News Column

W. P. CAREY INC. - 10-Q - Management's Discussion and Analysis of Financial Condition and Results of Operations.

August 7, 2014

MD&A is intended to provide the reader with information that will assist in understanding our financial statements and the reasons for changes in certain key components of our financial statements from period to period. MD&A also provides the reader with our perspective on our financial position and liquidity, as well as certain other factors that may affect our future results. The discussion also provides information about the financial results of the segments of our business to provide a better understanding of how these segments and their results affect our financial condition and results of operations. Our MD&A should be read in conjunction with our 2013 Annual Report.



Business Overview

As described in more detail in Item 1 in our 2013 Annual Report, we provide long-term financing via sale-leaseback and build-to-suit transactions for companies worldwide and, as of June 30, 2014, manage a global investment portfolio of 1,027 properties, including 686 net-leased properties and four operating properties within our owned real estate portfolio. Our business operates in two segments - Real Estate Ownership and Investment Management.

Significant Developments Real Estate Ownership Investment Transactions During the six months ended June 30, 2014, we acquired two domestic investments for $89.1 million ( Note 5 ). We have an active capital recycling program, with a goal of extending the average lease term through reinvestment, improving portfolio credit quality through dispositions and acquisitions of assets, increasing the asset criticality factor in our portfolio, and/or executing strategic dispositions of assets. As part of our capital recycling program, we sold 22 domestic properties and two international properties during the six months ended June 30, 2014 for total proceeds of $298.3 million. Properties sold in 2014 included 11 industrial properties, six office facilities, three sports facilities, two warehouse/distribution facilities, a retail facility, and a hotel ( Note 15 ).



Financing Transactions

During the six months ended June 30, 2014, in connection with our long-term plan to become a primarily unsecured borrower, we prepaid 19 non-recourse mortgage loans with an aggregate outstanding principal balance of $201.8 million ( Note 11 ). Distributions Our cash distributions totaled $1.875 per share during the six months ended June 30, 2014, comprised of total quarterly cash distributions of $1.765 per share and a special cash distribution of $0.110 per share paid on January 15, 2014 and April 15, 2014. In addition, during the second quarter of 2014, we declared a quarterly distribution of $0.900 per share, which was paid on July 15, 2014 to stockholders of record on June 30, 2014.



Investment Management

During the six months ended June 30, 2014, we managed three funds: CPAŽ:17 - Global, CPAŽ:18 - Global and CWI. We also managed CPAŽ:16 - Global until the CPAŽ:16 Merger on January 31, 2014 ( Note 3 ).



Investment Transactions

• On July 25, 2013, CPAŽ:16 - Global, which commenced operations in 2003, entered into a definitive merger agreement with us, and we completed the CPAŽ:16 Merger on January 31, 2014 ( Note 3 ).



• During the six months ended June 30, 2014, we structured investments in

six properties, a follow-on equity investment of $20.4 million, and an

$8.4 million foreign debenture for an aggregate of $156.1 million on

behalf of CPAŽ:17 - Global. One of these investments is jointly-owned with

CPAŽ:18 - Global. Approximately $108.6 million was primarily invested in

Europe and $47.5 million was invested in the U.S. Of the six properties

acquired, three are industrial facilities, two are office facilities, and

one is a retail facility.

• During the six months ended June 30, 2014, we structured investments in 17

properties for a total of $370.7 million on behalf of CPAŽ:18 - Global.

One of these investments is jointly-owned with CPAŽ:17 - Global.

Approximately $212.6 million was invested in the U.S. and $158.1 million

was invested in Europe. Of the 17 properties acquired, W. P. Carey6/30/2014 10-Q - 46

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eight are industrial facilities, four are office facilities, three are warehouse/distribution facilities, and two are self-storage facilities. • During the six months ended June 30, 2014, we structured investments in

five domestic hotels for a total of $407.4 million on behalf of CWI.

Financing Transactions

• During the six months ended June 30, 2014, we arranged mortgage financing

totaling $52.6 million for CPAŽ:17 - Global, $275.7 million for CPAŽ:18 -

Global, and $266.5 million for CWI.

Investor Capital Inflows

• CPAŽ:18 - Global commenced its initial public offering in May 2013 and

through June 30, 2014 had raised approximately $1.0 billion, of which $797.7 million was raised during the six months ended June 30, 2014.



• CWI completed fundraising in its initial public offering in September 2013

and commenced its follow-on offering in December 2013. From inception

through June 30, 2014, CWI raised a total of $687.1 million, of which $111.3 million was raised during the six months ended June 30, 2014. • In May 2014, the board of directors of CPAŽ:18 - Global approved the discontinuation of sales of its class A common stock as of June 30, 2014



in order to moderate the pace of its fundraising. In order to facilitate

the final sales of its class A shares as of June 30, 2014 and the

continued sale of its class C shares, the board of directors of CPAŽ:18 -

Global also approved the reallocation to its initial public offering of up

to $250.0 million of the shares that were initially allocated to sales of

its stock through its dividend reinvestment plan.

• In June 2014, we filed a registration statement with the SEC to sell up to

$1.0 billion of common stock of CWI 2 in an initial public offering plus

up to an additional $400.0 million of its common stock under a dividend

reinvestment plan. As of the date of this Report, the registration

statement has not been declared effective by the SEC and there can be no

assurance as to whether or when any such offering would be commenced.

Proposed Regulatory Changes Changes have been proposed to the rules of the Financial Industry Regulatory Authority, Inc., or FINRA, applicable to securities of unlisted REITs, like the Managed REITs, and direct participation programs, or DPPs. The rule changes propose, among other things, that: (i) FINRA members, such as our broker dealer subsidiary, Carey Financial, LLC, include in customer account statements NAVs of the unlisted entity that have been developed using a methodology reasonably designed to ensure the NAV's reliability; and (ii) NAVs disclosed from and after 150 days following the second anniversary of the admission of shareholders of the unlisted entity's public offering be based on an appraised valuation developed by, or with the material assistance of, a third-party expert and updated on at least an annual basis, which is consistent with our current practice regarding our Managed REITs. The rule changes also propose that account statements include additional disclosure regarding the sources of distributions to shareholders of unlisted entities. An amended version of the proposed rules was recently published for public comment, and they remain subject to approval by the SEC. There can be no assurance that they will be adopted in the form currently proposed. FINRA has stated that the rule changes would become effective no earlier than 18 months after they are approved by the SEC. It is not practicable at this time to determine whether the proposed rules will adversely affect market demand for shares of unlisted REITs. We will continue to assess the potential impact of the proposed rule changes on our Investment Management business.



Financial Highlights

Our results for the three and six months ended June 30, 2014 included the following significant items:

• Total lease revenue and total property level contribution increased by

$74.3 million and $39.3 million, respectively, for the three months ended

June 30, 2014, and $124.9 million and $65.5 million, respectively, for the

six months ended June 30, 2014 as compared to the same periods in 2013, respectively, primarily due to revenue generated from the properties acquired in the CPAŽ:16 Merger on January 31, 2014; • A decrease in Asset management revenue from CPAŽ:16 - Global of $4.5 million and $7.5 million for the three and six months ended June 30, 2014,



respectively, as compared to the same periods in 2013 due to the cessation

of asset management fees from CPAŽ:16 - Global upon completion of the CPAŽ:16 Merger on January 31, 2014;



• Costs incurred in connection with the CPAŽ:16 Merger of $30.1 million

during the six months ended June 30, 2014; and W. P. Carey6/30/2014 10-Q - 47

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• Issuance of 30,729,878 shares on January 31, 2014 to stockholders of

CPAŽ:16 - Global as Merger Consideration in connection with the CPAŽ:16 Merger. (In thousands, except shares) Three Months Ended June 30, Six Months Ended June 30, 2014 2013 2014 2013 Real estate revenues (excluding reimbursable tenant costs) $ 170,985$ 74,617$ 300,043$ 147,984 Investment management revenues (excluding reimbursable costs from affiliates) 34,248 19,097 68,453 36,675 Total revenues (excluding reimbursable costs) 205,233 93,714 368,496 184,659 Net income attributable to W. P. Carey 64,739 43,167 178,915 57,348 Cash distributions paid 90,153 57,177 158,312 102,923 Net cash provided by operating activities 168,637 71,453 Net cash provided by (used in) investing activities 131,620 (98,639 ) Net cash used in financing activities



(202,904 ) (33,399 )

Supplemental financial measure: Adjusted funds from operations (AFFO) (a) 122,246 72,638 240,494 144,893 Diluted weighted average shares outstanding 100,995,225 69,493,902 95,857,916 69,870,849 ___________



(a) We consider the performance metrics listed above, including Adjusted funds

from operations, previously referred to as Funds from operations - as

adjusted, or AFFO, a supplemental measure that is not defined by GAAP,

referred to as a non-GAAP measure, to be important measures in the evaluation

of our results of operations and capital resources. We evaluate our results

of operations with a primary focus on the ability to generate cash flow

necessary to meet our objective of funding distributions to stockholders. See

Supplemental Financial Measures below for our definition of this non-GAAP

measure and a reconciliation to its most directly comparable GAAP measure.

