W. P. Carey - 10-K annual report

 

Registrant’s telephone numbers, including area code:
Investor Relations (212) 492-8920
(212) 492-1100

Securities registered pursuant to Section 12(b) of the Act:
Listed Shares, No Par Value

Securities registered pursuant to Section 12(g) of the Act: None

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes þ No o

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. Yes o No þ

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes þ No o

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained in this report, and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. o

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, or a non-accelerated filer. See definition of “accelerated filer and large accelerated filer” in Rule 12b-2 of the Exchange Act.

Large accelerated filer þ     Accelerated filer o     Non-accelerated filer o

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act). Yes o No þ

As of June 30, 2006, the aggregate market value of the registrants’ Listed Shares held by non-affiliates was $690,286,930.

As of February 19, 2007, there are 38,265,157 Listed Shares of registrant outstanding.

The registrant incorporates by reference its definitive Proxy Statement with respect to its 2007 Annual Meeting of Shareholders, to be filed with the Securities and Exchange Commission within 120 days following the end of its fiscal year, into Part III of this Annual Report on Form 10-K.

This annual report on Form 10-K, including “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in Item 7 of Part I of this report, contains forward-looking statements that involve risks, uncertainties and assumptions. 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 predict all of the risks and uncertainties, they include but are not limited to, those described below in Item 1A – Risk Factors. 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.

As used in this annual report on Form 10-K, the terms “the Company,” “we,” “us” and “our” include W. P. Carey & Co. LLC, its consolidated subsidiaries and predecessors, unless otherwise indicated.

PART I

We are a real estate advisory and investment company that invests primarily in commercial properties that are each triple-net leased to single corporate tenants, domestically and internationally, and earns revenue as the advisor to real estate investment trusts (“CPA^® REITs”) sponsored by us that invest in similar properties. The CPA^®REITs are publicly owned, non-traded real estate investment trusts. We are currently the advisor to the following CPA^® REITs: Corporate Property Associates 14 Incorporated (“CPA^®:14”), Corporate Property Associates 15 Incorporated (“CPA^®:15”) and Corporate Property Associates 16 – Global Incorporated (“CPA^®:16 – Global”) and were the advisor to Corporate Property Associates 12 Incorporated (“CPA^®:12”) prior to its merger with CPA^®:14 on December 1, 2006 and Carey Institutional Properties Incorporated (“CIP^®”) until its merger with CPA^®:15 during 2004. We also hold ownership interests in these CPA^® REITs accounted for under the equity method of accounting (see Note 6 of the accompanying consolidated financial statements).

Our real estate investment portfolio, as well as those of the REITs we advise, consists primarily of single-tenant commercial real property. Generally, we place primary emphasis on the creditworthiness of the tenant but we also fully evaluate the underlying real estate. Our leases generally are full recourse obligations of the tenant or its affiliates, and place the economic burden of ownership largely on the tenant by requiring it to pay the costs of maintenance, insurance, taxes, structural repairs and other operating expenses (referred to as triple-net leases).

Most of our properties either were acquired as a result of our consolidation in 1998 with nine affiliated Corporate Property Associates limited partnerships and their successors, or were subsequently acquired from certain CPA^® REITs in connection with the provision of liquidity to shareholders of those REITs, as further described below. Because our advisory agreements with the existing CPA^® REITs require that we use our best efforts to present to them a continuing and suitable program of investment opportunities that meet their investment criteria, we generally provide investment opportunities to these funds first and earn revenues from transaction and asset management services performed on their behalf. Our principal focus on our owned real estate portfolio in recent years has therefore been on enhancing the value of our existing properties.

Under advisory agreements that we have with each of the CPA^® REITs, we perform services and earn asset management revenue related to the day-to-day management of the CPA^® REITs and provide transaction-related services and earn structuring revenue in connection with structuring and negotiating real estate and real estate related investments and mortgage financing on their behalf. In addition, we provide further services and earn revenue when each CPA^® REIT is liquidated. We are also reimbursed for certain costs incurred in providing services, including broker-dealer commissions paid on behalf of the CPA^® REITs, marketing costs and the cost of personnel provided for the administration of the CPA^®REITs.

We were formed as a limited liability company under the laws of Delaware on July 15, 1996. Since January 1, 1998, we have been consolidated with, and wholly own, nine Corporate Property Associates limited partnerships and their successors. Our shares began trading on the New York Stock Exchange on January 21, 1998, under the symbol “WPC.” As a limited liability company, we are not subject to federal income taxation as long as we satisfy certain requirements relating to our operations and pass through any tax liabilities or benefits to our shareholders; however, certain of our subsidiaries engaged in management services operations are subject to federal, state and local income taxes and certain subsidiaries may be subject to foreign taxes.

Our principal executive offices are located at 50 Rockefeller Plaza, New York, NY 10020 and our telephone number is (212) 492-1100. As of December 31, 2006, we employed 122 individuals through our wholly-owned subsidiaries.

Merger of CPA^®:12 and CPA^®:14 – In June 2006, the boards of directors of CPA^®:12 and CPA^®:14 each approved a definitive agreement under which CPA^®:14 would acquire CPA^®:12’s business for a combination of cash and stock (the “CPA^®:12/14 Merger”). The CPA^®:12/14 Merger was approved by the shareholders of CPA^®:12 and CPA^®:14 in November 2006, and completed on December 1, 2006. In connection with providing a liquidity event for CPA^®:12 shareholders, CPA^®:12 paid us termination revenue of $25,379 and subordinated disposition revenue of $24,418. Included in subordinated disposition revenue is $3,779 payable by CPA^®:12 related to properties we acquired from CPA^®:12 that was not recognized as income for financial reporting purposes but reduced the cost of the properties we acquired.

Prior to the CPA^®:12/14 Merger, we acquired interests in 37 properties from CPA^®:12 (the “CPA^®:12 Acquisition”) with a fair value of $126,006 for $67,289 in cash and the assumption of limited recourse mortgage notes payable with a fair value of $58,717. The amounts are inclusive of our pro rata share of equity interests acquired in the transaction. In addition, we made a payment to CPA^®:12 of $534 in respect of one of the properties which had been sold at a price below its previously appraised value. The purchase price of the properties was based on a third party valuation of each of CPA^®:12’s properties. The properties are primarily single tenant net-leased properties, with remaining lease terms ranging from three to seven years. The majority of the properties are encumbered with limited recourse mortgage financing with fixed annual interest rates ranging from 5.5% to 8.5% and maturity dates ranging from 2009 to 2017. At the time of the merger we owned 2,134,140 shares of CPA^®:12 and received $6,808 as a result of the special cash distribution of $3.19 per share, and elected to receive $9,861 in cash and 1,022,800 shares of CPA^®:14 stock in the merger and recorded a gain of $6,521 on the sale and exchange of our CPA^®:12 shares.

In connection with the CPA^®:12 Acquisition, we agreed that if we enter into a definitive agreement to sell any of the acquired properties within six months after the closing of the CPA^®:12 Acquisition at a price that is higher than the price we paid to CPA^®:12, we will pay to former CPA^®:12 shareholders an amount equal to 85% of the excess (net of selling expenses and fees) on any such sale.

Acquisition / Disposition Activity – We earn revenue from the acquisition and disposition of properties on behalf of the CPA^® REITs. During 2006, we structured 25 investments totaling approximately $720,000 on behalf of the CPA^® REITs, including entering into four build-to-suit projects with combined estimated construction costs approximating $103,000. Approximately 76% of these investments were made on behalf of CPA^®:16 – Global with the remainder made on behalf of CPA^®:15 and approximately 48% of the total investments structured during 2006 were for international transactions. During 2006, we sold 11 properties on behalf of the CPA^® REITs for approximately $397,400, net of selling costs.

CPA^®:16 – Global Public Offering – In December 2006, CPA^®:16 – Global completed its second public offering of up to $550,000 of its common stock. Our wholly owned subsidiary, Carey Financial LLC (“Carey Financial”), acted as dealer-manager of this offering, which commenced in March 2006. During 2006, we completed the investment on behalf of CPA^®:16 – Global of the funds raised in its initial public offering and commenced investment of the funds raised in its second offering. We are also reimbursed for marketing and personnel costs incurred in raising capital on behalf of the CPA^® REITs, subject to certain limitations.

Impairment Charges – During 2006, impairment charges totaling $4,504 have been recorded (see Results of Operations below and Note 12 in the accompanying consolidated financial statements).

Acquisition /Disposition Activity – As discussed in the “Merger of CPA^®:12 and CPA^®:14” above, we acquired interests in 37 properties from CPA^®:12 for a total consideration of $126,006, including the assumption of $58,717 in third party limited-recourse debt. Of the 37 properties acquired from CPA^®:12, 23 are in France and the remainder are domestic properties. During 2006, we also

completed, together with an affiliate, a domestic investment for $10,530, which reflects our proportionate share of cost under the equity method of accounting, as we do not have a controlling interest. In connection with this equity investment in real estate, we obtained limited recourse mortgage financing of $7,200, which is our proportionate share of the financing, with a fixed annual interest rate and term of 5.87% and 10 years, respectively.

During 2006, we sold five domestic properties for combined proceeds of $32,038, net of selling costs, and recognized a net gain of $3,452 exclusive of impairment charges previously recorded totaling $22,010. In May 2006, we sold our interest of approximately 780,000 shares of Meristar Hospitality Corp. for $10.45 per share, at which time we received $8,154 and recorded a realized gain of $4,800. In prior years, we recognized other than temporary impairment charges totaling $11,345 against this investment.

Self-Storage Investments – In November 2006, we formed a subsidiary (“Carey Storage”), for the purpose of investing in self-storage real estate properties and their related businesses within the United States. In December 2006, we contributed $5,012 in cash for equity interests in Carey Storage and loaned Carey Storage $5,900. Carey Storage used a portion of the proceeds from our contribution and loan along with borrowings totaling $15,501 under its $105,000 credit facility to acquire six domestic self-storage properties totaling $24,800. The borrowings have an annual fixed interest rate and term of 7.6% and 2 years, respectively. We have acquired, and expect to continue to acquire, additional self-storage properties during 2007. We are evaluating raising third party capital in connection with these investments. See Real Estate Operations below and Subsequent Events in Item 7 for further discussion of our self-storage investments.

Financing Activity – During 2006, a joint venture in which we and an affiliate each hold a 50% interest paid a $20,599 balloon payment that was due on a domestic property, and refinanced the property for $30,000. The new limited recourse mortgage financing has an annual fixed interest rate of 6.18% and a 10-year term. As a result of adopting the provisions of EITF 04-05 effective January 1, 2006, we now consolidate this investment. Also during 2006, we obtained limited recourse mortgage financing at an existing property of $6,000 with an annual fixed interest rate and term of 5.5% and 10 years, respectively.

Share Repurchase Program – In December 2005, the board of directors approved a $20,000 share repurchase program. Under this program, we could repurchase up to $20,000 of our common stock in the open market during the twelve-month period beginning December 16, 2005 as conditions warranted. During the term of this program, which ended December 15, 2006, we repurchased and retired 166,800 shares totaling $4,138.

SEC Investigation – As previously reported, we and Carey Financial, our wholly-owned broker-dealer subsidiary, are currently 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, we expect that the SEC may pursue an action in the future. The potential timing of any action and the nature of the relief or remedies the SEC may seek cannot be predicted at this time. If an action is brought, it could materially affect us and the REITs we manage. See Item 3-Legal Proceedings for a discussion of this investigation.

Directors – The following changes in our board of directors occurred during 2006:

Refer to Note 16 in the accompanying consolidated financial statements for financial information about segments.

Our objective is to increase shareholder value and earnings through expansion of our management services operations and prudent management of our owned real estate assets. We will continue to own real estate properties as long as we believe ownership helps us attain our objectives.

