W. P. Carey Annual Report 2002

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FY2002 Annual Report · W. P. Carey

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W. P. C are y & Co. LLC

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years of
meeting investor needs

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This past April 3rd we celebrated the 30th anniversary of the founding of

W. P. Carey & Co. As part of the celebrations we had the opportunity to ring

the closing bell of the New York Stock Exchange. While I stood on the platform

May 2003

above the trading ﬂ oor ﬁ lled with hundreds of cheering

stock traders, colleagues, family and friends, I couldn’t

help but be proud of what we have accomplished over

the past 30 years.

I started W. P. Carey in the spring of 1973 to provide

ﬁ nancing to companies looking to grow and expand

their businesses. In providing this needed capital I

realized that such investments, if properly structured

and managed, could provide growing, sustainable and

largely counter-cyclical returns for investors. In 1979

we launched Corporate Property Associates, our successful series of limited

partnerships. Eleven years later, in 1990, we introduced CPA®:10, our ﬁ rst

publicly held non-traded real estate investment trust (REIT). Since then, we

launched four additional REITs — CIP ®, CPA®:12, CPA®:14 and CPA®:15.

In 1998, in an effort to provide our investors with liquidity and additional

tax beneﬁ ts, we merged our original partnerships, CPA®s:1 through 9, to create

Carey Diversiﬁ ed LLC, which listed on the New York Stock Exchange (NYSE).

Two years later, with 93% of shareholder approval, Carey Diversiﬁ ed LLC

was merged with its management company W. P. Carey & Co., Inc. to create

W. P. Carey & Co. LLC, which is listed on the NYSE under the symbol WPC.

What ﬁ rst began as a ﬁ nancing company in 1973 has since evolved into

the world’s largest publicly traded limited liability company. Today, W. P. Carey

and its afﬁ liated REITs serve as the preeminent providers of net lease

ﬁ nancing to corporate America. They own and/or manage a net-leased

portfolio of more than 550 commercial and industrial facilities located

throughout the U.S. and Europe.

Much of our success over the past 30 years has been due to our philosophy

to run W. P. Carey like owners and to employ talented individuals to ensure

its future success. Gordon F. DuGan, W. P. Carey’s President, is a part of

this next generation of leaders. This past year he assumed the role of

Co-CEO and I have the utmost conﬁ dence in his ability and the abilities of

our employees, to lead W. P. Carey over the next 30 years. As the Company’s

largest shareholder, I could not be more pleased with the outlook and

prospects for W. P. Carey.

On behalf of the entire W. P. Carey family, I thank you for your continued

conﬁ dence and support over the past 30 years.

Most sincerely,

FINANCIAL HIGHLIGHTS

OPERATIONS (in thousands)
Total Revenues
Net Income
Funds From Operations (FFO)(1)

PER SHARE
Diluted Earnings Per Share
Diluted Funds From Operations (FFO)
Dividends
Weighted Average Listed Shares

Outstanding (Diluted)

STOCK DATA
Price Range (January 1, 2002

through December 31, 2002)

Total Return for 2002
Number of Shareholders

Year Ended December 31,
2002

$
$
$

161,604
46,588
102,012

1.28
2.81
1.72

36,265,230

$18.77- $26.00

14.4%

21,801

(1)Funds from operations (FFO) is calculated as net income, excluding gains (or losses)

from debt restructuring and sales of property, plus certain noncash items (primarily real
estate depreciation, amortization, impairments and deferred taxes) and after adjustments
for unconsolidated partnerships and joint ventures. FFO is a supplemental measure of
performance and does not represent net income or cash ﬂows generated from operating
activities in accordance with accounting principles generally accepted in the United States
of America. It should not be considered an alternative to net income as an indication of
the Company’s operating performance or to cash ﬂows as a measure of liquidity or as an
indicator of the Company’s ability to fund its cash needs. The reconciliation between net
income and funds from operations can be found on page 11.

THE W. P. CAREY GROUP PORTFOLIO OF FACILITIES
Located in (from left) United States, United Kingdom, The Netherlands, Finland and (below) France

FACILITIES OWNED BY WPC

FACILITIES MANAGED BY WPC

years of

meeting
investor
needs

A s you may know by

DEAR FELLOW
SHAREHOLDERS:

now, 2002 was a record year
for W. P. Carey. We are
pleased to report that
W. P. Carey experienced
another strong year despite
the third consecutive annual
decline of the broader markets. Among the
ﬁnancial highlights were:
5 a 17% increase in Funds From Operations
(FFO is a widely accepted supplemental
measure of performance) per diluted share,

5 a 30% increase in net income,
5 a 25% increase in diluted earnings per

share (EPS), and

5 a 25% increase in revenues.

In addition, we were able to provide
our investors with double-digit returns.
W. P. Carey’s share price at year-end
2002 was $24.75, up from $23.20 at year-
end 2001. This appreciation, coupled with
an annual dividend of $1.72, created a
total return of 14%. These results, which
follow strong returns in 2001 and 2000,
further reﬂect the strength of W. P. Carey’s

underlying business. We are pleased that
our fellow investors continued to beneﬁt
from attractive returns as owners in
our business.

A RECORD YEAR OF ACQUISITIONS
In 2002, we challenged ourselves to invest
$1 billion in critical, high-quality corporate
real estate assets. We are pleased to report
that W. P. Carey and its afﬁliated REITs
exceeded this goal by completing more than
$1 billion in transactions with 25 companies
throughout the U.S. and Europe.

This record acquisitions volume is more
than double the $395 million we completed
in 2001 with 20 companies and can be
attributed to some degree to the recent U.S.
recession and the accompanying weakness
in global and domestic capital markets.
These factors have made sale-leaseback
ﬁnancing increasingly attractive to compa-
nies looking for alternative sources of capi-
tal. As we do not expect a quick recovery of
the capital markets, we anticipate another
strong year for W. P. Carey and our
Acquisitions Department.

In 2002, W. P. Carey’s acquisitions for
its own portfolio included the purchase of
a 36% interest (acquired in conjunction
with its afﬁliate CPA®:15) in two facilities
leased to Hologic, Inc., a leading provider
of women’s diagnostic imaging systems
and state-of-the-art digital radiography
systems, and the purchase of three facili-
ties from BE Aerospace, Inc., a leading

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W P C A N D W O R L D E V E N T S T I M E L I N E H E A D E R

Wm. Polk Carey opens

at 67 Wall Street

W. P. Carey & Co., Inc.

1973

The

World

Trade

Center opens

1974

Dreyfus offers the

ﬁ rst Money Market

Fund to individual

investors

America celebrates

its 200th anniversary

1976

manufacturer of aircraft seating and cabin
interior products for commercial aircraft
and corporate jets.

In addition, we continue to invest in
net-leased facilities through an increas-
ing ownership interest in our CPA® series
of publicly held non-traded REITs. We
currently have approximately $30 million
invested in these funds and believe they are
a sound, stable investment that aligns us
well with our managed entities.

Overall, the majority of the sale-leaseback

transactions in 2002 were completed on
behalf of our newest REIT, CPA®:15. We
expect this trend to continue as this fund
has signiﬁcantly more capital available to
invest than its afﬁliates CIP®, CPA®:12
and CPA®:14, whose funds are mostly
invested. Since W. P. Carey currently
receives management fees from its afﬁliated
REITs, as well as fees for ﬁnding, negotiat-
ing and ﬁnancing their acquisitions, their
continued growth bodes well for the future
of W. P. Carey. This past year, for the
ﬁrst time in its history, more than half of
W. P. Carey’s revenue was derived from its
investment management business, rather
than its portfolio of net-leased facilities —
a trend we expect to continue.

INVESTING FOR THE LONG RUN®
In 2002, we continued to provide our inves-
tors with solid, gradually rising quarterly
income. This in turn offered our investors

Above from left:

Wm. Polk Carey,

Chairman,

Gordon F. DuGan,

President and

Francis J. Carey,

Vice Chairman

the opportunity to achieve long-term capital
growth. While our business performed
very well overall, and extremely well rela-
tive to almost any measure this past year,
our investment philosophy remains focused
on the long-term and running W. P. Carey
as owners.

Our success in adhering to this invest-

ment philosophy over the past 30 years
has enabled W. P. Carey and its afﬁliated
REITs to steadily generate a strong and
growing stream of income for their inves-
tors through various cycles and market con-
ditions. The W. P. Carey Group’s current

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W P C A N D W O R L D E V E N T S T I M E L I N E H E A D E R

Corporate Property

Director

W. P. Carey

investment

Associates opens for

1979

Dr. Lawrence R. Klein

Economics

wins Nobel Prize in

1980

Personal Computer

IBM introduces the

1981

Leveraged buyout

New York Stock

craze kicks off after

Exchange experiences

W. P. Carey provides

ﬁ rst 100 million

William E. Simon

share day

Greetings LBO

funding for Gibson

1982

years of

meeting
investor
needs

5 Y E A R T O T A L R E T U R N C O M P A R I S O N

WPC

W. P. Carey & Co. LLC

NAREIT Index

S&P 500

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portfolio consists of more than 550 facilities
comprised of 75 million square feet located
throughout the U.S. and Europe with an
estimated value of more than $5 billion.

IMPROVED ACCESS TO CAPITAL
W. P. Carey has been raising funds from
investors since 1979. Our strong track
record of performance over the years con-
tinues to attract investors who, through
their investments, provide us with the
capital needed to provide sale-leaseback
ﬁnancing to various high-quality companies.
Traditionally, our funds have been sold by
American Express Financial Advisors and
more than 20 other broker/dealers and

ﬁnancial advisors with considerable success.
In an effort to improve our access to this
growing investment capital, we expanded
our pool of potential investors by adding
UBS PaineWebber and A. G. Edwards &
Sons, Inc. to our selling group.

As a result of these new agreements,
CPA®:15 successfully sold out its initial
$400 million of registered shares during the
ﬁrst eleven months of its offering. We have
since registered to sell an additional
$690 million worth of CPA®:15 shares. As
of March 31, 2003 a total of $637 million
has been raised from investors. If we are
successful in these efforts, CPA®:15 will
become the ﬁrst W. P. Carey fund to raise
more than $1 billion in equity from inves-
tors. This is an incredible feat when you
consider that CPA®s:1 through 9 raised a
total of just over $400 million in 11 years.
W. P. Carey also completed a $172 mil-
lion commercial mortgage-backed securi-
tization (CMBS) on behalf of itself, CIP®,
CPA®:12 and CPA®:14 in an added effort
to access the capital markets. This offered
us an innovative way to lock in low interest
rates for the future. This issuance, consid-
ered to be the largest of its kind backed
by a single underlying asset pool consist-
ing solely of single-tenant, triple-net leases
underwritten as real estate loans, received
triple-A ratings from Moody’s Investors
Service and Fitch Ratings on $120 million
worth of the bonds.

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W P C A N D W O R L D E V E N T S T I M E L I N E H E A D E R

Under terms

of an antitrust

President Reagan

agreement, AT&T

signs into law the ﬁ rst

“Black Monday”

Dow Jones Industrial

divests its 22 Bell

System companies

1984

version of the Gramm-

Rudman-Hollings Act

U.S. National Deﬁ cit

in order to control the

1985

508.32 points

Average plummets

1987

The World Wide Web

Internet

debuts, popularizes

1990

THE FUTURE
While no one can predict the future course
of the stock markets, the U.S. economy or
world events, we have been successful over
the past 30 years at building a business to
withstand the changing conditions and cir-
cumstances likely to affect our core business
and therefore our end results.

In many sectors, companies are fac-
ing a decline in sales, stiffer competition
from imports, and a lack of pricing power.
Companies that are not hiring typically do
not need more space, and those that do,
have more alternatives because of rising
commercial vacancy rates and weaken-
ing real estate prices. For W. P. Carey, the
weakness in real estate fundamentals cuts
both ways — demand is soft, which may
lead to lower rental revenues as leases
expire. However, historically low inter-
est rates, which currently accompany this
economic weakness, make our investment
products attractive to investors seeking
income-generating investments and enable
us to obtain mortgage ﬁnancing on attrac-
tive terms.

In the near-term, we expect our afﬁli-
ated REITs to remain attractive to investors
seeking income stability, diversiﬁcation and
an investment that doesn’t correlate to the
traded markets. Their steady income stream
is dependent upon long-term leases, not on
real estate prices, which may decline in the
short run.

PROVIDING PEACE OF MIND
We believe that 2003 will be another
successful year for W. P. Carey, with solid
results that have the potential to match
those in 2001 and 2002 and believe we are
well positioned to continue to operate
proﬁtably in the current climate of market
weakness. We remain conﬁdent that we can
maintain the stable income and strong
dividends that have become hallmarks of
W. P. Carey and continue to provide peace
of mind to our investors.

Sincerely,

WM. POLK CAREY
Chairman

FRANCIS J. CAREY
Vice Chairman

GORDON F. D U GAN
President

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W P C A N D W O R L D E V E N T S T I M E L I N E H E A D E R

Launches as

Industrial Average

general real

The Dow Jones

Bottom of the

W. P. Carey’s ﬁ rst

non-traded real

estate investment

trust (REIT)

ﬁ rst time

tops 3000 for the

1991

estate cycle

CPA®:11, which

later becomes

W. P. Carey surpasses

$1 billion in assets

Carey Institutional

under management

investment

Properties, opens for

1992

years of

meeting
investor
needs

W. P. Carey’s management business

continues to provide the primary growth
component of the company’s two-pronged,
long-term growth strategy.

Our management business centers on the
acquisition of single-tenant commercial and
industrial facilities and the creation and
management of a series of successful publicly
held non-traded real estate investment
trusts (REITs).

OUR GROWING
MANAGEMENT BUSINESS

The four REITs we cur-
rently manage include Carey
Institutional Properties
(CIP®), founded in 1991;
Corporate Property Associates
(CPA®) 12, founded in 1994;
CPA®: 14, founded in 1997;
and CPA®: 15, founded in

2001. As of March 31, 2003, our total port -
folio of owned and/or managed facilities
consisted of more than 550 facilities com-
prised of 75 million square feet net-leased to
256 tenants with an estimated value of more
than $5 billion.

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W P C A N D W O R L D E V E N T S T I M E L I N E H E A D E R

The United States,

Canada and Mexico

sign the North

American Free Trade

Agreement

Opens for investment

1994

CIP®, our most mature REIT, grew sub-

stantially upon its merger with its afﬁliate
CPA®:10 in April 2002. As a result of the
merger, CIP®’s diversiﬁed portfolio includes
110 facilities comprised of approximately
8.4 million square feet net-leased to 47
tenants throughout the U.S. and Europe.*
CPA®:12 has a diversiﬁed portfolio of
129 facilities comprised of 10.3 million square
feet net-leased to 57 tenants throughout the
U.S. and France.*

The Dow Jones

Industrial Average

W. P. Carey surpasses

$2 billion in assets

increases by 33.5%

and closes the year

1995 1996

under management

above 5000

P O R T F O L I O D I V E R S I F I C A T I O N

Based on Contractual Annualized Rents

Total Rent = $410,545,000*

By Tenant Industry

0
0
0
,
7
7
4
,
0
2

0
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4,0
9
9,4
1

11,969,000
9,5 1 8,0 0 0
1 , 0
8 , 3
5 , 7 1 9 , 0 0 0
4 , 0 0 2 , 0 0 0

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1

4
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0

30,135,000

35,924,000

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0
,
6
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2
,
3
6

7.3%

8.8%

9 . 9

5
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6
%

%
0
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5

%
4.7

2.9%

2.3 %
%
2 . 0
1 . 4 %
1 . 0 %

Industrial

Technology

Wholesale Trade

Miscellaneous

Financial

Hotels

Communications

Transportation – Air

Consumer –
Non-Cyclical

Retail

Furniture and
Equipment Stores

Educational Services

Basic Materials

Motion Pictures

%
4
.
5
1

*Includes facilities owned and/or managed by W. P. Carey & Co. LLC

tered to sell an addi-
tional $690 million in
shares. If we are suc-
cessful in these efforts,
CPA®:15 will become the
ﬁrst W. P. Carey fund to
raise more than $1 billion

CompuCom

Systems, Inc.

Dallas, TX

CPA®:14’s assets increased approximately

20% in 2002 to $1,319,897,000. It remains
our largest income-generating fund with
more than 188 facilities comprised of
approximately 23.7 million square feet net-
leased to 71 tenants throughout the U.S.
and Europe.*

CPA®:15, our newest REIT, sold out its
initial $400 million offering within the ﬁrst
year of its program. In order to meet this
increased investor demand we have regis-

in equity from investors. As of March 31,
2003 a total of $637 million was raised from
investors. CPA®:15 maintains a diversi ﬁed
portfolio of 88 facilities comprised of 12.7
million square feet net-leased to 27 ten ants
throughout the U.S. and Europe.*

W. P. Carey and its afﬁliates are a leading

provider of sale-leaseback ﬁnancing to
corporate America. This type of ﬁnancing
enables a company to sell its corporate

W P C A N D W O R L D E V E N T S T I M E L I N E H E A D E R

Opens for investment

1997

CPA®:1-9

consolidates to

create Carey

Diversiﬁ ed LLC

*As of 3/31/03.

Carey Diversiﬁ ed LLC

begins trading on

ticker symbol CDC

the NYSE under the

1998

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W. P. Carey opens its

Paris ofﬁ ce

years of

meeting
investor
needs

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facility to W. P. Carey or an afﬁliate and
then lease it back under a long-term net
lease, typically 20 years. Usually, the lease
is triple-net, which requires the tenant to
pay for the maintenance, insurance and
taxes on the facility. In addition, we also
ﬁnance build-to-suit transactions in which
we provide funding for the construction of a
facility and then lease it back to the tenant.
Our 30-year track record of success is
based largely on our immediate access to
more than $1.5 billion in capital, a disciplined
and carefully reﬁned acquisition process
and a high degree of diligence, knowledge
and skill on the part of our Acquisitions
Department and Investment Committee.

Every acquisition is carefully underwrit-

ten, and because our leases are long-term
and our tenant corporations are responsible
for payment of rent, we thoroughly examine
the credit of the lessee and any guarantor of
its lease. Protective covenants, typical of
private placements of long-term debt, are
frequently included. This exacting approach
puts us in a better position to avoid defaults
and vacancies should the tenant’s business
needs or ﬁnancial circumstances change.
Our successful CPA® series of income
generating REITs was created from funds
raised from investors, primarily individuals,

through outside brokerage ﬁrms. In 2002,
we expanded our access to the growing
investment capital market by adding UBS
PaineWebber and A. G. Edwards & Co. to
our qualiﬁed group of broker/dealers. They
join American Express Financial Advisors
and more than 20 other broker/dealers and
ﬁnancial advisors.

In 2002, we completed in excess of

$1 billion in acquisitions, primarily on behalf
of our afﬁliated REITs. This success has
resulted in asset and revenue growth for
our afﬁliates as well as for W. P. Carey. We
earn fees for ﬁnding, negotiating and under-
writing acquisitions, and for arranging

W P C A N D W O R L D E V E N T S T I M E L I N E H E A D E R

The Dow Jones

W. P. Carey opens

W. P. Carey & Co., Inc.

Industrial Average

its London ofﬁ ce

merges with Carey

ﬁ rst time

tops 10,000 for the

1999

Diversiﬁ ed LLC to

create W. P. Carey &

... trades on the

Co. LLC and ...

NYSE under the

ticker symbol WPC

2000

P O R T F O L I O D I V E R S I F I C A T I O N

Based on Contractual Annualized Rents

Total Rent = $410,545,000*

By Geography

By Facility Type

90,095,000

94,393,000

0
0
0
,
9
5
6
,
9
8

3 5 , 5 5 8 , 0 0 0

21.9%

%
1.8
2

8 . 7 %

South

West

East

Midwest

Europe

23.0 %

2 4 . 2 %

9 9 , 3 7 0 , 0 0 0

0
9,0
6
5,2
4

4 , 0

6 , 3
1 1 , 9 6 9 , 0 0 0

%
1.0
1

8 . 9

2 . 9 %

Industrial

Office

Warehouse /
Distribution

Retail

Other
Properties

Hospitality

*Includes facilities owned and/or managed by W. P. Carey & Co. LLC

PETsMART, Inc.

Westlake

Village, CA

mortgage ﬁnancing used to boost the overall
rate of return. In many acquisitions, particu-
larly multi-facility transactions involving
large equity investments, W. P. Carey
allocates an equity interest in the holding to
two or even three of the REITs, thereby
reducing the overall risk to any one REIT.
While most acquisitions continue to be
in the U.S., we are increasingly acquiring
facilities in attractive locations in Europe,
providing further diversiﬁcation and expo-
sure to potentially more proﬁtable markets.
Once a fund’s capital is fully invested,
subsequent acquisitions are often replace-

ments for existing facilities as the equity
required for each new purchase arises
mostly from rents or sale proceeds. Over
time, the fund’s equity in each facility tends
to increase, partly when the real estate
increases in value, and largely because of
the equity build-up in each facility as the
mortgage on it is paid down. As a result, the
fund’s net asset value can grow even though
few facilities are added. In addition, its rev-
enues can also increase as sale proceeds are
deployed into attractive, new facilities and
rents are adjusted for inﬂation.

W P C A N D W O R L D E V E N T S T I M E L I N E H E A D E R

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President Bush signs

corporate reform bill

NASDAQ declines

39% by end of year,

due in large part to

the collapse of the

“internet bubble”

Terrorists attack the

and Pentagon

World Trade Center

2001

Opens for investment

and is expected to be

W. P. Carey’s ﬁ rst

billion-dollar program

in response to spate

of corporate scandals

2002

years of

meeting
investor
needs

Construction of

the Los Angeles

Uniﬁ ed School

District’s new

high school.

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OUR PORTFOLIO:

STRONG AND STEADY PROFITS
W. P. Carey & Co.’s portfolio of net-leased
commercial facilities plays a key stabiliz-
ing role in the company’s unique strategy

for increasing
earnings and share-
holder value.

Our portfolio
consists of 183 single-
tenant facilities in
34 states in the U.S.,
and six facilities in
France. They are
leased to 99 tenants
and comprised of approximately 18 million
square feet. Rents that the portfolio pro-
duces account for less than one-half of the
company’s income. The majority is gener-
ated by the company’s activities in managing
the four REITs it sponsors. As our REIT
management business continues to grow,
income from the management business will
make up an increasing percentage of the total.
Meanwhile, the portfolio, with a current

asset value of approximately $800 million
continues to be a stable and somewhat
counter-cyclical source of income. During
2002, we sold eleven facilities in ten states

for $15.3 million. We also sold six other
facilities in four states that were master-
leased to a single company. We received
$26 million from this sale.

