W. P. Carey Annual Report 2004

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FY2004 Annual Report · W. P. Carey

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a n n u a l r e p o r t

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W. P. Carey & Co. LLC

50 Rockefeller Plaza, New York, NY 10020

212-492-1100 ■ IR@wpcarey.com ■ www.wpcarey.com

NYSE: WPC

Wm. Polk Carey

Chairman

Gordon F. DuGan

Chief Executive Ofﬁcer and President

Francis J. Carey

Chairman of the Executive

Committee, Chief Ethics Ofﬁcer

George E. Stoddard

Chairman of the Investment

Committee, Co-Chief Investment

Ofﬁcer and Senior Managing Director

Below from left, seated: R. Winssinger,

W. Carey, C. Townsend; standing: R. Verni,

N. Coolidge, K. von Köller, G. Stoddard,

L. Klein, F. Carey, E. Faber and G. DuGan.

Board of Directors

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 Nomination

and the Corporate Governance

Committees; 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 Economics (Emeritus),

University of Pennsylvania

Charles C. Townsend, Jr.

Lead Director of the Board and

Chairman of the Compensation

Committee; Former Head of

Corporate Finance, Morgan

Stanley & Co.

Ralph F. Verni

Former President and Chief Executive

Ofﬁcer, State Street Research &

Management

Dr. Karsten von Köller

Former Chairman and Member of

the Board of Managing Directors,

Eurohypo AG

Reginald Winssinger

Chairman of Horizon New America

National Portfolio Inc.

ounded in 1973, W. P. Carey & Co. is a leading global investment ﬁrm

that has long served as the pre-eminent provider of sale-leaseback

ﬁnancing to corporations and private equity ﬁrms in the United States

and Europe. ■ It owns a portfolio of net-leased real estate assets and

provides asset management services to the Corporate Property Associates (CPA®)

series of income-generating real estate investment funds. The Company currently

owns or manages more than 650 commercial and industrial properties worldwide,

representing approximately 90 million square feet and valued at approximately

$7 billion. ■ W. P. Carey’s shareholders continue to beneﬁt from the stability of

its net-leased portfolio, as well as from its growing asset management business.

The Company remains committed to providing its shareholders with stable income

and consistent investment performance, while also meeting the ﬁnancing needs of its

tenant companies.

Financial Highlights

Operations (in thousands)
Total Revenues
Net Income
Cash Flows from Operating Activities
Funds from Operations (FFO)(1)

Per Share
Diluted Earnings Per Share
Diluted Funds from Operations
Dividends Declared Per Share
Weighted Average Listed Shares Outstanding (Diluted)

Twelve Months
Ended December 31,
2004

$
$
$
$

$
$
$

227,774
63,851
98,849
135,139

1.64
3.47
1.76
38,904,725

Stock Data
Price Range (January 2, 2004 through December 31, 2004)
Total Return for 2004(2)
Number of Shareholders

$ 25.22- $ 35.98

21.82%
29,645

Funds from Operations (in thousands)(1)
Net income
Gain on sale of real estate
Funds from Operations of equity investees in excess

of equity income

Depreciation, amortization, deferred taxes, stock compensation

and other noncash charges

Funds from Operations applicable to minority
investees in excess of minority income

Straight-line rent adjustments
Impairment loss on real estate
Funds from Operations

63,851
(92)

7,010

41,103

(555)
1,724
22,098
135,139

(1) Funds from Operations is calculated as net income, excluding gains (or losses) from debt extinguishment

and sales of property, plus certain noncash items (primarily real estate depreciation, amortization of intan-
gible assets, impairments, stock compensation and deferred taxes) and after adjustments for unconsolidated
partnerships and joint ventures. The Company’s calculation of FFO may differ from the calculation of
similarly named measures by other companies and NAREIT and may not be comparable to such measures.
FFO is a supplemental measure of performance and does not represent net income or cash ﬂows generated
from operating activities in accordance with generally accepted accounting principles. 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 an indicator of the Company’s ability to fund its cash needs.

(2) Includes dividend reinvestment.

d e a r f e l l o w

s h a r e h o l d e r s

e are pleased to report that 2004 proved to be another successful year for W. P. Carey &

Co. LLC as we welcomed more than 15,700 new investors to our Corporate Property

Associates (CPA®) series of funds. In addition, this past year we completed the successful

liquidation of Carey Institutional Properties (CIP ®), our eleventh income-generating real estate fund,

which upon its liquidation provided its investors with an 11.2% return on their initial investment.

From an investment standpoint, we had a very active year creating value for our CPA®

fund investors. In 2004, we made 24 new investments totaling approximately $890 million.

We made investments with tenants across 18 industries and in 7 countries. Our ability to

underwrite across industries and borders enables us to ﬁnd what we believe to be the best

risk/return investments for our investors. We believe that our brand name, market presence

and the hard work of our investment team create attractive opportunities for our investors,

even in an environment where a great deal of capital continues to ﬂow into real estate ﬁnance

and related areas. We are very proud of the investments we have made on behalf of the CPA®

funds and remain signiﬁcant shareholders in these funds.

Furthermore, we continue to create value for our investors through the efforts of, among

others, our asset management and ﬁnance teams. In 2004, we took innovative approaches to

several challenges and found creative solutions. Here are two examples:

■ CIP® Liquidation Our ﬁnance team structured a complex but highly beneﬁcial

structure for the CPA® shareholders whereby investors could either take cash

for their shares, although they would realize certain capital gains (especially

given the strong performance of the fund), or exchange their shares for similar

securities in CIP®’s afﬁliate, CPA®:15, preserving their tax basis and income

stream. While the investors split roughly 50%-50% as to whether they took

From left: Gordon F. DuGan, Chief Executive Ofﬁcer and President,
and Wm. Polk Carey, Chairman

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shares or cash, of those who voted, 98% voted in favor of the transaction. This high shareholder

approval rate is consistent with similar approval rates in the ten prior CPA® liquidations.

■ Asset Management Activity The asset management team is constantly seeking ways to

increase and improve the quality of our real estate income. One signiﬁcant project in 2004 was

positioning the Red Bank Distribution property for sale. We have owned this 600,000 square

foot industrial property in Cincinnati, OH since the late 1980’s. This facility is an older indus-

trial building that had been used, until recently, as a distribution and public storage facility.

When our tenant vacated the facility, we were faced with a difﬁcult task as we sought to re-lease

or sell a property that had environmental issues and was located in a market that favored newer

state-of-the art facilities. Despite these challenges, our asset management team was able to

secure a grant from the State of Ohio for environmental remediation work and secured funds

from the prior owners for environmental work. We have entered into an agreement to sell the

35-acre site at an attractive price upon completion of the environmental remediation. As a

result of our efforts to signiﬁcantly enhance the value of the site for our investors, W. P. Carey

received an award from the Port of Greater Cincinnati Development Authority “in appreciation

of our dedication and assistance in transforming a redevelopment vision into reality.”

As we begin 2005, we have a number of signiﬁcant challenges. Income for 2004 was

substantially enhanced by non-recurring fees earned in connection with the CIP®- CPA®:15

merger. While the demand for income investments, especially those with the track record of

our CPA® funds, is very strong, we have temporarily suspended raising capital for our latest

offering, CPA®:16 – Global. We believe that this cautious approach to fundraising is the pru-

dent course for the investors in CPA®:16 – Global. Furthermore, we have a 6% hurdle for

incentive fees in CPA®:16 – Global which we are not currently meeting. While we are generat-

ing returns in excess of the hurdle on the investments we have made, the low returns on the

cash balance bring down the overall return. Therefore, while assets under management con-

tinue to grow, payment of a signiﬁcant portion of our fees from managing CPA®:16 – Global

will be deferred until we meet the hurdle.

After 32 years in business, we are pleased to share our accomplishments with our investors,

whose continued conﬁdence and support has made our success a reality. We thank you and

look forward to working on your behalf in the years to come.

Sincerely,

Wm. Polk Carey
Chairman

Gordon F. DuGan
Chief Executive Ofﬁcer and President

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c o r n e r s t o n e

o f o u r

s u c c e s s

uman capital has always been one of the most important assets at W. P. Carey. While our

business may be built on the bricks and mortar of companies around the world, it is our

employees who make the difference. Their hard work and commitment to our investors and

tenant companies have earned us a reputation that recently led one industry analyst to describe W. P. Carey

as “best in class.” We feel that this description well describes our employees, who strive each day to ensure

that W. P. Carey’s success is measured by the added value we provide to our investors and tenant companies.

The individuals whose pictures appear in this year’s annual report are but a few of the employees who

serve as the cornerstone of our success. For more than 30 years, their efforts have enabled W. P. Carey to

successfully meet the investment needs of its investors and the ﬁnancing needs of companies worldwide.

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c o n t i n u e d g r o w t h
i n 2 0 0 4
W. P. Carey had a successful year in

2004, investing a near record $890 mil-

lion. As a result, the value of our port-

folio of properties under management

o n e c o m p a n y —
t w o s u c c e s s f u l
f r a n c h i s e s
Over the years, W. P. Carey has built a

reputation as one of the pre-eminent

providers of corporate ﬁnancing

or ownership increased 22%, from $5.8 billion in

solutions and as manager of the Corporate Property

2003 to $7.1 billion in 2004.

Associates (CPA®) series of income-generating

Among W. P. Carey’s 2004 ﬁnancial highlights

real estate investment funds. These two franchises,

were:

one providing capital to companies to grow their

■ Net income increased by $1 million to

businesses and the other providing income to

$63.9 million;

investors, continue to exhibit considerable growth

■ Diluted earnings per share (EPS) declined by one

and remain the foundation of our corporate business

cent to $1.64;

model. However, as we look toward the future and

■ Funds from Operations (FFO) increased 28% to

seek ways to increase value for our shareholders and

$135.1 million or $3.47 per diluted share;

tenant companies, we will review new opportunities,

■ Total revenues increased 43% to $227.8 million;

which include investing in new countries, new

and

industries and new ﬁnancing structures.

■ Cash Flows from Operating Activities increased

47% to $98.8 million.

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a l e a d e r i n c o r p o r a t e
f i n a n c i n g s o l u t i o n s
Our long-standing philosophy of pro-

viding our investors with a reliable

stream of income is achieved largely as

a result of our expertise in offering

will prove beneﬁcial to our investors.

In 2004, companies utilized our

ﬁnancing for corporate growth, debt

reduction, acquisition ﬁnancing and

leveraged buyouts. Our success in

providing ﬁnancing solutions was

alternative ﬁnancing solutions to companies through

matched by the creation of several long-term

the sale-leaseback structure. W. P. Carey’s Investment

partnerships with our tenant companies. We believe

Group is comprised of professionals who are well

these partnerships are critical to both the success of

versed in both credit and real estate analysis. They

W. P. Carey and its tenant companies. It is not

work diligently to evaluate a prospective tenant’s

uncommon for a company or private equity ﬁrm that

industry, business plan, management team and real

has completed one transaction with W. P. Carey to seek

estate assets with the aim of providing them with

additional ﬁnancing in future years.

customized, value-added ﬁnancing solutions.

One company with whom W. P. Carey has formed

This past year, we completed 24 transactions,

a close working relationship over the years is

representing 18 different industries, in 7 countries,

Universal Technical Institute, Inc. (NYSE: UTI), a

valued at $890 million. While the current sale-

leading provider of post-secondary automotive

leaseback environment remains extremely competitive,

technical education. In 2004, we provided UTI with

with an over-abundance of capital chasing deals and

approximately $25 million in ﬁnancing to construct a

new competition entering the market, we remain

new training facility in Rancho Cucamonga, CA. This

focused on completing only those transactions that

transaction represented our sixth sale-leaseback with

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UTI over the past ﬁve years, during

which we acquired six facilities totaling

more than 900,000 square feet, valued

at more than $84 million. In discussing

our relationship and the importance of

W. P. Carey’s ﬁnancing, UTI’s Chairman

Ireland, the Netherlands, Thailand

and the United Kingdom. Our

International Investment Group

consists of individuals with vast

knowledge of the global markets.

W. P. Carey’s corporate reputation

Robert Hartman has commented, “Relationships are

precedes them internationally as a leading provider of

everything in business. Our sale-leaseback transactions

alternative ﬁnancing solutions to companies in the

with W. P. Carey have provided us with the ﬁnancing

United States. Our transaction with Pohjola Non-Life

we needed to build one of the leading technical training

Insurance Company Ltd., one of the largest

schools in the country.” W. P. Carey is proud of its

Scandinavian insurance companies and ﬁnancial

relationship with UTI and is pleased to have been a

institutions, is reﬂective of our success in introducing

part of its success over the years.

our ﬁnancing expertise to a broader global community.

While we continue to develop our relationships

Pohjola sought to sell a portion of its real estate

with our existing tenant companies, we are also

investment portfolio and reinvest these funds in its

making great strides in extending our ﬁnancing

core competencies. W. P. Carey, on behalf of its afﬁliates,

franchise globally. Following the investment in

CPA®:15 and CPA®:16 – Global, acquired Pohjola’s

properties in Canada and Sweden this past year, our

corporate headquarters in Helsinki, Finland for

international portfolio is now comprised of 61

$110 million (Eur 83.6 million). At the conclusion of

properties, consisting of more than 13 million square

the transaction, Eero Heliövaara, President and

feet, located in Belgium, Finland, France, Germany,

CEO of Pohjola, said, “We had several parties, both

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domestic and foreign, interested in acquiring this

support in excess of 95%. Following the liquidation of

property. We chose W. P. Carey because the company

CIP®, eleven of W. P. Carey’s completed programs

has extensive experience in real estate investing and

have gone full cycle to liquidity, providing investors

we are pleased with the results.”

with an average annual total return of approximately

Our efforts to complete our ﬁnancing transactions

12% and distributing nearly 700 quarterly distributions

on time and as proposed, as well as our desire to

without a miss. We believe that our track record of

serve as long-term working partners to our tenant

providing high returns and liquidity to investors is

companies, continue to be the hallmarks of our success.

one reason why the investor base of our CPA® funds

a t r a c k r e c o r d o f s u c c e s s —
g e n e r a t i n g i n c o m e f o r i n v e s t o r s
The increased popularity of our income-generating

has grown year after year, and now totals more than

100,000 investors.

The success and strength of our CPA® funds are

further reﬂected by the December 31, 2004 independent

investments was reﬂected this past year by our ability

third-party appraisals of our CPA®:12 and CPA®:14

to raise more than $511 million from retail investors

portfolios, in which their net asset value per share

on behalf of our afﬁliate, CPA®:16 – Global. At the

rose from $11.70 and $11.30 in 2003 to $12.40 and

end of 2004, we made the decision to temporarily

$12.10 in 2004 respectively. This reﬂects 24% and

suspend our fundraising efforts. We felt that it was

21% increases over the initial purchase price of $10.00

our responsibility to raise

only what we believed we

could prudently invest in a

timely fashion. We made this

decision with the interest of

our investors in mind and

believe it is reﬂective of our

long-term views on investing.

Our efforts to develop and

manage real estate funds that

remain attractive to investors

are made possible by creating

a track record that speaks

to our success at providing

Our efforts to develop and manage real

estate funds that remain attractive to

investors is possible only by creating a

track record that speaks to our success

of providing investors with income and

liquidity for more than 25 years.

per share. We are mindful

that rising interest rates and

other market conditions

could have an adverse effect

on their future valuations

and that there can be no

assurance that the amount

ultimately received for the

shares will equal the value

determined by this process.

Our other two funds, CPA®:15

and CPA®:16 – Global, have

not yet reached the dates on

which independent appraisals

investors with income and liquidity for more than

will begin; as such their estimated value per share has

25 years. In 2004, with the overwhelming support of

been determined to be $10.00 as of December 31,

98% of voting shareholders, we completed the

2004. This amount is based on the offering value of

liquidation of Carey Institutional Properties (CIP®),

the shares.

which provided its investors with a 11.2% return on

This past year, due in large part to the liquidation

their initial investment. This high level of investor

of CIP®, our management business accounted for 65%

support is consistent with the liquidation of

of our total revenues while the rental income from

W. P. Carey’s ten previous funds, which saw investor

our net leased portfolio of properties represented the

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remaining 35%. We believe W. P. Carey’s

continued success, as well as its future

success, is directly correlated to the

strong performance of our CPA® funds.

We recognize the value of aligning our

interests with those of the CPA® funds’

2.4 million square feet, consist of

ofﬁce, industrial, retail and warehouse

facilities located in nine states and will

further strengthen W. P. Carey’s

portfolio. This past year we were also

able to reduce W. P. Carey’s portfolio

shareholders. To that end, we have developed a

vacancies by 1.1 million square feet and sold six

compensation plan that includes both performance

properties for approximately $6.9 million. Contractual

hurdles (certain fees are subordinated to preferred

rent increases with 24 tenants in 2004 totaled an

returns to investors) as well as our ability to take

additional $957,285 in rental income. We are very

payment of certain fees in shares of the CPA® REITs to

pleased with the success our asset management group

build W. P. Carey’s position alongside our CPA®

has had in making improvements to W. P. Carey’s

shareholders. As a result, W. P. Carey currently holds

portfolio and the portfolios of our CPA® funds. By

more than 5 million outstanding shares across the

year-end, our portfolio of properties, owned and

CPA® series of funds.

managed, increased 14% to 88.8 million square feet

from 77.8 million square feet in 2003.

m a n a g i n g o u r g r o w i n g p o r t f o l i o
One of the most signiﬁcant events affecting W. P.

Carey’s portfolio in recent years was our acquisition of

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g e n e r a t i o n o f l e a d e r s

17 properties from our afﬁliate CIP® for approximately

Earlier this year, W. P. Carey’s Board of Directors

$142 million in 2004. These properties, totaling

named Gordon DuGan Chief Executive Ofﬁcer and

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Thomas Zacharias Chief Operating Ofﬁcer. These

ﬁrst quarter of 2005, we originated and structured a

appointments, in line with our previously announced

$54 million ﬁrst mortgage loan for afﬁliates of

transition plan, reﬂect W. P. Carey’s commitment to

Rosemont, IL-based Reyes Holdings, L.L.C., one of the

ensure the long-term success of the Company. And

largest privately held food and beverage distributors in

while W. P. Carey’s Chairman and founder, Wm. Polk

North America. The 10-year ﬁxed rate ﬁrst mortgage

Carey, will remain an active force and continue to

loan is secured by a beer distribution facility in

play a prominent role in guiding our future strategic

Gardena, CA and three cold storage facilities located

direction, daily decisions regarding W. P. Carey’s

in Rogers, MN, Mt. Pleasant, PA and Oak Creek, WI,

operations will be handled by Mr. DuGan.

totaling 837,000 square feet.

Due in large part to the signiﬁcant growth W. P.

In 2004, we acquired a $20 million interest in a

Carey and its afﬁliates have

experienced over the years,

ﬁrst mortgage secured by the

distribution facilities of

both in terms of assets and

After 32 years in business, W. P. Carey

Atlanta, GA-based BlueLinx

investors, we are becoming

Holdings Inc. (NYSE: BXC),

an increasingly large and

has built a reputation of success second

the largest distributor of

complex company with the

building products in

attendant needs of such a

to none. We owe this success to our

the United States. The

company. Accordingly, Doug

$20 million represents the

Barzelay has joined the ﬁrm

investors, tenant companies and our

junior position in a $165

as General Counsel, a posi-

million ﬁve-year ﬂoating

tion he has held with a large

talented, dedicated family of employees.

rate ﬁrst mortgage loan

ﬁnancial institution in the past

in between practicing at two

against BlueLinx’s real estate

portfolio, which consists of

large law ﬁrms. Additionally, the depth and experience

61 distribution centers located throughout 36 states.

of the management of W. P. Carey today can be seen

These are examples of the alternative forms of

in the fact that we have 17 professionals considered to

ﬁnancing we are able to structure for our tenant

be partners of the company with an average age of

companies and we anticipate completing similar

47 years.

transactions in the future.

w e l l p o s i t i o n e d f o r
f u t u r e s u c c e s s

After 32 years in business, W. P. Carey has built a

reputation of success that is second to none. We owe

this success to our investors, tenant companies and

As we look to build upon our past successes, we are

our talented, dedicated family of employees. As we

mindful of the competitive investment environment

look to the future, we are pleased to have been able to

and will remain diligent in our investment practices.

surround ourselves with such a strong group and

We will also continue to look for new investment

believe now, more than ever before, that W. P. Carey

opportunities and alternative ways in which we can

is well positioned for future success.

provide ﬁnancing to our tenant companies. In the

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Results

38.9%

30.8%

21.8%

18.2%

14.4%

6.7%

5.5%

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Cumulative Shareholder
Returns Since Inception

2,831

2,324

1,776

1,552

1,117

1,000

945

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Value of $1000 Invested from
1999 through 2004 at Year End

7,180

5,824

4,568

3,553

2,625

2,221

1,848

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Total Assets Under Ownership or Management

$ in millions

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Results

29,645

27,587

20,835 20,616

21,801

88,148

76,655

57,603

45,445

39,500

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Growth in WPC Investors

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Growth in CPA® Investors

Average Annual Return

End Value Plus Distributions

% of Original Investment Received

Fund / Date of Final Closing

19.4%

15.3%

408%

369%

14.3%

310%

$4,082

$3,687

$3,101

7.3%

237%

$2,367

12.7%

264%

7.9%

210%

13.8%

229%

10.8%

215%

11.2%

242%

9.0%

208%

10.4%

184%

$2,639

$2,103

$2,151

$2,286

$2,424

$2,083

$1,839

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®
P
I
C

CPA® Program Track Record

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The W. P. Carey Group Portfolio of Properties
Properties owned or managed by W. P. Carey & Co. LLC

2004 Investments

2005 Investments as of 3/31/05

North America
From left: United States and Canada

Europe
From left: Ireland, United Kingdom, France,
Belgium, Netherlands, Germany, Sweden and Finland

Asia
Thailand

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Portfolio Diversiﬁcation of Owned or Managed Properties

Based on Contractual Annualized Rent

Total Rent = $560,238,338

1
%

4
.
7

Industrial

Office

Warehouse/
Distribution

Other Properties*

16.4%

32.7%

Retail

27.2%

Hospitality

Land

* Other includes: Assisted Living;
Educational/Childcare Facilities;
Fitness Centers; Self-Storage;
Theaters

By Property Type

1
%

3
.
9

5.1
5.7%
7.4%
7. 5 %

10.2%

1
4

Manufacturing

Other*

Retail Trade

Wholesale Trade

Professional,
Scientific and
Technical Services

3
5.8

Arts, Entertainment
and Recreation

Transportation and
Warehousing

Educational Services

Finance and Insurance

Health Care and
Social Assistance

Information

Real Estate, Rental
and Leasing

* Other includes: Accommodation and
Food Services; Administrative and
Support and Waste Management and
Remediation Services; Construction;
Management of Companies and
Enterprises; Mining; Other Services;
Public Administration

By Tenant Industry

1
7

0
%

18.3

2 1 . 9 %

2 1.4 %

East

South

West

Midwest

International*

* International includes: Belgium,

Canada, Finland, France, Germany,
Ireland, Netherlands, Sweden,
Thailand, United Kingdom

By Geography

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f i n a n c i a l

s t a t e m e n t s

c o n t e n t s

16
Management’s Report on Internal Control Over Financial Reporting

17
Selected Financial Data

18
Management’s Discussion and Analysis of Financial Condition and Results of Operations

40
Report of Independent Registered Public Accounting Firm

42
Consolidated Balance Sheets

43
Consolidated Statements of Income

45
Consolidated Statements of Members’ Equity

47
Consolidated Statements of Cash Flows

50
Notes to Consolidated Financial Statements

82
Market for the Company’s Common Stock and Related Stockholder Matters

83
Report on Form 10-K

84
Corporate Information

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m a n a g e m e n t ’ s r e p o r t o n i n t e r n a l c o n t r o l o v e r
f i n a n c i a l r e p o r t i n g

Our management is responsible for establishing and maintaining adequate internal control over ﬁnancial report-

ing (as deﬁned in Rule 13a-15(f) under the Exchange Act). Internal control over ﬁnancial reporting is a process

designed to provide reasonable assurance regarding the reliability of ﬁnancial reporting and the preparation of

ﬁnancial statements for external purposes in accordance with accounting principles generally accepted in the

United States of America.

