W. P. Carey Announces Second Quarter 2024 Financial Results

July 30, 2024

NEW YORK, July 30, 2024 /PRNewswire/ -- W. P. Carey Inc. (NYSE: WPC) (W. P. Carey or the Company), a net lease real estate investment trust, today reported its financial results for the second quarter ended June 30, 2024.

Financial Highlights


2024 Second Quarter

Net income attributable to W. P. Carey (millions)

$142.9

Diluted earnings per share

$0.65



AFFO (millions)

$257.1

AFFO per diluted share

$1.17

  • 2024 AFFO guidance revised to between $4.63 and $4.73 per diluted share, based on anticipated full year investment volume of between $1.25 billion and $1.75 billion
       
  • Second quarter cash dividend of $0.870 per share, equivalent to an annualized dividend rate of $3.48 per share

Real Estate Portfolio 

  • Investment volume of $641.0 million completed year to date, including $293.4 million during the second quarter and $67.3 million subsequent to quarter end
       
  • Active capital investments and commitments of $38.0 million scheduled to be completed in 2024
       
  • Gross disposition proceeds of $152.2 million during the second quarter, comprising:
       
    • Dispositions of $62.3 million under the Office Sale Program; and
         
    • Non-Office Sale Program dispositions of $89.9 million
         
  • Company effectively completes strategic plan to exit the office assets within its portfolio
       
  • Contractual same-store rent growth of 2.9%

Balance Sheet and Capitalization

  • Issued €650 million of 4.25% Senior Unsecured Notes due 2032
      
  • Issued $400 million of 5.375% Senior Unsecured Notes due 2034
      
  • Repaid $500 million of 4.6% Senior Unsecured Notes due April 2024
      
  • Subsequent to quarter end, repaid €500 million of 2.25% Senior Unsecured Notes due July 2024

 

MANAGEMENT COMMENTARY

"Dispositions from our office exit strategy are now behind us and we have completed refinancing our two 2024 bond maturities, raising over a billion dollars of attractively priced debt. With our debt and equity needs this year already addressed, and as we further redeploy capital into new investments, we expect higher AFFO in the second half," said Jason Fox, Chief Executive Officer of W. P. Carey. "Although we're trimming our expectations for the full year — driven primarily by two larger-sized transactions that recently fell out of our pipeline — our liquidity remains at an all-time high, and we are very well positioned to close active deals and grow our pipeline, while taking advantage of what is typically a more active period around the end of the year."

 

QUARTERLY FINANCIAL RESULTS

Note: Effective January 1, 2024, the Company no longer separately analyzes its business between real estate operations and investment management operations, and instead views the business as one reportable segment. As a result of this change, the Company has conformed prior period segment information to reflect how it currently views its business.

Revenues

  • Revenues, including reimbursable costs, for the 2024 second quarter totaled $389.7 million, down 13.9% from $452.6 million for the 2023 second quarter.
       
    • Lease revenues decreased primarily as a result of executing the Company's strategic plan to exit the office assets within its portfolio, including the NLOP Spin-Off in November 2023 and dispositions under the Office Sale Program during 2023 and the first half of 2024.
         
    • Income from finance leases and loans receivable decreased primarily as a result of the disposition of the U-Haul portfolio during the 2024 first quarter.
         
    • Operating property revenues decreased primarily as a result of the sale of eight hotel operating properties during 2023 and one during the 2024 second quarter (out of 12 hotel properties that converted from net lease to operating upon lease expiration during the 2023 first quarter).

Net Income Attributable to W. P. Carey

  • Net income attributable to W. P. Carey for the 2024 second quarter was $142.9 million, down 1.2% from $144.6 million for the 2023 second quarter, due primarily to the impact of the NLOP Spin-Off and dispositions under the Office Sale Program, and impairment charges recognized during the current year period, partly offset by higher gain on sale of real estate.

Adjusted Funds from Operations (AFFO)

  • AFFO for the 2024 second quarter was $1.17 per diluted share, down 14.0% from $1.36 per diluted share for the 2023 second quarter, primarily reflecting the impact of the NLOP Spin-Off and dispositions under the Office Sale Program, as well as certain lease restructurings and property vacancies.