Our largest and most unusual single-

facility transaction in 2002 was the
$24 million sale of the former Santee
Dairies Inc. milk processing and bottling
plant to the Los Angeles Uniﬁed School
District for a new high school. The 18-acre
facility, acquired by CPA®:3 in 1983, was
operated by Santee under a 14-year lease,
and re-leased in 1997 to Copeland Beverage,
which went into receivership in 1999. The
sale transaction provided for a subsidiary to
assist the school district’s facilities services
division, on a fee basis, by conducting
environmental investigations of the vacant
facility, preparing remediation reports, and
designing a 2,112 seat high school. At the
district’s request, our development company
subsequently agreed to manage construc-
tion of the new facility — as it might do for
corporate clients on build-to-suit projects —
under an arrangement that provides our
development company special incentive fees
for completion prior to September 1, 2004.
When we acquire a facility, we typically

leverage our returns by obtaining a non-
recourse mortgage often at a ﬁxed rate.
During 2002, we reﬁnanced many of the
facilities owned and managed by
W. P. Carey to take advantage of near
record-low interest rates, thereby improv-
ing our portfolio’s proﬁtability.

W P C A N D W O R L D E V E N T S T I M E L I N E H E A D E R

The euro currency

debuts in twelve

European countries

W. P. Carey completes

a record $1 billion

... surpasses

$5 billion in assets

in sale-leaseback

W. P. Carey acquires

W. P. Carey & Co. LLC

under management

transactions in 2002

the Candler Tower

celebrates its 30th

on 42nd Street,

Anniversary and ...

New York City

its ﬁ rst facility in

2003

FINANCIAL STATEMENT CONTENTS

SELECTED FINANCIAL DATA

MANAGEMENT’S DISCUSSION AND ANALYSIS

REPORT OF INDEPENDENT ACCOUNTANTS

CONSOLIDATED BALANCE SHEETS

CONSOLIDATED STATEMENTS OF OPERATIONS

CONSOLIDATED STATEMENTS OF MEMBERS’ EQUITY

CONSOLIDATED STATEMENTS OF CASH FLOWS

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

MARKET FOR THE COMPANY’S COMMON STOCK AND
RELATED SHAREHOLDER MATTERS

REPORT ON FORM 10-K

CORPORATE INFORMATION

FUNDS FROM OPERATIONS
In thousands

Twelve Months Ended
December 31,
2002

Net income
Gain on sale of real estate
Non-cash settlement income
Funds from operations of equity investees in excess of

equity income (loss)

Depreciation, amortization, deferred taxes and other noncash charges
Minority interest in income (loss)
Straight-line rents
Writeoff of straight-line rents
Impairment charge on real estate investments
SAB 101 adjustment

Funds from operations

$ 46,588
(15,323)
(2,097)

7,508
37,740
(120)
(639)
142
29,410
(1,197)

$102,012

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W. P. Carey & Co. LLC
SELECTED FINANCIAL DATA
In thousands except per share amounts

OPERATING DATA(1)
Revenues
Income (loss) from

continuing operations(2)
Basic earnings (loss) from
continuing operations
per share

Diluted earnings (loss) from
continuing operations
per share

Net income (loss)
Basic earnings (loss) per share
Diluted earnings (loss)

per share

Cash dividends paid
Cash provided by operating

activities

Cash (used in) provided by

investing activities

Cash (used in) provided by

ﬁnancing activities
Cash dividends declared

per share

BALANCE SHEET DATA
Real estate, net(3)
Net investment in direct

ﬁnancing leases

Total assets
Long-term obligations(4)

1998

1999

2000

2001

2002

$ 76,547

$ 78,670

$110,064

$129,268

$161,604

34,583

29,147

(12,060)

33,614

46,674

1.37

1.14

(.40)

.98

1.31

1.37
38,464
1.55

1.55
30,820

1.14
34,039
1.33

1.33
42,525

(.40)
(9,278)
(.31)

(.31)
49,957

.96
35,761
1.04

1.02
58,048

1.28
46,588
1.31

1.28
60,708

51,944

48,186

58,222

58,877

75,896

(71,525)

(55,173)

41,138

(13,368)

51,921

6,668

1.65

3,392

(91,452)

(46,815)

(115,261)

1.67

1.69

1.70

1.72

$453,181

$501,350

$433,867

$435,629

$440,193

295,826
813,264
254,827

295,556
856,259
310,562

287,876
904,242
176,657

258,041
915,883
287,903

189,339
893,524
226,102

(1) Certain prior year amounts have been reﬂected as discontinued operations in accordance with Statement of Financial Accounting

Standards No. 144 “Accounting for Impairment or Disposal of Long-Lived Assets”.

(2) Includes gain (loss) on sale of real estate.

(3) Includes real estate accounted for under the operating method, operating real estate and real estate under construction, net of

accumulated depreciation.

(4) Represents mortgage and note obligations and deferred acquisition fees due after more than one year.

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MANAGEMENT’S DISCUSSION AND ANALYSIS
Dollar amounts in thousands

OVERVIEW
The following discussion and analysis of ﬁnancial condition and results of operations of
W. P. Carey & Co. LLC (“WPC”) should be read in conjunction with the consolidated
ﬁnancial statements and notes thereto for the year ended December 31, 2002. The following
discussion includes forward-looking statements. Forward-looking statements, which are
based on certain assumptions, describe future plans, strategies and expectations of WPC.
Such statements involve known and unknown risks, uncertainties and other factors that
may cause the actual results, performance or achievement of WPC to be materially different
from the results of operations or plan expressed or implied by such forward looking state-
ments. Accordingly, such information should not be regarded as representations by WPC
that the results or conditions described in such statements or objectives and plans of WPC
will be achieved.

WPC was formed in 1998 through the acquisition of nine afﬁliated real estate limited
partnerships that had been managed by an afﬁliate of WPC as general partner and, at that
time, became listed on the New York Stock Exchange. In June 2000, WPC acquired the
net lease real estate management operations of its former manager, Carey Management,
LLC. As a result of the June 2000 acquisition, WPC is currently the Advisor to four
publicly-owned real estate investment trusts: Carey Institutional Properties Incorporated
(“CIP®”), Corporate Property Associates 12 Incorporated (“CPA®:12”), Corporate
Property Associates 14 Incorporated (“CPA®:14”) and Corporate Property Associates
15 Incorporated (“CPA®:15”) (collectively, the “CPA® REITs”).

CRITICAL ACCOUNTING POLICIES
Certain accounting policies are critical to the understanding of WPC’s ﬁnancial condition
and results of operations. Management believes that an understanding of ﬁnancial condi-
tion and results of operations requires an understanding of accounting policies relating to
the use of estimates and revenue recognition.

The preparation of ﬁnancial statements requires that management make estimates and
assumptions that affect the reported amount of assets, liabilities, revenues and expenses.
For instance, WPC must assess its ability to collect rent and other tenant-based receivables
and determine an appropriate allowance for uncollected amounts. Because fewer than
30 lessees represent more than 75% of annual rents, WPC believes that it is necessary to
evaluate speciﬁc situations rather than solely use statistical methods. WPC generally
recognizes a provision for uncollected rents and other tenant receivables which typically
ranges between 0.5% and 2% of lease revenues (rental income and interest income from

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direct ﬁnancings leases) and will measure its allowance against actual rent arrearages and
adjust the percentage applied. Based on actual experience during 2002, WPC recorded a
provision equal to approximately 2% of lease revenues. As of December 31, 2002, WPC
had rent arrearages from two tenants of approximately $2,225 that is at risk of default.

WPC also uses estimates and judgments when evaluating whether long-lived assets are
impaired. When events or changes in circumstances indicate that the carrying amount of
an asset may not be recoverable, WPC performs projections of undiscounted cash ﬂows,
and if such cash ﬂows are insufﬁcient, the assets are adjusted (i.e., written down) to their
estimated fair value. An analysis of whether a real estate asset has been impaired requires
WPC to make its best estimate of market rents, residual values and holding periods. In its
evaluations, WPC generally obtains market information from outside sources; however,
such information requires Management to determine whether the information received is
appropriate to the circumstances. As WPC’s investment objectives are to hold properties
on a long-term basis, holding periods used in the analyses generally range from ﬁve to ten
years. Depending on the assumptions made and estimates used, the future cash ﬂow pro-
jected in the evaluation of long-lived assets can vary within a range of outcomes. WPC will
consider the likelihood of possible outcomes in determining the best possible estimate of
future cash ﬂows. Because in most cases, each of WPC’s properties is leased to one tenant,
WPC is more likely to incur signiﬁcant writedowns when circumstances change because of
the possibility that a property will be vacated in its entirety and, therefore, it is different
from the risks related to leasing and managing multi-tenant properties. Events or changes
in circumstances can result in further noncash writedowns and impact the gain or loss ulti-
mately realized upon sale of the assets. WPC performs a review of its estimate of residual
value of its direct ﬁnancing leases at least annually to determine whether there has been an
other than temporary decline in WPC’s current estimate of residual value of the underlying
real estate assets (i.e., the estimate of what WPC could realize upon sale of the property at
the end of the lease term). If the review indicates a decline in residual value that is other
than temporary, a loss is recognized and the accounting for the direct ﬁnancing lease will
be revised to reﬂect the decrease in the expected yield using the changed estimate, that is,
a portion of the future cash ﬂow from the lessee will be recognized as a return of principal
rather than as revenue.

Real estate accounted for under the operating method is stated at cost less accumulated
depreciation. Costs directly related to the development of rental properties are capitalized.
Capitalized development and construction costs include costs essential to the development
of the property, development and construction costs, interest, property taxes, insurance,
salaries and other projects costs incurred during the period of development. Interest
capitalized for the years ended December 31, 2002, 2001 and 2000 was $216, $443 and
$81, respectively.

When assets are identiﬁed by Management as held for sale, WPC discontinues depreci-

ating the assets and estimates the sales price, net of selling costs, of such assets. If in
Management’s opinion, the net sales price of the assets which have been identiﬁed for sale
is less than the net book value of the assets, an impairment charge is recognized and a
valuation allowance is established. If circumstances arise that previously were considered
unlikely and, as a result, WPC decides not to sell a property previously classiﬁed as held

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for sale, the property is reclassiﬁed as held and used. A property that is reclassiﬁed is
measured and recorded individually at the lower of (a) its carrying amount before the
property was classiﬁed as held for sale, adjusted for any depreciation expense that would
have been recognized had the property been continuously classiﬁed as held and used, or
(b) the fair value at the date of the subsequent decision not to sell. The results of opera-
tions and gain or loss on sales of real estate for properties sold or classiﬁed as held for sale
after January 1, 2002 are reﬂected in the consolidated statements of operations as
“Discontinued Operations” for all periods presented.

In connection with the net lease real estate asset management business, WPC earns
transaction and asset-based fees. Transaction fees are primarily earned in connection with
investment banking services provided in connection with structuring acquisitions, reﬁnanc-
ing and dispositions on behalf of the afﬁliated real estate investment trusts. Transaction
fees are earned upon consummation of a transaction, that is, when a purchase has been
completed by the afﬁliate. Completion of a transaction includes determining that the pur-
chaser and seller are bound by a contract and all substantive conditions of closing have
been performed. When these conditions are met, acquisition-based services have been com-
pleted and the fees are recognized.

Asset-based management fees are earned when services are performed. A portion of the
fees are subject to subordination provisions pursuant to the Advisory Agreements and are
based on whether each CPA® REIT has met speciﬁc performance criteria on a quarterly
basis. In connection with determining whether management and performance fees are
recorded as revenue, Management performs analyses on a quarterly basis to measure
whether subordination provisions have been met. Revenue is only recognized for perfor-
mance based fees when the speciﬁc performance criteria are achieved.

WPC accounted for its acquisition of business operations of Carey Management in
2000 as a purchase. The excess of the purchase price over the fair value of the net assets
acquired was recorded as goodwill. WPC evaluates goodwill for possible impairment at
least annually using a two-step process. To identify any impairment, WPC ﬁrst compares
the estimated fair value of the reporting unit (management services segment) with its
carrying amount, including goodwill. WPC calculates the estimated fair value of the
management services segment by applying a multiple, based on comparable companies, to
earnings. If the fair value of the management services segment exceeds its carrying amount,
goodwill is considered not impaired and no further analysis is required. If the carrying
amount of the management services unit exceeds its estimated fair value, then the second
step is performed to measure the amount of the impairment charge.

For the second step, WPC would determine the impairment charge by comparing the

implied fair value of the goodwill with its carrying amount and record an impairment
charge equal to the excess of the carrying amount over the fair value. The implied fair
value of the goodwill is determined by allocating the estimated fair value of the manage-
ment services segment to its assets and liabilities. The excess of the estimated fair value of
the management services segment over the amounts assigned to its assets and liabilities is
the implied fair value of the goodwill. WPC has performed its annual test for impairment
of its management services segment, the reportable unit of measurement, and concluded
that the goodwill is not impaired.

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Costs incurred in connection with leases are capitalized and amortized on a straight-line

basis over the terms of the related leases and included in property expense. Unamortized
leasing costs are also charged to property expense upon early termination of the lease.
Costs incurred in connection with obtaining mortgages and debt ﬁnancing are capitalized
and amortized over the term of the related debt and included in interest expense.
Unamortized ﬁnancing costs are included in charges for early extinguishment of debt if
a loan is retired and the costs have not been fully amortized.

Stated rental revenue is recognized on a straight-line basis and interest income from
direct ﬁnancing leases is recognized such that WPC earns a constant rate of return on its
net investment, over the terms of the respective leases. Unbilled rents receivable represent
the amount by which straight-line rental revenue exceeds rents currently billed in accor-
dance with the lease agreements. Most of WPC’s leases provide for periodic rent increases
based on formula indexed to increases in the Consumer Price Index (“CPI”). CPI-based
and other contingent-type rents are recognized currently. WPC recognizes rental income
from sales overrides when reported by lessees, that is, after the level of sales requiring a
rental payment is reached.

WPC accounts for its investments in unconsolidated joint ventures under the equity
method of accounting as it may exercise signiﬁcant inﬂuence, but does not control these
entities. These investments are recorded initially at cost, as Equity Investments and
subsequently adjusted for its proportionate share of earnings and cash contributions and
distributions. On a periodic basis, Management assesses whether there are any indicators
that the value of equity investments may be impaired and whether or not that impairment
is other than temporary. An investment’s value is impaired only if Management’s estimate
of the net realizable value of the investment is less than the carrying value of the invest-
ment. To the extent impairment has occurred, the charge shall be measured as the excess
of the carrying amount of the investment over the fair value of the investment.

Signiﬁcant management judgment is required in developing WPC’s provision for income

taxes, including (i) the determination of partnership-level state and local taxes, and (ii)
for its taxable subsidiaries, estimating deferred tax assets and liabilities and any valuation
allowance that might be required against the deferred tax assets. The valuation allowance
is required if it is more likely than not that a portion or all of the deferred tax assets will
not be realized. WPC has not recorded a valuation allowance based on Management’s
belief that operating income of the taxable subsidiaries will be sufﬁcient to realize the
beneﬁt of these assets over time. For interim periods, income tax expense for taxable sub-
sidiaries is determined, in part, by applying an effective tax rate which takes into account
statutory federal, state and local tax rates.

Public business enterprises are required to report ﬁnancial and descriptive information
about their reportable operating segments. WPC’s management evaluates the performance
of its owned and managed real estate portfolio as a whole, but allocates its resources
between two operating segments: real estate operations with domestic and international
investments and management services.

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RESULTS OF OPERATIONS
Year-Ended December 31, 2002 Compared to Year-Ended December 31, 2001
WPC reported net income of $46,588 and $35,761 and income from continuing operations
of $46,674 and $33,614 for the years ended December 31, 2002 and 2001, respectively. The
results are not fully comparable due to the adoption of Statement of Financial Accounting
Standard (“SFAS”) No.142 “Goodwill and other Intangibles” in 2002. SFAS No.142 dis-
continued the amortization of goodwill and indeﬁnite-lived intangibles assets and is not
retroactively applicable to 2001. If the accounting change for amortization had been retro-
actively applied, the overall increase in net income and income from continuing operations
would have been $6,204 and $8,437, respectively (also see Note 20 to the accompanying
consolidated ﬁnancial statements). The results for 2002 reﬂect a change in the composition
of revenue and earnings from WPC’s business segments with substantial growth in the rev-
enues and net operating income of its management services operations and a decline in the
revenues and net operating income of its real estate operations. The results from continu-
ing operations for 2002 and 2001 include asset impairment charges of $21,186 and $9,997,
respectively, representing the writedown of assets to estimated fair value. In addition,
the results from 2002 include a gain of $11,160 on the sale of a property in Los Angeles,
California. SFAS No.144, “Accounting for the Impairment of Long-Lived Assets” requires
that for disposal activities initiated after January 1, 2002, including the sale of properties,
the revenues and expenses relating to the assets held for sale or sold be presented as a
discontinued operation for all periods presented in the ﬁnancial statements. Because
WPC sells properties in the ordinary course of business, and may reinvest the proceeds of
sale to purchase new properties, WPC evaluates its ability to fund distributions to share-
holders by considering the combined effect of income from continuing operations and
discontinued operations.

Excluding the effect of the change in the amortization of goodwill and indeﬁnite-lived
intangible assets, the gain on the sale of the Los Angeles property and the noncash asset
impairment charges, the increase in income from continuing operations, as adjusted, of
$8,466 for the comparable years was primarily due to increases in management income
and a decrease in interest expense. These were partially offset by increases in general and
administrative expenses and the provision for income taxes, and, to a lesser extent, decreases
in income from equity investments and lease revenues. The increase in impairment charges
was the result of a comprehensive, independent review of the estimated residual values on
its properties classiﬁed as net investments in direct ﬁnancing leases. WPC determined that
an other than temporary decline in estimated residual value had occurred at several prop-
erties, primarily the properties leased to Gibson Greeting, Inc. and Brodart Co. and the net
investment in direct ﬁnancing leases was revised using the changed estimates. The resulting
changes in estimated residual value resulted in the recognition of impairment charges on
direct ﬁnancing leases of $14,880 in 2002. WPC also incurred an impairment charge of
$4,596 on its investment in the operating partnership units of MeriStar Hospitality
Corporation due to the deterioration in the operating results of MeriStar. The per share
price of MeriStar’s common stock has continued to decline since December 31, 2002 when
it was $6.60, and was $3.32 as of March 19, 2003. Management will continue to evaluate
whether further impairment charges will be necessary.

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Net operating income from real estate operations (income before gains and losses,
income taxes, minority interest, and discontinued operations) was $13,116 and $31,140 in
2002 and 2001, respectively (also see Note 17 to the accompanying consolidated ﬁnancial
statements). Excluding impairment charges, operating income from real estate operations
would have reﬂected a decrease of $6,835 for the comparable years ($5,854 when discon-
tinued operations are considered). The decrease in real estate operating income was
primarily due to decreases in other income, income from equity investments and lease
revenues. These were partially offset by a decrease in interest expense.

Other income generally consists of lease termination payments and other non-rent
related revenues from real estate operations, including, but not limited to, settlements of
claims against former lessees. WPC receives settlements in the ordinary course of business;
however, the timing and amount of such settlements cannot always be estimated. The
results for 2001 included settlements totaling $4,665 from (a) New Valley Corporation in
the ﬁnal settlement of a claim relating to termination of a lease in 1993 for WPC’s property
in Moorestown, New Jersey, and (b) Harcourt General Corporation, the guarantor of a
lease with General Cinema Corporation for a property in Burnsville, Minnesota. The set-
tlement with Harcourt General resulted from the termination of the General Cinema lease
in connection with General Cinema’s plan of reorganization. The Burnsville property was
sold in January 2002. WPC is continuing to seek settlements with other former lessees;
however, the timing of such settlements and the amounts that may ultimately be received
cannot be estimated.

The decrease in income from equity investments was due to MeriStar’s poor performance,

high leverage and limited liquidity. MeriStar, a real estate investment trust that owns
hotel properties, has been affected by a decline in travel, including business travel. WPC
recorded a loss of $3,019 on the MeriStar equity investment in 2002, compared with
income of $436 for 2001. Management does not expect an improvement in MeriStar’s
results in 2003. In February 2003, MeriStar’s credit rating was downgraded by two major
ratings agencies. WPC’s income from equity investments will beneﬁt from the acquisition,
in December 2002, of a 36% equity interest in two properties leased to Hologic, Inc.
from an afﬁliate, CPA®:15, advised by WPC. The lease has an initial term of 20 years with
four ﬁve-year renewal terms with current annual rents of $3,156 of which WPC’s share is
$1,136. It is likely that mortgage ﬁnancing will be placed on the Hologic properties in 2003.
Lease revenues decreased by $1,245 for the comparable years primarily as a result of
the sale of properties during 2001, including the property leased to Duff-Norton, Inc. in
July 2001 which had annual rents of $1,164, the sale of four properties classiﬁed as held
for sale as of December 31, 2001 (and not included in discontinued operations), the termi-
nation of WPC’s lease with Thermadyne Holdings Corp. during 2002, and to a lesser
extent, the reclassiﬁcation of WPC’s investment in the properties leased to Childtime
Childcare, Inc., as an equity investment during 2002 subsequent to its contribution of its
33.93% interest to a limited partnership. This was partially offset by a new lease in France
with Bouygues Télécom, S.A. and an increase in rent from the expansion of the property
leased to AT&T, both of which went into effect in the fourth quarter of 2001. Lease rev-
enues also beneﬁted from the acquisition of three properties leased to BE Aerospace Inc.
in the third quarter of 2002 as well as several rent increases on existing leases. Annual rent

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from the BE Aerospace lease is $1,421. After obtaining $9,200 of mortgage ﬁnancing in
October 2002, annual cash ﬂow (contractual rent less mortgage debt service) from the
BE Aerospace properties will be approximately $750. Lease revenues are expected to
decline for 2003 as a result of several large terminations and sales including the leases with
The Gap, Inc. that ended in January 2003. Future lease revenues are also affected by the
change in estimates for direct ﬁnancing leases and interest income from direct ﬁnancing
leases will be reduced by approximately $1,100 in 2003, $1,300 in 2004 and $1,500 in
2005. This change in estimate has no effect on the contractual obligations of lessees and
will not have any effect on cash ﬂow.

The decrease in interest expense for the comparable years was primarily attributable
to lower average outstanding balances on WPC’s $185,000 credit facility and a decrease
in interest rates during the comparable periods. WPC’s credit facility is indexed to the
London Inter-Bank Offered Rate (“LIBOR”) and the LIBOR benchmark rate declined
in 2001 and 2002. The average outstanding balance on the credit facility decreased by
approximately $34,000 and the average interest rate decreased to 3.24% from 5.40% for
the comparable years. In June 2002, WPC paid off $12,580 in mortgage bonds on the
Alpena and Petoskey hotel properties. The Petoskey property was subsequently sold in
August 2002. The payoff of the bonds on the Alpena property has resulted in an annual
decrease in interest expense of more than $500. The Alpena and Petoskey bonds were also
collateralized by mortgages and lease assignments on eight other properties. Subsequent
to the payoff of the bonds, WPC was able to complete the sale of a portion of its property
in McMinnville, Tennessee. The decrease in interest expense from the credit facility and
the payoff of the Alpena and Petoskey mortgage bonds were partially offset by an increase
in interest from mortgages placed on the Sprint Spectrum L.P. and Bouyges Telecom prop-
erties in 2001. During 2002, WPC obtained new ﬁnancing of $7,000 on a property leased
to Quebecor, Inc. and $9,200 on the newly-purchased BE Aerospace properties. A mort-
gage on the Quebecor property had been paid off in May 2001. Annual debt service on the
Quebecor and BE Aerospace loans is $1,313.