Our internal control over ﬁnancial reporting includes those policies and procedures that (i) pertain to the

maintenance of records that, in reasonable detail, accurately and fairly reﬂect the transactions and dispositions of

our assets; (ii) provide reasonable assurance that transactions are recorded as necessary to permit preparation of

ﬁnancial statements in accordance with accounting principles generally accepted in the United States of America,

and that our receipts and expenditures are being made only in accordance with authorizations of our manage-

ment and directors; and (iii) provide reasonable assurance regarding prevention or timely detection of unautho-

rized acquisition, use, or disposition of our assets that could have a material effect on the ﬁnancial statements.

Because of its inherent limitations, internal control over ﬁnancial reporting may not prevent or detect mis-

statements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that con-

trols may become inadequate because of changes in conditions, or that the degree of compliance with the policies

or procedures may deteriorate.

We assessed the effectiveness of our internal control over ﬁnancial reporting as of December 31, 2004. In mak-

ing this assessment, we used criteria set forth in Internal Control – Integrated Framework issued by the Commit-

tee of Sponsoring Organizations of the Treadway Commission (COSO). Based on our assessment, we concluded

that, as of December 31, 2004, our internal control over ﬁnancial reporting is effective based on those criteria.

Our assessment of the effectiveness of internal control over ﬁnancial reporting as of December 31, 2004 has

been audited by PricewaterhouseCoopers LLP, an independent registered public accounting ﬁrm who also audited

our consolidated ﬁnancial statements included herein.

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Selected Financial Data
(In thousands except per share amounts)

Operating Data:
Revenues(1)
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 dividends declared per share
Payment of mortgage principal(3)

2004

2003

2002

2001

2000

$ 227,774

$159,238

$152,404

$120,493

$101,469

69,048

62,562

44,138

31,079

(12,688)

1.85

1.71

1.24

.90

(.43)

1.77
63,851
1.71
1.64
65,073
98,849
1.76
9,428

1.64
62,878
1.72
1.65
62,978
67,295
1.73
8,548

1.21
46,588
1.31
1.28
60,708
75,896
1.72
8,428

.89
35,761
1.04
1.02
58,048
58,877
1.70
8,230

(.43)
(9,278)
(.31)
(.31)
49,957
58,222
1.69
7,590

Balance Sheet Data:
Real estate, net(4)
Net investment in direct ﬁnancing leases
Total assets
Long-term obligations(5)

$ 485,505
190,644
1,013,539
278,821

$421,543
182,452
906,505
158,605

$440,193
189,339
893,524
226,102

$435,629
258,041
915,883
287,903

$433,867
287,876
904,242
176,657

(1) Prior year amounts have been reclassiﬁed to conform to the current year presentation of excluding other interest income from revenues.

(2) Includes gain on sale of real estate in 2002 and 2001 and a loss on sale of real estate in 2000.

(3) Represents scheduled mortgage principal amortization paid.

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

depreciation.

(5) Represents mortgage and note obligations and deferred acquisition fee installments that are due after more than one year.

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m a n a g e m e n t ’ s d i s c u s s i o n a n d a n a l y s i s o f

f i n a n c i a l c o n d i t i o n a n d r e s u l t s o f o p e r a t i o n s

( I n t h o u s a n d s e x c e p t s h a r e a n d p e r s h a r e a m o u n t s )

The following discussion and analysis of ﬁnancial condition and results of operations of W. P. Carey & Co. LLC

contain forward-looking statements and should be read in conjunction with the consolidated ﬁnancial state-

ments and notes thereto for the year ended December 31, 2004. As used in this Annual Report, the terms “the

Company,” “we,” “us” and “our” include W. P. Carey and Co, LLC, its consolidated subsidiaries and predecessors,

unless otherwise indicated. Forward-looking statements discuss matters that are not historical facts. Because they

discuss future events or conditions, forward-looking statements may include words such as “anticipate,” “believe,”

“expect,” “estimate,” “intend,” “could,” “should,” “would,” “may,” “seeks,” “plans” or similar expressions. Do not

unduly rely on forward-looking statements. They give our expectations about the future and are not guarantees,

and speak only as of the date they are made. Such statements involve known and unknown risks, uncertainties

and other factors that may cause our actual results, performance or achievement to be materially different from

the results of operations or plan expressed or implied by such forward-looking statements. While we cannot pre-

dict all of the risks and uncertainties, they include, but are not limited to, those described in Item 1 of our

Annual Report on Form 10-K. Accordingly, such information should not be regarded as representations that the

results or conditions described in such statements or that our objectives and plans will be achieved.

Executive Overview
n a t u r e o f b u s i n e s s

As described in more detail in Item 1 of this Annual Report, we are a publicly traded limited liability company.

Our stock is listed on the New York Stock Exchange. We operate in two operating segments, real estate opera-

tions, with investments in the United States and Europe, and management services operations. Within our man-

agement services operations, we are the advisor to the following afﬁliated publicly-owned, non-traded real estate

investment trusts: Corporate Property Associates 12 Incorporated (“CPA®:12”), Corporate Property Associates 14

Incorporated (“CPA®:14”), Corporate Property Associates 15 Incorporated (“CPA®:15”), Corporate Property

Associates 16 – Global Incorporated (“CPA®:16 – Global”) and, until its merger into CPA®:15 during 2004,

Carey Institutional Properties Incorporated (“CIP®”), (collectively, the “CPA® REITs”). CPA®:16 – Global was

formed in 2003.

Revenues from the management services operations are earned by providing services to the CPA® REITs in

connection with structuring and negotiating acquisition and debt placement transactions (transaction fees) and

h o w w e e a r n r e v e n u e

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providing on-going management of the portfolio (asset-based management and performance fees). Asset-based

management and performance fees for the CPA® REITs are determined based on real estate assets under manage-

ment. We may also earn incentive and disposition fees in connection with providing liquidity alternatives to

CPA® REIT shareholders. As funds available to the CPA® REITs are invested in properties, the asset base for which

we earn revenue increases. We may elect to collect performance fee revenue in cash or shares of the CPA® REITs

at our option. The revenues and income of this business segment are subject to ﬂuctuation because the volume

and timing of transactions that are originated on behalf of the CPA® REITs are subject to various uncertainties

including competition for net lease transactions, the requirement that each acquisition meet suitability standards

and due diligence requirements including approval of each purchase of real estate by the investment committee

and the ability to raise capital on behalf of the CPA® REITs. We typically start to evaluate liquidity alternatives for

the CPA® REITs that we manage, 8 to 12 years after completion of the offering. Such events occur periodically

and generally result in higher revenue being realized than in periods where there are no such events.

Revenues from our real estate operations are earned primarily from leasing real estate. We acquire and own

commercial and industrial properties that are then leased to companies domestically and internationally, prima-

rily on a net lease basis. Revenue from this business segment is subject to ﬂuctuation because of lease expirations,

lease terminations, the timing of new lease transactions, tenant defaults and sales of property.

h o w m a n a g e m e n t e v a l u a t e s r e s u l t s o f o p e r a t i o n s

Management evaluates our results with a primary focus on increasing and enhancing the value, quality and

amount of the assets under management by our management services operations and seeking to increase value

in our real estate operations through focusing efforts on underperforming assets through re-leasing efforts,

including negotiation of lease renewals, or selectively selling such assets. The ability to increase assets under man-

agement by structuring acquisitions on behalf of the CPA® REITs is affected, among other things, by the CPA®

REITs ability to raise capital. During 2004, we managed CPA®:16 – Global’s “best efforts” public offering.

CPA®:16 – Global suspended this offering in December 2004 for an unspeciﬁed time and subsequently withdrew

its offering. CPA®:16 – Global has ﬁled a registration statement, which is not yet effective, for a second offering.

Management’s evaluation of operating results includes our ability to generate necessary cash ﬂow in order to

fund dividends to our shareholders. As a result, management’s assessment of operating results gives less emphasis

to the effect of unrealized gains and losses, which may cause ﬂuctuations in net income for comparable periods

but have no impact on cash ﬂow and to other noncash charges such as depreciation and impairment charges.

In evaluating cash ﬂow from operations, management includes equity distributions that are included in investing

activities to the extent that the distributions in excess of equity income are the result of noncash charges such as

depreciation and amortization. Management does not consider unrealized gains and losses from foreign currency

when evaluating our ability to fund dividends. Management’s evaluation of our potential for generating cash

ﬂow is based on long-term assessments of both our real estate portfolio and our assets under management.

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Our real estate operations consist of the investment in and the leasing of industrial and commercial real

estate. Management’s evaluation of the sources of lease revenues for the years ended December 31, 2004, 2003

and 2002 are as follows:

Per Statements of Income:

Rental income
Interest income from direct ﬁnancing leases

Adjustments:

Share of lease revenues applicable to minority interests
Share of lease revenues from equity investments

2004

2003

2002

$46,472
21,322

$43,992
20,655

$44,304
22,298

(1,597)
12,426

(1,316) (766)
7,434
8,786

$ 78,623

$72,117

$73,270

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For the years ended December 31, 2004, 2003 and 2002, we earned net lease revenues (i.e., rental income and

interest income from direct ﬁnancing leases) from over 100 lessees. A summary of net lease revenues including

all current lease obligors with more than $1,000 in 2004 annual revenues is as follows:

Dr Pepper Bottling Company of Texas
Detroit Diesel Corporation
Bouygues Telecom, S.A.(a) (b)
Gibson Greetings, Inc., a wholly owned

subsidiary of American Greetings, Inc.

Carrefour France, SA(b) (d) (g)
Federal Express Corporation(c)
America West Holdings Corp.
Orbital Sciences Corporation
Quebecor Printing Inc.
AutoZone, Inc.
Sybron International Corporation
CheckFree Holdings, Inc.(d)
Sybron Dental Specialties Inc.
Unisource Worldwide, Inc.
Information Resources, Inc.(d)
CSS Industries, Inc.
BE Aerospace, Inc.
Sprint Spectrum L.P.
Titan Corporation(e)
Eagle Hardware & Garden, Inc., a wholly

owned subsidiary of Lowe’s Companies Inc.

Brodart Co.
AT&T Corporation
United States Postal Service
BellSouth Telecommunications, Inc.
Hologic, Inc.(d)
Lockheed Martin Corporation
Cendant Operations, Inc.
Swat-Fame, Inc.
United Space Alliance
Anthony’s Manufacturing Company, Inc.
Other(b) (f)

For the Year Ended December 31,

2004

2003

2002

$ 4,334
4,158
3,619

6%
5
5

$ 4,290
4,158
3,193

6%
6
4

$ 4,405
4,158
2,952

6%
6
4

3,578
3,417
2,933
2,838
2,747
2,653
2,362
2,286
2,180
1,770
1,705
1,644
1,637
1,585
1,425
1,316

1,306
1,273
1,259
1,233
1,224
1,136
1,094
1,093
1,086
1,051
1,019
17,662

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

2
2
2
2
1
1
1
1
1
1
1
22

3,593
253
2,903
2,738
2,655
2,632
2,393
2,083
2,128
1,613
1,710
1,644
1,647
1,620
1,425
517

1,338
1,235
1,259
1,233
1,224
1,136
1,196
1,075
885
951
1,019
16,371

5
0
4
4
4
4
3
3
3
2
2
2
2
2
2
1

2
2
2
2
2
2
2
1
1
1
1
23

4,149
—
2,876
2,539
2,655
2,563
2,411
2,164
2,108
1,613
1,732
1,644
1,656
433
1,425
507

1,313
1,519
1,259
1,233
1,224
382
1,389
1,075
749
885
1,019
19,233

6
—
4
3
4
3
3
3
3
2
2
2
2
1
2
1

2
2
2
2
2
1
2
1
1
1
1
26

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

$78,623

100%

$72,117

100%

$73,270

100%

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(b) Revenue amounts are subject to ﬂuctuations in foreign currency exchange rates.

(d) Represents our proportionate share of lease revenue from our equity investment.

(e) Includes our 18.54% proportionate share of lease revenues from our equity ownership from the period January 1, 2004 through August 31, 2004,

at which time we acquired the remaining 81.46% interest in the investment.

(f) Includes proportionate share of lease revenues from our equity investments and net of proportionate share applicable to our minority interest

owners.

(g) The Carrefour France, SA interest was acquired in November 2003.

c u r r e n t d e v e l o p m e n t s a n d t r e n d s
Competition for investments remains strong. If general economic conditions continue to improve, inﬂation and

interest rates, at least for the short term, are expected to continue to rise as well. Rising interest rates are expected

to have the following impact on our business:

■ Rising interest rates would likely cause a decline in the values of properties in our investment portfolio;

■ Rising interest rates would likely cause an increase in the Consumer Price Index (“CPI”), which over time will

result in increased revenue and partially offset the impact of declining property values;

■ Rising interest rates would have an impact on debt costs as the line of credit under our credit facility is a vari-

able rate obligation;

■ Rising interest rates are expected to enable us to achieve higher rates of return on new investments, which

would be partially offset by increased debt costs on these new investments associated with increased interest

rates; and

■ Rising interest rates could make other income-generating products more attractive to investors on a relative

basis than our CPA® REITs.

Our objective is to increase shareholder value and earnings through prudent management of both our real

estate assets and the real estate assets of the CPA® REITs, through the expansion of our management services

business and opportunistic investments. We expect to evaluate a number of different opportunities in a variety of

property types and geographic locations and to pursue the most attractive opportunities based upon our analysis

of the risk/return tradeoffs.

We expect to continue investing in the international commercial real estate market, as we believe the interna-

tional market provides for favorable opportunities relative to risk/return as compared to U.S. opportunities.

In addition, ﬁnancing terms are generally more favorable for international transactions. Financing terms for

international transactions generally provide for lower interest rates and greater ﬂexibility to ﬁnance the underlying

property. These beneﬁts are partially offset by shorter ﬁnancing maturities. Investing in additional international

properties is also expected to increase our exposure to ﬂuctuations in foreign currency exchange rates (primarily

the Euro).

For the year ended December 31, 2004, cash ﬂows generated from operations and equity investments were suf-

ﬁcient to fund dividends paid and meet other obligations including paying scheduled mortgage principal pay-

ments and making distributions to minority interests which hold ownership interests in several of our properties.

Such cash flows also provided partial funding for the purchase of interests in 17 properties from CIP® prior to

the merger.

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We evaluate our results from operations by major business segment as follows:

Results of Operations

r e a l e s t a t e o p e r a t i o n s

This business segment includes the operations of properties under operating lease, properties under direct

ﬁnancing leases, real estate under construction and development, assets held for sale and equity investments in

ventures accounted for under the equity method which are engaged in these activities. Because of our legal struc-

ture, these operations are not generally subject to federal income taxes; however, they may be subject to certain

state, local and foreign taxes.

m a n a g e m e n t s e r v i c e s o p e r a t i o n s
This business segment includes management operations on a fee for services basis predominately from the CPA®

REITs pursuant to the advisory agreements and to a lesser extent from third parties. This business line also

includes interest on deferred fees and earnings from unconsolidated investments in the CPA® REITs accounted

for under the equity method which were received in lieu of cash for certain fees. In connection with maintaining

our status as a publicly traded partnership, these operations are performed in corporate subsidiaries and are sub-

ject to federal, state, local and foreign taxes as applicable. Our ﬁnancial statements are prepared on a consolidated

basis including these taxable operations and include a provision for current and deferred taxes on these operations.

A summary of comparative results of these business segments is as follows:

Real Estate Operations

2004

2003

Change

2003

2002

Change

For the Year Ended December 31,

Lease revenue
Other operating income

Total revenue

Depreciation and amortization
General and administrative expenses
Property expenses
Impairment charges and loan losses

Operating expenses

Other interest income
Minority interest in (income) loss
Income (loss) from equity investments
Interest expense
Gain on foreign currency transactions
Gain on sales of real estate and securities

Income from continuing operations

before income taxes
Provision for income taxes

$ 67,794
5,798

$ 62,847
5,233

$ 4,947
565

$ 62,847
5,233

$ 64,077
1,258

$ (1,230)
3,975

73,592
10,841
3,561
5,651
7,048

27,101

46,491
270
(489)
3,665
(14,803)
1,222
—

68,080
9,474
1,893
5,854
1,480

18,701

49,379
248
(168)
3,149
(14,982)
48
—

5,512
1,367
1,668
(203)
5,568

8,400

(2,888)
22
(321)
516
179
1,174
—

68,080
9,474
1,893
5,854
1,480

18,701

65,335
10,213
1,456
5,281
20,510

2,745
(739)
437
573
(19,030)

37,460

(18,759)

27,875
49,379
542
248
120
(168)
(895)
3,149
(15,893)
(14,982)
48
—
— 12,415

21,504
(294)
(288)
4,044
911
48
(12,415)

36,356
(1,437)

37,674
(1,401)

(1,318)
(36)

37,674
(1,401)

24,164
(1,496)

13,510
95

Income from continuing operations

$ 34,919

$ 36,273

$(1,354) $ 36,273

$ 22,668

$ 13,605

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l e a s e r e v e n u e

2004 VS. 2003 – For the comparable years ended December 31, 2004 and 2003, lease revenue (rental income and

interest income from direct ﬁnancing leases) increased by $4,947. The increase was primarily attributable to rev-

enue earned from the properties acquired from CIP® in September 2004 of $3,559 and additional revenue from

scheduled rent increases and new leases of $1,638. Annual contractual lease revenues from the interests acquired

from CIP® are $11,321 for 2005. Our net leases generally have rent increases based on formulas indexed to

increases in the CPI or other indices for the jurisdiction in which the property is located, sales overrides or other

periodic increases, which are designed to increase lease revenues in the future.

In February 2005, Winn-Dixie Stores, Inc., a lessee of WPC’s Bay Minette, Alabama property, indicated that it

intends to terminate its lease in connection with its reorganization in Chapter 11 bankruptcy. Annual lease rev-

enue from the Bay Minette property is $128.

2003 VS. 2002 – For the comparable years ended December 31, 2003 and 2002, lease revenue decreased by

$1,230. Lease terminations and expirations in 2002 and 2003 reduced lease revenue by $2,535 in 2003. As the

result of writedowns of direct ﬁnancing leases in 2003 and 2002, the rates of return on several leases were

revised, and interest income from direct ﬁnancing leases for ﬁnancial reporting purposes in 2003 decreased by

approximately $1,460. Lease revenues were also negatively affected by the reclassiﬁcation of our ownership inter-

est in Learning Care Group, Inc. (formerly Childtime Childcare, Inc.) as an equity investment in August 2002,

which decreased lease revenue by $256. These decreases were partially offset by revenue from a new lease with BE

Aerospace, Inc. on properties purchased during the third quarter of 2002 which contributed revenue of $1,187,

the positive effect of increases in average foreign currency exchange rate for the Euro of approximately $1,050, as

well as new leases and several rent increases on existing leases of approximately $775.

o t h e r o p e r a t i n g i n c o m e

2004 VS. 2003 – Other operating income generally consists of lease termination payments and other non-rent

related revenues including, but not limited to, settlements of claims against former lessees. We receive settlements

in the ordinary course of business; however, the timing and amount of such settlements cannot always be esti-

mated. For the comparable years ended December 31, 2004 and 2003, other operating income increased $565

primarily due to increased bankruptcy claim distributions and other settlement income received from former

lessees in 2004.

2003 VS. 2002 – For the comparable years ended December 31, 2003 and 2002, other operating income

increased $3,975 primarily due to the same reasons as stated above. In 2003, we received a lease termination

settlement of $2,250 from The Gap, Inc.

d e p r e c i a t i o n a n d a m o r t i z a t i o n

2004 VS. 2003 – For the comparable years ended December 31, 2004 and 2003, depreciation and amortization

expense increased $1,367. The increase is primarily a result of depreciation and amortization expense recognized

on the properties acquired from CIP®, which represented $1,766, partially offset by a decrease in amortization of

certain intangibles that became fully amortized in 2003. Annual depreciation and amortization expense for the

properties acquired from CIP® is expected to be approximately $6,050.

2003 VS. 2002 – For the comparable years ended December 31, 2003 and 2002, depreciation expense

decreased $739. The decrease is primarily the result of certain intangibles becoming fully amortized in 2003,

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which resulted in a decrease of $1,356. This decrease was partially offset by additional depreciation of $228 relat-

ed to the acquisition of the BE Aerospace properties in 2002, and increases in depreciation for capital improve-

ments on existing properties and the effect of increases in average foreign currency exchange rates.

g e n e r a l a n d a d m i n i s t r a t i v e e x p e n s e s

2004 VS. 2003 – For the comparable years ended December 31, 2004 and 2003, general and administrative

expenses increased $1,668 primarily due to an increase in fees for auditing and consulting services related to

ongoing securities law compliance, including the Sarbanes-Oxley Act, and internal audit fees, as well as an

increase in legal fees related to the ongoing SEC investigation.