Note: Further information concerning AFFO, which is a non-GAAP supplemental performance metric, is presented in the accompanying tables and related notes.

Dividend

  • On June 13, 2024, the Company reported that its Board of Directors declared a quarterly cash dividend of $0.870 per share, equivalent to an annualized dividend rate of $3.48 per share. The dividend was paid on July 15, 2024 to shareholders of record as of June 28, 2024.

 

AFFO GUIDANCE

  • The Company has lowered its guidance range for the 2024 full year by two cents per diluted share, primarily reflecting lower expectations for investment volume and self-storage operating portfolio NOI, and currently expects to report AFFO of between $4.63 and $4.73 per diluted share based on the following key assumptions:

(i)   investment volume of between $1.25 billion and $1.75 billion, which has been lowered by $250 million;

(ii)   disposition volume of between $1.2 billion and $1.4 billion, which is unchanged, including:

(a)  completion of the Company's strategic plan to exit office, including asset sales under the Office Sale Program totaling approximately $550 million;

(b)  completion of the U-Haul purchase option during the 2024 first quarter, which generated gross proceeds of $464 million; and

(c)  other dispositions totaling between $150 million and $350 million;

(iii) total general and administrative expenses lowered to between $98 million and $101 million.

Note: The Company does not provide guidance on net income. The Company only provides guidance on AFFO and does not provide a reconciliation of this forward-looking non-GAAP guidance to net income due to the inherent difficulty in quantifying certain items necessary to provide such reconciliation as a result of their unknown effect, timing and potential significance. Examples of such items include impairments of assets, gains and losses from sales of assets, and depreciation and amortization from new acquisitions.

 

REAL ESTATE 

Investments

  • Year to date, the Company completed investments totaling $641.0 million, including $293.4 million during the 2024 second quarter and $67.3 million subsequent to quarter end.
       
  • The Company currently has two capital investments and commitments totaling $38.0 million scheduled to be completed during 2024.

Dispositions

  • During the 2024 second quarter, the Company disposed of 12 properties for gross proceeds totaling $152.2 million, comprising:
       
    • The disposition of three properties under the Office Sale Program for gross proceeds totaling $62.3 million, and
         
    • The disposition of nine non-Office Sale Program properties for gross proceeds totaling $89.9 million.
         
  • The Company has effectively completed the strategic plan it announced on September 21, 2023 to exit the office assets within its portfolio through (i) the spin-off of 59 office properties into Net Lease Office Properties, a separate publicly-traded REIT, which was completed on November 1, 2023 (the NLOP Spin-Off), and (ii) the disposition of 85 properties retained by W. P. Carey under the Office Sale Program.
       
    • As of July 30, 2024, one asset (representing 45 basis points of ABR) was under a binding contract for sale scheduled to close in December 2024, which will complete the Company's Office Sale Program.

Contractual Same-Store Rent Growth

  • As of June 30, 2024, contractual same store rent growth was 2.9% year over year, on a constant currency basis.

Composition

  • As of June 30, 2024, the Company's net lease portfolio consisted of 1,291 properties, comprising 170 million square feet leased to 346 tenants, with a weighted-average lease term of 12.0 years and an occupancy rate of 98.8%. In addition, the Company owned 89 self-storage operating properties, four hotel operating properties and two student housing operating properties, totaling approximately 7.3 million square feet.

 

BALANCE SHEET AND CAPITALIZATION

Liquidity

  • As of June 30, 2024, the Company had total liquidity of $3.2 billion, including approximately $2.0 billion of available capacity under its Senior Unsecured Credit Facility (net of amounts reserved for standby letters of credit), $1.1 billion of cash and cash equivalents, and $106.9 million of cash held at qualified intermediaries.

Senior Unsecured Notes

  • As previously announced, on May 16, 2024, the Company completed an underwritten public offering of €650 million aggregate principal amount of 4.25% Senior Notes due July 2032.
       
