UNITED STATES SECURITIES AND EXCHANGE COMMISSION

Washington, D. C. 20549

FORM 10-Q

þ		QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended September 30, 2008

o		TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from                      to                     

W. P. CAREY & CO. LLC

(Exact name of registrant as specified in its charter)

Delaware		13-3912578
(State of incorporation)		(I.R.S. Employer Identification No.)
50 Rockefeller Plaza
New York, New York		10020
(Address of principal executive offices)		(Zip Code)

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

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 whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.

Large accelerated filer þ		Accelerated filer o		Non-accelerated filer o		Smaller reporting company o
				(Do not check if a smaller reporting company)

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

Registrant has 40,023,222 Listed Shares, no par value, outstanding at November 3, 2008.

 

 

INDEX

		Page No.
PART I — FINANCIAL INFORMATION
Item 1. — Financial Statements*
Consolidated Balance Sheets as of September 30, 2008 and December 31, 2007			2
Consolidated Statements of Income for the three and nine months ended September 30, 2008 and 2007			3
Consolidated Statements of Comprehensive Income for the three and nine months ended September 30, 2008 and 2007			4
Consolidated Statements of Cash Flows for the nine months ended September 30, 2008 and 2007			5
Notes to Consolidated Financial Statements			6
Item 2. — Management’s Discussion and Analysis of Financial Condition and Results of Operations			20
Item 3. — Quantitative and Qualitative Disclosures About Market Risk			35
Item 4. — Controls and Procedures			36
PART II — OTHER INFORMATION
Item 1. — Legal Proceedings			37
Item 2. — Unregistered Sales of Equity Securities and Use of Proceeds			37
Item 6. — Exhibits			37
Signatures			38
EX-10.1: ASSET MANAGEMENT AGREEMENT
EX-10.2: AMENDMENT NO.1 TO THE AMENDED AND RESTATED ADVISORY AGREEMENT
EX-31.1: CERTIFICATION
EX-31.2: CERTIFICATION
EX-32: CERTIFICATIONS

Forward Looking Statements

This quarterly report on Form 10-Q, including “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in Item 2 of Part I of this report, contains forward-looking statements within the meaning of the federal securities laws. It is important to note that our actual results could be materially different from those projected in such forward-looking statements. You should exercise caution in relying on forward-looking statements as they involve known and unknown risks, uncertainties and other factors that may materially affect our future results, performance, achievements or transactions. Information on factors which could impact actual results and cause them to differ from what is anticipated in the forward-looking statements contained herein is included in this report as well as in our other filings with the SEC, including but not limited to those described in Item 1A — Risk Factors in our Form 10-K for the year ended December 31, 2007. We do not undertake to revise or update any forward-looking statements. Additionally, a description of our critical accounting estimates is included in the management’s discussion and analysis section in our Form 10-K for the year ended December 31, 2007. There has been no significant change in our critical accounting estimates.

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

W. P. Carey 9/30/2008 10-Q — 1

W. P. CAREY & CO. LLC

ITEM 1. — FINANCIAL STATEMENTS

		September 30, 2008				December 31, 2007
						(NOTE)
Assets
Real estate, net		$	500,988			$	513,405
Net investment in direct financing leases			84,477				89,463
Equity investments in real estate and CPA® REITs			266,567				242,677
Operating real estate, net			75,311				73,189
Cash and cash equivalents			20,485				12,137
Due from affiliates			51,194				88,329
Intangible assets and goodwill, net			95,178				99,873
Other assets, net			30,654				34,211
Total assets		$	1,124,854			$	1,153,284
Liabilities and Members’ Equity
Liabilities:
Non-recourse debt		$	255,478			$	254,051
Line of credit			73,500				62,700
Accounts payable, accrued expenses and other liabilities			44,001				59,076
Income taxes, net			60,641				65,152
Distributions payable			19,650				29,222
Settlement provision (Note 9)			—				29,979
Total liabilities			453,270				500,180
Minority interest in consolidated entities			19,523				18,833
Commitments and contingencies (Note 8)
Members’ equity:
Listed shares, no par value, 100,000,000 shares authorized; 40,024,035 and 39,216,493 shares issued and outstanding, respectively			771,283				748,584
Distributions in excess of accumulated earnings			(119,319	)			(117,051	)
Accumulated other comprehensive income			97				2,738
Total members’ equity			652,061				634,271
Total liabilities and members’ equity		$	1,124,854			$	1,153,284

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

Note: The consolidated balance sheet at December 31, 2007 has been derived from the audited consolidated financial statements at that date.

W. P. Carey 9/30/2008 10-Q — 2

W. P. CAREY & CO. LLC

CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED)

		Three months ended September 30,								Nine months ended September 30,
		2008				2007				2008				2007
Revenues
Asset management revenue		$	20,205			$	18,648			$	60,370			$	63,886
Structuring revenue			10,818				9,778				17,403				67,809
Wholesaling revenue			1,517				—				4,145				—
Reimbursed costs from affiliates			11,303				3,422				32,749				10,141
Lease revenues			18,959				18,965				57,583				56,583
Other real estate income			3,834				3,764				10,261				9,879
			66,636				54,577				182,511				208,298
Operating Expenses
General and administrative			(17,013	)			(12,323	)			(48,242	)			(47,624	)
Reimbursable costs			(11,303	)			(3,422	)			(32,749	)			(10,141	)
Depreciation and amortization			(6,395	)			(6,083	)			(18,765	)			(19,555	)
Property expenses			(1,815	)			(2,282	)			(5,555	)			(5,069	)
Impairment charge			(538	)			—				(538	)			—
Other real estate expenses			(1,989	)			(2,255	)			(6,204	)			(6,080	)
			(39,053	)			(26,365	)			(112,053	)			(88,469	)
Other Income and Expenses
Other interest income			752				1,288				2,193				5,530
Income from equity investments in real estate and CPA® REITs			2,272				8,945				10,917				13,312
Minority interest in income			(103	)			(505	)			(496	)			(3,911	)
Gain on sale of investment in direct financing lease			1,103				—				1,103				—
(Loss) gain on sale of securities, foreign currency transactions and other, net			(1,566	)			1,029				3,093				1,384
Interest expense			(5,004	)			(5,269	)			(14,579	)			(15,271	)
			(2,546	)			5,488				2,231				1,044
Income from continuing operations before income taxes			25,037				33,700				72,689				120,873
Provision for income taxes			(5,839	)			(11,396	)			(20,405	)			(48,813	)
Income from continuing operations			19,198				22,304				52,284				72,060
Discontinued Operations
Income from operations of discontinued properties			—				422				3,863				2,534
Gain on sale of real estate, net			—				—				—				962
Impairment charges			—				(2,317	)			—				(2,317	)
(Loss) income from discontinued operations			—				(1,895	)			3,863				1,179
Net Income		$	19,198			$	20,409			$	56,147			$	73,239
Basic Earnings Per Share
Income from continuing operations		$	0.49			$	0.58			$	1.34			$	1.89
(Loss) income from discontinued operations			—				(0.05	)			0.10				0.03
Net income		$	0.49			$	0.53			$	1.44			$	1.92
Diluted Earnings Per Share
Income from continuing operations		$	0.48			$	0.58			$	1.31			$	1.87
(Loss) income from discontinued operations			—				(0.05	)			0.10				0.03
Net income		$	0.48			$	0.53			$	1.41			$	1.90
Weighted Average Shares Outstanding
Basic			39,294,889				38,298,979				39,125,329				38,117,280
Diluted			40,299,073				39,601,853				40,293,094				39,718,522
Distributions Declared Per Share		$	0.492			$	0.472			$	1.461			$	1.401

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

W. P. Carey 9/30/2008 10-Q — 3

W. P. CAREY & CO. LLC

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (UNAUDITED)

		Three months ended September 30,								Nine months ended September 30,
		2008				2007				2008				2007
Net Income		$	19,198			$	20,409			$	56,147			$	73,239
Other Comprehensive Income
Change in unrealized appreciation on marketable securities			25				(31	)			(14	)			(23	)
Unrealized (loss) gain on derivative instrument			(315	)			—				184				—
Foreign currency translation adjustment			(6,147	)			1,507				(2,811	)			2,024
			(6,437	)			1,476				(2,641	)			2,001
Comprehensive Income		$	12,761			$	21,885			$	53,506			$	75,240

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

W. P. Carey 9/30/2008 10-Q — 4

W. P. CAREY & CO. LLC

CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)

		Nine months ended September 30,
		2008				2007
Cash Flows — Operating Activities
Net income		$	56,147			$	73,239
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization including intangible assets and deferred financing costs			20,412				21,140
Income from equity investments in real estate and CPA® REITs in excess of distributions received			(1,224	)			(9,269	)
Gain on sale of direct financing lease			(1,103	)			—
Gain on sale of real estate, net			—				(962	)
Minority interest in income			496				4,027
Straight-line rent adjustments			1,718				2,045
Management income received in shares of affiliates			(30,237	)			(43,415	)
Unrealized loss (gain) on foreign currency transactions, warrants and securities			324				(1,279	)
Realized gain on foreign currency transactions, warrants and securities			(1,567	)			(105	)
Impairment charges			538				2,317
Stock-based compensation expense			5,894				3,795
Decrease in deferred acquisition revenue received			46,695				16,164
Increase in structuring revenue receivable			(8,845	)			(50,253	)
(Decrease) increase in income taxes, net			(6,527	)			8,465
Decrease in settlement provision			(29,979	)			—
Net changes in other operating assets and liabilities			(5,250	)			(1,016	)
Net cash provided by operating activities			47,492				24,893
Cash Flows — Investing Activities
Distributions received from equity investments in real estate and CPA® REITs in excess of equity income			7,566				24,358
Capital contributions to equity investments			(1,361	)			—
Purchases of real estate and equity investments in real estate			(184	)			(40,845	)
Capital expenditures			(8,355	)			(11,768	)
Loan to affiliate			—				(8,676	)
Proceeds from repayment of loan to affiliate			—				8,676
VAT refunded on purchase of real estate			3,189				—
Proceeds from sales of real estate and securities			5,062				6,014
Funds placed in escrow in connection with the sale of property			—				(3,315	)
Funds released from escrow in connection with the sale of property			636				—
Payment of deferred acquisition revenue to affiliate			(120	)			(524	)
Net cash provided by (used in) investing activities			6,433				(26,080	)
Cash Flows — Financing Activities
Distributions paid			(67,987	)			(53,432	)
Contributions from minority interests			1,957				1,181
Distributions to minority interests			(1,659	)			(1,295	)
Scheduled payments of mortgage principal			(7,196	)			(13,854	)
Proceeds from mortgages and credit facilities			122,968				150,383
Prepayments of mortgage principal and credit facilities			(102,427	)			(70,590	)
Repayment of loan from affiliates			(7,569	)			—
Payment of financing costs			(375	)			(1,317	)
Proceeds from issuance of shares			21,242				4,532
Excess tax benefits associated with stock-based compensation awards			697				1,352
Repurchase and retirement of shares			(5,134	)			(21,104	)
Net cash used in financing activities			(45,483	)			(4,144	)
Change in Cash and Cash Equivalents During the Period
Effect of exchange rate changes on cash			(94	)			291
Net increase (decrease) in cash and cash equivalents			8,348				(5,040	)
Cash and cash equivalents, beginning of period			12,137				22,108
Cash and cash equivalents, end of period		$	20,485			$	17,068