2003 VS. 2002 – For the comparable years ended December 31, 2003 and 2002, general and administrative

expenses increased $437 primarily due to increases in fees for accounting, auditing and consulting services

including internal audit fees.

i m p a i r m e n t c h a r g e s a n d l o a n l o s s e s

2004, 2003 and 2002 – For the comparable years ended December 31, 2004 and 2003, impairment charges and

loan losses increased $5,568. For the comparable years ended December 31, 2003 and 2002, impairment charges

and loan losses decreased $19,030. Impairment charges were recorded due to several factors including our deci-

sion to sell property at less than its carrying value, our determination that the property has experienced an other

than temporary decline in value and for direct ﬁnancing leases our assessment that the unguaranteed residual

value of the underlying property had declined. The table below summarizes the impairment charges recorded in

2004, 2003 and 2002 for both assets held for use and assets held for sale:

Property

Meristar operating

partnership units

Cincinnati, Ohio

Williamsport, Pennsylvania

Memphis, Tennessee

Winona, Minnesota
Various properties

Bay Minette, Alabama

Impairment charges from
continuing operations

Toledo, Ohio
Winona, Minnesota

Frankenmuth, Michigan
Lancaster, Pennsylvania
Various properties

Impairment charges from
discontinued operations

2004
Impairment
Charges

2003
Impairment
Charges

2002
Impairment
Charges

Reason

$ 4,596

4,588

3,486

Evaluation determined that investment
value has declined

Decline in unguaranteed residual value of property

$1,480

7,840

Loan loss related to sale of property
Decline in unguaranteed residual value of
properties or decline in asset value

Evaluation determined that property value
has declined

$1,480

$20,510

$ 4,000

Property sold for less than carrying value
Property sold for less than carrying value

$1,430
1,530

4,901

Property to be sold for less than carrying value
Property sold for less than carrying value
Decided to sell property or property value
has declined

$2,337

1,250
2,911

550

$7,048

$4,700

1,000

1,850

$7,550

$2,960

$ 8,901

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i n c o m e ( l o s s ) f r o m e q u i t y i n v e s t m e n t s
2004 VS. 2003 – For the comparable years ended December 31, 2004 and 2003, income from equity investments

increased $516, primarily due to income of $755 representing the full year impact from the acquisition of a

22.5% interest in eight Carrefour France, SA properties in France in November 2003, partially offset by a decrease

in equity income in connection with acquiring a 50% interest in a general partnership and the remaining 81.46%

interest in a limited partnership (both interests were acquired in connection with our acquisition of 17 properties

from CIP®). We recorded a loss of $136 related to the 50% interest in the general partnership for ﬁnancial report-

ing purposes because of non-cash charges relating to the amortization of the difference between the fair value of

the interest acquired and its underlying cost basis. Our share of annual cash ﬂow (contractual lease revenues, net

of property-level debt service) from our interest in the general partnership is projected to be $712.

2003 VS. 2002 – For the comparable years ended December 31, 2003 and 2002, income from equity invest-

ments increased $4,044, primarily due to the conversion of our ownership interest in MeriStar to publicly traded

common stock in 2003. For the year ended December 31, 2002, we incurred a loss from the MeriStar investment

of $3,019, which was included in equity income. We now account for our investment in common stock of

MeriStar as an available-for-sale security and, therefore record income as dividends are earned and no longer rec-

ognize our share of MeriStar’s reported net income or loss. Equity income for 2003 was also affected by the

acquisition, in December 2002, of a jointly controlled tenancy-in-common interest in the Hologic, Inc. proper-

ties, which contributed $530 and increases in the earnings of our equity investees.

i n t e r e s t e x p e n s e

2004 VS. 2003 – For the comparable years ended December 31, 2004 and 2003, interest expense decreased by

$179. The decrease was partially due to a reduction in interest expense of $1,371 as a result of paying off mort-

gages on two properties in 2004 and ﬁve properties in 2003 and reductions in mortgage notes payable balances,

all of which provide for scheduled mortgage principal payments. The decrease was partially offset by increases in

interest expense of $615 related to the assumption of mortgages from our acquisition of 17 properties from CIP®

and $458 related to additional borrowings and higher interest rates related to our credit facility. The average out-

standing balance and interest rate on our credit facility, which incurs annual interest at a variable rate, increased

by approximately $15,000 and 1.1%, respectively, for the comparable years. Annual debt service on mortgages

assumed in our acquisition from CIP® is approximately $3,148.

2003 VS. 2002 – For the comparable years ended December 31, 2003 and 2002, interest expense decreased by

$911 primarily due to a decrease in interest of $1,323 on our credit facility arising from lower average outstand-

ing balances during 2003, partially offset by an increase in mortgage interest expense of $308. The increase in

mortgage interest was due primarily to new mortgage ﬁnancing placed on two of our properties during the third

and fourth quarters of 2002, which contributed $765, partially offset by decreases in interest expense on ﬁve

mortgages that were paid off during 2003. The average outstanding balance on the credit facility decreased by

approximately $38,000 for the comparable years but was not affected by ﬂuctuations caused by changes in the

interest rate, as rates were relatively stable throughout 2003.

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i n c o m e f r o m c o n t i n u i n g o p e r a t i o n s

2004 VS. 2003 – For the comparable years ended December 31, 2004 and 2003, income from continuing opera-

tions decreased $1,354, primarily due to an increase in impairment charges of $5,568 and increases in general

and administrative expenses and depreciation and amortization, all of which are described above. These decreas-

es were partially offset by an increase in total revenue of $5,512, which is described above and an increase in gain

on foreign currency transactions of $1,174.

2003 VS. 2002 – For the comparable years ended December 31, 2003 and 2002, income from continuing oper-

ations increased $13,605, primarily due to a decrease in impairment charges of $19,030 and increases in total rev-

enue of $2,020, and equity income of $4,044. These were partially offset by a decrease in gain on sales of real

estate of $12,415.

Management Services Operations

2004

2003

Change

2003

2002

For the Year Ended December 31,

Management income from afﬁliates
Incentive and subordinated disposition fees

$106,362
42,095

$ 88,060
—

$ 18,302
42,095

$ 88,060 $ 84,255
—

—

Total revenue

Depreciation and amortization
General and administrative

148,457
9,366
47,424

88,060
7,123
41,802

60,397
2,243
5,622

88,060
7,123
41,802

84,255
7,575
41,133

Operating expenses

56,790

48,925

7,865

48,925

48,708

Income from continuing operations before
other interest income, minority interest,
equity income, interest expense and taxes

Other interest income
Minority interest in (income) loss
Income from equity investments
Interest expense

Income from continuing operations

before taxes

Provision for income taxes

91,667
2,857
(1,010)
1,643
(35)

39,135
2,323
(202)
859
—

52,532
534
(808)
784
(35)

39,135
2,323
(202)
859
—

35,547
1,098
—
452
—

95,122
(51,537)

42,115
(17,715)

53,007
(33,822)

42,115
(17,715)

37,097
(16,587)

5,018
(1,128)

Income from continuing operations

$ 43,585

$ 24,400

$ 19,185

$ 24,400 $ 20,510

$ 3,890

m a n a g e m e n t i n c o m e f r o m a f f i l i a t e s

2004 VS. 2003 – For the comparable years ended December 31, 2004 and 2003, management income from afﬁli-

ates increased $18,302 primarily due to increases in transaction fees of $10,687 and asset-based management and

performance fees of $8,607. Transaction fees included fees from structuring acquisitions and ﬁnancing on behalf

of the CPA® REITs and $11,493 that we earned in connection with the merger between CIP® and CPA®:15

(“Merger”). We structured $890,000 of acquisitions for the year ended December 31, 2004 as compared with

$725,000 in 2003. The transaction fees do not include $7,535 from structuring acquisitions on behalf of

CPA®:16 – Global as the fees are subject to subordination provisions that were not met as of December 31, 2004.

Because CPA®:16 – Global’s proportion of total acquisition volume is expected to increase in 2005 relative to the

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Change

$ 3,805
—

3,805
(452)
669

217

3,588
1,225
(202)
407
—

other CPA® REITs and its subordination provisions are not expected to be met during 2005, transaction based

revenue for 2005 is likely to decrease. The increase in asset-based fees resulted from an approximately 41%

increase in the asset base (including the asset base of the interests in properties we acquired from CIP® of the

CPA® REITs since December 31, 2003. Annual asset-based fees related to the interests in properties we acquired

from CIP® were approximately $1,422, and we will no longer receive these asset-based fees. There will be no effect

on annual asset-based fees related to the properties involved in the Merger.

Based on assets under management of the CPA® REITs as of December 31, 2004, annualized management

and performance fees under the advisory agreements are approximately $47,680. The asset based fees that we earn

increase or decrease in direct relation to increases and decreases in the values of the real estate asset bases of the

CPA® REITs. If the real estate asset bases of the CPA® REITs continue to increase, asset management fees are projected

to increase. Currently, we are evaluating a number of proposed transactions on behalf of the CPA® REITs.

Acquisition activity is subject to ﬂuctuations. We are facing increased competition for the acquisition of com-

mercial and industrial properties. This competition is from insurance companies, credit companies, pension

funds, private individuals, investment companies and other REITs. We also face competition from institutions

that provide or arrange for other types of commercial ﬁnancing through private or public offerings of equity or

debt or traditional bank ﬁnancings.

A portion of the CPA® REIT transaction and management fees is based on each CPA® REIT meeting

specific performance criteria and is earned only if the criteria are achieved. The performance criterion for

CPA®:16 – Global has not yet been satisﬁed as of December 31, 2004, resulting in $7,535 in transaction fees and

$819 in performance fees not being recognized. The performance criterion for CPA®:16 – Global is a cumulative

preferred return of 6%. As of December 31, 2004, the cumulative distribution rate for CPA®:16 – Global is

approximately 4.61%. Based on management’s current assessment, CPA®:16 – Global is expected to meet the

cumulative preferred return in 2006, at which time we will record and collect the cumulative unrecognized fees.

There is no assurance that the preferred return will be achieved as projected.

2003 VS. 2002 – For the comparable years ended December 31, 2003 and 2002, management income from

afﬁliates increased $3,805 due to increases in asset-based management and performance fees of $15,853, partially

offset by a decrease in transaction fees of $12,048. The increase in asset-based management and performance fees

resulted from an increase in the asset base of the CPA® REITs during 2003 of approximately 30%. The decrease in

transaction fees resulted from a decrease in structuring volume of acquisitions on behalf of the CPA® REITs of

$256,000 for the comparable years.

i n c e n t i v e a n d s u b o r d i n a t e d d i s p o s i t i o n f e e s

2004 VS. 2003 – In connection with the Merger, we earned incentive fees of $23,681 and subordinated disposition

fees of $18,414 from CIP®. Incentive and disposition fees are earned in connection with events which provide liq-

uidity or alternatives to the CPA® REIT shareholders. While we anticipate that such events will occur again, no liq-

uidity events are currently being planned and the timing of such events cannot be predicted with any certainty.

d e p r e c i a t i o n a n d a m o r t i z a t i o n

2004 VS. 2003 – For the comparable years ended December 31, 2004 and 2003, depreciation and amortization

expense increased by $2,243 primarily due to accelerated amortization of certain intangible assets of $2,798

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related to the management contract with CIP®, which was terminated as a result of the Merger. This increase was

partially offset by a reduction in amortization expense on certain intangibles assets that became fully amor-

tized during 2003.

2003 VS. 2002 – For the comparable years ended December 31, 2003 and 2002, depreciation and amortization

expense decreased by $452 primarily due to certain intangibles assets that became fully amortized during 2003.

g e n e r a l a n d a d m i n i s t r a t i v e

2004 VS. 2003 – For the comparable years ended December 31, 2004 and 2003, general and administrative

expense increased by $5,622, primarily due to an increase in personnel costs of $3,903 and increases in fees for

accounting, auditing and consulting services related to ongoing securities law compliance, including the Sarbanes-

Oxley Act, as well as an increase in legal fees related to the ongoing SEC investigation. A portion of personnel

costs is directly related to CPA® REIT fundraising and transaction activities. The increase in personnel costs was

attributable to higher transaction volume of $165,000 during the comparable years and a $2,385 increase in per-

sonnel costs related to non-cash charges for compensation from share incentive plan awards to our ofﬁcers and

employees. Of the $2,385 increase, $2,155 reﬂects an increase in awards that ﬂuctuate with changes in fair value

because such awards are accounted for using variable plan accounting. These increases were partially offset by a

decrease in capital raising activities. For the comparable years, there was a decrease in fund raising volume of

approximately $41,000.

2003 VS. 2002 – For the comparable years ended December 31, 2003 and 2002, general and administrative

expense increased by $669, primarily due to increases in fees for accounting, auditing and consulting services

including internal audit fees.

o t h e r i n t e r e s t i n c o m e

2004 VS. 2003 – For the comparable years ended December 31, 2004 and 2003, other interest income increased

$534, due to an increase in interest income earned on deferred acquisition fees. In connection with structuring

and negotiating acquisitions and related mortgage ﬁnancing for the CPA® REITs, the advisory agreements provide

for transaction fees based on the cost of properties acquired. A portion of the fees applicable to the CPA® REITs

is deferred and payable in equal annual installments over periods ranging from three to eight years, subject to each

CPA® REIT meeting its preferred return. Unpaid installments bear interest at annual rates ranging from 5% to 7%.

2003 VS. 2002 – For the comparable years ended December 31, 2004 and 2003, other interest income

increased $1,225 due to the same factor as stated above.

i n c o m e f r o m e q u i t y i n v e s t m e n t s

2004 VS. 2003 – For the comparable years ended December 31, 2004 and 2003, income from equity investments

increased $784, primarily due to an increase in our ownership of shares in the CPA® REITs as a result of receiving

restricted shares in consideration for performance fees. In general, the CPA® REITs, like other REITs, have the

ability to distribute amounts in excess of their net income because of depreciation and amortization, which are

both non-cash expenses. Based on current distribution rates, our annual dividends from the CPA® REITs for 2005

are projected to be $4,262.

2003 VS. 2002 – For the comparable years ended December 31, 2003 and 2002, income from equity invest-

ments increased $407, due to the same factor as mentioned above.

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p r o v i s i o n f o r i n c o m e t a x e s

2004 VS. 2003 – For the comparable years ended December 31, 2004 and 2003, the provision for income taxes

increased $33,822 due to increased pre-tax earnings in 2004 as discussed above. Approximately 95% of our man-

agement revenue in 2004, which increased $60,397 as compared to 2003, was earned by a taxable, wholly owned

subsidiary. The effective income tax rate for 2004 was 54% as compared to 42% in 2003. The increase is primarily

due to increases in state and local taxes, and increases in permanent differences, such as certain stock based com-

pensation, which are not deductible for income tax purposes, but are recorded as expenses for ﬁnancial reporting

purposes.

2003 VS. 2002 – For the comparable years ended December 31, 2003 and 2002, the provision for income taxes

increased by $1,128 to $17,715, of which $9,478 represented deferred taxes and the reclassiﬁcation of $2,700 of

tax beneﬁts related to share incentive plans as a direct beneﬁt to Partners’ Capital. In 2003, approximately 91% of

management revenues were earned by a taxable, wholly owned subsidiary, and income tax expense is most

affected by its earnings.

i n c o m e f r o m c o n t i n u i n g o p e r a t i o n s

2004 VS. 2003 – For the comparable years ended December 31, 2004 and 2003, income from continuing operations

increased $19,185 primarily due to fees earned in connection with the Merger and increased management fees

earned in connection with 2004 fundraising and acquisition activity on behalf of the CPA® REITs. These increases

were primarily offset by an increase in the provision for income taxes. These variances are all described above.

2003 VS. 2002 – For the comparable years ended December 31, 2003 and 2002, income from continuing oper-

ations increased $3,890 primarily due to an increase in management income from afﬁliates of $3,805, and to a

lesser extent an increase in equity income of $407 and a decrease in depreciation and amortization expenses of

$452. These were partially offset by an increase in the provision for income taxes of $1,128.

o t h e r

In 2002, a wholly-owned indirect subsidiary of ours entered into a build-to-suit development management

agreement with the Los Angeles United School District (“School District”) with respect to the development and

construction of a new high school. Income on the project is being recognized under the percentage of comple-

tion method of accounting. The School District and we are currently preparing for an arbitration proceeding

relating to certain disagreements regarding the costs of the project and whether we are entitled to reimbursement

for incurring these costs. Due to our disputes with the School District and the possibility that certain costs will

not be reimbursed, we have revised our estimate of proﬁt on the development project, and recognized a loss in

development income of $1,303 for the year ended December 31, 2004 as compared with development income of

$1,298 for the comparable year ended December 31, 2003. We currently project that we will recognize an overall

proﬁt under our development management agreement. In addition, during 2004 we incurred an impairment

charge of $7,500 related to our hotel operations in Livonia, Michigan. The impairment charge was the result of

decline in this property’s value.

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Financial Condition
u s e s o f c a s h d u r i n g t h e y e a r

There has been no material change in our ﬁnancial condition since December 31, 2003. Cash and cash equivalents

totaled $16,715 as of December 31, 2004, a decrease of $7,644 from the December 31, 2003 balance. We believe

that we will generate sufﬁcient cash from operations and, if necessary, from the proceeds of limited recourse

mortgage loans, unsecured indebtedness and the issuance of additional equity securities to meet our short-term

and long-term liquidity needs. We assess our ability to access capital on an ongoing basis. Our use of cash during

the year is described below.

o p e r a t i n g a c t i v i t i e s

Cash ﬂows from operating activities and distributions received from equity investments for the year ended

December 31, 2004 of $105,782 were sufﬁcient to fund dividends to shareholders of $65,073. During 2004, we

received fees of $36,679 in connection with structuring acquisition transactions and fees of $24,215 from provid-

ing asset-based management services on behalf of the CPA® REITs. We also beneﬁted from the Merger, which

generated cash receipts for us of $23,681 related to incentive fees and $22,679 related to disposition fees.

In January 2004, we received $5,978 from the annual installment of deferred acquisition fees. The next install-

ment of deferred acquisition fees was paid in January 2005 and approximated $8,950. The installments are sub-

ject to certain subordination provisions. CPA®:16 – Global has not yet met the subordination provisions and is

not expected to pay any deferred amounts in 2005. Our real estate operations provided cash ﬂows (contractual

lease revenues, net of property-level debt service) of approximately $47,800. Annual cash ﬂow from operations is

projected to continue to fund distributions; however, operating cash ﬂow ﬂuctuates on a quarterly basis due to

the timing of certain compensation costs that are paid and receipt of the annual installment of deferred acquisi-

tion fees and interest thereon in the ﬁrst quarter and the timing of the receipt of transaction-related fees.

i n v e s t i n g a c t i v i t i e s

Our investing activities are generally comprised of real estate transactions (purchases and sales) and capitalized

property related costs. During the year, we used $111,230 to purchase 17 properties from CIP®. Substantially all

cash used for this purchase came from borrowings under our credit facility and fees received from the merger. In

connection with this purchase, we also assumed existing limited recourse mortgages on the properties of

$27,003. Other investing activities included $4,094 to fulﬁll obligations related to the November 2003 purchase of

our 22.5% interest in the eight Carrefour, S.A. properties in France and $1,596 of capital expenditures at several

existing properties. In January 2004, we paid our annual installment of deferred acquisition fees of $524 to our

former management company relating to 1998 and 1999 property acquisitions. The remaining obligation is

$1,709. We intend to use cash from operations to fund the remaining obligation.

Cash proceeds from investing activities in 2004 included the receipt of $7,185 in June 2004 related to the

release of an escrow account in connection with a property sale in 2003 and $6,548 from the sales of seven

properties. Over the past several years, we have pursued a strategy of selling our smaller properties as well as

properties that do not generate signiﬁcant cash ﬂow and require more intensive asset management services.

During 2004, we sold properties located in Toledo, Ohio; Kenbridge, Virginia; McMinnville, Tennessee;

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Panama City, Florida; Leeds, Alabama and Garland, Texas, all of which required intensive asset management

services. As of December 31, 2004, we have classiﬁed four additional properties as held for sale.

f i n a n c i n g a c t i v i t i e s

During 2004 we paid dividends of $65,073, an increase over prior year dividends paid. We entered into a new

$225,000 credit facility in 2004 (see Cash Resources below). Gross borrowings under the new credit facility

approximated $203,000 and were used primarily to fund the acquisition of 17 properties from CIP® ($70,000), pay

taxes related to management fees earned in connection with the Merger ($25,000), pay down the prior credit facility

($30,000), which expired in 2004, and for several other purposes in the normal course of business, such as other

loan payments and dividend payments. During 2004, we made repayments of $130,000 on outstanding credit

facility balances. The majority of the repayments were made using cash received in the normal course of busi-

ness, with the remainder coming from the new facility to pay down the prior facility and cash receipts of $11,000

from the sales of various properties. We also used $9,962 to satisfy the limited recourse mortgage ﬁnancing on our

Erlanger, Kentucky properties, and also paid down $9,428 on existing principal balances. In addition, we raised

$6,649 from the issuance of shares primarily through our Distribution Reinvestment and Share Purchase Plan.

In the case of limited recourse mortgage ﬁnancing that does not fully amortize over its term or is currently

due, we are responsible for the balloon payment only to the extent of our interest in the encumbered property

because the holder has recourse only to the collateral. In the event that balloon payments come due, we may seek

to reﬁnance the loans, restructure the debt with the existing lenders or evaluate our ability to satisfy the obliga-

tion from our existing resources including our revolving line of credit. To the extent the remaining initial lease

term on any property remains in place for a number of years beyond the balloon payment date, we believe that

the ability to reﬁnance balloon payment obligations is enhanced. We also evaluate all our outstanding loans for

opportunities to reﬁnance debt at lower interest rates that may occur as a result of decreasing interest rates or

improvements in the credit rating of tenants. We believe we have sufﬁcient resources to pay off the loans in the

event they are not reﬁnanced. In addition, approximately 72% of our outstanding mortgage debt has ﬁxed rates

of interest so that debt service obligations will not signiﬁcantly increase from increases in interest rates.

c a s h r e s o u r c e s

As of December 31, 2004, we have $16,715 in cash and cash equivalents, which can be used for working capital

needs and other commitments and may be used for future real estate purchases. We entered into a new credit

facility in May 2004, which is also available to meet working capital needs and other commitments. In addition,

debt may be incurred on unleveraged properties with a carrying value of $370,381 as of December 31, 2004 and

any proceeds may be used to ﬁnance future real estate purchases.