We have two primary business segments, management services and real estate operations. These segments are each described below.

We earn revenue as the advisor to the CPA^® REITs, each of which we formed and initially offered to the public. Under the advisory agreements with the CPA^® REITs, we perform various services, including but not limited to the day-to-day management of the CPA^®REITs and transaction-related services.

Because of limitations on the amount of non-real estate related income that may be earned by a limited liability company that is taxed as a publicly traded partnership, our management services operations are currently conducted largely by taxable corporate subsidiaries.

We are currently exploring alternatives for expanding our management services operations beyond advising the CPA^® REITs, such as our recent investments in self-storage real estate properties, but no decisions have been made as to whether or how such an expansion may be effected. Any such expansion could involve the purchase of properties or other investments as a principal, with the intention of transferring such investments to a newly created fund.

Generally, we earn asset management revenues totaling 1% per annum of average invested assets for each CPA^® REIT, of which 1/2 of 1% (“performance revenue”) is contingent upon specific performance criteria for each CPA^® REIT (generally, the payment of a specified cumulative distribution return to shareholders). We seek to increase our base asset management and performance revenue by increasing assets under management, both as the CPA^® REITs make new investments and from organizing new investment entities. Such revenue may also increase, or decrease, based on changes in the value of the assets of the individual CPA^® REITs. Asset valuations are performed annually by a third party, beginning for each CPA^® REIT generally three years after completion of its public offering. Assets under management, and the resultant revenue earned by us, may also decrease if investments are disposed of, either individually or in connection with the liquidation of a CPA^® REIT. Effective in 2005, the advisory agreements were amended to allow us to elect to receive restricted stock for any revenue due from a CPA^® REIT. For 2006, we elected to receive all performance revenue, as well as the base asset management revenue from CPA^®:16 – Global, in restricted shares.

In connection with structuring and negotiating investments and related mortgage financing for the CPA^® REITs, the advisory agreements provide for acquisition revenue based on the cost of investments. Under each of the advisory agreements, we may charge acquisition revenue of up to an average of 4.5% of the total cost of all investments made by each CPA^® REIT. A portion of this revenue (generally 2.5%) is paid when the transaction is completed while the remainder (generally 2%) is payable in equal annual installments ranging from three to eight years, subject to the relevant CPA^® REIT meeting its performance criterion. Unpaid installments bear interest at annual rates ranging from 5% to 6%. The amount of this revenue is primarily dependent on the volume of new investments, which is affected by numerous factors, including general economic, market and competitive conditions, and may be subject to considerable fluctuation from period to period. In addition, we may be entitled to loan refinancing revenue of up to 1% of the principal amount refinanced. This loan refinancing revenue, together with the acquisition revenue, is referred to as structuring revenue.

We may also earn revenue related to the disposition of properties, subject to subordination provisions, which will only be recognized as the relevant conditions are met. Such revenue may include subordinated disposition revenue of no more than 3% of the value of any assets sold, payable only after shareholders have received back their initial investment plus a specified preferred return, and subordinated incentive revenue of 15% of the net cash proceeds distributable to shareholders from the disposition of properties, after recoupment by shareholders of their initial investment plus a specified preferred return. We may also, in connection with the termination of the advisory agreement, be entitled to a termination payment based on the amount by which the fair value of a CPA^® REIT’s properties, less indebtedness, exceeds investors’ capital plus a specified preferred return. We will not receive a termination payment in circumstances where we receive subordinated incentive revenue. In current and past years we have earned substantial

disposition and incentive or termination revenue in connection with providing liquidity to CPA^® REIT shareholders. In general, we begin evaluating liquidity alternatives for CPA^® REIT shareholders about eight years after a CPA^® REIT has substantially invested the net proceeds received in its public offering. These liquidity alternatives may include listing the CPA^® REIT’s shares on a national securities exchange or including them for quotation on Nasdaq, selling the assets of the CPA^® REIT or merging the affected CPA^® REIT with another entity, which could include another CPA^® REIT. However, the timing of liquidity events depends on market conditions and may also depend on other factors, including approval of the proposed course of action by the independent directors, and in some instances the shareholders, of the affected CPA^® REIT, and may occur well after the eighth anniversary of the completion of an offering. Because of these factors, CPA^® REIT liquidity events have not typically taken place every year. In consequence, given the relatively substantial amounts of disposition revenue, as compared with the ongoing revenue earned from asset management and structuring investments, income from this business segment may be significantly higher in those years where a liquidity event takes place. There can be no assurances that a CPA^® REIT liquidity event will occur in the future.

We are also reimbursed by our affiliates for certain costs, primarily broker-dealer commissions paid on behalf of the CPA^® REITs and marketing and personnel costs. Marketing and personnel costs are apportioned based on the assets of each entity. These reimbursements may be substantial; for 2006, we received reimbursements of $63,630 from our affiliates, $53,716 of which related to CPA^®:16 – Global’s second public offering. These reimbursements, together with asset management revenue payable by a specific CPA^® REIT, may be subject to deferral or reduction if they exceed a specified percentage of that CPA^® REIT’s income or invested assets.

We invest in commercial properties that are leased to companies domestically and internationally, primarily on a single-tenant, triple-net leased basis. While our acquisition of new properties is constrained by our obligation to provide a continuing and suitable investment program to the CPA^® REITs, we seek to maximize the value of our existing portfolio through prudent management of our real estate assets, which may involve follow-on transactions, dispositions and favorable lease modifications, as well as refinancing of existing debt. In connection with providing liquidity alternatives to CPA^® REIT shareholders, we may acquire additional properties from the liquidating CPA^® REIT, as we have done during 2006 and 2004. See Our Portfolio section below for an analysis of our portfolio as of December 31, 2006.

The Investment Strategies, Financing Strategies, Asset Management, Competition and Environmental Matters sections described below pertain to both our Management Services and Real Estate Operations.

As discussed above, our property acquisitions in recent years have generally been made on behalf of the CPA^® REITs. The following description of our investment process applies to investments we make on behalf of the CPA^® REITs. In general, we would expect to follow a similar process in connection with any investments in triple-net leased, single-tenant commercial properties we may make directly, but we are not required to do so.

In analyzing potential investments, we review all aspects of a transaction, including tenant and real estate fundamentals, to determine whether a potential investment and lease can be structured to satisfy the CPA^® REITs’ investment criteria. We generally consider, among other things, the following aspects of each transaction:

Tenant/Borrower Evaluation – We evaluate each potential tenant or borrower for its creditworthiness, typically considering factors such as management experience; industry position and fundamentals; operating history; and capital structure, as well as other factors that may be relevant to a particular investment. In evaluating a possible investment, the creditworthiness of a tenant or borrower often will be a more significant factor than the value of the underlying real estate, particularly if the underlying property is specifically suited to the needs of the tenant; however, in certain circumstances where the real estate is attractively valued, the creditworthiness of the tenant may be a secondary consideration. Whether a prospective tenant or borrower is creditworthy will be determined by us or the investment committee. Creditworthy does not mean “investment grade.”

Properties Important to Tenant/Borrower Operations – We generally will focus on properties that we believe are essential or important to the ongoing operations of the tenant. We believe that these properties provide better protection in the event of a bankruptcy, since a tenant/borrower is less likely to risk the loss of a mission critical lease or property in a bankruptcy proceeding.

Diversification – We attempt to diversify the CPA^® REIT portfolios to avoid dependence on any one particular tenant, borrower, collateral type, geographic location or tenant/borrower industry. By diversifying these portfolios, we reduce the adverse effect of a single under-performing investment or a downturn in any particular industry or geographic region.

Lease Terms – Generally, the net leased properties in which the CPA^® REITs and we invest will be leased on a full recourse basis to the tenants or their affiliates. In addition, we will seek to include a clause in each lease that provides for increases in rent over the term of the lease. These increases are fixed or tied generally to increases in indices such as the Consumer Price Index (“CPI”). In the case of retail stores and hotels, the lease may provide for participation in gross revenues above a stated level. Alternatively, a lease may provide for mandated rental increases on specific dates, and we may adopt other methods in the future.

Collateral Evaluation – We review the physical condition of the property, and conduct a market evaluation to determine the likelihood of replacing the rental stream if the tenant defaults, or of a sale of the property in such circumstances. We also generally will conduct, or require the seller to conduct, Phase I or similar environmental site assessments (including a visual inspection for the potential presence of asbestos) in an attempt to identify potential environmental liabilities associated with a property prior to its acquisition. If potential environmental liabilities are identified, we generally require that identified environmental issues be resolved by the seller prior to property acquisition or, where such issues cannot be resolved prior to acquisition, require tenants contractually to assume responsibility for resolving identified environmental issues post-closing and indemnify us against any potential claims, losses or expenses arising from such matters. Although we generally rely on our own analysis in determining whether to make an investment on behalf of the CPA^® REITs, each real property purchased by them will be appraised by a third party appraiser that is independent of ourselves, prior to acquisition. The contractual purchase price (plus acquisition fees for properties acquired on behalf of the CPA^® REITs) for a real property we acquire on behalf of a CPA^® REIT will not exceed its appraised value. The appraisals may take into consideration, among other things, the terms and conditions of the particular leaste transaction, the quality of the lessee’s credit and the conditions of the credit markets at the time the lease transaction is negotiated. The appraised value may be greater than the construction cost or the replacement cost of a property, and the actual sale price of a property if sold may be greater or less than the appraised value. In cases of special purpose real estate, a property is examined in light of the prospects for the tenant/borrower’s enterprise and the financial strength and the role of that asset in the context of the tenant’s overall viability. Operating results of properties and other collateral may be examined to determine whether or not projected income levels are likely to be met. We will also consider factors particular to the laws of foreign countries, in addition to the risks normally associated with real property investments, when considering an investment located outside the United States.

Transaction Provisions that Enhance and Protect Value – We will attempt to include provisions in the leases that require our consent to specified activity, require the tenant to provide indemnification protections, or require the tenant to satisfy specific operating tests. These provisions may help protect an investment from changes in the operating and financial characteristics of a tenant that may affect its ability to satisfy its obligations to the CPA^® REIT or reduce the value of the investment. We may also seek to enhance the likelihood of a tenant’s lease obligations being satisfied through a guaranty of obligations from the tenant’s corporate parent or a letter of credit. This credit enhancement, if obtained, provides additional financial security. However, in markets where competition for net lease transactions is strong, some or all of these provisions may be difficult to negotiate. In addition, in some circumstances, tenants may require a right to purchase the property leased by the tenant. The option purchase price is generally the greater of the contract purchase price and the fair market value of the property at the time the option is exercised.

Other Equity Enhancements – We may attempt to obtain equity enhancements in connection with transactions. These equity enhancements may involve warrants exercisable at a future time to purchase stock of the tenant or borrower or their parent. If warrants are obtained, and become exercisable, and if the value of the stock subsequently exceeds the exercise price of the warrant, equity enhancements can help achieve the goal of increasing investor returns.

Investment Committee – We have an investment committee that provides services to the CPA^® REITs and may provide services to us. Under our current arrangements with the CPA^® REITs, as a transaction is structured, it is evaluated by the chairman of the investment committee and our chief investment officer with respect to the potential tenant’s creditworthiness, business prospects, position within its industry and other characteristics important to the long-term value of the property and the capability of the tenant to meet its lease obligations. Before a property is acquired by a CPA^® REIT, the transaction is reviewed by the investment committee to ensure that it satisfies the relevant CPA^® REIT’s investment criteria. The investment committee is not directly involved in originating or negotiating potential investments, but instead functions as a separate and final step in the investment process. We place special emphasis on having experienced individuals serve on our investment committee and generally do not invest in a transaction on behalf of the CPA^®REITs unless the investment committee approves it. In addition, the investment committee may at the request of our board of directors or executive committee also review any initial investment in which we propose to engage directly, although it is not required to do so. Our board of directors or executive committee may also determine that certain investments that may not meet the CPA^® REITs’ investment criteria (particularly transactions in emerging markets) may be acceptable to us. For transactions that meet the investment criteria of more than one CPA^® REIT, the chief investment officer has discretion as to which CPA^® REIT or REITs will hold the investment. In cases where two or more CPA^® REITs (or one or more CPA^® REITs and us) will hold the investment, the independent directors of each CPA^® REIT investing in the property must also approve the transaction.

