Hisham A. Kader | |
Chief Financial Officer | |
TEL +1-212-492-1183 | |
FAX +1-212-492-8922 | |
hkader@wpcarey.com |
July 13, 2016
VIA EDGAR AND BY FEDERAL EXPRESS
Mr. Robert F. Telewicz, Jr.
Branch Chief
United States Securities and Exchange Commission
Division of Corporate Finance
Office of Real Estate and Commodities
100 F Street, N.E.
Washington, D.C. 20549-0405
Re: W. P. Carey Inc.
Form 10-K for the fiscal year ended December 31, 2015
Filed February 26, 2016
File No. 001-13779
Dear Mr. Telewicz:
Set forth below are responses to the comments of the Staff of the Division of Corporation Finance (the “Staff”) contained in a letter dated June 30, 2016 with respect to the Form 10-K for the fiscal year ended December 31, 2015 filed by W. P. Carey Inc. (the “Company” or “W. P. Carey”). Please note that, for the Staff’s convenience, the Company has recited the Staff’s comment in bold and provided the Company’s response immediately thereafter.
Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations.
Property Level Contribution, page 49
1. | We note your response to our prior comment 1 and are unclear how you concluded the measure of Property Level Contribution does not meet the definition of a non-GAAP measure in accordance with Item 10(e) of Regulation S-K. Although this measure is |
Mr. Robert F. Telewicz, Jr.
United States Securities and Exchange Commission
July 13, 2016
Page 2
calculated using GAAP numbers, it is not a GAAP number presented on the consolidated statement of operation. Additionally, it appears that this measure excludes certain items included in the closest related GAAP measure (e.g. net income). In future filings please ensure this measure meets all of the disclosure requirements of Item 10(e) of Regulation S-K. In addition, we are unclear how you have applied the guidance in question 104.04 of the C&DI related to Non-GAAP Financial Measures with respect to your measure of segment NOI.
In response to the Staff's comments, in future filings the Company will revise its presentation of Property Level Contribution as reflected in the attached exhibit, including a reconciliation of Property Level Contribution to its closest related GAAP measure, Net Income from Real Estate Ownership attributable to W. P. Carey, as well as the required explanatory and cautionary language. The attached exhibit reflects the changes the Company proposes to make in its next periodic report. Additionally, the Company will exclude any reference to Segment Net Operating Income from its MD&A in future filings.
The Company acknowledges that:
• | the Company is responsible for the adequacy and accuracy of the disclosure in the filing; |
• | Staff comments or changes to disclosure in response to Staff comments do not foreclose the Commission from taking any action with respect to the filing; and |
• | the Company may not assert Staff comments as a defense in any proceeding initiated by the Commission or any person under the federal securities laws of the United States. |
Sincerely, | |
/s/ Hisham A. Kader | |
Hisham A. Kader | |
Chief Financial Officer |
cc: | Paul Marcotrigiano, Esq. W. P. Carey Inc. |
EXHIBIT
Property Level Contribution
The following table presents the Property level contribution for our consolidated net-leased and operating properties as well as a reconciliation to Net income from Real Estate Ownership attributable to W. P. Carey (in thousands):
Years Ended December 31, | |||||||||||||||||||||||
2015 | 2014 | Change | 2014 | 2013 | Change | ||||||||||||||||||
Existing Net-Leased Properties | |||||||||||||||||||||||
Lease revenues | $ | 266,442 | $ | 281,132 | $ | (14,690 | ) | $ | 281,132 | $ | 279,765 | $ | 1,367 | ||||||||||
Property expenses | (3,228 | ) | (1,050 | ) | (2,178 | ) | (1,050 | ) | (2,038 | ) | 988 | ||||||||||||
Depreciation and amortization | (100,327 | ) | (105,895 | ) | 5,568 | (105,895 | ) | (106,276 | ) | 381 | |||||||||||||
Property level contribution | 162,887 | 174,187 | (11,300 | ) | 174,187 | 171,451 | 2,736 | ||||||||||||||||
Net-Leased Properties Acquired in the CPA®:16 Merger | |||||||||||||||||||||||
Lease revenues | 258,219 | 248,470 | 9,749 | 248,470 | — | 248,470 | |||||||||||||||||
Property expenses | (12,618 | ) | (5,802 | ) | (6,816 | ) | (5,802 | ) | — | (5,802 | ) | ||||||||||||
Depreciation and amortization | (99,913 | ) | (100,298 | ) | 385 | (100,298 | ) | — | (100,298 | ) | |||||||||||||
Property level contribution | 145,688 | 142,370 | 3,318 | 142,370 | — | 142,370 | |||||||||||||||||
Recently Acquired Net-Leased Properties | |||||||||||||||||||||||
Lease revenues | 117,073 | 30,263 | 86,810 | 30,263 | 6,455 | 23,808 | |||||||||||||||||
Property expenses | (6,738 | ) | (2,615 | ) | (4,123 | ) | (2,615 | ) | (260 | ) | (2,355 | ) | |||||||||||
