Peter Sands - Trevor P. Bond - Chief Executive Officer, President, Director, Member of Executive Committee and Member of Technology Committee Catherine D. Rice - Chief Financial Officer and Managing Director.

Jonathan Woloshin Vineet Khanna - Capital One Securities, Inc., Research Division.

Good morning, everyone, and welcome to the W. P. Carey Third Quarter 2014 Financial Results Conference Call. [Operator Instructions] Please also note, today's event is being recorded. At this time, I'd like to turn the conference call over to Mr. Peter Sands, Director of Institutional Investor Relations. Sir, please go ahead..

Good morning, everyone, and thank you for joining us on this conference call to review our 2014 third quarter results. Joining us today are Trevor Bond, President and Chief Executive Officer; and Katy Rice, Chief Financial Officer.

An online rebroadcast of this conference call will be made available in the Investor Relations section of our website at wpcarey.com, where it will be archived for approximately 90 days. I would also like to remind everyone that some of the statements made on this call are not historic facts and may be deemed forward-looking statements.

Factors that could cause actual results to differ materially from W. P. Carey's expectations are provided in our SEC filings. And with that, I will hand the call over to Trevor..

first, certain scheduled funds liquidations may close more slowly than expected, which would result in less cash being recycled into new funds; another factor may be the initial reaction to the new FINRA rules, which by the way, we fully embrace and welcome, but which might cause some financial advisers to pause until they better understand the impact of the rules.

Finally, it's possible that pending the sorting out of recently disclosed accounting irregularities of one of our competitors, sales may slow at the sponsors that are affiliated with its broker-dealer, which typically generate more than 50% of all nontraded REIT sales.

So it's possible that pricing pressure from the nontraded net-lease sector will take a break.

At the same time, if economic growth in the United States continues and more companies begin to spend money, it's likely that more corporations will reexplore sale-leasebacks as an attractive alternative to debt, which would of course expand the supply of opportunities available to us.

That would be a welcome change, but of course, we don't know for certain, how all or any of these factors will affect our actual investment volume. But meanwhile, we'll remain patient and disciplined. And with that, I'll now ask Katy to talk about our results and the portfolio summary in more detail.

Katy?.

asset management revenue; structuring revenue; dealer manager related revenues; and profits interests. Taking this in turn and starting with the asset management revenues we received for managing over $8 billion of client assets. These are among the most consistent and recurring fees we received from our Investment Management business.

For the vast majority of these assets, we earn an annual fee of 50 basis points on the gross purchase price or if the assets have been appraised for an NAV, then 50 basis points on the appraised value. Next, structuring revenues, which are the acquisition fees we earn for structuring and negotiating investment on behalf of the managed REITs.

These fees are based on total cost of the acquired asset. Our net-leased properties acquired on behalf of our CPA rates, we generally earn a fee of 4.5% of total cost. And for operating properties acquired primarily on behalf of our lodging REIT, CWI, we generally earn a fee of 2% of the total cost.

As mentioned, the inherent variability in the timing and volume of deal closings from one quarter to the next means that structuring revenues are the most variable form of revenue we generate. However, I want to emphasize that it comprises a relatively small portion of our overall revenue.

For example, for the second quarter, when we had strong acquisition volume, structuring revenue was roughly 7% of our total revenue. And for the third quarter, which was a much lighter quarter volume-wise, it was around 3%.

Thirdly, dealer manager related revenues, which include things like reimbursable costs, selling commissions and dealer manager fees, all of which I'll discuss together.

The managed REITs reimburse us for certain costs we incur on their behalf, and this includes things like broker-dealer selling commissions and marketing costs, as well as certain overhead costs related to the distribution and administration of the managed REITs.

Although the reimbursement of these costs is considered to be revenue, it is largely offset by an equivalent expense. We also receive dealer manager fees, which we retain a portion of. However, in the context of our overall business, the net impact of our -- on our earnings is usually very small, particularly, once G&A costs are taken into account.

And for that reason, these fees when netted with cost are not a significant driver of overall valuation. Lastly, and in addition to the fees we receive, we also receive profits interest from our special, general partnership interest in each of the managed REITs.

Generally, these interests entitle us to 10% of the available cash generated by the managed REITs. Being a profits interest, however, this flows into our income statement, not as revenue, but as net income from equity investments. These profits interests are a very stable form of real estate income, similar to Asset Management fees.

But because it's derived from the profits from real estate ownership, it's good REIT income. And it also helps to align our interests as an advisor with our shareholders. So that's a summary of how we earn revenues from our Investment Management business. And we hope you'll find the added disclosure in the supplemental helpful. Okay.