The following people currently serve on the investment committee:

We are required to use our best efforts to present a continuing and suitable investment program to the CPA^® REITs but we are not required to present to the CPA^® REITs any particular investment opportunity, even if it is of a character which, if presented, could be taken by one or more of the CPA^® REITs.

In November 2006, we formed a subsidiary (“Carey Storage”), for the purpose of investing in self-storage real estate properties and their related businesses within the United States. In December 2006, we contributed $5,012 in cash for equity interests in Carey Storage and loaned Carey Storage $5,900. Carey Storage used a portion of the proceeds from our contribution and loan along with borrowings totaling $15,501 under its $105,000 credit facility to acquire six domestic self-storage properties totaling $24,800. The borrowings have an annual fixed interest rate and term of 7.6% and 2 years, respectively. We have acquired, and expect to continue to acquire, additional self-storage properties during 2007. We are evaluating raising third party capital in connection with these investments. See Real Estate Operations below and Subsequent Events in Item 7 for further discussion of our self-storage investments.

Carey Storage has an investment committee that will evaluate and approve all new transactions. This committee is currently comprised of John Miller, our chief investment officer, and Reginald Winssinger, an independent director. Carey Storage’s results of operations are included in other real estate income and other real estate expenses in the accompanying consolidated financial statements. If we raise third party capital for Carey Storage, the results of operations of Carey Storage may be reclassified from our real estate operations to our management services operations. We expect that we would then seek to liquidate the self-storage investments as a whole within five to seven years thereafter.

In December 2006, we contributed $5,012 in cash for equity interests in Carey Storage and loaned Carey Storage $5,900. The loan to Carey Storage matures in 2 years and bears annual interest at the rate of the one-month LIBOR plus 2%. Carey Storage used a portion of the proceeds from our contribution and loan along with borrowings totaling $15,501 under its credit facility to acquire six domestic self-storage properties totaling $24,800.

In December 2006, Carey Storage entered into a credit facility for up to $105,000 with Morgan Stanley Mortgage Capital Inc. that matures in December 2008. The facility is collateralized by any self-storage real estate assets acquired. Advances from this facility bear interest at an annual rate of the one-month LIBOR, plus a spread that ranges from 1.75% to 2.35% depending on the aggregate debt yield for the collateralized asset pool. Advances can be prepaid at any time, however advances prepaid prior to March 8, 2008 are subject to a prepayment penalty of 1.25% of the principal amount of the loan being prepaid. This facility has financial covenants requiring Carey Storage, among other things, to meet or exceed certain operating and coverage ratios.

As of December 31, 2006, our portfolio consisted of 187 properties leased to 111 tenants, totaling approximately 18 million square feet (on a pro rata basis) and had an occupancy rate of 96%. Our portfolio has the following property and lease characteristics:

Information regarding the geographic diversification of our properties as of December 31, 2006 is set forth below:

Information regarding our property diversification as of December 31, 2006 is set forth below:

Information regarding our tenant diversification as of December 31, 2006 is set forth below:

As of December 31, 2006, lease expirations of our properties are as follows:

Consistent with our investment policies, we use leverage when available on favorable terms. In addition to obtaining limited recourse mortgage debt for new investments, we also have secured and unsecured credit facilities that can be used in connection with refinancing existing debt and making new investments, as well as to meet other working capital needs. Our secured and unsecured credit facilities are discussed in detail in the Cash Resources section of Item 7 – Management’s Discussion and Analysis of Financial Condition and Results of Operations.

Substantially all of our mortgages, as well as those of the CPA^® REITs, are limited recourse and bear interest at fixed rates. We may refinance properties or defease a loan when a decline in interest rates makes it profitable to prepay an existing mortgage, when an existing mortgage matures or if an attractive investment becomes available and the proceeds from the refinancing can be used to purchase such investment. The benefits of the refinancing may include an increased cash flow resulting from reduced debt service requirements, an increase in distributions from proceeds of the refinancing, if any, and/or an increase in property ownership if some refinancing proceeds are reinvested in real estate. The prepayment of loans may require us to pay a yield maintenance premium to the lender in order to pay off a loan prior to its maturity.

A lender on limited recourse mortgage debt generally has recourse only to the property collateralizing such debt and not to any of our other assets, while full recourse financing would give a lender recourse to all of our assets. The use of limited recourse debt, therefore, helps us to limit the exposure of all of our assets to any one debt obligation.

We believe that effective management of our assets is essential to maintain and enhance property values. Important aspects of asset management include restructuring transactions to meet the evolving needs of current tenants, re-leasing properties, refinancing debt, selling properties and knowledge of the bankruptcy process.

We monitor, on an ongoing basis, compliance by tenants with their lease obligations and other factors that could affect the financial performance of any of our properties. Monitoring involves receiving assurances that each tenant has paid real estate taxes, assessments

and other expenses relating to the properties it occupies and confirming that appropriate insurance coverage is being maintained by the tenant. We review financial statements of tenants and undertake regular physical inspections of the condition and maintenance of properties. Additionally, we periodically analyze each tenant’s financial condition, the industry in which each tenant operates and each tenant’s relative strength in its industry.

We operate in two operating segments, management services operations and real estate operations. The management services operations segment derives substantially all of its revenues from the affiliated CPA^® REITs. For the year ended December 31, 2006, no lessee represented more than 7% of our total lease revenues from our real estate operations.

In raising funds for investment by the CPA^® REITs, we face competition from other funds with similar investment objectives that seek to raise funds from investors through publicly registered, non-traded funds, publicly-traded funds, or private funds, such as hedge funds. In addition, we face broad competition from other forms of investment. Currently, we raise substantially all of our funds for investment in the CPA^® REITs within the United States; however, in the future we may seek to raise funds for investment from outside the United States.

We face intense competition for investment opportunities in commercial properties in general, and commercial properties net leased to major corporations in particular, from many sources, including insurance companies, credit companies, pension funds, private individuals, financial institutions, finance companies and investment companies. 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. We believe that our management’s experience in real estate, credit underwriting and transaction structuring should allow us to compete effectively for commercial properties. Nevertheless, such competition has increased markedly in recent years, not only in the United States but in Europe, and competitors may be willing to accept rates of return, lease terms, other transaction terms or levels of risk that we may find unacceptable. In addition, the investment committee’s evaluation of the acceptability of rates of return on behalf of the CPA^® REITs is affected by such factors as the cost of raising capital, the amount of revenue that the CPA^® REITs must pay us and the performance hurdle rates of the relevant CPA^® REITs.

We and the CPA^® REITS have invested, and expect to continue to invest, in properties currently or historically used for industrial, manufacturing and commercial properties. Under various federal, state and local environmental laws and regulations, current and former owners and operators of property may have liability for the cost of investigating, cleaning-up or disposing of hazardous materials released at, on, under, in or from the property. These laws typically impose responsibility and liability without regard to whether the owner or operator knew of or was responsible for the presence of hazardous materials or contamination, and liability under these laws is often joint and several. Third parties may also make claims against owners or operators of properties for personal injuries and property damage associated with releases of hazardous materials.

While we typically perform assessments of potential environmental risks when evaluating a new acquisition of property, no assurance can be given that we have performed such assessments on all of our or the CPA^® REITs’ properties, or that the environmental assessments we do perform will disclose all potential environmental liabilities. We or the CPA^® REITs may purchase a property that contains hazardous materials in the building, or that is known to have or be near soil or groundwater contamination. In addition, new environmental conditions, liabilities or compliance concerns may arise or be discovered during our or the CPA^® REITs’ ownership.

While we frequently obtain contractual protection (indemnities, cash reserves, letters of credit or other instruments) from property sellers, tenants, a tenant’s parent company or another third party to address these known or potential issues, we cannot eliminate our or the CPA^® REITs’ statutory liability or the potential for claims against us or the CPA^® REITs by governmental authorities or other third parties, the contractual protection may not cover all potential damages or liabilities, and the indemnifying party may fail to meet its contractual obligations. In addition, the existence of any environmental conditions, liabilities or compliance concerns at or near our or the CPA^® REITs’ properties could adversely affect our or the CPA^® REITs’ ability to rent or sell property or to borrow using the property as collateral and could also adversely affect the tenant’s ability to make rental payments.

As a result of all of the foregoing, we have incurred in the past and will incur in the future costs and liabilities to investigate environmental matters and to address environmental conditions, liabilities and compliance concerns. Although we do not currently anticipate incurring any material liabilities in connection with environmental matters, we cannot assure you that future environmental costs and liabilities will not be material or will not adversely affect our business.

See Note 16 of the accompanying consolidated financial statements for financial data pertaining to our segment and geographic operations.

All filings we make with the SEC, including our annual report on Form 10-K, our quarterly reports on Form 10-Q and our current reports on Form 8-K, and any amendments to those reports, are available for free on our website, http://www.wpcarey.com as soon as reasonably practicable after they are filed or furnished to the SEC. Our SEC filings are available to be read or copied at the SEC’s Public Reference Room at 100 F Street, N.E., Washington, D.C. 20549. Information regarding the operation of the Public Reference Room can be obtained by calling the SEC at 1-800-SEC-0330. Our filings can also be obtained for free on the SEC’s Internet site at http://www.sec.gov. We are providing our website address solely for the information of investors. We do not intend our website to be an active link or to otherwise incorporate the information contained on our website into this report or other filings with the SEC.

Future results may be affected by risks and uncertainties including the following:

We and Carey Financial, our wholly-owned broker-dealer subsidiary, are currently 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, we expect that the SEC may pursue an action 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 an action is brought, it could materially affect us. See Item 3 – Legal Proceedings for a discussion of this investigation.

The agreements under which we provide investment advisory services may generally be terminated by each CPA^® REIT upon 60 days’ notice, with or without cause. There can be no assurance that these agreements will not be terminated. A termination without cause may, however, entitle us to termination revenue, equal to 15% of the amount by which the net fair value of the relevant CPA^® REIT’s assets exceeds the remaining amount necessary to provide investors with total distributions equal to their investment plus a preferred return. Nonetheless, any such termination could have a material adverse effect on our business, results of operations and financial condition.

Substantially all of our and the CPA^® REITs’ current investments, as well as the majority of the investments we expect to originate for the CPA^® REITs in 2007, are investments in single-tenant commercial properties that are subject to triple-net leases. In addition, we have relied predominantly on raising funds from individual investors through the sale by participating selected dealers to their customers of publicly-registered, non-traded securities of the CPA^® REITs. Our recent fund raising efforts have been through one major selected dealer. Certain payments made to this selected dealer in connection with the distribution of our CPA^® REIT offerings to investors are a subject of the SEC investigation described under Item 3-Legal Proceedings. If, as a result of changes in market receptivity to investments that are not readily liquid and involve high selected dealer fees, or for other reasons, this capital raising method were to become less available as a source of capital, our ability to raise funds for CPA^® REIT programs, and consequently our ability to make investments on their behalf, could be adversely affected. While we are not limited to this particular method of raising funds for investment (and, among other things, the CPA^® REITs may themselves be able to borrow additional funds to invest), our experience with other means of raising capital is limited. Also, many factors, including changes in tax laws or accounting rules, may make these types of investments less attractive to potential sellers and lessees, which could negatively affect our ability to increase the amount of assets of this type under management.