In May 2004, we entered into a credit facility for a $175,000 revolving line of credit with J.P. Morgan Chase

Bank and eight other banks. The line of credit, which matures in May 2007, provides us a one-time right to

increase the amount available under the line of credit to $225,000. Advances are prepayable at any time.

Advances from the line of credit bear interest at an annual rate indexed to either (i) the one, two, three or six-

month London Inter-Bank Offered Rate, 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 a rate indexed to the

Federal Funds Effective Rate. The revolving credit agreement has ﬁnancial covenants that require us, among

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other things, to maintain a minimum equity value and to meet or exceed certain operating and coverage ratios.

We are in compliance with these covenants as of December 31, 2004.

Credit Facility

December 31, 2004

December 31, 2003

Maximum
Available

$225,000

Outstanding
Balance

$102,000

Maximum Outstanding
Balance
Available

$225,000

$29,000

c a s h r e q u i r e m e n t s

During the next twelve months, cash requirements will include paying dividends to shareholders, scheduled

mortgage principal payments, making distributions to minority partners as well as other normal recurring oper-

ating expenses. In addition, there is $4,893 in scheduled balloon payments on our share of limited recourse

mortgage loans due during 2005. We may also seek to use our cash to purchase new properties or other investments

to further diversify our portfolio and maintain cash balances sufﬁcient to meet working capital needs. We may issue

additional shares in connection with purchases of real estate when it is consistent with the objectives of the seller.

We have budgeted capital expenditures of up to approximately $3,575 at various properties during 2005.

The capital expenditures will primarily be for tenant and property improvements in order to enhance a proper-

ty’s cash ﬂow or marketability for re-leasing or sale. This includes expected environmental remediation costs of

$1,500 to be funded to prepare the Red Bank property for sale to a third party. We have received a grant from an

agency of the State of Ohio, which will reimburse us for certain environmental costs at Red Bank. In addition, we

have entered into an agreement to share certain other of the expected environmental costs with a third party

which operated a business at the property prior to our ownership. Additionally, we have commenced negotiating

a property improvement plan in connection with renewing the franchise license with Holiday Inn at the Livonia

hotel. We currently estimate that we may spend less than $1,000 over the next two years if we intend to continue

to operate the hotel under the Holiday Inn brand.

We expect to meet our capital requirements to fund future property acquisitions, construction costs on build-

to-suit transactions, any capital expenditures on existing properties and scheduled debt maturities on limited

recourse mortgages through use of our cash reserves or unused amounts on its credit facility.

Off-Balance Sheet and Aggregate Contractual Agreements
The table below summarizes our contractual obligations as of December 31, 2004 and the effect that such obliga-

tions are expected to have on our liquidity and cash ﬂow in future periods.

Total

Limited recourse mortgage notes payable(1) $251,156
Unsecured note payable(1)
110,720
Deferred acquisition fees(1)
1,931
Development project(2)
2,000
8,086
Operating leases(3)

$373,893

(1) Amounts are inclusive of principal and interest.

Less than
1 Year

$26,856
—
627
2,000
646

$30,129

1-3 Years

$ 71,342
110,720
1,159
—
1,513

$184,734

3-5
Years

More than
5 years

$64,566
—
145
—
1,535

$66,246

$88,392
—
—
—
4,392

$92,784

(2) We have provided a guarantee of $2,000 related to the development project in Los Angeles.
(3) Operating lease obligations consist primarily of our share of minimum rents payable under an ofﬁce cost-sharing agreement. Amounts related to

our foreign operations are based on the exchange rate of the Euro as of December 31, 2004.

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As of December 31, 2004, we have no material capital lease obligations, either individually or in the aggregate.

We and Carey Financial Corporation (“Carey Financial”), our wholly-owned broker-dealer subsidiary, are cur-

rently subject to an SEC investigation into payments made to third party broker dealers in connection with the

distribution of REITs managed by us and other matters. Although no regulatory action has been initiated against

us or Carey Financial in connection with the matters being investigated, it is possible that the Commission may

pursue an action in the future. The potential timing of any such action and the nature of the relief or remedies

the Commission may seek cannot be predicted at this time. If such an action is brought, it could materially affect

our cash requirements.

In connection with the purchase of many of our properties, we required the sellers to perform environmental

reviews. We believe, based on the results of such reviews, that our properties were in substantial compliance with

Federal and state environmental statutes at the time the properties were acquired. However, portions of certain

properties have been subject to some degree of contamination, principally in connection with leakage from

underground storage tanks, surface spills or 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, our leases generally require tenants to indemnify

us from all liabilities and losses related to the leased properties with provisions of such indemniﬁcation speciﬁ-

cally addressing environmental matters. The leases generally include provisions that allow for periodic environ-

mental assessments, paid for by the tenant, and allow us to extend leases until such time as a tenant has satisﬁed

its environmental obligations. Certain of our leases allow us to require ﬁnancial assurances from tenants such as

performance bonds or letters of credit if the costs of remediating environmental conditions are, in our estima-

tion, in excess of speciﬁed amounts. Accordingly, we believe that the ultimate resolution of environmental mat-

ters should not have a material adverse effect on our ﬁnancial condition, liquidity or results of operations.

Critical Accounting Estimates
A summary of our signiﬁcant accounting policies is described in Note 2 to the consolidated ﬁnancial statements.

Many of these accounting policies require certain judgment and the use of certain estimates and assumptions

when applying these policies in the preparation of our consolidated ﬁnancial statements. On a quarterly basis, we

evaluate these estimates and judgments based on historical experience as well as other factors that we believe to

be reasonable under the circumstances. These estimates are subject to change in the future if underlying assump-

tions or factors change. Certain accounting policies, while signiﬁcant, may not require the use of estimates. Those

accounting policies that require signiﬁcant estimation and/or judgment are listed below.

c l a s s i f i c a t i o n o f r e a l e s t a t e a s s e t s

We classify our directly owned leased assets for ﬁnancial reporting purposes as either real estate leased under the

operating method or net investment in direct ﬁnancing leases at the inception of a lease. This classiﬁcation is

based on several criteria, including, but not limited to, estimates of the remaining economic life of the leased

assets and the calculation of the present value of future minimum rents. In determining the classiﬁcation of a

lease, we use estimates of remaining economic life provided by third party appraisals of the leased assets. The cal-

culation of the present value of future minimum rents includes determining a lease’s implicit interest rate, which

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requires an estimate of the residual value of leased assets as of the end of the non-cancelable lease term.

Different estimates of residual value result in different implicit interest rates and could possibly affect the ﬁnan-

cial reporting classiﬁcation of leased assets. The contractual terms of our leases are not necessarily different for

operating and direct ﬁnancing leases; however the classiﬁcation is based on accounting pronouncements which

are intended to indicate whether the risks and rewards of ownership are retained by the lessor or substantially

transferred to the lessee. Management believes that it retains certain risks of ownership regardless of accounting

classiﬁcation. Assets classiﬁed as net investment in direct ﬁnancing leases are not depreciated and, therefore, the

classiﬁcation of assets may have a signiﬁcant impact on net income even though it has no effect on cash ﬂows.

i d e n t i f i c a t i o n o f t a n g i b l e a n d i n t a n g i b l e a s s e t s i n
c o n n e c t i o n w i t h r e a l e s t a t e a c q u i s i t i o n s

In connection with the acquisition of properties, purchase costs are allocated to tangible and intangible assets

and liabilities acquired based on their estimated fair values. The value of tangible assets, consisting of land, build-

ings and tenant improvements, is determined as if vacant. Intangible assets including the above-market value of

leases, the value of in-place leases and the value of tenant relationships are recorded at their relative fair values.

Below-market value of leases are also recorded at their relative fair values and are recorded as liabilities in the

accompanying ﬁnancial statements.

The value attributed to tangible assets is determined in part using a discount cash ﬂow model which is

intended to approximate what a third party would pay to purchase the property as vacant and rent at current

“market” rates. In applying the model, we assume that the disinterested party would sell the property at the end

of a market lease term. Assumptions used in the model are property-speciﬁc as it is available; however, when cer-

tain necessary information is not available, we will use available regional and property-type information.

Assumptions and estimates include a discount rate or internal rate of return, marketing period necessary to put

a lease in place, carrying costs during the marketing period, leasing commissions and tenant improvements

allowances, market rents and growth factors of such rents, market lease term and a cap rate to be applied to an

estimate of market rent at the end of the market lease term.

Above-market and below-market lease intangibles are based on the difference between the market rent and

the contractual rents and are discounted to a present value using an interest rate reﬂecting our current assess-

ment of the risk associated with the lease acquired. We acquire properties subject to net leases and consider the

credit of the lessee in negotiating the initial rent.

The total amount of other intangibles is allocated to in-place lease values and tenant relationship intangible

values based on our evaluation of the speciﬁc characteristics of each tenant’s lease and our overall relationship

with each tenant. Characteristics we consider in allocating these values include the nature and extent of the exist-

ing relationship with the tenant, prospects for developing new business with the tenant, the tenant’s credit quality

and the expectation of lease renewals, among other factors. Intangibles for above-market and below-market

leases, in-place lease intangibles and tenant relationships are amortized over their estimated useful lives. In the

event that a lease is terminated, the unamortized portion of each intangible, including market rate adjustments,

in-place lease values and tenant relationship values, are charged to expense.

Factors considered include the estimated carrying costs of the property during a hypothetical expected lease-up

period, current market conditions and costs to execute similar leases. Estimated carrying costs include real estate

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taxes, insurance, other property operating costs and estimates of lost rentals at market rates during the hypothet-

ical expected lease-up periods, based on assessments of speciﬁc market conditions. Estimated costs to execute

leases include commissions and legal costs to the extent that such costs are not already incurred with a new lease

that has been negotiated in connection with the purchase of the property.

i m p a i r m e n t s

Impairment charges may be recognized on long-lived assets, including but not limited to, real estate, direct

ﬁnancing leases, assets held for sale, goodwill and equity investments. Estimates and judgments are used when

evaluating whether these assets are impaired. When events or changes in circumstances indicate that the carrying

amount of an asset may not be recoverable, we perform 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 us to make our best estimate of market rents, residual

values and holding periods. In our evaluations, we generally obtain market information from outside sources;

however, such information requires us to determine whether the information received is appropriate to the cir-

cumstances. As our investment objective is 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 projected in the evaluation of long-lived assets can vary within a range of outcomes. We will

consider the likelihood of possible outcomes in determining the best possible estimate of future cash ﬂows.

Because in most cases, each of our properties is leased to one tenant, we are 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 ultimately real-

ized upon sale of the assets.

We perform a review of our estimate of residual value of our direct ﬁnancing leases at least annually to deter-

mine whether there has been an other than temporary decline in the current estimate of residual value of the

underlying real estate assets (i.e., the estimate of what we 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. While an evaluation of potential impairment of real estate accounted for under

the operating method is determined by a change in circumstances, the evaluation of a direct ﬁnancing lease can

be affected by changes in long-term market conditions even though the obligations of the lessee are being met.

Changes in circumstances include, but are not limited to, vacancy of a property not subject to a lease and termi-

nation of a lease. We may also assess properties for impairment because a lessee is experiencing ﬁnancial difﬁcul-

ty and because management expects that there is a reasonable probability that the lease will be terminated in a

bankruptcy organization or a property remains vacant for a period that exceeds the period anticipated in a prior

impairment evaluation.

We accounted for our acquisition of business operations of Carey Management LLC in 2000 as a purchase.

The excess of the purchase price over the fair value of the net assets acquired was recorded as goodwill. We evalu-

ate goodwill for possible impairment at least annually using a two-step process. To identify any impairment, we

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ﬁrst compare the estimated fair value of the reporting unit (management services segment) with our carrying

amount, including goodwill. We calculate the estimated fair value of the management services segment by apply-

ing a multiple, based on comparable companies, to earnings. If the fair value of the management services seg-

ment 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 per-

formed to measure the amount of the impairment charge.

For the second step, we 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 management services segment to its assets and liabilities. The excess of the estimated fair value of the man-

agement services segment over the amounts assigned to its assets and liabilities is the implied fair value of the

goodwill. We have performed our annual test for impairment of our management services segment, the

reportable unit of measurement, and concluded that the goodwill is not impaired.

Investments in unconsolidated joint ventures are accounted for under the equity method and are recorded ini-

tially at cost, as equity investments and subsequently adjusted for our proportionate share of earnings and cash

contributions and distributions. On a periodic basis, we assess whether there are any indicators that the value of

equity investments may be impaired and whether or not that impairment is other than temporary. 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.

When we identify assets as held for sale, we discontinue depreciating the assets and estimate the sales price, net

of selling costs, of such assets. If in our 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. To the extent that a purchase and sale agreement has been entered into, the allowance is based on the

negotiated sales price. To the extent that we have adopted a plan to sell an asset but have not entered into a sales

agreement, we will make judgments of the net sales price based on current market information. Accordingly, the

initial assessment may be greater or less than the purchase price subsequently committed to and may result in a

further adjustment to the fair value of the property. If circumstances arise that previously were considered

unlikely and, as a result, we decide not to sell a property previously classiﬁed as held 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, (b) the fair

value at the date of the subsequent decision not to sell, or (c) the current carrying value.

p r o v i s i o n f o r u n c o l l e c t e d a m o u n t s f r o m l e s s e e s

On an ongoing basis, we assess our ability to collect rent and other tenant-based receivables and determine an

appropriate allowance for uncollected amounts. Because our real estate operations have a limited number of lessees

(fewer than 30 lessees represent more than 75% of annual rental income), we believe that it is necessary to evaluate

the collectibility of these receivables based on the facts and circumstances of each situation rather than solely use

statistical methods. We generally recognize a provision for uncollected rents and other tenant receivables that typi-

cally range between 0.5% and 2% of lease revenues (rental income and interest income from direct ﬁnancings

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leases) and will measure our allowance against actual rent arrearages and adjust the percentage applied. For amounts

in arrears, we make subjective judgments based on our knowledge of a lessee’s circumstances and may reserve for

the entire receivable amount from a lessee because there has been signiﬁcant or continuing deterioration in the

lessee’s ability to meet its lease obligations. Based on actual experience during 2004, we did not record a provision,

as it was determined that our current allowance for uncollectible accounts was sufﬁcient.

d e t e r m i n a t i o n o f c e r t a i n a s s e t b a s e d
m a n a g e m e n t a n d p e r f o r m a n c e f e e s

We earn asset-based management and performance fees for providing property management, leasing, advisory

and other services to the CPA® REIT’s. For certain CPA® REIT’s, these fees are based on third party annual valua-

tions of the underlying real estate assets of the CPA® REIT. The valuation uses estimates, including but not

limited to, market rents, residual values and increases in the CPI and discount rates. Differences in the assump-

tions applied would affect the amount of revenue that we recognize. Additionally, a deferred compensation plan

for certain ofﬁcers is valued based on the results of the annual valuations. The effect of any changes in the annual

valuations will affect both revenue and compensation expense and therefore the determination of net income.

i n c o m e t a x e s
Signiﬁcant judgment is required in developing our provision for income taxes, including (i) the determination of

partnership-level state and local taxes and foreign taxes, and (ii) for our taxable subsidiaries, estimating deferred

tax assets and liabilities and any valuation allowance that might be required against the deferred tax assets. A val-

uation allowance is required if it is more likely than not that a portion or all of the deferred tax assets will not be

realized. We have not recorded a valuation allowance based on our current 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 subsidiaries is determined, in part, by applying an effective tax rate, which takes into

account statutory federal, state and local tax rates.

Recent Accounting Pronouncements

In December 2004, the FASB issued SFAS No. 123 (Revised 2004), “Share-Based Payment” (“FAS 123R”), which

requires that the fair value of all stock and other equity-based compensation be treated as an expense that is

reﬂected in the income statement. Note 1 to the consolidated ﬁnancial statements of this Annual Report on

Form 10-K contains pro forma disclosures regarding the effect on net income and earnings per share as if we

had applied the fair value method of accounting for stock-based compensation. Depending on the model used to

calculate stock-based compensation expense in the future and other requirements of FAS 123R, the pro forma

disclosure may not be indicative of the stock-based compensation expense that will be recognized in our future

ﬁnancial statements. FAS 123R is effective for periods beginning after June 15, 2005, and allows two different

methods of transition. We expect to implement FAS 123R beginning with the third quarter of ﬁscal 2005, which

begins on July 1, 2005. We are currently evaluating this new standard and models that may be used to calculate

future stock-based compensation expense.

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

and Disclosure,” (“FAS 148”) which amends SFAS No. 123, Accounting for Stock Based Compensation. FAS No. 148

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provides alternative methods of transition for a voluntary change to the fair value based method of accounting

for stock based compensation (i.e., recognition of a charge for issuance of stock options in the determination of

income). However, FAS No. 148 does not permit the use of the original FAS No. 123 prospective method of tran-

sition for changes to the fair value based method made in ﬁscal years beginning after December 15, 2003.

In addition, this Statement amends the disclosure requirements of FAS No. 123 to require prominent disclosures

in both annual and interim ﬁnancial statements about the method of accounting for stock based employee com-

pensation, description of transition method utilized and the effect of the method used on reported results.

The annual disclosure provisions of FAS No. 148 have been adopted.

In May 2003, the FASB issued SFAS No. 150 “Accounting for Certain Financial Instruments with Characteristics

of both Liability and Equity” (“FAS 150”). FAS 150 establishes standards to classify as liabilities certain ﬁnancial

instruments that are mandatorily redeemable or include an obligation to repurchase and expands ﬁnancial state-

ment disclosure requirements. Such ﬁnancial instruments will be measured at fair value with changes in fair

value included in the determination of net income. FAS 150 was effective for ﬁnancial instruments entered into

or modiﬁed after May 31, 2003, and otherwise effective at the beginning of the ﬁrst interim period beginning

after June 15, 2003.

In November 2003, the FASB issued FASB Staff Position 150-3 (“FSP 150-3”), which defers the classiﬁcation

and measurement provisions of FAS 150 indeﬁnitely as they apply to mandatorily redeemable non-controlling

interests associated with ﬁnite-lived entities. We have interests in ﬁve joint ventures that are consolidated and

have minority interests that have ﬁnite lives and were considered mandatorily redeemable non-controlling

interests prior to the issuance of FSP 150-3. As a result of the deferral provisions of FSP 150-3, these minority

interests have not been reﬂected as liabilities. The carrying value of these minority interests approximates their

estimated fair value as of December 31, 2004. We adopted FAS 150 in July 2003 and it did not have a signiﬁcant

impact on our consolidated ﬁnancial statements.

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r e p o r t o f i n d e p e n d e n t r e g i s t e r e d

p u b l i c a c c o u n t i n g f i r m

To the Board of Directors and Shareholders of

W. P. Carey & Co. LLC:

We have completed an integrated audit of W. P. Carey & Co. LLC’s 2004 consolidated ﬁnancial statements and of

its internal control over ﬁnancial reporting as of December 31, 2004 and audits of its 2003 and 2002 consolidated

ﬁnancial statements in accordance with the standards of the Public Company Accounting Oversight Board

(United States). Our opinions, based on our audits, are presented below.

c o n s o l i d a t e d f i n a n c i a l s t a t e m e n t s

In our opinion, the accompanying consolidated balance sheets and the related consolidated statements of income,

shareholders’ 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, 2004 and 2003, and the results of their operations and their cash ﬂows for

each of the three years in the period ended December 31, 2004 in conformity with accounting principles generally

accepted in the United States of America. These ﬁnancial statements are the responsibility of the Company’s man-

agement. Our responsibility is to express an opinion on these ﬁnancial statements based on our audits. We con-

ducted our audits of these statements in accordance with the standards of the Public Company Accounting

Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable

assurance about whether the ﬁnancial statements are free of material misstatement. An audit of ﬁnancial statements

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.

i n t e r n a l c o n t r o l o v e r f i n a n c i a l r e p o r t i n g
Also, in our opinion, management’s assessment, included in the accompanying Management’s Report on Internal

Control over Financial Reporting, that the Company maintained effective internal control over ﬁnancial report-

ing as of December 31, 2004 based on criteria established in Internal Control – Integrated Framework issued by

the Committee of Sponsoring Organizations of the Treadway Commission (COSO), is fairly stated, in all mate-

rial respects, based on those criteria. Furthermore, in our opinion, the Company maintained, in all material

respects, effective internal control over ﬁnancial reporting as of December 31, 2004, based on criteria established

in Internal Control – Integrated Framework issued by the COSO. The Company’s management is responsible for

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maintaining effective internal control over ﬁnancial reporting and for its assessment of the effectiveness of inter-

nal control over ﬁnancial reporting. Our responsibility is to express opinions on management’s assessment and

on the effectiveness of the Company’s internal control over ﬁnancial reporting based on our audit. We conducted

our audit of internal control over ﬁnancial reporting in accordance with the standards of the Public Company

Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to

obtain reasonable assurance about whether effective internal control over ﬁnancial reporting was maintained in

all material respects. An audit of internal control over ﬁnancial reporting includes obtaining an understanding of

internal control over ﬁnancial reporting, evaluating management’s assessment, testing and evaluating the design

and operating effectiveness of internal control, and performing such other procedures as we consider necessary

in the circumstances. We believe that our audit provides a reasonable basis for our opinions.

A company’s internal control over ﬁnancial reporting is a process designed to provide reasonable assurance

regarding the reliability of ﬁnancial reporting and the preparation of ﬁnancial statements for external purposes

in accordance with generally accepted accounting principles. A company’s internal control over ﬁnancial report-

ing includes those policies and procedures that (i) pertain to the maintenance of records that, in reasonable

detail, accurately and fairly reﬂect the transactions and dispositions of the assets of the company; (ii) provide

reasonable assurance that transactions are recorded as necessary to permit preparation of ﬁnancial statements in

accordance with generally accepted accounting principles, and that receipts and expenditures of the company are

being made only in accordance with authorizations of management and directors of the company; and (iii) pro-

vide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposi-

tion of the company’s assets that could have a material effect on the ﬁnancial statements.