Property expenses decreased by $347 for the comparable years. Property expenses for

2002 and 2001 include noncash charges of $142 and $1,321, respectively, in connection
with the writeoff of accumulated straight-line rents as uncollectible in connection with the
restructuring of the lease with Livho, Inc. Excluding the writeoffs, property expenses for
the comparable years increased by $832. The increases in property expenses were due to
increases in real estate taxes, property insurance, property management and maintenance
expenses. This was the result of the termination of the Thermadyne Holdings Corp. lease
as well as an increase in costs related to properties that are either vacant or not subject to
net leases, and charges of approximately $200 to write off unamortized leasing costs in
connection with a lease termination and the sale of a property. As of December 31, 2002,
approximately 10% of WPC’s annual lease revenues are from non-net leased properties.
WPC has the primary obligation for all property expenses that are not net leased properties.
Whenever a property becomes vacant, it is WPC’s objective to either re-lease the vacant
space or to market the property for sale. WPC attempts to remarket the property as a
single-tenant net lease property; however, there is often a greater likelihood of re-leasing
the property as a multi-tenant property. While WPC considers single-tenant net leasing to

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be its core business, WPC has developed sufﬁcient expertise to manage multi-tenant corpo-
rate properties. Therefore, remarketing strategies are based on what Management considers
the best opportunity based on speciﬁc market conditions.

The increase in the gains in 2002 was due primarily to the $11,160 gain recognized from

the sale of the Los Angeles, California property. The property had not been leased since
December 1999 at which time WPC commenced a redevelopment of the property. The
property was sold to the Los Angeles Uniﬁed School District in June 2002, and WPC was
engaged to manage the build-to-suit development of the property. Due to WPC’s continu-
ing involvement with the development of the property, the recognition of gain on sale and
the subsequent build-to-suit development income on the project are being recognized using
a blended proﬁt margin under the percentage of completion method of accounting. The
build-to-suit development agreement provides for fees of up to $4,700 and an early comple-
tion incentive fee of $2,000 if the project is completed before September 1, 2004. The sub-
sidiary is obligated to share 10% of the early completion incentive fee, if achieved, with a
joint venture partner. This joint venture partner has no other participation in the sub-
sidiary’s fees or its proﬁt or loss. Because the early completion incentive is contingent, it is
not included in the percentage of completion calculation and will only be recognized to
earnings when the early completion deadline is met. For the year ended December 31, 2002,
WPC recorded $289 of build-to-suit development fee management income even though
cash consideration received as of December 31, 2002 for services provided under the
contract was approximately $1,208.

For tax purposes, the sale of the Los Angeles property was structured as a Section 1033
noncash exchange which, under the Internal Revenue Code, would allow WPC to acquire
like-kind real properties within a speciﬁed period in order to defer a taxable gain to share-
holders of approximately $20,000. If a like-kind exchange is completed, the taxable gain
will not be recognized until the replacement properties acquired are subsequently sold. As
of December 31, 2002, no replacement property has been identiﬁed.

Future operating cash ﬂow will be affected by lease terminations and sales of properties.

In December 2001, Thermadyne ﬁled a petition of bankruptcy and subsequently vacated
WPC’s City of Industry, California property in February 2002. Annual rents were $2,525.
In December 2002, WPC entered into an agreement to re-lease a portion of the space for
$873 to a tenant which was occupying the space on a month-to-month basis, and is seeking
to re-market the remaining space. In April 2002 Pillowtex, Inc. terminated its lease under
its plan of reorganization, and vacated WPC’s property in Salisbury, North Carolina in
April. Pillowtex’s annual rent was $691. WPC is continuing to seek a new tenant for the
Pillowtex property.

In January 2002, The Gap, Inc. notiﬁed WPC that it would not renew its lease which

expired in February 2003. The lease provided annual rent of $2,205. Based on current
market rentals, WPC does not expect the rent for new leases on the Gap property to reach
a level equal to the rents received from The Gap. Management believes that the prospects
for leasing the Gap property on a long-term basis are good; however, it may take up to two
years to remarket the property. WPC and the Gap negotiated a lease termination settle-
ment and WPC received a payment of $2,250 in March 2003.

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In June 2002, Wozniak Industries, Inc. notiﬁed WPC that it would not renew its lease,

which expires in December 2003 and Varo, Inc. did not renew its lease for a property in
Garland, Texas and vacated in October 2002. A lessee at the multi-tenant property in
Pantin, France, did not renew its lease in September 2002. Annual rents under the leases
were approximately $1,770. WPC is actively remarketing the Pantin property, and is in the
process of negotiating with a new tenant and intends to sell the Varo property in “as-is”
condition. The sale of the Wozniak property was completed in March 2003. In addition,
various leases with annual rental income totaling approximately $2,693 are due to expire in
2003, and WPC is either negotiating a renewal of the leases, negotiating with the tenants to
sell the property or actively re-marketing the properties for lease or sale.

In November 2001, WPC evicted the lessee, Red Bank Distribution, Inc. from its prop-
erty in Cincinnati, Ohio and entered into an agreement-in-principle that effectively termi-
nated the net lease because of Red Bank’s inability to meet its annual rental lease obligation
of $1,579. At that time, WPC assumed control of the property and was managing a public
warehousing operation that occupies a portion of the building. Management evaluated sev-
eral alternatives, and in May 2002 signed a license agreement with a tenant to take over
the operations of the property. The short-term agreement provides annual rent of $300.

In February 2003, WPC sold its property in Winona, Minnesota to the lessee, Peerless
Chain Company for $10,800, comprised of cash of $6,300 and two notes receivable with a
fair value totaling $2,250 and which mature in 2006 and 2008. WPC also received a note
receivable of approximately $1,700 for unpaid rents which is payable in equal monthly
installments over 5 years. Annual rental income under the Peerless lease was $1,561.

WPC has classiﬁed the Varo, Wozniak, Red Bank and Peerless properties as held for
sale as of December 31, 2002 and included the revenue and expense from those properties
in discontinued operations.

As of December 31, 2002, WPC has classiﬁed three additional properties as held for
sale. Annual lease revenues from these properties approximate $284. Over the past several
years, WPC has pursued a strategy of selling its smaller properties as they do not generate
signiﬁcant cash ﬂow and require more intensive asset management services. These proper-
ties include small retail properties that were originally leased under a master lease.

In December 2002, WPC entered into a series of agreements with Faurecia Exhaust
Systems, Inc., the lessee of two properties in Toledo, Ohio. In consideration for terminating
the existing lease and vacating one of the properties, WPC received a promissory note of
$4,240, which matured in January 2003 at which time it was paid. The term of the original
lease had been scheduled to expire in 2007. In connection with vacating this property,
WPC was assigned rights, by Faurecia, as landlord, to a sublease at the property. The sub-
lease agreement provides for annual rents of $357, through November 2005, and has been
guaranteed by Faurecia. The terminated lease provided for annual rental income of $1,617.
WPC will recognize the restructuring consideration over a period equivalent to the former
lease term. WPC is remarketing 750,000 square feet at the property. Concurrently, Faurecia
entered into a separate lease agreement for the remaining property. The new Faurecia lease
has a 20-year term at an annual rent of $336.

Two leases with Federal Express Corporation were extended for ﬁve years, a lease with
Verizon Communications, Inc. was extended for ten years, and leases with Honeywell, Inc.

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for a portion of two properties in Houston, Texas were extended for three years. Annual
rental income under the Federal Express, Verizon and Honeywell leases is $804. New
leases, each with ten-year terms, were entered into with Petrocon Engineering, Inc. and
Tooling Systems, LLC, for a portion of a property in Beaumont, Texas and Frankenmuth,
Michigan, respectively. Annual rental income from the two leases is $580. Both had been
tenants under short-term leases. Two leases with Lockheed Martin Corporation for a por-
tion of properties located in Oxnard, California and Houston, Texas have been extended
through December 2003 and December 2007, respectively, with an additional extension
on the Oxnard property if Lockheed Martin has certain government contracts renewed.
Annual rents under the two Lockheed leases are $891. Lockheed also leases a property in
King of Prussia, Pennsylvania which term expires in July 2003 and provides annual rent
of $974. Lockheed Martin is in the process of extending the King of Prussia lease for ﬁve
years at an annual rent of $797. Pre Finish Metals Incorporated renewed its lease, which
had been scheduled to expire in June 2003, for ﬁve years at an annual rent of $892.

WPC continues to monitor closely the ﬁnancial condition of several lessees which it
believes have been affected by current economic conditions and other trends. Such lessees
include America West Holding Corp. and Livho, Inc., which each represent 3% of lease
revenues. America West, an air carrier, has obtained a government guarantee for ﬁnancing
subsequent to September 11, 2001 and its ﬁnancial prospects remain uncertain. Livho,
the lessee of a Holiday Inn in Livonia, Michigan, is affected by the cyclical nature of the
automotive industry. Due to Livho’s declining operating results, WPC has agreed to amend
its lease with Livho, with annual rent being reduced, effective in January 2003, to $1,800
from $2,520.

Because of the long-term nature of WPC’s net leases, inﬂation and changing prices
should not unfavorably affect revenues and net income or have an impact on the continu-
ing operations of WPC’s properties. WPC’s leases usually have rent increase provisions
based on the CPI and other similar indices and may have caps on such increases, or sales
overrides, which should increase operating revenues in the future. Over the past several
years, the CPI has had annual increases that range from 1.5% to 3%.

Net operating income from WPC’s management services operations for the years ended

December 31, 2002 and 2001 was $37,732 and $8,047, respectively (also see Note 17 to
the accompanying consolidated ﬁnancial statements). Results for 2002 include noncash
charges for amortization of intangible assets of $7,280 and results for 2001 include amorti-
zation of goodwill and intangible assets of $11,903. Excluding the charges for amortization,
operating income from management services would have been $45,012 and $19,950,
respectively, for the years ended December 31, 2002 and 2001. As described below, the
management revenues are comprised of transaction and asset-based fees. Transaction fees
represented 56% of management revenues in 2002 as compared with 36% in 2001. The
ability to generate transaction fees is, to a large extent, dependent on the ability of the
CPA® REITs to raise capital and invest the capital raised in real estate. There can be no
assurance that the factors for raising capital will continue to be favorable. WPC believes,
therefore, that the increase or annual level of transaction fees should not be seen as a
sustainable trend. While asset-based fees represented a lower proportion of management
revenues in 2002, these revenues increased by 23%. The increase beneﬁted from an

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increase in the asset base of the CPA® REITs and that growth is also related to the
ability of the CPA® REITs to raise capital.

Total revenues earned by the management services operations for the years ended
December 31, 2002 and 2001 were $84,255 and $46,911, respectively. Management fee
revenues were comprised of transaction fees of $47,005 and $17,160, respectively, and
asset-based fees and reimbursements of $37,250 and $29,751, respectively, for the years
ended December 31, 2002 and 2001. Transaction fees included fees from structuring acqui-
sitions and ﬁnancings on behalf of the CPA® REITs. WPC and afﬁliates structured more
than $981,000 of acquisitions on behalf of the CPA® REITs in 2002 as compared with
$395,000 in 2001. Management believes that acquisition volume in 2003 may meet or
exceed 2002. Since December 31, 2002, WPC and afﬁliates have structured more than
$200,000 of acquisitions on behalf of the CPA® REITs.

The asset-based management income includes fees based on the value of CPA® REIT

real estate assets under management. Total asset based management fees for the years
ended December 31, 2002 and 2001 were $26,453 and $21,511, respectively. A portion of
the CPA® REIT management fees is based on each CPA® REIT meeting speciﬁc perfor-
mance criteria (the “performance fee”) and is earned only if the criteria are achieved. The
performance criterion for Corporate Property Associates 10 Incorporated (“CPA®:10”) was
satisﬁed during the second quarter of 2002, resulting in WPC’s recognition of $1,463 in
performance fees for the period June 2000 through March 2002. The performance crite-
rion for CPA®:14 was satisﬁed for the ﬁrst time during the second quarter of 2001, result-
ing in WPC’s recognition of $3,112 for the period December 1997 through March 2001.
Based on assets under management of the CPA® REITs as of December 31 2002, annual-
ized management and performance fees under the advisory agreements are approximately
$32,005. As the real estate asset bases of CPA®:14 and CPA®:15 continue to increase, man-
agement and performance fees are expected to increase. CPA®:14 completed a public offer-
ing in 2001 and still has cash that it raised from its offering that is available for investment.

As of March 12, 2003, the CPA® REITs had approximately $105,000 available for
investment. CPA®:15 fully subscribed its initial $400,000 “best efforts” public offering in
November 2002. CPA®: 15 has ﬁled a registration statement with the United States
Securities and Exchange Commission to commence a second “best efforts” public offering
of up to $690,000. Management believes that the CPA® REITs are beneﬁting from several
trends including the increasing use of sale-leaseback transactions by corporations as an
alternative source of ﬁnancing and individual investors seeking dividend-paying invest-
ments. WPC cannot predict how long either trend will be sustained because much of it
is determined by factors which are beyond the control of the company. During 2002,
CPA®:15 entered into a sales agreement with UBS PaineWebber and A.G. Edwards
which commenced selling of CPA®:15 during the second and fourth quarter, respectively.
In April 2002, the shareholders of CPA®:10 and CIP®, approved a merger agreement
providing for the merger of CPA®:10 into CIP®. The merger, which was effective on May 1,
2002, did not result in a change in assets under management, so that the asset-based fees
earned by WPC were not affected by the merger. As a result of the merger, WPC received
$248 in property disposition fees which were earned in April 2002 when subordination
provisions in the CPA®:10 Advisory Agreement were met.

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During September 2002, WPC completed a commercial mortgage-backed securitization

which obtained $172,335 of limited recourse mortgage ﬁnancing, primarily on behalf of
three CPA® REITs. The loans were pooled into a trust, Carey Commercial Mortgage Trust,
a non-afﬁliate whose assets consist solely of the loans. The trust offered $148,206 of collat-
eralized mortgage obligations in a private placement to institutional investors. A subordi-
nated interest of $24,129 was retained by the CPA® REITs (of which a 1% interest is held
by WPC). Through this securitization, WPC enabled the CPA® REITs to obtain mortgage
ﬁnancing on favorable terms and to ﬁnd a potential new source of future mortgage ﬁnancing.
The provision for income tax expense for the year ended December 31, 2002 increased by
$9,723 over the comparable year ended December 31, 2001 and resulted from the growth
of the management services operations. Income tax expense increased because approxi-
mately 90% of management revenues are earned by a taxable, wholly-owned subsidiary
which reﬂected a substantial increase in earnings for the comparable periods.

The increase in general and administrative expenses was attributable to the growth of
the management services operations. A signiﬁcant portion of the increase represents costs
that vary with acquisition and asset management activity. The overall percentage increase
in general and administrative expenses was signiﬁcantly lower than the percentage increase
in management revenues. The portion of personnel costs necessary to administer the CPA®
REITs is reimbursed to WPC by the CPA® REITs and is included in management income.
Reimbursement for personnel-related costs for the comparable years ended December 31,
2002 and 2001 were $6,565 and $5,255, respectively. Of the increase in personnel costs
for the comparable years, $927 reﬂected an increase in the non-cash charges relating to
WPC’s share incentive plans. Equity awards are generally amortized over a four-year
vesting period.

Year-Ended December 31, 2001 Compared to Year-Ended December 31, 2000
WPC reported net income of $35,761 and a net loss of $9,278, and income from continuing
operations of $33,614 and loss from continuing operations of $12,060, for the years ended
December 31, 2001 and 2000, respectively. The results for 2001 and 2000 are not fully
comparable, primarily due to the acquisition of the management operations in June 2000
and the related charge in 2000 of $38,000 in connection with terminating its management
contract. Excluding the charge on the termination of the management contract in 2000,
net income and income from continuing operations for the comparable periods would have
increased by $7,039 and $7,674, respectively.

Net operating income from real estate operations (real estate segment income before
gains and losses, income taxes, minority interest and the charge on the contract termina-
tion) was $31,140 and $24,116 in 2001 and 2000, respectively (also see Note 17 to the
accompanying consolidated ﬁnancials statements). The results for 2001 and 2000 include
asset impairment charges of $9,997 and $8,809, respectively, representing noncash impair-
ment writedowns of assets to estimated fair value. Excluding the effect of the writedowns,
operating income from real estate operations for 2001 would have reﬂected an increase of
$8,620 over 2000.

The increase in real estate operating income was primarily due to decreases in interest

expense and depreciation. The decrease in interest expense was attributable to lower

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average outstanding balances on WPC’s $185,000 credit facility and a decrease in interest
rates during 2001. Interest expense on the credit facility decreased by $6,292 over 2000.
The average balance outstanding on the credit line was $104,000 in 2001 and $146,000
in 2000 and the average LIBOR-based interest rate declined from 7.77% to 5.29%. As
of December 31, 2001, advances outstanding on the credit facility were $95,000. The
decrease in interest expense from the credit facility was partially offset by an increase in
mortgage interest due to placement of mortgages on the Cendant Operations, Inc. and
Sprint Spectrum properties in December 2000 and July 2001, respectively, resulting in
higher interest charges from mortgages. The decrease in depreciation of $2,980 to $10,023
in 2001 was primarily due to the disposition of the majority interest in the Federal Express
Corporation property in Colliersville, Tennessee in December 2000 to an afﬁliate and
the reclassiﬁcation of a property located in Los Angeles, California to real estate under
development in December 1999 at which time depreciation was no longer incurred.

Other income primarily consists of nonrecurring items including, but not limited to,
consideration from lease termination and settlements. In 2001, WPC received a $2,500
ﬁnal settlement of a claim against New Valley and $2,165 from a settlement with the
guarantor of a lease with General Cinema for a property in Burnsville, Minnesota.

The increase in property expenses in 2001 of $1,385 to $6,877 was primarily due to an
increase in real estate taxes and utilities on vacant and partially vacant properties of $691
and an increase in the provision for uncollected rents of $2,098 and was partially offset by
decreases in management fees of $1,908. Effective with the cancellation of its Management
Agreement in June 2000, WPC no longer incurred management fees. The provision for
uncollected rents included a writeoff of accumulated straight-line rents of $1,321 that was
recorded in connection with amending a lease.

The decrease in lease revenues of $6,193 to $72,111 in 2001 was primarily as a result

of the sale of a 60% majority interest in the Federal Express property to an afﬁliate in
December 2000 and the restructuring of a lease with Livho, Inc., the lessee of the Holiday
Inn in Livonia, Michigan, and was partially offset by rent increases on various leases
and increased rents from the completion of expansions at existing properties. The lease
restructuring with Livho, Inc. resulted in a decrease in rental income of $658. During the
year ended December 31, 2000, revenues from the Federal Express lease were $5,404.
The remaining 40% interest in the property is accounted for under the equity method
of accounting.

WPC incurred impairment charges of $12,643 in 2001 including a writedown of $6,749

in its equity investment in MeriStar as a result of a decrease in MeriStar’s earnings and
the uncertainty regarding its distribution rate which was reduced in the fourth quarter of
2001. WPC incurred a $2,000 impairment loss on the Red Bank property as a result of the
eviction (i.e., a change in circumstances which required an evaluation for possible impair-
ment). The remaining impairment losses primarily related to the writedowns of several
under-performing properties which WPC entered into commitments to sell.

Net operating income from WPC’s management services operations for the years ended
December 31, 2001 and 2000 was $8,047 and $9,361, respectively, and is not fully compa-
rable as the acquisition of the management services operations occurred June 29, 2000.
Results for the years ended December 31, 2001 and 2000 include noncash charges for

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amortization of goodwill and intangible assets of $11,903 and $5,958, respectively. Excluding
amortization charges, operating income from management services would have been
$19,950 and $15,319 for the years ended December 31, 2001 and 2000, respectively. The
provision for income taxes for the year ended December 31, 2001 increased by $4,332 over
the year ended December 31, 2000. The increase is a result of 80% of management rev-
enues being earned by a taxable, wholly-owned subsidiary.

Total revenues earned by the management services operations for the years ended
December 31, 2001 and 2000 were $46,911 and $25,271, respectively. Management fee
revenues were comprised of transaction fees of $17,160 and $14,894 and asset-based man-
agement fees and reimbursements of $29,751 and $10,377 for the years ended December 31,
2001 and 2000, respectively. Transaction fees included fees from structuring acquisition
and reﬁnancing transactions on behalf of the CPA® REITs. WPC and afﬁliates structured
approximately $395,000 of acquisitions in 2001. Total asset based fees for the years ended
December 31, 2001 and 2000 were $21,511 and $6,809, respectively.

The increase in general and administrative expenses was primarily due to the acquisition

of the management services operations in 2000. Approximately 89% of the increase in
general and administrative costs resulted from personnel-related costs.

FINANCIAL CONDITION
WPC’s cash balances increased to $21,304 from $8,870 and overall debt decreased from
$296,000 to $235,000. Management believes that WPC will generate sufﬁcient cash from
operations and, if necessary, from the proceeds of limited recourse mortgage loans, unse-
cured indebtedness and the issuance of additional equity securities to meet its short-term
and long-term liquidity needs. WPC assesses its ability to obtain debt ﬁnancing on an
ongoing basis.

Cash ﬂows from operating activities and distributions received from equity investments

for the year ended December 31, 2002 of $81,456 were sufﬁcient to fund dividends to
shareholders of $60,708. Annual cash ﬂow from operations is projected to fully fund distri-
butions; however, the coverage of distributions may ﬂuctuate on a quarterly basis due to
the timing of certain compensation costs that are paid in the ﬁrst quarter and the timing
of transaction-related activity. In January 2002, WPC received its ﬁrst installment of
deferred acquisition fees of $916 in connection with structuring transactions in 2000 on
behalf of the CPA® REITs. Based on the high volume of property acquisitions WPC has
structured on behalf of the CPA® REITs in 2002 and 2001, and Management’s estimate of
future acquisitions volume, the annual installment will increase to $1,495 in 2003, subject
to the subordination provisions of the CPA® REITs. The payments of the deferred acquisi-
tion fees by the CPA® REITs is subordinated to each CPA® REIT meeting speciﬁed
certain performance criteria.

Investing activities included using $13,983 for purchases of real estate, equity invest-

ments, securities and additional capital expenditures. The expenditures included using
$11,714 for the purchase of a 36% jointly-controlled tenancy-in-common interest in two
properties leased to Hologic, $640 for the purchase of a vacant parcel of land adjacent to
existing properties in Broomﬁeld, Colorado, $413 for the ﬁnal funding of the expansion at
the AT&T property, $975 to fund other improvements and $241 to purchase a 1% interest

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in the commercial mortgage-backed securitization structured by WPC on behalf of the
CPA® REITs. In connection with the securitization, WPC received a capital distribution
of $1,255 from an equity investee which reﬁnanced its mortgage debt.