Growth in revenue from our management services operations is dependent in large part on future capital raising in existing or future managed entities, as well as on our ability to make investments that meet the investment criteria of these entities, both of which are subject to uncertainty, including with respect to capital market and real estate market conditions. This uncertainty creates more volatility in our earnings because of the resulting increased volatility in transaction based revenue from our management services operations as compared to revenue from ownership of real estate subject to triple-net leases, which historically has been less volatile. Asset management revenue may be affected by factors that include not only our ability to increase the CPA^® REITs’ portfolio of properties under management, but also changes in valuation of those properties, as well as sales (through planned liquidation or

otherwise) of CPA^® REIT properties. In addition, revenue from our management services operations, including our ability to earn performance revenue, as well as the value of our holdings of CPA^® REIT interests and dividend income from those interests, may be significantly affected by the results of operations of the CPA^® REITs. Each of the CPA^®REITs has invested substantially all of its assets (other than short-term investments) in triple-net leased properties substantially similar to those we hold, and consequently the results of operations of, and cash available for distribution by, each of the CPA^® REITs, is likely to be substantially affected by the same market conditions, and subject to the same risk factors, as the properties we own. Four of the prior thirteen CPA^® funds temporarily reduced the rate of distributions to their investors as a result of adverse developments involving tenants. Each of the CPA^® REITs we currently advise and manage may also incur significant debt. This significant debt load could restrict their ability to pay revenue owed to us when due, due to either liquidity problems or restrictive covenants contained in their borrowing agreements. In addition, the revenue payable under each of our current investment advisory agreements is subject to a variable annual cap based on a formula tied to the assets and income of that CPA^® REIT. This cap may limit the growth of our management revenue. Furthermore, our ability to earn revenue related to the disposition of properties is primarily tied to providing liquidity events for CPA^® REIT investors. Our ability to provide that liquidity, and to do so under circumstances that will satisfy the applicable subordination requirements, will depend on market conditions at the relevant time, which may vary considerably over a period of years. In any case, liquidity events typically occur several years apart, and our management services operations income is likely to be significantly higher in those years in which such events occur.

In raising funds for investment by the CPA^® REITs, we face competition from other funds with similar investment objectives that seek to raise funds from investors through publicly registered, non-traded funds, publicly-traded funds, or private funds. Any change in the attractiveness to investors of an investment in the type of property principally held by the CPA^® REITs, relative to other types of investments, could adversely affect our ability to raise funds for future investments, which in turn could ultimately reduce, or limit the growth of, revenues from our management services operations.

We also face competition for the acquisition of office and industrial properties in general, and such properties net leased to major corporations in particular, from many sources, including insurance companies, credit companies, pension funds, private individuals, financial institutions, finance companies and investment companies. 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. These institutions may accept greater risk or lower returns, allowing them to offer more attractive terms to prospective tenants. In addition, our evaluation of the acceptability of rates of return on behalf of the CPA^® REITs is affected by such factors as the cost of raising capital, the amount of revenue we can earn and the performance hurdle rates of the relevant CPA^® REITs. Thus, the effect of the cost of raising capital and the revenue we can earn may be to limit the amount of new investments we make on behalf of the CPA^® REITs, which will in turn limit the growth of revenues from our management services operations.

Most of our properties are occupied by a single tenant and, therefore, the success of our investments is materially dependent on the financial stability of these tenants. Lease payment defaults by tenants negatively impact our net income and reduce the amounts available for distributions to shareholders. As our tenants generally may not have a recognized credit rating, they may have a higher risk of lease defaults than if our tenants had a recognized credit rating. In addition, the bankruptcy of a tenant could cause the loss of lease payments as well as an increase in the costs incurred to carry the property. We have had tenants file for bankruptcy protection and are involved in bankruptcy-related litigation. In the event of a default, we may experience delays in enforcing our rights as landlord and may incur substantial costs in protecting the investment and re-leasing the property. If a lease is terminated, there is no assurance that we will be able to re-lease the property for the rent previously received or sell the property without incurring a loss.

Revenues from several of our tenants and/or their guarantors constitute a significant percentage of our lease revenues. Our five largest tenants/guarantors represented approximately 29% of total lease revenues in 2006, 28% in 2005 and 30% in 2004. The default, financial distress or bankruptcy of any of these tenants could cause interruptions in the receipt of lease revenues from these tenants and/or result in vacancies in the respective properties, which would reduce our revenues at least until the affected property is re-leased, and could decrease the ultimate sale value of each such property.

Within the next five years, approximately 55% of our leases are due to expire. If these leases are not renewed, or if the properties cannot be re-leased on terms that yield payments comparable to those currently being received, then our lease revenues could be substantially adversely affected. The terms of any new or renewed leases of these properties may depend on market conditions prevailing at the time of lease expiration. In addition, if properties are vacated by the current tenants, we may incur substantial costs in attempting to re-lease such properties. We may also seek to sell these properties, in which event we may incur losses, depending upon market conditions prevailing at the time of sale.

In some circumstances, we grant tenants a right to purchase the property they lease. The purchase price may be a fixed price or it may be based on a formula. If a tenant exercises its right to purchase the property and the property’s market value has increased beyond that price, we would be limited in fully realizing the appreciation on that property. Additionally, if the price at which the tenant can purchase the property is less than our purchase price or carrying value (for example, where the purchase price is based on an appraised value), we may incur a loss.

Historically, we have incurred substantial impairment charges, which we are required to recognize whenever we sell a property for less than its carrying value, or we determine that the property has experienced an other-than-temporary decline in its carrying value (or, for direct financing leases, that the unguaranteed residual value of the underlying property has declined). For properties acquired in our 1998 consolidation with nine CPA^® limited partnerships, their carrying value may reflect their appraised value at that time, rather than their original cost of acquisition by the CPA^® limited partnership. By their nature, the timing or extent of impairment charges are not predictable. We may incur impairment charges in the future, which may reduce our net income, although it will not necessarily affect our cash flow from operations.

We are subject to foreign currency risk due to potential fluctuations in exchange rates between foreign currencies and the U.S. dollar. We attempt to mitigate a portion of the risk of currency fluctuation by financing our properties in the local currencies. Changes in the relation of any such foreign currency to U.S. dollars may affect our revenues, operating margins and distributions and may also affect the book value of our assets and the amount of shareholders’ equity. Although we have not done so to date, we anticipate that in the future we may engage in direct hedging activities to mitigate the risks of exchange rate fluctuations.

We have invested in and may continue to invest in properties located outside the United States. These investments may be affected by factors particular to the laws of the jurisdiction in which the property is located. These laws may expose us to risks that are different from and in addition to those commonly found in the United States, including:

In addition, the lack of available information in accordance with accounting principles generally accepted in the United States of America could impair our ability to analyze transactions and may cause us to forego an investment opportunity. It may also impair our ability to receive timely and accurate financial information from tenants necessary to meet our reporting obligations to financial institutions or governmental or regulatory agencies.

Real estate investments are relatively illiquid compared to most financial assets and this illiquidity will limit our ability to quickly change our portfolio in response to changes in economic or other conditions. The net leases we may enter into or acquire may be for properties that are specially suited to the particular needs of the tenant. With these properties, if the current lease is terminated or not renewed, we may be required to renovate the property or to make rent concessions in order to lease the property to another tenant. In addition, if we are forced to sell the property, it may be difficult to sell to a party other than the tenant due to the special purpose for which the property may have been designed. These and other limitations, such as a property’s location and/or local economic conditions, may affect our ability to re-lease or sell properties without adversely affecting returns to shareholders. See “Our Portfolio” section above for scheduled lease expirations.

We participate in joint ventures and invest in properties jointly with other entities, some of which may be unaffiliated with us. There are additional risks involved in these types of transactions. These risks include the potential of our joint venture partner becoming bankrupt and the possibility of diverging or inconsistent economic or business interests of our partner and us. These diverging interests could result in, among other things, exposing us to liabilities of the joint venture in excess of our proportionate share of these liabilities. The partition rights of each owner in a jointly owned property could reduce the value of each portion of the divided property. In addition, the fiduciary obligation that we may owe to our partner in an affiliated transaction may make it more difficult for us to enforce our rights.

The tenants or managers of net lease properties are responsible for maintenance and other day-to-day management of the properties. If a property is not adequately maintained in accordance with the terms of the applicable lease, we may incur expenses for deferred maintenance expenditures or other liabilities once the property becomes free of the lease. While our leases generally provide for recourse against the tenant in these instances, a bankrupt or financially troubled tenant may be more likely to defer maintenance and it may be more difficult to enforce remedies against such a tenant. In addition, to the extent tenants are unable to conduct their operation of the property on a financially successful basis, their ability to pay rent may be adversely affected. Although we endeavor to monitor, on an ongoing basis, compliance by tenants with their lease obligations and other factors that could affect the financial performance of our properties, such monitoring may not in all circumstances ascertain or forestall deterioration either in the condition of a property or the financial circumstances of a tenant.

We own commercial properties and are subject to the risk of liabilities under federal, state and local environmental laws. These responsibilities and liabilities also exist for properties owned by the CPA^® REITs and if they become liable for these costs, their ability to pay for our services could be materially affected. Some of these laws could impose the following on us:

Our costs of investigation, remediation or removal of hazardous or toxic substances, or for third-party claims for damages, may be substantial. The presence of hazardous or toxic substances at any of our properties, or the failure to properly remediate a contaminated property, could give rise to a lien in favor of the government for costs it may incur to address the contamination, or otherwise adversely affect our ability to sell or lease the property or to borrow using the property as collateral. While we will attempt to mitigate identified environmental risks by contractually requiring tenants to acknowledge their responsibility for complying with environmental laws and to assume liability for environmental matters, circumstances may arise in which a tenant fails, or is unable, to fulfill its contractual obligations. In addition, environmental liabilities, or costs or operating limitations imposed on a tenant to comply with environmental laws, could affect its ability to make rental payments to us. Also, and although we endeavor to avoid doing so, we may be required, in connection with any future divestitures of property, to provide buyers with indemnification against potential environmental liabilities.

Most of our investments are made by borrowing a portion of the total investment and securing the loan with a mortgage on the property. If we are unable to make our debt payments as required, a lender could foreclose on the property or properties securing its debt. This could cause us to lose part or all of our investment which in turn could cause the value of our portfolio, and revenues available for distribution to our shareholders to be reduced. We generally borrow on a limited recourse basis to limit our exposure on any property to the amount of equity invested in the property. There is no limitation on the amount which we can borrow on a single property.

Some of our financing may also require us to make a lump-sum or “balloon” payment at maturity. Our ability to make balloon payments on debt will depend upon our ability either to refinance the obligation when due, invest additional equity in the property or to sell the related property. When the balloon payment is due, we may be unable to refinance the balloon payment on terms as favorable as the original loan or sell the property at a price sufficient to make the balloon payment. Our ability to accomplish these goals will be affected by various factors existing at the relevant time, such as the state of the national and regional economies, local real estate conditions, available mortgage rates, our equity in the mortgaged properties, our financial condition, the operating history

of the mortgaged properties and tax laws. A refinancing or sale could affect the rate of return to shareholders. Scheduled balloon payments for the next five years are as follows:

A significant element of our business strategy is the enhancement of our portfolio and the CPA^® REIT portfolios through new investments. The consummation of any future investment will be subject to satisfactory completion of our analysis and due diligence review and to the negotiation of definitive documentation. There can be no assurance that we or the CPA^®REITs will be able to identify and invest in additional properties or will be able to finance investments in the future. In addition, there can be no assurance that any such investment, if consummated, will be profitable for us or the CPA^® REITs. If we are unable to consummate new investments in the future on our own behalf or that of the CPA^® REITs, there can be no assurance that we will be able to maintain the cash available for distribution to our shareholders, either through net income on investments we own or through net income generated by our management services operations.