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

W. P. Carey 9/30/2008 10-Q — 5

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Note 1. Business

We provide long-term sale-leaseback and build-to-suit transactions for companies worldwide and manage a global investment portfolio. We invest primarily in commercial properties that are each triple-net leased to single corporate tenants, domestically and internationally, and earn revenue as the advisor to publicly owned, non-traded real estate investment trusts (“CPA^® REITs”) sponsored by us that invest in similar properties. We are currently the advisor to the following CPA^® REITs: Corporate Property Associates 14 Incorporated (“CPA^®:14”), Corporate Property Associates 15 Incorporated (“CPA^®:15”), Corporate Property Associates 16 – Global Incorporated (“CPA^®:16 – Global”) and Corporate Property Associates 17 – Global Incorporated (“CPA^®:17 – Global”). As of September 30, 2008, we own and manage over 850 commercial properties domestically and internationally, including our own portfolio. Our own portfolio is comprised of our full or partial ownership interest in 187 commercial properties, substantially all of which are net leased to 84 tenants, with a total of approximately 18 million square feet (on a pro rata basis) and an occupancy rate of approximately 95%.

Primary Business Segments

Investment Management — We provide services to the CPA^® REITs in connection with structuring and negotiating investment and debt placement transactions (structuring revenue) and provide on-going management of their portfolios (asset-based management and performance revenue). Asset-based management and performance revenue for the CPA^® REITs are determined based on real estate related assets under management. As funds available to the CPA^® REITs are invested, the asset base from which we earn revenue increases. In addition, we also receive a percentage of distributions of available cash from CPA^®:17 – Global’s operating partnership. We may also earn incentive and disposition revenue and receive other compensation in connection with providing liquidity alternatives to CPA^® REIT shareholders.

Real Estate Ownership — We own and invest in commercial properties globally that are then leased to companies, primarily on a triple-net leased basis. We may also invest in other properties on an opportunistic basis.

Note 2. Basis of Presentation

Our unaudited consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America for interim financial information and with the instructions to Form 10-Q and Article 10 of Regulation S-X of the United States Securities and Exchange Commission (“SEC”). Accordingly, they do not include all information and notes required by accounting principles generally accepted in the United States of America for complete financial statements. In the opinion of management, all adjustments (consisting of normal recurring adjustments) considered necessary for a fair statement of the results of the interim periods presented have been included. The results of operations for the interim periods are not necessarily indicative of results for the full year. These financial statements should be read in conjunction with our annual report on Form 10-K for the year ended December 31, 2007.

Basis of Consolidation

The consolidated financial statements include all our accounts and our majority-owned and/or controlled subsidiaries. The portion of these entities not owned by us is presented as minority interest as of and during the periods consolidated. All material inter-entity transactions have been eliminated.

When we obtain an economic interest in an entity, we evaluate the entity to determine if the entity is deemed a variable interest entity (“VIE”) and if we are deemed to be the primary beneficiary, in accordance with Financial Accounting Standards Board (“FASB”) Interpretation No. 46R, “Consolidation of Variable Interest Entities” (“FIN 46R”). We consolidate (i) entities that are VIEs and of which we are deemed to be the primary beneficiary and (ii) entities that are non-VIEs that we control. Entities that we account for under the equity method (i.e., at cost, increased or decreased by our share of earnings or losses, less distributions) include (i) entities that are VIEs and of which we are not deemed to be the primary beneficiary and (ii) entities that are non-VIEs that we do not control but over which we have the ability to exercise significant influence. We will reconsider our determination of whether an entity is a VIE and who the primary beneficiary is if certain events occur that are likely to cause a change in the original determinations.

In determining whether we control a non-VIE, our consideration includes using the Emerging Issues Task Force (“EITF”) Consensus on Issue No. 04-05, “Determining Whether a General Partner, or the General Partners as a Group, Controls a Limited Partnership or Similar Entity When the Limited Partners Have Certain Rights” (“EITF 04-05”). The scope of EITF 04-05 is limited to limited partnerships or similar entities that are not variable interest entities under FIN 46R. The EITF reached a consensus that the general partners in a limited partnership (or similar entity) are presumed to control the entity regardless of the level of their ownership and,

W. P. Carey 9/30/2008 10-Q — 6

Notes to Consolidated Financial Statements

accordingly, may be required to consolidate the entity. This presumption may be overcome if the agreements provide the limited partners with either (a) the substantive ability to dissolve (liquidate) the limited partnership or otherwise remove the general partners without cause or (b) substantive participating rights. If it is deemed that the limited partners’ rights overcome the presumption of control by a general partner of the limited partnership, the general partner shall account for its investment in the limited partnership using the equity method of accounting.

In February 2007, we formed CPA^®:17 – Global, an affiliated REIT. In November 2007, the SEC declared effective CPA^®:17 – Global’s registration statement to raise up to $2 billion of its common stock in an initial public offering, plus up to an additional $475 million of its common stock under its distribution reinvestment and stock purchase plan. In December 2007, we commenced fundraising for CPA^®:17 – Global; however, no shares were issued until January 2008. Therefore, as of and during the period ended December 31, 2007, the financial results of CPA^®:17 – Global were included in our consolidated financial statements, as we owned all of CPA^®:17 – Global’s outstanding common stock. Beginning in 2008, we have accounted for our interest in CPA^®:17 – Global under the equity method of accounting.

In March 2008, we formed Carey Watermark Investors Incorporated (“Carey Watermark”). We filed a registration statement on Form S-11 with the SEC during March 2008 to raise up to $1 billion of common stock of Carey Watermark in an initial public offering, plus up to an additional $237.5 million of its common stock under a distribution reinvestment and stock purchase plan, and currently expect to commence fundraising in 2009. As of and during the three and nine months ended September 30, 2008, the financial statements of Carey Watermark, which had no operations during these periods, were included in our consolidated financial statements, as we owned all of Carey Watermark’s outstanding common stock.

Out-of-Period Adjustment

During the third quarter of 2007, we determined that a longer schedule of depreciation/amortization of assets in certain of our equity method investment holdings should appropriately be applied to reflect the lives of the underlying assets rather than the expected holding period of these investments. We concluded that these adjustments were not material to any prior periods’ consolidated financial statements. We also concluded that the cumulative adjustment was not material to the third quarter of 2007, nor to the year ended December 31, 2007. As such, the cumulative effect was recorded in the consolidated statements of income as a one-time cumulative out-of-period adjustment in the third quarter of 2007. The effect of this adjustment for the three and nine months ended September 30, 2007 was to increase income from continuing operations before income taxes by approximately $5.7 million and $4.2 million, respectively, and net income by approximately $4.8 million and $3.5 million, respectively. There was no associated net impact on our cash flow from operations for the nine months ended September 30, 2007.

Reclassifications and Revisions

Certain prior period amounts have been reclassified to conform to the current period financial statement presentation. The consolidated financial statements included in this Form 10-Q have been retrospectively adjusted to reflect the disposition (or planned disposition) of certain properties as discontinued operations for all periods presented.

Adoption of New Accounting Pronouncements

SFAS 157

In September 2006, the FASB issued Statement of Financial Accounting Standards (“SFAS”) No. 157, “Fair Value Measurements” (“SFAS 157”). SFAS 157 provides guidance for using fair value to measure assets and liabilities. SFAS 157 clarifies the principle that fair value should be based on the assumptions that market participants would use when pricing the asset or liability and applies whenever other standards require assets or liabilities to be measured at fair value. SFAS 157 also provides for certain disclosure requirements, including, but not limited to, the valuation techniques used to measure fair value and a discussion of changes in valuation techniques, if any, during the period. We adopted SFAS 157 as required on January 1, 2008, with the exception of nonfinancial assets and nonfinancial liabilities that are not recognized or disclosed at fair value on a recurring basis, for which the effective date is our 2009 fiscal year. The initial application of SFAS 157 did not have a material effect on our financial position and results of operations and we are currently evaluating the impact, if any, that the remaining application of SFAS 157 will have on our financial position and results of operations.

SFAS 157 establishes a three-tier fair value hierarchy, which prioritizes the inputs used in measuring fair value. These tiers include: Level 1, defined as observable inputs such as quoted prices in active markets; Level 2, defined as inputs other than quoted prices in active markets that are either directly or indirectly observable; and Level 3, defined as unobservable inputs in which little or no market data exists, therefore requiring an entity to develop its own assumptions. The following table sets forth our financial assets that were accounted for at fair value on a recurring basis as of September 30, 2008 (in thousands):

W. P. Carey 9/30/2008 10-Q — 7

Notes to Consolidated Financial Statements

						Fair Value Measurements at Reporting Date Using:
						Quoted Prices in
						Active Markets for				Significant Other
						Identical Assets				Observable Inputs				Unobservable Inputs
Description		September 30, 2008				(Level 1)				(Level 2)				(Level 3)
Assets:
Marketable equity securities		$	1,643			$	—			$	—			$	1,643
Derivative assets			189				—				189				—
		$	1,832			$	—			$	189			$	1,643

		Fair Value Measurements Using
		Significant Unobservable Inputs (Level 3 only)
		Marketable												Marketable
		Equity				Derivative				Total				Equity				Derivative				Total
		Securities				Assets				Assets				Securities				Assets				Assets
		Three months ended September 30,												Nine months ended September 30,
Beginning balance		$	1,652			$	—			$	1,652			$	1,494			$	204			$	1,698
Total gains or losses (realized/unrealized):
Included in earnings			—				—				—				(2	)			(204	)			(206	)
Included in other comprehensive income			(9	)			—				(9	)			(29	)			—				(29	)
Purchases, issuances and settlements			—				—				—				180				—				180
Ending balance		$	1,643			$	—			$	1,643			$	1,643			$	—			$	1,643
The amount of total gains or losses for the period included in earnings (or changes in net assets) attributable to the change in unrealized gains or losses relating to assets still held at the reporting date		$	—			$	—			$	—			$	—			$	(204	)		$	(204	)

Gains and losses (realized and unrealized) included in earnings are reported in gain on sale of securities, foreign currency transactions and other, net in the statement of income.