Total revenues and Net income attributable to W. P. Carey increased significantly during the three and six months ended June 30, 2014 as compared to the same periods in 2013. The growth in revenues and income within our Real Estate Ownership segment was generated substantially from the properties we acquired in the CPAŽ:16 Merger on January 31, 2014 ( Note 3 ). Additionally, total revenues and Net income within our Investment Management segment increased as a result of a significant increase in structuring revenue due to higher investment volume in the current year periods as compared to the same periods in the prior year. Net cash provided by operating activities increased during the six months ended June 30, 2014 as compared to the same period in 2013, primarily due to operating cash flow generated from the properties we acquired in the CPAŽ:16 Merger. AFFO increased during the three and six months ended June 30, 2014 as compared to the same periods in 2013, primarily due to income generated from the properties we acquired in the CPAŽ:16 Merger, partially offset by the cessation of asset management revenue received from CPAŽ:16 - Global after the CPAŽ:16 Merger was completed. W. P. Carey6/30/2014 10-Q - 48

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Results of Operations

We have two reportable segments - Real Estate Ownership 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 Ownership segment as well as assets owned by the Managed REITs, which are managed by our Investment Management segment. We focus our efforts on improving underperforming assets through re-leasing efforts, including negotiation of lease renewals, or selectively selling assets in order to increase value in our real estate portfolio. The ability to increase assets under management by structuring investments on behalf of the Managed REITs is affected, among other things, by the Managed REITs' ability to raise capital and our ability to identify and enter into appropriate investments and financing.



Real Estate Ownership

The following tables present other operating data that management finds useful in evaluating results of operations:

June 30, 2014 December 31, 2013 Occupancy (a) 98.5 % 98.9 % Total net-leased properties (a) 686 418 Total operating properties (b) 4 2 Six Months Ended June 30, 2014 2013 Financings (millions) (c) $ 1,750.0$ 113.0 Investments (millions) 89.1 185.2 Average U.S. dollar/euro exchange rate (d) 1.3712 1.3135 Increases in U.S. CPI (e) 2.3 % 1.7 % Increases in Germany CPI (e) 0.2 % 1.5 % Increases in France CPI (e) 0.4 % 0.6 % Increases in Finland CPI (e) 0.4 % 1.1 % __________



(a) Amounts represent occupancy for net-leased properties as of June 30, 2014,

which reflects 335 properties acquired from CPAŽ:16 - Global in the CPAŽ:16

Merger in January 2014 with a total fair value of approximately $1.8 billion

( Note 3 ), 11 of which were sold during the six months ended June 30,

2014.

(b) Operating properties include two self-storage properties with an average

occupancy of 93.3% at June 30, 2014. Operating properties also include two

hotel properties acquired from CPAŽ:16 - Global in the CPAŽ:16 Merger with an

average occupancy of 83.4% at June 30, 2014. Hotel occupancy is for the six

months ended June 30, 2014.

(c) The amount for the six months ended June 30, 2014 represents the $500.0

million Senior Unsecured Notes and the $1.25 billion Senior Unsecured Credit

Facility ( Note 11 ).

(d) The average conversion rate for the U.S. dollar in relation to the euro

increased during the six months ended June 30, 2014 as compared to the same

period in 2013, resulting in a positive impact on earnings in 2014 from our

euro-denominated investments.

(e) Many of our lease agreements and those of the CPAŽ REITs include contractual

increases indexed to changes in the U.S. Consumer Price Index, or CPI, or similar indices in jurisdiction in which the property is located. W. P. Carey6/30/2014 10-Q - 49 --------------------------------------------------------------------------------



The following table presents the comparative results of our Real Estate Ownership segment (in thousands):

Three Months Ended June 30,



Six Months Ended June 30,

2014 2013 Change 2014 2013 Change Revenues Lease revenues $ 148,253$ 73,984$ 74,269$ 271,320$ 146,444$ 124,876 Reimbursable tenant costs 5,749 3,040 2,709



11,763 6,157 5,606 Operating property revenues 8,251 231 8,020 13,244

458 12,786 Lease termination income and other 14,481 402 14,079 15,479 1,082 14,397 176,734 77,657 99,077 311,806 154,141 157,665 Operating Expenses Depreciation and amortization: Leased properties 61,579 28,673 32,906 112,106 57,016 55,090 Operating properties 913 44 869 1,741 88 1,653 62,492 28,717 33,775 113,847 57,104 56,743 Property expenses: Reimbursable tenant costs 5,749 3,040 2,709 11,763 6,157 5,606 Leased properties 5,236 1,709 3,527 9,466 3,262 6,204 Operating property expenses 5,821 144 5,677 9,506 286 9,220 Property management fees 152 429 (277 ) 655 499 156 16,958 5,322 11,636 31,390 10,204 21,186 Merger and acquisition expenses 1,137 3,128 (1,991 ) 30,751 3,249 27,502 General and administrative 10,239 4,516 5,723 21,845 10,850 10,995 Stock-based compensation expense 220 910 (690 ) 440 1,084 (644 ) Impairment charges 2,066 - 2,066 2,066 - 2,066 93,112 42,593 50,519 200,339 82,491 117,848 Segment Net Operating Income 83,622 35,064 48,558 111,467 71,650 39,817 Other Income and Expenses Gain on change in control of interests - - - 104,645 - 104,645 Net income from equity investments in real estate and the Managed REITs 9,452 32,541 (23,089 ) 23,714 43,197 (19,483 ) Interest expense (47,733 ) (25,750 ) (21,983 )



(86,808 ) (51,334 ) (35,474 ) Other income and (expenses) (1,044 ) 2,211 (3,255 ) (6,168 ) 3,320 (9,488 )

(39,325 ) 9,002 (48,327 ) 35,383 (4,817 ) 40,200 Income from continuing operations before income taxes 44,297 44,066 231 146,850 66,833 80,017 (Provision for) benefit from income taxes (3,142 ) (2,396 ) (746 ) 909 (3,571 ) 4,480 Income from continuing operations 41,155 41,670 (515 ) 147,759 63,262 84,497 Income from discontinued operations 26,460 4,364 22,096 32,853 1,688 31,165 Loss on sale of real estate, net of taxes (3,821 ) (333 ) (3,488 ) (3,742 ) (332 ) (3,410 ) Net Income from Real Estate Ownership 63,794 45,701 18,093 176,870 64,618 112,252 Net income attributable to noncontrolling interests (2,325 ) (2,594 ) 269 (3,713 ) (4,819 ) 1,106 Net Income from Real Estate Ownership Attributable to W. P. Carey $ 61,469$ 43,107$ 18,362 $



173,157 $ 59,799$ 113,358 AFFO from Real Estate Ownership $ 111,236$ 72,302$ 38,934$ 210,197$ 135,258$ 74,939

W. P. Carey6/30/2014 10-Q - 50

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Lease Composition and Leasing Activities

As of June 30, 2014, 94% of our net leases, based on ABR, have rent increases, of which 71% have adjustments based on CPI or similar indices and 23% have fixed rent increases. CPI and similar rent adjustments are based on formulas indexed to changes in the CPI, or other similar indices for the jurisdiction in which the property is located, some of which have caps and/or floors. Over the next 12 months, fixed rent escalations are scheduled to increase ABR by an average of 3.1% . We own international investments and, therefore, lease revenues from these investments are subject to fluctuations in exchange rate movements in foreign currencies. The following discussion presents a summary of new rents on second generation leases and renewed leases for the periods presented and, therefore, does not include new acquisitions for our portfolio during the years presented or properties acquired in the CPAŽ:16 Merger. During the three months ended June 30, 2014, we signed six leases totaling approximately 0.5 million square feet of leased space. Of these leases, one was with a new tenant and five were lease renewals, extensions or expansions with existing tenants. The average new rent for this leased space is $8.92 per square foot and the average former rent was $11.39 per square foot. We also provided tenant improvement allowances on four of these leases totaling $2.3 million. During the three months ended June 30, 2013, we did not enter into new leases or modify any existing leases. During the six months ended June 30, 2014, we signed 11 leases totaling approximately 0.7 million square feet of leased space. Of these leases, one was with a new tenant and ten were lease renewals, extensions or expansions with existing tenants. The average new rent for this leased space is $9.15 per square foot and the average former rent was $10.49 per square foot. We provided tenant improvement allowances totaling $2.3 million on four of these leases. During the six months ended June 30, 2013, we signed eight leases totaling approximately 0.3 million square feet of leased space. Of these leases, two were with new tenants and six were lease renewals or extensions with existing tenants. The average new rent for these leases is $5.68 per square foot and the average former rent was $7.88 per square foot, reflecting current market conditions. We provided a tenant improvement allowance of $0.4 million on one of these leases. In addition, we entered into a lease extension regarding a 0.4 million square feet building and committed to an expansion of 0.1 million square feet at an expected cost of $6.4 million. The former rent on this lease was $4.72 per square foot and the new rent is $4.29 per square foot. W. P. Carey6/30/2014 10-Q - 51 --------------------------------------------------------------------------------