  • As previously announced, on June 28, 2024, the Company completed an underwritten public offering of $400 million aggregate principal amount of 5.375% Senior Notes due June 2034.
       
  • On April 1, 2024, the Company repaid $500 million of 4.6% Senior Unsecured Notes due April 2024.
       
  • Subsequent to quarter end, the Company repaid €500 million of 2.25% Senior Unsecured Notes due July 2024.

 

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Supplemental Information

The Company has provided supplemental unaudited financial and operating information regarding the 2024 second quarter and certain prior quarters, including a description of non-GAAP financial measures and reconciliations to GAAP measures, in a Current Report on Form 8-K filed with the Securities and Exchange Commission (SEC) on July 30, 2024, and made available on the Company's website at ir.wpcarey.com/investor-relations.

Live Conference Call and Audio Webcast Scheduled for Wednesday, July 31, 2024 at 11:00 a.m. Eastern Time
Please dial in at least 10 minutes prior to the start time.

Date/Time: Wednesday, July 31, 2024 at 11:00 a.m. Eastern Time
Call-in Number: 1 (877) 465-1289 (U.S.) or +1 (201) 689-8762 (international)

Live Audio Webcast and Replay: www.wpcarey.com/earnings

 

*     *     *     *     *

 

W. P. Carey Inc.

W. P. Carey ranks among the largest net lease REITs with a well-diversified portfolio of high-quality, operationally critical commercial real estate, which includes 1,291 net lease properties covering approximately 170 million square feet and a portfolio of 89 self-storage operating properties as of June 30, 2024. With offices in New York, London, Amsterdam and Dallas, the company remains focused on investing primarily in single-tenant, industrial, warehouse and retail properties located in the U.S. and Northern and Western Europe, under long-term net leases with built-in rent escalations.

www.wpcarey.com

 

*     *     *     *     *

 

Cautionary Statement Concerning Forward-Looking Statements

Certain of the matters discussed in this communication constitute forward-looking statements within the meaning of the Securities Act of 1933 and the Securities Exchange Act of 1934, both as amended by the Private Securities Litigation Reform Act of 1995. The forward-looking statements include, among other things, statements regarding the intent, belief or expectations of W. P. Carey and can be identified by the use of words such as "may," "will," "should," "would," "will be," "goals," "believe," "project," "expect," "anticipate," "intend," "estimate" "opportunities," "possibility," "strategy," "maintain" or the negative version of these words and other comparable terms. These forward-looking statements include, but are not limited to, statements made by Mr. Jason Fox regarding expectations for future AFFO growth and deal volume. These statements are based on the current expectations of our management, and it is important to note that our actual results could be materially different from those projected in such forward-looking statements. There are a number of risks and uncertainties that could cause actual results to differ materially from the forward-looking statements. Other unknown or unpredictable risks or uncertainties, like the risks related to fluctuating interest rates, the impact of inflation on our tenants and us, the effects of pandemics and global outbreaks of contagious diseases, and domestic or geopolitical crises, such as terrorism, military conflict, war or the perception that hostilities may be imminent, political instability or civil unrest, or other conflict, and those additional risk factors discussed in reports that we have filed with the SEC, could also have material adverse effects on our future results, performance or achievements. Discussions of some of these other important factors and assumptions are contained in W. P. Carey's filings with the SEC and are available at the SEC's website at http://www.sec.gov, including Part I, Item 1A. Risk Factors in W. P. Carey's Annual Report on Form 10-K for the fiscal year ended December 31, 2023. Investors are cautioned not to place undue reliance on these forward-looking statements, which speak only as of the date of this communication, unless noted otherwise. Except as required under the federal securities laws and the rules and regulations of the SEC, W. P. Carey does not undertake any obligation to release publicly any revisions to the forward-looking statements to reflect events or circumstances after the date of this communication or to reflect the occurrence of unanticipated events.