Depreciation and amortization | (56,700 | ) | (14,584 | ) | (42,116 | ) | (14,584 | ) | (3,169 | ) | (11,415 | ) | |||||||||||
Property level contribution | 53,635 | 13,064 | 40,571 | 13,064 | 3,026 | 10,038 | |||||||||||||||||
Properties Sold or Held for Sale | |||||||||||||||||||||||
Lease revenues | 15,222 | 13,964 | 1,258 | 13,964 | 13,404 | 560 | |||||||||||||||||
Operating revenues | 327 | 491 | (164 | ) | 491 | 443 | 48 | ||||||||||||||||
Property expenses | (636 | ) | (4,015 | ) | 3,379 | (4,015 | ) | (3,154 | ) | (861 | ) | ||||||||||||
Depreciation and amortization | (15,102 | ) | (8,515 | ) | (6,587 | ) | (8,515 | ) | (7,906 | ) | (609 | ) | |||||||||||
Property level contribution | (189 | ) | 1,925 | (2,114 | ) | 1,925 | 2,787 | (862 | ) | ||||||||||||||
Operating Properties | |||||||||||||||||||||||
Revenues | 30,188 | 28,434 | 1,754 | 28,434 | 513 | 27,921 | |||||||||||||||||
Property expenses | (21,938 | ) | (20,609 | ) | (1,329 | ) | (20,609 | ) | (338 | ) | (20,271 | ) | |||||||||||
Depreciation and amortization | (4,194 | ) | (3,807 | ) | (387 | ) | (3,807 | ) | (98 | ) | (3,709 | ) | |||||||||||
Property level contribution | 4,056 | 4,018 | 38 | 4,018 | 77 | 3,941 | |||||||||||||||||
Property Level Contribution | 366,077 | 335,564 | 30,513 | 335,564 | 177,341 | 158,223 | |||||||||||||||||
Add: Lease termination income and other | 25,145 | 17,767 | 7,378 | 17,767 | 2,071 | 15,696 | |||||||||||||||||
Less other expenses: | |||||||||||||||||||||||
General and administrative | (47,676 | ) | (38,797 | ) | (8,879 | ) | (38,797 | ) | (18,993 | ) | (19,804 | ) | |||||||||||
Impairment charges | (29,906 | ) | (23,067 | ) | (6,839 | ) | (23,067 | ) | (4,741 | ) | (18,326 | ) | |||||||||||
Merger, property acquisition, and other expenses | 9,908 | (34,465 | ) | 44,373 | (34,465 | ) | (9,230 | ) | (25,235 | ) | |||||||||||||
Stock-based compensation expense | (7,873 | ) | (12,659 | ) | 4,786 | (12,659 | ) | (7,153 | ) | (5,506 | ) | ||||||||||||
Property management fees | (7,041 | ) | (3,634 | ) | (3,407 | ) | (3,634 | ) | (2,292 | ) | (1,342 | ) | |||||||||||
Other Income and Expenses | |||||||||||||||||||||||
Interest expense | (194,326 | ) | (178,122 | ) | (16,204 | ) | (178,122 | ) | (103,728 | ) | (74,394 | ) | |||||||||||
Equity in earnings of equity method investments in the Managed REITs and real estate | 52,972 | 44,116 | 8,856 | 44,116 | 52,731 | (8,615 | ) | ||||||||||||||||
Other income and (expenses) | 1,952 | (14,505 | ) | 16,457 | (14,505 | ) | 8,420 | (22,925 | ) | ||||||||||||||
Gain on change in control of interests | — | 105,947 | (105,947 | ) | 105,947 | — | 105,947 | ||||||||||||||||
(139,402 | ) | (42,564 | ) | (96,838 | ) | (42,564 | ) | (42,577 | ) | 13 | |||||||||||||
Income from continuing operations before income taxes | 169,232 | 198,145 | (28,913 | ) | 198,145 | 94,426 | 103,719 | ||||||||||||||||
(Provision for) benefit from income taxes | (17,948 | ) | 916 | (18,864 | ) | 916 | (4,703 | ) | 5,619 | ||||||||||||||
Income from continuing operations before gain on sale of real estate | 151,284 | 199,061 | (47,777 | ) | 199,061 | 89,723 | 109,338 | ||||||||||||||||
Income from discontinued operations, net of tax | — | 33,318 | (33,318 | ) | 33,318 | 38,180 | (4,862 | ) | |||||||||||||||
Gain (loss) on sale of real estate, net of tax | 6,487 | 1,581 | 4,906 | 1,581 | (332 | ) | 1,913 | ||||||||||||||||
Net Income from Real Estate Ownership | 157,771 | 233,960 | (76,189 | ) | 233,960 | 127,571 | 106,389 | ||||||||||||||||
Net income attributable to noncontrolling interests | (10,961 | ) | (5,573 | ) | (5,388 | ) | (5,573 | ) | (33,056 | ) | 27,483 | ||||||||||||
Net Income from Real Estate Ownership Attributable to W. P. Carey | $ | 146,810 | $ | 228,387 | $ | (81,577 | ) | $ | 228,387 | $ | 94,515 | $ | 133,872 |
Property level contribution is a non-GAAP financial measure that we believe to be a useful supplemental measure for management and investors in evaluating and analyzing the financial results of our net-leased and operating properties included in our Real Estate Ownership segment over time. Property level contribution presents the lease and operating property revenues, less property expenses and depreciation and amortization. We believe that Property level contribution allows for meaningful comparison between periods of the direct costs of owning and operating our net-leased assets and operating properties. When a property is leased on a net-lease basis, reimbursable tenant costs are recorded as both income and property expense and, therefore, have no impact on the Property level contribution. While we believe that Property level contribution is a useful supplemental measure, it should not be considered as an alternative to Net income from Real Estate Ownership attributable to W. P. Carey as an indication of our operating performance.