Because of its inherent limitations, internal control over ﬁnancial reporting may not prevent or detect mis-

statements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that con-

trols may become inadequate because of changes in conditions, or that the degree of compliance with the

policies or procedures may deteriorate.

New York, New York

March 15, 2005

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w . p . c a r e y & c o . l l c
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 $53,914 and $45,021 at December 31, 2004 and 2003

Net investment in direct ﬁnancing leases

Real estate leased to others
Operating real estate, net of accumulated depreciation of $6,983 and

$5,805 at December 31, 2004 and 2003

Real estate under construction and redevelopment
Equity investments
Assets held for sale
Cash and cash equivalents
Due from afﬁliates
Goodwill
Intangible assets, net of accumulated amortization of $35,610 and

$25,262 at December 31, 2004 and 2003

Other assets, net of accumulated amortization of $1,494 and $2,716

and reserve for uncollected rent of $2,601 and $2,600 at
December 31, 2004 and 2003

Total assets

Liabilities, Minority Interest and Members’ Equity
Liabilities:
Mortgage notes payable
Notes payable
Accrued interest
Dividends payable
Due to afﬁliates
Accounts payable and accrued expenses
Prepaid rental income and security deposits
Accrued income taxes
Deferred income taxes, net
Other liabilities

Total liabilities

Minority interest

Commitments and contingencies
Members’ Equity:
Listed shares, no par value, 37,523,462 and 36,745,027 shares issued

and outstanding at December 31, 2004 and 2003

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

Total members’ equity

Total liabilities, minority interest and members’ equity

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

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2004

December 31,
2003

$ 476,365
190,644

$ 400,717
182,452

667,009

583,169

9,140
—
110,379
12,802
16,715
63,471
63,607

16,147
4,679
82,800
13,609
24,359
50,917
63,607

50,501

38,528

19,915

28,690

$1,013,539

$ 906,505

$ 190,698
102,000
1,389
16,626
2,033
19,838
4,881
3,909
40,349
11,748

393,471

1,407

$ 180,193
29,000
1,163
15,987
20,444
16,249
4,267
1,810
29,532
11,221

309,866

1,852

734,658
(114,431)
(5,366)
3,800

709,724
(112,570)
(4,863)
2,496

618,661

594,787

$1,013,539

$ 906,505

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Consolidated Statements of Income
(In thousands except share and per share amounts)

Revenues
Management income from afﬁliates
Incentive and subordinated disposition fees
Rental income
Interest income from direct ﬁnancing leases
Other operating income
Revenues of other business operations

Operating Expenses
Depreciation
Amortization
General and administrative
Property expenses
Impairment charge on real estate and investments and loan losses
Operating expenses of other business operations

Income from continuing operations before other interest income,
minority interest, equity investments, interest expense, gains
and losses and income taxes

Other interest income
Minority interest in (income) loss
Income (loss) from equity investments
Interest expense
Gain on foreign currency transactions and sale of securities
Income from continuing operations before income taxes

and gain on sale of real estate

Provision for income taxes

Income from continuing operations before gain 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

(Loss) income from discontinued operations

Gain on sale of real estate

Net income

2004

For the Year Ended December 31,
2002

2003

106,362
42,095
46,472
21,322
5,798
5,725

227,774

11,311
10,074
50,985
5,893
14,548
6,261

99,072

128,702
3,127
(1,499)
5,308
(14,838)
1,222

88,060
—
43,992
20,655
5,233
1,298

84,255
—
44,304
22,298
1,258
289

159,238

152,404

10,432
7,296
43,698
5,929
1,480
—

68,835

90,403
2,571
(370)
4,008
(14,982)
48

9,767
9,208
42,592
5,945
20,510
—

88,022

64,382
1,640
120
(443)
(15,893)
94

122,022

81,678

49,900

(52,974)

(19,116)

(18,083)

69,048

62,562

31,817

2,263
90
(7,550)

(5,197)

—

2,038
1,238
(2,960)

316

—

63,851

62,878

8,657
2,694
(8,901)

2,450

12,321

46,588

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Consolidated Statements of Income (continued)
(In thousands except share and per share amounts)

Basic earnings (loss) per share:

Income from continuing operations
(Loss) income from discontinued operations

Net income

Diluted earnings (loss) per share:

Income from continuing operations
(Loss) income from discontinued operations

Net income

Weighted average shares outstanding:

Basic

Diluted

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

2004

For the Year Ended December 31,
2002

2003

$ 1.85
(.14)

$ 1.71

$ 1.77
(.13)

$ 1.64

1.71
.01

1.72

1.64
.01

1.65

1.24
.07

1.31

1.21
.07

1.28

37,417,918

36,566,338

35,530,334

38,904,725

38,008,762

36,265,230

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Consolidated Statements of Members’ Equity
For the years ended December 31, 2001, 2002 and 2003
(In thousands except share and per share amounts)

Balance at December 31, 2001

34,742,436

$664,751

$ (97,200)

$(4,454)

Dividends
in Excess of
Paid-in Accumulated
Capital

Unearned
Earnings Compensation

Cash proceeds on issuance of shares, net
Shares issued in connection with services rendered
Shares issued in connection with prior 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 gains on marketable securities
Foreign currency translation adjustment
Comprehensive income:

528,479
5,755
500,000
170,768
(3,328)

10,086
390
10,440
3,913
(70)

1,084

(3,913)
70

2,626

(61,358)

46,588

Balance at December 31, 2002

35,944,110

$690,594

$(111,970)

$(5,671)

Cash proceeds on issuance of shares, net
Shares issued in connection with services rendered

and properties acquired

Shares issued in connection with prior acquisition
Shares and options issued under share incentive plans
Forfeitures
Dividends declared
Tax beneﬁt – share incentive plans
Amortization of unearned compensation
Repurchase of shares
Net income
Other comprehensive income:
Change in unrealized gains on marketable securities
Foreign currency translation adjustment

Comprehensive income:

Balance at December 31, 2003

Cash proceeds on issuance of shares, net
Shares issued in connection with services rendered
Shares issued in connection with prior acquisition
Shares and options issued under share incentive plans
Forfeitures
Dividends declared
Tax beneﬁt – share incentive plans
Amortization of unearned compensation
Repurchase and retirement of shares
Net income
Other comprehensive income:
Change in unrealized gains on marketable securities
Foreign currency translation adjustment
Comprehensive income:

412,012

7,789

5,846
400,000
47,550
(9,726)

160
8,909
1,212
(132)

2,700

(54,765)

(1,508)

(2,827)
99

3,536

(63,478)

62,878

36,745,027

$709,724

$(112,570)

$(4,863)

274,262
8,938
500,000
118,683
(32,869)

6,649
271
13,734
3,538
(138)

3,423

(90,579)

(2,543)

(4,409)
138

3,768

(65,712)

63,851

Balance at December 31, 2004

37,523,462

$734,658

$(114,431)

$(5,366)

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Consolidated Statements of Members’ Equity (continued)
For the years ended December 31, 2001, 2002 and 2003
(In thousands except share and per share amounts)

Balance at December 31, 2001

Comprehensive income:

Balance at December 31, 2002

Cash proceeds on issuance of shares, net
Shares issued in connection with services rendered and properties acquired
Shares issued in connection with prior acquisition
Shares and options issued under share incentive plans
Forfeitures
Dividends declared
Tax beneﬁt – share incentive plans
Amortization of unearned compensation
Repurchase of shares
Net income
Other comprehensive income:
Change in unrealized gains on marketable securities
Foreign currency translation adjustment

Comprehensive income:

Balance at December 31, 2003

Cash proceeds on issuance of shares, net
Shares issued in connection with services rendered
Shares issued in connection with prior acquisition
Shares and options issued under share incentive plans
Forfeitures
Dividends declared
Tax beneﬁt – share incentive plans
Amortization of unearned compensation
Repurchase and retirement of shares
Net income
Other comprehensive income:
Change in unrealized gains on marketable securities
Foreign currency translation adjustment

Comprehensive income:

Balance at December 31, 2004

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

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Comprehensive
Income (Loss)

Accumulated
Other
Comprehensive
Income (Loss)

Total

$(3,432)

$559,665

10,086
390
10,440

(61,358)
1,084
2,626
46,588

1,367

$(2,065)

$570,888

7,789
160
8,909
(1,615)
(33)
(63,478)
2,700
3,536
(1,508)
62,878

4,561

$ 2,496

$594,787

6,649
271
13,734
(871)

(65,712)
3,423
3,768
(2,543)
63,851

1,304

$ 3,800

$618,661

$46,588

12
1,355

1,367

$47,955

$62,878

2,567
1,994

4,561

$67,439

$63,851

1,467
(163)

1,304

$65,155

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Consolidated Statements of Cash Flows
(In thousands except share and per share amounts)

Cash ﬂows from operating activities:

Net income
Adjustments to reconcile net income to net cash provided by

continuing operating activities:
Loss (income) from discontinued operations, including

impairment charges and gain on sale

Depreciation and amortization of intangibles assets and

deferred ﬁnancing costs

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

income and rent related intangibles

Management income received in shares of afﬁliates
Unrealized gain on foreign currency transactions
Impairment charges on securities and real estate and loan losses
Deferred income tax provision
Realized gain on foreign currency transaction
Costs paid by issuance of shares
Increase (decrease) in accrued taxes payable
Tax beneﬁt – share incentive plans
Amortization of unearned compensation
Deferred acquisition fees received
Increase in structuring fees receivable
Net changes in operating assets and liabilities
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
Capital distributions from equity investment
Purchases of real estate and contributions to equity investments
Additional capital expenditures
Payment of deferred acquisition fees to afﬁliate
Release of funds from escrow in connection with the sale of a property
Proceeds from sales of real estate and investments
Cash acquired on acquisition of subsidiary
Net cash (used in) provided by investing activities

Cash ﬂows from ﬁnancing activities:

Dividends paid
Payment of accrued preferred distributions
Contributions from minority interest
Distributions to minority interests
Payments of mortgage principal
Proceeds from mortgages and credit facility
Prepayments of mortgage principal and credit facility
Payment of ﬁnancing costs
Proceeds from issuance of shares
Retirement of shares
Net cash used in ﬁnancing activities

Effect of exchange rate changes on cash

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

2004

For the Year Ended December 31,
2002

2003

$ 63,851

$ 62,878

$ 46,588

5,197

22,096
(793)
—
1,499

1,732
(20,999)
(790)
14,548
10,817
(430)
168
2,099
3,423
3,768
5,978
(14,860)
(372)
96,932
1,917
98,849

6,933
—
(115,522)
(1,596)
(524)
7,185
6,548
—
(96,976)

(65,073)
—
—
(1,101)
(9,428)
170,000
(106,962)
(1,238)
6,649
(2,543)
(9,696)

179
(7,644)
24,359
$ 16,715

(316)

18,589
(23)
578
370

925
(18,599)
(130)
1,480
9,769
(556)
215
(3,475)
2,700
3,536
1,495
(13,424)
(655)
65,357
1,938
67,295

3,503
6,582
(8,184)
(2,843)
(524)
—
24,395
1,300
24,229

(62,978)
—
—
—
(8,548)
82,683
(107,854)
(391)
7,789
—
(89,299)

830
3,055
21,304
$ 24,359

(2,450)

19,811
(54)
(12,415)
(120)

(719)
(13,439)
—
20,510
13,155
—
500
2,265
1,084
2,626
916
(18,529)
8,004
67,733
8,163
75,896

5,560
1,255
(13,172)
(811)
(524)
9,366
50,247
—
51,921

(60,708)
(1,423)
636
—
(8,428)
79,200
(134,316)
(308)
10,086
—
(115,261)

(122)
12,434
8,870
$ 21,304

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Consolidated Statements of Cash Flows (continued)
(In thousands except share and per share amounts)

Noncash operating, investing and ﬁnancing activities:

In connection with the acquisition of Carey Management LLC in June 2000, the Company had an obligation

to issue up to an additional 2,000,000 shares over four years if speciﬁed performance criteria were achieved.

As of December 31, 2004, 1,900,000 shares have been issued and our obligation has been satisﬁed. Based on

the performance criteria 500,000 shares were issued for the years ended December 31, 2003, 2001 and 2000

($13,734, $10,440 and $8,145, respectively). For the year ended December 31, 2002, the Company met one

criterion and 400,000 shares ($8,910) were issued. The amounts attributable to the 1,900,000 shares are

included in goodwill. Accounts payable to afﬁliates as of December 31, 2003 includes $13,734 for shares that

were issued in 2004.

The Company issued 8,938, 5,846 and 5,755 restricted shares valued at $271 in 2004, $160 in 2003 and $134

in 2002, to certain directors, ofﬁcers, and employees and afﬁliates in consideration of service rendered.

Restricted shares and stock options valued at $3,538, $3,697 and $3,913 in 2004, 2003 and 2002, respectively,

issued to ofﬁcers and employees and was recorded as unearned compensation of which $138, $99 and $70,

respectively, was forfeited in 2004, 2003 and 2002. Included in compensation expense for the years ended

December 31, 2004, 2003 and 2002 were $3,768, $3,536 and $2,626, respectively, relating to equity awards

from the Company’s share incentive plans.

During 2004, the Company acquired interests in 17 properties from Carey Institutional Properties Incorpor-

ated with a fair value of $142,161, for approximately $115,158 in cash and the assumption of approximately

$27,003 in limited recourse mortgage notes payable. The fair value of the assumed mortgages was $27,756.

As partial consideration for the sale of a property in 2003, the Company received notes receivable with a fair

value of $2,250.

During 2004, $7,185 was released from an escrow account from the sale of a property in 2003. During 2002,

$9,366 was released from an escrow account from the sale of a property in 2001.

In 2002, the Company contributed its tenancy-in-common interest in properties leased to Learning Care

Group, Inc. to a limited partnership which is accounted for under the equity method. Assets and liabilities

were contributed to the limited partnerships as follows:

Land

Net investment in direct ﬁnancing lease

Other assets, net
Mortgage payable

Equity investment

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$ 1,674

2,413

1
(1,134)

$ 2,954

w . p . c a r e y & c o . l l c
Consolidated Statements of Cash Flows (continued)
In thousands except share and per share amounts

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 of the Company to WPCI.

In April 2003, the Company’s ownership interest in WPCI increased from 10% to 100% at which time

WPCI transferred the 54,765 shares back to the Company and WPCI redeemed the interests of William P.

Carey, Chairman and Co-Chief Executive Ofﬁcer of the Company, who had owned a 90% interest in

WPCI. As a result of increasing its interest in WPCI to 100%, the Company acquired assets and liabilities

of WPCI as follows: (see Note 3)

Intangible assets (management contracts)
Equity investments
Due to afﬁliates (including $1,898 due to William P. Carey)
Other assets and liabilities, net

Net cash acquired

Supplemental cash ﬂows information:

Interest paid, net of amounts capitalized

Income taxes paid

Interest capitalized

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

679
324
(2,559)
256

$ 1,300

2 0 0 4

2 0 0 3

2 0 0 2

$13,901

$36,944

–

$14,395

$ 9,074

$16,400

$ 1,695

216

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n o t e s t o

c o n s o l i d a t e d

f i n a n c i a l

s t a t e m e n t s

(In thousands except share and
per share amounts)

1 . o r g a n i z a t i o n

W. P. Carey & Co. LLC (the “Company”) is a real estate investment, management and advisory company that

invests in commercial properties leased to companies domestically and internationally, and earns fees as the advi-

sor to afﬁliated real estate investment trusts (“CPA® REITs”) that each make similar investments. Under the advi-

sory agreements with the CPA® REITs, the Company performs services related to the day-to-day management of

the CPA® REITs and transaction-related services. The Company owns and manages commercial and industrial

properties located in 34 states and Europe, net leased to more than 107 tenants. As of December 31, 2004, the

Company’s portfolio consisted of 168 properties in the United States and 15 properties in Europe and totaled

more than 19.4 million square feet. In addition, the Company manages over 765 net leased properties on behalf

of the CPA® REITs: Corporate Property Associates 12 Incorporated (“CPA®:12”), Corporate Property Associates

14 Incorporated (“CPA®:14”), Corporate Property Associates 15 Incorporated (“CPA®:15”), Corporate Property

Associates 16 – Global Incorporated (“CPA®:16 – Global”) and Carey Institutional Properties Incorporated

(“CIP®”) until its merger into CPA®:15 during 2004.

The Company commenced operations on January 1, 1998 by combining the limited partnership interests in nine

CPA® Partnerships, at which time the Company listed on the New York Stock Exchange. On June 28, 2000, the

Company acquired the net lease real estate management operations of Carey Management from William P. Carey

(“Carey”), Chairman and Co-Chief Executive Ofﬁcer of the Company, subsequent to receiving shareholder approval.

The assets acquired included the advisory agreements with four afﬁliated 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 business operations of Carey Manage-

ment. 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 were achieved through a period ended December 31, 2004

(of which 1,900,000 shares were issued representing an aggregate value of $41,229). The initial 8,000,000 shares

issued were 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 purchase price was approximately $131,300

including the issuance of 8,000,000 shares, transaction costs of $2,605, the acquisition of Carey Management’s

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 compensation plan of Carey Management.

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The purchase price was 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 pur-

suant to a third party valuation. The value of the advisory agreements and the management agreement were

based on a discounted cash ﬂow analysis of the projected fees. The excess of the purchase price over the fair val-

ues of the identiﬁed tangible and intangible assets has been recorded as goodwill. The value of additional shares

issued under the acquisition agreement is recognized as additional purchase price and recorded as goodwill.

Issuances based on performance criteria are valued based on the market price of the shares on the date when the

performance criteria are achieved.

2 . s u m m a r y o f s i g n i f i c a n t a c c o u n t i n g p o l i c i e s

Basis of Consolidation

The consolidated ﬁnancial statements include the Company, its wholly owned and majority owned controlled

subsidiaries and a variable interest entity (“VIE”) in which it is the primary beneﬁciary. All material inter-entity

transactions have been eliminated.

For acquisitions of an interest in an entity, the Company evaluates the entity to determine if the entity is deemed a

VIE, and if the Company is deemed to be the primary beneﬁciary, in accordance with FASB Interpretation No. 46(R),

“Consolidation of Variable Interest Entities” (“FIN 46(R)”). Entities that meet one or more of the criteria listed below

are considered VIEs.

■ The Company’s equity investment is not sufﬁcient to allow the entity to ﬁnance its activities without

additional third party ﬁnancing;

■ The Company does not have the direct or indirect ability to make decisions about the entity’s business;

■ The Company is not obligated to absorb the expected losses of the entity;

■ The Company does not have the right to receive the expected residual returns of the entity; and

■ The Company’s voting rights are not proportionate to its economic interests, and substantially all of the

entity’s activities either involve or are conducted on behalf of an investor that has disproportionately few

voting rights.

The Company consolidates the entities that are VIEs and the Company is deemed to be the primary beneﬁci-

ary of the VIE. For entities where the Company is not deemed to be the primary beneﬁciary or the entity is not

deemed a VIE and the Company’s ownership is 50% or less and has the ability to exercise signiﬁcant inﬂuence as

well as jointly-controlled tenancy-in-common interests 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. The Company will recon-

sider its determination of whether an entity is a VIE and who the primary beneﬁciary is if certain events occur

that are likely to cause a change in the original determinations.

Beginning in 2004, the Company accounts for its interest in CPA®:16 – Global under the equity method.

For 2003, the accounts of CPA®:16 – Global, which was formed in June 2003, were included in the Company’s

consolidated ﬁnancial statements, as the Company owned all of CPA®:16 – Global’s outstanding common stock.

Effective December 12, 2003, CPA®:16 – Global commenced a “best efforts” public offering for up to 1,100,000

shares. CPA®:16 – Global temporarily suspended this offering in December 2004 and subsequently withdrew it.

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The consolidated ﬁnancial statements also include the accounts of Corporate Property Associates International

Incorporated (“CPAI”), which was formed in July 2003. The Company owns all of CPAI’s outstanding common

stock. CPAI has ﬁled a registration statement with the Securities and Exchange Commission (“SEC”) for a public

offering to sell up to 27,500,000 shares of common stock.

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 contingent assets and liabilities at the date of the ﬁnancial statements and the reported

amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.

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

Purchase Price Allocation
In connection with the Company’s acquisition of properties, purchase costs are allocated to the tangible and intan-

gible assets and liabilities acquired based on their estimated fair values. The value of the tangible assets, consisting

of land, buildings and tenant improvements, are determined as if vacant. Intangible assets including the above-

market value of leases, the value of in-place leases and the value of tenant relationships are recorded at their rela-

tive fair values. Below-market value of leases are also recorded at their relative fair values and are recorded as

liabilities in the accompanying ﬁnancial statements.

Above-market and below-market in-place lease values for owned properties are recorded based on the present

value (using an interest rate reﬂecting the risks associated with the leases acquired) of the difference between (i) the

contractual amounts to be paid pursuant to the leases negotiated and in-place at the time of acquisition of the prop-

erties and (ii) management’s estimate of fair market lease rates for the property or equivalent property, measured

over a period equal to the remaining non-cancelable term of the lease. The capitalized above-market lease value is

amortized as a reduction of rental income over the remaining non-cancelable term of each lease. The capitalized

below-market lease value is amortized as an increase to rental income over the initial term and any ﬁxed rate renewal

periods in the respective leases.

The total amount of other intangibles are allocated to in-place lease values and tenant relationship intangible

values based on management’s evaluation of the speciﬁc characteristics of each tenant’s lease and the Company’s

overall relationship with each tenant. Characteristics that are considered in allocating these values include the

nature and extent of the existing relationship with the tenant, prospects for developing new business with the

tenant, the tenant’s credit quality and the expectation of lease renewals among other factors. Third party

appraisals or management’s estimates are used to determine these values. Intangibles for above-market and

below-market leases, in-place lease intangibles and tenant relationships are amortized over their estimated useful

lives. In the event that a lease is terminated the unamortized portion of each intangible, including market rate

adjustments, in-place lease values and tenant relationship values, is charged to expense.