Institutional Investors:
Peter Sands
1 (212) 492-1110
institutionalir@wpcarey.com

Individual Investors:
W. P. Carey Inc.
1 (212) 492-8920
ir@wpcarey.com

Press Contact:
Anna McGrath
1 (212) 492-1166
amcgrath@wpcarey.com

 

*     *     *     *     *

 

W. P. CAREY INC.

Consolidated Balance Sheets (Unaudited)

(in thousands, except share and per share amounts)



June 30, 2024


December 31, 2023

Assets




Investments in real estate:




Land, buildings and improvements — net lease and other

$              12,341,979


$              12,095,458

Land, buildings and improvements — operating properties

1,238,340


1,256,249

Net investments in finance leases and loans receivable

667,667


1,514,923

In-place lease intangible assets and other

2,256,793


2,308,853

Above-market rent intangible assets

676,666


706,773

Investments in real estate

17,181,445


17,882,256

Accumulated depreciation and amortization (a)

(3,096,516)


(3,005,479)

Assets held for sale, net

7,743


37,122

Net investments in real estate

14,092,672


14,913,899

Equity method investments

356,220


354,261

Cash and cash equivalents

1,085,967


633,860

Other assets, net

1,261,222


1,096,474

Goodwill

973,204


978,289

Total assets

$              17,769,285


$              17,976,783





Liabilities and Equity




Debt:




Senior unsecured notes, net

$                6,519,887


$                6,035,686

Unsecured term loans, net

1,100,356


1,125,564

Unsecured revolving credit facility

15,005


403,785

Non-recourse mortgages, net

467,200


579,147

Debt, net

8,102,448


8,144,182

Accounts payable, accrued expenses and other liabilities

548,397


615,750

Below-market rent and other intangible liabilities, net

128,710


136,872

Deferred income taxes

155,716


180,650

Dividends payable

194,515


192,332

Total liabilities

9,129,786


9,269,786





Preferred stock, $0.001 par value, 50,000,000 shares authorized; none issued


Common stock, $0.001 par value, 450,000,000 shares authorized; 218,831,869 and 218,671,874 shares, respectively, issued and outstanding

219


219

Additional paid-in capital

11,782,157


11,784,461

Distributions in excess of accumulated earnings

(2,975,236)


(2,891,424)

Deferred compensation obligation

78,379


62,046

Accumulated other comprehensive loss

(252,640)


(254,867)

Total stockholders' equity

8,632,879


8,700,435

Noncontrolling interests

6,620


6,562

Total equity

8,639,499


8,706,997

Total liabilities and equity

$              17,769,285


$              17,976,783










(a)

 Includes $1.7 billion and $1.6 billion of accumulated depreciation on buildings and improvements as of June 30, 2024 and December 31, 2023, respectively, and $1.4 billion of accumulated amortization on lease intangibles as of both June 30, 2024 and December 31, 2023.

 

 

W. P. CAREY INC.

Quarterly Consolidated Statements of Income (Unaudited)

(in thousands, except share and per share amounts)



Three Months Ended


June 30, 2024


March 31, 2024


June 30, 2023

Revenues






Real Estate:






Lease revenues

$                   324,104


$                   322,251


$                   369,124

Income from finance leases and loans receivable

14,961


25,793


27,311

Operating property revenues

38,715


36,643


50,676

Other lease-related income

9,149


2,155


5,040


386,929


386,842


452,151

Investment Management:






Asset management revenue (a)

1,686


1,893


303

Other advisory income and reimbursements (b)

1,057


1,063


124


2,743


2,956


427


389,672


389,798


452,578

Operating Expenses






Depreciation and amortization

137,481


118,768


143,548

General and administrative

24,168


27,868


24,912

Operating property expenses

18,565


17,950


26,919

Impairment charges — real estate

15,752



Reimbursable tenant costs

14,004


12,973


20,523

Property expenses, excluding reimbursable tenant costs

13,931


12,173


5,371

Stock-based compensation expense

8,903


8,856


8,995

Merger and other expenses

206


4,452


1,419


233,010


203,040


231,687

Other Income and Expenses






Interest expense

(65,307)


(68,651)


(75,488)

Gain on sale of real estate, net

39,363


15,445


1,808

Non-operating income (c)