WPC received $50,247 in connection with the sales of properties and investments
including the sale of the property in Los Angeles, California for $24,000. The proceeds
from the sale of the Los Angeles property were used to pay down a portion of WPC’s bal-
ance on its credit facility. WPC used $10,751 of cash proceeds from the sale of properties
leased to Saint-Gobain Corporation, to pay off the limited recourse mortgage loan on the
properties. The remaining net cash proceeds from the Saint-Gobain sale of $15,174 were
placed in an escrow account for the purpose of entering into a Section 1031 noncash
exchange which, under the Internal Revenue Code, allowed WPC to acquire like-kind real
properties within a stated period in order to defer a taxable gain. WPC used $14,378 of
the Saint-Gobain escrow to acquire three properties leased to BE Aerospace, Inc, and the
remaining funds were utilized in the acquisition of the interest in the Hologic properties.
Funds of $9,366 from a property sale in 2001 which had been placed in an escrow account
for the purpose of structuring a Section 1031 exchange were released in 2002 when an
exchange was not completed. In January 2002, WPC paid an installment of deferred
acquisition fees of $524 to WPC’s former management company relating to 1998 and 1999
property acquisitions. Deferred acquisition fees are payable over a period of no less than
eight years. The remaining obligation as of December 31, 2002 is $2,758. An installment
of $524 was paid in January 2003.

In addition to paying dividends to shareholders, WPC’s ﬁnancing activities for 2002
included reducing the outstanding balance of its credit facility by $46,000 to $49,000, pay-
ing off in full $12,580 mortgage debt on the Alpena and Petoskey hotel properties, and
obtaining new mortgages of $16,200. WPC also made scheduled principal payment install-
ments of $8,428 on existing mortgages. WPC uses limited recourse mortgages as a sub-
stantial portion of its long-term ﬁnancing because a lender of a limited recourse mortgage
loan has recourse only to the properties collateralizing its loan and not to any of WPC’s
other assets. As of December 31, 2002, approximately 55% of the properties owned by
WPC are unencumbered with mortgage debt.

WPC’s raised $10,086 from the issuance of shares primarily through WPC’s dividend

reinvestment and stock purchase plan, and the exercise of options by employees. WPC
issued additional shares pursuant to its merger agreement for the management services
operations (500,000 shares valued at $10,440 were issued during 2002 based on meeting
performance criteria as of December 31, 2001). For the year ended December 31, 2002,
WPC met the FFO Target, and an additional 400,000 shares ($8,910) will be issued during
2003. In connection with the acquisition of the majority interests in the CPA® partnerships
on January 1, 1998, a CPA® partnership had not yet achieved a speciﬁed cumulative
return for its limited partners. The subordinated preferred return would only be payable
currently if WPC achieved a closing price equal to or in excess of $23.11 for ﬁve consecu-
tive trading days. On December 31, 2001, the closing price criterion was met, and the
$1,423 subordinated preferred return was paid to the former general partner in January
2002. WPC has no remaining obligations relating to January 1998 transactions.

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In 2001, WPC entered into a revolving credit agreement for a $185,000 line of credit
which renewed and extended its original revolving unsecured line of credit. The credit
agreement has a three-year term through March 2004. WPC has a one-time right to
increase the commitment to up to $225,000. The revolving credit agreement has ﬁnancial
covenants that require WPC to maintain a minimum equity value and to meet or exceed
certain operating and coverage ratios. As advances on the credit facility are not restricted,
WPC believes that the remaining capacity on the credit line allows WPC to meet its liquid-
ity needs on a short-term basis, if necessary, and that renewing the facility after the current
term is likely. As of December 31, 2002, WPC has $136,000 of unused capacity under the
credit facility. Over the past twelve months, WPC has substantially deleveraged as its
overall debt has decreased from $295,515 to $235,049, or 20%. 78% of WPC’s outstanding
mortgage debt has ﬁxed rates of interest that will partially protect WPC from increases in
market rates from near-historical lows.

WPC expects to meet its capital requirements to fund future property acquisitions, con-
struction costs on build-to-suit transactions, any capital expenditures on existing properties
and scheduled debt maturities through long-term limited recourse mortgages, unsecured
indebtedness and the possible issuance of additional equity securities. WPC is expected
to incur capital expenditures on various properties during 2003 of approximately $2,000,
primarily related to tenant leasehold improvements, and for property improvements and
upgrades to enhance a property’s marketability for re-leasing. Commitments for capital
expenditures on the Livonia hotel are currently estimated to be $3,500 relating to a property
improvement plan requirement necessary to renew the franchise license with Holiday Inn.
The funds are expected to be paid out over a three-year period beginning in the second
half of 2004. WPC is evaluating redevelopment plans for the Broomﬁeld property but has
not determined the cost of such redevelopment. In the case of limited recourse mortgage
ﬁnancing that does not fully amortize over its term or is currently due, WPC is responsible
for the balloon payment only to the extent of its interest in the encumbered property
because the holder has recourse only to the collateral. In the event that balloon payments
come due, WPC may seek to reﬁnance the loans, restructure the debt with the existing
lenders or evaluate its ability to satisfy the obligation from its existing resources including
its revolving line of credit, to satisfy the mortgage debt. To the extent the remaining initial
lease term on any property remains in place for a number of years beyond the balloon pay-
ment date, WPC believes that the ability to reﬁnance balloon payment obligations is
enhanced. WPC also evaluates all its outstanding loans for opportunities to reﬁnance debt
at lower interest rates that may occur as a result of decreasing interest rates or improve-
ments in the credit rating of tenants. There are $2,500 and $16,700 in scheduled balloon
payments on limited recourse mortgage notes due in 2003 and 2004, respectively. WPC
believes it has sufﬁcient resources to pay off the loans in the event they are not reﬁnanced.
WPC from time to time may offer to sell its Listed Shares, Future Shares and Warrants

pursuant to a registration statement declared effective by the Securities and Exchange
Commission in February 2001. The total amount of these securities will have an initial
aggregate offering price of up to $100,000 although WPC may increase this amount in
the future. The shares and/or warrants may be offered and sold to or through one or more
underwriters, dealers and agents, or directly to purchasers, on a continuous or delayed

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basis. The prospectus included as part of the registration statement describes some of the
general terms that may apply to these securities and the general manner in which they may
be offered. The speciﬁc terms of any securities to be offered, the speciﬁc manner in which
they may be offered and the speciﬁc use of proceeds, will be described in a supplement to
the prospectus.

OFF-BALANCE SHEET AND AGGREGATE CONTRACTUAL AGREEMENTS
WPC has guaranteed loans of $4,528 made to ofﬁcers which are collateralized by shares of
WPC owned by the ofﬁcers and held by WPC and has provided a guarantee of $2,000
related to the development project in Los Angeles (see discussion of the development pro-
ject in the results of operations for the year ended December 31, 2002). These shares to
ofﬁcers were issued in connection with equity incentive plans and the acquisition of the
management operations. WPC will not renew the guarantee on the ofﬁcers’ loans in 2003.

A summary of WPC’s obligations, commitments and guarantees under contractual

arrangements are as follows:

In thousands

Total

2003

2004

2005

2006

2007

There-
after

OBLIGATIONS
Limited recourse
mortgage
notes payable

Unsecured

note payable

Deferred acquisition

fees

COMMITMENTS AND
GUARANTEES
Guarantee of

ofﬁcer loans

Capital improvements
Development project
Share of minimum

rents payable under
ofﬁce cost-sharing
agreement

$186,049

$11,180 $25,391

$08,264

$24,894

$14,600 $101,720

49,000

2,757

524

137

4,528

4,528
3,500
2,000

500
2,000

1,500

1,748

466

350

$249,582

$16,698 $77,881

$10,754

$27,268

$15,124 $101,857

In connection with the purchase of many of its properties, WPC required the sellers

to perform environmental reviews. Management believes, based on the results of such
reviews, that WPC’s properties were in substantial compliance with Federal and state envi-
ronmental 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 historical on-site activities.
In most instances where contamination has been identiﬁed, tenants are actively engaged in
the remediation process and addressing identiﬁed conditions. Tenants are generally subject
to environmental statutes and regulations regarding the discharge of hazardous materials
and any related remediation obligations. In addition, WPC’s leases generally require ten-

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ants to indemnify WPC from all liabilities and losses related to the leased properties with
provisions of such indemniﬁcation speciﬁcally addressing environmental matters. The
leases generally include provisions that allow for periodic environmental assessments,
paid for by the tenant, and allow WPC to extend leases until such time as a tenant has
satisﬁed its environmental obligations. Certain of the leases allow WPC to require ﬁnancial
assurances from tenants such as performance bonds or letters of credit if the costs of reme-
diating environmental conditions are, in the estimation of WPC, in excess of speciﬁed
amounts. Accordingly, Management believes that the ultimate resolution of environmental
matters will not have a material adverse effect on WPC’s ﬁnancial condition, liquidity or
results of operations.

ACCOUNTING PRONOUNCEMENTS
In June 2001, the Financial Accounting Standards Board (“FASB”) issued SFAS No.141
“Business Combinations” and No. 142 “Goodwill and Other Intangibles,” which establish
accounting and reporting standards for business combinations, certain assets and liabilities
acquired in business combinations and asset acquisitions.

SFAS No.141 requires that all business combinations and asset acquisitions initiated

after June 30, 2001 be accounted for under the purchase method, establishes speciﬁc
criteria for the recognition of intangible assets separately from goodwill and requires that
unallocated negative goodwill be written off immediately as an extraordinary gain. Use of
the pooling-of-interests method for business combinations is no longer permitted. The
adoption of SFAS No.141 did not have a material effect on WPC’s ﬁnancial statements.
SFAS No.142 primarily addresses the accounting for goodwill and intangible assets
subsequent to their acquisition. SFAS No.142 provides that goodwill and indeﬁnite-lived
intangible assets will no longer be amortized but will be tested for impairment at least
annually. Intangible assets acquired and liabilities assumed in business combinations will
only be amortized if such assets or liabilities are capable of being separated or divided and
sold, transferred, licensed, rented or exchanged or arise from contractual or legal rights
(including leases), and will be amortized over their useful lives. In accordance with the
requirements of SFAS No.142, WPC performed its annual tests for impairment of its
management services segment, the reportable unit for measurement and concluded that
the carrying value of goodwill is not impaired.

With the acquisition of real estate management operations in 2000, WPC allocated a
portion of the purchase price to goodwill and other identiﬁable intangible assets. In adopt-
ing SFAS No. 142, WPC discontinued amortization of existing goodwill and certain intan-
gible assets. During the year ended December 31, 2001, WPC recorded annual amortiza-
tion charges of $4,597 which beginning January 1, 2002 were no longer expensed under
SFAS No. 142.

In June 2001, FASB issued SFAS No.143 “Accounting for Asset Retirement

Obligations.” SFAS No.143 was issued to establish standards for the recognition and
measurement of an asset retirement obligation. SFAS No.143 requires retirement obliga-
tions associated with tangible long-lived assets to be recognized at fair value as the liability
is incurred with a corresponding increase in the carrying amount of the related long-lived
asset. SFAS No. 143 is effective for ﬁnancial statements issued for ﬁscal years beginning

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after June 15, 2002. WPC does not expect SFAS No. 143 to have a material effect on its
ﬁnancial statements.

In August 2001, FASB issued SFAS No. 144 “Accounting for the Impairment of

Long-Lived Assets” which addresses the accounting and reporting for the impairment and
disposal of long-lived assets and supercedes SFAS No.121 while retaining SFAS No.121’s
fundamental provisions for the recognition and measurement of impairments. SFAS No.144
removes goodwill from its scope, provides for a probability-weighted cash ﬂow estimation
approach for analyzing situations in which alternative courses of action to recover the
carrying amount of long-lived assets are under consideration and broadens that presenta-
tion of discontinued operations to include a component of an entity. The adoption of SFAS
No.144 on January 1, 2002 did not have a material effect on WPC’s ﬁnancial statements;
however, the revenues and expenses relating to an asset held for sale or sold are presented
as a discontinued operation for all periods presented. The provisions of SFAS No.144 are
effective for disposal activities initiated by WPC’s commitment to a plan of disposition after
the date of adoption (January 1, 2002). As of December 31, 2002, the operations of
eighteen properties have been classiﬁed as discontinued operations. Seven of the properties
are classiﬁed as held for sale in the accompanying consolidated balance sheet as of
December 31, 2002, one of which was subsequently sold.

In May 2002, FASB issued SFAS No. 145 “Rescission of SFAS Nos. 4, 44 and 64,

Amendment of SFAS No. 13 and Technical Corrections” which eliminates the requirement
that gains and losses from the extinguishment of debt be classiﬁed as extraordinary items
unless it can be considered unusual in nature and infrequent in occurrence. The provisions
of SFAS No. 145 are effective for ﬁscal years beginning after May 15, 2002. WPC did not
elect early adoption. Upon adoption, WPC will no longer classify gains and losses for the
extinguishment of debt as extraordinary items and will adjust comparative periods presented.

In June 2002, the FASB issued SFAS No.146, “Accounting for Exit or Disposal

Activities”. SFAS No.146 addresses signiﬁcant issues regarding the recognition, measure-
ment, and reporting of costs that are associated with exit and disposal activities, including
restructuring activities that are currently accounted for pursuant to the guidance that the
Emerging Issues Task Force (“EITF”) has set forth in EITF Issue No. 94-3, “Liability
Recognition for Certain Employee Termination Beneﬁts and Other Costs to Exit an
Activity (including Certain Costs Incurred in a Restructuring)”. The provisions of this
Statement are effective for exit or disposal activities that are initiated after December 31,
2002, with early application encouraged. WPC does not expect SFAS No.146 to have a
material effect on its ﬁnancial statements.

In October 2002, the FASB issued SFAS No.147, “Acquisition of Certain Financial
Institutions” which amends SFAS No. 72, SFAS No.144 and FASB Interpretation No. 9.
SFAS No.147 provides guidance on the accounting for the acquisitions of certain ﬁnancial
institutions and includes long-term customer relationships as intangible assets within the
scope of SFAS No.144. WPC does not expect SFAS No.147 to have a material effect on
its ﬁnancial statements.

In December 2002, the FASB issued SFAS No.148, “Accounting for Stock-Based

Compensation – Transition and Disclosure,” which amends SFAS No.123, Accounting for
Stock Based Compensation. SFAS No.148 provides alternative methods of transition for a

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voluntary change to the fair value based method of accounting for stock based compensa-
tion (i.e., recognition of a charge for issuance of stock options in the determination of
income). However, SFAS No.148 does not permit the use of the original SFAS No.123
prospective method of transition for changes to the fair value based method made in ﬁscal
years beginning after December 15, 2003. In addition, this Statement amends the disclo-
sure requirements of SFAS No.123 to require prominent disclosures in both annual and
interim ﬁnancial statements about the method of accounting for stock based employee
compensation, description of transition method utilized and the effect of the method used
on reported results. The transition and annual disclosure provisions of SFAS No.148 are
to be applied for ﬁscal years ending after December 15, 2002. The new interim disclosure
provisions are effective for the ﬁrst interim period beginning after December 15, 2002.
WPC is evaluating whether it will change to the fair value based method.

In November 2002, the FASB issued Interpretation No. 45, “Guarantor’s Accounting

and Disclosure Requirements for Guarantees, Including Indirect Guarantees of
Indebtedness of Others,” (“FIN 45”) which changes the accounting for, and disclosure
of certain guarantees. Beginning with transactions entered into after December 31, 2002,
certain guarantees are required to be recorded at fair value, which is different from prior
practice, under which a liability was recorded only when a loss was probable and reason-
ably estimable. In general, the change applies to contracts or indemniﬁcation agreements
that contingently require WPC to make payments to a guaranteed third-party based on
changes in an underlying asset, liability, or an equity security of the guaranteed party.
The accounting provisions only apply for certain new transactions entered into or existing
guarantee contracts modiﬁed after December 31, 2002. The adoption of the accounting
provisions of FIN 45 is not expected to have a material effect on WPC’s ﬁnancial state-
ments. WPC has complied with the disclosure provisions.

On January 17, 2003, the FASB issued Interpretation No. 46, “Consolidation of

Variable Interest Entities” (“FIN 46”), the primary objective of which is to provide guid-
ance on the identiﬁcation of entities for which control is achieved through means other
than voting rights (“variable interest entities” or “VIEs”) and to determine when and which
business enterprise should consolidate the VIE (the “primary beneﬁciary”). This new
model applies when either (1) the equity investors (if any) do not have a controlling ﬁnan-
cial interest or (2) the equity investment at risk is insufﬁcient to ﬁnance that entity’s activi-
ties without additional ﬁnancial support. In addition, FIN 46 requires both the primary
beneﬁciary and all other enterprises with a signiﬁcant variable interest in a VIE to make
additional disclosures. The transitional disclosure requirements will take effect immediately
and are required for all ﬁnancial statements initially issued after January 31, 2003. WPC
is assessing the impact of this interpretation on its accounting for its investments in uncon-
solidated joint ventures and other entities. WPC is evaluating whether upon adoption in
the third quarter of 2003 if it will consolidate certain equity investments and other entities.
WPC’s maximum loss exposure is the carrying value of its equity investments. WPC does
not expect the adoption of the provisions of FIN 46 to have a material effect on its ﬁnan-
cial statements.

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REPORT OF INDEPENDENT ACCOUNTANTS

TO THE BOARD OF DIRECTORS AND SHAREHOLDERS OF W. P. CAREY & CO. LLC:
In our opinion, the accompanying consolidated balance sheets and the related consolidated
statements of operations, members’ equity and cash ﬂows present fairly, in all material
respects, the ﬁnancial position of W. P. Carey & Co. LLC and its subsidiaries at December 31,
2002 and 2001, and the results of their operations and their cash ﬂows for each of the three
years in the period ended December 31, 2002 in conformity with accounting principles
generally accepted in the United States of America. These ﬁnancial statements are the
responsibility of the Company’s management; our responsibility is to express an opinion
on these ﬁnancial statements based on our audits. We conducted our audits of these state-
ments in accordance with auditing standards generally accepted in the United States of
America, which require that we plan and perform the audit to obtain reasonable assurance
about whether the ﬁnancial statements are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures in the ﬁnancial
statements, assessing the accounting principles used and signiﬁcant estimates made by
management, and evaluating the overall ﬁnancial statement presentation. We believe that
our audits provide a reasonable basis for our opinion.

As discussed in Note 20 to the consolidated ﬁnancial statements, effective January 1,

2002, the Company adopted Statement of Financial Accounting Standard No. 142
“Goodwill and Other Intangibles,” which requires that goodwill and indeﬁnite-lived intan-
gible assets are no longer amortized and are assessed for impairment annually. In addition,
as discussed in Note 15 to the consolidated ﬁnancial statements, effective January 1, 2002,
the Company adopted Statement of Financial Accounting Standard No. 144 “Accounting
for the Impair-ment or Disposal of Long-Lived Assets,” which requires that the results of
operations, including any gain or loss on sale, relating to real estate that has been disposed
of or is classiﬁed as held for sale after the initial adoption be reported in discontinued oper-
ations for all periods presented.

New York, New York
March 19, 2003

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W. P. Carey & Co. LLC
CONSOLIDATED BALANCE SHEETS
In thousands except share amounts

ASSETS
Real estate leased to others:
Accounted for under the operating method, net of accumulated

depreciation of $41,716 and $32,401 at December 31, 2002 and 2001

Net investment in direct ﬁnancing leases

Real estate leased to others
Operating real estate, net of accumulated depreciation of $1,665 and

$2,076 at December 31, 2002 and 2001

Real estate under construction and redevelopment
Equity investments
Assets held for sale
Cash and cash equivalents
Due from afﬁliates
Goodwill, net of accumulated amortization of $4,363 at December 31, 2001
Intangible assets, net of accumulated amortization of $18,543 and

$13,499 at December 31, 2002 and 2001

Other assets, net of accumulated amortization of $1,927 and $1,095 at
December 31, 2002 and 2001 and reserve for uncollected rent of
$3,492 and $3,278 at December 31, 2002 and 2001

Total assets

LIABILITIES, MINORITY INTEREST AND MEMBERS’ EQUITY
Liabilities:
Mortgage notes payable
Notes payable
Accrued interest
Dividends payable
Due to afﬁliates
Accrued taxes
Prepaid rental income and security deposits
Accounts payable and accrued expenses
Deferred taxes, net
Other liabilities

Total liabilities

Minority interest

Commitments and contingencies
Members’ Equity:
Listed shares, no par value, 35,944,110 and 34,742,436 shares issued

and outstanding at December 31, 2002 and 2001

Dividends in excess of accumulated earnings
Unearned compensation
Accumulated other comprehensive loss

Total members’ equity

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As of December 31,
2001

2002

$432,556
189,339

621,895

$426,842
258,041

684,883

4,056
3,581
67,742
22,158
21,304
40,241
49,874

5,990
2,797
50,629
23,693
8,870
18,789
37,574

44,567

55,236

18,106

27,422

$893,524

$915,883

$186,049
49,000
1,319
15,486
12,874
5,285
3,951
17,931
19,763
9,494

321,152

1,484

$200,515
95,000
1,312
14,836
16,790
3,020
3,198
11,022
6,608
3,123

355,424

794

690,594
(111,970)
(5,671)
(2,065)

570,888

664,751
(97,200)
(4,454)
(3,432)

559,665

Total liabilities, minority interest and members’ equity

$893,524

$915,883

The accompanying notes are an integral part of the consolidated ﬁnancial statements.

W. P. Carey & Co. LLC
CONSOLIDATED STATEMENTS OF OPERATIONS
In thousands except share and per share amounts

2002

For the Years Ended December 31,
2000

2001

REVENUES
Management income from afﬁliates
Rental income
Interest income from direct ﬁnancing leases
Other interest income
Other income
Revenues of other business operations

EXPENSES
Interest
Depreciation
Amortization
General and administrative
Property expenses
Impairment charge on real estate and investments
Operating expenses of other business operations
Termination of management contract

Income (loss) from continuing operations before income
(loss) from equity investments, gain (loss) on sale,
minority interest and income taxes

Income (loss) from equity investments

Income (loss) from continuing operations before gain
(loss) on sale, minority interest and income taxes

Gain on sale of securities

Income (loss) from continuing operations before minority

interest, income taxes and gain (loss) on sale of real estate

Minority interest in (income) loss

Income (loss) from continuing operations before

income taxes and gain (loss) on sale of real estate

Provision for income taxes

Income (loss) from continuing operations before gain

(loss) on sale of real estate

Discontinued operations:

Income from operations of discontinued properties
Gain on sale of real estate
Impairment charges on properties held for sale

Income (loss) from discontinued operations

Gain (loss) on sale of real estate

Net income (loss)

The accompanying notes are an integral part of the consolidated ﬁnancial statements.

$084,255
47,865
23,001
1,727
1,258
3,498

161,604

16,457
10,834
9,214
42,594
6,530
21,186
2,338
—

109,153

52,451
(443)

52,008
94

52,102
120

$046,911
45,756
26,355
1,023
5,960
3,263

129,268

19,560
10,023
13,857
29,331
6,877
9,997
2,376
—

92,021

37,247
2,827

40,074
44

40,118
68

52,222
(18,199)

40,186
(8,476)

$025,271
50,281
28,023
452
2,626
3,411

110,064

25,346
13,003
6,934
16,474
5,492
8,809
2,535
38,000

116,593

(6,529)
2,882

(3,647)
281

(3,366)
(1,517)

(4,883)
(4,144)

34,023

31,710

(9,027)

5,774
2,364
(8,224)

(86)

12,651

4,793
—
(2,646)

2,147

1,904

5,020
—
(2,238)

2,782

(3,033)

$046,588

$035,761

$0(9,278)

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W. P. Carey & Co. LLC
CONSOLIDATED STATEMENTS OF OPERATIONS (continued)
In thousands except share and per share amounts

Basic earnings (loss) per share

Income (loss) from continuing operations
Discontinued operations

Net income (loss)

Diluted earnings (loss) per share

Income (loss) from continuing operations
Discontinued operations

Net income (loss)

Weighted average shares outstanding

Basic

Diluted

The accompanying notes are an integral part of the consolidated ﬁnancial statements.

