided by (used in) financing activities","557,048","","","(210,713)"],["Supplemental financial measures (a):"],["Adjusted funds from operations attributable to W. P. Carey (AFFO) \u2014 Real Estate","896,139","","","804,175"],["Adjusted funds from operations attributable to W. P. Carey (AFFO) \u2014 Investment Management","25,352","","","24,911"],["Adjusted funds from operations attributable to W. P. Carey (AFFO)","921,491","","","829,086"],["Diluted weighted-average shares outstanding","183,127,098","","","174,839,428"]] [[/GREPCENT_TABLE]] __________ (a)We consider Adjusted funds from operations (“AFFO”), a supplemental measure that is not defined by U.S. generally accepted accounting principles (“GAAP”) (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. Revenues Real Estate revenue increased in 2021 as compared to 2020, primarily due to higher lease revenues (substantially as a result of property acquisition activity, the strengthening euro and British pound sterling, and the positive impact on rent collections as businesses recovered from the effects of the COVID-19 pandemic, partially offset by property dispositions) and higher lease termination and other income (Note 4). Investment Management revenue decreased in 2021 as compared to 2020, primarily due to lower asset management revenue and reimbursable costs earned from the Managed Programs following the termination of our advisory agreements in connection with the closing of the CWI 1 and CWI 2 Merger on April 13, 2020 (Note 3). Net Income Attributable to W. P. Carey Net income from Real Estate attributable to W. P. Carey decreased in 2021 as compared to 2020, primarily due to a higher loss on extinguishment of debt (Note 10), a lower aggregate gain on sale of real estate (Note 15), and a deferred tax benefit as a result of the release of a deferred tax liability relating to our investment in shares of Lineage Logistics during the prior year (Note 14), partially offset by the impact of real estate acquisitions, the positive impact on rent collections as businesses recovered from the effects of the COVID-19 pandemic, and lower interest expense. In addition, we recognized non-cash unrealized gains on our investment in shares of Lineage Logistics during both the current and prior year (Note 8). Net income from Investment Management attributable to W. P. Carey increased in 2021 as compared to 2020, primarily due to other-than temporary impairment charges on our equity method investments in CWI 1 and CWI 2 during the prior year period (Note 8), partially offset by a non-cash net gain recognized on the redemption of our special general partner interests in CWI 1 and CWI 2 in connection with the WLT management internalization in April 2020 (Note 3), as well as the cessation of revenues previously earned from CWI 1 and CWI 2. [[GREPCENT_TABLE]] [["","W. P. Carey 2021 10-K \u2013 24"]] [[/GREPCENT_TABLE]] AFFO AFFO increased in 2021 as compared to 2020, primarily due to higher lease revenues from net investment activity, lower interest expense, and the positive impact on rent collections as businesses recovered from the effects of the COVID-19 pandemic, partially offset by lower Investment Management revenues due to the WLT management internalization in April 2020 (Note 3). Portfolio Overview Our portfolio is comprised of operationally-critical, commercial real estate assets net leased to tenants located primarily in the United States and Northern and Western Europe. We invest in high-quality single tenant industrial, warehouse, office, retail, and self-storage (net lease) properties subject to long-term leases with built-in rent escalators. 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 [[GREPCENT_TABLE]] [["","As of December 31,"],["","2021","","2020"],["ABR (in thousands)","$","1,247,764","","","$","1,183,217"],["Number of net-leased properties","1,304","","","1,243"],["Number of operating properties (a)","20","","","20"],["Number of tenants (net-leased properties)","352","","","350"],["Total square footage (net-leased properties, in thousands)","155,674","","","144,259"],["Occupancy (net-leased properties)","98.5","%","","98.5","%"],["Weighted-average lease term (net-leased properties, in years)","10.8","","","10.6"],["Number of countries (b)","24","","","25"],["Total assets (in thousands)","$","15,480,630","","","$","14,707,636"],["Net investments in real estate (in thousands)","13,037,369","","","12,386,572"]] [[/GREPCENT_TABLE]] [[GREPCENT_TABLE]] [["","Years Ended December 31,"],["","2021","","2020"],["Acquisition volume (in millions) (c)","$","1,627.9","","","$","661.4"],["Construction projects completed (in millions)","88.2","","","171.2"],["Average U.S. dollar/euro exchange rate","1.1830","","","1.1410"],["Average U.S. dollar/British pound sterling exchange rate","1.3755","","","1.2834"]] [[/GREPCENT_TABLE]] __________ (a)At both December 31, 2021 and 2020, operating properties consisted of 19 self-storage properties (of which we consolidated ten, with an average occupancy of 95.3% at December 31, 2021), and one hotel property, with an average occupancy of 45.2% for the year ended December 31, 2021 (due to the adverse effect of the COVID-19 pandemic). (b)We sold our only remaining investment in Belgium during 2021. (c)Amount for the year ended December 31, 2021 includes $217.0 million of sale-leasebacks classified as loans receivable (Note 5). Amount for the year ended December 31, 2021 includes $103.7 million of funding for a construction loan (Note 7). [[GREPCENT_TABLE]] [["","W. P. Carey 2021 10-K \u2013 25"]] [[/GREPCENT_TABLE]] Net-Leased Portfolio The tables below represent information about our net-leased portfolio at December 31, 2021 on a pro rata basis and, accordingly, exclude all operating properties. See Terms and Definitions below for a description of pro rata amounts and ABR. Top Ten Tenants by ABR (dollars in thousands) [[GREPCENT_TABLE]] [["Tenant/Lease Guarantor","","Description","","Number of Properties","","ABR","","ABR Percent","","Weighted-Average Lease Term (Years)"],["U-Haul Moving Partners Inc. and Mercury Partners, LP","","Net lease self-storage properties in the U.S.","","78","","","$","38,751","","","3.1","%","","2.3"],["State of Andaluc\u00eda (a)","","Government office properties in Spain","","70","","","29,490","","","2.4","%","","13.0"],["Hellweg Die Profi-Baum\u00e4rkte GmbH & Co. KG (a)","","Do-it-yourself retail properties in Germany","","35","","","28,388","","","2.3","%","","15.2"],["Metro Cash & Carry Italia S.p.A. (a)","","Business-to-business wholesale stores in Italy and Germany","","20","","","28,087","","","2.2","%","","6.8"],["Pendragon PLC (a)","","Automotive dealerships in the United Kingdom","","69","","","23,852","","","1.9","%","","8.4"],["OBI Group (a)","","Do-it-yourself retail properties in Poland","","26","","","22,635","","","1.8","%","","8.4"],["Marriott Corporation","","Net lease hotel properties in the U.S.","","18","","","21,100","","","1.7","%","","2.0"],["Extra Space Storage, Inc.","","Net lease self-storage properties in the U.S.","","27","","","20,688","","","1.6","%","","22.3"],["Advance Auto Parts, Inc.","","Distribution facilities in the U.S.","","29","","","19,851","","","1.6","%","","11.1"],["Nord Anglia Education, Inc.","","K-12 private schools in the U.S.","","3","","","19,473","","","1.6","%","","21.7"],["Total","","","","375","","","$","252,315","","","20.2","%","","10.4"]] [[/GREPCENT_TABLE]] __________ (a)ABR amounts are subject to fluctuations in foreign currency exchange rates. [[GREPCENT_TABLE]] [["","W. P. Carey 2021 10-K \u2013 26"]] [[/GREPCENT_TABLE]] Portfolio Diversification by Geography (in thousands, except percentages) [[GREPCENT_TABLE]] [["Region","","ABR","","ABR Percent","","Square Footage (a)","","Square Footage Percent"],["United States"],["South"],["Texas","","$","103,805","","","8.3","%","","11,869","","","7.6","%"],["Florida","","51,231","","","4.1","%","","4,460","","","2.9","%"],["Georgia","","23,875","","","1.9","%","","3,512","","","2.3","%"],["Tennessee","","22,057","","","1.8","%","","3,291","","","2.1","%"],["Alabama","","18,456","","","1.5","%","","3,085","","","2.0","%"],["Other (b)","","15,675","","","1.2","%","","2,356","","","1.5","%"],["Total South","","235,099","","","18.8","%","","28,573","","","18.4","%"],["Midwest"],["Illinois","","59,840","","","4.8","%","","8,328","","","5.3","%"],["Minnesota","","32,138","","","2.6","%","","3,225","","","2.1","%"],["Indiana","","26,940","","","2.1","%","","4,734","","","3.0","%"],["Ohio","","18,306","","","1.5","%","","3,921","","","2.5","%"],["Wisconsin","","16,086","","","1.3","%","","3,245","","","2.1","%"],["Michigan","","15,076","","","1.2","%","","2,599","","","1.7","%"],["Other (b)","","32,401","","","2.6","%","","5,073","","","3.3","%"],["Total Midwest","","200,787","","","16.1","%","","31,125","","","20.0","%"],["East"],["North