Factors considered in the analysis include the estimated carrying costs of the property during a hypothetical expected

lease-up period, current market conditions and costs to execute similar leases. The Company also considers information

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obtained about a property in connection with its pre-acquisition due diligence. Estimated carrying costs include real

estate taxes, insurance, other property operating costs and estimates of lost rentals at market rates during the hypotheti-

cal expected lease-up periods, based on management’s assessment of speciﬁc market conditions. Estimated costs to exe-

cute leases including commissions and legal costs to the extent that such costs are not already incurred with a new lease

that has been negotiated in connection with the purchase of the property are also considered.

The value of in-place leases are amortized to expense over the remaining initial term of each lease. The value

of tenant relationship intangibles are amortized to expense over the initial and expected renewal terms of the

leases but no amortization periods for intangibles will exceed the remaining depreciable life of the building.

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, includ-

ing real estate taxes, are capitalized rather than expensed and rentals received are recorded as a reduction of capitalized

project (i.e., construction) costs. Interest is capitalized by applying the interest rate applicable to outstanding borrow-

ings to the average amount of accumulated expenditures for properties under construction during the period.

Cash Equivalents
The Company considers all short-term, highly liquid investments that are both readily convertible to cash and have

a maturity of three months or less at the time of purchase to be cash equivalents. Items classiﬁed as cash equivalents

include money market funds. Substantially all of the Company’s cash and cash equivalents at December 31, 2004

and 2003 were held in the custody of three ﬁnancial institutions and which balances, at times, exceed federally

insurable limits. The Company mitigates this risk by depositing funds with major ﬁnancial institutions.

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 LLC (“Carey Management”).

Deferred acquisition fees are payable for services provided by Carey Management prior to the termination of the

management contract, relating to the identiﬁcation, evaluation, negotiation, ﬁnancing and purchase of proper-

ties. The fees are payable in eight equal annual installments each January 1 following the ﬁrst anniversary of the

date a property was purchased.

Other Assets and Liabilities

Included in other assets are accrued rents and interest receivable, deferred rent receivable, notes receivable,

deferred charges, escrow balances held by lenders, restricted cash balances and marketable securities. Included in

other liabilities are accrued interest, accounts payable and accrued expenses, security deposits and other amounts

held on behalf of tenants, deferred rent, deferred revenue, including unamortized below-market rent intangibles,

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and minority interests that are subject to redemption. 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 using the effective interest method. 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. Minority interests subject to redemption are recorded at fair value based on a cash ﬂow model

with changes in fair value reﬂected in the determination of net income.

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.

Accumulated Other Comprehensive Income
As of December 31, 2004 and 2003, accumulated other comprehensive income reﬂected in the members’ equity is

comprised of the following:

Unrealized gains on marketable securities

Foreign currency translation adjustment

Accumulated other comprehensive income

As of December 31,
2003

2004

$3,285

515

$3,800

$1,818

678

$2,496

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 that increase the useful life of the properties are

capitalized. For the year ended December 31, 2004, lessees were responsible for the direct payment of real estate

taxes of approximately $7,119.

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 rev-

enues. 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 recognized as reported by the lessees, that is, after the level of sales requiring a

rental payment to the Company is reached.

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

described below:

Direct ﬁnancing method – Leases accounted for under the direct ﬁnancing method are recorded at their net

investment (see 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, minimum 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 (see Note 4).

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On an ongoing basis, the Company assesses its ability to collect rent and other tenant-based receivables and

determines an appropriate allowance for uncollected amounts. Because the real estate operations has a limited

number of lessees, the Company believes that it is necessary to evaluate the collectibility of these receivables

based on the facts and circumstances of each situation rather than solely use statistical methods. The Company

generally recognizes a provision for uncollected rents and other tenant receivables that typically ranges between

0.5% and 2% of lease revenues (rental income and interest income from direct ﬁnancings leases) and will meas-

ure its allowance against actual rent arrearages and adjust the percentage applied. For amounts in arrears, the

Company makes subjective judgments based on its knowledge of a lessee’s circumstances and may reserve for the

entire receivable amount from a lessee because there has been signiﬁcant or continuing deterioration in the

lessee’s ability to meet its lease obligations.

Revenue Recognition

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 publicly registered real estate

investment trusts formed by the Company (the “CPA® REITs”). Asset-based fees consist of property manage-

ment, leasing and advisory fees and reimbursement of certain expenses in accordance with the separate manage-

ment 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 spec-

iﬁed cumulative return requirements by the shareholders of the CPA® REITs. The incentive portion of manage-

ment fees (the “performance fees”) may be collected in cash or shares of the CPA® REIT at the option of the

Company. During 2004, 2003 and 2002, the Company elected to receive its earned performance fees in CPA®

REIT shares. Performance fees of CIP® in the amount of $1,494 were received in cash in 2004.

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 and contractual limitations are not exceeded. As of December 31, 2004, $800 of trans-

action fees are recorded as deferred revenue in other liabilities, as a limitation which provides that certain trans-

action fees cannot exceed 4.5% of the aggregate cost of properties of a CPA® REIT was exceeded. In addition,

CPA®:16 – Global did not meet the preferred return criterion, as deﬁned in the Advisory Agreements, and there-

fore, the Company’s recognition of performance fees of $819 and deferred acquisition fees of $7,535 were not

recognized and has been deferred until the preferred return criterion is met.

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.

Depreciation
Depreciation is computed using the straight-line method over the estimated useful lives of the properties (gener-

ally forty years) and for furniture, ﬁxtures and equipment (generally up to seven years).

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Impairments
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 recognized 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 impair-

ment, the Company ﬁrst compares the estimated fair value of the reporting unit (management services segment)

with its carrying amount, including goodwill. 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 man-

agement 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.

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 allocating 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 (“FAS”) No. 142, “Goodwill and Other Intangibles,”

the Company performed its annual tests for impairment of its management services segment, the reportable unit

of measurement, and concluded that the goodwill is not impaired.

Investments in unconsolidated joint ventures are accounted for under the equity method and are recorded initially

at cost, and subsequently adjusted for our proportionate share of earnings and cash contributions and distributions.

On a periodic basis, we assess whether there are any indicators that the value of equity investments may be impaired

and whether or not that impairment is other than temporary. 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.

When the Company identiﬁes assets as held for sale, it discontinues depreciating the assets and estimates the

sales price, net of selling costs, of such assets. If in the Company’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. To the extent that a purchase and sale agreement has been entered into, the

allowance is based on the negotiated sales price. To the extent that the Company has adopted a plan to sell an asset

but has not entered into a sales agreement, it will make judgments of the net sales price based on current market

information. Accordingly, the initial assessment may be greater or less than the purchase price subsequently com-

mitted to and may result in a further adjustment to the fair value of the property. If circumstances arise that previ-

ously were considered unlikely and, as a result, the Company decides not to sell a property previously classiﬁed as

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held 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, (b) the fair value at the date of the subsequent decision not to sell, or (c) the current carrying value.

Stock Based Compensation

The Company accounts for stock-based compensation using the intrinsic value method prescribed in Account-

ing Principles Board Opinion No. 25, “Accounting for Stock Issued to Employees,” and related interpretations

(“APB No. 25”). Under APB No. 25, compensation cost for ﬁxed plans 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 their respec-

tive vesting periods. Shares and stock options subject to forfeiture 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 over the applicable vesting periods.

Grants of restricted stock and options of a subsidiary were awarded to certain of its ofﬁcers. The awards are sub-

ject to redemption in 2012 and, therefore are being accounted for as a variable plan. The awards were initially

recorded in unearned compensation and changes in fair value subsequent to the grant date are included in the

determination of net income (see below). The unearned compensation is being amortized over the vesting periods.

All transactions with non-employees in which the Company issues stock as consideration 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 FAS No. 123. If stock-based compensa-

tion cost had been recognized based upon fair value at the date of grant for options and restricted stock awarded

under the Company’s share incentive plans and amortized to expense over their respective vesting periods in

accordance with the provisions of FAS No. 123, pro forma net income would have been as follows:

Net income 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

Earnings per common share as reported:
Basic
Diluted
Pro forma earnings per common share:
Basic
Diluted

For the Year Ended December 31,
2002

2003

2004

$63,851

$62,878

$46,588

2,264

2,282

1,709

(2,853)

(3,144)

(2,887)

$63,262

$62,016

$45,410

$ 1.71
$ 1.64

$ 1.69
$ 1.63

$ 1.72
$ 1.65

$ 1.70
$ 1.63

$ 1.31
$ 1.28

$ 1.28
$ 1.25

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The per share weighted average fair value of share options and warrants granted during 2004 under the

Company’s Incentive Plan were estimated to range from $1.96 to $2.47 using a Black-Scholes option pricing for-

mula based on the date of grant. The more signiﬁcant assumptions underlying the determination of the weighted

average fair values included risk-free interest rates ranging from 3.63% to 3.92%, volatility factors ranging from

20.66% to 21.56%, dividend yields ranging from 7.79% to 8.19% and expected lives ranging from 7 to 7.13 years.

The per share weighted average fair value of share options and warrants granted during 2003 under the

Company’s Incentive Plan were estimated to range from $1.51 to $2.28 using a Black-Scholes option pricing for-

mula based on the date of grant. The more signiﬁcant assumptions underlying the determination of the weighted

average fair values included risk-free interest rates ranging from 2.60% to 3.69%, volatility factors ranging from

21.35% to 21.89%, dividend yields ranging from 8.26% to 8.51% and expected lives ranging from 4.56 to 7.5 years.

The per share weighted average fair value of share options and warrants granted during 2002 under the

Company’s Incentive Plan were estimated to be $1.26 using a Black-Scholes option pricing formula. The more signif-

icant 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 Company’s non-qualiﬁed deferred compensation plan provides that each participating ofﬁcer’s cash com-

pensation in excess of designated amounts is deferred and he or she is awarded an interest that is intended to

correspond to the per share value of a CPA® REIT designated at the time of such award. The value of the award is

adjusted at least annually to reﬂect changes based on the underlying appraised value of a share of common stock

of the CPA® REIT. The deferred compensation plan is a variable plan and changes in the fair value of the interests

are included in the determination of net income.

Foreign Currency Translation

The Company owns interests in several real estate investments in France. The functional currency for these invest-

ments is the Euro. The translation from the Euro to U. S. Dollars is performed 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 component

of other comprehensive income as part of members’ equity. The cumulative translation adjustment as of Decem-

ber 31, 2004 and 2003 were gains of $515 and $678, respectively.

Foreign currency transactions may produce receivables or payables that are ﬁxed in terms of the amount of foreign

currency that will be received or paid. A change in the exchange rates between the functional currency and the cur-

rency in which a transaction is denominated increases or decreases the expected amount of functional currency cash

ﬂows upon settlement of that transaction. That increase or decrease in the expected functional currency cash ﬂows is a

foreign currency transaction gain or loss that generally will be included in determining net income for the period in

which the exchange rate changes. Likewise, a transaction gain or loss (measured from the transaction date or the most

recent intervening balance sheet date) whichever is later, realized upon settlement of a foreign currency transaction

generally will be included in net income for the period in which the transaction is settled. Foreign currency transac-

tions that are (i) designated as, and are effective as, economic hedges of a net investment and (ii) inter-company for-

eign currency transactions that are of a long-term nature (that is, settlement is not planned or anticipated in the

foreseeable future), when the entities to the transactions are consolidated or accounted for by the equity method in the

Company’s ﬁnancial statements will not be included in determining net income but will be accounted for in the same

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manner as foreign currency translation adjustments and reported as a component of other comprehensive income as

part of shareholder’s equity. The contributions to the equity investments were funded in part through subordinated

debt. Foreign currency intercompany transactions that are scheduled for settlement, consisting primarily of accrued

interest and the translation to the reporting currency of intercompany subordinated debt with scheduled principal

payments, are included in the determination of net income, and, for the years ended December 31, 2004 and 2003, the

Company recognized unrealized gains of $790 and $130, respectively, from such transactions. In 2004 and 2003, the

Company recognized realized gains of $430 and $556, respectively, on foreign currency transactions in connection

with the transfer of cash from foreign operating subsidiaries to the parent company.

Income Taxes
The Company has elected to be treated as a partnership for federal income tax purposes. The Company’s real estate

operations are conducted through partnership or limited liability companies electing to be treated as partnerships

for Federal income tax purposes. As partnerships, the Company and its partnership subsidiaries are generally not

directly subject to tax and the taxable income or loss of these operations are included in the income tax returns of

the members; accordingly, no provision for income tax expense or beneﬁt is reﬂected in the accompanying ﬁnancial

statements. These operations are subject to certain state, local and foreign taxes.

The Company conducts its management services operations though a wholly owned taxable corporation.

These operations are subject to federal, state, local and foreign taxes as applicable. The Company’s ﬁnancial state-

ments are prepared on a consolidated basis including this taxable subsidiary and include a provision for current

and deferred taxes on these operations.

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 com-

puted 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 17).

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 are included in discontinued operations (see Note 7).

If circumstances arise that previously were considered unlikely and, as a result, the Company decides not to

sell a property previously classiﬁed as held 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 pro-

perty been continuously classiﬁed as held and used, (b) the fair value at the date of the subsequent decision not

to sell, or (c) the current carrying value.

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 exchanged and all conditions precedent to closing

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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.

Earnings Per Share

The Company presents both basic and diluted earnings per share (“EPS”). Basic EPS excludes dilution and is com-

puted 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 per share were calculated as follows:

Net income

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

Weighted average shares – diluted

2004

For the Year Ended December 31,
2002

2003

63,851

62,878

46,588

37,417,918
1,486,807

36,566,338
1,442,424

35,530,334
734,896

38,904,725

38,008,762

36,265,230

Recent Accounting Pronouncements

In December 2004, the FASB issued SFAS No. 123 (Revised 2004), “Share-Based Payment” (“FAS 123R”), which

requires that the fair value of all stock and other equity-based compensation be treated as an expense that is

reﬂected in the income statement. Depending on the model used to calculate stock-based compensation expense

in the future and other requirements of FAS 123R, the pro forma disclosure may not be indicative of the stock-

based compensation expense that will be recognized in our future ﬁnancial statements. FAS 123R is effective for

periods beginning after June 15, 2005, and allows two different methods of transition. We expect to implement

FAS 123R beginning with the third quarter of ﬁscal 2005, which begins on July 1, 2005. We are currently evaluat-

ing this new standard and models that may be used to calculate future stock-based compensation expense.

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

Disclosure,” (“FAS 148”) which amends SFAS No. 123, Accounting for Stock Based Compensation. FAS No. 148

provides alternative methods of transition for a voluntary change to the fair value based method of accounting for

stock based compensation (i.e., recognition of a charge for issuance of stock options in the determination of

income). However, FAS No. 148 does not permit the use of the original FAS No. 123 prospective method of transi-

tion for changes to the fair value based method made in ﬁscal years beginning after December 15, 2003. In addition,

this Statement amends the disclosure requirements of FAS No. 123 to require prominent disclosures in both annual

and interim ﬁnancial statements about the method of accounting for stock based employee compensation, descrip-

tion of transition method utilized and the effect of the method used on reported results. The annual disclosure pro-

visions of FAS No. 148 have been adopted.

In May 2003, the FASB issued SFAS No. 150 “Accounting for Certain Financial Instruments with Characteristics

of both Liability and Equity” (“FAS 150”). FAS 150 establishes standards to classify as liabilities certain ﬁnancial

instruments that are mandatorily redeemable or include an obligation to repurchase and expands ﬁnancial state-

ment disclosure requirements. Such ﬁnancial instruments will be measured at fair value with changes in fair

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value included in the determination of net income. FAS 150 was effective for ﬁnancial instruments entered into

or modiﬁed after May 31, 2003, and otherwise effective at the beginning of the ﬁrst interim period beginning

after June 15, 2003.

In November 2003, the FASB issued FASB Staff Position 150-3 (“FSP 150-3”), which defers the classiﬁcation

and measurement provisions of FAS 150 indeﬁnitely as they apply to mandatorily redeemable non-controlling

interests associated with ﬁnite-lived entities. We have interests in ﬁve joint ventures that are consolidated and

have minority interests that have ﬁnite lives and were considered mandatorily redeemable non-controlling inter-

ests prior to the issuance of FSP 150-3. As a result of the deferral provisions of FSP 150-3, these minority inter-

ests have not been reﬂected as liabilities. We adopted FAS 150 in July 2003 and it did not have a signiﬁcant

impact on our consolidated ﬁnancial statements.

3 . t r a n s a c t i o n s w i t h r e l a t e d p a r t i e s

The Company earns fees as the advisor (“Advisor”) to CPA®:12, CPA®:14, CPA®:15, CPA®:16 – Global and through

September 1, 2004, CIP®. Effective September 1, 2004, CIP® was merged into CPA®:15. Under the advisory agree-

ments 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 personnel.

Effective in 2005, the advisory agreement was amended to allow the Company to elect to receive restricted stock

for any fee due from each CPA® REIT. For the years ended December 31, 2004, 2003 and 2002, asset-based fees and

reimbursements earned were $61,193, $53,103 and $37,250, respectively. For the year ended December 31, 2004,

CPA®:16 – Global did not meet the preferred return criterion (a non-compounded cumulative distribution return

of 6%), as deﬁned in the Advisory Agreements, and therefore, the Company’s recognition of performance fees of

$819 will only be recorded if the preferred return criterion is met.

In connection with structuring and negotiating acquisitions and related mortgage ﬁnancing 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 ranging from three to eight years, subject to each CPA® REIT meeting its

“preferred return.” Unpaid installments bear interest at annual rates ranging from 5% to 7%. The Company may also

earn fees related to the disposition of properties, subject to subordination provisions and will only be recognized as

such subordination provisions are achieved. For the years ended December 31, 2004, 2003 and 2002, the Company

earned transaction fees of $33,677, $34,957 and $47,005, respectively. CPA®:16 – Global has not met its preferred

return and for year ended December 31, 2004, cumulative deferred acquisition fees of $7,535 and interest thereon of

$171, were not recognized, and will be recognized if CPA®:16 – Global meets the preferred return criterion.

In July 2004, the boards of directors of CIP® and CPA®:15 each approved a deﬁnitive agreement under which

CPA®:15 would acquire CIP®’s business in a stock-for-stock merger (the “Merger”). The Merger was approved by

the shareholders of CIP® and CPA®:15 in August 2004, and completed on September 1, 2004. In connection with

providing a liquidity event for CIP® shareholders, CIP® paid the Company incentive fees of $23,681 and disposi-

tion fees of $22,679. Disposition fees relating to the interests in the properties acquired by the Company of $4,265

were not earned and have been applied, for ﬁnancial reporting purposes, as a reduction in the cost basis of such

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interests. The Company also recognized transaction fees of $11,493 in connection with CPA®:15’s acquisition of

properties in connection with the Merger.

Prior to the Merger, the Company acquired interests in 17 properties from CIP® with a fair value of $142,161 for

$115,158 in cash and the assumption of $27,003 in limited recourse mortgage notes payable, (the “Acquisition”).

The amounts are inclusive of the Company’s pro rata share of equity interests acquired in the transaction. The fair

value of the assumed mortgages was $27,756. The purchase price of the properties was based on a third party valua-

tion of each of CIP®’s properties. The properties are primarily single tenant net-leased properties, with remaining

lease terms ranging from 19 months to over ten years. Seven of the properties are encumbered with limited recourse

mortgage ﬁnancing with ﬁxed rates of interest ranging from 7.5% to 10% and maturity dates ranging from

December 2007 to June 2012.

The Company owns interests in entities, which range from 22.50% to 50%, a jointly-controlled 36% tenancy-

in-common interest in two properties subject to a net lease with the remaining interests held by afﬁliates and

owns common stock in each of the CPA® REITs. The Company has a signiﬁcant inﬂuence in these investments,

which are accounted for under the equity method of accounting.

The Company is the general partner in a limited partnership that leases the Company’s home ofﬁce spaces

and participates in an agreement with certain afﬁliates, including the CPA® REITs 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 $531, $529 and $545 in 2004, 2003 and

2002, respectively. The Company’s share of minimum lease payments on the ofﬁce lease as of December 31, 2004

is $7,137 through 2016.

Prior to the termination of the management agreement, Carey Management performed certain services for the

Company and earned transaction fees in connection with the purchase 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, 2004 and 2003, unpaid deferred acquisition fees were $1,709 and $2,234, respectively, and bear

interest at an annual rate of 6%. Installments of $524, were paid in 2004, 2003 and 2002.

A person who serves as a director and an ofﬁcer of the Company is the sole shareholder of Livho, Inc.

(“Livho”), a lessee of the Company. Effective December 31, 2003, the Company consolidates the accounts of

Livho in its consolidated ﬁnancial statements in accordance with FIN 46(R).

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.

Prior to April 1, 2003, the Company owned a 10% interest in WPCI, a company that structures net lease

transactions on behalf of the CPA® REITs outside of the United States of America. The remaining 90% interest

in WPCI was owned by Carey. The Company’s Board of Directors approved a transaction, which resulted in the

Company’s acquisition of 100% of the ownership of WPCI through the redemption of Carey’s interest on

April 1, 2003. WPCI distributed 492,881 shares of the Company and $1,898 of cash to Carey, equivalent to his

contributions to WPCI. The Company accounted for the acquisition as a purchase and reﬂected the assets

acquired and liabilities assumed at their estimated fair value. Prior to the redemption, the Company accounted

for its investment in WPCI under the equity method of accounting. As a result of this transaction, the Company

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through WPCI has acquired exclusive rights to structure net lease transactions outside of the United States of

America on behalf of the CPA® REITs.

The following consolidated pro forma ﬁnancial information has been presented as if acquisition of interests in 16

properties from CIP® by the Company had occurred on January 1, 2004 and 2003 for the years ended December 31,

2004 and 2003, respectively. No pro forma effect is given to a property acquired which is currently held for sale and

included in discontinued operations. The pro forma ﬁnancial information is not necessarily indicative of what the

actual results would have been, nor does it purport to represent the results of operations for future periods.

Pro forma total revenues
Pro forma net income
Pro forma earnings per share:

Basic
Diluted

For the Year Ended December 31,
2003

2004

(Unaudited)

$234,870
64,616

$
$

1.73
1.66

$170,147
64,614

$
$

1.77
1.70

4 . r e a l e s t a t e l e a s e d t o o t h e r s a c c o u n t e d f o r
u n d e r t h e o p e r a t i n g m e t h o d

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

As of December 31,
2003

2004

$ 93,926
436,353

530,279
53,914

$ 77,170
368,568

445,738
45,021

$476,365

$400,717

The scheduled future minimum rents, exclusive of renewals and expenses paid by tenants, under non-cancelable

operating leases are as follows:

Year Ended December 31,
2005
2006
2007
2008
2009
Thereafter through 2021

$ 49,941
47,513
41,319
35,727
31,298
104,477

Contingent rentals (including percentage rents and CPI-based increases) were $2,137, $1,427 and $1,550 in

2004, 2003 and 2002, respectively.