SFAS 159

In February 2007, the FASB issued SFAS No. 159, “The Fair Value Option for Financial Assets and Financial Liabilities” (“SFAS 159”), which gives entities the option to measure at fair value, on an instrument-by-instrument basis, certain financial assets, financial liabilities and firm commitments that are otherwise not permitted to be accounted for at fair value under other accounting standards. The election to use the fair value option is available when an entity first recognizes a financial asset or financial liability or upon entering into a firm commitment. Subsequent changes (i.e., unrealized gains and losses) in fair value must be recorded in earnings. Additionally, SFAS 159 allows for a one-time election for existing positions upon adoption, with the transition adjustment recorded to beginning retained earnings. We adopted SFAS 159 as required on January 1, 2008 and the initial application did not have a material effect on our financial position and results of operations as we did not elect to measure financial assets and liabilities at fair value.

Recent Accounting Pronouncements

SFAS 141R

In December 2007, the FASB issued SFAS No. 141 (revised 2007), “Business Combinations” (“SFAS 141R”), which establishes principles and requirements for how an acquirer shall recognize and measure in its financial statements the identifiable assets acquired, the liabilities assumed, any noncontrolling interest in the acquiree, and goodwill acquired in a business combination. Additionally, SFAS 141R requires that an acquiring entity must immediately expense all acquisition costs and fees associated with an acquisition. SFAS 141R is effective for our 2009 fiscal year. We expect the adoption of SFAS 141R to have an impact on our results of operations to the extent we enter into new acquisitions in 2009 and beyond as acquisition costs and fees, which are currently capitalized and allocated to the cost basis of acquisitions, will instead be expensed immediately as incurred, while post acquisition, there will be a subsequent positive impact on net income through a reduction in depreciation expense over the estimated life of the properties.

W. P. Carey 9/30/2008 10-Q — 8

Notes to Consolidated Financial Statements

SFAS 160

In December 2007, the FASB issued SFAS No. 160, “Noncontrolling Interests in Consolidated Financial Statements — an Amendment of ARB No. 51” (“SFAS 160”), which establishes and expands accounting and reporting standards for minority interests in a subsidiary, which will be recharacterized as noncontrolling interests, and the deconsolidation of a subsidiary. SFAS 160 is effective for our 2009 fiscal year. We are currently assessing the potential impact that the adoption of SFAS 160 will have on our financial position and results of operations.

SFAS 161

In March 2008, the FASB issued SFAS No. 161, “Disclosures about Derivative Instruments and Hedging Activities” (“SFAS 161”), which is intended to help investors better understand how derivative instruments and hedging activities affect an entity’s financial position, financial performance and cash flows through enhanced disclosure requirements. The enhanced disclosures primarily surround disclosing the objectives and strategies for using derivative instruments by their underlying risk as well as a tabular format of the fair values of the derivative instruments and their gains and losses. SFAS 161 is effective for our 2009 fiscal year.

FSP 142-3

In April 2008, the FASB issued Staff Position 142-3, “Determination of the Useful Life of Intangible Assets” (“FSP 142-3”), which amends the factors that should be considered in developing renewal or extension assumptions used to determine the useful life of a recognized intangible asset under SFAS 142, “Goodwill and Other Intangible Assets” (“SFAS 142”). FSP 142-3 is intended to improve the consistency between the useful life of an intangible asset determined under SFAS 142 and the period of expected cash flows used to measure the fair value of the asset under SFAS 141R and other U.S. GAAP. The guidance for determining the useful life of a recognized intangible asset in FSP 142-3 must be applied prospectively to intangible assets acquired after the effective date. The disclosure requirements in FSP 142-3 must be applied prospectively to all intangible assets recognized as of, and subsequent to, the effective date. FSP 142-3 is effective for our 2009 fiscal year. We are currently assessing the potential impact that the adoption of FSP 142-3 will have on our financial position and results of operations.

EITF 03-6-1

In June 2008, the FASB issued FASB Staff Position No. EITF 03-6-1, “Determining Whether Instruments Granted in Share-Based Payment Transactions are Participating Securities” (“FSP EITF 03-6-1”). FSP EITF 03-6-1 requires that all unvested share-based payment awards that contain non-forfeitable rights to dividends be considered participating securities and therefore shall be included in the computation of earnings per share pursuant to the two-class method. The two-class method is an earnings allocation formula that determines earnings per share for each class of common shares and participating security according to dividends declared (or accumulated) and participation rights in undistributed earnings. The guidance for determining earnings per share under FSP EITF 03-6-1 must be applied retrospectively to all prior periods presented after the effective date. FSP EITF 03-6-1 is effective for our 2009 fiscal year. We are currently assessing the potential impact that the adoption of FSP EITF 03-6-1 will have on our financial position and results of operations.

Note 3. Transactions with Related Parties

Advisory Services

Directly and through wholly-owned subsidiaries, we earn revenue as the advisor to the CPA^® REITs. 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. We earn asset management revenue generally totaling 1% per annum of average invested assets, as calculated pursuant to the advisory agreements for each CPA^® REIT, of which 1/2 of 1% (“performance revenue”) is contingent upon specific performance criteria for each CPA^® REIT. For CPA^®:17 – Global, we earn asset management revenue ranging from 0.5% of average market value, for long-term net leases and certain other types of real estate investments, to 1.75% of average equity value, for certain types of securities. For CPA^®:17 – Global, we will also receive up to 10% of distributions of available cash of its operating partnership. No amounts have been allocated under this provision for the three and nine months ended September 30, 2008. Total asset-based revenue earned was $20.2 million and $18.6 million, for the three months ended September 30, 2008 and 2007, respectively, and $60.4 million and $63.9 million for the nine months ended September 30, 2008 and 2007, respectively. Asset-based revenue for the nine months ended September 30, 2007 includes performance revenue recognized from CPA^®:16 – Global on achievement of its performance criterion in June 2007.

The advisory agreements allow us to elect to receive restricted stock for any revenue due from each CPA^® REIT. In 2008, for CPA^®:14, CPA^®:15 and CPA^®:16 – Global, we elected to receive all asset management revenue in cash and all performance revenue in restricted shares rather than cash, while for CPA^®:17 – Global, we elected to receive asset management

W. P. Carey 9/30/2008 10-Q — 9

Notes to Consolidated Financial Statements

revenue in restricted shares rather than cash. We do not earn performance revenue from CPA^®:17 – Global. In 2007, we elected to receive all asset management revenue in cash, with the exception of CPA^®:16 – Global’s base asset management revenue, for which we elected to receive restricted shares, and all performance revenue in restricted shares of the respective CPA^® REITs rather than cash.

In connection with structuring and negotiating investments and related mortgage financing for the CPA^® REITs, the advisory agreements provide for structuring revenue based on the cost of investments. Under each of the advisory agreements, we may receive 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 7%. For certain types of non-long term net lease investments acquired on behalf of CPA^®:17 – Global, initial acquisition revenue may range from 0% to 1.75% of the equity invested plus the related acquisition revenue, with no deferred acquisition revenue being earned. We may be entitled, subject to CPA^® REIT board approval, to loan refinancing revenue of up to 1% of the principal amount refinanced in connection with structuring and negotiating investments. This loan refinancing revenue, together with the acquisition revenue, is referred to as structuring revenue. We earned structuring revenue of $10.8 million and $9.8 million for the three months ended September 30, 2008 and 2007, respectively, and $17.4 million and $67.8 million for the nine months ended September 30, 2008 and 2007, respectively. Structuring revenue for the nine months ended September 30, 2007 includes structuring revenue recognized from CPA^®:16 – Global on achievement of its performance criterion in June 2007. In addition, we may also earn revenue related to the disposition of properties, subject to subordination provisions, and will only recognize such revenue as such provisions are achieved.

We are also reimbursed by the CPA^® REITs for certain costs, primarily broker/dealer commissions paid on behalf of the CPA^® REITs and marketing and personnel costs. For the three months ended September 30, 2008 and 2007, reimbursed costs totaled $11.3 million and $3.4 million, respectively. For the nine months ended September 30, 2008 and 2007, reimbursed costs totaled $32.7 million and $10.1 million, respectively.

Pursuant to a sales agency agreement between our wholly-owned broker-dealer subsidiary and CPA^®:17 – Global, we earn a selling commission of up to $0.65 per share sold, selected dealer revenue of up to $0.20 per share sold and/or wholesaling revenue for selected dealers or investment advisors of up to $0.15 per share sold. We will re-allow all selling commissions to selected dealers participating in CPA^®:17 – Global’s offering and will re-allow up to the full selected dealer revenue to selected dealers. We will use any retained portion of the selected dealer revenue together with the wholesaling revenue to cover other underwriting costs incurred in connection with CPA^®:17 – Global’s offering. Total underwriting compensation earned in connection with CPA^®:17 – Global’s offering, including selling commissions, selected dealer revenue, wholesaling revenue and reimbursements made by us to selected dealers, cannot exceed the limitations prescribed by the Financial Industry Regulatory Authority (“FINRA”). The limit on underwriting compensation is currently 10% of gross offering proceeds. We may also be reimbursed up to an additional 0.5% of the gross offering proceeds for bona fide due diligence expenses.

Other Transactions

We own interests in entities which range from 5% to 95%, with the remaining interests generally held by affiliates, and own common stock in each of the CPA^® REITs.

We are the general partner in a limited partnership (which we consolidate for financial statement purposes) that leases our home office space and participates in an agreement with certain affiliates, including the CPA^® REITs, for the purpose of leasing office space used for the administration of our operations and the operations of our affiliates and for sharing the associated costs. We recorded income from minority interest partners of $0.6 million for each of the three month periods ended September 30, 2008 and 2007 and $1.8 million and $1.4 million during the nine month periods ended September 30, 2008 and 2007, respectively, in each case related to reimbursements from these affiliates. The average estimated minimum lease payments on the office lease, inclusive of minority interest, as of September 30, 2008 approximates $2.9 million annually through 2016.

Included in accounts payable, accrued expenses and other liabilities in the consolidated balance sheets at September 30, 2008 and December 31, 2007 are amounts due to affiliates totaling $0.9 million and $10.3 million, respectively.

One of our directors is the sole shareholder of Livho, Inc. (“Livho”). We consolidate the accounts of Livho in our consolidated financial statements in accordance with FIN 46R as it is a VIE of which we are the primary beneficiary.