Carolina","","35,813","","","2.9","%","","8,098","","","5.2","%"],["Pennsylvania","","30,790","","","2.4","%","","3,673","","","2.4","%"],["New Jersey","","22,809","","","1.8","%","","1,235","","","0.8","%"],["Massachusetts","","22,187","","","1.8","%","","1,407","","","0.9","%"],["New York","","17,630","","","1.4","%","","2,221","","","1.4","%"],["South Carolina","","14,840","","","1.2","%","","4,087","","","2.6","%"],["Other (b)","","47,109","","","3.8","%","","8,009","","","5.1","%"],["Total East","","191,178","","","15.3","%","","28,730","","","18.4","%"],["West"],["California","","70,052","","","5.6","%","","6,537","","","4.2","%"],["Arizona","","29,784","","","2.4","%","","3,365","","","2.1","%"],["Other (b)","","60,892","","","4.9","%","","6,333","","","4.1","%"],["Total West","","160,728","","","12.9","%","","16,235","","","10.4","%"],["United States Total","","787,792","","","63.1","%","","104,663","","","67.2","%"],["International"],["United Kingdom","","61,843","","","5.0","%","","5,099","","","3.3","%"],["Germany","","61,465","","","4.9","%","","6,440","","","4.1","%"],["Poland","","58,799","","","4.7","%","","7,959","","","5.1","%"],["Spain","","56,099","","","4.5","%","","4,708","","","3.0","%"],["The Netherlands","","56,044","","","4.5","%","","6,948","","","4.5","%"],["Italy","","26,364","","","2.1","%","","2,386","","","1.5","%"],["France","","20,328","","","1.6","%","","1,685","","","1.1","%"],["Denmark","","17,724","","","1.4","%","","2,559","","","1.7","%"],["Croatia","","16,901","","","1.4","%","","1,726","","","1.1","%"],["Canada","","14,084","","","1.1","%","","2,213","","","1.4","%"],["Other (c)","","70,321","","","5.7","%","","9,288","","","6.0","%"],["International Total","","459,972","","","36.9","%","","51,011","","","32.8","%"],["Total","","$","1,247,764","","","100.0","%","","155,674","","","100.0","%"]] [[/GREPCENT_TABLE]] [[GREPCENT_TABLE]] [["","W. P. Carey 2021 10-K \u2013 27"]] [[/GREPCENT_TABLE]] Portfolio Diversification by Property Type (in thousands, except percentages) [[GREPCENT_TABLE]] [["Property Type","","ABR","","ABR Percent","","Square Footage (a)","","Square Footage Percent"],["Industrial","","$","322,284","","","25.8","%","","54,221","","","34.8","%"],["Warehouse","","297,942","","","23.9","%","","54,793","","","35.2","%"],["Office","","243,741","","","19.5","%","","16,151","","","10.4","%"],["Retail (d)","","220,016","","","17.6","%","","19,139","","","12.3","%"],["Self Storage (net lease)","","59,438","","","4.8","%","","5,810","","","3.7","%"],["Other (e)","","104,343","","","8.4","%","","5,560","","","3.6","%"],["Total","","$","1,247,764","","","100.0","%","","155,674","","","100.0","%"]] [[/GREPCENT_TABLE]] __________ (a)Includes square footage for any vacant properties. (b)Other properties within South include assets in Louisiana, Arkansas, Oklahoma, and Mississippi. Other properties within Midwest include assets in Missouri, Kansas, Nebraska, Iowa, North Dakota, and South Dakota. Other properties within East include assets in Virginia, Kentucky, Maryland, Connecticut, West Virginia, New Hampshire, and Maine. Other properties within West include assets in Oregon, Colorado, Utah, Washington, Nevada, Hawaii, New Mexico, Idaho, Wyoming, Montana, and Alaska. (c)Includes assets in Lithuania, Finland, Norway, Mexico, Hungary, Portugal, the Czech Republic, Austria, Sweden, Slovakia, Japan, Latvia, and Estonia. (d)Includes automotive dealerships. (e)Includes ABR from tenants with the following property types: education facility, hotel (net lease), laboratory, fitness facility, theater, student housing (net lease), restaurant, and land. [[GREPCENT_TABLE]] [["","W. P. Carey 2021 10-K \u2013 28"]] [[/GREPCENT_TABLE]] Portfolio Diversification by Tenant Industry (in thousands, except percentages) [[GREPCENT_TABLE]] [["Industry Type","","ABR","","ABR Percent","","Square Footage","","Square Footage Percent"],["Retail Stores (a)","","$","272,627","","","21.9","%","","34,040","","","21.9","%"],["Consumer Services","","102,202","","","8.2","%","","7,850","","","5.0","%"],["Automotive","","81,158","","","6.5","%","","12,310","","","7.9","%"],["Beverage and Food","","78,613","","","6.3","%","","10,182","","","6.5","%"],["Grocery","","72,546","","","5.8","%","","7,714","","","5.0","%"],["Cargo Transportation","","63,845","","","5.1","%","","9,491","","","6.1","%"],["Healthcare and Pharmaceuticals","","60,465","","","4.8","%","","5,372","","","3.5","%"],["Construction and Building","","50,279","","","4.0","%","","9,005","","","5.8","%"],["Business Services","","47,045","","","3.8","%","","4,018","","","2.6","%"],["Capital Equipment","","44,766","","","3.6","%","","7,387","","","4.7","%"],["Durable Consumer Goods","","44,001","","","3.5","%","","9,951","","","6.4","%"],["Hotel and Leisure","","41,141","","","3.3","%","","2,214","","","1.4","%"],["Sovereign and Public Finance","","39,327","","","3.2","%","","3,241","","","2.1","%"],["Containers, Packaging, and Glass","","38,627","","","3.1","%","","6,538","","","4.2","%"],["High Tech Industries","","31,197","","","2.5","%","","3,315","","","2.1","%"],["Insurance","","25,764","","","2.1","%","","1,749","","","1.1","%"],["Banking","","19,935","","","1.6","%","","1,247","","","0.8","%"],["Metals","","16,203","","","1.3","%","","3,119","","","2.0","%"],["Non-Durable Consumer Goods","","15,696","","","1.3","%","","5,250","","","3.4","%"],["Aerospace and Defense","","15,459","","","1.2","%","","1,357","","","0.9","%"],["Telecommunications","","15,274","","","1.2","%","","1,479","","","0.9","%"],["Chemicals, Plastics, and Rubber","","14,282","","","1.1","%","","1,853","","","1.2","%"],["Media: Broadcasting and Subscription","","13,120","","","1.1","%","","784","","","0.5","%"],["Wholesale","","12,758","","","1.0","%","","2,005","","","1.3","%"],["Other (b)","","31,434","","","2.5","%","","4,203","","","2.7","%"],["Total","","$","1,247,764","","","100.0","%","","155,674","","","100.0","%"]] [[/GREPCENT_TABLE]] __________ (a)Includes automotive dealerships. (b)Includes ABR from tenants in the following industries: media: advertising, printing, and publishing, oil and gas, environmental industries, consumer transportation, forest products and paper, real estate, and electricity. Also includes square footage for vacant properties. [[GREPCENT_TABLE]] [["","W. P. Carey 2021 10-K \u2013 29"]] [[/GREPCENT_TABLE]] Lease Expirations (dollars and square footage in thousands) [[GREPCENT_TABLE]] [["Year of Lease Expiration (a)","","Number of Leases Expiring","","Number of Tenants with Leases Expiring","","ABR","","ABR Percent","","Square Footage","","Square Footage Percent"],["2022","","25","","","25","","","$","29,669","","","2.4","%","","1,982","","","1.3","%"],["2023","","31","","","28","","","46,810","","","3.8","%","","5,405","","","3.5","%"],["2024 (b)","","45","","","39","","","96,501","","","7.7","%","","12,403","","","8.0","%"],["2025","","60","","","29","","","63,961","","","5.1","%","","7,417","","","4.8","%"],["2026","","40","","","29","","","57,615","","","4.6","%","","8,219","","","5.3","%"],["2027","","56","","","32","","","83,964","","","6.7","%","","8,847","","","5.7","%"],["2028","","40","","","22","","","60,495","","","4.8","%","","4,568","","","2.9","%"],["2029","","50","","","23","","","55,310","","","4.4","%","","6,702","","","4.3","%"],["2030","","27","","","23","","","65,876","","","5.3","%","","5,642","","","3.6","%"],["2031","","66","","","16","","","73,930","","","5.9","%","","8,642","","","5.5","%"],["2032","","38","","","18","","","53,114","","","4.3","%","","7,098","","","4.6","%"],["2033","","28","","","22","","","77,386","","","6.2","%","","10,159","","","6.5","%"],["2034","","47","","","15","","","74,503","","","6.0","%","","7,765","","","5.0","%"],["2035","","14","","","14","","","26,944","","","2.2","%","","4,906","","","3.1","%"],["Thereafter (2035)","","223","","","97","","","381,686","","","30.6","%","","53,632","","","34.4","%"],["Vacant","","\u2014","","","\u2014","","","\u2014","","","\u2014","%","","2,287","","","1.5","%"],["Total","","790","","","","","$","1,247,764","","","100.0","%","","155,674","","","100.0","%"]] [[/GREPCENT_TABLE]] __________ (a)Assumes tenants do not exercise any renewal options or purchase options. (b)Includes ABR of $38.8 million from a tenant (U-Haul Moving Partners, Inc. and Mercury Partners, LP) that holds an option to repurchase the 78 properties it is leasing in April 2024. There can be no assurance that such repurchase will be completed. Terms and Definitions Pro Rata Metrics —The portfolio information above contains certain metrics prepared on a pro rata basis. We refer to these metrics as pro rata metrics. We have a number of investments, usually with our affiliates, in which our economic ownership is less than 100%. On a full consolidation basis, we report 100% of the assets, liabilities, revenues, and expenses of those investments that are deemed to be under our control or for which we are deemed to be the primary beneficiary, even if our