9,215


15,505


4,509

Earnings from equity method investments

6,636


4,864


4,355

Other gains and (losses) (d)

2,504


13,839


(1,366)


(7,589)


(18,998)


(66,182)

Income before income taxes

149,073


167,760


154,709

Provision for income taxes

(6,219)


(8,674)


(10,129)

Net Income

142,854


159,086


144,580

Net loss attributable to noncontrolling interests

41


137


40

Net Income Attributable to W. P. Carey

$                  142,895


$                  159,223


$                  144,620







Basic Earnings Per Share

$                        0.65


$                        0.72


$                        0.67

Diluted Earnings Per Share

$                        0.65


$                        0.72


$                        0.67

Weighted-Average Shares Outstanding






Basic

220,195,910


220,031,597


215,075,114

Diluted

220,214,118


220,129,870


215,184,485







Dividends Declared Per Share

$                      0.870


$                      0.865


$                      1.069










(a)

Amount for the three months ended June 30, 2024 is comprised of $1.6 million from NLOP and less than $0.1 million from CESH.

(b)

Amount for the three months ended June 30, 2024 is comprised of (i) $1.0 million of administrative reimbursement for our management of NLOP and (ii) less than $0.1 million of reimbursable costs from CESH.

(c)

Amount for the three months ended June 30, 2024 is comprised of interest income on deposits of $5.9 million and realized gains on foreign currency exchange derivatives of $3.3 million.

(d)

Amount for the three months ended June 30, 2024 is primarily comprised of net gains on foreign currency exchange rate movements of $1.4 million and a release of a non-cash allowance for credit losses of $1.1 million.

 

 

W. P. CAREY INC.

Year-to-Date Consolidated Statements of Income (Unaudited)

(in thousands, except share and per share amounts)



Six Months Ended June 30,


2024


2023

Revenues




Real Estate:




Lease revenues

$                  646,355


$                  721,460

Income from finance leases and loans receivable

40,754


48,066

Operating property revenues

75,358


91,562

Other lease-related income

11,304


18,413


773,771


879,501

Investment Management:




Asset management and other revenue

3,579


642

Other advisory income and reimbursements

2,120


225


5,699


867


779,470


880,368

Operating Expenses




Depreciation and amortization

256,249


299,957

General and administrative

52,036


51,461

Operating property expenses

36,515


48,168

Reimbursable tenant costs

26,977


42,499

Property expenses, excluding reimbursable tenant costs

26,104


18,143

Stock-based compensation expense

17,759


16,761

Impairment charges — real estate

15,752


Merger and other expenses

4,658


1,443


436,050


478,432

Other Income and Expenses




Interest expense

(133,958)


(142,684)

Gain on sale of real estate, net

54,808


179,557

Non-operating income

24,720


9,135

Other gains and (losses)

16,343


6,734

Earnings from equity method investments

11,500


9,591


(26,587)


62,333

Income before income taxes

316,833


464,269

Provision for income taxes

(14,893)


(25,248)

Net Income

301,940


439,021

Net loss (income) attributable to noncontrolling interests

178


(21)

Net Income Attributable to W. P. Carey

$                  302,118


$                  439,000





Basic Earnings Per Share

$                        1.37


$                        2.06

Diluted Earnings Per Share

$                        1.37


$                        2.05

Weighted-Average Shares Outstanding




Basic

220,113,753


213,522,150

Diluted

220,261,525


213,875,471





Dividends Declared Per Share

$                      1.735


$                      2.136

 

 

W. P. CAREY INC.

Quarterly Reconciliation of Net Income to Adjusted Funds from Operations (AFFO) (Unaudited)

(in thousands, except share and per share amounts)



Three Months Ended


June 30, 2024


March 31, 2024


June 30, 2023

Net income attributable to W. P. Carey

$                   142,895


$                  159,223


$                  144,620

Adjustments:






Depreciation and amortization of real property

136,840


118,113


142,932

Gain on sale of real estate, net

(39,363)


(15,445)


(1,808)