Property Level Contribution

Property level contribution includes lease and operating property revenues, less property expenses, depreciation and amortization. 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. The following table presents the property level contribution for our consolidated leased and operating properties as well as a reconciliation to Segment net operating income (in thousands): Three Months Ended June 30,



Six Months Ended June 30,

2014 2013 Change 2014 2013 Change Same Store Leased Properties Lease revenues $ 70,401$ 70,544$ (143 )$ 141,758$ 140,599$ 1,159 Property expenses (2,920 ) (1,523 ) (1,397 ) (4,681 ) (3,076 ) (1,605 ) Depreciation and amortization (27,671 ) (26,915 ) (756 ) (54,792 ) (53,878 ) (914 ) Property level contribution 39,810 42,106 (2,296 ) 82,285 83,645 (1,360 ) Leased Properties Acquired in the CPAŽ:16 Merger Lease revenues 70,014 - 70,014 115,423 - 115,423 Property expenses (1,662 ) - (1,662 ) (3,688 ) - (3,688 )



Depreciation and amortization (29,874 ) - (29,874 ) (49,942 )

- (49,942 ) Property level contribution 38,478 - 38,478 61,793 - 61,793 Recently Acquired Leased Properties Lease revenues 7,194 2,687 4,507 12,616 4,269 8,347 Property expenses (575 ) (177 ) (398 ) (931 ) (177 ) (754 ) Depreciation and amortization (4,034 ) (1,748 ) (2,286 ) (7,355 ) (3,118 ) (4,237 ) Property level contribution 2,585 762 1,823 4,330 974 3,356 Properties Sold Lease revenues 644 753 (109 ) 1,523 1,576 (53 ) Property expenses (79 ) (9 ) (70 ) (166 ) (9 ) (157 ) Depreciation and amortization - (10 ) 10 (17 ) (20 ) 3 Property level contribution 565 734 (169 ) 1,340 1,547 (207 ) Operating Properties Revenues 8,251 231 8,020 13,244 458 12,786 Property expenses (5,821 ) (144 ) (5,677 ) (9,506 ) (286 ) (9,220 ) Depreciation and amortization (913 ) (44 ) (869 ) (1,741 ) (88 ) (1,653 ) Property level contribution 1,517 43 1,474 1,997 84 1,913 Total Property Level Contribution Lease revenues 148,253 73,984 74,269 271,320 146,444 124,876 Property expenses (5,236 ) (1,709 ) (3,527 )



(9,466 ) (3,262 ) (6,204 ) Operating property revenues 8,251 231 8,020 13,244

458 12,786 Operating property expenses (5,821 ) (144 ) (5,677 ) (9,506 ) (286 ) (9,220 ) Depreciation and amortization (62,492 ) (28,717 ) (33,775 ) (113,847 ) (57,104 ) (56,743 ) Property Level Contribution 82,955 43,645 39,310 151,745 86,250 65,495 Lease termination fees and other 14,481 402 14,079 15,479 1,082 14,397 Property management fees (152 ) (429 ) 277 (655 ) (499 ) (156 ) General and administrative (10,239 ) (4,516 ) (5,723 ) (21,845 ) (10,850 ) (10,995 ) Merger and acquisition expenses (1,137 ) (3,128 ) 1,991 (30,751 ) (3,249 ) (27,502 ) Stock-based compensation expense (220 ) (910 ) 690 (440 ) (1,084 ) 644 Impairment charges (2,066 ) - (2,066 ) (2,066 ) - (2,066 ) Segment Net Operating Income $ 83,622$ 35,064$ 48,558$ 111,467$ 71,650$ 39,817 W. P. Carey 6/30/2014 10-Q - 52

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Same Store Leased Properties

Same store leased properties are those that we acquired prior to January 1, 2013 and that were not sold during the periods presented. At June 30, 2014, there were 336 same store leased properties. For the three months ended June 30, 2014 as compared to the same period in 2013, property level contribution from same store leased properties decreased by $2.3 million, primarily due to decreases in lease revenues of $1.8 million as a result of the early termination of a lease. Lease revenues also decreased by $0.2 million as a result of the negative impact of foreign currency exchange rates fluctuations. For the six months ended June 30, 2014 as compared to the same period in 2013, property level contribution from same store leased properties decreased by $1.4 million, primarily due to decreases in lease revenues of $1.8 million as a result of the early termination of a lease. Lease revenues also decreased by an aggregate of $0.7 million as a result of the restructuring of leases at several properties and the expiration of certain leases during the six months ended June 30, 2014. Attributing to the decrease in property level contribution was an increase of $1.6 million in property expenses, primarily due to legal and professional fees incurred on several properties. These decreases were partially offset by an increase in lease revenues of $2.4 million as a result of scheduled rent increases at certain properties.



Leased Properties Acquired in the CPAŽ:16 Merger

Leased properties acquired in the CPAŽ:16 Merger in January 2014 represent the 333 leased properties we acquired, 11 of which were sold during the six months ended June 30, 2014. For the three and six months ended June 30, 2014, property level contribution from leased properties acquired in the CPAŽ:16 Merger was $38.5 million and $61.8 million, respectively, representing activity for the three months ended June 30, 2014 and five months of activity since the date of the CPAŽ:16 Merger on January 31, 2014, respectively.



Recently Acquired Leased Properties

Recently acquired leased properties are those that we acquired subsequent to December 31, 2012.

For the three and six months ended June 30, 2014 as compared to the same periods in 2013, property level contribution from recently acquired leased properties increased by $1.8 million and $3.4 million, respectively, as a result of nine investments we acquired after June 30, 2013 and through June 30, 2014.



Properties Sold

Properties sold represent only those properties that did not qualify for classification as discontinued operations. The results of operations for properties that were classified as held-for-sale at December 31, 2013 or upon acquisition in the CPAŽ:16 Merger are included within discontinued operations in the consolidated financial statements. For the three and six months ended June 30, 2014, we sold five and six properties, respectively, including a property subject to a direct financing lease that we acquired in the CPAŽ:16 Merger. For the three and six months ended June 30, 2014, property level contribution from properties sold was $0.6 million and $1.3 million, respectively. During the six months ended June 30, 2013, we sold our investment in a property subject to a direct financing lease. Property level contribution from properties sold for the three and six months ended June 30, 2013 was $0.7 million and $1.5 million, respectively. Operating Properties



Operating properties consist of our investments in two hotels acquired in the CPAŽ:16 Merger and two self-storage properties as of June 30, 2014.

For the three and six months ended June 30, 2014 as compared to the same periods in 2013, property level contribution from operating properties increased by $1.5 million and $1.9 million, respectively, primarily as a result of the two hotels we acquired in the CPAŽ:16 Merger. W. P. Carey6/30/2014 10-Q - 53 --------------------------------------------------------------------------------



Other Revenues and Expenses

Lease Termination Income and Other

For the three and six months ended June 30, 2014 as compared to the same periods in 2013, Lease termination income and other increased by $14.1 million and $14.4 million, respectively. In connection with the early termination of two leases during the second quarter of 2014, we received an aggregate of $12.9 million in lease termination income. General and Administrative As discussed in Note 4 , certain personnel and overhead costs are charged to the CPAŽ REITs and our real estate portfolio based on the trailing 12-month reported revenues of the CPAŽ REITs, CWI and us. We began to allocate personnel and overhead costs to CWI on January 1, 2014 based on the time incurred by our personnel. For the three and six months ended June 30, 2014 as compared to the same periods in 2013, general and administrative expenses in the Real Estate Ownership segment increased by $5.7 million and $11.0 million, respectively, primarily due to increases in personnel costs of $5.3 million and $9.6 million, respectively, as a result of higher allocation of personnel and overhead costs to the Real Estate Ownership segment due to the increased segment revenues after the CPAŽ:16 Merger. In addition, for the three and six months ended June 30, 2014 as compared to the same period in 2013, general and administrative expenses increased by $0.1 million and $1.1 million, respectively, as a result of higher legal and professional fees.



Impairment Charges

For the three and six months ended June 30, 2014, we recognized an impairment charge of $2.1 million on a property to reduce the carrying value of the asset to its estimated fair value. Our impairment charges are more fully described in



Note 9 .