Family members of one of our directors have an ownership interest in certain companies that own minority interests in our French majority-owned subsidiaries. These ownership interests are subject to substantially the same terms as all other ownership interests in the subsidiary companies.

W. P. Carey 9/30/2008 10-Q — 10

Notes to Consolidated Financial Statements

Two employees own a minority interest in W. P. Carey International LLC (“WPCI”), a subsidiary company that structures net lease transactions on behalf of the CPA^® REITs outside of the United States.

In December 2007, we received a loan totaling $7.6 million from two affiliated ventures in which we have interests that are accounted for under the equity method of accounting. The loan was used to fund the acquisition of tenancy-in-common interests in Europe and was repaid in March 2008. During the nine months ended September 30, 2008, we incurred interest expense of $0.1 million in connection with this loan.

We have the right to loan funds to affiliates under our line of credit. Such loans generally bear interest at comparable rates to our line of credit. In August 2007, we loaned $8.7 million to a venture in which CPA^®:15 has an ownership interest to facilitate the defeasance of a mortgage obligation in connection with the venture’s sale of a property. We recognized interest income of less than $0.1 million prior to this loan being repaid in September 2007.

Note 4. Real Estate

Real estate, which consists of land and buildings leased to others, at cost, and accounted for as operating leases, is summarized as follows (in thousands):

		September 30, 2008				December 31, 2007
Land		$	109,359			$	110,141
Buildings			491,353				491,968
Less: Accumulated depreciation			(99,724	)			(88,704	)
		$	500,988			$	513,405

Operating real estate, which consists primarily of our self-storage investments and Livho subsidiary, at cost, is summarized as follows (in thousands):

		September 30, 2008				December 31, 2007
Land		$	15,408			$	15,408
Buildings (a)			69,408				65,950
Less: Accumulated depreciation			(9,505	)			(8,169	)
		$	75,311			$	73,189

We recognized an impairment charge of $0.5 million during the three and nine months ended September 30, 2008 at a domestic property as we expect to sell this property for less than its carrying amount.

In connection with our acquisition of properties, we have recorded net lease intangibles of $37.2 million. These intangibles are being amortized over periods ranging from 2 to 30 years. Amortization of below-market and above-market rent intangibles are recorded as an adjustment to revenue. Net amortization of intangibles was $1.9 million and $2 million for the three months ended September 30, 2008 and 2007, respectively, and $5.5 million and $7 million for the nine months ended September 30, 2008 and 2007, respectively.

Note 5. Net Investment in Direct Financing Leases

During the three and nine months ended September 30, 2008, we sold our investment in a direct financing lease for $5 million, net of selling costs, and recognized a net gain on sale of $1.1 million.

Note 6. Equity Investments in Real Estate and CPA^® REITs

Our equity investments in real estate, which are accounted for under the equity method, are summarized below for our investments in the CPA^® REITs and interests in joint venture properties.

CPA^® REITs

We own interests in the CPA^® REITs with which we have advisory agreements. Our interests in the CPA^® REITs are accounted for under the equity method due to our ability to exercise significant influence as the advisor to the CPA^® REITs. The CPA^® REITs are

W. P. Carey 9/30/2008 10-Q — 11

Notes to Consolidated Financial Statements

publicly registered and file periodic reports with the SEC. We have elected, in certain cases, to receive restricted stock in the CPA^® REITs rather than cash in connection with earning asset management and performance revenue (Note 3).

Information about our investments in the CPA^® REITs is as follows (dollars in thousands):

		% of Outstanding Shares								Carrying Amount of Investment
Fund		September 30, 2008				December 31, 2007				September 30, 2008				December 31, 2007
CPA®:14			7.3	%			6.6	%		$	75,397			$	67,049
CPA®:15			5.3	%			4.5	%			71,811				61,976
CPA®:16 – Global			3.6	%			2.9	%			44,293				36,677
CPA®:17 – Global (a)			0.1	%			100.0	%			708				—
										$	192,209			$	165,702

Combined summarized financial information of the CPA^® REITs (for the entire entities, not our proportionate share) is presented below (in thousands):

		September 30, 2008				December 31, 2007
Assets		$	8,496,719			$	8,296,685
Liabilities			(4,753,004	)			(4,701,869	)
Owner’s equity		$	3,743,715			$	3,594,816

		Three months ended September 30,								Nine months ended September 30,
		2008				2007				2008				2007
Revenues		$	160,089			$	163,222			$	537,847			$	453,107
Expenses			(144,748	)			(109,439	)			(435,192	)			(331,167	)
Net income		$	15,341			$	53,783			$	102,655			$	121,940
Our share of income from equity investments in CPA® REITs		$	200			$	6,004			$	4,759			$	7,972

Interests in Joint Venture Properties

We own interests in single-tenant net leased properties leased to corporations through noncontrolling interests in (i) partnerships and limited liability companies in which our ownership interests are 60% or less and we exercise significant influence, and (ii) as tenants-in-common subject to common control. The underlying investments are generally owned with affiliates.

Our ownership interests in our equity investments in real estate and their respective carrying values are presented below (dollars in thousands):

		Ownership Interest at				Carrying Value
Lessee		September 30, 2008				September 30, 2008				December 31, 2007
Carrefour France, S.A. (a)			46	%		$	26,083			$	25,186
Schuler A.G. (a)			33	%			25,533				26,576
Medica — France, S.A. (a)			46	%			10,154				10,461
Hologic, Inc.			36	%			4,411				4,439
Consolidated Systems, Inc.			60	%			3,430				3,497
Federal Express Corporation			40	%			2,736				3,595
Hellweg Die Profi-Baumarkte GmbH & Co. KG (a)			5	%			2,522				2,641
Childtime Childcare, Inc.			34	%			1,738				1,711
Information Resources, Inc.			33	%			1,563				1,542
The Retail Distribution Group			40	%			357				682
Sicor, Inc. (b)			50	%			(4,169	)			(3,355	)
						$	74,358			$	76,975

W. P. Carey 9/30/2008 10-Q — 12

Notes to Consolidated Financial Statements

Combined summarized financial information of our interests in joint venture properties (for the entire entities, not our proportionate share) is presented below (in thousands):

		September 30, 2008				December 31, 2007
Assets		$	858,761			$	872,056
Liabilities			(623,182	)			(643,154	)
Owner’s equity		$	235,579			$	228,902

		Three months ended September 30,								Nine months ended September 30,
		2008				2007				2008				2007
Revenues		$	22,045			$	18,491			$	66,847			$	48,443
Expenses			(15,892	)			(15,433	)			(49,907	)			(38,139	)
Net income		$	6,153			$	3,058			$	16,940			$	10,304
Our share of net income from equity investments in real estate		$	2,072			$	2,941			$	6,158			$	5,340

Note 7. Discontinued Operations

Tenants from time to time may vacate space due to lease buy-outs, elections not to renew, company insolvencies or lease rejections in the bankruptcy process. In such cases, we assess whether the highest value is obtained from re-leasing or selling the property. In addition, in certain cases, we may elect to sell a property that is occupied if it is considered advantageous to do so. When it is determined that the relevant criteria have been met in accordance with SFAS No. 144 “Accounting for the Impairment or Disposal of Long-Lived Assets” (“SFAS 144”), the asset is reclassified as an asset held for sale.

Subsequent to the sale of a domestic property in 2004, which was reflected in discontinued operations, we entered into litigation with the former tenant. In June 2008, we received $3.8 million from the former tenant in connection with the resolution of the lawsuit.

During the nine months ended September 30, 2007, we sold two domestic properties for $6 million, net of selling costs, and in addition received lease termination proceeds of $1.9 million. We recognized a combined net gain on sale of $1 million, exclusive of impairment charges recognized in prior periods. Impairment charges totaling $2.5 million were recognized in prior periods to write down the value of one of these properties to its estimated net sales proceeds. In addition, in September 2007, we entered into a contract to sell a domestic property for $4.6 million and recognized an impairment charge of $2.3 million to reduce the property’s carrying value to its estimated net sales proceeds. This sale was completed in October 2007.

In accordance with SFAS 144, the results of operations for properties held for sale or disposed of are reflected in the consolidated financial statements as discontinued operations for all periods presented and are summarized as follows (in thousands):

		Three months ended September 30,								Nine months ended September 30,
		2008				2007				2008				2007
Revenues		$	—			$	1,524			$	3,877			$	6,020
Expenses			—				(1,102	)			(14	)			(3,486	)
Gain on sale of real estate, net			—				—				—				962
Impairment charges			—				(2,317	)			—				(2,317	)
(Loss) income from discontinued operations		$	—			$	(1,895	)		$	3,863			$	1,179

W. P. Carey 9/30/2008 10-Q — 13

Notes to Consolidated Financial Statements

Note 8. Commitments and Contingencies

As of September 30, 2008, we were not involved in any material litigation. We note the following:

Maryland Securities Commission

The Maryland Securities Commission has previously sought information from Carey Financial and CPA^®:15 relating to the previously settled SEC investigation described in Note 9. While it is possible that Maryland or another state could commence proceedings against Carey Financial relating to the SEC investigation, we do not currently expect that any such proceedings, if commenced, would have a material effect on us incremental to that caused by the SEC settlement described in Note 9.

Payson v. Park et al.

On April 24, 2008, a shareholder, Herbert Payson, filed a shareholder derivative complaint in New York state court against us, as nominal defendant, and certain members of the board of directors and several current and former executive officers alleging breach of their fiduciary duties resulting from the matters alleged in the SEC investigation described in Note 9. Plaintiff claims that the conduct alleged caused damages to us, including but not limited to the $30 million paid by us in connection with our settlement with the SEC and costs incurred in connection with the investigation by the SEC. On June 20, 2008, all defendants filed a motion to dismiss the complaint on the grounds that the shareholder had failed to make a pre-suit demand on the board of directors as required by law and should not be excused from doing so, and a hearing was held on that motion on October 10, 2008. We and the individual defendants intend to defend ourselves vigorously against the action.

Los Angeles Unified School District

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. The Plaintiff filed an appeal, and in August 2008, the California Court of Appeal affirmed the dismissal and thereafter denied Plaintiff’s request for a rehearing. In October 2008, Plaintiff filed a Petition for Review by the California Supreme Court, which Petition is pending. The Plaintiff may still seek to serve us and our other subsidiary in this action. However, we believe, based on the information currently available to us, that, if the dismissal is not sustained and if we are served, we and our subsidiaries have meritorious defenses to such claims.