Impairment charges

15,752



Proportionate share of adjustments to earnings from equity method investments (a)

3,015


2,949


2,883

Proportionate share of adjustments for noncontrolling interests (b)

(101)


(103)


(268)

Total adjustments

116,143


105,514


143,739

FFO (as defined by NAREIT) Attributable to W. P. Carey (c)

259,038


264,737


288,359

Adjustments:






Straight-line and other leasing and financing adjustments

(15,310)


(19,553)


(19,086)

Stock-based compensation

8,903


8,856


8,995

Above- and below-market rent intangible lease amortization, net

5,766


4,068


8,824

Amortization of deferred financing costs

4,555


4,588


5,904

Other (gains) and losses (d)

(2,504)


(13,839)


1,366

Tax benefit – deferred and other

(1,392)


(1,373)


(2,723)

Other amortization and non-cash items

580


579


527

Merger and other expenses (e)

206


4,452


1,419

Proportionate share of adjustments to earnings from equity method investments (a)

(2,646)


(519)


(255)

Proportionate share of adjustments for noncontrolling interests (b)

(97)


(104)


(24)

Total adjustments

(1,939)


(12,845)


4,947

AFFO Attributable to W. P. Carey (c)

$                   257,099


$                  251,892


$                  293,306







Summary






FFO (as defined by NAREIT) attributable to W. P. Carey (c)

$                  259,038


$                  264,737


$                  288,359

FFO (as defined by NAREIT) attributable to W. P. Carey per diluted share (c)

$                        1.18


$                        1.20


$                        1.34

AFFO attributable to W. P. Carey (c)

$                  257,099


$                  251,892


$                  293,306

AFFO attributable to W. P. Carey per diluted share (c)

$                        1.17


$                        1.14


$                        1.36

Diluted weighted-average shares outstanding

220,214,118


220,129,870


215,184,485

 

 

W. P. CAREY INC.

Year-to-Date Reconciliation of Net Income to Adjusted Funds from Operations (AFFO) (Unaudited)

(in thousands, except share and per share amounts)



Six Months Ended June 30,


2024


2023

Net income attributable to W. P. Carey

$                   302,118


$                   439,000

Adjustments:




Depreciation and amortization of real property

254,953


298,800

Gain on sale of real estate, net

(54,808)


(179,557)

Impairment charges

15,752


Proportionate share of adjustments to earnings from equity method investments (a)

5,964


5,489

Proportionate share of adjustments for noncontrolling interests (b)

(204)


(567)

Total adjustments

221,657


124,165

FFO (as defined by NAREIT) Attributable to W. P. Carey (c)

523,775


563,165

Adjustments:




Straight-line and other leasing and financing adjustments

(34,863)


(34,136)

Stock-based compensation

17,759


16,761

Other (gains) and losses

(16,343)


(6,734)

Above- and below-market rent intangible lease amortization, net

9,834


19,685

Amortization of deferred financing costs

9,143


10,844

Merger and other expenses

4,658


1,443

Tax (benefit) expense – deferred and other

(2,765)


1,643

Other amortization and non-cash items

1,159


999

Proportionate share of adjustments to earnings from equity method investments (a)

(3,165)


(1,181)

Proportionate share of adjustments for noncontrolling interests (b)

(201)


36

Total adjustments

(14,784)


9,360

AFFO Attributable to W. P. Carey (c)

$                   508,991


$                   572,525





Summary




FFO (as defined by NAREIT) attributable to W. P. Carey (c)

$                  523,775


$                  563,165

FFO (as defined by NAREIT) attributable to W. P. Carey per diluted share (c)

$                        2.38


$                        2.63

AFFO attributable to W. P. Carey (c)

$                  508,991


$                  572,525

AFFO attributable to W. P. Carey per diluted share (c)

$                        2.31


$                        2.68

Diluted weighted-average shares outstanding

220,261,525


213,875,471










(a)

Equity income, including amounts that are not typically recognized for FFO and AFFO, is recognized within Earnings from equity method investments on the consolidated statements of income. This represents adjustments to equity income to reflect FFO and AFFO on a pro rata basis.