2002

For the Years Ended December 31,
2000

2001

$1.31
—

$1.31

$1.28
—

$1.28

$ .98
.06

$1.04

$ .96
.06

$1.02

$(.40)
.09

$(.31)

$(.40)
.09

$(.31)

35,530,334

34,465,217

29,652,698

36,265,230

34,952,560

29,652,698

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W. P. Carey & Co. LLC
CONSOLIDATED STATEMENTS OF MEMBERS’ EQUITY
For the years ended December 31, 2000, 2001 and 2002

Dividends in
Excess of
Paid-in Accumulated
Earnings
Capital

Unearned
Compensation

Comprehensive

Accumulated
Other
Income Comprehensive
(Loss) Income (Loss)

Treasurey
Shares

Total

Balance at

January 1, 2000

25,771,303

$526,130

$(11,560)

$(910)

$0(1,060)

$512,600

Shares issued in

connection with
services rendered
and properties
acquired
Shares issued in

connection with
acquisition
Shares and options

issued under share
incentive plans

Forfeitures
Dividends declared
Amortization

of unearned
compensation
Repurchase of shares
Cancellation of

treasury shares

Net loss

Other comprehensive
income:
Change in unrealized
depreciation of
marketable
securities
Foreign currency
translation
adjustment

Comprehensive loss
Balance at

226,290

3,169

8,104,673

124,630

347,100
(8,050)

6,311
(160)

(836,600)

(15,331)

(53,422)

$(6,311)
160

860

(9,278)

$(9,278)

(14,271)

15,331

3,169

124,630

—
—
(53,422)

860
(14,271)

—
(9,278)

(1,155)

(1,060)

(2,215)

$(11,493)

(2,215)

December 31, 2000

33,604,716

644,749

(74,260)

(5,291)

(3,125)

—

562,073

The accompanying notes are an integral part of the consolidated ﬁnancial statements.

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W. P. Carey & Co. LLC
CONSOLIDATED STATEMENTS OF MEMBERS’ EQUITY (continued)
For the years ended December 31, 2000, 2001 and 2002

Dividends in
Excess of
Paid-in Accumulated
Capital

Unearned
Earnings Compensation

Comprehensive

Accumulated
Other
Income Comprehensive
(Loss) Income (Loss)

Treasurey
Shares

Total

Balance at

December 31, 2000

33,604,716

644,749

(74,260)

(5,291)

(3,125)

—

562,073

Cash proceeds on
issuance of
shares, net
Shares issued in

connection with
services rendered
and properties
acquired
Shares issued in

connection with
acquisition
Shares and options

issued under share
incentive plans

Forfeitures
Dividends declared
Tax beneﬁt – share
incentive plans

Amortization of
unearned
compensation

Net income

Other comprehensive

income:

Change in unrealized
depreciation of
marketable securities

Foreign currency
translation
adjustment

Comprehensive income
Balance at
December 31, 2001

422,032

6,496

6,825

134

651,964

10,956

63,749
(6,850)

1,235
(117)

1,298

(1,235)
117

(58,701)

1,955

35,761

$35,761

6,496

134

10,956

(58,701)

1,298

1,955
35,761

130

(437)

(307)

$35,454

(307)

34,742,436

664,751

(97,200)

(4,454)

(3,432)

—

559,665

The accompanying notes are an integral part of the consolidated ﬁnancial statements.

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W. P. Carey & Co. LLC
CONSOLIDATED STATEMENTS OF MEMBERS’ EQUITY (continued)
For the years ended December 31, 2000, 2001 and 2002

Dividends in
Excess of
Paid-in Accumulated
Earnings
Capital

Unearned
Compensation

Comprehensive

Accumulated
Other
Income Comprehensive
(Loss) Income (Loss)

Treasurey
Shares

Total

Balance at

December 31, 2001

34,742,436

664,751

(97,200)

(4,454)

(3,432)

—

559,665

Cash proceeds on

issuance of shares, net

528,479

10,086

5,755

390

500,000

10,440

170,768
(3,328)

3,913
(70)

1,084

(61,358)

(3,913)
70

2,626

46,588

$46,588

Shares issued in

connection with
services rendered

Shares issued in

connection with
acquisition
Shares and options

issued under share
incentive plans

Forfeitures
Dividends declared
Tax beneﬁt – share
incentive plans

Amortization of

unearned compensation

Net income

Other comprehensive

income:

Change in unrealized
depreciation of
marketable securities

Foreign currency

translation adjustment

Comprehensive income
Balance at

1,355

1,367

$47,955

1,367

December 31, 2002

35,944,110

$690,594

$(111,970)

$(5,671)

$(2,065)

—

$570,888

The accompanying notes are an integral part of the consolidated ﬁnancial statements.

10,086

390

10,440

(61,358)

1,084

2,626
46,588

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W. P. Carey & Co. LLC
CONSOLIDATED STATEMENTS OF CASH FLOWS
In thousands

Cash ﬂows from operating activities:

Net income (loss)
Adjustments to reconcile net income (loss)

to net cash provided by operating activities:
Income from discontinued operations,

including gain on sale

Depreciation and amortization
Equity income (loss) in excess of distributions
(Gain) loss on sales of real estate and securities, net
Minority interest in income (loss)
Straight-line rent adjustments and amortization

of deferred income

Management income received in shares of afﬁliates
Impairment charges on real estate assets held for

sale and investments

Increase in structuring fees receivable
Increase in deferred income taxes payable
Deferred acquisition fees received
Provision for uncollected rents
Costs paid by issuance of shares
Tax beneﬁt – share incentive plans
Amortization of unearned compensation
Termination of management contract
Net changes in operating assets and liabilities,
net of assets and liabilities acquired on acquisition

Net cash provided by continuing operations
Net cash provided by discontinued operations

Net cash provided by operating activities

Cash ﬂows from investing activities:

Distributions received from equity investments

in excess of equity income (loss)

Capital distribution from equity investment
Purchases of real estate, equity investments and securities
Additional capital expenditures
Payment of deferred acquisition fees
Release of funds from escrow from sale of real estate
Proceeds from sales of real estate, equity investments

and securities

Cash acquired on acquisition of business operations

Net cash provided by (used in) investing activities

The accompanying notes are an integral part of the consolidated ﬁnancial statements.

2002

For the Years Ended December 31,
2000

2001

$046,588

$35,761

$0(9,278)

(8,138)
20,884
(54)
(12,745)
(120)

(719)
(13,439)

29,410
(19,445)
13,155
916
1,402
500
1,084
2,626
—

9,831

71,736
4,160

75,896

5,560
1,255
(13,172)
(811)
(524)
9,366

50,247
—

51,921

(4,793)
24,681
(232)
(1,948)
(68)

(1,372)
(11,489)

12,643
(6,915)
5,272
—
1,300
278
1,298
1,955
—

(2,797)

53,574
5,303

58,877

2,768
—
(23,290)
(3,953)
(520)

11,627
—

(13,368)

(5,020)
20,803
(180)
2,752
1,517

(2,397)
(2,747)

11,047
(6,351)
1,336
—
476
1,482
—
860
38,000

396

52,696
5,526

58,222

1,732
17,544
(21,497)
(2,078)
(392)

45,617
212

41,138

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CONSOLIDATED STATEMENTS OF CASH FLOWS (continued)
In thousands

Cash ﬂows from ﬁnancing activities:

Dividends paid
Payment of accrued preferred distributions
Contributions from (distributions to) minority interest
Payments of mortgage principal
Proceeds from mortgages and notes payable
Prepayments of mortgage principal and notes payable
Payment of ﬁnancing costs
Proceeds from issuance of shares, net
Repurchase of shares

Net cash (used in) ﬁnancing activities

Effect of exchange rate changes on cash

Net increase (decrease) in cash and cash equivalents
Cash and cash equivalents, beginning of year

2002

For the Years Ended December 31,
2000

2001

(60,708)
(1,423)
636
(8,428)
79,200
(134,316)
(308)
10,086
—

(58,048)

—
204
(8,230)
97,627
(82,665)
(1,874)
6,496
(325)

(115,261)

(46,815)

(122)

12,434
8,870

(1,295)
10,165

(49,957)

—

(1,321)
(7,590)
64,397
(83,037)

—
—

(13,944)

(91,452)

(40)

7,868
2,297

Cash and cash equivalents, end of year

$(021,304

$(08,870

$(10,165

Noncash operating, investing and ﬁnancing activities:

The purchase of Carey Management LLC in June of 2000 consisted of the acquisition of certain
assets and liabilities at fair value in exchange for the issuance of listed shares as follows:

Intangible assets and goodwill:

Management contracts
Trade name
Workforce
Goodwill

Other assets and liabilities, net
Issuance of shares

Net cash acquired

$(097,135

4,700 (indeﬁnite-lived intangible asset at January 1, 2002)
4,900 (reclassiﬁed as goodwill on January 1, 2002)
22,356

129,091
(4,673)
(124,630)

$ 212

If speciﬁed performance criteria are achieved, the Company has an obligation to issue up to

an additional 2,000,000 shares over four years. The performance criteria for the years ended
December 31, 2001 and 2000 were achieved, and as a result 500,000 shares ($10,440 and
$8,145) were issued for the years ended December 31, 2001 and 2000, respectively. For the
year ended December 31, 2002, the Company met the FFO Target, and as a result 400,000
shares will be issued during 2003. At December 31, 2002, the cost of such issuable shares
($8,910) has been included in goodwill and accounts payable to afﬁliates.

Effective January 1, 2001, the CPA‚ Partnerships became wholly-owned subsidiaries of the

Company when 151,964 shares ($2,811) were issued in consideration for acquiring the
remaining special partner interests.

The accompanying notes are an integral part of the consolidated ﬁnancial statements.

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W. P. Carey & Co. LLC
CONSOLIDATED STATEMENTS OF CASH FLOWS (continued)
In thousands

The Company issued 5,755, 6,825 and 181,644 restricted shares valued at $134 in 2002 and 2001
and $2,424 in 2000, respectively, to certain directors, ofﬁcers and afﬁliates in consideration of
service rendered. Restricted shares and stock options valued at $3,913, $1,235 and $6,295 in
2002, 2001 and 2000, respectively, were issued to employees and recorded as unearned compen-
sation of which $70, $117 and $160, respectively, was forfeited in 2002, 2001 and 2000. Included
in compensation expense for the years ended December 31, 2002, 2001 and 2000 were $2,626,
$1,955 and $860, respectively, relating to equity awards from the Company’s share incentive
plans.

In 2002, the Company contributed its tenancy-in-common interest in properties leased to Childtime
Childcare, Inc. to a limited partnership. Assets and liabilities were contributed as follows:

Land
Net investment in direct ﬁnancing lease
Other assets, net
Mortgage payable

Equity investment

$1,674
2,413
1
(1,134)

$2,954

In 2002, $15,714 was placed in an escrow account from the sale of properties and was subse-
quently used for the purchase of properties. During 2002, $9,366 was released from an escrow
account from the sale of a property in 2001.

The Company received a note receivable in 2001 of $700 in partial consideration for a sale

of property.

In 2000, the Company issued shares valued at $778 to acquire real estate.

E. During 2001 the Company purchased an equity interest in an afﬁliate, W. P. Carey International

LLC (“WPCI”), in consideration for issuing a promissory note of $1,000. The promissory note
was satisﬁed in 2002 through the issuance of 54,765 shares to WPCI.

Supplemental Cash Flows Information:

Interest paid, net of amounts capitalized

Income taxes paid

2002

2001

2000

$16,400

$01,695

$22,144

$01,615

$24,790

$01,437

The accompanying notes are an integral part of the consolidated ﬁnancial statements.

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W. P. Carey & Co. LLC
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
All amounts in thousands except share and per share amounts

1. ORGANIZATION
W. P. Carey & Co. LLC (the “Company”) commenced operations on January 1, 1998,
pursuant to a consolidation transaction, when the Company acquired the majority owner-
ship interests in the nine Corporate Property Associates (“CPA®”) Partnerships. The
former General Partner interests in the CPA® Partnerships were retained by two special
limited partners, William Polk Carey, formerly the Individual General Partner of the nine
CPA® Partnerships, and Carey Management LLC (“Carey Management”).

On June 28, 2000 the Company acquired the net lease real estate management opera-

tions of Carey Management subsequent to receiving shareholder approval. The assets
acquired included the Advisory Agreements with four afﬁliated publicly owned real estate
investment trusts (the “CPA® REITs”), the Company’s Management Agreement, the stock
of an afﬁliated broker-dealer, investments in the common stock of the CPA® REITs, and
certain ofﬁce furniture, ﬁxtures, equipment and employees required to carry on the busi-
ness operations of Carey Management. The purchase price consisted of the initial issuance
of 8,000,000 shares with an additional 2,000,000 shares issuable over four years if speciﬁed
performance criteria are achieved (of which 500,000 shares valued at $8,145 and $10,440
were issued during 2001 and 2002, respectively, and 400,000 shares valued at $8,910 will
be issued in 2003 based on meeting performance criteria as of December 31, 2000, 2001
and 2002, respectively). The initial 8,000,000 shares issued are restricted from resale for a
period of up to three years and the additional shares are subject to Section 144 regulations.
The acquisition of the interests in Carey Management was accounted for as a purchase and
was recorded at the fair value of the initial 8,000,000 shares issued. The total initial pur-
chase price was approximately $131,300 including the issuance of 8,000,000 shares, trans-
action costs of $2,605, the acquisition of Carey Management’s special limited partnership
minority interests in the CPA® Partnerships and the value of restricted shares and options
issued in respect of the interests of certain ofﬁcers in a non-qualiﬁed deferred compensa-
tion plan of Carey Management. The Company has guaranteed loans of $4,528 to these
ofﬁcers in connection with their acquisition of equity interests in the Company. The term
of the guarantees expire in June 2003 and will not be renewed. The loans are collateralized
by shares of WPC, owned by the ofﬁcers and held by WPC.

The purchase price has been allocated to the assets and liabilities acquired based upon

their fair market values. Intangible assets acquired, including the Advisory Agreements
with the CPA® REITs, the Company’s Management Agreement, the trade name, and
workforce (reclassiﬁed to goodwill on January 1, 2002), were determined pursuant to
an independent valuation. The value of the Advisory Agreements and the Management

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Agreement were based on a discounted cash ﬂow analysis of the projected fees. The excess
of the purchase price over the fair values of the identiﬁed tangible and intangible assets has
been recorded as goodwill. The acquisition of the Company’s Management Agreement was
accounted for as a contract termination and the fair value of the Management Agreement
of $38,000 was expensed as of the date of the merger. For ﬁnancial reporting purposes,
the value of any additional shares issued under the acquisition agreement is recognized as
additional purchase price and recorded as goodwill. Issuances based on performance crite-
ria are valued based on the market price of the shares on the date when the performance
criteria are achieved.

Effective January 1, 2001, the Company acquired all remaining minority interests in the

CPA® Partnerships by issuing 151,964 shares at $18.50 per share ($2,811) to the remain-
ing special limited partner of the CPA® Partnerships, William Polk Carey. The acquisition
price was determined pursuant to an independent valuation of the CPA® Partnerships as of
December 31, 2000.

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of Consolidation
The consolidated ﬁnancial statements include the Company and its wholly-owned and control-
ling majority-owned subsidiaries. All material inter-entity transactions have been eliminated.

Use of Estimates
The preparation of ﬁnancial statements in conformity with accounting principles generally
accepted in the United States of America requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and disclosure of con-
tingent assets and liabilities at the date of the ﬁnancial statements and the reported amounts
of revenues and expenses during the reporting period. The most signiﬁcant estimates relate
to the assessment of recoverability of real estate, intangible assets and goodwill. Actual
results could differ from those estimates.

Real Estate Leased to Others
Certain of the Company’s real estate is leased to others on a net lease basis, whereby the
tenant is generally responsible for all operating expenses relating to the property, including
property taxes, insurance, maintenance, repairs, renewals and improvements. Expenditures
for maintenance and repairs including routine betterments are charged to operations as
incurred. Signiﬁcant renovations which increase the useful life of the properties are capitali-
zed. For the year ended December 31, 2002, lessees were responsible for the direct pay-
ment of real estate taxes of approximately $6,627.

The Company diversiﬁes its real estate investments among various corporate tenants
engaged in different industries, by property type and geographically. No lessee currently
represents 10% or more of total leasing revenues.

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The leases are accounted for under either the direct ﬁnancing or operating methods.

Such methods are described below (also see Notes 4 and 5):

Direct ﬁnancing method – Leases accounted for under the direct ﬁnancing method are
recorded at their net investment (Note 5). Unearned income is deferred and amortized to
income over the lease terms so as to produce a constant periodic rate of return on the
Company’s net investment in the lease.

Operating method – Real estate is recorded at cost less accumulated depreciation, mini-
mum rental revenue is recognized on a straight-line basis over the term of the related leases
and expenses (including depreciation) are charged to operations as incurred.

Substantially all of the Company’s leases provide for either scheduled rent increases,

periodic rent increases based on formulas indexed to increases in the Consumer Price
Index (“CPI”) or sales overrides. Rents from sales overrides (percentage rents) are recog-
nized as reported by the lessees, that is, after the level of sales requiring a rental payment
to the Company is reached.

Operating Real Estate
Land and buildings and personal property are carried at cost less accumulated depreciation.
Renewals and improvements are capitalized, while replacements, maintenance and repairs
that do not improve or extend the lives of the respective assets are expensed as incurred.

Real Estate Under Construction and Redevelopment
For properties under construction, operating expenses including interest charges and other
property expenses, including real estate taxes, are capitalized rather than expensed and
rentals received are recorded as a reduction of capitalized project (i.e., construction) costs.
The amount of interest capitalized is determined by applying the interest rate applicable
to outstanding borrowings to the average amount of accumulated expenditures for proper-
ties under construction during the period.

Equity Investments
The Company’s interests in entities in which the Company’s ownership is 50% or less and has
the ability to exercise signiﬁcant inﬂuence are accounted for under the equity method, i.e. at
cost, increased or decreased by the Company’s share of earnings or losses, less distributions.

Assets Held for Sale
Assets held for sale are accounted for at the lower of carrying value or fair value less costs
to dispose. Assets are classiﬁed as held for sale when the Company has committed to a plan
to actively market a property for sale and expects that a sale will be completed within one
year. The results of operations and the related gain or loss on sale of properties classiﬁed as
held for sale by the Company after December 31, 2001, are included in discontinued oper-
ations (see Note 15).

The Company recognizes gains and losses on the sale of properties when among other

criteria, the parties are bound by the terms of the contract, all consideration has been

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exchanged and all conditions precedent to closing have been performed. At the time the sale
is consummated, a gain or loss is recognized as the difference between the sale price less any
closing costs and the carrying value of the property.

Goodwill and Intangible Assets
Goodwill represents the excess of the purchase price of the net lease real estate management
operations over the fair value of net assets acquired. Other intangible assets represent cost
allocated to trade names, advisory contracts with the CPA® REITs and the acquired work-
force. Effective January 1, 2002, goodwill and indeﬁnite-lived intangible assets are no longer
amortized and workforce has been reclassiﬁed as goodwill. Intangible assets are being amor-
tized over their estimated useful lives which range from 21⁄2 to 161⁄2 years (See Note 20).

Goodwill and intangible assets are as follows:

Management contracts
Workforce
Trade name
Goodwill

Less: accumulated amortization

2002

December 31,
2001

$059,135
—
3,975
49,874

112,984
18,543

$059,135
4,700
4,900
41,937

110,672
17,862

$094,441

$092,810

Impairment of Long-lived Assets
When events or changes in circumstances indicate that the carrying amount may not be
recoverable, the Company assesses the recoverability of its long-lived assets and certain
intangible assets based on projections of undiscounted cash ﬂows, without interest charges,
over the life of such assets. In the event that such cash ﬂows are insufﬁcient, the assets are
adjusted to their estimated fair value. The Company performs a review of its estimate of
residual value of its direct ﬁnancing leases at least annually to determine whether there has
been an other than temporary decline in the Company’s current estimate of residual value
of the underlying real estate assets (i.e., the estimate of what the Company could realize
upon sale of the property at the end of the lease term). If the review indicates a decline in
residual value that is other than temporary, a loss is recognized and the accounting for the
direct ﬁnancing lease will be revised to reﬂect the decrease in the expected yield using the
changed estimate, that is, a portion of the future cash ﬂow from the lessee will be recog-
nized as a return of principal rather than as revenue.

The Company tests goodwill for impairment at least annually using a two-step process.

To identify any impairments, the Company ﬁrst compares the estimated fair value of the
reporting unit (management services segment) with its carrying amount, including good-
will. The Company calculates the estimated fair value of the management services segment
by applying a multiple, based on comparable companies, to earnings. If the fair value of the
management services segment exceeds its carrying amount, goodwill is considered not
impaired. If the carrying amount of the management services unit exceeds its estimated fair
value, then the second step is performed to measure the amount of impairment loss.

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For the second step, the Company would compare the implied fair value of the goodwill

with its carrying amount and record an impairment charge for the excess of the carrying
amount over the fair value. The implied fair value of the goodwill is determined by allocat-
ing the estimated fair value of the management services segment to its assets and liabilities.
The excess of the estimated fair value of the management services segment over the amounts
assigned to its assets and liabilities is the implied fair value of the goodwill.

In accordance with the requirements of Statement of Financial Accounting Standards
(“SFAS”) No. 142, “Goodwill and Other Intangibles,” the Company performed its annual
tests for impairment of its management services segment, the reportable unit of measure-
ment, and concluded that the goodwill is not impaired.

Depreciation
Depreciation is computed using the straight-line method over the estimated useful lives of
the properties (generally forty years) and for furniture, ﬁxtures and equipment (generally
up to seven years).

Foreign Currency Translation
The Company consolidates its real estate investments in France. The functional currency
for these investments is the Euro. The translation from the Euro to U. S. Dollars is per-
formed for assets and liabilities using current exchange rates in effect at the balance sheet
date and for revenue and expense accounts using a weighted average exchange rate during
the period. The gains and losses resulting from such translation are reported as a compo-
nent of other comprehensive income as part of members’ equity. The cumulative transla-
tion loss as of December 31, 2002 was $1,315.

Cash Equivalents
The Company considers all short-term, highly liquid investments that are both readily
convertible to cash and have a maturity of generally three months or less at the time of
purchase to be cash equivalents. Items classiﬁed as cash equivalents include commercial
paper and money market funds. Substantially all of the Company’s cash and cash equiva-
lents at December 31, 2002 and 2001 were held in the custody of three ﬁnancial institu-
tions and which balances, at times, exceed federally insurable limits. The Company miti-
gates this risk by depositing funds with major ﬁnancial institutions.