Other

We have provided indemnification in connection with divestitures of certain of our properties. These indemnities address a variety of matters including environmental liabilities. Our maximum obligations under such indemnification are not subject to reasonable estimation. We are not aware of any claims or other information that would give rise to material payments under such indemnifications.

Note 9. Settlement of SEC Investigation

In March 2008, we entered into a settlement with the SEC with respect to all matters relating to a previously disclosed investigation. In connection with the settlement, we made payments of $20 million, including interest, to certain of our managed REITs and paid a $10 million civil penalty. In anticipation of this settlement, we took a charge of $30 million in the fourth quarter of 2007 and recognized an offsetting $9 million tax benefit in the same period. As a result, the settlement is reflected as “Decrease in settlement provision” in our Consolidated Statement of Cash Flows for the nine months ended September 30, 2008.

We recognized a gain of $1.8 million for the nine months ended September 30, 2008 related to an insurance reimbursement of certain professional services costs in July 2008, which were incurred in connection with the SEC investigation that we settled in the first quarter of 2008.

For additional information about the SEC investigation and the settlement, please refer to our Annual Report on Form 10-K for the year ended December 31, 2007 filed with the SEC.

W. P. Carey 9/30/2008 10-Q — 14

Notes to Consolidated Financial Statements

Note 10. Risk Management and Use of Derivative Financial Instruments

Risk Management

In the normal course of our on-going business operations, we encounter economic risk. There are three main components of economic risk: interest rate risk, credit risk and market risk. We are subject to interest rate risk on our interest-bearing liabilities. Credit risk is the risk of default on our operations and tenants’ inability or unwillingness to make contractually required payments. Market risk includes changes in the value of the properties and related loans we hold due to changes in interest rates or other market factors as well as changes in the value of the shares we hold in the CPA^® REITs. In addition, we own investments in Europe and are also subject to the risks associated with changing foreign currency exchange rates. We manage foreign currency exchange rate movements by generally placing both our debt obligation to the lender and the tenant’s rental obligation to us in the same currency but are subject to such movements to the extent of the difference between the rental obligation and the debt service. We also face challenges with repatriating cash from our foreign investments. We may encounter instances where it is difficult to repatriate cash due to jurisdictional restrictions. We may also encounter instances where repatriating cash will result in current or future tax liabilities.

We do not generally use derivative financial instruments to manage foreign currency rate risk exposure and generally do not use derivative instruments to hedge credit/market risks or for speculative purposes.

Interest Rate Swaps

We are exposed to the impact of interest rate changes primarily through our borrowing activities. To limit this exposure, we attempt to obtain mortgage financing on a long-term, fixed-rate basis. However, from time to time, we or our venture partners may obtain variable rate mortgage loans and may enter into interest rate swap agreements with counterparties, which effectively convert the variable rate debt service obligations of the loan to a fixed rate. Our objective in using derivatives is to limit our exposure to interest rate movements. Interest rate swaps are agreements in which a series of interest rate flows are exchanged over a specific period. The notional amount on which the swaps are based is not exchanged.

In connection with an investment in Poland, we obtained $10.1 million in variable rate mortgage financing (based upon the exchange rate on the date of acquisition), and entered into an interest rate swap agreement with a notional amount that matches the scheduled debt principal amounts to the outstanding balance over the related term ending March 2018. The interest rate swap agreement was effective commencing March 2008.

Interest Rate Caps

Another way in which we attempt to limit our exposure to the impact of interest rate changes is through the use of interest rate caps. Interest rate caps limit the borrowing rate of variable rate debt obligations while allowing participants to share in downward shifts in interest rates. Our secured credit facility has a variable interest rate consisting of the one-month LIBOR plus a spread of 225 basis points. In March 2008, we obtained a $35.5 million interest rate cap whereby the LIBOR component of the interest rate under the secured credit facility cannot exceed 4.75% through December 2008. We are not accounting for this instrument as a hedge, and as such, any change in value is reflected in the consolidated statement of income.

Fair Value of Interest Related Derivative

Interest rate swaps and caps may be designated as cash flow hedges, with changes in fair value included as a component of other comprehensive income in members’ equity, or as fair value hedges, with changes in fair value reflected in earnings. Our interest rate swap and cap derivative financial instruments at September 30, 2008 are summarized as follows (dollars in thousands):

						Notional				Effective				Expiration				Fair
		Type				Amount				Interest Rate				Date				Value (b)
3-Month Euribor (a)		“Pay-fixed” swap				$	9,505				4.2	%			3/2018			$	184
3-Month LIBOR		Interest rate cap					35,185				5.4	%			12/2008				5
																		$	189

Changes in the fair value of interest rate swaps included in other comprehensive income in members’ equity reflected an unrealized (loss) gain of $(0.3 million) and $0.2 million for the three and nine months ended September 30, 2008, respectively. There were no changes in the fair value of interest rate caps included in gain on sale of securities, foreign currency transactions and other, net, for the

W. P. Carey 9/30/2008 10-Q — 15

Notes to Consolidated Financial Statements

three and nine months ended September 30, 2008, respectively. We did not have any interest rate swaps or caps during the three and nine months ended September 30, 2007.

Concentration of Credit Risk

Concentrations of credit risk arise when a number of tenants are engaged in similar business activities or have similar economic features that would cause their ability to meet contractual obligations, including those to us, to be similarly affected by changes in economic conditions. We regularly monitor our portfolio to assess potential concentrations of credit risk. We believe our portfolio is reasonably well diversified and does not contain any unusual concentration of credit risks.

The majority of our directly owned real estate properties and related loans are located in the United States, with Texas (15%) and California (12%) representing the only significant geographic concentration (10% or more of current annualized lease revenue). As of September 30, 2008, no individual tenant accounted for more than 10% of current annualized lease revenue. As of September 30, 2008, our directly owned real estate properties contain significant concentrations in the following asset types: industrial (38%), office (36%) and warehouse/distribution (13%); and in the following tenant industries: telecommunications (15%) and business and commercial services (15%).

Note 11. Members’ Equity and Stock Based and Other Compensation

Stock Based and Other Compensation

The total compensation expense (net of forfeitures) for our stock-based compensation plans was $2 million and $1.5 million for the three months ended September 30, 2008 and 2007, respectively, and $5.9 million and $3.8 million for the nine months ended September 30, 2008 and 2007, respectively. The tax benefit recognized by us related to stock-based compensation plans totaled $0.9 million and $0.7 million for the three months ended September 30, 2008 and 2007, respectively, and $2.6 million and $1.7 million for the nine months ended September 30, 2008 and 2007, respectively.

We have several stock-based compensation plans or arrangements, including the 1997 Share Incentive Plan (the “Incentive Plan”), Non-Employee Directors’ Plan, Employee Share Purchase Plan, Partnership Equity Plan and WPCI stock/options. There has been no significant activity or changes to the terms and conditions of any of these plans or arrangements during 2008, other than those described below.

During the three and nine months ended September 30, 2008, a corporation wholly-owned by our Chairman, Wm. Polk Carey, exercised warrants to purchase a total of 345,930 and 695,930 shares of our common stock, respectively, at $23 per share, for which we received proceeds of $8 million and $16.1 million, respectively. During the nine months ended September 30, 2007, a total of 1,500,000 warrants were exercised by that corporation at $21 per share in a cashless exercise for which 567,164 shares of our common stock were issued. These warrants were issued in 1998 as compensation for investment banking services in connection with structuring the consolidation of the CPA^® Partnerships.

The Incentive Plan authorizes the issuance of up to 6,200,000 shares of our common stock and provides for the grant of (i) share options, which may or may not qualify as incentive stock options under the Internal Revenue Code (“the Code”), (ii) performance shares or units, (iii) dividend equivalent rights and (iv) restricted shares or units.

In December 2007, the compensation committee of our board of directors approved a long-term incentive compensation program and terminated further contributions to the Partnership Equity Unit Plan. In January 2008, the board of directors approved initial long-term incentive awards consisting of 111,300 restricted units and 138,250 performance units. The restricted units vest over three years. Vesting and payment of the performance units is conditional on certain performance goals being met by us during the performance period from January 1, 2008 through December 31, 2010. The ultimate number of performance units to be issued will depend on the extent to which we meet the performance goals and can range from zero to three times the original awards. Upon vesting, the restricted and performance units may be converted into shares of our common stock. Both the restricted and performance units carry dividend equivalent rights. Dividend equivalent rights on restricted units are paid in cash on a quarterly basis whereas dividend equivalent rights on performance units accrue during the performance period and may be converted into additional shares of common stock at the conclusion of the performance period to the extent the underlying units vest. Dividend equivalent rights are accounted for as a reduction to retained earnings to the extent that the awards are expected to vest. For awards that are not expected to vest or do not ultimately vest, dividend equivalent rights are accounted for as additional compensation expense.

As a result of issuing these awards, we currently expect to recognize compensation expense totaling approximately $8.5 million over the vesting period, of which $0.7 million and $2.1 million were recognized during the three and nine months ended September 30, 2008, respectively.

W. P. Carey 9/30/2008 10-Q — 16

Notes to Consolidated Financial Statements

Earnings Per Share

Basic and diluted earnings per share were calculated as follows (in thousands, except share amounts):

		Three months ended September 30,								Nine months ended September 30,
		2008				2007				2008				2007
Net income — basic		$	19,198			$	20,409			$	56,147			$	73,239
Income effect of dilutive securities, net of taxes			263				398				598				2,371
Net income — diluted		$	19,461			$	20,807			$	56,745			$	75,610
Weighted average shares outstanding — basic			39,294,889				38,298,979				39,125,329				38,117,280
Effect of dilutive securities			1,004,184				1,302,874				1,167,765				1,601,242
Weighted average shares outstanding — diluted			40,299,073				39,601,853				40,293,094				39,718,522

Securities included in our diluted earnings per share determination consist of stock options and warrants, restricted stock and units and performance units. Securities representing a total of 53,211 and 24,115 shares of our common stock for the three months ended September 30, 2008 and 2007, respectively, were excluded from the earnings per share computations above as their effect would have been anti-dilutive. There were no such anti-dilutive securities for the nine months ended September 30, 2008 and 2007.

Share Repurchase Program

In March 2008, we terminated our existing $40 million share repurchase program, which commenced in June 2007. During the nine months ended September 30, 2008, we repurchased a total of $5.1 million of our common stock, all of which were purchased in the quarter ended March 31, 2008. During the term of the program, we repurchased a total of $30.7 million of our common stock. For a description of an additional share repurchase program announced after September 30, 2008, see Note 13.