ownership is less than 100%. Also, for all other jointly owned investments, which we do not control, we report our net investment and our net income or loss from that investment. On a pro rata basis, we present our proportionate share, based on our economic ownership of these jointly owned investments, of the portfolio metrics of those investments. Multiplying each of our jointly owned investments’ financial statement line items by our percentage ownership and adding or subtracting those amounts from our totals, as applicable, may not accurately depict the legal and economic implications of holding an ownership interest of less than 100% in our jointly owned investments. ABR — ABR represents contractual minimum annualized base rent for our net-leased properties and reflects exchange rates as of December 31, 2021. If there is a rent abatement, we annualize the first monthly contractual base rent following the free rent period. ABR is not applicable to operating properties. [[GREPCENT_TABLE]] [["","W. P. Carey 2021 10-K \u2013 30"]] [[/GREPCENT_TABLE]] Results of Operations We operate in two reportable segments: Real Estate and Investment Management. We evaluate our results of operations with a primary focus on increasing and enhancing the value, quality, and number of properties in our Real Estate segment. We focus our efforts on accretive investing and improving portfolio quality through re-leasing efforts, including negotiation of lease renewals, or selectively selling assets in order to increase value in our real estate portfolio. Through our Investment Management segment, we expect to continue to earn fees and other income from the management of the portfolios of the remaining Managed Programs until those programs reach the end of their respective life cycles. Refer to Note 16 for tables presenting the comparative results of our Real Estate and Investment Management segments. Real Estate Revenues The following table presents revenues within our Real Estate segment (in thousands): [[GREPCENT_TABLE]] [["","Years Ended December 31,"],["","2021","","2020","","Change"],["Real Estate Revenues"],["Lease revenues from:"],["Existing net-leased properties","$","1,062,470","","","$","1,034,306","","","$","28,164"],["Recently acquired net-leased properties","108,858","","","22,922","","","85,936"],["Net-leased properties sold or held for sale","6,110","","","23,395","","","(17,285)"],["Total lease revenues (including reimbursable tenant costs)","1,177,438","","","1,080,623","","","96,815"],["Income from direct financing leases and loans receivable","67,555","","","74,893","","","(7,338)"],["Lease termination income and other","53,655","","","11,082","","","42,573"],["Operating property revenues","13,478","","","11,399","","","2,079"],["","$","1,312,126","","","$","1,177,997","","","$","134,129"]] [[/GREPCENT_TABLE]] Lease Revenues “Existing net-leased properties” are those that we acquired or placed into service prior to January 1, 2020 and that were not sold or held for sale during the periods presented. For the periods presented, there were 1,071 existing net-leased properties. For the year ended December 31, 2021 as compared to 2020, lease revenues from existing net-leased properties increased due to the following items (in millions): __________ [[GREPCENT_TABLE]] [["","W. P. Carey 2021 10-K \u2013 31"]] [[/GREPCENT_TABLE]] (a)Excludes fixed minimum rent increases, which are reflected as straight-line rent adjustments within lease revenues. (b)Primarily related to (i) straight-line rent adjustments and (ii) write-offs of above/below-market rent intangibles. (c)Primarily comprised of winter storm-related charges recorded during the first quarter of 2021 from a tenant at a property in Texas. “Recently acquired net-leased properties” are those that we acquired or placed into service subsequent to December 31, 2019 and that were not sold or held for sale during the periods presented. Since January 1, 2020, we acquired 40 investments (comprised of 115 properties and six land parcels under buildings that we already own) and placed two properties into service. “Net-leased properties sold or held for sale” include (i) 24 net-leased properties disposed of during the year ended December 31, 2021; (ii) two net-leased properties classified as held for sale at December 31, 2021, which were sold in January and February 2022 (Note 4, Note 17); and (iii) 21 net-leased properties disposed of during the year ended December 31, 2020. Our dispositions are more fully described in Note 15. Income from Direct Financing Leases and Loans Receivable We currently present Income from direct financing leases and loans receivable on its own line item in the consolidated statements of income. Previously, income from direct financing leases was included within Lease revenues and income from loans receivable was included within Lease termination income and other in the consolidated statements of income. Prior period amounts have been reclassified to conform to the current period presentation. For the year ended December 31, 2021 as compared to 2020, income from direct financing leases and loans receivable decreased due to the following items (in millions): Lease Termination Income and Other Lease termination income and other is described in Note 4. [[GREPCENT_TABLE]] [["","W. P. Carey 2021 10-K \u2013 32"]] [[/GREPCENT_TABLE]] Operating Property Revenues and Expenses For the periods presented, we recorded operating property revenues from 12 operating properties, comprised of ten self-storage operating properties (which excludes nine self-storage properties accounted for under the equity method) and two hotel operating properties (one of which was sold in January 2020, as described in Note 15). For our remaining hotel operating property, revenues and expenses increased by $3.2 million and $1.6 million, respectively, for the year ended December 31, 2021 as compared to 2020, reflecting higher occupancy as the hotel’s business recovered from the COVID-19 pandemic. In addition, for the year ended December 31, 2021 as compared to 2020, operating property revenues and expenses decreased by $1.9 million each, due to the hotel sale in January 2020. Furthermore, for our self-storage operating properties, revenues and expenses increased by $0.7 million and $0.2 million, respectively, for the year ended December 31, 2021 as compared to 2020, reflecting higher occupancy and unit rates. Operating Expenses Depreciation and Amortization The following table presents depreciation and amortization expense within our Real Estate segment (in thousands): [[GREPCENT_TABLE]] [["","Years Ended December 31,"],["","2021","","2020","","Change"],["Depreciation and Amortization"],["Net-leased properties","$","467,803","","","$","433,829","","","$","33,974"],["Operating properties","2,747","","","4,017","","","(1,270)"],["Corporate","5,439","","","4,102","","","1,337"],["","$","475,989","","","$","441,948","","","$","34,041"]] [[/GREPCENT_TABLE]] For the year ended December 31, 2021 as compared to 2020, depreciation and amortization expense for net-leased properties increased primarily due to the impact of acquisition activity and the strengthening of foreign currencies (primarily the euro) in relation to the U.S. dollar between the periods, partially offset by in-place lease intangible assets recorded on certain net-leased self-storage properties becoming fully amortized during 2020. Beginning with the second quarter of 2020, corporate depreciation and amortization expense is fully recognized within our Real Estate segment, consistent with the segment allocation changes described below under General and Administrative. General and Administrative Beginning with the second quarter of 2020, general and administrative expenses attributed to our Investment Management segment are comprised of the incremental costs of providing services to the Managed Programs, which are fully reimbursed by those funds (resulting in no net expense for us). All other general and administrative expenses are attributed to our Real Estate segment. Previously, general and administrative expenses were allocated based on time incurred by our personnel for the Real Estate and Investment Management segments. In light of the termination of the advisory agreements with CWI 1 and CWI 2 in connection with the WLT management internalization (Note 3), we now view essentially all assets, liabilities, and operational expenses as part of our Real Estate segment, other than incremental activities that are expected to wind down as we manage CPA:18 – Global and CESH through the end of their respective life cycles (Note 2). This change between the segments had no impact on our consolidated financial statements. For the year ended December 31, 2021 as compared to 2020, general and administrative expenses allocated to our Real Estate segment increased by $11.8 million, primarily due to (i) higher incentive compensation expense, (ii) lower