Other Assets and Liabilities
Included in other assets are accrued rents and interest receivable, deferred rent receivable,
notes receivable, deferred charges and marketable securities. Included in other liabilities
are accrued interest, accounts payable and accrued expenses, deferred rent and deferred
income taxes. Deferred charges include costs incurred in connection with debt ﬁnancing
and reﬁnancing and are amortized and included in interest expense over the terms of the
related debt obligations. Deferred rent receivable is primarily the aggregate difference for
operating method leases between scheduled rents which vary during the lease term and
rent recognized on a straight-line basis.

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Marketable securities are classiﬁed as available-for-sale securities and reported at fair

value with the Company’s interest in unrealized gains and losses on these securities
reported as a component of other comprehensive income until realized. Such marketable
securities had a cost basis of $1,364 as of December 31, 2002 and 2001, and reﬂected a fair
value of $614 and $363 at December 31, 2002 and 2001, respectively.

Due to Afﬁliates
Included in due to afﬁliates are deferred acquisition fees and amounts related to issuable
shares for meeting the performance criteria in connection with the acquisition of Carey
Management. Deferred acquisition fees are payable for services provided by Carey
Management prior to the termination of the Management Contract, relating to the identiﬁ-
cation, evaluation, negotiation, ﬁnancing and purchase of properties. The fees are payable
in eight equal annual installments each January 1 following the ﬁrst anniversary of the
date a property was purchased.

Revenue Recognition
In connection with the acquisition of Carey Management described in Note 1, the
Company earns transaction and asset-based fees. Structuring and ﬁnancing fees are earned
for investment banking services provided in connection with the analysis, negotiation and
structuring of transactions, including acquisitions and dispositions and the placement of
mortgage ﬁnancing obtained by the CPA® REITs. Asset-based fees consist of property
management, leasing and advisory fees and reimbursement of certain expenses in accor-
dance with the separate management agreements with each CPA® REIT for administrative
services provided for operation of such CPA® REIT. Receipt of the incentive fee portion of
the management fee, however, is subordinated to the achievement of speciﬁed cumulative
return requirements by the shareholders of the CPA® REITs. The incentive portion of
management fees (the “performance fees”) may be collected in cash or shares of the CPA®
REIT at the option of the Company. During 2002, 2001 and 2000, the Company elected to
receive its earned performance fees in CPA® REIT shares.

All fees are recognized as earned. Transaction fees are earned upon the consummation
of a transaction and management fees are earned when services are performed. Fees subject
to subordination are recognized only when the contingencies affecting the payment of such
fees are resolved, that is, when the performance criteria of the CPA® REIT is achieved.
The Company also receives reimbursement of certain marketing costs in connection
with the sponsorship of a CPA® REIT that is conducting a “best efforts” public offering.
Reimbursement income is recorded as the expenses are incurred, subject to limitations on
a CPA® REIT’s ability to incur offering costs.

Income Taxes
The Company is a limited liability company and has elected partnership status for federal
income tax purposes. The Company is not liable for federal income taxes as each member
recognizes his or her proportionate share of income or loss in his or her tax return. Certain

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wholly-owned subsidiaries are not eligible for partnership status and, accordingly, all tax
liabilities incurred by these subsidiaries do not pass through to the members. Accordingly,
the provision for federal income taxes is based on the results of those consolidated corpo-
rate subsidiaries that do not pass through any share of income or loss to members. The
Company is subject to certain state and local taxes.

Deferred income taxes are provided for the corporate subsidiaries based on earnings

reported. The provision for income taxes differs from the amounts currently payable
because of temporary differences in the recognition of certain income and expense items
for ﬁnancial reporting and tax reporting purposes. Income taxes are computed under
the asset and liability method. The asset and liability method requires the recognition of
deferred tax liabilities and assets for the expected future tax consequences of temporary
differences between tax bases and ﬁnancial bases of assets and liabilities (see Note 18).

Earnings Per Share
The Company presents both basic and diluted earnings per share (“EPS”). Basic EPS
excludes dilution and is computed by dividing net income available to shareholders by the
weighted average number of shares outstanding for the period. Diluted EPS reﬂects the
potential dilution that could occur if securities or other contracts to issue shares were
exercised or converted into common stock, where such exercise or conversion would
result in a lower EPS amount.

Basic and diluted earnings (loss) per share were calculated as follows:

2002

For the Years Ended December 31,
2000

2001

Net income (loss)

$ 46,588

$ 35,761

$(9,278)

Weighted average shares – basic
Effect of dilutive securities –
stock options and warrants

Weighted average shares – diluted
Basic earnings per share:

Income (loss) from continuing operations
Discontinued operations

Net income (loss)

Diluted earnings per share:

Income (loss) from continuing operations
Discontinued operations

Net income (loss)

35,530,334

34,465,217

29,652,698

734,896

487,343

—

36,265,230

34,952,560

29,652,698

1.31
—

1.31

1.28
—

1.28

$ .98
.06

1.04

.96
.06

1.02

$ (.40)
.09

$ (.31)

$ (.40)
.09

$ (.31)

For the years ended 2001 and 2000, respectively, 725,930 and 4,143,254 share options

and warrants, were not reﬂected because such options and warrants were anti-dilutive,
either because the exercise prices of the options were higher than the average share price
or because the Company incurred a net loss.

The Company repurchased 836,600 of its shares outstanding during 2000 in connection

with an announcement in December 1999 that it would purchase up to 1,000,000 shares.

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Stock Based Compensation
The Company accounts for stock-based compensation using the intrinsic value method
prescribed in Accounting Principles Board Opinion No. 25, “Accounting for Stock Issued
to Employees,” and related interpretations (“APB No. 25”). Under APB No. 25, compen-
sation cost is measured as the excess, if any, of the quoted market price of the Company’s
shares at the date of grant over the exercise price of the option granted.

The Company has granted restricted shares and stock options to substantially all

employees. Shares were awarded in the name of the employee, who has all the rights of a
shareholder, subject to certain restrictions of transferability and a risk of forfeiture. The
forfeiture provisions on the awards expire annually, over periods of four and three years
for the shares and stock options, respectively. Shares and stock options subject to for-
feiture provisions have been recorded as unearned compensation and are presented as a
separate component of members’ equity. Compensation cost for stock options and
restricted stock, if any, is recognized ratably over the vesting period of three and four
years, respectively.

All transactions with non-employees in which the Company issues stock as considera-
tion for services received are accounted for based on the fair value of the stock issued or
services received, whichever is more reliably determinable.

The Company has elected to adopt the disclosure only provisions of SFAS No. 123. If
stock-based compensation cost had been recognized based upon fair value at the date of
grant for options and restricted stock awarded under the two plans and amortized to
expense over their respective vesting periods in accordance with the provisions of SFAS
No. 123, pro forma net income (loss) would have been as follows:

Net income (loss) as reported
Add: Stock based compensation included in net
income as reported, net of related tax effects

Less: Stock based compensation determined
under fair value based methods for all
awards,net of related tax effects

Pro forma net income (loss)

Net income (loss) per common share as

reported

Basic
Diluted
Pro forma net income (loss) per common share
Basic
Diluted

2002

Year Ended December 31,
2000
2001

$46,588

$35,761

$(9,278)

1,709

1,349

640

(2,887)

(2,391)

$45,410

$34,719

(1,359)

$(9,997)

$
$

1.31
1.28

1.28
1.25

$
$

1.04
1.02

1.01
.99

$
$

(.31)
(.31)

(.34)
(.34)

Reclassiﬁcation
Certain prior year amounts have been reclassiﬁed to conform to the current year ﬁnancial
statement presentation.

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3. TRANSACTIONS WITH RELATED PARTIES
The Company earns fees as the Advisor to the following real estate investment trusts
(“REITs”): Carey Institutional Properties Incorporated (“CIP®”), Corporate Property
Associates 12 Incorporated (“CPA®:12”), Corporate Property Associates 14 Incorporated
(“CPA®:14”) and Corporate Property Associates 15 Incorporated (“CPA®:15”) (collec-
tively, the “CPA® REITs”). Through April 30, 2002, the Company also earned fees as
Advisor to Corporate Property Associates 10 Incorporated (“CPA®:10”). Effective May 1,
2002, CPA®:10 was merged into CIP®. Under the Advisory Agreements with the CPA®
REITs, the Company performs various services, including but not limited to the day-to-day
management of the CPA® REITs and transaction-related services. The Company earns an
asset management fee of 1⁄2 of 1% per annum of Average Invested Assets, as deﬁned in the
Advisory Agreements, for each CPA® REIT and, based upon speciﬁc performance criteria
for each REIT, may be entitled to receive performance fees, calculated on the same basis as
the asset management fee, and is reimbursed for certain costs, primarily the cost of person-
nel. The Company had not recognized any performance fees under its Advisory Agreement
with CPA®:10 since the Company’s management operations were acquired in June 2000.
In April 2002, CPA®:10 met its “preferred return” at which time the performance criterion
was met and the Company earned a performance fee of $1,463, including $267 relating to
2002. The performance criteria for CPA®:14 were initially satisﬁed in 2001, resulting in the
Company’s recognition of $2,459 for the period December 1997 through December 31, 2000
which had been deferred. For the years ended December 31, 2002, 2001 and 2000, asset-
based fees and reimbursements earned were $37,250, $29,751 and $10,377, respectively.

In connection with structuring and negotiating acquisitions and related mortgage ﬁnanc-

ing for the CPA® REITs, the Advisory Agreements provide for transaction fees based
on the cost of the properties acquired. A portion of the fees are payable in equal annual
installments over no less than eight years (four years for CPA®:15), subject to each CPA®
REIT meeting its “preferred return.” Unpaid installments bear interest at annual rates
ranging from 6% to 7%. The Company’s broker-dealer subsidiary earns fees in connection
with the public offerings of the CPA® REITs. The Company may also earn fees related to
the disposition of properties, subject to subordination provisions and will only be recog-
nized as such subordination provisions are achieved. The Company earned disposition fees
of $248 from CPA®:10, representing a percentage of the sales proceeds from CPA®:10
property sales for the period from June 28, 2000 through April 30, 2002, the date that
CPA®:10 and CIP® merged. For the years ended December 31, 2002, 2001 and 2000, the
Company earned transaction fees of $47,005, $17,160 and $14,894, respectively.

Prior to the termination of the Management Agreement, Carey Management performed

certain services for the Company and earned transaction fees in connection with the pur-
chase and disposition of properties. The Company is obligated to pay deferred acquisition fees
in equal annual installments over a period of no less than eight years. As of December 31,
2002 and 2001, unpaid deferred acquisition fees were $2,758 and $3,282, respectively, and
bear interest at an annual rate of 6%. Installments of $524, $520 and $392 were paid in
January 2002, 2001 and 2000, respectively.

In 2002, the Company as Advisor to CIP®, CPA®:12 and CPA®:14 structured a securiti-
zation of mortgage loans. The three CPA® REITs and the Company obtained an aggregate

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of $172,335 of limited recourse mortgage ﬁnancing collateralized by 62 properties and
lease assignments. The loans were pooled into a trust, Carey Commercial Mortgage Trust,
a non-afﬁliate, whose sole asset consists of the loans and sold interests in the trust as collat-
eralized mortgages in a private placement to institutional investors. The Company and the
three CPA® REITs agreed to acquire a separate class of subordinated interests in the trust
totaling $24,129 with each interest in proportion to the new mortgage ﬁnancings completed
in connection with the securitization, including the pro rata share from equity investments.
In connection with the transaction, the Company acquired a $241 subordinated interest,
which is accounted for as an available for sale security.

The Company owns interests in entities which range from 33.93% to 50% and a jointly-

controlled 36% tenancy-in-common interest in two properties subject to a net lease with
the remaining interests held by afﬁliates. The Company has a signiﬁcant inﬂuence in these
investments, which are accounted for under the equity method of accounting.

The Company is a participant in an agreement with certain afﬁliates for the purpose of

leasing ofﬁce space used for the administration of the Company and other afﬁliated real
estate entities and sharing the associated costs. Pursuant to the terms of the agreement, the
Company’s share of rental, occupancy and leasehold improvement costs is based on gross
revenues. Expenses incurred were $545, $528 and $348 in 2002, 2001 and 2000, respec-
tively. The Company’s share of minimum lease payments on the ofﬁce lease is currently
$1,748 through 2006.

An independent director of the Company has an ownership interest in companies that

own the minority interest in the Company’s French majority-owned subsidiaries. The
director’s ownership interest is subject to the same terms as all other ownership interests
in the subsidiary companies. A person who serves as a director and an ofﬁcer of the
Company is the sole shareholder of Livho, Inc., a lessee of the Company (see Note 8).

As of December 31, 2002, the Company owns a 10% interest in W.P. Carey

International LLC (“WPCI”), which structures net lease transactions outside of the United
States, the United Kingdom and France. The remaining 90% interest in WPCI is owned
by William Polk Carey (“Carey”), Chairman of the Company. On March 19, 2003, the
Company’s Board of Directors approved a series of transactions which will result in Carey
giving up his interest in WPCI and WPCI becoming a subsidiary of WPC. As part of this
transaction, WPCI will distribute to Carey his capital contributions to WPCI of 492,881
shares of the Company as well as cash contributions of $1,472. In connection with the
transaction, the Company will contribute its share of fees derived from the acquisition,
management and disposition of properties outside of the United States to WPCI as well as
related costs. Two ofﬁcers of WPCI will be granted restricted minority ownership interests
which vest ratably over ﬁve years and options in WPCI pursuant to their employment
agreements. The Company expects to complete the transfer during the second quarter of
2003, however, the terms of agreement provide for January 1, 2003 as the effective date.

In connection with the acquisition of the majority interests in the CPA® Partnerships on

January 1, 1998 described in Note 1, a CPA® Partnership had not achieved the speciﬁed
cumulative return as of the acquisition date. The subordinated preferred return was payable
only if the Company achieved a closing price equal to or in excess of $23.11 for ﬁve con-

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secutive trading days. On December 31, 2001, the closing price criterion was met, and the
$1,423 subordinated preferred return was paid in January of 2002.

As described in Note 1, the Company’s Management Agreement with Carey

Management was cancelled effective with the acquisition of the business operations of
Carey Management. The Company is now internally managed and, as a result of the can-
cellation of the Management Agreement and acquisition of Carey Management’s workforce
as of the date of the acquisition, no longer incurs management and performance fees nor
reimburses a manager for the personnel costs for providing administrative services to the
Company. For the year ended 2000, the Company incurred combined management and
performance fees of $1,924, and personnel reimbursements of $861.

4. REAL ESTATE LEASED TO OTHERS ACCOUNTED FOR UNDER THE OPERATING METHOD
Real estate leased to others, at cost, and accounted for under the operating method is
summarized as follows:

Land
Buildings and improvements

Less: Accumulated depreciation

2002

December 31,
2001

$ 83,545
390,727

474,272
41,716

$ 84,199
375,044

459,243
32,401

$432,556

$426,842

The scheduled future minimum rents, exclusive of renewals, under non-cancelable oper-
ating leases amount to $43,350 in 2003, $38,072 in 2004, $34,833 in 2005, $32,113 in 2006,
$29,302 in 2007 and aggregate $319,853 through 2022.

Contingent rentals (including percentage rents and CPI-based increases) were $1,550,

$1,253 and $1,047 in 2002, 2001 and 2000, respectively.

5. NET INVESTMENT IN DIRECT FINANCING LEASES
Net investment in direct ﬁnancing leases is summarized as follows:

Minimum lease payments receivable
Unguaranteed residual value

Less: Unearned income

2002

December 31,
2001

$199,309
185,487

384,796
195,457

$236,997
254,520

491,517
233,476

$189,339

$258,041

The scheduled future minimum rents, exclusive of renewals, under noncancelable direct

ﬁnancing leases amount to $20,371 in 2003, $20,323 in 2004, $20,383 in 2005, $19,232 in
2006, $17,741 in 2007 and aggregate $199,309 through 2022.

Contingent rentals (including percentage rents and CPI-based increases) were approxi-

mately $2,710, $2,331 and $2,074 in 2002, 2001 and 2000, respectively.

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6. MORTGAGE NOTES PAYABLE AND NOTES PAYABLE
Mortgage notes payable, substantially all of which are limited recourse obligations, are col-
lateralized by the assignment of various leases and by real property with a carrying value
of approximately $311,897.

The interest rate on the variable rate debt as of December 31, 2002 ranged from 2.59%

to 6.44% and mature from 2004 to 2016. The interest rate on the ﬁxed rate debt as of
December 31, 2002 ranged from 6.11% to 9.13% and mature from 2003 to 2013.

Scheduled principal payments for the mortgage notes and notes payable during each of

the next ﬁve years following December 31, 2002 and thereafter are as follows:

Year Ending December 31,

2003
2004
2005
2006
2007
Thereafter

Total

Fixed Rate
Debt

Variable Rate
Debt

Total Debt

$011,180
74,391
8,264
24,894
14,600
101,720

$009,827
23,738
6,572
22,986
12,481
69,911

$235,049

$145,515

$01,353
50,653
1,692
1,908
2,119
31,809

$89,534

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The Company has a credit facility of $185,000 pursuant to a revolving credit agreement

with The Chase Manhattan Bank in which numerous lenders participate. The Company
has a one-time right to increase the commitment up to $225,000. The revolving credit
agreement has a remaining term through March 2004. As of December 31, 2002, the
Company had $49,000 drawn from the credit facility. As of March 12, 2003, the outstand-
ing balance was $42,000.

Advances, which are prepayable at any time, bear interest at an annual rate of either
(i) the one, two, three or six-month LIBOR, as deﬁned, plus a spread which ranges from
0.6% to 1.45% depending on leverage or corporate credit rating or (ii) the greater of the
bank’s Prime Rate and the Federal Funds Effective Rate, plus .50%, plus a spread of up
to .125% depending upon the Company’s leverage. At December 31, 2002 and 2001, the
interest rate on advances on the line of credit was 2.59% and 3.22%, respectively. In addi-
tion, the Company pays a fee (a) ranging between 0.15% and 0.20% per annum of the
unused portion of the credit facility, depending on the Company’s leverage, if no minimum
credit rating for the Company is in effect or (b) equal to .15% of the total commitment
amount, if the Company has obtained a certain minimum credit rating.

The revolving credit agreement has ﬁnancial covenants that require the Company to

(i) maintain minimum equity value of $400,000 plus 85% of amounts received by the
Company as proceeds from the issuance of equity interests and (ii) meet or exceed certain
operating and coverage ratios. Such operating and coverage ratios include, but are not lim-
ited to, (a) ratios of earnings before interest, taxes, depreciation and amortization to ﬁxed
charges for interest and (b) ratios of net operating income, as deﬁned, to interest expense.

7. DIVIDENDS PAYABLE
The Company declared a quarterly dividend of $.431 per share on December 11, 2002
payable on January 15, 2003 to shareholders of record as of December 31, 2002.

8. LEASE REVENUES
The Company’s operations include the investment in and the leasing of industrial and com-
mercial real estate. The ﬁnancial reporting sources of the lease revenues for the years ended
December 31, 2002, 2001 and 2000 are as follows:

2002

2001

2000

Per Statements of Income:

Rental income
Interest income from direct ﬁnancing leases

$47,865
23,001

$45,756
26,355

$50,281
28,023

Adjustment:

Share of leasing revenues applicable

to minority interests
Share of leasing revenues
from equity investments

(766)

(536)

(443)

7,131

6,820

3,679

$77,231

$78,395

$81,540

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For the years ended December 31, 2002, 2001 and 2000, the Company earned its net
leasing revenues (i.e., rental income and interest income from direct ﬁnancing leases) from
over 80 lessees. A summary of net leasing revenues including all current lease obligors with
more than $1,000 in annual revenues is as follows:

2002

2001

Years Ended December 31,
2000

Dr Pepper Bottling Company

of Texas

Detroit Diesel Corporation
Gibson Greetings, Inc., a wholly-

owned subsidiary of
American Greetings, Inc.
Bouygues Télécom, S.A. (a)
Federal Express Corporation (b)
Orbital Sciences Corporation
Quebecor Printing Inc.
America West Holdings Corp.
Livho, Inc.
AutoZone, Inc.
The Gap, Inc.
Sybron International Corporation
CheckFree Holdings, Inc. (c)
Lockheed Martin Corporation
Unisource Worldwide, Inc.
Faurecia Exhaust Systems, Inc.

(formerly AP Parts
Manufacturing Company)

CSS Industries, Inc.
Information Resources, Inc. (c)
Sybron Dental Specialties Inc.
Brodart Co.
Sprint Spectrum L.P.
Eagle Hardware & Garden, Inc.,
a wholly-owned subsidiary of
Lowe’s Companies Inc.

AT&T Corporation
United States Postal Service
BellSouth Telecommunications, Inc.
Cendant Operations, Inc.
Anthony’s Manufacturing

Company, Inc.

Other (d)

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$04,405
4,158

6% $ 4,354
4,118
5

6% $ 4,283
3,795
5

5%
5

4,149
2,952
2,876
2,655
2,563
2,539
2,520
2,411
2,205
2,164
2,108
1,903
1,732

1,657
1,656
1,644
1,613
1,519
1,425

1,313
1,259
1,233
1,224
1,075

5
4
4
3
3
3
3
3
3
3
3
3
2

2
2
2
2
2
2

2
2
2
2
1

4,107
1,181
2,836
2,655
2,559
2,539
2,568
2,400
2,205
2,164
2,088
2,116
1,734

1,617
1,609
1,644
1,613
1,519
1,380

1,186
886
1,165
1,224
1,075

5
2
4
3
3
3
3
3
3
3
3
3
2

2
2
2
2
2
2

2
1
1
2
1

4,046

5
185 —
7
3
3
3
4
3
3
3
2
3
2

5,659
2,655
2,586
2,539
3,226
2,378
2,205
2,164
1,681
2,056
1,725

1,617
1,598
1,504
1,463
1,519
1,154

1,288
760
1,090
1,224
1,075

2
2
2
2
2
1

2
1
1
1
1

1,019
19,254

1
25

988
22,865

1
29

945
25,120

1
31

$77,231

100% $78,395

100% $81,540

100%

(a) Net of proportionate share applicable to its minority interest owners.

(b) Represents the Company’s 40% proportionate share of lease revenues from its equity ownership in 2001.

The Company owned a 100% interest until December 2000.

(d) Includes proportionate share of lease revenues from the Company’s equity investments and net of proportionate

share applicable to its minority interest owners.

9. GAINS AND LOSSES ON SALE OF REAL ESTATE AND SECURITIES
Signiﬁcant sales of properties are summarized as follows:

2002
In July 2002, the Company sold six properties leased to Saint-Gobain Corporation located
in New Haven, Connecticut; Mickelton, NJ; Aurora, Ohio; Mantua, Ohio and Bristol,
Rhode Island for $26,000 and recognized a gain on sale of $1,796. The Company placed
the proceeds of the sale in an escrow account for the purpose of entering into a Section
1031 noncash exchange which, under the Internal Revenue Code, would allow the
Company to acquire like-kind property, and defer a taxable gain until the new property
is sold, upon satisfaction of certain conditions (see Note 11).