Note 12. Income Taxes

We have elected to be treated as a partnership for U.S. federal income tax purposes and prior to our restructuring in October 2007 conducted our real estate ownership operations through partnerships or limited liability companies electing to be treated as partnerships for U.S. federal income tax purposes. As partnerships, we and our partnerships subsidiaries are generally not directly subject to tax. We conduct our investment management services through wholly owned taxable corporations. These operations are subject to federal, state, local and foreign taxes as applicable. We conduct business in the United States and Europe, and as a result, we or one or more of our subsidiaries file income tax returns in the U.S. federal jurisdiction and various state and certain foreign jurisdictions. With few exceptions, we are no longer subject to U.S. federal, state and local, or non-U.S. income tax examinations for years before 2004. Certain of our inter-company transactions that have been eliminated in consolidation for financial accounting purposes are also subject to taxation. Periodically, shares in the CPA^® REITs that are payable to our taxable subsidiaries in consideration for services rendered are distributed from these subsidiaries to us.

At September 30, 2008, we had unrecognized tax benefits of $0.5 million (net of federal benefits) that, if recognized, would favorably affect the effective income tax rate in any future periods. We recognize interest and penalties related to uncertain tax positions in income tax expense. As of September 30, 2008, we have approximately $0.2 million of accrued interest and penalties related to uncertain tax positions.

During the next year, we currently expect the liability for uncertain taxes to increase on a similar basis to the additions that occurred in 2007. Our tax returns are subject to audit by taxing authorities. Such audits can often take years to complete and settle. The tax years 2004-2007 remain open to examination by the major taxing jurisdictions to which we are subject.

Our wholly owned REIT subsidiary, Carey REIT II, Inc. (“Carey REIT II”), owns our real estate assets and has elected to be treated as a REIT under Sections 856 through 860 of the Code with the filing of its 2007 return. In order to maintain its qualification as a REIT, Carey REIT II is required to, among other things, distribute at least 90% of its net taxable income to its shareholders (excluding net capital gains) and meet certain tests regarding the nature of its income and assets. As a REIT, Carey REIT II is not subject to U.S. federal income tax to the extent it distributes its net taxable income annually to its shareholders. Accordingly, no provision for U.S. federal income taxes is included in the consolidated financial statements. We have operated and intend to continue to operate so that Carey REIT II meets the requirements for taxation as a REIT. Many of these requirements, however, are highly technical and complex. If we were to fail to meet these requirements, Carey REIT II would be subject to U.S. federal income tax.

W. P. Carey 9/30/2008 10-Q — 17

Notes to Consolidated Financial Statements

Note 13. Segment Reporting

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

Investment Management

This business segment includes investment 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 that 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 Ownership

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. Because of our legal structure, these operations are generally not subject to U.S. 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 (in thousands):

		Three months ended September 30,								Nine months ended September 30,
		2008				2007				2008				2007
Investment Management
Revenues (a)		$	43,843			$	31,848			$	114,667			$	141,836
Operating expenses (a)			(27,886	)			(14,929	)			(78,199	)			(55,041	)
Other, net (b)			1,090				6,937				8,973				10,064
Provision for income taxes			(5,846	)			(11,171	)			(20,186	)			(47,685	)
Income from continuing operations		$	11,201			$	12,685			$	25,255			$	49,174
Real Estate Ownership (c)
Revenues		$	22,793			$	22,729			$	67,844			$	66,462
Operating expenses			(11,167	)			(11,436	)			(33,854	)			(33,428	)
Interest expense			(5,004	)			(5,269	)			(14,579	)			(15,271	)
Other, net (b)			1,368				3,820				7,837				6,251
Benefit from (provision for) income taxes			7				(225	)			(219	)			(1,128	)
Income from continuing operations		$	7,997			$	9,619			$	27,029			$	22,886
Total Company
Revenues		$	66,636			$	54,577			$	182,511			$	208,298
Operating expenses			(39,053	)			(26,365	)			(112,053	)			(88,469	)
Interest expense			(5,004	)			(5,269	)			(14,579	)			(15,271	)
Other, net (b)			2,458				10,757				16,810				16,315
Provision for income taxes			(5,839	)			(11,396	)			(20,405	)			(48,813	)
Income from continuing operations		$	19,198			$	22,304			$	52,284			$	72,060

		Equity Investments in Real Estate as of								Total Long-Lived Assets (d) as of								Total Assets as of
		September 30, 2008				December 31, 2007				September 30, 2008				December 31, 2007				September 30, 2008				December 31, 2007
Investment Management		$	192,209			$	165,702			$	202,178			$	178,965			$	339,623			$	347,086
Real Estate Ownership (c)			74,358				76,975				752,760				772,058				785,231				806,198
Total Company		$	266,567			$	242,677			$	954,938			$	951,023			$	1,124,854			$	1,153,284

W. P. Carey 9/30/2008 10-Q — 18

Notes to Consolidated Financial Statements

Note 14. Subsequent Event

In October 2008, we announced that our board of directors had approved a program to repurchase up to $10 million of our common stock through December 15, 2008. Through November 5, 2008, we repurchased shares totaling $2.3 million under this program.

W. P. Carey 9/30/2008 10-Q — 19

Management’s discussion and analysis of financial condition and results of operations (“MD&A”) is intended to provide a reader of our financial statements with management’s perspective on our financial condition, results of operations, liquidity and certain other factors that may affect our future results. Our MD&A should be read in conjunction with our Annual Report on Form 10-K for the year ended December 31, 2007.

Business Overview

We provide long-term sale-leaseback and build-to-suit transactions for companies worldwide and manage a global investment portfolio. We operate two business segments, investment management and real estate ownership, as described below. As of September 30, 2008, we own and manage over 850 commercial properties domestically and internationally, including our own portfolio. Our own portfolio is comprised of our full or partial ownership interest in 187 commercial properties, substantially all of which are net leased to 84 tenants, with a total of approximately 18 million square feet (on a pro rata basis) and an occupancy rate of approximately 95%.

Within our investment management segment, 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”), Corporate Property Associates 16 – Global Incorporated (“CPA^®:16 – Global”) and Corporate Property Associates 17 Incorporated (“CPA^®:17 – Global”) (collectively, the “CPA^® REITs”).

Our primary business segments are:

Investment Management — We provide services to the CPA^® REITs in connection with structuring and negotiating investment and debt placement transactions (structuring revenue) and provide on-going management of their portfolios (asset-based management and performance revenues). Asset-based management and performance revenues for the CPA^® REITs are determined based on assets under management. In addition, we also receive a percentage of distributions of available cash from CPA^®:17 – Global’s operating partnership. As funds available to the CPA^® REITs are invested, the asset base for which we earn revenue increases. We may also earn incentive and disposition revenue and receive other compensation in connection with providing liquidity alternatives to CPA^® REIT shareholders.

Real Estate Ownership — We own and invest in commercial properties globally that are then leased to companies, primarily on a triple net leased basis. We may also invest in other properties on an opportunistic basis.

Highlights

Factors Affecting Comparability

Under the terms of our advisory agreement with CPA^®:16 – Global, certain revenues were to be deferred and were not payable to us until CPA^®:16 – Global met an agreed-upon performance criterion. In June 2007, CPA^®:16 – Global met its performance criterion, and as a result, we recognized previously deferred revenue totaling $45.9 million (consisting of asset management revenue of $11.9 million, structuring revenue of $31.7 million and interest income on the previously deferred structuring revenue of $2.3 million). Net income recognized in connection with CPA^®:16 – Global achieving its performance criterion totaled $21.6 million. In addition, as a result of CPA^®:16 – Global meeting its performance criterion, we recognized and paid to certain employees incentive and commission compensation of $6.2 million and interest thereon of $0.4 million that had previously been deferred. This second quarter 2007 event, which did not recur in 2008, had a significant positive impact on the results of our investment management segment for the nine months ended September 30, 2007 and as such makes it difficult to compare current year-to-date results with the comparable prior year period.

Financial Highlights

-

Total revenues, excluding reimbursed costs from affiliates, were $55.3 million for the third quarter of 2008, compared to $51.2 million in the third quarter of 2007, and $149.8 million for the nine months ended September 30, 2008, compared to $198.2 million for the nine months ended September 30, 2007. Revenues from our investment management operations for the nine months ended September 30, 2007 included the recognition of previously deferred revenue totaling $45.9 million from CPA®:16 – Global meeting its performance criterion. We also experienced record investment volume during the nine months ended September 30, 2007.

W. P. Carey 9/30/2008 10-Q — 20

	-		Net income was $19.2 million for the third quarter of 2008, compared to $20.4 million in the third quarter of 2007, and $56.1 million in the nine months ended September 30, 2008, compared to $73.2 million in the comparable prior year period. Net income from investment management for the nine months ended September 30, 2007 was positively affected by the $21.6 million recognized upon the achievement of CPA®:16 – Global’s performance criterion. Net income from our real estate ownership increased by $0.3 million and $6.8 million, respectively, for the three and nine months ended September 30, 2008 over the comparable prior year periods.
	-		Cash flow from operating activities for the nine months ended September 30, 2008 was $47.5 million, compared to $24.9 million for the prior year period. Our cash flows fluctuate period to period due to a number of factors as described in Financial Condition below. Cash flow from operating activities during 2008 was affected both by the receipt in January 2008 of $28.3 million of deferred acquisition revenue from CPA®:16 – Global, which revenue had been recognized at the time CPA®:16 – Global met its performance criterion in June 2007, and by the payment of $30 million related to the SEC settlement. During the nine months ended September 30, 2007, cash flow from operating activities was affected by the payment of taxes of approximately $21 million in connection with revenue earned in December 2006 from the CPA®:12 / CPA®:14 merger and deferred compensation totaling $6.6 million in connection with CPA®:16 – Global achieving its performance criterion.
	-		Our quarterly cash distribution increased to $0.492 per share for the third quarter of 2008, or $1.968 per share on an annualized basis.

Management considers the performance metrics described above as well as certain non-GAAP performance metrics to be important measures in the evaluation of our results of operations, liquidity and capital resources. 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 investment management segment and seeking to increase value in our real estate ownership segment. Results of operations by reportable segment are described below.

Managed Portfolio Highlights

Acquisition Activity — We earn revenue from the acquisition and disposition of assets on behalf of the CPA^® REITs. The revenue we earn from the disposition of assets is recognized upon liquidation of a CPA^® REIT’s portfolio. During the three months ended September 30, 2008, we structured real estate investments totaling approximately $259 million on behalf of the CPA^® REITs.

Fundraising Activity — Since commencing its initial public offering to raise up to $2 billion of common stock in December 2007, CPA^®:17 – Global has raised more than $300 million through November 5, 2008.