Where the undiscounted cash flows for an asset, when considering and evaluating the various alternative courses of action that may occur, are less than the asset's carrying value, we recognize an impairment charge to reduce the carrying value of the asset to its estimated fair value. Further, it is possible that we may sell an asset for a price below its estimated fair value and record a loss on sale.



See Net Income from Equity Investments in Real Estate and the Managed REITs and Income (Loss) from Discontinued Operations below for additional impairment charges incurred.

Merger and Acquisition Expenses

2014 - For the three and six months ended June 30, 2014, merger and acquisition expenses totaled $1.1 million and $30.8 million, respectively, which consisted of merger-related expenses of $0.9 million and $30.4 million, respectively, and other acquisition-related expenses of $0.2 million and $0.4 million, respectively. Merger-related expenses during 2014 represent costs incurred in connection with the CPAŽ:16 Merger. Acquisition expenses consist of acquisition-related costs incurred on the domestic office building and warehouse/distribution facility we purchased during the six months ended June 30, 2014, which were accounted for as business combinations and for which such costs were required to be expensed under current accounting guidance. 2013 - For the three and six months ended June 30, 2013, merger and acquisition expenses were $3.1 million and $3.2 million, respectively, consisting of acquisition-related costs incurred on the investments we entered into during the six months ended June 30, 2013 that were accounted for as business combinations, for which such costs were required to be expensed under current accounting guidance. W. P. Carey6/30/2014 10-Q - 54

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Net Income from Equity Investments in Real Estate and the Managed REITs

Net income from equity investments in real estate and the Managed REITs is recognized in accordance with each respective investment agreement. In addition, we are entitled to receive distributions of Available Cash ( Note 4 ) from the operating partnerships of each of the Managed REITs. 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 Net income from equity investments in real estate and the Managed REITs (in thousands): Three Months Ended June 30,



Six Months Ended June 30,

2014 2013 2014 2013 Equity earnings from equity investments in the Managed REITs: CPAŽ:16 - Global (a) $ - $ 1,056$ 465$ 868 Other Managed REITs 651 6 656 216 Other-than-temporary impairment charges on the Special Member Interest in CPAŽ:16 - Global's operating partnership, net of related deferred revenue earned (a) - (721 ) (28 ) (1,282 ) Distributions of Available Cash (b) CPAŽ:16 - Global - 3,830 4,751 7,444 CPAŽ:17 - Global 4,590 4,847 9,269 9,124 CPAŽ:18 - Global 537 - 606 - CWI 108 - 1,055 - Equity income from the Managed REITs 5,886 9,018 16,774 16,370 Equity earnings from other equity investments: Equity investments acquired in the CPAŽ:16 Merger (c) 2,848 1,013 5,052 2,020 Recently acquired equity investment (d) 380 - 380 - Same store equity investments (e) 256 108 734 294 Equity investments sold (f) 82 20,339 82 20,914 Equity investments consolidated after the CPAŽ:16 Merger (g) - 2,063 692 3,599 Total equity earnings from other equity investments in real estate 3,566 23,523 6,940 26,827 Total income from equity investments in real estate and the Managed REITs $ 9,452$ 32,541 $



23,714 $ 43,197

___________

(a) In May 2011, we acquired the Special Member Interest in CPAŽ:16 - Global's

operating partnership, which we recorded as an equity investment at fair

value with an equal amount recorded as deferred revenue ( Note 4 ). On

January 31, 2014, we acquired all the remaining interests in CPAŽ:16 - Global

and now consolidate the operating partnership.

(b) We are entitled to receive distributions of our proportionate share of

earnings up to 10% of the Available Cash from the operating partnerships of

each of the Managed REITs, as defined in their respective operating

partnership agreements. Distributions of Available Cash received and earned

from the Managed REITs increased primarily as a result of new investments

that they entered into during 2014 and 2013.

(c) We acquired our interests or additional interests in these investments in the

CPAŽ:16 Merger.

(d) During the six months ended June 30, 2014, we received a preferred equity

position in Beach House JV, LLC, as part of a sale of a property. The

preferred equity, redeemable on March 13, 2019, has an annual interest rate

of 8.5%. The rights under these preferred units allow us to have significant

influence over the entity. Accordingly, we account for this investment using

the equity method of accounting.

(e) Represents equity investments we held prior to January 1, 2013.

(f) We sold one equity investment in the second quarter of 2013 and recognized a

gain on the sale of $19.5 million. We also sold another equity investment in

the fourth quarter of 2013.

(g) We acquired additional interests in these investments from CPAŽ:16 - Global

in the CPAŽ:16 Merger. Subsequent to the CPAŽ:16 Merger, we consolidate these

majority-owned or wholly-owned investments.

Gain on Change in Control of Interests

2014 - In connection with the CPAŽ:16 Merger, we recognized a gain on change in control of interests of $73.1 million related to the difference between the carrying value and the preliminary estimated fair value of our previously-held equity W. P. Carey6/30/2014 10-Q - 55

-------------------------------------------------------------------------------- interest in shares of CPAŽ:16 - Global's common stock ( Note 3 ) during the first quarter of 2014. During the second quarter of 2014, we identified certain measurement period adjustments that impacted the provisional accounting, which increased the fair value of our previously-held equity interest in shares of CPAŽ:16 - Global's common stock by $1.3 million, resulting in an increase of $1.3 million in Gain on change in control of interests. In accordance with ASC 805-10-25, we did not record the measurement period adjustments during the three months ended June 30, 2014. Rather, such amounts will be reflected in all future financial statements that include the three months ended March 31, 2014. The CPAŽ:16 Merger also resulted in our acquisition of the remaining interests in nine investments in which we already had a joint interest and accounted for under the equity method. Due to the change in control of the nine jointly-owned investments that occurred, we recorded a gain on change in control of interests of $30.2 million related to the difference between our carrying values and the preliminary estimated fair values of our previously-held equity interests on the acquisition date. Subsequent to the CPAŽ:16 Merger, we consolidate these wholly-owned investments ( Note 3 ). During the six months ended June 30, 2014, one of these investments was sold.



Interest Expense

For the three and six months ended June 30, 2014 as compared to the same periods in 2013, interest expense increased by $22.0 million and $35.5 million, respectively, primarily due to an increase of $20.7 million and $34.8 million, respectively, as a result of mortgage loans assumed in connection with our acquisition of properties from CPAŽ:16 - Global in the CPAŽ:16 Merger. In addition, interest expense on our credit facilities and Senior Unsecured Notes increased in the aggregate by $5.5 million and $7.4 million, respectively, as a result of higher average outstanding balances in the current year periods. These increases were partially offset by decreases in interest expense of $3.2 million and $5.3 million, respectively, as a result of prepayments of non-recourse mortgage loans during the six months ended June 30, 2014 ( Note 11 ).



Other Income and (Expenses)

Other income and (expenses) primarily consists of gains and losses on extinguishment of debt, gains and losses on foreign currency transactions and derivative instruments. We and certain of our foreign consolidated subsidiaries have intercompany debt and/or advances that are not denominated in the functional currency of those subsidiaries. When the intercompany debt or accrued interest thereon is remeasured against the functional currency of the respective subsidiaries, an unrealized gain or loss on foreign currency translation may result. For intercompany transactions that are of a long-term investment nature, the gain or loss is recognized as a cumulative translation adjustment in other comprehensive income. We also recognize gains or losses on foreign currency transactions when we repatriate cash from our foreign investments. 2014 - For the three and six months ended June 30, 2014, net other expenses was $1.0 million and $6.2 million, respectively, primarily due to a loss on extinguishment of debt of $1.0 million and $4.6 million recognized in connection with the prepayment of several non-recourse mortgage loans, respectively ( Note 11 ). During the first quarter of 2014, we also recognized a loss on extinguishment of debt of $1.5 million in the Real Estate Ownership segment in connection with entering into the Second Amended and Restated Credit Agreement and the repayment of the outstanding balances of the prior facilities, as described in Note 11 . 2013 - For the three and six months ended June 30, 2013, we recognized other income of $2.2 million and $3.3 million, respectively, primarily due to unrealized gains of $1.7 million and $3.4 million recognized on the interest rate swaps acquired from CPAŽ:15 in the CPAŽ:15 Merger because these swaps did not qualify for hedge accounting. For the six months ended June 30, 2013, the gains recognized on interest rate swaps were partially offset by $0.7 million of net realized and unrealized losses on foreign currency transactions as a result of changes in foreign currency exchange rates on notes receivable from international subsidiaries.