overhead reimbursements from WLT following the termination of all services provided under the transition services agreement, and (iii) the change in methodology for allocation of expenses between our Real Estate and Investment Management segments discussed above. [[GREPCENT_TABLE]] [["","W. P. Carey 2021 10-K \u2013 33"]] [[/GREPCENT_TABLE]] Property Expenses, Excluding Reimbursable Tenant Costs For the year ended December 31, 2021 as compared to 2020, property expenses, excluding reimbursable tenant costs, increased by $3.8 million, primarily due to tenant vacancies during 2020 and 2021 (which resulted in property expenses no longer being reimbursable) and higher property tax assessments at certain properties. Stock-based Compensation Expense For a description of our equity plans and awards, please see Note 13. Beginning with the second quarter of 2020, stock-based compensation expense is fully recognized within our Real Estate segment. In light of the termination of the advisory agreements with CWI 1 and CWI 2 in connection with the WLT management internalization (Note 3), we believe that this allocation methodology is appropriate, as described above (Note 2). This change between the segments had no impact on our consolidated financial statements. For the year ended December 31, 2021 as compared to 2020, stock-based compensation expense allocated to the Real Estate segment increased by $9.6 million, primarily due to changes in the projected payout for performance share units. Impairment Charges Our impairment charges are described in Note 8. Merger and Other Expenses For the year ended December 31, 2021, merger and other expenses allocated to our Real Estate segment totaled benefits of $4.6 million, primarily comprised of reversals of estimated liabilities for German real estate transfer taxes that were previously recorded in connection with business combinations in prior years. Other Income and (Expenses), and (Provision for) Benefit from Income Taxes Interest Expense For the year ended December 31, 2021 as compared to 2020, interest expense decreased by $13.3 million, primarily due to the reduction of our mortgage debt outstanding by prepaying or repaying at or close to maturity a total of $1.1 billion of non-recourse mortgage loans with a weighted-average interest rate of 4.9% since January 1, 2020, partially offset by four senior unsecured notes issuances totaling $1.9 billion (based on the exchange rate of the euro on the dates of issuance for our euro-denominated senior unsecured notes) with a weighted-average interest rate of 1.9% completed since January 1, 2020. The following table presents certain information about our outstanding debt (dollars in thousands): [[GREPCENT_TABLE]] [["","Years Ended December 31,"],["","2021","","2020"],["Average outstanding debt balance","$","6,906,997","","","$","6,411,355"],["Weighted-average interest rate","2.6","%","","3.0","%"]] [[/GREPCENT_TABLE]] Gain on Sale of Real Estate, Net Gain on sale of real estate, net, consists of gain on the sale of properties that were disposed of during the reporting period. Our dispositions are more fully described in Note 15. [[GREPCENT_TABLE]] [["","W. P. Carey 2021 10-K \u2013 34"]] [[/GREPCENT_TABLE]] (Losses) Earnings from Equity Method Investments in Real Estate Our equity method investments in real estate are more fully described in Note 7. The following table presents (losses) earnings from equity method investments in real estate (in thousands): [[GREPCENT_TABLE]] [["","Years Ended December 31,"],["","2021","","2020","","Change"],["(Losses) Earnings from Equity Method Investments in Real Estate"],["Losses from WLT (a)","$","(10,790)","","","$","(5,028)","","","$","(5,762)"],["Proportionate share of impairment charge or other-than-temporary impairment charge recognized on Bank Pekao (Note 7, Note 8)","(13,220)","","","(8,276)","","","(4,944)"],["Other-than-temporary impairment charge on State Farm Mutual Automobile Insurance Co. (Note 7, Note 8)","(6,830)","","","\u2014","","","(6,830)"],["Earnings from Las Vegas Retail Complex","3,017","","","\u2014","","","3,017"],["Earnings from Johnson Self Storage (b)","2,460","","","570","","","1,890"],["Earnings from Fortenova Grupa d.d. (c)","1,542","","","371","","","1,171"],["Other","4,172","","","3,346","","","826"],["","$","(19,649)","","","$","(9,017)","","","$","(10,632)"]] [[/GREPCENT_TABLE]] __________ (a)Losses for each period are primarily due to the adverse impact of the COVID-19 pandemic on WLT’s operations. In addition, losses for 2021 reflect four quarters of activity as compared to two quarters for 2020. We record (losses) earnings from this investment on a one quarter lag. (b)Increase is primarily due to higher occupancy rates at these self-storage facilities. (c)Increase is primarily due to improved performance at these properties, as well as our proportionate share of a gain recognized on the sale of one of the properties in this portfolio. Non-Operating Income Non-operating income primarily consists of realized gains and losses on derivative instruments, dividends from equity securities, and interest income on our loans to affiliates and cash deposits. The following table presents non-operating income within our Real Estate segment (in thousands): [[GREPCENT_TABLE]] [["","Years Ended December 31,"],["","2021","","2020","","Change"],["Non-Operating Income"],["Cash dividend from our investment in Lineage Logistics (Note 8)","$","6,438","","","$","\u2014","","","$","6,438"],["Cash dividends from our investment in preferred shares of WLT (Note 8)","4,893","","","\u2014","","","4,893"],["Realized gains on foreign currency forward collars and contracts","2,357","","","8,162","","","(5,805)"],["Interest income related to our loans to affiliates and cash deposits","90","","","808","","","(718)"],["","$","13,778","","","$","8,970","","","$","4,808"]] [[/GREPCENT_TABLE]] Other Gains and (Losses) Other gains and (losses) primarily consists of gains and losses on (i) extinguishment of debt, (ii) the mark-to-market fair value of equity securities, and (iii) foreign currency transactions. The timing and amount of such gains or losses cannot always be estimated and are subject to fluctuation. All of our foreign currency-denominated unsecured debt instruments were designated as net investment hedges during the years ended December 31, 2021 and 2020. Therefore, no gains and losses on foreign currency transactions were recognized on the remeasurement of such instruments during those periods (Note 9). [[GREPCENT_TABLE]] [["","W. P. Carey 2021 10-K \u2013 35"]] [[/GREPCENT_TABLE]] The following table presents other gains and (losses) within our Real Estate segment (in thousands): [[GREPCENT_TABLE]] [["","Years Ended December 31,"],["","2021","","2020","","Change"],["Other Gains and (Losses)"],["Non-cash unrealized gains related to an increase in the fair value of our investment in shares of Lineage Logistics (Note 8)","$","76,312","","","$","48,326","","","$","27,986"],["Loss on extinguishment of debt (a)","(75,339)","","","(1,487)","","","(73,852)"],["Net realized and unrealized (losses) gains on foreign currency transactions (b)","(15,608)","","","11,018","","","(26,626)"],["Change in allowance for credit losses on finance receivables (Note 5)","(266)","","","(22,259)","","","21,993"],["Other","1,225","","","1,506","","","(281)"],["","$","(13,676)","","","$","37,104","","","$","(50,780)"]] [[/GREPCENT_TABLE]] __________ (a)Amount for the year ended December 31, 2021 is related to the prepayment of mortgage loans (primarily comprised of prepayment penalties totaling $45.2 million) and redemption of the €500.0 million of 2.0% Senior Notes due 2023 in March 2021 (primarily comprised of a “make-whole” amount of $26.2 million related to the redemption) (Note 10). (b)We make certain foreign currency-denominated intercompany loans to a number of our foreign subsidiaries, most of which do not have the U.S. dollar as their functional currency. Remeasurement of foreign currency intercompany transactions that are scheduled for settlement, consisting primarily of accrued interest and amortizing loans, are included in other gains and (losses). (Provision for) Benefit from Income Taxes For the year ended December 31, 2021, we recorded a provision for income taxes of $28.7 million, compared to a benefit from income taxes of $18.5 million recognized during the year ended December 31, 2020, within our Real Estate segment. During the year ended December 31, 2020, we recognized a deferred tax benefit of $37.2 million as a result of the release of a deferred tax liability relating to our investment in shares of Lineage Logistics (Note 13), which converted to a REIT during the prior year period and is therefore no longer subject to federal and state income taxes. In addition, international taxes increased due to acquisitions and various new tax laws and regulations. Investment Management We earn