Current Trends

The deterioration in the credit and real estate financing markets that occurred in the second half of 2007 continued and substantially worsened in the first nine months of 2008. In addition, deteriorating economic conditions have resulted in heightened turmoil in the financial markets. In recent months, many markets have experienced nearly unprecedented volatility. We expect these markets, both domestic and international, to remain subject to continued volatility for the foreseeable future, a condition which necessarily renders any discussion of current trends highly uncertain. Nevertheless, our view of current trends is presented below:

Investment Opportunities

In times such as the present, when financing is difficult to obtain, we believe sale-leaseback transactions can often be a more attractive alternative for a corporation to raise capital, which may result in increased and more attractive investment opportunities for our managed funds. However, as a result of the deterioration in the real estate financing markets, it has become extremely difficult for us to obtain financing for sale-leaseback transactions, and we expect to complete no more than a limited number of transactions on behalf of the CPA^® REITs for the remainder of 2008. While the difficult financing markets have limited our ability to complete transactions, pricing on potential sale-leaseback transactions has started to become more attractive so that we may be able to achieve desired returns that would allow us to complete some transactions without financing. We believe the pricing improvements are due, in part, to the continued deterioration in the credit markets, which has made obtaining financing for most companies extremely difficult. We earn structuring revenue on acquisitions completed on behalf of the CPA^® REITs and expect such revenue to fluctuate based on changes in our investment volume period over period.

Certain of the sale-leaseback opportunities in which we invest on behalf of our managed funds arise in connection with private equity transactions. While private equity firms have raised a significant amount of capital for investment in recent periods, transaction volume has decreased significantly in part as a result of the deterioration in the credit financing markets. As a result, our participation in new private equity transactions has also decreased. While this is likely to affect us in the near term, we believe that attractive

W. P. Carey 9/30/2008 10-Q — 21

investment opportunities, including future participation in either new private equity transactions or transactions with existing portfolio companies owned by private equity firms, will be available to our managed funds.

International investments continue to make up a significant portion of our investment activity on behalf of the CPA^® REITs. For the nine months ended September 30, 2008, international investments accounted for 53% of total investments we made on behalf of the CPA^® REITs. For the year ended December 31, 2007, international investments accounted for 55% of total investments. We currently expect international transactions 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.

Fundraising

During times of heightened turmoil in the financial markets, investors are generally more cautious and may delay investment decisions. While we have been pleased with our fundraising results to date, and raised slightly more funds in the third quarter of 2008 than in the second quarter, the pace of fundraising slowed beginning in September 2008. We cannot predict what fundraising trends will be in the future, and while we have recently added to the number of selected dealers for CPA^®:17 - Global, these additional outlets are not expected to account for a material percentage of CPA^®:17 - Global’s sales in the near term. Since commencing fundraising on behalf of CPA^®:17 - Global in late December 2007, we have raised more than $300 million through November 5, 2008.

Financing Conditions

The real estate financing markets have continued to deteriorate during 2008, making it increasingly difficult to finance new investments both domestically and internationally. We expect these conditions to continue in the near term and cannot predict when these markets will recover. At present, financing on behalf of the CPA^® REITs, particularly for larger transactions and for certain property types, is not available. However, as described above, pricing on potential sales-leaseback transactions is starting to improve and may allow us to complete some transactions without financing.

The deterioration in the real estate financing markets has also made refinancing debt extremely difficult. All of our property level debt is non-recourse, which means that if we default on a mortgage obligation our exposure is generally limited to the equity we have invested in that property. In addition, we have a $250 million line of credit, maturing in 2011, that can be increased to $300 million and extended for an additional year subject to satisfying certain conditions. This line of credit can be used for working capital needs and other commitments and may be used for future investments. The line of credit contains covenants that restrict the amount of distributions that we can pay. We are in compliance with the line of credit’s covenants at September 30, 2008.

Credit Conditions/Commercial Real Estate

Over the last several years, commercial real estate values have risen significantly as a result of the relatively low long-term interest rate environment and aggressive credit conditions. In addition, credit spreads have been narrow compared to historical averages. As a result, we have benefited from increases in the valuations of the CPA^® REIT portfolios through our ownership of shares in the CPA^® REITs and increased management revenue. Although long-term interest rates remain relatively low by historical standards, there has been a significant increase in credit spreads across the credit spectrum. Increases in credit spreads or deterioration in individual tenant credits may lower the appraised values of properties owned by the CPA^® REITs we manage and thereby reduce our asset management revenues and the investment performance of the CPA^® REITs. We generally enter into long term leases with our tenants to mitigate the impact that fluctuations in interest rates have on the values of the portfolios we manage.

Corporate Defaults

We expect that corporate defaults may increase during the remainder of 2008 and beyond, which will require more intensive management of both the assets we own and those we manage on behalf of the CPA^® REITs. We believe that our emphasis on ownership of assets that are critically important to a tenant’s operations mitigates, to some extent, the risk of a tenant defaulting on its lease upon filing for bankruptcy protection. In addition, we attempt to diversify the portfolios by tenant and tenant industry to mitigate the effect of tenant defaults. However, even where defaults do not occur, a tenant’s credit profile may deteriorate which in turn could affect the value of the lease and may require us to incur impairment charges on properties we own, even where the tenant is continuing to make the required lease payments. Furthermore, a tenant may reject our lease in bankruptcy, which could subject us to losses as the property may be worth less without the lease. Corporate defaults by tenants in the CPA^® REIT portfolios could also have a negative impact on our results of operations through our income from equity investments in CPA^® REITs and our ability to market CPA^®:17 – Global.

We closely monitor tenant performance for our own and our managed portfolios through review of financial statements, meetings with management and review of financial covenant compliance where we have financial covenants. We have seen an increase in the level of stress of tenants in certain industries, including among others automotive parts, home building materials and food industries. We have also seen that consumer- related industries are feeling the effects of the slowing economy, as well as businesses that have operated with relatively higher levels of leverage.

We monitor closely rent delinquencies as a precursor to a potential default. We have seen a small increase in rent delinquencies in 2008. We have devoted additional resources to enhance tenant monitoring and rent collection activities. Nevertheless, we expect in the next year that there may be additional corporate defaults in these portfolios.

We believe that our portfolio and those we manage on behalf of the CPA^® REITs are reasonably well diversified and do not contain any unusual concentrations of credit risk. None of the portfolios we own or manage has any significant concentration of tenants in the financial services industry.

W. P. Carey 9/30/2008 10-Q — 22

Lease Expirations

A significant amount of the leases in our owned portfolio expire by 2011. Based on annualized contractual lease revenue, lease expirations for each of the next few years are as follows: 8% in 2009, 18% in 2010, and 18% in 2011. We actively manage our portfolio and work with tenants generally beginning three years prior to lease expiration. In certain cases, we obtain lease renewals from our tenants. However, tenants may exercise purchase options rather than renew their lease, and we may seek replacement tenants or sell the property.

Competition

As a result of the continued deterioration in the credit and real estate financing markets, we believe there is a decrease in the level of competition for the investments we make on behalf of our managed funds, both domestically and internationally.

CPI

Despite slow economic growth rates in recent periods, inflation rates in the U.S. and the Euro zone have continued to rise. Increases in inflation are sometimes associated with rising long-term interest rates, which may have a negative impact on the value of the portfolios we own and manage. To mitigate this risk, our leases and those of the CPA^® REITs generally have rent increases based on formulas indexed to increases in the Consumer Price Index (“CPI”) or other similar indices for the jurisdiction in which the property is located. To the extent that the CPI increases, additional rental income streams may be generated for these leases and thereby mitigate the impact of inflation.

Exchange Rate Movements

We have foreign investments and as a result are subject to risk from the effects of exchange rate movements. Our results of foreign operations benefit from a weaker U.S. dollar and are adversely affected by a stronger U.S. dollar relative to foreign currencies. Despite the strengthening of the U.S. dollar in the final weeks of the third quarter of 2008, the average rate for the U.S. dollar in relation to the Euro for both the three and nine months ended September 30, 2008 was considerably weaker than the comparable prior year periods, resulting in a positive impact on our results of operations for Euro-denominated investments. Significant deterioration in the value of the Euro could have an adverse impact on our results of operations, and those of our managed funds, in the future. Investments denominated in the Euro accounted for approximately 9% and 11% of our annualized lease revenues at September 30, 2008 and 2007, respectively.

W. P. Carey 9/30/2008 10-Q — 23

Results of Operations

We evaluate our results of operations by our two major business segments — investment management and real estate ownership. A summary of comparative results of these business segments is as follows:

Investment Management (in thousands)

		Three months ended September 30,												Nine months ended September 30,
		2008				2007				Change				2008				2007				Change
Revenues
Asset management revenue		$	20,205			$	18,648			$	1,557			$	60,370			$	63,886			$	(3,516	)
Structuring revenue			10,818				9,778				1,040				17,403				67,809				(50,406	)
Wholesaling revenue			1,517				—				1,517				4,145				—				4,145
Reimbursed costs from affiliates			11,303				3,422				7,881				32,749				10,141				22,608
			43,843				31,848				11,995				114,667				141,836				(27,169	)
Operating Expenses
General and administrative			(15,423	)			(10,461	)			(4,962	)			(42,165	)			(41,767	)			(398	)
Reimbursable costs			(11,303	)			(3,422	)			(7,881	)			(32,749	)			(10,141	)			(22,608	)
Depreciation and amortization			(1,160	)			(1,046	)			(114	)			(3,285	)			(3,133	)			(152	)
			(27,886	)			(14,929	)			(12,957	)			(78,199	)			(55,041	)			(23,158	)
Other Income and Expenses
Other interest income			586				1,087				(501	)			1,667				4,974				(3,307	)
Income from equity investments in CPA® REITs			200				6,004				(5,804	)			4,759				7,972				(3,213	)
Minority interest in loss (income)			304				(154	)			458				697				(2,870	)			3,567
Gain (loss) on foreign currency transactions and other, net			—				—				—				1,850				(12	)			1,862
			1,090				6,937				(5,847	)			8,973				10,064				(1,091	)
Income from continuing operations before income taxes			17,047				23,856				(6,809	)			45,441				96,859				(51,418	)
Provision for income taxes			(5,846	)			(11,171	)			5,325				(20,186	)			(47,685	)			27,499
Net income from investment management		$	11,201			$	12,685			$	(1,484	)		$	25,255			$	49,174			$	(23,919	)

Asset Management Revenue

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; (iii) increases or decreases in the annual estimated net asset valuations of CPA^® REIT funds (which are not recorded for financial reporting purposes); (iv) increases or decreases in distributions of available cash (for CPA^®:17 – Global only); and (v) whether the CPA^® REITs are meeting their performance criteria. The availability of funds for new investments is substantially dependent on our ability to raise funds for investment by the CPA^® REITs.