At December 31, 2001, the Company’s 18.3 acre property in Los Angeles, California
was classiﬁed as held for sale. In June 2002, the Company sold the property to the Los
Angeles Uniﬁed School District (the “School District”) for $24,000, less costs, and recog-
nized a gain on sale of $11,160 (see Note 21).

During 2002, the Company also sold properties in Fredericksburg, Virginia; Petoskey,

Michigan; Urbana, Illinois; Maumelle, Arkansas; Burnsville, Minnesota; Colville,
Washington; McMinnville, Tennessee Frankenmuth, Michigan; College Station, Texas and
Casa Grande and Glendale, Arizona for an aggregate of $15,337 and recognized a net gain
on sales of $2,049.

2001
In July 2001, the Company sold a property located in Forrest City, Arkansas for approxi-
mately $9,400, and recognized a gain of $304. The sales proceeds were placed in an escrow
account for the purposes of entering into a Section 1031 noncash exchange. In January
2002, the funds in the escrow account were transferred to the Company and the proposed
noncash exchange was not completed.

During 2001, the Company sold nine other properties and an equity investment in a real

estate partnership for $12,061 (including $11,361 in cash and a note receivable of $700)
and recognized a combined net gain of $1,600 on the sales.

2000
In 1998, the Company acquired land in Colliersville, Tennessee and entered into a build-
to-suit commitment to construct four ofﬁce buildings to be occupied by Federal Express
Corporation (“Federal Express”) at a cost of up to $77,000. In February 2000, a net lease
with Federal Express with an initial lease term of 20 years commenced at an annual rent of
$6,360. In order to mitigate the concentration of risk in a single lease, the Company agreed
to sell a 60% majority interest in the subsidiary that owns the Federal Express property to
CPA®:14 at a purchase price based on an independent appraisal. Based on such indepen-
dent appraisal, the Company received $42,287 and recognized a loss of $2,262 in connec-
tion with the sale.

During 2000, the Company sold ten properties for $3,372, net of costs, and incurred

combined losses on the sales of $775.

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The Company recognized a gain of $257 on the sale of 18,540 shares of common stock
of Titan Corporation. The Company had previously exercised warrants that were granted
in connection with structuring its net lease with Titan Corporation in 1991.

10. IMPAIRMENT CHARGES
Signiﬁcant writedowns of properties and investments to estimated fair value based on an
assessment of each asset’s recoverability are summarized as follows:

The Company incurred impairment charges of $29,410, $12,643, and $11,047 in 2002,
2001 and 2000, respectively, in connection with the writedown of real estate interests and
other long-lived assets to estimated fair value based on the following:

2002
In connection with the Company’s annual review of the estimated residual values on its
properties classiﬁed as net investments in direct ﬁnancing leases, the Company determined
that an other than temporary decline in estimated residual value had occurred at several
properties, and the accounting for the direct ﬁnancing leases was revised using the
changed estimates. The resulting changes in estimates resulted in the recognition of impair-
ment charges of $14,880 in 2002.

The Company owns 780,269 units of the operating partnership of MeriStar Hospitality

Corporation (“MeriStar”), a publicly traded real estate investment trust which primarily
owns hotels. Because of a continued and prolonged weakness in the hospitality industry, a
substantial decrease in MeriStar’s earnings and funds from operations and the risk that the
decrease in MeriStar’s distribution rate are projected to continue, the Company concluded
that the underlying value of its investment in the operating partnership units has under-
gone an other than temporary decline. Accordingly, the Company wrote down its equity
investment in MeriStar by $4,596 in 2002 to reﬂect the investment at its estimated fair
value. The Company recognized an impairment charge on the MeriStar investment in 2001
of $6,749.

The Company owned a property in Winona, Minnesota which it sold in February 2003.
Based on a deterioration in the ﬁnancial condition of the lessee and its inability to meet its
lease obligations, during 2002 the Company began negotiations to sell the property to the
lessee. In connection with entering into a contract for the sale of the property, the property
was written down to its estimated fair value less cost to sell and an impairment charge of
$4,000 was recognized in 2002.

The Company has recognized impairment charges of $5,934 on other properties which

were sold in 2002 or held for sale as of December 31, 2002.

The results of operations and the impairment charges on the properties classiﬁed as
assets held for sale subsequent to December 31, 2001 are included in discontinued opera-
tions (see Note 15).

2001
The Company owned a property in Burnsville, Minnesota. During 2000, the tenant ﬁled
a petition of voluntary bankruptcy, and in March 2001 the lease was terminated. During
2000, the property had been written down to its estimated fair value and an impairment

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charge of $1,500 was recognized. In 2001, the Company entered into an agreement to sell
the property for $2,200. In connection with the proposed sale of the property, the Company
recognized an impairment charge of $763 in 2001 to write down the property to the antici-
pated sales price, less estimated costs to sell. The sale was completed in January 2002. In
connection with termination of the lease, the Company received $2,450 as a settlement
from the lease guarantor, of which $2,145 was included in other income in 2001.

The Company owns a property in Cincinnati, Ohio. In November 2001, the Company

evicted the tenant due to its inability to meet its lease obligations and the Company
assumed the management of public warehousing operations at the property, at which time
the Company recognized an impairment charge of $2,000 on the writedown of the prop-
erty to its estimated fair value. In connection with the eviction, the Company was released
from a subordinated mortgage loan obligation of $2,097 in 2002.

The Company owns two properties located in Frankenmuth, Michigan and McMinnville,

Tennessee leased to one tenant. The tenant terminated its master lease for the two proper-
ties in connection with its petition of voluntary bankruptcy in 1999. The Company recog-
nized impairment charges on the McMinnville property of $500 and $2,677 for 2001 and
2000, respectively.

2000
The Company owns a property in Traveler’s Rest, South Carolina. Based on the former
tenant’s deteriorating ﬁnancial condition and its inability to meet its lease obligations, the
lease was terminated in 2000. The tenant was subsequently liquidated. The property was
written down to its estimated fair value and an impairment charge of $2,657 was recog-
nized during 2000.

In 2001 and 2000, the Company also recorded impairment charges of $850 and $1,514,
respectively, on its assessments of the recoverability of a redeemable preferred limited part-
nership interest that was acquired in connection with the sale of a property in 1995 and
debentures received in connection with a bankruptcy settlement with a former lessee.

11. ACQUISITION OF REAL ESTATE
In September 2002, the Company used $14,379 from an escrow account which had been
funded with proceeds from the sale of properties leased to Saint-Gobain (see Note 9) to
purchase properties in Lenexa, Kansas; Winston-Salem, North Carolina and Dallas, Texas
and entered into a master net lease with BE Aerospace, Inc. (“BE Aerospace”). The lease
has an initial term of ﬁfteen years with two ten-year renewal options. Initial annual rent is
$1,421 with stated annual increases of 1.5%. On October 29, 2002, the Company obtained
limited recourse mortgage ﬁnancing of $9,200 collateralized by the BE Aerospace proper-
ties. The loan provides for monthly payments of interest and principal of $56 at an annual
interest rate of 6.11% and based on a thirty-year amortization schedule. The loan matures
in November 2012 at which time a balloon payment is scheduled.

In December 2002, the Company purchased a 36% interest in two properties leased to
Hologic, Inc. (“Hologic”) from CPA®:15 for $11,714. The properties, land and buildings
located in Danbury, Connecticut and Bedford, Massachusetts, were purchased by
CPA®:15 in August 2002. The lease has an initial term of 20 years with four ﬁve-year

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renewal terms. Annual rent is $3,156 with the ﬁrst rent increase on the ﬁfth anniversary
of the lease and every ﬁve years thereafter. Rent increases are based on a formula indexed
to increases in the CPI, capped at 5.1% for the ﬁrst rent increase and 8.16% thereafter,
during each ﬁve-year period.

As a result of purchasing the BE Aerospace property and the interest in the Hologic
properties, the proposed Section 1031 noncash exchange resulting from the sale of the
Saint-Gobain properties was completed.

In September 2002, the Company purchased 1.5 acres of land in Broomﬁeld, Colorado
for $640. The land is adjacent to the Company’s existing property. The Company intends
to redevelop the property, with various alternatives currently being evaluated.

12. EQUITY INVESTMENTS
The Company owns 780,269 units of the operating partnership of MeriStar Hospitality
Corporation (“MeriStar”), a publicly traded real estate investment trust which primarily
owns hotels. The Company has the right to convert its units in the operating partnership to
shares of common stock in MeriStar at any time on a one-for-one basis. The exchange of
units for common stock would be a taxable transaction in the year of exchange. The
Company’s interest in the MeriStar operating partnership is being accounted for under the
equity method. The carrying value of the equity interest in the MeriStar operating partner-
ship was $3,354 as of December 31, 2002.

The Company owns equity interests as a limited partner in three limited partnerships
and in two limited liability companies, with the remaining interests owned by afﬁliates, that
each own real estate net leased to a single tenant, including a newly-formed limited part-
nership which net leases properties to Childtime Childcare, Inc. (“Childtime”). In August
2002, the Company and an afﬁliate each contributed its tenancy-in-common interest in the
Childtime properties to the limited partnership. The Company owns a 33.93% ownership
interest as a limited partner. The Company is also accounting for its 36% tenancy-in-common
interest in the Hologic properties under the equity method as the agreement provides for
joint control with the afﬁliate.

The Company owns a 10% interest in WPCI. The remaining 90% of WPCI is owned by

William Polk Carey, Chairman of the Company (also see Note 3).

The Company owns interests in four CPA® REITs with which it has advisory agree-
ments. The interests in the CPA® REITs are accounted for under the equity method due to
the Company’s ability to exercise signiﬁcant inﬂuence as the Advisor to the CPA® REITs.
The CPA® REITs are publicly registered and their audited consolidated ﬁnancial state-
ments are ﬁled with the SEC. In connection with earning performance fees the Company
has elected to receive restricted shares of common stock in the CPA® REITs rather than

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cash in consideration for such fees. As of December 31, 2002, the Company ownership in
the CPA® REITs is as follows:

CIP®
CPA®:12
CPA®:14
CPA®:15

612,575
626,377
1,014,619
51,749

% of
Outstanding
Shares

2.12%
2.03%
1.52%
0.13%

Combined ﬁnancial information of the afﬁliated equity investees is summarized as follows:

Assets (primarily real estate)
Liabilities (primarily mortgage notes payable)

Owner’s Equity

Revenue (primarily rental revenue)
Expenses (primarily interest on mortgages

and depreciation)

Minority interest in income
Income from equity investments
Gain (loss) on sales

Income from continuing operations
Loss from discontinued operations
Extraordinary charges

2002

December 31,
2001

$3,225,167
1,680,372

$2,081,297
951,884

$1,544,795

$1,129,413

2002

Year Ended December 31,
2000
2001

$229,799

$175,925

$146,003

(170,463)
(5,355)
22,257
(418)

75,820
(1,084)
(5,540)

(131,194)
(3,556)
16,399
13,944

71,518
(343)

(92,156)
(6,836)
18,291
2,183

67,485
(361)

Net income

$069,196

$071,175

$067,124

13. DISCLOSURES ABOUT FAIR VALUE OF FINANCIAL INSTRUMENTS
The Company estimates that the fair value of mortgage notes payable and other notes
payable was $237,924 and $295,843 at December 31, 2002 and 2001, respectively. The car-
rying value of the combined debt was $235,049 and $295,515 at December 31, 2002 and
2001, respectively. The fair value of ﬁxed rate debt instruments was evaluated using a dis-
counted cash ﬂow model with rates that take into account the credit of the tenants and
interest rate risk. The fair value of the note payable from the line of credit approximates
the carrying value as it is a variable rate obligation with an interest rate that resets to
market rates.

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14. SELECTED QUARTERLY FINANCIAL DATA (UNAUDITED)

Revenues
Expenses
Income (loss) from

continuing operations (1)
Income (loss) from continuing

operations per share –
Basic
Diluted

Net income (loss)
Net income (loss) per share –

Basic
Diluted

Dividends declared per share

March 31,
2002

$32,950
18,668

June 30,
2002

$37,904
20,448

Three Months Ended
Dec. 31,
2002

Sept. 30,
2002

$37,824
21,999

$52,926
48,038

12,698

24,830

12,223

(3,077)

.36
.35
13,729

.39
.38
.4280

.70
.69
23,593

.66
.65
.4290

.34
.33
12,985

.36
.36
.4300

(.08)
(.08)
(3,719)

(.10)
(.10)
.4310

Certain prior quarter amounts have been reﬂected as discontinued operations in
accordance with Statement of Financial Accounting Standard No. 144 “Accounting for
Impairment or Disposal of Long-Lived Assets”.

(1) Includes impairment charges on real estate and investments of $21,186 for the three-month period ended

December 31, 2002.

Revenues
Expenses(1)
Income from continuing

operations

Income from continuing
operations per share –
Basic
Diluted
Net income
Net income per share –

Basic
Diluted

Dividends declared per share

March 31,
2001

$29,364
19,485

June 30,
2001

$33,143
20,800

Three Months Ended
Dec. 31,
2001

Sept. 30,
2001

$30,508
19,801

$36,253
31,935

11,411

10,492

9,660

2,051

.33
.33
12,639

.37
.37
.4225

.31
.30
11,752

.34
.34
.4250

.28
.27
11,237

.33
.32
.4260

.06
.06
133

—
—
.4270

(1) Includes impairment charges on real estate and investments of $763 and $9,381 for the three-month periods ended

September 30, 2001 and December 31, 2001, respectively.

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15. DISCONTINUED OPERATIONS
In accordance with SFAS No.144, “Accounting for the Impairment or Disposal of Long-
Lived Assets”, effective for ﬁnancial statements issued for ﬁscal years beginning after
December 15, 2001, the results of operations and gain or loss on sales of real estate for prop-
erties sold or held for sale are to be reﬂected in the consolidated statements of operations as
“Discontinued Operations” for all periods presented. The provisions of SFAS No. 144 are
effective for disposal activities initiated by the Company’s commitment to a plan of disposi-
tion after the date it is initially applied (January 1, 2002). Properties held for sale as of
December 31, 2001 are not included in discontinued operations. Properties sold in 2002 (see
Note 9) that were held for sale as of December 31, 2001 include properties in Los Angeles,
California; Urbana, Illinois; Maumelle, Arkansas; Burnsville, Minnesota and Casa Grande,
Arizona and, accordingly, the results of operations and the related gain or loss on sale for
these properties are not included in “Discontinued Operations.” The effect of suspending
depreciation expense as a result of the classiﬁcation of certain properties as held for sale was
$116, $13 and $15 for the years ended December 31, 2002, 2001 and 2000, respectively.

As of December 31, 2002, the operations of eighteen properties which have been sold or

are held for sale as of December 31, 2002 are included as “Discontinued Operations.”
Amounts reﬂected in Discontinued Operations for the years ended December 31, 2002,
2001 and 2000 are as follows:

REVENUES

Rental income
Interest income from direct ﬁnancing leases
Revenues of other business operations
Other income

EXPENSES

Interest expense
Depreciation and amortization
Property expenses
General and administrative
Operating expenses of other business operations
Impairment charge on real estate

(Loss) income before gain on sales

Gain on sales of real estate

2002

Year Ended December 31,
2000
2001

$02,509
3,002
1,560
2,249

9,320

796
467
607
46
1,630
8,224

11,770

(2,450)

2,364

$02,008
5,453
2,681
2

10,144

2,037
510
161
348
2,295
2,646

7,997

2,147

—

$01,805
5,549
2,833
—

10,187

2,091
506
152
33
2,385
2,238

7,405

2,782

—

(Loss) income from discontinued operations

$000(86)

$02,147

$02,782

16. STOCK OPTIONS AND WARRANTS
In January 1998, an afﬁliate was granted warrants to purchase 2,284,800 shares exercis-
able at $21 per share and 725,930 shares exercisable at $23 per share as compensation for
investment banking services in connection with structuring the consolidation of the CPA®
Partnerships. The warrants are exercisable until January 2009.

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The Company maintains stock option incentive plans pursuant to which share options
may be issued. The 1997 Share Incentive Plan (the “Incentive Plan”), as amended, autho-
rizes the issuance of up to 2,600,000 shares. The Company Non-Employee Directors’ Plan
(the “Directors’ Plan”) authorizes the issuance of up to 300,000 shares. Both plans were
approved by a vote of the shareholders.

The Incentive Plan provides for the grant of (i) share options which may or may not
qualify as incentive stock options, (ii) performance shares, (iii) dividend equivalent rights
and (iv) restricted shares. Share options have been granted as follows: 877,337 in 2002 at
exercise prices ranging from $22.73 to $24.01 per share, 465,000 in 2001 at exercise prices
ranging from $16.875 to $21.86 per share and 922,152 in 2000 granted at exercise prices
ranging from $7.69 to $16.50 per share. The options granted under the Incentive Plan have
a 10-year term and vest ratably on the ﬁrst, second and third anniversaries of the date of
grant. The vesting of grants is accelerated upon a change in control of the Company and
under certain other conditions.

The Directors’ Plan provides for the same terms as the Incentive Plan. Share options
for 21,822 shares were granted at exercise prices ranging from $16.38 to $20 per share in
2000. No share options were granted in 2002 and 2001.

Share option and warrant activity is as follows:

2002

2001

2000

Year Ended December 31,

Weighted
Average
Exercise
Price

4,320,815
877,337
(192,617)
(25,673)

$19.88
$23.03
$12.69
$19.17

4,114,254
465,000
(229,105)
(29,334)

$19.57
$18.66
$12.21
$16.62

3,199,280
943,974
—
(29,000)

Weighted
Average
Exercise
Price

$21.38
$13.24
—
$16.25

4,979,862

$20.26

4,320,815

$19.88

4,114,254

$19.57

3,611,115

$20.31

3,403,724

$20.88

3,119,362

$20.69

Outstanding at

beginning of year

Granted
Exercised
Forfeited

Outstanding at
end of year

Options exercisable
at end of year

Stock options outstanding as of December 31, 2002 are as follows:

Range of
Exercise Prices

$7.69
$16.25 to $24.01

Options Outstanding

Options Exercisable

Options
Outstanding
at Dec.31,
2002

129,707
4,850,155

4,979,862

Weighted
Average
Remaining
Contractual
Life

Weighted
Average
Exercise
Price

Options
Exercisable
at Dec. 31,
2002

7.50
6.88

6.90

$07.69
$20.59

19,990
3,591,125

$20.26

3,611,115

Weighted
Average
Exercise
Price

$07.69
$20.38

$20.31

At December 31, 2001 and 2000, the range of exercise prices and weighted-average
remaining contractual life of outstanding share options and warrants was $7.69 to $23.00
and 7.5 years, and $7.69 to $23.00 and 8.32 years, respectively.

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The per share weighted average fair value of share options and warrants granted during

2002 were estimated to be $1.26 using a Black-Scholes option pricing formula. The more
signiﬁcant assumptions underlying the determination of the weighted average fair value
include a risk-free interest rate of 1.73%, a volatility factor of 21.83%, a dividend yield of
8.59% and an expected life of 2.99 years.

The per share weighted average fair value of share options and warrants granted during

2001 were estimated to be $1.70 using a Black-Scholes option pricing formula. The more
signiﬁcant assumptions underlying the determination of the weighted average fair value
include a risk-free interest rate of 4.87%, a volatility factor of 22.51%, a dividend yield of
8.04% and an expected life of 3.21 years.

The per share weighted average fair value of share options and warrants granted during

2000 were estimated to be $3.80 using a Black-Scholes option pricing formula. The more
signiﬁcant assumptions underlying the determination of the weighted average fair value
include a risk-free interest rate of 6.8%, a volatility factor of 22.53%, a dividend yield of
8.44% and an expected life of 10 years.

Net income (loss) as reported
Add: Stock based compensation included in
net income as reported, net of related
tax effects

Less: Stock based compensation determined
under fair value based methods for all
awards, net of related tax effects

Pro forma net income (loss)

Net income (loss) per common share

as reported

Basic
Diluted
Pro forma net income (loss) per common share
Basic
Diluted

2002

Year Ended December 31,
2000
2001

$46,588

$35,761

$(9,278)

1,709

1,349

640

(2,887)

(2,391)

$45,410

$34,719

(1,359)

$(9,997)

$
$

1.31
1.28

1.28
1.25

$
$

1.04
1.02

1.01
.99

$
$

(.31)
(.31)

(.34)
(.34)

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17. SEGMENT REPORTING
The Company has determined that it operates in two business segments, management
services and real estate operations with domestic and international investments. The
two segments are summarized as follows:

Revenues
2002
2001
2000

Operating, interest, depreciation
and amortization expenses(1)
(excluding income taxes):

2002
2001
2000

Income (loss) from equity
investments:
2002
2001
2000

Net operating income (3),(4),(5):

2002
2001
2000
Total assets:
2002
2001

Total long-lived assets:

2002
2001

Management

Real Estate

Other(2)

Total Company

$084,255
46,911
25,271

$073,851
79,094
81,382

$3,498
3,263
3,411

$161,604
129,268
110,064

$046,975
39,298
15,979

$059,840
50,347
60,079

$2,338
2,376
2,535

$109,153
92,021
78,593

$000,452
434
69

$037,732
8,047
9,361

$000(895)
2,393
2,813

$013,116
31,140
24,116

$167,415
124,902

$721,919
782,984

$070,089
64,286

$663,721
721,895

—
—
—

$000(443)
2,827
2,882

$1,160
887
876

$4,190
7,997

$4,056
5,990

$052,008
40,074
34,353

$893,524
915,883

$737,866
792,171

(1) Excludes the writeoff of an acquired management contract of $38,000 in 2000.

(2) Primarily consists of the Company’s other business operations.

(3) Management net operating income includes charges for amortization of intangibles of $7,280 in 2002 and amortization

of intangibles and goodwill of $11,903 and $5,958 in 2001 and 2000, respectively.

(4) Net operating income excludes gains and losses on sales, provision for income taxes and minority interest.

(5) Real estate net operating income excludes (loss) income from discontinued operations of $(86), $2,147 and $2,782

in 2002, 2001 and 2000, respectively.

The Company acquired its ﬁrst international real estate investment in 1998. For 2002,

geographic information for the real estate operations segment is as follows:

Revenues
Operating, interest, depreciation and
amortization expenses (excluding
income taxes)

Income from equity investments
Net operating income(2)
Total assets
Total long-lived assets

Domestic

International

Total
Real Estate

$067,826

$06,025

$073,851

55,111
(895)
11,820
666,281
610,923

4,729
—
1,296
55,638
52,798

59,840
(895)
13,116
721,919
663,721

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For 2001, geographic information for the real estate operations segment is as follows:

Revenues
Operating, interest, depreciation and
amortization expenses (excluding
income taxes)

Income from equity investments
Net operating income(2)
Total assets
Total long-lived assets

Domestic

International

Total
Real Estate

$075,333

$03,761

$079,094

46,922
2,393
30,804
733,406
675,919

3,425
—
336
49,578
45,976

50,347
2,393
31,140
782,984
721,895

For 2000, geographic information for the real estate operations segment is as follows:

Revenues
Operating, interest, depreciation and
amortization expenses (excluding
income taxes)(1)

Income from equity investments
Net operating income (loss)(2)
Total assets
Total long-lived assets

Domestic

International

Total
Real Estate

$078,957

$02,425

$081,382

57,376
2,813
24,394
752,126
717,545

2,703
—
(278)
32,502
29,803

60,079
2,813
24,116
784,628
747,348

(1) Excludes the writeoff of an acquired management contract of $38,000 in 2000.