Under our investment advisory agreements with the CPA^® REITs, we are required to use our best efforts to present a continuing and suitable investment program to them. In recent years, new property investment opportunities have generally been made available by us to the CPA^®REITs. While the allocation of new investments to the CPA^® REITs fulfills our duty to present a continuing and suitable investment program, and enhances the revenues from our management services operations, it also restricts the potential growth of revenues from our real estate operations.

There are certain types of losses (such as due to wars or some natural disasters) that generally are not insured because they are either uninsurable or not economically insurable. Should an uninsured loss or a loss in excess of the limits of our insurance occur, we could lose capital invested in a property, as well as the anticipated future revenues from a property, while remaining obligated for any mortgage indebtedness or other financial obligations related to the property. Any such loss would adversely affect our financial condition.

The trading prices of equity securities issued by real estate companies have historically been affected by changes in broader market interest rates, with increases in interest rates resulting in decreases in trading prices, and decreases in interest rates resulting in increases in trading prices. An increase in market interest rates could therefore adversely affect the trading prices of any equity securities we issued. The stock price could also be affected by factors other than changes in interest rates, including the risk factors discussed herein.

Under Statement of Financial Accounting Standard No. 13, “Accounting for Leases”, a lease is classified by a tenant as a capital lease if the significant risks and rewards of ownership are considered to reside with the tenant. This situation is considered to be met if, among other things, the non-cancellable lease term is more than 75% of the useful life of the asset or if the present value of the minimum lease payments equals 90% or more of the leased property’s fair value. Under capital lease accounting for a tenant, both the leased asset and liability are reflected on their balance sheet. If the lease does not meet any of the criteria for a capital lease, the lease is considered an operating lease by the tenant, and the obligation does not appear on the tenant’s balance sheet; rather the contractual future minimum payment obligations are only disclosed in the footnotes thereto. Thus, entering into an operating lease can appear to

enhance a tenant’s balance sheet in comparison to direct ownership. In 2005, the SEC conducted a study of off-balance-sheet financing which, among other areas, included lease accounting. This study raised concerns that the current accounting model does not clearly portray the resources and obligations arising from long term lease transactions with sufficient transparency. In July 2006, the Financial Accounting Standards Board and the International Accounting Standards Board announced a joint project to re-evaluate lease accounting. Changes to the accounting guidance could affect both our accounting for leases as well as that of our current and potential customers. These changes may affect how the real estate leasing business is conducted both domestically and internationally. For example, if the accounting standards regarding the financial statement classification of operating leases are revised, then companies may be less willing to enter into leases in general or desire to enter into leases with shorter terms because the apparent benefits to their balance sheets could be reduced or eliminated. This in turn could make it more difficult for us to enter leases on terms we find favorable.

We are subject to all of the general risks associated with the ownership of real estate. While the revenues from our leases and those of the CPA^® REITs are not directly dependent upon the value of the real estate owned, significant declines in real estate values could adversely affect us in many ways, including a decline in the residual values of properties at lease expiration; possible lease abandonments by tenants; a decline in the attractiveness of REIT investments that may impede our ability to raise new funds for investment by CPA^® REITs and a decline in the attractiveness of triple-net lease transactions to potential sellers. We also face the risk that lease revenue will be insufficient to cover all corporate operating expenses and debt service payments on indebtedness we incur. General risks associated with the ownership of real estate include:

We depend on the efforts of our executive officers and key employees. The loss of the services of these executive officers and key employees could have a material adverse effect on our operations.

William P. Carey, Chairman, is the beneficial owner of approximately 26% of our outstanding shares. The provisions of our Amended and Restated Limited Liability Company Agreement and the share ownership of Mr. Carey may discourage a tender offer for our shares or a hostile takeover, even though these may be attractive to shareholders.

Our business, results of operations, financial condition or our ability to pay distributions at the current rate could be materially adversely affected by the above conditions. The risk factors may have affected, and in the future could affect, our actual operating and financial results and could cause such results to differ materially from those in any forward-looking statements. You should not consider this list exhaustive. New risk factors emerge periodically, and we cannot completely assure you that the factors described above list all material risks to us at any specific point in time. We have disclosed many of the important risk factors discussed above in our previous filings with the SEC.

None.

Our principal offices are located at 50 Rockefeller Plaza, New York, NY 10020. The lease for our primary corporate office space expires in 2016. We believe that this lease is suitable for our operations for the foreseeable future. We also maintain regional offices in Dallas, Texas and London, England.

See Item 1 “Our Portfolio” for a discussion of the properties we hold for rental operations and Item 8 “Schedule III – Real Estate and Accumulated Depreciation” for a detailed listing of such properties.

In March 2004, following a broker-dealer examination of Carey Financial, our 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 violation 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 us, 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. We cannot predict the potential effect such a rescission offer or SEC action may ultimately have on the operations of Carey Financial or us. 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 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 reimbursed 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 us, as well as the disclosure of such arrangements. At that time we and Carey Financial received a subpoena from the Enforcement Staff seeking documents relating to payments by us, Carey Financial, and REITs managed by us to (or requests for payment received from) any broker-dealer, excluding selling commissions and selected dealer fees. We 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 us, Carey Financial or any REIT managed by us in connection with the distribution of our managed REITs or the retention 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 compensation in connection with the REIT offerings under applicable NASD rules.

In response to the Enforcement Staff’s subpoenas and requests, we and Carey Financial have produced documents relating to payments made to certain broker-dealers both during and after the offering process, for certain of the REITs managed by us (including CPA^®:10, CIP^®, CPA^®:12, CPA^®:14 and CPA^®:15), in addition to selling commissions and selected dealer fees.

Among the payments reflected on documents produced to the Staff were certain payments, aggregating in excess of $9,600, made to a broker-dealer which distributed shares of the REITs. The expenses associated with these payments, which were made during the period from early 2000 through the end of 2003, were borne by and accounted for on the books and records of the REITs. Of these payments, CPA^®:10 paid in excess of $40; CIP^® paid in excess of $875; CPA^®:12 paid in excess of $2,455; CPA^®:14 paid in excess of $4,990; and CPA^®:15 paid in excess of $1,240. In addition, other smaller payments by the REITs to the same and other broker-dealers have been identified aggregating less than $1,000.

We and Carey Financial are cooperating fully with this investigation and have provided information to the Enforcement Staff in response to the subpoenas and requests. Although no formal regulatory action has been initiated against us or Carey Financial in connection with the matters being investigated, we expect the SEC may pursue such an action against either or both. 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 us, and the magnitude of that effect would not necessarily be limited to the payments described above but could include other payments and civil monetary penalties.

Several state securities regulators have sought information from Carey Financial and CPA^®:15 relating to the matters described above. While one or more states may commence proceedings against Carey Financial in connection with these inquiries, we do not currently expect that these inquiries and proceedings will have a material effect on us incremental to that caused by any SEC action.

In October 2006, a revised complaint was filed in the Los Angeles Superior Court in an action that had named a wholly-owned indirect subsidiary, and other unrelated parties, in a state court action by a private plaintiff alleging various claims under the California False Claims Act that focus on alleged conduct by the Los Angeles Unified School District in connection with its direct application and invoicing for school development and construction funding for a new high school, for which our subsidiary acted as the development manager. We and another of our subsidiaries were named for the first time in the revised complaint, by virtue of an alleged relationship to the subsidiary that was a party to the development agreement, but were not served. In February 2007, the judge dismissed the action against our wholly-owned indirect subsidiary, as well as other defendants, following various substantive and procedural motions. However, the plaintiff may appeal the dismissal and may still seek to serve us and our other subsidiary in this action. Although no assurance can be given that the dismissal will be sustained if appealed, or that the claims alleged by plaintiff against us and our subsidiaries, if proven, would not have a material effect on us, we believe, based on the information currently available to us, that we and our subsidiaries have meritorious defences to such claims.

No matters were submitted to a vote of security holders during the fourth quarter of the year ended December 31, 2006.

PART II

Our common stock is listed on the New York Stock Exchange under the ticker symbol “WPC”. As of December 31, 2006 there were 26,816 holders of record of our common stock. The following table shows the high and low prices per share and quarterly cash distributions declared for the past two fiscal years:

Issuer Purchases of Equity Securities
(In thousands except share and per share amounts)

(In thousands except per share amounts)

(In thousands, except share and per share amounts)

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, management services operations and real estate operations. Within our management services operations, we are currently the advisor to the following affiliated publicly-owned, non-traded, real estate investment trusts: Corporate Property Associates 14 Incorporated (“CPA^®:14”), Corporate Property Associates 15 Incorporated (“CPA^®:15”) and Corporate Property Associates 16 – Global Incorporated (“CPA^®:16 – Global”) and served in this capacity for Corporate Property Associates 12 Incorporated (“CPA^®:12”) until its merger with CPA^®:14 in December 2006 and Carey Institutional Properties Incorporated (“CIP^®”) until its merger with CPA^®:15 in September 2004 (collectively, the “CPA^® REITs”).

Significant business developments that occurred during 2006 are detailed in the Significant Developments During 2006 section of Item 1 of this annual report.

Current trends include:

During 2006, we continued to see intense competition in both the domestic and international markets for triple-net leased properties, as capital continued to flow into real estate, in general, and triple-net leased real estate, in particular. We believe that low long-term interest rates by historical standards have created greater investor demand for yield-based investments, such as triple-net leased real

estate, thus creating increased capital flows and a more competitive investment environment. We currently expect these trends to continue in 2007 but currently believe that several factors may provide us with continued investment opportunities in 2007, both domestically and internationally. These factors include increased merger and acquisition activity, which may provide additional sale-leaseback opportunities as a source of funding, a continued desire of corporations to divest themselves of real estate holdings and increasing opportunities for sale-leaseback transactions in the international market, which continues to make up a large portion of our investment opportunities.

For the year ended December 31, 2006, international investments accounted for 48% of total investments made on behalf of the CPA^® REITs. For the year ended December 31, 2005, international investments accounted for 54% of total investments. We currently expect international commercial real estate to continue to comprise a significant portion of the investments we make on behalf of the CPA^® REITs, although the percentage of international investments in any given period may vary substantially.

Real estate valuations have risen significantly in recent years. We benefit from increases in the valuations of the CPA^® REIT portfolios. To the extent that disposing of properties fits with our strategic plans, we may look to take advantage of the increase in real estate prices by selectively disposing of properties, particularly in the more mature portfolios that we manage.

Increases in long term interest rates would likely cause the value of our owned and managed assets to decrease, which would create lower revenues from managed assets and lower investment performance for the managed funds. Increases in interest rates may also have an impact on the credit quality of certain tenants. To the extent that the Consumer Price Index (“CPI”) increases, additional rental income streams may be generated for leases with CPI adjustment triggers and partially offset the impact of declining property values. In addition, we constantly evaluate our debt exposure, and to the extent that opportunities exist to refinance and lock in lower interest rates over a longer term, we may be able to reduce our exposure to short term interest rate fluctuation.

Companies in automotive related industries (manufacturing, parts, services, etc.) continue to experience a challenging environment, which has resulted in several companies filing for bankruptcy protection in recent years. We currently have several automotive industry related tenants in the portfolios we manage, including our own portfolio. Some of these tenants have filed voluntary petitions of bankruptcy. As of December 31, 2006, tenants in the automotive industry in our portfolio and the portfolios we manage represented less than 1% of the asset carrying value of total real estate assets, respectively. If conditions in this industry worsen, additional tenants may file for bankruptcy protection and may disaffirm their leases as part of their bankruptcy reorganization plans. The net result of these trends may have an adverse impact on our asset management revenue. Despite these conditions, we continue to evaluate opportunities in these industries as we believe there still may be attractive investment opportunities.