revenue as the advisor to the Managed Programs. For the periods presented, we acted as advisor to the following Managed Programs: CPA:18 – Global, CWI 1 (through April 13, 2020), CWI 2 (through April 13, 2020), and CESH. The CWI 1 and CWI 2 Merger closed on April 13, 2020, and as a result, the advisory agreements with each of CWI 1 and CWI 2 terminated and CWI 2 was renamed Watermark Lodging Trust, Inc. (“WLT”). We provided certain services to WLT pursuant to a transition services agreement, which was terminated on October 13, 2021 (Note 3). We no longer raise capital for new or existing funds, but we currently expect to continue managing CPA:18 – Global and CESH and earn the various fees described below through the end of their respective life cycles (Note 1, Note 3). As of December 31, 2021, we managed total assets of approximately $2.7 billion on behalf of the Managed Programs. [[GREPCENT_TABLE]] [["","W. P. Carey 2021 10-K \u2013 36"]] [[/GREPCENT_TABLE]] Revenues The following table presents revenues within our Investment Management segment (in thousands): [[GREPCENT_TABLE]] [["","Years Ended December 31,"],["","2021","","2020","","Change"],["Investment Management Revenues"],["Asset management and other revenue"],["CPA:18 \u2013 Global","$","12,528","","","$","12,112","","","$","416"],["CWI 1","\u2014","","","3,795","","","(3,795)"],["CWI 2","\u2014","","","3,367","","","(3,367)"],["CESH","2,835","","","3,193","","","(358)"],["","15,363","","","22,467","","","(7,104)"],["Reimbursable costs from affiliates"],["CPA:18 \u2013 Global","2,874","","","2,854","","","20"],["CWI 1","\u2014","","","1,867","","","(1,867)"],["CWI 2","\u2014","","","1,301","","","(1,301)"],["CESH","878","","","1,170","","","(292)"],["WLT","283","","","1,663","","","(1,380)"],["","4,035","","","8,855","","","(4,820)"],["","$","19,398","","","$","31,322","","","$","(11,924)"]] [[/GREPCENT_TABLE]] Asset Management and Other Revenue Asset management and other revenue includes asset management revenue, structuring revenue, and other advisory revenue. During the periods presented, we earned asset management revenue from (i) CPA:18 – Global based on the value of its real estate-related assets under management, (ii) the CWI REITs, prior to the CWI 1 and CWI 2 Merger (Note 3), based on the value of their lodging-related real estate assets under management, and (iii) CESH based on its gross assets under management at fair value. Asset management revenue may increase or decrease depending upon changes in the Managed Programs’ asset bases as a result of purchases, sales, or changes in the appraised value of the real estate-related and lodging-related assets in their investment portfolios. For 2021, we received asset management fees from (i) CPA:18 – Global in shares of its common stock, and (ii) CESH in cash. We earn structuring and other advisory revenue when we structure new investments on behalf of the Managed Programs. Since we no longer raise capital for new or existing funds, and we no longer serve as advisor to CWI 1 and CWI 2 (Note 3), structuring and other advisory revenue has recently been and is expected to be insignificant going forward. For the year ended December 31, 2020, structuring and other advisory revenue was comprised of $0.3 million for structuring a mortgage refinancing on behalf of CWI 2 and $0.2 million related to increases in build-to-suit funding commitments for certain CPA:18 – Global investments. Operating Expenses General and Administrative, Stock-based Compensation Expense, and Depreciation and Amortization Beginning with the second quarter of 2020, general and administrative expenses attributed to our Investment Management segment are comprised of the incremental costs of providing services to the Managed Programs, which are fully reimbursed by those funds (resulting in no net expense for us). All other general and administrative expenses are attributed to our Real Estate segment. Previously, general and administrative expenses were allocated based on time incurred by our personnel for the Real Estate and Investment Management segments. In addition, beginning with the second quarter of 2020, stock-based compensation expense and corporate depreciation and amortization expense are fully recognized within our Real Estate segment. In light of the termination of the advisory agreements with CWI 1 and CWI 2 in connection with the WLT management internalization (Note 3), we now view essentially all assets, liabilities, and operational expenses as part of our Real Estate segment, other than incremental activities that are expected to wind down as we manage CPA:18 – Global and CESH through the end of their respective life cycles (Note 2). These changes between the segments had no impact on our consolidated financial statements. [[GREPCENT_TABLE]] [["","W. P. Carey 2021 10-K \u2013 37"]] [[/GREPCENT_TABLE]] As discussed in Note 3, certain personnel costs and overhead costs are charged to the remaining Managed Programs and reimbursed to us in accordance with their respective advisory agreements. In addition, following the closing of the CWI 1 and CWI 2 Merger on April 13, 2020, we began recording reimbursements from WLT within our Investment Management segment pursuant to a transition services agreement. On October 13, 2021, all services provided under the transition services agreement were terminated. Subadvisor Fees Pursuant to the terms of the subadvisory agreements we had with the third-party subadvisors in connection with both CWI 1 and CWI 2, we paid a subadvisory fee equal to 20% of the amount of fees paid to us by CWI 1 and 25% of the amount of fees paid to us by CWI 2. Upon completion of the CWI 1 and CWI 2 Merger on April 13, 2020 (Note 3), the subadvisory agreements were terminated, and we no longer pay subadvisory fees. Other Income and Expenses, and Benefit from Income Taxers Earnings (Losses) from Equity Method Investments in the Managed Programs Earnings (losses) from equity method investments in the Managed Programs is recognized in accordance with GAAP (Note 7). In addition, we are entitled to receive distributions of Available Cash (Note 3) from the operating partnership of CPA:18 – Global. The net income of our unconsolidated investments fluctuates based on the timing of transactions, such as new leases and property sales, as well as the level of impairment charges. The following table presents the details of our Earnings (losses) from equity method investments in the Managed Programs (in thousands): [[GREPCENT_TABLE]] [["","Years Ended December 31,"],["","2021","","2020"],["Earnings (losses) from equity method investments in the Managed Programs:"],["Distributions of Available Cash from CPA:18 \u2013 Global (a)","$","7,345","","","$","7,225"],["Earnings (losses) from equity method investments in the Managed Programs (b)","1,475","","","(2,662)"],["Other-than-temporary impairment charges on our equity method investments in CWI 1 and CWI 2 (c)","\u2014","","","(47,112)"],["Gain on redemption of special general partner interests in CWI 1 and CWI 2, net (d)","\u2014","","","33,009"],["Earnings (losses) from equity method investments in the Managed Programs","$","8,820","","","$","(9,540)"]] [[/GREPCENT_TABLE]] __________ (a)We are entitled to receive distributions of up to 10% of the Available Cash from the operating partnership of CPA:18 – Global, as defined in its operating partnership agreement (Note 3). Distributions of Available Cash received and earned from CPA:18 – Global fluctuate based on the timing of certain events, including acquisitions and dispositions. (b)The increase for the year ended December 31, 2021 as compared to 2020 was primarily due to an increase of $1.2 million from our investment in shares of CPA:18 – Global, resulting from an increase in our ownership since we receive asset management revenue from CPA:18 – Global in shares of its common stock. In addition, during the year ended December 31, 2020, we recognized losses of $1.6 million and $1.3 million from our investments in shares of CWI 1 and CWI 2 common stock, respectively (prior to the CWI 1 and CWI 2 Merger in April 2020 (Note 3)). Subsequent to the CWI 1 and CWI 2 Merger, our investment in shares of WLT (formerly CWI 2) common stock is included in our Real Estate segment (Note 3). (c)During the year ended December 31, 2020, we recognized other-than-temporary impairment charges of $27.8 million and $19.3 million on our equity method investments in CWI 1 and CWI 2, respectively, to reduce the carrying values of our investments to their estimated fair values, due to the adverse effect of the COVID-19 pandemic on the operations of CWI 1 and CWI 2 (Note 8). (d)Immediately following the closing of the CWI 1 and CWI 2 Merger, in connection with the redemption of the special general partner interests that we previously held in CWI 1 and CWI 2, we recognized a non-cash net gain on sale of $33.0 million during the year ended December 31, 2020 (Note 3, Note 6). [[GREPCENT_TABLE]] [["","W. P. Carey 2021 10-K \u2013 38"]] [[/GREPCENT_TABLE]] Benefit from Income Taxes For the year ended December 31, 2021 as compared to 2020, benefit from income taxes within our Investment Management segment decreased by $2.0 million. During the year ended December 31, 2020, we recognized (i) a deferred tax benefit of $6.3 million as a result of the other-than-temporary impairment charges that we recognized on our equity method investments in CWI 1 and CWI 2 during the period, (ii) a current tax benefit of $4.7 million as a result of carrying back certain net operating losses in accordance with the Coronavirus Aid, Relief, and Economic Security Act (“CARES Act”) that was enacted on March 27, 2020, and (iii) deferred tax expense of $8.3 million due to the establishment of a valuation allowance since we do not expect our Investment Management segment to realize its deferred tax assets. Net Income Attributable to Noncontrolling Interests For the year ended December 31, 2020, net income attributable to noncontrolling interests within our Investment Management segment was comprised of a gain of $9.9 million recognized on the redemption of noncontrolling interests in the special general partner interests previously held by the respective subadvisors for CWI 1 and CWI 2 in connection with the CWI 1 and CWI 2 Merger (Note 3). Liquidity and Capital Resources Sources and Uses of Cash During the Year We use the cash flow generated from our investments primarily to meet our operating expenses, service debt, and fund dividends to stockholders. Our cash flows fluctuate periodically due to a number of factors, which may include, among other things: the timing of our equity and debt offerings; the timing of purchases and sales of real estate; the timing of the repayment of mortgage loans and receipt of lease revenues; the timing and amount of other lease-related payments; the timing of settlement of foreign currency transactions; changes in foreign currency exchange rates; the receipt of asset management fees in either shares of the common stock of CPA:18 – Global or cash; the timing of distributions from equity investments in the Managed Programs and real estate; and the receipt of distributions of Available Cash from CPA:18 – Global. Despite these fluctuations, we believe that we will generate sufficient cash from operations to meet our normal recurring short-term and long-term liquidity needs. We may also use existing cash resources, available capacity under our Senior Unsecured Credit Facility, proceeds from dispositions of properties, and the issuance of additional debt or equity securities, such as issuances of common stock through our Equity Forwards and ATM Program (Note 12), in order to meet these needs. We assess our ability to access capital on an ongoing basis. Our sources and uses of cash during the period are described below. Operating Activities — Net cash provided by operating activities increased by $124.9 million during 2021 as compared to 2020, primarily due to an increase in cash flow generated from net investment activity and scheduled rent increases at existing properties, higher lease termination and other income, the positive impact on rent collections as businesses recovered from the effects of the COVID-19 pandemic, lower interest expense, and cash dividends received from our investments in shares of Lineage Logistics and WLT during the current year (Note 8). Investing Activities — Our investing activities are generally comprised of real estate-related transactions (purchases and sales) and funding for build-to-suit activities and other capital expenditures on real estate. In addition to these types of transactions, during the year ended December 31, 2021, we used $41.0 million to fund short-term loans to the Managed Programs, while $62.0 million of such loans were repaid (Note 3). We also received $14.0 million in distributions from equity method investments. Financing Activities — Our financing activities are generally comprised of borrowings and repayments under our Unsecured Revolving Credit Facility, issuances of the Senior Unsecured Notes, payments and prepayments of non-recourse mortgage loans, and payments of dividends to stockholders. In addition to these types of transactions, during the year ended December 31, 2021, we (i) redeemed the €500.0 million of 2.0% Senior Notes due 2023 for a total of $617.4 million (Note 10), (ii) received $697.0 million in net proceeds from the issuance of common stock under our Equity Forwards (Note 12), and (iii) received $340.0 million in net proceeds from the issuance of common stock under our ATM Program (Note 12). [[GREPCENT_TABLE]] [["","W. P. Carey 2021 10-K \u2013 39"]] [[/GREPCENT_TABLE]] Summary of Financing The table below summarizes our Senior Unsecured Notes, our non-recourse mortgages, and our Senior Unsecured Credit Facility (dollars in thousands): [[GREPCENT_TABLE]] [["","December 31,"],["","2021","","2020"],["Carrying Value"],["Fixed rate:"],["Senior Unsecured Notes (a)","$","5,701,913","","","$","5,146,192"],["Non-recourse mortgages (a)","235,898","","","920,378"],["","5,937,811","","","6,066,570"],["Variable rate:"],["Unsecured Revolving Credit Facility","410,596","","","82,281"],["Unsecured Term Loans (a)","310,583","","","321,971"],["Non-recourse mortgages (a):"],["Amount subject to interest rate swaps and caps","79,055","","","147,094"],["Floating interest rate mortgage loans","53,571","","","78,082"],["","853,805","","","629,428"],["","$","6,791,616","","","$","6,695,998"],["Percent of Total Debt"],["Fixed rate","87","%","","91","%"],["Variable rate","13","%","","9","%"],["","100","%","","100","%"],["Weighted-Average Interest Rate at End of Year"],["Fixed rate","2.7","%","","3.0","%"],["Variable rate (b)","1.1","%","","1.6","%"],["Total debt","2.5","%","","2.9","%"]] [[/GREPCENT_TABLE]] ____________ (a)Aggregate debt balance includes unamortized discount, net, totaling $30.9 million and $28.3 million as of December 31, 2021 and 2020, respectively, and unamortized deferred financing costs totaling $28.8 million and $24.3 million as of December 31, 2021 and 2020, respectively. (b)The impact of our interest rate swaps and caps is reflected in the weighted-average interest rates. Cash Resources At December 31, 2021, our cash resources consisted of the following: •cash and cash equivalents totaling $165.4 million. Of this amount, $74.1 million, at then-current exchange rates, was held in foreign subsidiaries, and we could be subject to restrictions or significant costs should we decide to repatriate these amounts; •our Unsecured Revolving Credit Facility, with available capacity of $1.4 billion (net of amounts reserved for standby letters of credit totaling $1.2 million); •available proceeds under our Equity Forwards of approximately $293.7 million (based on 3,925,000 remaining shares outstanding and a net offering price of $74.84 per share as of December 31, 2021); and •unleveraged properties that had an aggregate asset carrying value of approximately $12.4 billion at December 31, 2021, although there can be no assurance that we would be able to obtain financing for these properties. [[GREPCENT_TABLE]] [["","W. P. Carey 2021 10-K \u2013 40"]] [[/GREPCENT_TABLE]] Historically, we have also accessed the capital markets through additional debt (denominated in both U.S. dollars and euros) and equity offerings. During the year ended December 31, 2021, we issued (i) €525.0 million of 0.950% Senior Notes due 2030, $425.0 million of 2.250% Senior Notes due 2033, and $350.0 million of 2.450% Senior Notes due 2032 (our inaugural green bond offering) (Note 11), (ii) 9,798,209 shares of common stock under our Equity Forwards for aggregate net proceeds of $697.0 million (Note 12), and (iii) 4,690,073 shares of common stock under our ATM Program for net proceeds of $340.0 million (Note 12). As of December 31, 2021, we had approximately $293.7 million of available proceeds under our Equity Forwards and $272.1 million remained available for issuance under our current ATM Program (Note 12). See Note 17, Subsequent Events for issuances under our current ATM Program subsequent to December 31, 2021 and through the date of this Report. Our cash resources can be used for working capital needs and other commitments and may be used for future investments. Cash Requirements and Liquidity As of December 31, 2021, we had $165.4 million of cash and cash equivalents, approximately $1.4 billion of available capacity under our Unsecured Revolving Credit Facility (net of amounts reserved for standby letters of credit totaling $1.2 million), and available proceeds under our Equity Forwards of approximately $293.7 million (based on 3,925,000 remaining shares outstanding and a net offering price of $74.84 as of that date). Our Senior Unsecured Credit Facility includes a $1.8 billion Unsecured Revolving Credit Facility and Unsecured Term Loans