(Provision for) Benefit from Income Taxes

2014 - For the three and six months ended June 30, 2014, we recognized a provision for income taxes of $3.1 million and benefit from income taxes of $0.9 million, respectively. The provision for income taxes recognized during the second quarter of 2014 relates to foreign taxes recognized on our international properties. For the six months ended June 30, 2014, the benefit from income taxes primarily relates to a $6.4 million deferred tax benefit associated with basis differences on certain foreign properties acquired. This deferred tax benefit was partially offset by an aggregate of $5.5 million of current foreign, state, local and franchise taxes recognized on our domestic and foreign properties. 2013 - For the three and six months ended June 30, 2013, provision for income taxes was $2.4 million and $3.6 million, respectively, primarily due to taxes on our foreign properties, a majority of which were acquired in the CPAŽ:15 Merger. W. P. Carey6/30/2014 10-Q - 56 --------------------------------------------------------------------------------



Income from Discontinued Operations

The results of operations for properties that have been classified as held-for-sale or have been sold prior to January 1, 2014 and the properties that were acquired as held-for-sale in the CPAŽ:16 Merger, and with which we have no continuing involvement, are reflected in the consolidated financial statements as discontinued operations. During the six months ended June 30, 2014, we sold nine properties that were classified as held-for-sale prior to January 1, 2014. In connection with the CPAŽ:16 Merger, we purchased ten properties that were classified as held-for-sale from CPAŽ:16 - Global, all of which were sold during the six months ended June 30, 2014. Results of operations for these properties are included within discontinued operations in the consolidated financial statements. 2014 - For the three and six months ended June 30, 2014, income from discontinued operations was $26.5 million and $32.9 million, respectively, primarily due to a net gain on the sale of ten and 19 properties, respectively, of $24.6 million and $27.7 million, respectively, and income generated from the operations of these properties of $1.6 million and $6.4 million, respectively. The income for the six months ended June 30, 2014 was partially offset by a net loss on extinguishment of debt of $1.3 million recognized in connection with the repayment of several mortgage loans on six of the disposed properties. 2013 - For the three and six months ended June 30, 2013, income from discontinued operations was $4.4 million and $1.7 million, respectively, primarily due to income generated from the operations of two and four properties, respectively, of $4.7 million and $6.2 million and a net loss on the sale of these properties of $1.3 million and $0.4 million, respectively. The income in these periods was partially offset by impairment charges of $1.7 million and $5.0 million, respectively, recorded on properties sold to reduce the carrying values of the properties to their expected selling prices.



Loss on Sale of Real Estate, Net of Taxes

Loss on sale of real estate, net of taxes includes the loss on the sale of those properties that did not qualify for classification as discontinued operations ( Note 15 ). Properties that were sold in 2014 that were not classified as held-for-sale at December 31, 2013 or upon acquisition in the CPAŽ:16 Merger did not qualify for classification as discontinued operations. Properties that were sold in 2013 that were subject to direct financing leases did not qualify for classification as discontinued operations.



2014 - For the three and six months ended June 30, 2014, loss on sale of real estate, net of taxes was $3.8 million. During the six months ended June 30, 2014, we sold eight properties that did not qualify for classification as discontinued operations.

2013 - For the three and six months ended June 30, 2013, loss on sale of real estate, net of taxes was $0.3 million. During the six months ended June 30, 2013, we sold one property that was classified as a direct financing lease.

Net Income Attributable to Noncontrolling Interests

For the three and six months ended June 30, 2014 as compared to the same periods in 2013, net income attributable to noncontrolling interests decreased by $0.3 million and $1.1 million, respectively, as a result of acquiring from CPAŽ:16 - Global in the CPAŽ:16 Merger the remaining interests in 12 less-than-wholly-owned investments that we had already consolidated.



Net Income from Real Estate Ownership Attributable to W. P. Carey

For the three and six months ended June 30, 2014 as compared to the same period in 2013, the resulting net income from Real Estate Ownership attributable to W. P. Carey increased by $18.4 million and $113.4 million, respectively.



AFFO

For the three and six months ended June 30, 2014 as compared to the same period in 2013, AFFO from Real Estate Ownership increased by $38.9 million and $74.9 million, respectively, primarily as a result of income earned from the properties we acquired in the CPAŽ:16 Merger. AFFO is a non-GAAP supplemental measure that we use to evaluate our business. For a definition of AFFO and reconciliation to net income attributable to W. P. Carey, see Supplemental Financial Measures below. W. P. Carey6/30/2014 10-Q - 57

--------------------------------------------------------------------------------



Investment Management

We earn revenue as the advisor to the Managed REITs. For the periods presented (except as noted), we acted as advisor to the following affiliated, publicly-owned, non-listed, Managed REITs: CPAŽ:16 - Global (through January 31, 2014), CPAŽ:17 - Global, CPAŽ:18 - Global (since May 2013) and CWI. We are currently considering alternatives for expanding our investment management operations by raising funds in addition to the existing Managed REITs, although there can be no assurance that we will pursue any of these initiatives. These new funds could invest primarily in assets other than net-lease real estate and include funds raised through publicly-traded vehicles, either in the U.S. or internationally.



The following tables present other operating data that management finds useful in evaluating result of operations (dollars in millions):

June 30, 2014 December 31, 2013 Total properties - Managed REITs (a) 475 789 Assets under management - Managed REITs (b) $ 8,218.4 $ 9,728.4



Cumulative funds raised - CPAŽ:18 - Global offering (c) (d) 1,035.0

237.3 Cumulative funds raised - CWI offerings (c) (e) 687.1 575.8 For the Six Months Ended June 30, 2014 2013 Financings structured - Managed REITs $ 594.9 $ 482.1 Investments structured - Managed REITs 934.2



497.8

Funds raised - CPAŽ:18 - Global offering (c) (d) 797.7 - Funds raised - CWI offerings (c) (e) 111.3



208.3

___________

(a) Includes properties owned by CPAŽ:16 - Global, CPAŽ:17 - Global and CPAŽ:18 -

Global in 2013. Total properties at June 30, 2014 excludes properties owned

by CPAŽ:16 - Global prior to the CPAŽ:16 Merger on January 31, 2014. Includes

hotels owned by CWI for all periods.

(b) Represents the estimated fair value of the real estate assets owned by the

Managed REITs, which was calculated by us as the advisor to the Managed REITs

based in part upon third-party appraisals.

(c) Excludes reinvested distributions through each entity's distribution

reinvestment plan.

(d) Reflects funds raised since the commencement of CPAŽ:18 - Global's initial

public offering in May 2013.

(e) Reflects funds raised in CWI's initial public offering, which was terminated

on September 15, 2013, and CWI's follow-on offering, which commenced on December 20, 2013. W. P. Carey 6/30/2014 10-Q - 58 -------------------------------------------------------------------------------- Below is a summary of comparative results of our Investment Management segment (in thousands): Three Months Ended June 30, Six Months Ended June 30, 2014 2013 Change 2014 2013 Change Revenues Reimbursable costs $ 41,925$ 15,467$ 26,458$ 81,657$ 27,435$ 54,222 Structuring revenue 17,254 6,422 10,832 35,005 12,764 22,241 Asset management revenue 9,045 10,355 (1,310 ) 18,822 20,369 (1,547 ) Dealer manager fees 7,949 2,320 5,629 14,626 3,542 11,084 76,173 34,564 41,609 150,110 64,110 86,000 Operating Expenses Reimbursable costs from affiliates 41,925 15,467 26,458 81,657 27,435 54,222 General and administrative 8,894 10,029 (1,135 ) 19,957 20,746 (789 ) Stock-based compensation expense 7,737 7,519 218 14,560 16,494 (1,934 ) Dealer manager fees and expenses 6,285 3,163 3,122 11,710 5,126 6,584 Subadvisor fees 2,451 985 1,466



2,469 1,670 799 Depreciation and amortization 953 1,055 (102 ) 2,271 2,043 228

68,245 38,218 30,027 132,624 73,514 59,110 Other Income and Expenses Other income and (expenses) 161 239 (78 )



(167 ) 529 (696 )

161 239 (78 ) (167 ) 529 (696 ) Income (loss) from continuing operations before income taxes 8,089 (3,415 ) 11,504 17,319 (8,875 ) 26,194 (Provision for) benefit from income taxes (4,911 ) 3,530 (8,441 ) (11,202 ) 5,912 (17,114 ) Net Income from Investment Management 3,178 115 3,063 6,117 (2,963 ) 9,080 Net (income) loss attributable to noncontrolling interests (19 ) (98 ) 79 (208 ) 419 (627 ) Net loss (income) attributable to redeemable noncontrolling interest 111 43 68 (151 ) 93 (244 ) Net Income (Loss) from Investment Management Attributable to W. P. Carey $ 3,270$ 60$ 3,210$ 5,758$ (2,451 )$ 8,209 AFFO from Investment Management $ 11,010$ 336$ 10,674$ 30,297$ 9,635$ 20,662 Reimbursable Costs



Reimbursable costs represent costs incurred by us on behalf of the Managed REITs, consisting primarily of broker-dealer commissions and marketing and personnel costs, which are reimbursed by the Managed REITs and are reflected as a component of both revenues and expenses.