As described in more detail in Item 1 of this annual report, our management services operations earn revenue by providing services to the CPA^® REITs in connection with structuring and negotiating investments and related debt placement (structuring revenue) and providing on-going management of the portfolio (asset-based management and performance revenue). The revenues 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 triple-net lease transactions, the requirement that each investment meet suitability standards and due diligence requirements, including approval of each investment by the investment committee, and the ability to raise capital on behalf of the CPA^® REITs.

As described in more detail in Item 1 of this annual report, our real estate operations earn revenue primarily from leasing real estate. We invest in and own commercial properties that we then lease to companies domestically and internationally, primarily on a triple-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. Because of our emphasis on growth of assets under management, we generally limit our direct acquisitions of properties, as described in Item 1.

Management evaluates our results of operations with a primary focus on increasing and enhancing the value, quality and amount of assets under management by our management services operations and seeking to increase value in our real estate operations. Management focuses its efforts on improving underperforming assets through re-leasing efforts, including negotiation of lease renewals, or selectively selling assets in order to increase value in our real estate portfolio. The ability to increase assets under management by structuring investments on behalf of the CPA^® REITs is affected, among other things, by the CPA^® REITs’ ability to raise capital and our ability to identify appropriate investments.

Management’s evaluation of operating results includes our ability to generate necessary cash flow in order to fund distributions to our shareholders. As a result, management’s assessment of operating results gives less emphasis to the effects of unrealized gains and losses, which may cause fluctuations in net income for comparable periods but have no impact on cash flows, and to other non-cash

charges such as depreciation and impairment charges. Management does not consider unrealized gains and losses resulting from short-term foreign currency fluctuations when evaluating our ability to fund distributions. Management’s evaluation of our potential for generating cash flow includes an assessment of the long-term sustainability of both our real estate portfolio and the assets we manage on behalf of the CPA^® REITs.

Management considers cash flows from operations, cash flows from investing activities and cash flows from financing activities to be important measures in the evaluation of our results of operations, liquidity and capital resources. Cash flows from operations are sourced primarily by revenues earned from structuring investments and providing asset-based management services on behalf of the CPA^® REITs we manage and long-term lease contracts from our real estate operations. Management’s evaluation of the amount and expected fluctuation of cash flows from operations is essential in evaluating our ability to fund operating expenses, service debt and fund distributions to shareholders.

Management considers cash flows from operating activities plus cash distributions from equity investments in real estate in excess of equity income as a supplemental measure of liquidity in evaluating our ability to sustain distributions to shareholders. Management considers this measure useful as a supplemental measure to the extent the source of distributions in excess of equity income is the result of non-cash charges, such as depreciation and amortization, because it allows management to evaluate such cash flows from consolidated and unconsolidated investments in a comparable manner. In deriving this measure, cash distributions from equity investments in real estate that are sourced from sales of equity investee’s assets or refinancing of debt are excluded because they are deemed to be returns of investment and not returns on investment.

Management focuses on measures of cash flows from investing activities and cash flows from financing activities in its evaluation of our capital resources. Investing activities typically consist of the acquisition or disposition of investments in real property and the funding of capital expenditures with respect to real properties. Cash flows from financing activities primarily consist of the payment of distributions to shareholders, borrowings and repayments under our lines of credit and the payment of mortgage principal amortization.

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

Management Services – This business segment includes management services performed for the CPA^® REITs pursuant to advisory agreements. This business line also includes interest on deferred revenue and earnings from unconsolidated investments in the CPA^® REITs accounted for under the equity method which were received in lieu of cash for certain payments due under the advisory agreements. In connection with maintaining our status as a publicly traded partnership, this business segment is carried out largely by corporate subsidiaries which are subject 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.

Real Estate – This business segment includes the operations of properties under operating leases, properties under direct financing leases, real estate under construction and development, operating real estate, assets held for sale and equity investments in real estate in ventures accounted for under the equity method which are engaged in these activities. Because of our legal structure, these operations are generally not subject to federal income taxes; however, they may be subject to certain state, local and foreign taxes.

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

We earn asset management revenue (asset-based management and performance revenue) from the CPA^® REITs based on assets under management. As funds available to the CPA^®REITs are invested, the asset base for which we earn revenue increases. The asset management revenue that we earn may increase or decrease depending upon (i) increases in the CPA^®REIT asset bases as a result of new investments; (ii) decreases in the CPA^® REIT asset bases resulting from sales of investments; or (iii) increases or decreases in the asset valuations of CPA^® REIT funds (which are not recorded for financial reporting purposes).

2006 vs. 2005 – For the years ended December 31, 2006 and 2005, asset management revenue increased $5,301 primarily due to a net increase in our assets under management as a result of recent investment activity of the CPA^® REITs, including the investment by CPA^®:16 – Global of proceeds from its public offerings, as well as increases in the annual asset valuations of the CPA^® REITs, including CPA^®:15, which had its initial appraisal in December 2005. The acquisition of properties from CPA^®:12 (the “CPA^®:12 Acquisition”) for $126,006 prior to its merger with CPA^®:14 (the “CPA^®:12/14 Merger”) in December 2006 had minimal impact on our asset management revenue for 2006, but will result in a decrease in these revenues of approximately $1,300 in 2007.

A portion of the CPA^® REIT asset management revenue 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 had not yet been satisfied as of December 31, 2006, resulting in our deferral of $5,527 in performance revenue for the year ended December 31, 2006. Since the inception of CPA^®:16 – Global, we have deferred cumulative performance revenue of $10,045. We will only be able to recognize this revenue if the performance criterion is met. The performance criterion for CPA^®:16 – Global is a cumulative, non-compounded distribution return to shareholders of 6%. As of December 31, 2006, CPA^®:16 – Global’s current distribution rate was 6.44% and its cumulative distribution return was 5.87%. Based on our current assessment, CPA^®:16 – Global is expected to meet the cumulative performance criterion during the second quarter of 2007, at which time we would recognize the cumulative deferred revenue. There is no assurance that the performance criterion will be achieved as projected as it is dependent on, among other factors, the performance of properties that CPA^®:16 – Global invests in generating income in excess of the performance criterion as well as on the distribution rates that may be set by CPA^®:16 – Global’s board of directors. If the performance criterion is achieved, deferred incentive and commission

compensation related to achievement of the performance criterion in the amount of approximately $5,900 (exclusive of interest) as of December 31, 2006, would become payable by us to certain employees.

2005 vs. 2004 – For the years ended December 31, 2005 and 2004, asset management revenue increased $6,526 primarily due to an increase of $7,475 in revenue arising from an increase in assets under management, as described above. This increase was partially offset by a decrease of $949 in asset management revenues as a result of the acquisition of properties from CIP^® (the “CIP^® Acquisition”) for $142,161 prior to its merger with CPA^®:15 (the “CIP^®/CPA^®:15 Merger”) in September 2004.

Structuring revenue includes current and deferred acquisition revenue from structuring investments and financing on behalf of the CPA^® REITs. Investment activity is subject to significant period-to-period variation. As described above in the Current Developments and Trends section above, we continue to face intense competition for investments in commercial properties both domestically and internationally.

2006 vs. 2005 – For the years ended December 31, 2006 and 2005, structuring revenue decreased $5,691, primarily due to a reduction in investment volume and a change in the mix of investment volume between the CPA^® REITs. We structured investments totaling $720,000 and $865,000 for the years ended December 31, 2006 and 2005, respectively. Approximately 76% of these investments were structured for CPA^®:16 – Global in 2006 as compared with approximately 68% for 2005. As CPA^®:16 – Global has not achieved its performance criterion, no deferred acquisition revenue was recorded for these investments. The increase in the percentage of investments structured on behalf of CPA^®:16 – Global resulted in a larger deferral of revenue until CPA^®:16 – Global’s performance criterion is achieved. The reduction in structuring revenue was partially offset by our having charged a reduced fee on an investment completed on behalf of CPA^®:16 – Global during the first quarter of 2005.

As discussed above, a portion of the CPA^® REIT structuring revenue 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, 2006, resulting in our deferral of $10,809 in structuring revenue for the year ended December 31, 2006. Since the inception of CPA^®:16 – Global, we have deferred cumulative structuring revenue of $28,517 and interest thereon of $1,928. We will only be able to recognize this revenue if the performance criterion is met. The current status and anticipated future achievement of the performance criterion is discussed above. Given that we expect CPA^®:16 – Global to represent a significant portion of our 2007 investment volume relative to the other CPA^® REITs, structuring revenue in 2007 is likely to continue to decrease until the performance criterion is met, which we currently anticipate occurring in the second quarter of 2007.

2005 vs. 2004 – For the years ended December 31, 2005 and 2004, structuring revenue decreased $5,478 primarily due to the same reasons described above. We structured approximately $865,000 of investments for the year ended December 31, 2005 as compared with approximately $890,000 in 2004. Approximately 68% of investments structured during the year ended December 31, 2005 related to CPA^®:16 – Global as compared with approximately 45% in 2004. The increase in the percentage of investments structured on behalf of CPA^®:16 – Global resulted in a larger deferral of revenue until CPA^®:16 – Global’s performance criterion is achieved.

Incentive, termination and disposition revenues are generally earned in connection with events which provide liquidity or alternatives to the CPA^® REIT shareholders. These events do not occur every year and no such event occurred in 2005.

2006 vs. 2005 – In connection with the CPA^®:12/14 Merger in December 2006, we earned termination revenue of $25,379 and subordinated disposition revenue of $24,418 from CPA^®:12. Subordinated disposition revenue of $3,779 due from CPA^®:12 related to properties we acquired from CPA^®:12 was not recognized as income but reduced the cost of the properties we acquired.

We agreed to waive any structuring revenue due from CPA^®:14 under its advisory agreement with us in connection with this merger. We also agreed to waive any disposition revenues that may subsequently be payable by CPA^®:14 to us upon a sale of the assets they acquired from CPA^®:12 in the merger.

2005 vs. 2004 – In connection with the CIP^®/CPA^®:15 Merger in September 2004, we earned incentive revenue of $23,681, subordinated disposition revenue of $18,414 and structuring revenue of $11,493 from CIP^®. Subordinated disposition revenue of $4,265 due from CIP^®related to properties we acquired from CIP^®was not recognized as income but reduced the cost of the properties we acquired.

Reimbursed costs from affiliates (revenue) and reimbursable costs (expenses) represent costs incurred by us on behalf of the CPA^® REITs, primarily broker-dealer commissions and marketing and personnel costs, which are reimbursed by the CPA^® REITs. Revenue from reimbursed costs from affiliates is offset by corresponding charges to reimbursable costs and as such there is no impact on net income related to this income.

2006 vs. 2005 – For the years ended December 31, 2006 and 2005, reimbursed and reimbursable costs increased $53,668, primarily due to broker-dealer commissions and marketing costs related to CPA^®:16 – Global’s second public offering, which commenced in March 2006 and was completed in December 2006.

2005 vs. 2004 – For the years ended December 31, 2005 and 2004, reimbursed and reimbursable costs decreased $5,426, primarily due to broker-dealer commissions related to CPA^®:16 – Global’s initial public offering. This offering was terminated in March 2005, and as a result we incurred and were reimbursed less in 2005 than in 2004.

2006 vs. 2005 – For the years ended December 31, 2006 and 2005, general and administrative expenses decreased $3,716 primarily due to reductions in business development expenses of $2,884 and professional fees of $2,148. These decreases were partially offset by an increase in compensation related costs of $1,307.