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5 . n e t i n v e s t m e n t i n d i r e c t f i n a n c i n g l e a s e s

Net investment in direct ﬁnancing leases is summarized as follows:

Minimum lease payments receivable
Unguaranteed residual value

Less: Unearned income

As of December 31,
2003

2004

$ 158,864
162,724

321,588
(130,944)

$ 173,120
179,869

352,989
(170,537)

$ 190,644

$ 182,452

Scheduled future minimum rents, exclusive of renewals and expenses paid by tenants, under noncancelable

direct ﬁnancing leases are as follows:

Year Ended December 31,
2005
2006
2007
2008
2009
Thereafter through 2022

$21,822
20,381
18,510
16,636
15,873
65,642

Contingent rentals (including percentage rents and CPI-based increases) were approximately $2,382, $2,189

and $2,710 in 2004, 2003 and 2002, respectively.

6 . e q u i t y i n v e s t m e n t s
The Company owns equity interests as a limited partner in two limited partnerships, four limited liability compa-

nies and a jointly-controlled 36% tenancy-in-common interest in two properties subject to a master lease with

the remaining interests owned by afﬁliates and all of which net lease real estate on a single-tenant basis.

In connection with the Acquisition, the Company increased its 18.54% interest in a limited partnership, which

leases property to Titan Corporation, to 100%. The Company accounted for its 18.54% interest as an equity

investment, and as a result of acquiring the controlling ownership interest as of September 1, 2004, the Company

consolidates this interest as of such date. The Company also acquired CIP®’s 50% noncontrolling interest in a

limited partnership, which leases property to Sicor, Inc., and is accounting for this interest under the equity

method of accounting.

The Company also owns common stock in four CPA® REITs with which it has advisory agreements. 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 statements are ﬁled with the SEC in Annual Reports on Form 10-K. In connection with earning perform-

ance fees, the Company has elected to receive restricted shares of common stock in the CPA® REITs rather than cash

in consideration for such fees. In connection with the Merger, the Company elected to receive 1,098,367 shares of

common stock in CPA®:15, in exchange for its CIP® shares, a portion of which are still restricted.

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As of December 31, 2004, the Company’s ownership in the CPA® REITs is as follows:

CPA®:12
CPA®:14
CPA®:15
CPA®:16 – Global

% of outstanding
Shares

1,242,519
2,465,236
2,129,361
20,000

3.91%
3.57%
1.69%
0.04%

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

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

Owner’s equity

Company’s share of equity investees’ net assets

Revenue (primarily rental income and interest income

from direct ﬁnancing leases)

Expenses (primarily depreciation and property expenses)
Other interest income
Minority interest in income
Income from equity investments
Interest expense
Gain (loss) on sales

Income from continuing operations

(Loss) income from discontinued operations
Gain on sale of real estate
Impairment charge on real estate

Net income

As of December 31,
2003

2004

$5,189,736
2,372,468

$3,535,954
1,719,459

$2,817,268

$1,816,495

$ 110,379

82,800

2004

For the Year Ended December 31,
2002

2003

$ 349,023
(145,194)
7,927
(12,986)
38,439
(130,302)
7,464

114,371
(483)
2,232
(5,150)

$ 263,719
(141,964)
6,204
(5,720)
30,650
(95,128)
9,316

67,077
(114)
—
(1,000)

$175,031
(68,237)
4,832
(3,286)
12,354
(65,136)
(92)

55,466
1,753
333
—

$ 110,970

$ 65,963

$ 57,552

Company’s share of net income (loss) from equity investments

5,308

4,008

(443)

Until January 1, 2003, the Company owned interests in the operating partnership (“OP units”) of MeriStar

Hospitality Corporation (“MeriStar”), a publicly traded real estate investment trust accounted as an equity invest-

ment. Effective January 1, 2003, the OP units were converted to shares of MeriStar common stock at which time

the Company started accounting for its interest as an available-for-sale security.

For the year ended December 31, 2002, MeriStar reported revenues of $865,693 expenses of $799,278 and a net

loss of $161,248. The Company’s share of the loss for 2002 was $3,019.

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7 . a s s e t s h e l d f o r s a l e a n d d i s c o n t i n u e d o p e r a t i o n s

In accordance with SFAS No. 144, “Accounting for the Impairment or Disposal of Long-Lived Assets” (“FAS 144”),

effective for ﬁnancial statements issued for ﬁscal years beginning after December 15, 2001, the results of operations,

impairments and gain or loss on sales of real estate for properties 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 FAS

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). Properties held for sale as of December 31, 2001 are not included in

“Discontinued Operations”. The results of operations and the related gain or loss on sale of properties sold in 2002

(see Note 14) that were held for sale as of December 31, 2001 are not included in “Discontinued Operations.”

Property sales and impairment charges in 2004, 2003 and 2002 that are included in “Discontinued Operations”

are as follows:

2 0 0 4
In July 2004, the Company sold its Leeds, Alabama and Toledo, Ohio properties for $4,625. The Company previ-

ously recognized an impairment charge on properties held for sale of $690 in 2003 to write down the Leeds prop-

erty to the estimated net sales proceeds from the anticipated sale. The $4,700 impairment charge recorded in 2004

on the Toledo property is described in Note 13. The results of operations from the Leeds and Toledo properties

are included in discontinued operations.

In December 2004, the Company entered into an agreement with an auctioneer to sell its Frankenmuth, Michigan

property, at auction. In March 2005, the Company sold this property to a third party for $1,700. The Company recog-

nized an impairment charge of $1,000 to write down the property value to the estimated net sales proceeds anticipat-

ed from the sale (see Note 13). The property has been classiﬁed as held for sale as of December 31, 2004, and the

results of its operations have been included in discontinued operations.

During 2004, the Company sold properties in Kenbridge, Virginia; McMinnville, Tennessee; Panama City,

Florida and Garland, Texas for $2,256 and recognized net gain on sales of $85.

2 0 0 3
During 2003, the Company sold properties in Broomall, Pennsylvania; Cuyahoga Falls, Ohio; Canton, Michigan;

Alpena, Michigan; Apache Junction, Arizona and Schiller Park, Illinois for net sales proceeds of $12,986 and rec-

ognized net gain on sales of $807.

In July 2003, the Company sold a property in Lancaster, Pennsylvania for $5,000 and recognized a loss on sale

of $29. Prior to the sale, the property value was written down to reﬂect the estimated net sales proceeds and an

impairment charge on properties held for sale of $1,430 was recognized and included in discontinued operations

for the year ended December 31, 2003.

In connection with the anticipated sale of the Company’s McMinnville, Tennessee property the Company recog-

nized an impairment charge on properties held for sale of $550 on the writedown of the property to its anticipated

sales price, less estimated costs to sell, for the period ended December 31, 2003. The property was sold in July 2004.

The Company incurred other charges of $690 during 2003 in connection with a property’s decline in value

and a $290 charge related to the early retirement of a mortgage obligation.

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2 0 0 2
In July 2002, the Company sold six properties leased to Saint-Gobain Corporation located in New Haven, Connec-

ticut; Mickelton, NJ; Aurora, Ohio; Mantua, Ohio and Bristol, Rhode Island for $26,000 and recognized a gain on

sale of $1,796. The sales proceeds were placed in an escrow account for the purposes of entering into a Section

1031 noncash exchange, which was completed as a result of purchasing replacement properties in September and

December 2002.

During 2002, the Company also sold properties in Petoskey, Michigan; Colville, Washington; McMinnville,

Tennessee; College Station, Texas and Glendale, Arizona for an aggregate of $4,743 and recognized a net gain on

sales of $568.

o t h e r i n f o r m a t i o n
The effect of suspending depreciation expense as a result of the classiﬁcation of certain properties as held for sale

was $381, $259 and $116 for the years ended December 31, 2004, 2003 and 2002, respectively.

As of December 31, 2004, the operations of ten properties, which have been sold during 2004 or are held for

sale as of December 31, 2004, are included as “Discontinued Operations.” Amounts reﬂected in Discontinued

Operations for the years ended December 31, 2004, 2003 and 2002 are as follows:

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

Expenses
Depreciation and amortization
Property expenses
General and administrative
Provision for income taxes – state and local
Operating expenses of other business operations
Impairment charge on real estate

(Loss) income before other interest income, gains on sale
and interest expense
Other interest income
Gains on sale of real estate
Interest expense

2004

For the Year Ended December 31,
2002

2003

$ 1,248
42
—
2,767

4,057

$ 3,240
665
1,694
915

6,514

$ 6,070
3,705
4,769
2,250

16,794

200
1,559
—
—
35
7,550

9,344

(5,287)
—
90
—

751
2,634
—
35
1,489
2,960

7,869

(1,355)
567
1,238
(134)

1,552
1,192
48
117
4,209
8,901

16,019

775
89
2,694
(1,108)

(Loss) income from discontinued operations

$(5,197)

316

$ 2,450

In March 2005, the Company sold its Denton, Texas property for $2,000 which approximated the property’s

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carrying value. The Property had been classiﬁed as held for sale as of December 31, 2004 in the accompanying

ﬁnancial statements.

8 . g o o d w i l l a n d i n t a n g i b l e s

In connection with its acquisition of properties, the Company has recorded above-market rent, in-place lease

and tenant relationship intangibles of $22,321. Included in other liabilities allocated to the purchase cost of the

Acquisition is a below-market rent intangible of $2,009. These intangibles are being amortized over periods

ranging from 19 months to 271⁄2 years. Amortization of below-market and above-market rent intangibles are

recorded as an adjustment to revenue.

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 costs allocated to trade names and advisory con-

tracts with the CPA® REITs. Effective January 1, 2002, goodwill and indeﬁnite-lived intangible assets are no longer

amortized and workforce has been reclassiﬁed as goodwill. Intangibles are being amortized over their estimated

useful lives, which range from 21⁄2 to 161⁄2 years. The Company performs an annual evaluation of testing for impair-

ment of goodwill. Based on its evaluation, the Company concluded that its goodwill is not impaired.

Goodwill and intangibles are summarized as follows:

Amortized intangibles:

Management contracts
Less: accumulated amortization

Lease intangibles:
In-place lease
Tenant relationship
Above-market rent
Less: accumulated amortization

Unamortized goodwill and indeﬁnite-lived intangibles:

Trade name
Goodwill

Below-market rent
Less: accumulated amortization

As of December 31,
2003

2004

$ 59,815
(34,089)

$ 59,815
(25,262)

25,726

34,553

13,630
4,863
3,828
(1,521)

20,800

3,975
63,607

—
—
—
—

—

3,975
63,607

$114,108

$102,135

$ (2,009)
45

$ (1,964)

—
—

—

Amortization of intangibles was $10,304, $7,277 and $9,194 for the years ended December 31, 2004, 2003 and

2002, respectively. The remaining unamortized management contract for CIP® was accelerated to expense as a

result of the Merger.

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Scheduled net amortization of intangibles for each of the next ﬁve years is as follows: $9,648 in 2005, $9,406 in

2006, $7,295 in 2007, $4,211 in 2008 and $4,184 in 2009.

9 . d i s c l o s u r e s a b o u t f a i r v a l u e o f f i n a n c i a l i n s t r u m e n t s
The Company estimates that the fair value of mortgage notes payable and other notes payable was $294,121 and

$210,000 at December 31, 2004 and 2003, respectively. The fair value of ﬁxed rate debt instruments was evaluated

using a discounted cash ﬂow model with rates that take into account the credit of the tenants and interest rate

risk. The carrying value of the combined debt was $292,698 and $209,193 at December 31, 2004 and 2003,

respectively. 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.

Marketable securities had a carrying value of $3,655 and $3,660 as of December 31,2004 and 2003, respective-

ly, and a fair value of $6,940 and $5,479 as of December 31,2004 and 2003, respectively. The Company’s other

assets and liabilities, including minority interests, had fair values that approximated their carrying values at

December 31, 2004 and 2003, respectively.

1 0 . m o r t g a g e n o t e s p a y a b l e a n d n o t e s p a y a b l e

Mortgage notes payable, substantially all of which are limited recourse obligations, are collateralized by the assign-

ment of various leases and by real property with a carrying value of approximately $313,689 at December 31, 2004.

The interest rates on the variable rate debt as of December 31, 2004 ranged from 3.5375% to 6.44% and

mature from 2007 to 2016. The interest rates on the ﬁxed rate debt as of December 31, 2004 ranged from 6.11%

to 10.125%, and mature from 2005 to 2018.

Scheduled principal payments for the mortgage notes and notes payable during each of the next ﬁve years fol-

lowing December 31, 2004 and thereafter are as follows:

Year Ending December 31,

2005
2006
2007
2008
2009
Thereafter through 2018

Total

(a) Includes maturity of credit facility in May 2007.

Total
Debt

Fixed Rate
Debt

Variable Rate
Debt

$ 14,355
23,926
128,587
11,507
38,622
75,701

$ 11,885
21,159
23,526
8,128
35,045
36,659

2,470
2,767
105,061(a)
3,379
3,577
39,042

$292,698

$136,402

$156,296

On May 27, 2004, the Company entered into a credit facility for a $175,000 line of credit with J.P. Morgan

Chase Bank and eight other banks. A prior line of credit of $185,000 matured in March 2004 and was extended

on a short-term basis. The line of credit, which matures in May 2007, provides the Company a one-time right to

increase the amount available under the line of credit up to $225,000.

Advances from the line of credit bear interest at an annual rate indexed to either (i) the one, two, three or six-month

London Inter-Bank Offered Rate, as deﬁned, plus a spread which ranges from 0.6% to 1.45% depending on leverage or

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corporate credit rating or (ii) the greater of the bank’s Prime Rate and a rate indexed to the Federal Funds Effective

Rate. Advances are prepayable at any time. The revolving credit agreement has ﬁnancial covenants that require, among

other things, the Company to (i) maintain minimum equity value of $550,000 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. The Company is in compliance with these covenants. As of December 31, 2004, the Company had $102,000

drawn from the credit facility.

At December 31, 2004 the average interest rate on advances on the line of credit was 3.5375%. At December 31,

2003 the average interest rate on advances on the prior line of credit was 2.34%. In addition, 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 Company declared a quarterly dividend of $.442 per share on December 13, 2004 payable on January 15,

2005 to shareholders of record as of December 31, 2004.

1 1 . d i v i d e n d s p a y a b l e

As of December 31, 2004, the Company was not involved in any material litigation.

1 2 . c o m m i t m e n t s a n d c o n t i n g e n c i e s

In March 2004, following a broker-dealer examination of Carey Financial Corporation (“Carey Financial”), the

Company’s wholly-owned broker-dealer subsidiary, by the staff of the SEC, Carey Financial received a letter from

the staff of the SEC alleging certain infractions by Carey Financial of the Securities Act of 1933, the Securities

Exchange Act of 1934, the rules and regulations thereunder and those of the National Association of Securities

Dealers, Inc. (“NASD”).

The staff alleged that in connection with a public offering of shares of CPA®:15, Carey Financial and its retail

distributors sold certain securities without an effective registration statement. Speciﬁcally, the staff alleged that the

delivery of investor funds into escrow after completion of the ﬁrst phase of the offering (the “Phase I Offering”),

completed in the fourth quarter of 2002 but before a registration statement with respect to the second phase of the

offering (the “Phase II Offering”) became effective in the ﬁrst quarter of 2003, constituted sales of securities in vio-

lation of Section 5 of the Securities Act of 1933. In addition, in the March 2004 letter the staff raised issues about

whether actions taken in connection with the Phase II offering were adequately disclosed to investors in the Phase I

Offering. In the event the Commission pursues these allegations, or if affected CPA®:15 investors bring a similar

private action, CPA®:15 might be required to offer the affected investors the opportunity to receive a return of

their investment. It cannot be determined at this time if, as a consequence of investor funds being returned by

CPA®:15, Carey Financial would be required to return to CPA®:15 the commissions paid by CPA®:15 on purchases

actually rescinded. Further, as part of any action against the Company, the SEC could seek disgorgement of any

such commissions or different or additional penalties or relief, including without limitation, injunctive relief

and/or civil monetary penalties, irrespective of the outcome of any rescission offer. The Company cannot predict

the potential effect such a rescission offer or SEC action may ultimately have on the operations of Carey Financial

or the Company. There can be no assurance that the effect, if any, would not be material.

The staff also alleged in the March 2004 letter that the prospectus delivered with respect to the Phase I

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Offering contained material misrepresentations and omissions in violation of Section 17 of the Securities Act of

1933 and Section 10(b) of the Securities Exchange Act of 1934 and Rule 10b-5 thereunder in that the prospectus

failed to disclose that (i) the proceeds of the Phase I Offering would be used to advance commissions and

expenses payable with respect to the Phase II Offering, and (ii) the payment of dividends to Phase II shareholders

whose funds had been held in escrow pending effectiveness of the registration statement resulted in signiﬁcantly

higher annualized rates of return than were being earned by Phase I shareholders. Carey Financial has reim-

bursed CPA®:15 for the interest cost of advancing the commissions that were later recovered by CPA®:15 from the

Phase II Offering proceeds.

In June 2004, the Division of Enforcement of the SEC (“Enforcement Staff”) commenced an investigation into

compliance with the registration requirements of the Securities Act of 1933 in connection with the public offerings

of shares of CPA®:15 during 2002 and 2003. In December 2004, the scope of the Enforcement Staff’s inquiries

broadened to include broker-dealer compensation arrangements in connection with CPA®:15 and other REITs

managed by the Company, as well as the disclosure of such arrangements. At that time the Company and Carey

Financial received a subpoena from the Enforcement Staff seeking documents relating to payments by the

Company, Carey Financial, and REITs managed by the Company to (or requests for payment received from) any

broker-dealer, excluding selling commissions and selected dealer fees. The Company and Carey Financial subsequently

received additional subpoenas and requests for information from the Enforcement Staff seeking, among other

things, information relating to any revenue sharing agreements or payments (deﬁned to include any payment to

a broker-dealer, excluding selling commissions and selected dealer fees) made by the Company, Carey Financial

or any Company-managed REIT in connection with the distribution of Company-managed REITs or the reten-

tion or maintenance of REIT assets. Other information sought by the SEC includes information concerning the

accounting treatment and disclosure of any such payments, communications with third parties (including other

REIT issuers) concerning revenue sharing, and documents concerning the calculation of underwriting compen-

sation in connection with the REIT offerings under applicable NASD rules.

In response to the Enforcement Staff ’s subpoenas and requests, the Company and Carey Financial have pro-

duced documents relating to payments made to certain broker-dealers both during and after the offering process,

for certain of the REITs managed by the Company (including Corporate Property Associates 10 Incorporated,

CIP®, CPA®:12, CPA®:14, and CPA®:15), in addition to selling commissions and selected dealer fees. The expenses

associated with these payments, which were made during the period from early 2000 through the end of 2003,

were borne by the REITs. The Company is continuing to gather information relating to these types of payments

made to broker-dealers and supply it to the SEC.

The Company and Carey Financial are cooperating fully with this investigation and are in the process of pro-

viding information to the Enforcement Staff in response to the subpoenas and requests. Although no regulatory

action has been initiated against the Company or Carey Financial in connection with the matters being investi-

gated, it is possible that the SEC may pursue an action against either of them in the future. The potential timing of

any such action and the nature of the relief or remedies the SEC may seek cannot be predicted at this time. If such

an action is brought, it could have a material adverse effect on the Company.

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1 3 .

i m p a i r m e n t c h a r g e s a n d l o a n l o s s e s

The Company incurred impairment charges of $22,098, $4,440 and $29,411 for the years ended December 31,

2004, 2003 and 2002, respectively, of which $7,550, $2,960 and $8,901 are included in Discontinued Operations

for each respective year.

2 0 0 4

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 esti-

mated residual value had occurred at several properties due to market conditions, and the accounting for the

direct ﬁnancing leases was revised using the changed estimates. The resulting changes in estimates resulted in the

recognition of impairment charges of $5,248 in 2004.

The Company owns a property that is leased to Livho, Inc. (“Livho”), which operates the property as a Holiday

Inn hotel in Livonia, Michigan. The Company has provided Livho with signiﬁcant ﬁnancial support over the past

several years in order to support the hotel’s operations. The Livonia hotel’s ﬁnancial performance has continued

to perform below projections even after certain additional investments in the property were placed in service.

The Company performed an impairment valuation of the Livonia property and has determined that the value of

the Livonia property has undergone an other than temporary decline in value, and accordingly, has recognized an

impairment charge of $7,500 for 2004.

In February 2003, the Company sold its property in Winona, Minnesota to the lessee, Peerless Chain Company

(“Peerless”) for $8,550, consisting of cash of $6,300 and notes receivable with a fair value of $2,250, and recog-

nized a gain on sale of $46. The Company also received a note receivable from Peerless of approximately $1,700

for unpaid rents which was previously included in the allowance for uncollected rents. The Company previously

recognized an impairment charge of $4,000, in 2002, on the Peerless property, which was classiﬁed as held for sale

in 2002. During 2004, installment payments due under the notes were not paid, however, the Company received a

$1,000 settlement payment from the former lessee and has determined that the remaining amounts will not be

recovered. The remaining balance on the notes of $1,250 has been written off as a loan loss.

As a result of entering into a commitment to sell a property in Toledo, Ohio in June 2004, recognized an impair-

ment charge on properties held for sale of $4,700, which is included in discontinued operations. The charge was

based on the property’s sales price, less estimated costs to sell. The property was sold in July 2004 for $4,175 and a

gain on sale of $6 was recognized.

The Company recognized impairment charges on other properties classiﬁed as held for sale as of December 31,

2004, or sold during 2004, of $2,850, which are included in discontinued operations, and an impairment charge of

$550 on real estate held for use.

2 0 0 3
In addition to impairment charges totaling $1,208 related to the Company’s annual review of the estimated resid-

ual values on its properties classiﬁed as net investments in direct ﬁnancing leases, the Company recognized an

impairment charge of $272 on its assessment of the recoverability of debentures received in connection with a

bankruptcy settlement with a former lessee.