(2) Net operating income (loss) excludes gains and losses on sales, provision for income taxes, minority interest and the

writeoff of an acquired management contract of $38,000 in 2000.

18. INCOME TAXES
The components of the Company’s provision for income taxes for the years ended
December 31, 2002, 2001 and 2000 are as follows:

Federal:
Current
Deferred

State and local:
Current
Deferred

Total provision

2002

2001

2000

$02,548
8,756

11,304

2,496
4,399

6,895

$00(82)
4,783

4,701

1,988
1,787

3,775

$0,549
848

1,397

2,176
571

2,747

$18,199

$8,476

$4,144

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Deferred income taxes as of December 31, 2002 and 2001 consist of the following:

Deferred tax assets:

Net operating loss carry forward
Unearned compensation
Corporate ﬁxed assets
Other long-term liabilities

Deferred tax liabilities:

Receivables from afﬁliates
Investments

Net deferred tax liability

2002

2001

—
834
2
243

1,079

13,533
7,309

20,842

$19,763

$1,531
544
98
115

2,288

4,975
3,921

8,896

$6,608

The difference between the tax provision and the tax beneﬁt recorded at the statutory

rate at December 31, 2002, 2001 and 2000 is as follows:

Income (loss) from taxable subsidiaries

before income tax

Federal provision (beneﬁt) at statutory

tax rate (34%)

State and local taxes, net of federal beneﬁt
Writeoff of management contract
Amortization of intangible assets
Other

Tax provision – taxable subsidiaries
Other state and local taxes

2002

2001

2000

$35,296

$03,236

$(38,172)

12,001
3,617
—
1,886
(517)

16,987
1,212

1,100
1,137
—
3,458
794

6,489
1,987

(12,978)
557
12,920
1,706
34

2,239
1,905

Total tax provision

$18,199

$08,476

$0(4,144

19. EMPLOYEE BENEFIT PLANS
The Company sponsors a qualiﬁed proﬁt-sharing plan and trust covering substantially all
of its full-time employees who have attained age twenty-one, worked a minimum of 1,000
hours and completed one year of service. The Company is under no obligation to con-
tribute to the plan and the amount of any contribution is determined by and at the discre-
tion of the Board of Directors. The Board of Directors can authorize contributions to a
maximum of 15% of an eligible participant’s total compensation, limited to $30 annually
per participant. For the years ended December 31, 2002 and 2001, amounts expensed by
the Company for contributions to the trust were $1,677 and $1,388, respectively. Annual
contributions represent an amount equivalent to 15% of each eligible participant’s total
eligible compensation for that period.

20. GOODWILL AND INTANGIBLE ASSETS
With the acquisition of real estate management operations in 2000, the Company allocated
a portion of the purchase price to goodwill and other identiﬁable intangible assets. In

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adopting SFAS No.142, the Company discontinued its amortization of existing goodwill
and indeﬁnite-lived assets and performed its annual evaluation of testing for impairment of
goodwill. Based on its evaluation, the Company concluded that its goodwill is not impaired.
Goodwill and other intangible assets as of December 31, 2002 are summarized as follows:

Amortized intangible assets:
Management contracts

Unamortized goodwill and indeﬁnite-lived

intangible assets:
Goodwill
Trade name

Gross
Carrying Amount

Accumulated
Amortization

$59,135

$(18,543)

49,874
3,975

$53,849

Included in goodwill is $3,389 which prior to January 1, 2002 was recorded as work-

force. Trade name had previously been amortized using a ten-year life; however, upon
adoption of SFAS No. 142, trade name was determined to have an indeﬁnite useful life
because it is expected to generate cash ﬂows indeﬁnitely.

A summary of the effect of amortization of goodwill and intangible assets on reported

earnings for the years ended December 31, 2002, 2001 and 2000 are as follows:

Goodwill amortization
Trade name amortization
Management contracts amortization
Net income (loss)

Reported net income (loss)
Add back: Goodwill amortization

Trade name amortization

Adjusted net income (loss)

Basic earnings per share:
Reported net income (loss)
Add back: Goodwill amortization

Trade name amortization

Adjusted basic earnings (loss) per share

Diluted earnings per share:
Reported net income (loss)
Add back: Goodwill amortization

Trade name amortization

Adjusted diluted earnings (loss) per share

2002

2001

2000

—
—
$ 7,280
46,588

$ 4,127
470
7,306
35,761

$ 1,746
255
3,957
(9,278)

2002

2001

2000

$46,588
—
—

$46,588

1.31
—
—

1.31

1.28
—
—

1.28

$35,761
4,127
470

$40,358

$ 1.04
.11
.01

$ 1.16

$ 1.02
.11
.01

$ 1.14

$(9,278)
1,746
255

$(7,277)

$ (.31)
.05
.01

$ (.25)

$ (.31)
.05
.01

$ (.25)

Amortization of intangibles for the next ﬁve years is estimated to be $6,686 in 2003 and

2004; $6,596 in 2005, $4,519 in 2006, and $4,444 in 2007.

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21. DEVELOPMENT CONTRACT
Subsequent to the sale of the property in Los Angeles to the School District in June 2002,
a subsidiary of the Company entered into a build-to-suit development management agree-
ment with the School District with respect to the development and construction of a new
high school on the property. The subsidiary, in turn, engaged a general contractor to
undertake the construction project. Under the build-to-suit agreement, the subsidiary’s role
is that of a development manager pursuant to provisions of the California Education Code.
Liability for completion of the school is the responsibility of the general contractor, who is
providing payment and performance bonds for the beneﬁt of the School District and the
subsidiary, although the subsidiary may be contingently liable to the School District. The
Company’s maximum liability for non-performance under the build-to-suit agreement is the
amount of build-to-suit management fees paid to the Company, up to $3,500. Upon deliv-
ery of the school, the Company is to be released from all contractual liability and in any
event the general contractor is liable for all construction warranties. Under the build-to-
suit agreement, the subsidiary and the Company expressly have no liability. Under the
construction agreement with the general contractor, a subsidiary is acting as a conduit for
the payments made by School District and is only obligated to make payments to the general
contractor based on payments received, except for a maximum guarantee of up to $2,000
for nonpayment. The guarantee ends upon completion of construction.

Due to the Company’s continuing involvement with the development management

agreement of the property, the recognition of gain on sale and the subsequent development
management fee income on the build-to-suit project are being recognized using a blended
proﬁt margin under the percentage of completion method of accounting. The build-to-suit
development agreement provides for fees of up to $4,700 and an early completion incentive
fee of $2,000 if the project is completed before September 1, 2004. The subsidiary is oblig-
ated to share 10% of its early incentive fee with its joint venture partner. The joint venture
partner has no participation in the other fees or the proﬁt or loss of the subsidiary. The
incentive fee is not included in the percentage of completion calculation. In addition,
approximately $2,000 of the gain on sale has been deferred and will be recognized only
when the Company is released from its $2,000 guarantee commitment. For the year ended
December 31, 2002, the Company recognized $289 of build-to-suit development fee
management income.

22. ACCOUNTING PRONOUNCEMENTS
In June 2001, the Financial Accounting Standards Board (“FASB”) issued SFAS No. 141
“Business Combinations” which requires that all business combinations and asset acquisi-
tions be accounted for under the purchase method, establishes speciﬁc criteria for the
recognition of intangible assets separately from goodwill and requires that unallocated
negative goodwill be written off immediately as an extraordinary gain. Use of the pooling-
of-interests method for business combinations is no longer permitted. The adoption of
SFAS No. 141 did not have a material effect on the Company’s ﬁnancial statements.

In June 2001, FASB issued SFAS No.142 “Goodwill and Other Intangibles,” which
was adopted by the Company as of January 1, 2002. SFAS No. 142 primarily addresses
the accounting for goodwill and intangible assets subsequent to their acquisition. SFAS

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No. 142 provides that goodwill and indeﬁnite-lived intangible assets no longer be amor-
tized and must be tested for impairment at least annually. Intangible assets acquired and
liabilities assumed in business combinations are only amortized if such assets and liabilities
are capable of being separated or divided and sold, transferred, licensed, rented or exchanged
or arise from contractual or legal rights (including leases), and are amortized over their
useful lives. The effect of SFAS No. 142 is described in Note 20.

In June 2001, FASB issued SFAS No. 143 “Accounting for Asset Retirement

Obligations.” SFAS No. 143 was issued to establish standards for the recognition and mea-
surement of an asset retirement obligation. SFAS No. 143 requires retirement obligations
associated with tangible long-lived assets to be recognized at fair value as the liability is
incurred with a corresponding increase in the carrying amount of the related long-lived
asset. SFAS No.143 is effective for ﬁnancial statements issued for ﬁscal years beginning
after June 15, 2002. The Company does not expect SFAS No. 143 to have a material effect
on its ﬁnancial statements.

In August 2001, FASB issued SFAS No.144 “Accounting for the Impairment of Long-
Lived Assets” which addresses the accounting and reporting for the impairment and dis-
posal of long-lived assets and supercedes SFAS No.121 while retaining SFAS No.121’s
fundamental provisions for the recognition and measurement of impairments. SFAS No. 144
removes goodwill from its scope, provides for a probability-weighted cash ﬂow estimation
approach for analyzing situations in which alternative courses of action to recover the
carrying amount of long-lived assets are under consideration and broadens that presenta-
tion of discontinued operations to include a component of an entity. The adoption of SFAS
No.144 on January 1, 2002 did not have a material effect on the Company’s ﬁnancial state-
ments; however, the revenues and expenses relating to an asset held for sale or sold have
been presented as a discontinued operation for all periods presented. The provisions of
SFAS No.144 are effective for disposal activities initiated by the Company’s commitment
to a plan of disposition after the date it is initially applied (January 1, 2002). The effect of
SFAS No.144 on the Company’s ﬁnancial statements is described in Note 15.

In May 2002, FASB issued SFAS No. 145 “Rescission of SFAS Nos. 4, 44 and 64,

Amendment of SFAS No. 13 and Technical Corrections” which eliminates the requirement
that gains and losses from the extinguishment of debt be classiﬁed as extraordinary items
unless it can be considered unusual in nature and infrequent in occurrence. The provisions
of SFAS No. 145 are effective for ﬁscal years beginning after May 15, 2002. Early adop-
tion is permitted. Upon adoption, the Company will no longer classify gains and losses for
the extinguishment of debt as extraordinary items and will adjust comparative periods
presented.

In June 2002, the FASB issued SFAS No.146, “Accounting for Exit or Disposal

Activities”. SFAS No. 146 addresses signiﬁcant issues regarding the recognition, measure-
ment, and reporting of costs that are associated with exit and disposal activities, including
restructuring activities that are currently accounted for pursuant to the guidance that the
Emerging Issues Task Force (“EITF”) has set forth in EITF Issue No. 94-3, “Liability
Recognition for Certain Employee Termination Beneﬁts and Other Costs to Exit an
Activity (including Certain Costs Incurred in a Restructuring)”. The provisions of this
Statement are effective for exit or disposal activities that are initiated after December 31,

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2002, with early application encouraged. The Company does not expect SFAS No. 146 to
have a material effect on the Company’s ﬁnancial statements.

In October 2002, the FASB issued SFAS No. 147, “Acquisition of Certain Financial
Institutions” which amends SFAS No. 72, SFAS No. 144 and FASB Interpretation No. 9.
SFAS No. 147 provides guidance on the accounting for the acquisitions of certain ﬁnancial
institutions and includes long-term customer relationships as intangible assets within the
scope of SFAS No. 144. The Company does not expect SFAS No. 147 to have a material
effect on its ﬁnancial statements.

In December 2002, the FASB issued SFAS No. 148, “Accounting for Stock-Based

Compensation – Transition and Disclosure,” which amends SFAS No. 123, Accounting for
Stock Based Compensation. SFAS No.148 provides alternative methods of transition for a
voluntary change to the fair value based method of accounting for stock based compensa-
tion (i.e., recognition of a charge for issuance of stock options in the determination of
income.). However, SFAS No. 148 does not permit the use of the original SFAS No. 123
prospective method of transition for changes to the fair value based method made in ﬁscal
years beginning after December 15, 2003. In addition, this Statement amends the disclo-
sure requirements of SFAS No. 123 to require prominent disclosures in both annual and
interim ﬁnancial statements about the method of accounting for stock based employee
compensation, description of transition method utilized and the effect of the method used
on reported results. The transition and annual disclosure provisions of SFAS No. 148 are
to be applied for ﬁscal years ending after December 15, 2002. The new interim disclosure
provisions are effective for the ﬁrst interim period beginning after December 15, 2002.
The Company is evaluating whether it will change to the fair value based method.

In November 2002, the FASB issued Interpretation No. 45, “Guarantor’s Accounting

and Disclosure Requirements for Guarantees, Including Indirect Guarantees of
Indebtedness of Others,” (“FIN 45”) which changes the accounting for, and disclosure
of certain guarantees. Beginning with transactions entered into after December 31, 2002,
certain guarantees are required to be recorded at fair value, which is different from prior
practice, under which a liability was recorded only when a loss was probable and reason-
ably estimable. In general, the change applies to contracts or indemniﬁcation agreements
that contingently require the Company to make payments to a guaranteed third-party
based on changes in an underlying asset, liability, or an equity security of the guaranteed
party. The accounting provisions only apply for certain new transactions entered into and
existing guarantee contracts modiﬁed after December 31, 2002. The adoption of the
accounting provisions of FIN 45 is not expected to have a material effect on the Company’s
ﬁnancial statements. The Company has complied with the disclosure provisions.

On January 17, 2003, the FASB issued Interpretation No. 46, “Consolidation of

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beneﬁciary and all other enterprises with a signiﬁcant variable interest in a VIE to make
additional disclosures. The transitional disclosures requirements will take effect immedi-
ately and are required for all ﬁnancial statements initially issued after January 31, 2003.
The Company is assessing the impact of this interpretation on its accounting for its invest-
ments in unconsolidated joint ventures. The Company is evaluating upon adoption in the
third quarter of 2003 if it will consolidate certain equity investments and other entities.
The Company’s maximum loss exposure is the carrying value of its equity investments. The
Company does not expect the adoptions of the provisions of FIN 46 to have a material
effect on the Company’s ﬁnancial statements.

23. SUBSEQUENT EVENTS
On February 6, 2003, the Company sold a property located in Winona, Minnesota to
the lessee, Peerless Chain Company (“Peerless”) for $10,800, which consisted of cash of
$6,300 and two notes receivable from the buyer with a fair value of $2,250, with $500
maturing in 2006 and $4,000 maturing in 2008. The Company also received a note
receivable of approximately $1,700 for unpaid rents. The note is payable in equal
monthly installments over 5 years.

In March 2003, the Company sold its property in Schiller Park, Illinois leased to
Wozniak Industries, Inc. (“Wozniak”) for $2,390. Wozniak had previously notiﬁed the
Company that it would not renew its lease which was scheduled to expire in December
2003. In connection with selling the property prior to the end of the lease term, the
Company received a lease termination fee from Wozniak of $290.

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MARKET FOR THE COMPANY’S COMMON STOCK AND
RELATED SHAREHOLDER MATTERS

Listed Shares are listed on the New York Stock Exchange. Trading commenced on
January 21, 1998.

As of December 31, 2002 there were 21,801 shareholders of record.

DIVIDEND POLICY
Quarterly cash dividends are usually declared in December, March, June and September
and paid in January, April, July and October. Quarterly cash dividends declared per share
in 2002, 2001 and 2000 are as follows:

QUARTER

1
2
3
4

Total:

2002

2001

2000

$0.4280
.4290
.4300
.4310

$1.7180

$0.4225
.4250
.4260
.4270

$1.7005

$0.4225
.4225
.4225
.4225

$1.6900

LISTED SHARES
The high, low and closing prices on the New York Stock Exchange for a Listed Share for
each ﬁscal quarter of 2002, 2001, and 2000 were as follows (in dollars):

2000

First Quarter
Second Quarter
Third Quarter
Fourth Quarter

2001

First Quarter
Second Quarter
Third Quarter
Fourth Quarter

2002

First Quarter
Second Quarter
Third Quarter
Fourth Quarter

HIGH

$16.03
17.02
17.15
18.10

HIGH

$20.60
21.80
22.05
23.80

HIGH

$24.40
24.15
25.90
25.40

LOW

$14.39
15.51
15.90
16.11

LOW

$18.26
18.50
19.25
20.00

LOW

$22.78
22.30
21.28
22.95

$15.45
15.60
17.15
18.10

$19.35
18.50
21.35
23.20

$23.24
22.50
24.80
24.75

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REPORT ON FORM 10-K

The Advisor will supply to any shareholder, upon written request and without charge, a
copy of the Annual Report on Form 10-K (“10-K”) for the year ended December 31, 2002
as ﬁled with the Securities and Exchange Commission (“SEC”). The 10-K may also be
obtained through the SEC’s EDGAR database at www.sec.gov.

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DIRECTORS

Wm. Polk Carey
Chairman & Co-Ceo
Francis J. Carey
Vice Chairman
Gordon F. DuGan
President & Co-Ceo

Nathaniel S. Coolidge
Chairman of the Audit Committee;
Former Head of Bond and Corporate
Finance Department, John Hancock
Mutual Life Insurance Company
Eberhard Faber, IV
Chairman of the Corporate Governance
Committee; Former Director of the
Federal Reserve Bank of Philadelphia

Dr. Lawrence R. Klein
Chairman of the Economic Policy
Committee; Nobel Laureate in
Economics; Benjamin Franklin
Professor of Economics (Emeritus),
University of Pennsylvania

Charles C. Townsend, Jr.
Chairman of the Compensation
Committee; Former Head of Corporate
Finance, Morgan Stanley & Co.
Reginald Winssinger
Chairman of Horizon New America
National Portfolio Inc.

INVESTMENT COMMITTEE

George E. Stoddard
Chairman of the Investment Committee;
Former Head of the Direct Placement
Department, The Equitable Life
Assurance Society of the United States

Frank J. Hoenemeyer
Vice Chairman of the Investment
Committee; Former Vice Chairman
and Chief Investment Ofﬁcer,
The Prudential Insurance Company
of America

Nathaniel S. Coolidge
Member
Dr. Lawrence R. Klein
Member

Ralph F. Verni
Advisory Member; Former President &
CEO State Street Research &
Management

OFFICERS

Wm. Polk Carey
Chairman, Co-Ceo and Director
Francis J. Carey
Vice Chairman and Director
Gordon F. DuGan
President, Co-Ceo and Director
George E. Stoddard
Chief Investment Ofﬁcer
John J. Park
Chief Financial Ofﬁcer,
Managing Director snd Treasurer
Claude Fernandez
Managing Director and
Chief Accounting Ofﬁcer
Stephen H. Hamrick
Managing Director and
National Marketing Director
Anne R. Coolidge
Managing Director — Acquisitions
Edward V. LaPuma
Managing Director — Acquisitions
W. Sean Sovak
Managing Director and
Chief Acquisitions Ofﬁcer

Thomas E. Zacharias
Managing Director —
Asset Management
Benjamin P. Harris
Executive Director — Acquisitions
Susan C. Hyde
Executive Director and
Director Of Investor Relations
Michael D. Roberts
Executive Director and Controller
Gordon J. Whiting
Executive Director — Acquisitions
Debra E. Bigler
Senior Vice President and
Regional Director — Marketing
David S. Eberle
Senior Vice President and
Regional Director — Marketing
Ted G. Lagreid
Senior Vice President and
Regional Director — Marketing
David W. Marvin
Senior Vice President and
Regional Director— Marketing

Donna M. Neiley
Senior Vice President—
Asset Management
Anthony S. Mohl
Senior Director — Paris
James J. Longden
Director – United Kingdom
Robert C. Kehoe
First Vice President — Finance
C. Curtis Ritter
First Vice President and
Director of Corporate Communications
Franck Ruimy
First Vice President —
Asset Management
Gagan Singh
First Vice President — Finance
David G. Termine
First Vice President— Accounting
Kristin H. Bennett
Vice President — Marketing
Timothy W. Burdette
Vice President — Asset Management
Samuel W. Byram
Vice President — Marketing

Alistair D. Calvert
Vice President — Acquisitions
Kimberly J. Dussol
Vice President — Asset Management
Yasmin Guerrero
Vice President — Accounting
Nichole B. Lefort
Vice President — Marketing
Frank Machado
Vice President — Accounting
Marisa S. Mackey
Vice President — Acquisitions
John F. Moss
Vice President — Marketing
Louisa H. Quarto
Vice President — Marketing
Mykolas Rambus
Vice President and
Chief Information Ofﬁcer
Gino Sabatini
Vice President — Acquisitions
Paula M. Shober
Vice President — Marketing
Mark Wander
Vice President — Marketing

CORPORATE INFORMATION

Auditors
PricewaterhouseCoopers LLP

Counsel
Reed Smith LLP

Executive Ofﬁces
W. P. Carey & Co. LLC
50 Rockefeller Plaza
New York, NY 10020
212-492-1100
1-800-WP CAREY

Transfer Agent
Mellon Investor Services L.L.C.
85 Challenger Road
Ridgeﬁeld Park, NJ 07660
888-200-8690

Annual Meeting
Tuesday, June 10, 2003, 10:30 a.m.
at the Waldorf=Astoria Hotel,
Park Avenue & 50th Street,
The Starlight Roof, New York City

Form 10-K
A copy of the Company’s Annual
Report on Form 10-K as ﬁled
with the Securities and Exchange
Commission may be obtained
without charge by writing the
Executive Ofﬁces at the address
at left.

Website
www.wpcarey.com

E-Mail
InvestorRelations@wpcarey.com

Trading Information
Shares of W. P. Carey & Co. LLC
trade on the New York Stock
Exchange under the symbol “WPC.”

Dividend Information
The following table sets forth for
the period indicated, the per share
dividends paid to shareholders of
record since inception:

Record Date
March 31, 1998
June 30, 1998
September 30, 1998
December 31, 1998
March 31, 1999
June 30, 1999
September 30, 1999
December 31, 1999

$.4125
$.4125
$.4125
$.4125
$.4175
$.4175
$.4175
$.4175

Record Date, continued
March 31, 2000
June 30, 2000
September 30, 2000
December 31, 2000
March 30, 2001
June 30, 2001
September 30, 2001
December 31, 2001
March 29, 2002
June 28, 2002
September 30, 2002
December 31, 2002
March 30, 2003

$.4225
$.4225
$.4225
$.4225
$.4225
$.4250
$.4260
$.4270
$.4280
$.4290
$.4300
$.4310
$.4320

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W. P. CAREY &(cid:1) CO. LLC

50 ROCKEFELLER PLAZA

NEW YORK, NY 10020

212-492-1100

InvestorRelations@wpcarey.com

www.wpcarey.com

NYSE: WPC