outstanding totaling $310.6 million as of December 31, 2021 (Note 10), and is scheduled to mature on February 20, 2025. As of December 31, 2021, scheduled debt principal payments total $45.8 million through December 31, 2022 and $236.7 million through December 31, 2023, and our Senior Unsecured Notes do not start to mature until April 2024 (Note 10). During the next 12 months following December 31, 2021 and thereafter, we expect that our significant cash requirements will include: •paying dividends to our stockholders; •making scheduled principal and balloon payments on our debt obligations (Note 10); •making scheduled interest payments on our debt obligations (future interest payments total $884.3 million, with $169.6 million due during the next 12 months; interest on unhedged variable-rate debt obligations was calculated using the applicable annual variable interest rates and balances outstanding at December 31, 2021); •funding future capital commitments and tenant improvement allowances (Note 4); and •other normal recurring operating expenses. We expect to fund these cash requirements through cash generated from operations, cash received from dispositions of properties, the use of our cash reserves or unused amounts on our Unsecured Revolving Credit Facility (as described above), issuances of common stock through our Equity Forwards and/or ATM Program (Note 12), and potential issuances of additional debt or equity securities. We may also choose to pursue the acquisitions of new investments and prepayments of certain of our non-recourse mortgage loan obligations, depending on our capital needs and improvements in market conditions at that time. Our liquidity could be adversely affected by unanticipated costs, greater-than-anticipated operating expenses, and the adverse impact of the COVID-19 pandemic. To the extent that our working capital reserve is insufficient to satisfy our cash requirements, additional funds may be provided from cash from operations to meet our normal recurring short-term and long-term liquidity needs. We may also use existing cash resources, available capacity under our Unsecured Revolving Credit Facility, mortgage loan proceeds, and the issuance of additional debt or equity securities to meet these needs. The extent to which the COVID-19 pandemic impacts our liquidity and debt covenants will depend on future developments, which are highly uncertain and cannot be predicted with confidence. The potential impact of the COVID-19 pandemic on our tenants and properties could also have a material adverse effect on our liquidity and debt covenants. Certain amounts disclosed above are based on the applicable foreign currency exchange rate at December 31, 2021. [[GREPCENT_TABLE]] [["","W. P. Carey 2021 10-K \u2013 41"]] [[/GREPCENT_TABLE]] Environmental Obligations In connection with the purchase of many of our properties, we required the sellers to perform environmental reviews. We believe, based on the results of these reviews, that our properties were in substantial compliance with federal, state, and foreign environmental statutes at the time the properties were acquired. However, portions of certain properties have been subject to some degree of contamination, principally in connection with leakage from underground storage tanks, surface spills, or other on-site activities. In most instances where contamination has been identified, tenants are actively engaged in the remediation process and addressing identified conditions. We believe that the ultimate resolution of any environmental matters should not have a material adverse effect on our financial condition, liquidity, or results of operations. We record environmental obligations within Accounts payable, accrued expenses and other liabilities in the consolidated financial statements. See Item 1A. Risk Factors for further discussion of potential environmental risks. Critical Accounting Estimates Our significant accounting policies are described in Note 2. Many of these accounting policies require judgment and the use of estimates and assumptions when applying these policies in the preparation of our consolidated financial statements. On a quarterly basis, we evaluate these estimates and judgments based on historical experience as well as other factors that we believe to be reasonable under the circumstances. These estimates are subject to change in the future if underlying assumptions or factors change. Certain accounting policies, while significant, may not require the use of estimates. Those accounting policies that require significant estimation and/or judgment are described under Critical Accounting Policies and Estimates in Note 2. The proposed accounting changes that may potentially impact our business are also described under Recently Adopted Accounting Pronouncements in Note 2. Supplemental Financial Measures In the real estate industry, analysts and investors employ certain non-GAAP supplemental financial measures in order to facilitate meaningful comparisons between periods and among peer companies. Additionally, in the formulation of our goals and in the evaluation of the effectiveness of our strategies, we use Funds from Operations (“FFO”) and AFFO, which are non-GAAP measures defined by our management. We believe that these measures are useful to investors to consider because they may assist them to better understand and measure the performance of our business over time and against similar companies. A description of FFO and AFFO and reconciliations of these non-GAAP measures to the most directly comparable GAAP measures are provided below. Funds from Operations and Adjusted Funds from Operations Due to certain unique operating characteristics of real estate companies, as discussed below, the National Association of Real Estate Investment Trusts, Inc. (“NAREIT”), an industry trade group, has promulgated a non-GAAP measure known as FFO, which we believe to be an appropriate supplemental measure, when used in addition to and in conjunction with results presented in accordance with GAAP, to reflect the operating performance of a REIT. The use of FFO is recommended by the REIT industry as a supplemental non-GAAP measure. FFO is not equivalent to, nor a substitute for, net income or loss as determined under GAAP. We define FFO, a non-GAAP measure, consistent with the standards established by the White Paper on FFO approved by the Board of Governors of NAREIT, as restated in December 2018. The White Paper defines FFO as net income or loss computed in accordance with GAAP, excluding gains or losses from sales of property, impairment charges on real estate, gains or losses on changes in control of interests in real estate, and depreciation and amortization from real estate assets; and after adjustments for unconsolidated partnerships and jointly owned investments. Adjustments for unconsolidated partnerships and jointly owned investments are calculated to reflect FFO. We also modify the NAREIT computation of FFO to adjust GAAP net income for certain non-cash charges, such as amortization of real estate-related intangibles, deferred income tax benefits and expenses, straight-line rent and related reserves, other non-cash rent adjustments, non-cash allowance for credit losses on loans receivable and direct financing leases, stock-based compensation, non-cash environmental accretion expense, amortization of discounts and premiums on debt, and amortization of deferred financing costs. 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 non-core income and expenses, such as gains or losses from extinguishment of debt, and merger and acquisition expenses. We also exclude realized and unrealized gains/losses on foreign currency exchange transactions (other than those [[GREPCENT_TABLE]] [["","W. P. Carey 2021 10-K \u2013 42"]] [[/GREPCENT_TABLE]] realized on the settlement of foreign currency 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 to arrive at AFFO as they are not the primary drivers in our decision-making process and excluding these items provides investors a view of our portfolio performance over time and makes it more comparable to other REITs that are currently not engaged in acquisitions, mergers, and restructuring, which are not part of our normal business operations. AFFO also reflects adjustments for unconsolidated partnerships and jointly owned investments. 