For the three and six months ended June 30, 2014 as compared to the same periods in 2013, reimbursable costs increased by $26.5 million and $54.2 million, respectively, primarily due to the $30.8 million and $63.4 million, respectively, in commissions paid to broker-dealers related to the CPAŽ:18 - Global initial public offering, which commenced in May 2013, partially offset by a decrease of $3.6 million and $7.7 million, respectively, in commissions paid to broker-dealers related to the CWI public offerings due to the corresponding decrease in funds raised in the current year periods compared to the prior year periods. Structuring Revenue



We earn structuring revenue when we structure investments and debt placement transactions for the Managed REITs. Structuring revenue is dependent on investment activity, which is subject to significant period-to-period variation.

For the three and six months ended June 30, 2014 as compared to the same periods in 2013, structuring revenue increased by $10.8 million and $22.2 million, respectively. During the three and six months ended June 30, 2014, we earned structuring W. P. Carey6/30/2014 10-Q - 59

-------------------------------------------------------------------------------- revenue of $4.2 million and $21.1 million, respectively, from CPAŽ:18 - Global as a result of investments we structured on its behalf. Structuring revenue also increased by $5.8 million and $2.4 million, respectively, from CWI as a result of higher investment volume in the current year periods as compared to the same periods in the prior year. Asset Management Revenue We earn asset management revenue from the Managed REITs based on the value of their real estate-related and lodging-related assets under management. This asset management revenue may increase or decrease depending upon (i) increases in the Managed REITs' asset bases as a result of new investments; (ii) decreases in the Managed REITs' asset bases as a result of sales of investments; and (iii) increases or decreases in the appraised value of the real estate-related and lodging-related assets in the Managed REIT investment portfolios. For the three and six months ended June 30, 2014 as compared to the same periods in 2013, asset management revenue decreased by $1.3 million and $1.5 million, respectively. Asset management revenue decreased by $4.5 million and $7.5 million, respectively, as a result of the cessation of asset management revenue earned from CPAŽ:16 - Global after the CPAŽ:16 Merger on January 31, 2014. This decrease was partially offset by an aggregate increase of $2.6 million and $5.1 million, respectively, during the three and six months ended June 30, 2014 as compared to the same periods in 2013 from CPAŽ:17 - Global and CWI as a result of new investments that these entities entered into during 2013 and 2014. We also received asset management revenue of $0.6 million and $0.9 million from CPAŽ:18 - Global during the three and six months ended June 30, 2014, respectively, as a result of new investments that it entered into since the commencement of its offering in May 2013.



Dealer Manager Fees

As discussed in Note 4 , we earned a dealer manager fee of $0.35 per share sold in connection with CPAŽ:17 - Global's follow-on offering, which commenced on April 7, 2011 and terminated on January 31, 2013. We also earned a $0.30 dealer manager fee per share sold in connection with CWI's initial and follow-on offerings. In addition, we receive dealer manager fees depending on the class of common stock sold, of $0.30 or $0.21 per share sold, for its class A common stock and class C common stock, respectively, in connection with CPAŽ:18 - Global's public offering. CPAŽ:18 - Global terminated sales of its class A common stock as of June 30, 2014. We re-allow a portion of the dealer manager fees to selected dealers in the offerings. Dealer manager fees that are not re-allowed are classified as Dealer manager fees from affiliates in the consolidated financial statements. Dealer manager fees earned are generally offset by costs incurred in connection with the offerings, which are included in Dealer manager fees and expenses in the consolidated financial statements. For the three and six months ended June 30, 2014 as compared to the same periods in 2013, dealer manager fees increased by $5.6 million and $11.1 million, respectively. The increase was primarily due to $6.4 million and $12.8 million in fees earned for the three and six months ended June 30, 2014, respectively, in connection with the sale of CPAŽ:18 - Global shares in its initial public offering, which commenced in May 2013. This increase was primarily offset by a decrease in the fees earned in connection with CWI's follow-on offering of $0.8 million and $1.7 million for the three and six months ended June 30, 2014, respectively, due to the lower level of CWI shares sold during the current year periods as compared to the same periods in the prior year.



General and Administrative

As discussed in Note 4 , certain personnel and overhead costs are charged to the CPAŽ REITs and our real estate portfolio based on the trailing 12-month reported revenues of the CPAŽ REITs, CWI and us. We also began to allocate personnel and overhead costs to CWI on January 1, 2014 based on the time incurred by our personnel. For the three months ended June 30, 2014 as compared to the same period in 2013, general and administrative expenses decreased by $1.1 million, primarily due to $4.6 million in personnel and overhead costs allocated to the Real Estate Ownership segment due to its increased revenues after the CPAŽ:16 Merger on January 31, 2014. This decrease was partially offset by (i) an increase of $0.4 million in commissions paid to investment officers as a result of higher investment volume in the current year period as compared to the same period in the prior year; (ii) an increase of $1.7 million in compensation expense due to increased headcount; and (iii) an aggregate increase of $1.3 million in professional fees and business development expenses related to travel and entertainment. For the six months ended June 30, 2014 as compared to the same period in 2013, general and administrative expenses decreased by $0.8 million, primarily due to $8.2 million in personnel and overhead costs allocated to the Real Estate Ownership segment due to its increased revenues after the CPAŽ:16 Merger on January 31, 2014. This decrease was partially W. P. Carey6/30/2014 10-Q - 60 -------------------------------------------------------------------------------- offset by (i) an increase of $2.6 million in commissions paid to investment officers as a result of higher investment volume in the current year period as compared to the same period in the prior year; (ii) an increase of $2.5 million in compensation expense; and (iii) an aggregate increase of $2.3 million in rent expense and professional fees as a result of additional office space obtained during the second quarter of 2013, and business development expenses related to travel and entertainment.



Stock-based Compensation Expense

For a description of our equity plans and awards, please see Note 13 .

For the three months ended June 30, 2014 as compared to the same period in 2013, stock-based compensation expense increased by $0.2 million, primarily due to a $0.3 million increase in the expectation adjustment for the payout of PSUs that were granted during 2014, as compared to the expectation adjustment for the payout of PSUs that were granted during 2012. For the six months ended June 30, 2014 as compared to the same period in 2013, stock-based compensation expense decreased by $1.9 million, primarily due to a $2.5 million decrease in the expectation adjustment for the payout of PSUs that were granted during 2014, as compared to the expectation adjustment for the payout of PSUs that were granted during 2012.



Dealer Manager Fees and Expenses

Dealer manager fees earned are generally offset by costs incurred in connection with the offerings, which are included in Dealer manager fees and expenses in the consolidated financial statements. For the three and six months ended June 30, 2014 as compared to the same period in 2013, dealer manager fees and expenses increased by $3.1 million and $6.6 million, respectively, primarily due to expenses paid in connection with the sale of CPAŽ:18 - Global shares in its initial public offering, which commenced in May 2013. Subadvisor Fees As discussed in Note 4 , we earn investment management revenue from CWI. Pursuant to the terms of the subadvisory agreement, we pay a subadvisory fee equal to 20% of the amount of fees paid to us by CWI, including but not limited to: acquisition fees, asset management fees, loan refinancing fees, property management fees, and subordinated disposition fees, each as defined in the advisory agreement. We also pay to the subadvisor 20% of the net proceeds resulting from any sale, financing, or recapitalization of, or sale of securities by, us, the advisor. For the three and six months ended June 30, 2014 as compared to the same periods in 2013, subadvisor fees increased by $1.5 million and $0.8 million, respectively, primarily due to increased fees earned from CWI as a result of higher acquisition volume in the current year periods as compared to the same periods in the prior year.



(Provision for) Benefit from Income Taxes

2014 - For the three and six months ended June 30, 2014, we recognized a provision for income taxes of $4.9 million and $11.2 million, respectively. The provision for income taxes recognized during the three months ended June 30, 2014 was related to pre-tax income recognized by our TRSs. The provision for income taxes recognized during the six months ended June 30, 2014 was primarily due to a provision for income taxes of $4.8 million due to a permanent difference from the recognition of deferred revenue as a result of the accelerated vesting of shares previously issued by CPAŽ:16 - Global for asset management and performance fees and the payment of deferred acquisition fees in connection with the CPAŽ:16 Merger. In addition, the provision related to pre-tax income recognized by our TRSs was $6.4 million. 2013 - For the three and six months ended June 30, 2013, benefit from income taxes was $3.5 million and $5.9 million, respectively, primarily due to the net loss recognized in this segment and higher compensation-related deductions during the three and six months ended June 30, 2013.