(b)

Adjustments disclosed elsewhere in this reconciliation are on a consolidated basis. This adjustment reflects our FFO or AFFO on a pro rata basis.

(c)

FFO and AFFO are non-GAAP measures. See below for a description of FFO and AFFO.

(d)

Amount for the three months ended June 30, 2024 is primarily comprised of net gains on foreign currency exchange rate movements of $1.4 million and a release of a non-cash allowance for credit losses of $1.1 million.

(e)

Amount for the three months ended March 31, 2024 is primarily comprised of the write-off of a value added tax receivable that was previously recorded in connection with an international investment.

 

Non-GAAP Financial Disclosure

Funds from Operations (FFO) and Adjusted Funds from Operations (AFFO)

Due to certain unique operating characteristics of real estate companies, as discussed below, the National Association of Real Estate Investment Trusts (NAREIT), an industry trade group, has promulgated a non-GAAP measure known as FFO, which we believe to be an appropriate supplemental measure, when used in addition to and in conjunction with results presented in accordance with GAAP, to reflect the operating performance of a REIT. The use of FFO is recommended by the REIT industry as a supplemental non-GAAP measure. FFO is not equivalent to, nor a substitute for, net income or loss as determined under GAAP.

We define FFO, a non-GAAP measure, consistent with the standards established by the White Paper on FFO approved by the Board of Governors of NAREIT, as restated in December 2018. The White Paper defines FFO as net income or loss computed in accordance with GAAP, excluding gains or losses from the sale of certain real estate, impairment charges on real estate or other assets incidental to the company's main business, gains or losses on changes in control of interests in real estate and depreciation and amortization from real estate assets; and after adjustments for unconsolidated partnerships and jointly owned investments. Adjustments for unconsolidated partnerships and jointly owned investments are calculated to reflect FFO on the same basis.

We also modify the NAREIT computation of FFO to adjust GAAP net income for certain non-cash charges, such as amortization of real estate-related intangibles, deferred income tax benefits and expenses, straight-line rent and related reserves, other non-cash rent adjustments, non-cash allowance for credit losses on loans receivable and finance leases, stock-based compensation, non-cash environmental accretion expense, amortization of discounts and premiums on debt and amortization of deferred financing costs. Our assessment of our operations is focused on long-term sustainability and not on such non-cash items, which may cause short-term fluctuations in net income but have no impact on cash flows. Additionally, we exclude non-core income and expenses, such as gains or losses from extinguishment of debt, merger and acquisition expenses, and spin-off expenses. We also exclude realized and unrealized gains/losses on foreign currency exchange rate movements (other than those realized on the settlement of foreign currency derivatives), which are not considered fundamental attributes of our business plan and do not affect our overall long-term operating performance. We refer to our modified definition of FFO as AFFO. We exclude these items from GAAP net income to arrive at AFFO as they are not the primary drivers in our decision-making process and excluding these items provides investors a view of our portfolio performance over time and makes it more comparable to other REITs that are currently not engaged in acquisitions, mergers and restructuring, which are not part of our normal business operations. AFFO also reflects adjustments for unconsolidated partnerships and jointly owned investments. We use AFFO as one measure of our operating performance when we formulate corporate goals, evaluate the effectiveness of our strategies and determine executive compensation.

We believe that AFFO is a useful supplemental measure for investors to consider as we believe it will help them to better assess the sustainability of our operating performance without the potentially distorting impact of these short-term fluctuations. However, there are limits on the usefulness of AFFO to investors. For example, impairment charges and unrealized foreign currency losses that we exclude may become actual realized losses upon the ultimate disposition of the properties in the form of lower cash proceeds or other considerations. We use our FFO and AFFO measures as supplemental financial measures of operating performance. We do not use our FFO and AFFO measures as, nor should they be considered to be, alternatives to net income computed under GAAP, or as alternatives to net cash provided by operating activities computed under GAAP, or as indicators of our ability to fund our cash needs.

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SOURCE W. P. Carey Inc.