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 as we believe it will help them to better assess the sustainability of our operating performance without the potentially distorting 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. We use our FFO and AFFO measures as supplemental financial measures of operating performance. We do not use our FFO and AFFO measures as, nor should they be considered to be, alternatives to net income computed under GAAP, or as alternatives to net cash provided by operating activities computed under GAAP, or as indicators of our ability to fund our cash needs. Consolidated FFO and AFFO were as follows (in thousands): [[GREPCENT_TABLE]] [["","Years Ended December 31,"],["","2021","","2020"],["Net income attributable to W. P. Carey","$","409,988","","","$","455,359"],["Adjustments:"],["Depreciation and amortization of real property","470,554","","","437,885"],["Gain on sale of real estate, net","(40,425)","","","(109,370)"],["Impairment charges","24,246","","","35,830"],["Proportionate share of adjustments to earnings from equity method investments (a) (b) (c) (d)","32,213","","","46,679"],["Proportionate share of adjustments for noncontrolling interests (e)","(16)","","","(18)"],["Total adjustments","486,572","","","411,006"],["FFO (as defined by NAREIT) attributable to W. P. Carey","896,560","","","866,365"],["Adjustments:"],["Straight-line and other leasing and financing adjustments (f)","(83,267)","","","(41,498)"],["Above- and below-market rent intangible lease amortization, net","53,585","","","48,712"],["Stock-based compensation","24,881","","","15,938"],["Amortization of deferred financing costs","13,523","","","12,223"],["Other (gains) and losses (g)","12,885","","","(37,165)"],["Tax (benefit) expense \u2014 deferred and other (h) (i) (j)","(5,967)","","","(48,835)"],["Merger and other expenses (k)","(4,546)","","","247"],["Other amortization and non-cash items","1,709","","","1,864"],["Proportionate share of adjustments to earnings from equity method investments (d)","12,152","","","10,821"],["Proportionate share of adjustments for noncontrolling interests (e)","(24)","","","414"],["Total adjustments","24,931","","","(37,279)"],["AFFO attributable to W. P. Carey","$","921,491","","","$","829,086"],["Summary"],["FFO (as defined by NAREIT) attributable to W. P. Carey","$","896,560","","","$","866,365"],["AFFO attributable to W. P. Carey","$","921,491","","","$","829,086"]] [[/GREPCENT_TABLE]] [[GREPCENT_TABLE]] [["","W. P. Carey 2021 10-K \u2013 43"]] [[/GREPCENT_TABLE]] FFO and AFFO from Real Estate were as follows (in thousands): [[GREPCENT_TABLE]] [["","Years Ended December 31,"],["","2021","","2020"],["Net income from Real Estate attributable to W. P. Carey","$","384,766","","","$","459,512"],["Adjustments:"],["Depreciation and amortization of real property","470,554","","","437,885"],["Gain on sale of real estate, net","(40,425)","","","(109,370)"],["Impairment charges","24,246","","","35,830"],["Proportionate share of adjustments to earnings from equity method investments (a) (d)","32,213","","","22,036"],["Proportionate share of adjustments for noncontrolling interests (e)","(16)","","","(18)"],["Total adjustments","486,572","","","386,363"],["FFO (as defined by NAREIT) attributable to W. P. Carey \u2014 Real Estate","871,338","","","845,875"],["Adjustments:"],["Straight-line and other leasing and financing adjustments (f)","(83,267)","","","(41,498)"],["Above- and below-market rent intangible lease amortization, net","53,585","","","48,712"],["Stock-based compensation","24,881","","","15,247"],["Other (gains) and losses (g)","13,676","","","(37,104)"],["Amortization of deferred financing costs","13,523","","","12,223"],["Tax (benefit) expense \u2014 deferred and other (i)","(4,938)","","","(45,511)"],["Merger and other expenses (k)","(4,597)","","","(937)"],["Other amortization and non-cash items","1,709","","","1,665"],["Proportionate share of adjustments to earnings from equity method investments (d)","10,253","","","5,089"],["Proportionate share of adjustments for noncontrolling interests (e)","(24)","","","414"],["Total adjustments","24,801","","","(41,700)"],["AFFO attributable to W. P. Carey \u2014 Real Estate","$","896,139","","","$","804,175"],["Summary"],["FFO (as defined by NAREIT) attributable to W. P. Carey \u2014 Real Estate","$","871,338","","","$","845,875"],["AFFO attributable to W. P. Carey \u2014 Real Estate","$","896,139","","","$","804,175"]] [[/GREPCENT_TABLE]] [[GREPCENT_TABLE]] [["","W. P. Carey 2021 10-K \u2013 44"]] [[/GREPCENT_TABLE]] FFO and AFFO from Investment Management were as follows (in thousands): [[GREPCENT_TABLE]] [["","Years Ended December 31,"],["","2021","","2020"],["Net income (loss) from Investment Management attributable to W. P. Carey","$","25,222","","","$","(4,153)"],["Adjustments:"],["Proportionate share of adjustments to earnings from equity method investments (b) (c) (d)","\u2014","","","24,643"],["Total adjustments","\u2014","","","24,643"],["FFO (as defined by NAREIT) attributable to W. P. Carey \u2014 Investment Management","25,222","","","20,490"],["Adjustments:"],["Tax (benefit) expense \u2014 deferred and other (h) (j)","(1,029)","","","(3,324)"],["Other (gains) and losses (g)","(791)","","","(61)"],["Merger and other expenses","51","","","1,184"],["Stock-based compensation","\u2014","","","691"],["Other amortization and non-cash items","\u2014","","","199"],["Proportionate share of adjustments to earnings from equity method investments (d)","1,899","","","5,732"],["Total adjustments","130","","","4,421"],["AFFO attributable to W. P. Carey \u2014 Investment Management","$","25,352","","","$","24,911"],["Summary"],["FFO (as defined by NAREIT) attributable to W. P. Carey \u2014 Investment Management","$","25,222","","","$","20,490"],["AFFO attributable to W. P. Carey \u2014 Investment Management","$","25,352","","","$","24,911"]] [[/GREPCENT_TABLE]] __________ (a)Amounts for the years ended December 31, 2021 and 2020 include non-cash other-than-temporary impairment charges totaling $6.8 million and $8.3 million, respectively, recognized on certain equity method investments in real estate (Note 7, Note 8). Amount for the year ended December 31, 2021 includes our $13.2 million proportionate share of an impairment charge recognized on an equity method investment in real estate (Note 7). (b)Amount for the year ended December 31, 2020 includes a non-cash net gain of $33.0 million (inclusive of $9.9 million attributable to the redemption of a noncontrolling interest that the former subadvisors for CWI 1 and CWI 2 held in the special general partner interests) recognized in connection with consideration received at closing of the CWI 1 and CWI 2 Merger (Note 3, Note 6). (c)Amount for the year ended December 31, 2020 includes non-cash other-than-temporary impairment charges totaling $47.1 million recognized on our equity investments in CWI 1 and CWI 2 (Note 8). (d)Equity income, including amounts that are not typically recognized for FFO and AFFO, is recognized within Earnings (losses) from equity method investments on the consolidated statements of income. This represents adjustments to equity income to reflect FFO and AFFO on a pro rata basis. (e)Adjustments disclosed elsewhere in this reconciliation are on a consolidated basis. This adjustment reflects our FFO or AFFO on a pro rata basis. (f)Amount for the year ended December 31, 2021 includes an adjustment to exclude $37.8 million of lease termination fees received from a tenant, as such amount was determined to be non-core income (Note 4). (g)Primarily comprised of gains and losses on extinguishment of debt, the mark-to-market fair value of equity securities, and foreign currency transactions, as well as non-cash allowance for credit losses on loans receivable and direct financing leases. (h)Amount for the year ended December 31, 2020 includes one-time taxes incurred upon the recognition of taxable income associated with the accelerated vesting of shares (previously issued by CWI 1 and CWI 2 to us for asset management services performed) in connection with the CWI 1 and CWI 2 Merger. (i)Amount for the year ended December 31, 2020 includes a non-cash deferred tax benefit of $37.2 million as a result of the release of a deferred tax liability relating to our investment in shares of Lineage Logistics, which converted to a REIT during the prior year and is therefore no longer subject to federal and state income taxes (Note 14). (j)Amount for the year ended December 31, 2020 includes a one-time tax benefit of $4.7 million as a result of carrying back certain net operating losses in accordance with the CARES Act, which was enacted on March 27, 2020 (Note 14). [[GREPCENT_TABLE]] [["","W. P. Carey 2021 10-K \u2013 45"]] [[/GREPCENT_TABLE]] (k)Amount for the year ended December 31, 2021 is primarily comprised of reversals of estimated liabilities for German real estate transfer taxes that were previously recorded in connection with business combinations in prior years. While we believe that FFO and AFFO are important supplemental measures, they should not be considered as alternatives to net income as an indication of a company’s operating performance. These non-GAAP measures should be used in conjunction with net income as defined by GAAP. FFO and AFFO, or similarly titled measures disclosed by other REITs, may not be comparable to our FFO and AFFO measures. [[GREPCENT_TABLE]] [["","W. P. Carey 2021 10-K \u2013 46"]] [[/GREPCENT_TABLE]]