Net Income from Investment Management Attributable to W. P. Carey

For the three months ended June 30, 2014 as compared to the same period in 2013, the resulting net income from Investment Management increased by $3.2 million. For the six months ended June 30, 2014, the resulting net income from Investment Management was $5.8 million, compared to net loss from Investment Management of $2.5 million recognized in the same period in 2013. W. P. Carey6/30/2014 10-Q - 61 --------------------------------------------------------------------------------



AFFO

For the three and six months ended June 30, 2014 as compared to the same periods in 2013, AFFO from our Investment Management segment increased by $10.7 million and $20.7 million, respectively, primarily due to a significant increase in structuring revenue. AFFO is a non-GAAP measure that we use to evaluate our business. For a definition of AFFO and reconciliation to net income attributable to W. P. Carey, see Supplemental Financial Measures below. Financial Condition



Sources and Uses of Cash During the Period

We use the cash flow generated from our investments primarily to meet our operating expenses, service debt, and fund distributions to stockholders. Our cash flows fluctuate from period to period due to a number of factors, which may include, among other things, the timing of purchases and sales of real estate, the timing of the receipt of proceeds from, and the repayment of, mortgage loans and receipt of lease revenues, the receipt of the annual installment of deferred acquisition revenue and interest thereon from the CPAŽ REITs, our election to receive asset management fees in either shares of the Managed REITs' common stock or cash, the timing and characterization of distributions from equity investments in real estate and the Managed REITs, the receipt of distributions of Available Cash from the Managed REITs, and changes in foreign currency exchange rates. Despite these fluctuations, we believe that we will generate sufficient cash from operations and from equity distributions in excess of equity income in real estate to meet our normal recurring short-term and long-term liquidity needs. We may also use existing cash resources, the proceeds of mortgage loans, unused capacity on our Revolver, net contributions from noncontrolling interests, and the issuance of additional debt or equity securities 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 $97.2 million during the six months ended June 30, 2014 as compared to the same period in 2013, primarily due to operating cash flow generated from the properties we acquired in the CPAŽ:16 Merger.



Investing Activities

Our investing activities are generally comprised of real estate-related transactions (purchases and sales) and capitalized property-related costs. In connection with the CPAŽ:16 Merger, we paid $1.3 million, representing the cash portion of the Merger Consideration to CPAŽ:16 - Global stockholders and acquired $65.4 million of cash. During the six months ended June 30, 2014, we acquired two properties for a total of $88.3 million. Funds totaling $242.4 million and $139.3 million were invested in and released from, respectively, lender-held and other escrow accounts. We also used $13.5 million primarily to make capital improvements to various properties and to fund a build-to-suit transaction and used $7.7 million to purchase securities. We received $8.9 million in distributions from equity investments in real estate and the Managed REITs in excess of cumulative equity income. We also received cash proceeds totaling $280.8 million from the sale of 24 properties. In order to facilitate an acquisition by CWI, we made an $11.0 million loan to CWI during the six months ended June 30, 2014. The loan was repaid in full prior to maturity on July 22, 2014. W. P. Carey6/30/2014 10-Q - 62 --------------------------------------------------------------------------------



Financing Activities

During the six months ended June 30, 2014, we paid distributions to stockholders of $158.3 million and paid distributions of $12.0 million to affiliates who hold noncontrolling interests in various entities with us. We made scheduled mortgage loan principal payments of $61.6 million. During the six months ended June 30, 2014, in connection with our long-term plan to become a primarily unsecured borrower, we prepaid 19 non-recourse mortgage loans with an aggregate outstanding principal balance of $201.8 million. We drew down $6.6 million on a construction loan in relation to a build-to-suit transaction during the six months ended June 30, 2014. We received $498.2 million in net proceeds from the issuance of the Senior Unsecured Notes, which we used to pay off the outstanding balance on the Revolver at that time. Net borrowings under our senior credit facility decreased overall by $98.3 million during the six months ended June 30, 2014. The decrease was comprised of gross borrowings of $1.0 billion and repayments of $1.3 billion, which was inclusive of the repayment of a $170.0 million line of credit facility assumed from the CPAŽ:16 Merger. In connection with the Second Amended and Restated Credit Agreement and the issuance of the Senior Unsecured Notes, we incurred financing costs totaling $12.2 million. We recognized windfall tax benefits of $5.4 million in connection with the exercise of employee stock options and the vesting of PSUs and RSUs, which reduced our tax liability to various taxing authorities.



Summary of Financing

The table below summarizes our non-recourse debt, our credit facility and our Senior Unsecured Notes (dollars in thousands):

June 30, 2014 December 31, 2013 Carrying Value Fixed rate (a) $ 2,838,610$ 1,139,122 Variable rate (b) (c) 959,760 928,288 Total $ 3,798,370$ 2,067,410 Percent of Total Debt Fixed rate (a) 75 % 55 % Variable rate (b) 25 % 45 % 100 % 100 % Weighted-Average Interest Rate at End of Period Fixed rate (a) 5.4 % 5.3 % Variable rate (b) 2.5 % 2.7 % ____________



(a) Fixed-rate debt at June 30, 2014 included $500.0 million Senior Unsecured

Notes.

(b) Variable-rate debt at June 30, 2014 included (i) $476.7 million outstanding

under our Senior Unsecured Credit Facility, which includes $226.7 million

outstanding under the Revolver and $250.0 million outstanding under the Term

Loan Facility, (ii) $434.6 million of non-recourse mortgage loan obligations

that have been effectively converted to fixed rates through interest rate

swap and cap derivative instruments, (iii) $34.0 million in non-recourse

mortgage loan obligations that bore interest at floating rates, and (iv)

$14.5 million in non-recourse mortgage loan obligations that bore interest at

fixed rates but have interest rate reset features that may change the

interest rates to then-prevailing market rates (subject to specified caps) at

certain points during their term.

(c) As described in Note 11 , in January 2014, the Prior Senior Credit

Facility and Unsecured Term Loan were repaid and terminated with borrowings

under the Senior Unsecured Credit Facility.

Cash Resources

At June 30, 2014, our cash resources consisted of the following:

• Cash and cash equivalents totaling $215.0 million. Of this amount, $136.7

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; W. P. Carey6/30/2014 10-Q - 63

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• Our Revolver, with unused capacity of $773.3 million, excluding amounts

reserved for outstanding letters of credit. Our lender has issued letters

of credit totaling $1.0 million on our behalf in connection with certain

contractual obligations, which reduce amounts that may be drawn under the

facility; and



• We also had unleveraged properties that had an aggregate carrying value of

$1.6 billion at June 30, 2014, although there can be no assurance that we

would be able to obtain financing for these properties.

Credit Facility and Unsecured Term Loan

Our credit facility and Unsecured Term Loan are more fully described in

Note 11 . A summary of our credit facility and Unsecured Term Loan is provided below (in thousands):

June 30, 2014 December 31, 2013 Outstanding Balance Maximum Available Outstanding Balance Maximum Available Senior Unsecured Credit Facility and Prior Senior Credit Facility: Revolver $ 226,700 $ 1,000,000 $ 100,000 $ 450,000 Term Loan Facility 250,000 250,000 175,000 175,000 Unsecured Term Loan - - 300,000 300,000



Our cash resources can be used for working capital needs and other commitments and may be used for future investments.

Cash Requirements

During the next 12 months, we expect that our cash requirements will include payments to acquire new properties, paying distributions to our stockholders and to our affiliates that hold noncontrolling interests in entities we control, making scheduled interest payments on the Senior Unsecured Notes and scheduled mortgage loan principal payments, including mortgage balloon payments totaling $194.4 million, as well as other normal recurring operating expenses. We currently expect to use the proceeds from our Revolver to pay off these maturing mortgage loans. There are no mortgage balloon payments due on our equity investments during the next 12 months. We expect to fund future investments, build-to-suit commitments, any capital expenditures on existing properties, scheduled debt maturities on non-recourse mortgage loans and any loans to CWI and CPAŽ:18 - Global through cash generated from operations, the use of our cash reserves or unused amounts on our Revolver, and/or equity or debt offerings.