With that, let's turn to our balance sheet and capitalization. From a balance sheet perspective, the most significant event for the third quarter was the successful completion of our inaugural public equity offering, which raised approximately $282 million.

At the end of the third quarter, our total equity market cap stood at approximately $6.6 billion, and our enterprise value was roughly $9.8 billion. Our key credit metrics all remained at very healthy levels. Specifically, at September 30, our pro rata net debt to enterprise value was 32.7%.

Our total consolidated debt to gross assets was 43.7%, and our pro rata net debt to adjusted EBITDA was about 5x. We continue to review -- to view our debt maturities over the next few years as very manageable, with approximately $111 million maturing this year, $142 million in 2015 and $284 million in 2016.

At the end of the quarter, we had ample liquidity, totaling approximately $1.2 billion. At quarter end, the weighted average cost of our nonrecourse debt was 5.2% and our overall weighted average cost of debt, including our senior unsecured notes and amounts outstanding under our credit facility was 5. -- excuse me, was 4.5%.

And with that, I would like to turn the call back to the operator and take your questions..

[Operator Instructions] Our first question comes from Jon Woloshin from UBS..

Could you expand a little bit on this new business development company that you're forming.

Is it a, is it going to be publicly traded; b, how much you think you'll raise; and c, what's the target markets for it?.

Thanks for the question, Jon. This is a business development company. It will be a new vertical on the Investment Management platform. And for those unfamiliar with the business, it is a middle market lender.

The thinking was that as much of our business and much of our brand franchise in the investment management space is related to our credit underwriting capabilities, there was a natural evolution for us to enter that space. That is a joint venture with Guggenheim Partners, which would be responsible for the origination for the most part.

They're deeply experienced in that sector. That said, we also -- it also occurred to us that many of our customers for sale-leaseback transactions worldwide are the same types of companies that are targets in the middle market lending business in many of them see sale-leaseback, in fact, as an alternative to middle market borrowing.

And so there's some natural synergies there. It will have no impact on the REIT itself. Obviously, none of those assets would ever be brought unto W.P. Carey's balance sheet. It's just simply a way for us to continue to enhance the value of the Investment Management platform..

[Operator Instructions] Our next question comes from Vineet Khanna from Capital One..

Just 2 quick ones for me.

First, for 2015, can you give any color on sort of what fundraising expectations are there?.

Sure. Well, as I mentioned, I think what we'll be watching for a couple of factors. Generally, we do expect some slowing of sales in the fourth quarter and going into 2015. But I think that our expectation that we've vocalized on this call and in other venues is that, we're likely to end up with a larger share of a smaller market.

We can't guarantee that. And I'd also like to reiterate that for us, the actual volume of sales, while it's a useful metric in terms of some parts of our business, is less relevant than the equilibrium we're maintaining between those dollars that we raised and the investment opportunities that we're seeing.

And so from my point of view, I think we will see some decline in sales because of the factors that I mentioned in my remarks. But that -- because of the dry powder we currently have, and the money that we anticipate raising, we think we'll be in pretty good shape..

Sure. Sure.

And then just turning to the balance sheet, any sort of major thoughts on potential bond issuance for the maturities that are coming out?.

Yes. Actually, we are contemplating accessing the capital markets over in Europe. And that will probably be our next capital markets transaction. It's not -- it is related somewhat to some of our maturing debt.

But there's not a lot matured debt, but it really relates more to the on-balance sheet acquisition pipeline, which has grown as we mentioned, quite a bit over the past 6 months. And we have a pretty robust pipeline that we think will be closing in the next quarter or -- 1 to 3 quarters.

So we're looking forward to accessing the capital markets in Europe, which are very favorable from an interest rate perspective..

Sure. And I guess, 2 questions off of that. What do you think spread-wise, for the euro issuances.

And then could you kind of give a breakdown of what the acquisition pipeline is Europe versus U.S.?.

Sure. What we've been talking with bankers about is for sort of 8- to 10-year euro issuance, we're in the sort of 2.25% to 2.50% coupon range on the debt side. And with respect to the WPC pipeline, I would say it's -- in the past couple of quarters, it's been skewed more towards Europe.

And much of the pipeline that we're anticipating over the coming quarters is European based. So that will match fairly nicely with the euro bond issuance when we do one..

[Operator Instructions] Ladies and gentlemen, at this time, I'm showing no additional questions. I'd like to turn the conference call back over for any closing remarks..

Thank you. That concludes our call today. Thank you for your interest in W.P. Carey..

Ladies and gentlemen, that does conclude today's conference today. We do thank you for attending today's presentation. You may now disconnect your telephone lines..