The decrease in business development related expenses was primarily the result of reductions in advertising costs and costs associated with potential investment opportunities that were ultimately not pursued. In addition, during 2005 we wrote off approximately $811 of costs due to the withdrawal of Corporate Property Associates International Incorporated’s (“CPAI”) registration statement related to its proposed public offering of common stock. The decrease in professional fees was primarily due to reduced legal related costs related to ongoing securities law compliance, including compliance with the Sarbanes-Oxley Act, costs associated with the ongoing SEC investigation and legal expenses associated with our settlement in 2005 for a build-to-suit development management agreement with the Los Angeles Unified School District. The increase in compensation related costs was primarily due to severance costs of $2,100 recognized in 2006 related to several former employees.

2005 vs. 2004 – For the years ended December 31, 2005 and 2004, general and administrative expenses increased $9,351 primarily due to increases in professional fees of $4,114, business development related expenses of $2,862 and other office expenses of $2,205.

The increase in professional fees was primarily related to ongoing securities law compliance, including increased costs of compliance with the Sarbanes-Oxley Act, an increase in costs associated with the ongoing SEC investigation and legal expenses associated with the district settlement referred to above and other legal matters. The increase in business development expenses is a combination of increased advertising expenses and increased costs associated with potential investment opportunities that were ultimately not pursued. Also included in business development expenses for 2005 is the write-off of approximately $811 in CPAI registration statement costs as described above. The increase in office expenses is mainly attributable to the consolidation, since January 1, 2005, of the results of operations of a limited partnership that was previously established to administer an office sharing agreement. As a result, rental and other office sharing expenses have increased compared with 2004, although this increase is partially offset by a corresponding decrease in minority interest in income.

2006 vs. 2005 – For the years ended December 31, 2006 and 2005, depreciation and amortization expense increased by $2,041. The increase is primarily due to accelerated amortization on intangible assets related to a management contract with CPA^®:12, which was terminated as a result of the CPA^®:12/14 Merger.

2005 vs. 2004 – For the years ended December 31, 2005 and 2004, depreciation and amortization expense decreased by $3,764. The decrease is primarily due to $2,798 of accelerated amortization and $1,445 of scheduled amortization in 2004 on certain intangible assets related to a management contract with CIP^® that was terminated as a result of the CIP^®/CPA^®:15 Merger and resulted in no corresponding amortization expense in 2005. These decreases were partially offset by additional depreciation expense in 2005 as a result of an increase in our average fixed asset base as a result of assets acquired in the CIP^® Acquisition.

Income from equity investments in real estate represents our proportionate share of net income (revenues less expenses) from our investments in the CPA^® REITs in which we have a non-controlling interest but exercise significant influence.

2006 vs. 2005 – For the years ended December 31, 2006 and 2005, income from equity investments in real estate increased by $2,910, primarily due to the recognition of our share of the overall increase in net income of the CPA^® REITs compared to 2005. The increase is also the result of receiving restricted shares in consideration for base asset management and performance revenue from certain of the CPA^® REITs.

2005 vs. 2004 – For the years ended December 31, 2005 and 2004, income from equity investments in real estate increased $449, primarily due to an increase in our ownership of shares in the CPA^® REITs as a result of receiving restricted shares in consideration for base asset management and performance revenue from certain of the CPA^® REITs.

2006 – We recognized a gain of $6,521 during 2006, in accordance with SFAS 140, “Accounting for Transfers and Servicing of Financial Assets and Extinguishments of Liabilities”, from the disposal of our interests in CPA^®:12 in the CPA^®:12/14 Merger. We owned 2,134,140 shares of CPA^®:12 at the time of the merger and elected to receive $9,861 in cash and 1,022,800 shares of CPA^®:14 stock (see Merger of CPA^®:12 and CPA^®:14 in Item 1 above).

2005 – We recognized a non-cash gain of $2,000 during 2005 as a result of entering into a settlement agreement with the Los Angeles Unified School District and certain other parties in connection with a build-to-suit development management agreement. The income represents the deferral of a portion of the gain on sale of land to the district in 2002.

2006 vs. 2005 – For the years ended December 31, 2006 and 2005, the provision for income taxes increased $26,048 due to increased pre-tax earnings in 2006 primarily as a result of the revenue earned in connection with the CPA^®:12/14 Merger. Approximately 78% of our management revenue in 2006 was earned by a taxable, wholly owned subsidiary. The effective tax rate for 2006 was 46% as compared to 43% in 2005.

2005 vs. 2004 – For the years ended December 31, 2005 and 2004, the provision for income taxes decreased $30,884 due to decreased pre-tax earnings in 2005 primarily as a result of revenue earned in 2004 in connection with the CIP^®/CPA^®:15 Merger and a decrease in the effective tax rate. Approximately 86% of our management revenue in 2005 was earned by a taxable, wholly owned subsidiary. The effective tax rate for 2005 was 43% as compared to 52% in 2004. The decrease is primarily due to a significant portion of our 2004 revenue being earned in states with higher tax rates.

2006 vs. 2005 – For the years ended December 31, 2006 and 2005, net income from management services operations increased by $28,648, primarily due to revenue we earned in 2006 totaling approximately $25,000, net of taxes, in connection with the CPA^®:12/14 Merger. In accordance with SFAS 140, we recognized a gain of $6,521 on the disposal of our shares in CPA^®:12. An increase in asset management revenue resulting primarily from the growth in assets under management was offset by a reduction in structuring revenue primarily due to lower investment volume in 2006 as compared to 2005. These variances are described above.

2005 vs. 2004 – For the years ended December 31, 2005 and 2004, net income from management services operations decreased $21,520 primarily due to the revenue we earned in 2004 related to the CIP^®/CPA^®:15 Merger. The net of tax impact of revenue earned from this merger approximated $27,000. A reduction in structuring revenue as a result of lower investment volume in 2005 as compared to 2004 and an increase in the percentage of investments structured for CPA^®:16 – Global also contributed to the decrease in net income from management services operations in 2005, as did the increase in general and administrative expenses described above. These decreases were partially offset by the increased income from other business operations and decreased depreciation and amortization expense as described above.

The presentation of results of operations for our real estate operations for the year ended December 31, 2006 was affected by our adoption of EITF 04-05 effective January 1, 2006. As a result of adopting EITF 04-05, we now consolidate an investment in a property leased to CheckFree Holdings Corporation Inc. that was previously accounted for as an equity investment in real estate. This contributed to the increases described below for lease revenues, depreciation and amortization and interest expense. This also resulted in a decrease of $1,129 in income from equity investments in real estate and an increase of $949 in minority interest in income as compared to 2005.

Our real estate operations consist of the investment in and the leasing of commercial real estate. Management’s evaluation of the sources of lease revenues for the years ended December 31, 2006, 2005 and 2004, are as follows:

We earned net lease revenues (i.e., rental income and interest income from direct financing leases) from our direct ownership of real estate from the following lease obligations:

We recognize income from equity investments in real estate of which lease revenues are a significant component. Our ownership interests range from 33% to 60%. Our share of net lease revenues in the following lease obligations is as follows:

2006 vs. 2005 – For the years ended December 31, 2006 and 2005, lease revenues (rental income and interest income from direct financing leases) increased by $6,875 primarily due to the consolidation of an investment that we previously accounted for as an equity investment in real estate, rent increases and new lease activity at existing properties and to a lesser extent, revenue earned from properties acquired in the
CPA^®:12 Acquisition in December 2006. As a result of adopting EITF 04-05 effective January 1, 2006, we recognized revenue of $4,605 from the consolidation of our investment in a property leased to CheckFree Holdings. Rent increases and rent from new tenants at existing properties contributed $2,402 while lease revenue from the CPA^®:12 Acquisition contributed $405 of the increase. These increases were partially offset by a lease expiration in July 2006.

2005 vs. 2004 – For the years ended December 31, 2005 and 2004, lease revenues increased $7,468 primarily due to $7,126 in revenue from properties acquired in the CIP^®Acquisition in September 2004, $1,530 in rent increases from existing tenants and $448 of rent increases from new tenants at existing properties. These increases were partially offset by a reduction in rent of $1,272 primarily due to lease expirations at certain properties and a reduction of $734 in interest income from direct financing leases for financial reporting purposes as a result of reducing estimated residual values on several leases.

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.

Other real estate income generally consists of revenue from other business operations of Livho, Inc., a Holiday Inn hotel franchise that we operate at our property in Livonia, Michigan and from our domestic self-storage properties as well as lease termination payments and other non-rent related revenues from real estate operations 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 estimated.

2006 vs. 2005 – For the years ended December 31, 2006 and 2005, other operating income decreased by $1,325, primarily due to the receipt of bankruptcy proceeds of $1,169 during the year ended December 31, 2005.

2005 vs. 2004 – For the years ended December 31, 2005 and 2004, other operating income decreased by $1,945. The decrease is primarily due to a reduction of $2,620 in settlement proceeds received from outstanding bankruptcy claims which were partially offset

by an increase of $570 in reimbursable tenant costs. Actual recoveries of reimbursable tenant costs are recorded as both revenue and expense and therefore have no impact on net income.

2006 vs. 2005 – For the years ended December 31, 2006 and 2005, depreciation and amortization expense increased by $3,055 primarily due to depreciation of $1,744 from the reclassification of a property as an operating lease that we previously accounted for as a direct financing lease and depreciation of $935 related to the consolidation of our investment in the CheckFree Holdings property that we previously accounted for as an equity investment in real estate. Depreciation and amortization from assets acquired in the CPA^®:12 Acquisition contributed an additional $309 of the increase.

2005 vs. 2004 – For the years ended December 31, 2005 and 2004, depreciation and amortization expense increased by $3,543. The increase is primarily due to $4,292 of depreciation and amortization expense related to the CIP^® Acquisition in September 2004.

2006 vs. 2005 – For the years ended December 31, 2006 and 2005, property expenses remained relatively unchanged at $7,046 and $6,932, respectively.

2005 vs. 2004 – For the years ended December 31, 2005 and 2004, property expenses increased $1,603 primarily due to increases in property related expenses such as legal and professional fees at specific properties and increases in reimbursable tenant costs. Actual recoveries of reimbursable tenant costs are recorded as both revenue and expense and therefore have no impact on net income.

For the years ended December 31, 2006, 2005 and 2004, we recorded impairment charges and loan losses related to our continuing real estate operations totaling $1,147, $5,704 and $12,899, respectively. The table below summarizes the impairment charges recorded for the past three fiscal years for both assets held for use and assets held for sale:

2006 vs. 2005 – For the years ended December 31, 2006 and 2005, income from equity investments in real estate decreased $484, primarily due to a decrease of $1,129 related to the consolidation of our investment in the CheckFree Holdings propertythat we previously accounted for as an equity investment in real estate. This decrease was partially offset by increases resulting from equity investments in real estate acquired during the year as well as the impact of rent increases at existing properties.

2005 vs. 2004 – For the years ended December 31, 2005 and 2004, income from equity investments in real estate decreased $575, primarily due to the full year effect of an acquisition in September 2004 of a 50% interest in a general partnership and the remaining

81.46% interest in a limited partnership. In 2005, we recorded an increase of $244 in the loss related to the 50% interest in the general partnership. In addition, income from equity investments in real estate also decreased $303 as a result of the acquisition of the remaining interests in a limited partnership which, subsequent to the acquisition, is accounted for as a consolidated subsidiary.

2006 vs. 2005 – For the year ended December 31, 2006, we recognized net gains on the sale of securities, foreign currency transactions and other gains of $6,422 as compared with a net loss of $695 for 2005. The net gain for 2006 is comprised primarily of a realized gain of $4,800 from the sale of our common stock holdings of Meristar Hospitality Corp. as well as net gains on foreign currency transactions as we benefited from the relative weakening of the U.S. dollar against the Euro in 2006. The net loss for 2005 is comprised primarily of net losses on foreign currency transactions due to the relative strengthening of the U.S. dollar against the Euro in 2005.