Off-Balance Sheet Arrangements and Contractual Obligations

The table below summarizes our debt, off-balance sheet arrangements and other contractual obligations at June 30, 2014 and the effect that these arrangements and obligations are expected to have on our liquidity and cash flow in the specified future periods (in thousands): Less than More than Total 1 year 1-3 years 3-5 years 5 years Non-recourse debt - principal (a) $ 2,819,180$ 345,914$ 987,018$ 583,432$ 902,816 Interest on borrowings (b) 869,607 173,523 290,209 164,294 241,581 Senior Unsecured Notes - principal (c) 500,000 - - - 500,000 Senior Unsecured Credit Facility - principal (d) 476,700 - 250,000 226,700 - Operating and other lease commitments (e) 86,664 5,565 11,380 11,664 58,055 Build-to-suit commitments 41,743 41,743 - - - Property improvement commitments 4,203 4,203 - - - $ 4,798,097$ 570,948$ 1,538,607$ 986,090$ 1,702,452



___________

(a) Excludes the unamortized fair market value adjustment of $4.2 million

resulting from the assumption of property-level debt in connection with the

CPAŽ:15 Merger and CPAŽ:16 Merger, and the unamortized discount on the Senior

Unsecured Notes of $1.7 million ( Note 11 ).

W. P. Carey6/30/2014 10-Q - 64 --------------------------------------------------------------------------------



(b) Interest on unhedged variable-rate debt obligations was calculated using the

applicable annual variable interest rates and balances outstanding at

June 30, 2014.

(c) Our $500.0 million Senior Unsecured Notes are scheduled to mature on April 1,

2024.

(d) Our Revolver is scheduled to mature on January 31, 2018 and our Term Loan

Facility is scheduled to mature on January 31, 2016.

(e) Operating and other lease commitments consist primarily of rental obligations

under ground leases and the future minimum rents payable on the lease for our

principal offices. We are reimbursed by the Managed REITs for their share of

the future minimum rents pursuant to their respective advisory agreements

with us. These amounts are generally allocated among the entities based on gross revenues and are adjusted quarterly.



Amounts in the table above that relate to our foreign operations are based on the exchange rate of the local currencies at June 30, 2014, which consisted primarily of the euro. At June 30, 2014, we had no material capital lease obligations for which we were the lessee, either individually or in the aggregate.

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 supplemental non-GAAP measures, which are uniquely 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 these non-GAAP financial measures and reconciliations to the most directly comparable GAAP measures are provided below.



Adjusted Funds from Operations

Funds from Operations, or FFO, is a non-GAAP measure defined by the National Association of Real Estate Investment Trusts, or NAREIT. NAREIT defines FFO as net income or loss (as computed in accordance with GAAP) excluding: depreciation and amortization expense from real estate assets, impairment charges on real estate, gains or losses from sales of depreciated real estate assets and extraordinary items; however, FFO related to assets held for sale, sold or otherwise transferred and included in the results of discontinued operations are included. These adjustments also incorporate the pro rata share of unconsolidated subsidiaries. FFO is used by management, investors and analysts to facilitate meaningful comparisons of operating performance between periods and among our peers. Although NAREIT has published this definition of FFO, companies often modify this definition as they seek to provide financial measures that meaningfully reflect their distinctive operations. We modify the NAREIT computation of FFO to include other adjustments to GAAP net income to adjust for certain non-cash charges such as amortization of real estate-related intangibles, deferred income tax benefits and expenses, straight-line rents, stock compensation, gains or losses from extinguishment of debt and deconsolidation of subsidiaries and unrealized foreign currency exchange gains and losses. Our assessment of our operations is focused on long-term sustainability and not on such non-cash items, which may cause short-term fluctuations in net income but have no impact on cash flows. Additionally, we exclude acquisition expenses and non-core expenses such as merger expenses. Merger expenses are related to the CPAŽ:16 Merger. We also exclude realized gains/losses on foreign exchange and derivatives, which are not considered fundamental attributes of our business plan and do not affect our overall long-term operating performance. We refer to our modified definition of FFO as AFFO. We exclude these items from GAAP net income as they are not the primary drivers in our decision making process and excluding those items provides investors a view of our portfolio performance over time and make it more comparable to other REITs which are currently not engaged in acquisitions, mergers and restructuring which are not part of our normal business operations. 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 earnings computed under GAAP or as alternatives to cash from operating activities computed under GAAP or as indicators of our ability to fund our cash needs. W. P. Carey6/30/2014 10-Q - 65 --------------------------------------------------------------------------------



FFO and AFFO were as follows (in thousands):

Three Months Ended June 30,



Six Months Ended June 30,

2014 2013 2014 2013 Real Estate Ownership Net income from Real Estate Ownership attributable to W. P. Carey $ 61,469$ 43,107$ 173,157$ 59,799 Adjustments: Depreciation and amortization of real property 62,354 30,170 113,974 59,857 Impairment charges 2,066 1,671 2,066 4,950 Gain on sale of real estate, net (25,582 ) (981 ) (28,758 ) (50 ) Proportionate share of adjustments to equity in net income of partially-owned entities to arrive at FFO: Gain on sale of real estate, net - (19,461 ) - (19,461 ) Depreciation and amortization of real property 533 3,157 1,798 6,311 Proportionate share of adjustments for noncontrolling interests to arrive at FFO (2,586 ) (4,247 ) (6,078 ) (8,514 ) Total adjustments 36,785 10,309 83,002 43,093 FFO (as defined by NAREIT) - Real Estate Ownership 98,254 53,416 256,159 102,892 Adjustments: Gain on change in control of interests (a) - - (104,645 ) - Merger and acquisition expenses (b) 915 218 30,426 329 Loss (gain) on extinguishment of debt 721 (141 ) 8,184 (67 ) Other gains, net (13 ) - (16 ) (270 ) Other depreciation, amortization and non-cash charges 1,719 (515 ) 2,202 285 Stock-based compensation 220 911 440 1,085 Deferred tax benefit (1,246 ) (21 ) (7,190 ) (1,046 ) Acquisition expenses (c) 224 2,909 325 2,909 Realized losses on foreign currency, derivatives and other 156 102 811 154 Amortization of deferred financing costs 999 549 1,872 1,060 Straight-line and other rent adjustments (8,999 ) (2,277 ) (11,668 ) (4,446 ) Above- and below-market rent intangible lease amortization, net 17,124 7,237 30,610 14,493 Proportionate share of adjustments to equity in net income of partially-owned entities to arrive at AFFO: Other depreciation, amortization and non-cash charges 62 174 155 369 Straight-line rent and other rent adjustments (98 ) (166 ) (200 ) (354 ) Above- and below-market rent intangible lease amortization, net 4 271 18 542 AFFO adjustments to equity earnings from equity investments 935 10,718 3,872 19,967 Proportionate share of adjustments for noncontrolling interests to arrive at AFFO 259 (1,083 ) (1,158 ) (2,644 ) Total adjustments 12,982 18,886 (45,962 ) 32,366 AFFO - Real Estate Ownership $ 111,236$ 72,302



$ 210,197$ 135,258

Investment Management Net income (loss) from Investment Management attributable to W. P. Carey $ 3,270 $ 60 $ 5,758$ (2,451 ) FFO (as defined by NAREIT) - Investment Management 3,270 60 5,758 (2,451 )



Adjustments:

Merger-related income tax expense (b) - - 13,867 - Other depreciation, amortization and other non-cash charges - 253 937 515 Stock-based compensation 7,737 7,518 14,560 16,493 Deferred tax benefit - (7,815 ) (4,986 ) (5,562 ) Realized losses on foreign currency 3 2 9 4 Amortization of deferred financing costs - 318 152 636 Total adjustments 7,740 276 24,539 12,086 AFFO - Investment Management $ 11,010$ 336



$ 30,297$ 9,635

Total Company FFO - as defined by NAREIT $ 101,524$ 53,476$ 261,917$ 100,441 AFFO $ 122,246$ 72,638$ 240,494$ 144,893 W. P. Carey 6/30/2014 10-Q - 66

--------------------------------------------------------------------------------



__________

(a) Gain on change in control of interests for the six months ended June 30, 2014

represents a gain of $74.4 million recognized on our previously-held interest

in shares of CPAŽ:16 - Global common stock and a gain of $30.2 million

recognized on the purchase of the remaining interests in nine investments

from CPAŽ:16 - Global, which we had previously accounted for under the equity

method. During the six months ended June 30, 2014, one of these investments

was sold. During the second quarter of 2014, we identified certain

measurement period adjustments that impacted the provisional accounting,

which increased the fair value of our previously-held equity interest in

shares of CPAŽ:16 - Global's common stock by $1.3 million, resulting in an

increase of $1.3 million in Gain on change in control of interests. In

accordance with Accounting Standard Codification, or ASC, 805-10-25, we did

not record the measurement period adjustments during the three months ended

June 30, 2014. Rather, such amounts will be reflected in all future financial

statements that include the three months ended March 31, 2014.

(b) Amount for the six months ended June 30, 2014 included $30.4 million of

merger expense for the Real Estate Ownership segment and $13.9 million of

merger-related income tax expense for the Investment Management segment

incurred in connection with the CPAŽ:16 Merger.

(c) Prior to the second quarter of 2013, this amount was insignificant and

therefore not included in the AFFO calculation.

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.


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