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The company recognized impairment charges on other properties held for sale as of December 31, 2003, or

sold during 2003, of $2,960, which are included in discontinued operations. The impairments are discussed fur-

ther in Note 7.

2 0 0 2
The Company recorded impairment charges totaling $14,880 related to its annual review of the estimated resid-

ual values on its properties classiﬁed as net investments in direct ﬁnancing leases.

Prior to the Company converting its 708,269 OP units of MeriStar to 708,269 shares of common stock in

2003, the Company accounted for its investment as an available for sale marketable security. Because of a

continued and prolonged weakness in the hospitality industry, and a substantial decrease in MeriStar’s earnings,

the Company concluded that the underlying value of its investment in the OP Units had undergone 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 impairment charges of $4,900 on other properties, which were sold in either 2002

or 2003 or held for sale as of December 31, 2002.

1 4 . s a l e s o f r e a l e s t a t e
The results of operations and the related gain or loss on properties, which were not held for sale as of December 31,

2001 and sold in 2004, 2003 and 2002, are included in “Discontinued Operations.” (see Note 7)

2 0 0 3
In December 2003, the Company sold a property in Oxnard, California for $7,500, and recognized a gain of $414.

The Company placed proceeds of the sale in an escrow account with the intention of entering into a Section 1031

noncash exchange which, under the Internal Revenue Code, would allow the Company to acquire like-kind prop-

erty, and defer a taxable gain until the new property is sold, upon satisfaction of certain conditions. During 2004,

$7,185 was released from the escrow account, when an exchange was not completed.

2 0 0 2
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 recognized a gain on sale of $11,160. Subsequent to the sale of the property, a sub-

sidiary of the Company entered into a build-to-suit development management agreement 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.

Under the construction agreement with the general contractor, a subsidiary is acting as a conduit for the pay-

ments made by School District and is only obligated to make payments to the general contractor based on pay-

ments received, except for a maximum guarantee of up to $2,000 for nonpayment. The guarantee ends upon

completion of construction.

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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. Incentive fees, which are contingent,

are 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 com-

mitment. The Company and the School District are currently preparing for an arbitration proceeding relating to

certain disagreements regarding the costs of the project and whether the Company is entitled to reimbursement

for incurring these costs. The recognition of income on the project is being recognized using a blended proﬁt

margin under the percentage of completion method of accounting. Due to its disputes with the District and a

change in estimate of proﬁt on the development project, the Company has recognized a loss in development

income of $1,303 and income of $1,298, for the years ended December 31, 2004 and 2003, respectively.

During 2002, the Company also sold properties in Fredericksburg, Virginia; Urbana, Illinois; Maumelle, Arkansas;

Burnsville, Minnesota; and Casa Grande for an aggregate of $10,238 and recognized a net gain on sales of $1,151.

1 5 . s t o c k o p t i o n s , r e s t r i c t e d s t o c k a n d w a r r a n t s
In January 1998, the predecessor of Carey Management (see Note 2) was granted warrants to purchase 2,284,800

shares exercisable at $21 per share and 725,930 shares exercisable at $23 per share as compensation for invest-

ment banking services in connection with structuring the consolidation of the CPA® Partnerships. The warrants

are exercisable until January 2009.

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, authorizes 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: 513,171 in 2004 at exercise prices ranging from $22.59 to $35.16, 122,000 in 2003 at

exercise prices ranging from $25.01 to $31.79 per share and 877,337 in 2002 at exercise prices ranging from

$22.73 to $24.01 per share. The options granted under the Incentive Plan have a 10-year term and vest over peri-

ods ranging from three to ten years from 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 similar terms as the Incentive Plan. Options granted under the Directors’

Plan have a 10-year term and vest over three years from the date of grant. During 2004, 12,000 share options

were granted at exercise prices ranging from $24.50 to $30.25 per share. No share options were granted in 2003

and 2002.

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Share option and warrant activity for the Company’s Incentive Plan and Directors’ Plan is as follows:

Outstanding at beginning of year

Granted
Exercised
Forfeited

Outstanding at end of year

4,812,902
525,171
(146,121)
(26,335)

5,165,617

2004
Weighted
Average
Exercise Price

2003
Weighted
Average
Exercise Price

For the Year Ended December 31,
2002
Weighted
Average
Shares Exercise Price

$20.95 4,979,862
122,000
$29.68
(251,113)
$21.09
(37,847)
$24.18

$20.26 4,320,815
877,337
$26.24
(192,617)
$14.29
(25,673)
$19.14

$22.05 4,812,902

$21.20 4,979,862

$19.88
$23.03
$12.69
$19.17

$20.26

$20.31

Options exercisable at end of year 4,287,999

$20.97 4,108,073

$20.95 3,611,115

Stock options outstanding for the Company’s Incentive Plan and Directors’ Plan as of December 31, 2004 are

as follows:

Options Outstanding

Range of Exercise Prices

$7.69
$16.25 to $35.16

Options
Outstanding at
December 31,
2004

39,946
5,125,671

5,165,617

Weighted
Average
Remaining
Contractual

Options
Weighted Exercisable at
Average December 31,

Weighted
Average
2004 Exercise Price

Life Exercise Price

Options Exercisable

5.50
5.40

5.41

$ 7.69
$22.16

$22.05

39,946
4,248,053

4,287,999

$ 7.69
$21.09

$20.97

At December 31, 2003 and 2002, the range of exercise prices and weighted-average remaining contractual life of out-

standing share options and warrants was $7.69 to $31.79 and 6.03 years, and $7.69 to $24.01 and 6.9 years, respectively.

On June 30, 2003, WPCI granted an incentive award to certain ofﬁcers of WPCI consisting of 1,500,000 restricted

shares, representing an approximate 13% interest in WPCI, and 1,500,000 options for WPCI common stock with a

combined fair value of $2,485 at that date. Both the options and restricted stock were issued in 2003 and are vesting rat-

ably over ﬁve years. The options are exercisable at $1 per share for a period of ten years from the initial vesting date. The

vested restricted stock and stock received upon the exercise of options of WPCI by minority interest holders may be

redeemed commencing in 2012 or thereafter solely in exchange for shares of the Company. Any redemption will be sub-

ject to a third party valuation of WPCI. The fair value of the awards has been recorded as minority interest and included

in other liabilities in the accompanying consolidated ﬁnancial statements. The awards were also initially recorded in

unearned compensation as a component of shareholders’ equity. The awards are being accounted for as a variable plan

in accordance with APB No. 25 because the number of Company shares to be issued upon a redemption will not be

known until a redemption occurs. Subsequent changes in the fair value of the minority interest subsequent to the grant

date are included in the determination of net income based on the vesting period and valued quarterly. As a result of an

increase in fair value, $2,155 was incurred as compensation expense for the year ended December 31, 2004. The com-

bined estimated fair value of the options and restricted stock as of December 31, 2004 and 2003 is $5,691 and $1,615,

respectively. The unearned compensation is being amortized over the vesting periods and $1,094 and $577 and has been

amortized into compensation expense for the years ended December 31, 2004 and 2003, respectively.

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The per share fair value of the 1,500,000 share options granted by WPCI during 2003 was estimated to be

$1.593 using a Black-Scholes option pricing formula. The more signiﬁcant assumptions underlying the determi-

nation of the average fair value included a risk-free interest rate of 4.42% and an expected life of 11 years.

1 6 . e m p l o y e e i n c e n t i v e a n d b e n e f i t p l a n s c o m p e n s a t i o n

During 2003, the Company adopted a non-qualiﬁed deferred compensation plan under which a portion of any

participating ofﬁcer’s cash compensation in excess of designated amounts will be deferred and the ofﬁcer will be

awarded a Partnership Equity Plan Unit (“PEP Unit”). The value of each PEP Unit is intended to correspond to

the value of a share of the CPA® REIT designated at the time of such award. Redemption will occur at the earlier

of a liquidity event of the underlying CPA® REIT or twelve years from the date of award. The award is fully vested

upon grant, and the Company may terminate the plan at any time. The value of each PEP Unit will be adjusted to

reﬂect the underlying appraised value of the CPA® REIT. Additionally, each PEP Unit will be entitled to a distribu-

tion equal to the distribution rate of the CPA® REIT. All issuances of PEP Units, changes in the fair value of PEP

Units and distributions paid are included in compensation expense of the Company. Compensation expense

under this plan for the years ended December 31, 2004 and 2003 was $2,826 and $2,028, respectively.

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 contribute to the plan and the amount of any contribution is

determined by and at the discretion of the Board of Directors. The Board of Directors can authorize contribu-

tions to a maximum of 15% of an eligible participant’s compensation, limited to $31 annually per participant.

For the years ended December 31, 2004, 2003 and 2002, amounts expensed by the Company for contributions to

the trust were $1,988, $1,926 and $1,677, respectively. Annual contributions represent an amount equivalent to

15% of each eligible participant’s compensation for that period.

The components of the Company’s provision for income taxes for the years ended December 31, 2004, 2003 and

1 7 .

i n c o m e t a x e s

2002 are as follows:

Federal:

Current
Deferred

State, local and foreign:

Current
Deferred

Total provision

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2004

2003

2002

$26,330
7,497

33,827

15,827
3,320

19,147

$ 5,694
5,749

11,443

3,944
3,729

7,673

$ 2,436
8,756

11,192

2,492
4,399

6,891

$52,974

$19,116

$18,083

Deferred income taxes as of December 31, 2004 and 2003 consist of the following:

Deferred tax assets:

Unearned and deferred compensation
Other liabilities

Deferred tax liabilities:

Receivables from afﬁliates
Investments
Other

2004

2003

$ 3,436
—

3,436

22,939
18,974
1,872

43,785

$ 2,063
1,121

3,184

19,067
12,894
755

32,716

Net deferred tax liability

$40,349

$29,532

The difference between the tax provision and the tax beneﬁt recorded at the statutory rate at December 31,

2004, 2003 and 2002 is as follows:

Pre-tax income from taxable subsidiaries
Federal provision at statutory tax rate (35%)
State and local taxes, net of federal beneﬁt
Amortization of intangible assets
Other

Tax provision – taxable subsidiaries
Other state, local and foreign taxes

Total tax provision

2004

2003

2002

$98,707
34,547
11,695
2,210
3,215

51,667
1,307

$41,820
14,219
3,950
1,625
(2,225)

17,569
1,547

$35,296
12,001
3,617
1,886
(517)

16,987
1,096

$52,974

$19,116

$18,083

The Company evaluates its results from operations by major business segment as follows:

1 8 . s e g m e n t r e p o r t i n g

Real Estate Operations

This business segment includes the operations of properties under operating lease, properties under direct

ﬁnancing leases, real estate under construction and development, assets held for sale and equity investments in

ventures accounted for under the equity method which are engaged in these activities. Because of the Company’s

and its subsidiaries legal structure, these operations are not generally subject to federal income taxes however,

they may be subject to certain state, local and foreign taxes.

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Management Services Operations
This business segment includes management operations on a fee for services basis predominately from the CPA®

REITs pursuant to the Advisory Agreements and to a lesser extent from third parties. This business line also

includes interest on deferred fees and earnings from unconsolidated investments in the CPA® REITs accounted

for under the equity method which were received in-lieu of cash for certain fees. These operations are performed

in corporate subsidiaries and are subject to federal, state, local and foreign taxes as applicable. The Company’s

ﬁnancial statements are prepared on a consolidated basis including these taxable operations and include a provi-

sion for current and deferred taxes on these operations.

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A summary of comparative results of these business segments is as follows:

Year Ended:

Revenues:
2004
2003
2002

Operating expenses:

2004
2003
2002

Interest expense:

2004
2003
2002
Other, net(2):
2004
2003
2002

Provision for income taxes:

2004
2003
2002

Income (loss) from continuing operations:

2004
2003
2002

Total assets as of:

December 31, 2004
December 31, 2003

Total long-lived assets as of:

December 31, 2004
December 31, 2003

Management

Real Estate

Other(1)

Total
Company

$148,457
88,060
84,255

$ (56,790)
(48,925)
(48,708)

(35)
—
—

3,490
2,980
1,550

$ 73,592
68,080
65,335

$ (27,101)
(18,701)
(37,460)

$ (14,803)
(14,982)
(15,893)

$ 4,668
3,277
12,182

$ 5,725
3,098
2,814

$ 227,774
159,238
152,404

$(15,181)
(1,209)
(1,854)

$ (99,072)
(68,835)
(88,022)

$ — $ (14,838)
(14,982)
(15,893)

—
—

$ — $
—
—

8,158
6,257
13,732

$ (51,537)
(17,715)
(16,587)

$ (1,437)
(1,401)
(1,496)

$ — $ (52,974)
(19,116)
(18,083)

—
—

$ 43,585
24,400
20,510

$ 34,919
36,273
22,668

$ (9,456)
1,889
960

69,048
62,562
44,138

$237,889
200,674

$766,184
688,848

$ 9,466
16,983

$1,013,539
906,505

$ 83,018
75,433

$740,895
629,767

$ 9,140
16,147

$ 833,053
721,347

(1) Primarily consists of the Company’s other business operations, which includes its hotel operations and the School District build-to-suit

development project. The results of operations for the period ended December 31, 2004 include a loss in development income related to the
build-to-suit project of $1,303.

(2) Includes interest income, minority interest, income from equity investments and gains and losses on sales and foreign currency transactions.

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For 2004, geographic information for the real estate operations segment is as follows:

Revenues
Operating expenses
Interest expense
Other, net(2)
Provision for income taxes
Income from continuing operations
Total assets
Total long-lived assets

Domestic

International(1)

$ 65,910
(24,117)
(11,458)
2,545
(806)
32,076
696,378
676,192

$ 7,682
(2,984)
(3,345)
2,123
(631)
2,843
69,806
64,703

For 2003, geographic information for the real estate operations segment is as follows:

Revenues
Operating expenses
Interest expense
Other, net(2)
Provision for income taxes
Income from continuing operations
Total assets
Total long-lived assets

Domestic

International(1)

$ 61,678
(16,108)
(11,569)
2,608
(893)
35,716
619,367
568,407

$ 6,402
(2,593)
(3,413)
669
(508)
557
69,481
61,360

For 2002, geographic information for the real estate operations segment is as follows:

Revenues
Operating expenses
Interest expense
Other, net(2)
Provision for income taxes
Income from continuing operations

Domestic

International(1)

$ 60,037
(35,625)
(12,880)
11,335
(1,066)
21,801

$ 5,298
(1,835)
(3,013)
847
(430)
867

Total
Real Estate

$ 73,592
(27,101)
(14,803)
4,668
(1,437)
34,919
766,184
740,895

Total
Real Estate

$ 68,080
(18,701)
(14,982)
3,277
(1,401)
36,273
688,848
629,767

Total
Real Estate

$ 65,335
(37,460)
(15,893)
12,182
(1,496)
22,668

(1) The company’s international operations consist of investments in France.

(2) Includes interest income, minority interest, income from equity investments and gains and losses on sales and foreign currency transactions.

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1 9 . s e l e c t e d q u a r t e r l y f i n a n c i a l d a t a ( u n a u d i t e d )

Revenues(2)
Expenses(2)
Net income
Earnings per share –

Basic
Diluted

Dividends declared per share

Revenues(1)(2)
Expenses(1)(2)
Net income
Earnings per share –

Basic
Diluted

Dividends declared per share

March 31,
2004

$36,973
20,878
11,092

.30
.29
.4360

March 31,
2003

$44,869
18,962
17,273

.48
.46
.4320

Three Months Ended

June 30,
2004

September 30,
2004

December 31,
2004

$53,359
22,555
15,480

.41
.40
.4380

$99,179
30,689
35,154

.94
.90
.4400

$38,263
24,950
2,125

.06
.05
.4420

Three Months Ended

June 30,
2003

September 30,
2003

December 31,
2003

$34,944
16,065
12,974

.35
.34
.4330

$43,055
17,848
14,047

.38
.37
.4340

$36,370
15,960
18,584

.51
.48
.4350

(1) 2003 amounts have been reclassiﬁed to conform to the current year presentation of excluding interest income and interest expense from the

revenues and expenses line items above, respectively.

(2) Certain amounts from previous quarters have been reclassiﬁed to discontinued operations (see Note 7).

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w . p . c a r e y & c o . l l c
Market for The Company’s Common Stock and
Related Stockholder Matters

Listed Shares are listed on the New York Stock Exchange. As of December 31, 2004 there were 29,645 holders of

record of the Shares of the Company.

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 2004 and 2003 are as follows:

d i v i d e n d p o l i c y

Cash Dividends Declared Per Share

First quarter
Second quarter
Third quarter
Fourth quarter

Total:

2004

2003

$ .4360
.4380
.4400
.4420

$1.7560

$ .4320
.4330
.4340
.4350

$1.7340

The high, low and closing prices on the New York Stock Exchange for a Listed Share for each ﬁscal quarter of

2003 and 2004 were as follows (in dollars):

l i s t e d s h a r e s

2003

First Quarter
Second Quarter
Third Quarter
Fourth Quarter

2004

First Quarter
Second Quarter
Third Quarter
Fourth Quarter

High

$25.35
30.50
33.70
33.14

High

$30.99
30.99
31.00
35.98

Low

$24.15
24.81
27.13
29.10

Low

$29.01
25.22
29.00
29.76

$25.00
29.94
31.75
30.52

$30.95
29.78
29.86
35.16

In accordance with the rules of the New York Stock Exchange (“NYSE”), each of William P. Carey and Gordon F.

DuGan, our Co-Chief Executive Ofﬁcers, have certiﬁed, without qualiﬁcation, that he is not aware of any viola-

tion by the Company of the NYSE’s corporate governance listing standards. Further, Messrs. Carey and DuGan

have ﬁled with the SEC, as Exhibit 31.1 to the Company’s most recently ﬁled Form 10-K, the Sarbanes-Oxley Act

Section 302 certiﬁcation regarding the quality of the Company’s public disclosure.

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w . p . c a r e y & c o . l l c
Report on Form 10-K

The Company will supply to any shareholder, upon written request and without charge, a copy of the Annual

Report on Form 10-K for the year ended December 31, 2004 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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George E. Stoddard
Chairman of the Investment Committee;
Former Head of the Direct Placement
Department, The Equitable Life Assurance
Society of The United States

Wm. Polk Carey
Chairman and Board Member
Gordon F. DuGan
President, Chief Executive Ofﬁcer and
Board Member
George E. Stoddard
Co-Chief Investment Ofﬁcer and
Board Member
John D. Miller
Co-Chief Investment Ofﬁcer
John J. Park
Chief Financial Ofﬁcer, Managing
Director and Treasurer
Claude Fernandez
Managing Director and Chief
Accounting Ofﬁcer
Jan F. Kärst
Managing Director – Investments
Edward V. LaPuma
Managing Director – Investments
W. Sean Sovak
Managing Director – Investments

Auditors
Pricewaterhouse 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
1-888-200-8690
Annual Meeting
June 8, 2005 at 2:00 p.m.
Waldorf=Astoria Hotel
New York, New York
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 at www.sec.gov
or by writing the Executive Ofﬁces at the
address above.

Investment Committee

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

Senior Ofﬁcers

Anne Coolidge Taylor
Managing Director – Investments
Thomas E. Zacharias
Managing Director – Asset Management
and Chief Operating Ofﬁcer
Douglas E. Barzelay
General Counsel
Benjamin P. Harris
Executive Director – Investments
Susan C. Hyde
Executive Director and Director
of Investor Relations
Michael D. Roberts
Executive Director and Controller
Donna M. Neiley
Senior Vice President – Asset Management
Jason E. Fox
Director – Investments
P. Edward Kaplan Jr.
Director – Investments
Gino M. Sabatini
Director – Investments

Corporate Information

Website
www.wpcarey.com
E-mail
IR@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:

March 31, 1998
June 30, 1998
September 30, 1998
December 31, 1998

March 31, 1999
June 30, 1999
September 30, 1999
December 31, 1999

March 31, 2000
June 30, 2000
September 30, 2000
December 31, 2000

0.4125
0.4125
0.4125
0.4125

0.4175
0.4175
0.4175
0.4175

0.4225
0.4225
0.4225
0.4225

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Dr. Lawrence R. Klein
Member
Ralph F. Verni
Member
Dr. Karsten von Köller
Member

L. Janusz Hooker
First Vice President – Investments
Robert C. Kehoe
First Vice President – Finance
Jeffrey S. Leﬂeur
First Vice President – Investments
Mykolas Rambus
First Vice President and Chief
Information Ofﬁcer
Thomas J. Ridings Jr.
First Vice President – Accounting
C. Curtis Ritter
First Vice President and Director of
Corporate Communications
Joseph W. Sanchez
First Vice President – Accounting
Gagan S. Singh
First Vice President – Finance
David G. Termine
First Vice President – Accounting

March 31, 2001
June 30, 2001
September 30, 2001
December 31, 2001

March 31, 2002
June 30, 2002
September 30, 2002
December 31, 2002

March 31, 2003
June 30, 2003
September 30, 2003
December 31, 2003

March 31, 2004
June 30, 2004
September 30, 2004
December 31, 2004

March 31, 2005

0.4225
0.4250
0.4260
0.4270

0.4280
0.4290
0.4300
0.4310

0.4320
0.4330
0.4340
0.4350

0.4360
0.4380
0.4400
0.4420

0.4440

Wm. Polk Carey
Chairman

Gordon F. DuGan
Chief Executive Ofﬁcer and President

Francis J. Carey
Chairman of the Executive
Committee, Chief Ethics Ofﬁcer

George E. Stoddard
Chairman of the Investment
Committee, Co-Chief Investment
Ofﬁcer and Senior Managing Director

Below from left, seated: R. Winssinger,
W. Carey, C. Townsend; standing: R. Verni,
N. Coolidge, K. von Köller, G. Stoddard,
L. Klein, F. Carey, E. Faber and G. DuGan.

Board of Directors

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 Nomination
and the Corporate Governance
Committees; 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 Economics (Emeritus),
University of Pennsylvania

Charles C. Townsend, Jr.
Lead Director of the Board and
Chairman of the Compensation
Committee; Former Head of
Corporate Finance, Morgan
Stanley & Co.

Ralph F. Verni
Former President and Chief Executive
Ofﬁcer, State Street Research &
Management

Dr. Karsten von Köller
Former Chairman and Member of
the Board of Managing Directors,
Eurohypo AG

Reginald Winssinger
Chairman of Horizon New America
National Portfolio Inc.