2005 vs. 2004 – For the year ended December 31, 2005, we recognized net losses on the sale of securities, foreign currency transactions and other gains of $695 as compared with a net gain of $1,222 for 2004 primarily due to foreign currency exchange movements. As described above, the net loss in 2005 is due to the relative strengthening of the U.S. dollar against the Euro in 2005, whereas the net gain in 2004 is primarily the result of the relative weakening of the U.S. dollar against the Euro in 2004.

2006 vs. 2005 – For the years ended December 31, 2006 and 2005, interest expense increased $1,352, primarily due to an increase of $2,604 from the full year impact of new mortgage financing at existing properties that were obtained during 2005 and $1,721 related to the consolidation of our investment in the CheckFree Holdings property that we previously accounted for as an equity investment in real estate. These increases were partially offset by a reduction in interest payments of $2,640 related to our credit facility and a reduction in interest payments from making scheduled principal payments. The reduction in interest expense on the unsecured credit facility resulted from lower average outstanding balances during the comparable periods on our facility partially offset by rising interest rates. The average outstanding balance on our unsecured facility decreased by approximately $65,000 whereas the average annual interest rate increased approximately 1.9% compared with 2005.

Debt balances obtained on the properties acquired in the December 2006 CPA^®:12 Acquisition and financing obtained on self-storage assets acquired in December 2006 did not have a significant impact on interest expense in 2006.

2005 vs. 2004 – For the years ended December 31, 2005 and 2004, interest expense increased $2,334, primarily due to an increase of $2,134 related to higher average outstanding borrowings and higher variable interest rates related to our credit facility, $1,165 related to debt balances outstanding on the properties acquired in the CIP^® Acquisition in September 2004 and $526 related to new mortgage debt at existing properties. These increases were partially offset by lower interest payments resulting from paying off mortgage balances and scheduled principal payments. The average outstanding balance and annual variable interest rate on our unsecured facility increased by approximately $31,000 and 1.8%, respectively, for the comparable years.

2006 vs. 2005 – For the years ended December 31, 2006 and 2005, income from continuing operations increased $11,661 primarily due to realized gains totaling $4,800 on the sale of our Meristar common stock holdings and a reduction in impairment charges of $4,557, as well as increases in lease revenues of $2,402, primarily from rent increases and rent from new tenants at existing properties. These variances are described above.

2005 vs. 2004 – For the years ended December 31, 2005 and 2004, income from continuing operations increased by $3,173, primarily due to a decrease in impairment charges of $7,195 and the accretive impact on net income as a result of the CIP^® Acquisition. These increases were partially offset by the negative impact of foreign currency translations, additional interest expense incurred on our unsecured line of credit and a reduction in other real estate income. These variances are all described above.

2006 – For the year ended December 31, 2006, we incurred a loss from discontinued operations of $1,251 primarily due to a net loss of $1,346 from the operations of discontinued properties. Gains totaling $3,452 from the sales of properties were almost entirely offset by impairment charges on these properties totaling $3,357 during 2006.

2005 – For the year ended December 31, 2005, we earned income from discontinued operations of $1,359 primarily from gains on sales of several properties totaling $10,474 and income of $6,951 from the operations of discontinued properties, largely offset by impairment charges totaling $16,066 on several of these properties.

2004 – For the year ended December 31, 2004, we earned income from discontinued operations of $249, which is comprised primarily of income earned from discontinued operations of $9,359 that were largely offset by impairment charges incurred on these properties totaling $9,199.

Impairment charges for 2006, 2005 and 2004 are described in Impairment Charges and Loan Losses above.

The effect of suspending depreciation expense as a result of the classification of properties as held for sale was $238, $235 and $381 for the years ended December 31, 2006, 2005 and 2004, respectively.

There has been no material change in our financial condition since December 31, 2005. Cash and cash equivalents totaled $22,108 as of December 31, 2006, an increase of $9,094 from the December 31, 2005 balance. We believe that we will generate sufficient cash from operations and, if necessary, from the proceeds of limited recourse mortgage loans, unused capacity on our credit facility, 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.

During 2006, cash flow from operations was sufficient to fund distributions to shareholders of $68,615. Our real estate operations provided cash flows (contractual lease revenues, net of property-level debt service) of approximately $49,250. Operating cash flow fluctuates on a quarterly basis due to factors that include the timing of the receipt of transaction-related revenue, the timing of certain compensation costs that are paid and receipt of the annual installment of deferred acquisition revenue and interest thereon in the first quarter.

During 2006, we received revenue of $26,053 from providing asset-based management services on behalf of the CPA^® REITs, exclusive of that portion of such revenue being satisfied by the CPA^® REITs through the issuance of their restricted common stock rather than paying cash (see below). We also received revenue of $19,047 in connection with structuring investments on behalf of the CPA^® REITs and termination and subordinated disposition revenue totaling $46,018 from CPA^®:12 for services provided in connection with the CPA^®:12/14 Merger. In January 2006, we received $15,474 related to the annual installment of deferred acquisition revenue from CPA^®:12, CPA^®:14 and CPA^®:15, all of which have met their performance criteria, including interest. The next installment of deferred acquisition revenue was received in January 2007 from CPA^®:14 and CPA^®:15 and amounted to $16,701, including interest. CPA^®:16 – Global has not yet met the performance criterion and we currently anticipate that the deferred amounts for CPA^®:16 – Global will be recognized by us and paid by them during the first half of 2007. In 2006, we elected to receive all performance revenue from the CPA^® REITs as well as the asset management revenue payable by CPA^®:16 – Global in restricted shares rather than cash. However, for 2006 we elected to receive the base asset management revenue from CPA^®:12 in cash (rather than in stock, as in the prior year) which benefited operating cash flows by $3,353.

For 2007, we have elected to continue to receive all performance revenue from the CPA^®REITs as well as the asset management revenue payable by CPA^®:16 – Global in restricted shares rather than cash. We expect that the election to receive restricted shares will continue to have a negative impact on cash flows during 2007, as this election is annual.

We estimate that the properties we acquired from CPA^®:12 will generate annual lease revenue and cash flow, inclusive of minority interest, of approximately $4,900 and $3,900, respectively, and annual equity income of approximately $900. This additional cash flow will be partially offset by lower annual asset management revenue approximating $1,300. There are no scheduled balloon payments on any of the properties acquired from CPA^®:12 until 2009. In addition, we expect that income taxes related to asset management revenue earned on the assets purchased by CPA^®:14 in the merger will increase as such revenue will now be earned by one of our taxable subsidiaries.

Our investing activities are generally comprised of real estate transactions (purchases and sales) and capitalized property related costs. During 2006, we used $102,049 to make acquisitions including our purchase of interests in 37 properties from CPA^®:12 in December 2006, several acquisitions by a wholly owned subsidiary of self-storage properties and an equity investment with an affiliate. We also received net proceeds of $50,053 from the sales of several domestic properties and the sale of our CPA^®:12 and Meristar holdings.

During 2006, we provided our affiliate, CPA^®:15, with $84,000 to fund the early repayment of a mortgage obligation. This loan was used to facilitate the completion of the sale of one of its properties and was repaid within the next few business days. In connection with the CPA^®:12/14 Merger in December 2006, we provided our affiliate, CPA^®:14, with $24,000. The loan was used to fund its merger obligations and was repaid within the next few business days. We also received distributions from the CPA^® REITs totaling $15,711 as a result of our ownership of shares in the CPA^® REITs, with $10,709 included in cash flows from investing activities, representing an amount in excess of the income recognized on the CPA^® REIT investments for financial reporting purposes.

Based on current distribution rates and our current investment in the CPA^® REITS, our annual distributions from the CPA^® REITs for 2007 are projected to be approximately $7,400.

During 2006, we paid distributions to shareholders of $68,615, an increase over the prior year. In addition to paying distributions, our financing activities included making scheduled mortgage principal payments totaling $11,742 and paying down the outstanding balance on our unsecured credit facility by $13,000. Gross borrowings under the unsecured credit facility were $123,000, which were used for several purposes in the normal course of business, and repayments were $136,000. In December 2006, a wholly owned subsidiary entered into a $105,000 secured credit facility to finance the acquisition of domestic self-storage properties. Gross borrowings under the secured credit facility were $15,501. In addition, we obtained $36,000 of mortgage financing including $30,000 related to the refinancing of an investment leased to CheckFree Holdings that we now consolidate in accordance with EITF 04-05. Also during 2006, we received $4,031 from the release of escrow funds that we deposited during 2005 in connection with obtaining mortgage financing on several investments and raised $8,660 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 generally has recourse only to the collateral. When balloon payments come due, we may seek to refinance the loan, restructure the debt with the existing lenders or evaluate our ability to satisfy the obligation from our existing resources including our unsecured 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 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 if they are not refinanced.

The table below summarizes our mortgage notes payable and credit facilities as of December 31, 2006 and 2005, respectively.

As of December 31, 2006, our cash resources consisted of the following:

Our cash resources can be used for working capital needs and other commitments and may be used for future investments. We continue to evaluate fixed-rate financing options, such as obtaining limited recourse financing on our unleveraged properties. Any financing obtained may be used for working capital objectives and may be used to pay down existing debt balances. A summary of our secured and unsecured credit facilities is provided below:

The unsecured credit facility has financial covenants requiring us, among 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, 2006. Advances are prepayable at any time. The unsecured credit facility expires in May 2007, however, we can, at our option, renew this facility for an additional year on substantially the same terms. We are currently negotiating a renewal or replacement of this facility. We do not believe that any failure to renew or replace this facility would materially effect our operations.

Amounts drawn on the credit facility bear interest at a rate of either (i) the one, two, three or six-month LIBOR, plus a spread which ranges from 0.6% to 1.45% depending on leverage or corporate credit rating or (ii) the greater of the bank’s Prime Rate and the Federal Funds Effective Rate, plus .50%, plus a spread of up to .125% depending on our leverage ratio.

In December 2006, Carey Storage Fund, a wholly owned subsidiary, entered into a credit facility for up to $105,000 with Morgan Stanley Mortgage Capital Inc. that matures in December 2008. The facility is collateralized by any self-storage real estate assets acquired with proceeds from the facility. Advances from this facility bear interest at an annual rate of the one-month LIBOR, plus a spread that ranges from 1.75% to 2.35% depending on the aggregate debt yield for the collateralized asset pool. Advances can be prepaid at any time, however advances prepaid prior to March 8, 2008 are subject to a prepayment penalty of 1.25% of the principal amount of the loan being prepaid. This facility has financial covenants requiring Carey Storage Fund, among other things, to meet or exceed certain operating and coverage ratios. For 2006, Carey Storage Fund has received a covenant compliance waiver from the lender due to its limited operating history as of December 31, 2006.

During 2007, cash requirements will include paying distributions to shareholders, scheduled mortgage principal payments, including mortgage balloon payments totaling $15,541 with $6,041 due in August 2007 and $9,500 due in December 2007, making distributions to minority partners as well as other normal recurring operating expenses. We may also seek to use our cash to invest in new properties and maintain cash balances sufficient to meet working capital needs. We may issue additional shares in connection with investments when it is consistent with the objectives of the seller.

We have budgeted capital expenditures of up to approximately $2,700 at various properties during 2007. The capital expenditures will primarily be for tenant and property improvements in order to enhance a property’s cash flow or marketability for re-leasing or sale.

We expect to meet our capital requirements to fund future investments, any capital expenditures on existing properties and scheduled debt maturities on limited recourse mortgages through use of our cash reserves or unused amounts on our unsecured credit facility.

The table below summarizes our contractual obligations as of December 31, 2006 and the effect that these obligations are expected to have on our liquidity and cash flow in future periods.