For the three months ended September 30, 2008 as compared to the same period in 2007, asset management revenue increased by $1.6 million, primarily due to higher investment activity of the CPA^® REITs in the current year period.

For the nine months ended September 30, 2008 as compared to the same period in 2007, asset management revenue decreased by $3.5 million, primarily due to the recognition of $11.9 million of previously deferred performance revenue from CPA^®:16 – Global during the second quarter of 2007 following the achievement of its performance criterion, partially offset by higher investment activity of the CPA^® REITs in the current year period and increases in the annual estimated net asset valuations of CPA^®:14 and CPA^®:15 compared with the prior year.

Recent real estate investment volume includes over $1 billion (inclusive of a $446.4 million investment in April 2007) in investments on behalf of the CPA^® REITs during 2007 and $384 million during the nine months ended September 30, 2008.

W. P. Carey 9/30/2008 10-Q — 24

Currently, annual estimated net asset valuations are performed for CPA^®:14, CPA^®:15 and CPA^®:16 – Global. As a result of the annual valuations at December 31, 2007: CPA^®:14’s estimated net asset value increased to $14.50 per share (from $13.20); CPA^®:15’s estimated net asset value increased to $12.20 per share (from $11.40) and CPA^®:16 – Global’s initial valuation totaled $10.00 per share, which is equivalent to its initial offering price. In July 2008, as a result of a valuation performed as of April 30, 2008, CPA^®:14’s estimated net asset value was adjusted downward to $14.00 per share. This reduction in CPA^®:14’s NAV did not have a significant impact on asset management revenue for the third quarter of 2008 and is not expected to have a significant impact on asset management revenue for the remainder of 2008.

Structuring Revenue

Structuring revenue includes current and deferred acquisition revenue from structuring investments and transactions on behalf of the CPA^® REITs. Investment activity is subject to significant period-to-period variation.

For the three months ended September 30, 2008 as compared to the same period in 2007, structuring revenue increased by $1 million, primarily due to an increase in investment volume in the current quarter.

For the nine months ended September 30, 2008 as compared to the same period in 2007, structuring revenue decreased by $50.4 million. This decrease is primarily the result of the recognition of $31.7 million of previously deferred structuring revenue from CPA^®:16 – Global in the nine months ended September 30, 2007 in addition to a significant decrease in investment volume in the current year -to-date period.

We structured real estate investments totaling $259 million and $384 million, respectively, for the three and nine months ended September 30, 2008 as compared with $214 million and $950 million, respectively, for the comparable prior year periods. In addition to structuring real estate investments, during the nine months ended September 30, 2008 we also acquired $20 million of commercial mortgage-backed securities on behalf of CPA^®:17 – Global, for which we earned structuring revenues of 1% compared to an average of 4.5% that we generally earn for structuring long-term net lease investments on behalf of the CPA^® REITs (Note 3).

Wholesaling Revenue

We earn wholesaling revenue in connection with CPA^®:17 – Global’s initial public offering based on the number of shares sold. Wholesaling revenue earned is substantially offset by underwriting costs incurred in connection with the offering. Such underwriting costs are included in general and administrative expenses.

For the three and nine months ended September 30, 2008, we earned wholesaling revenue of $1.5 million and $4.1 million, respectively, in connection with CPA^®:17 – Global’s initial pubic offering, which commenced in December 2007.

Reimbursed and Reimbursable Costs

Reimbursed costs from affiliates (revenue) and reimbursable costs (expenses) represent costs incurred by us on behalf of the CPA^® REITs, consisting primarily of 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 therefore has no impact on net income.

For the three and nine months ended September 30, 2008 as compared to the same periods in 2007, reimbursed and reimbursable costs increased by $7.9 million and $22.6 million, respectively, primarily due to broker-dealer commissions related to CPA^®:17 – Global’s initial public offering, which commenced in December 2007.

General and Administrative

For the three months ended September 30, 2008 as compared to the same period in 2007, general and administrative expenses increased by $5 million, primarily due to an increase in compensation-related costs of $1.9 million as well as increases in underwriting costs of $1.4 million, professional fees of $1 million and business development costs of $0.9 million. Underwriting costs were substantially offset by wholesaling revenue earned in connection with providing these services.

Compensation-related costs were higher in the third quarter of 2008 due to several factors, including an increase of $0.7 million in the amortization of stock-based compensation to key officers in connection with a new long-term incentive compensation program implemented in 2008, higher investment volume during the current quarter as compared with the third quarter of 2007 resulting in increased commissions of $0.5 million and severance costs for terminated employees of $0.2 million. Underwriting costs represent costs incurred in connection with CPA^®:17 – Global’s initial public offering, which commenced in December 2007. Professional fees represent auditing, tax and consulting services and include fees incurred in connection with our international operations. The increase in business development costs relates primarily to our international operations.

W. P. Carey 9/30/2008 10-Q — 25

For the nine months ended September 30, 2008 as compared to the same period in 2007, general and administrative expenses increased by $0.4 million, primarily due to increases in underwriting costs of $3.6 million, business development costs of $1.8 million and professional fees of $1.4 million. These increases were substantially offset by a decrease in compensation related costs of $6.1 million.

Underwriting costs, professional fees and business development expenses increased due to the same factors described above. Compensation - related costs were significantly higher in the 2007 period, primarily due to CPA^®:16 – Global achieving its performance criterion in June 2007 as well as a higher investment volume. As a result of CPA^®:16 – Global achieving its performance criterion, we recognized $6.6 million of previously deferred compensation costs in the second quarter of 2007. Lower investment volume in the 2008 period resulted in a decrease in commissions of $3.1 million. The decreases in compensation costs for 2008 were partially offset by an increase of $2.1 million in the amortization of stock-based compensation to key officers as described above and severance costs of $0.3 million.

Other Interest Income

Other interest income is primarily comprised of interest earned on deferred structuring revenue due from the CPA^® REITs.
For the three and nine months ended September 30, 2008 as compared to the same periods in 2007, other interest income decreased by $0.5 million and $3.3 million, respectively. The 2007 comparable periods include interest earned on $31.7 million of deferred structuring revenue due from CPA^®:16 – Global. As a result of CPA^®:16 – Global achieving its performance criterion, we recognized interest income of $2.3 million in June 2007 that had been previously deferred and received the first annual installment of the deferred structuring revenue totaling $28.3 million in January 2008.

Income from Equity Investments in CPA^® REITs

Income from equity investments in CPA^® REITs 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.

For the three and nine months ended September 30, 2008 as compared to the same periods in 2007, income from equity investments in CPA^® REITs decreased by $5.8 million and $3.2 million, respectively, primarily due to the recognition of out-of-period adjustments totaling $4.4 million and $3.5 million for the three and nine months ended September 30, 2007, respectively (Note 2). We also recognized approximately $0.7 million less in each of the current year periods from our equity investment in CPA^®:15, primarily as a result of impairment charges recognized by CPA^®:15 during the third quarter of 2008. These decreases were partially offset by the recognition of our share of overall increases in net income in CPA^®:14 and CPA^®:16 – Global. Our share of CPA^®:17 – Global’s operating results for all periods presented was not significant as it is currently in its initial fundraising phase and has made a limited number of investments.

Minority Interest in Loss (Income)

We consolidate investments in which we are deemed to have a controlling interest. Minority interest in income represents the proportionate share of net income (revenue less expenses) from such investments that is attributable to the partner(s) holding the non-controlling interest. Minority interest is comprised of the results of operations of our subsidiary, W. P. Carey International (“WPCI”), in which two of our employees own a minority interest and reimbursements from a partnership agreement with certain affiliates, including the CPA^® REITs, to share the costs associated with leasing the home office space. Such costs are allocated among the participants in the entity based on gross revenues and are adjusted quarterly.

For the three months ended September 30, 2008, we recognized minority interest in loss of $0.3 million as compared to minority interest in income of $0.2 million in the same period in 2007. Our share of the loss generated from the cost sharing partnership agreement with certain affiliates remained relatively unchanged between the two periods. However, results of operations for WPCI were lower during the third quarter of 2008 as compared to 2007 because, beginning in the third quarter of 2008, WPCI no longer earns revenue from the management of our international assets as such revenue is now earned by a separate wholly-owned subsidiary, which is located in Amsterdam.

For the nine months ended September 30, 2008, we recognized minority interest in loss of $0.7 million as compared to minority interest in income of $2.9 million in the same period in 2007. Results of operations for WPCI were significantly lower in 2008, primarily due to the recognition, in June 2007, of previously deferred asset management and structuring revenue from CPA^®:16 – Global achieving its performance criterion and a reduction in international investment volume. As described above, 2007 was a record year in terms of investment volume with a significant portion coming from international investments. In addition, our share of the loss generated from the cost sharing partnership agreement with certain affiliates increased by $0.3 million.

W. P. Carey 9/30/2008 10-Q — 26

Gain (Loss) on Foreign Currency Transactions and Other, Net

We recognized a gain of $1.8 million for the nine months ended September 30, 2008 related to an insurance reimbursement of certain professional services costs in July 2008, which were incurred in connection with the SEC investigation that we settled in the first quarter of 2008. There were no gains or losses on foreign currency transactions and other, net for either of the three month periods ended September 30, 2008 or 2007.

Provision for Income Taxes

For the three months ended September 30, 2008 as compared to the same period in 2007, our provision for income taxes decreased by $5.3 million. The reduction for the current year period was due to several factors, including reductions in tax-generating intercompany transactions, international asset management revenue being taxed in a foreign jurisdiction beginning in the third quarter of 2008, and a reduction in the amount of shares in the CPA^® REITs that we hold in taxable subsidiaries.

For the nine months ended September 30, 2008 as compared to the same period in 2007, our provision for income taxes decreased by $27.5 million. The reduction for the current year period was due to the same factors described above. In addition, our provision for income taxes for the nine months ended September 30, 2007 included taxes on asset management and structuring revenue recognized in the second quarter of 2007 as a result of CPA^®:16-Global achieving its performance criterion.

Net Income from Investment Management

For the three and nine months ended September 30, 2008 as compared to 2007, the resulting net income from investment management decreased by $1.5 million and $23.9 million, respectively.

Real Estate Ownership (in thousands)

		Three months ended September 30,												Nine months ended September 30,
		2008				2007				Change				2008				2007				Change
Revenues
Lease revenues		$	18,959			$	18,965			$	(6	)		$	57,583			$	56,583			$	1,000
Other real estate income			3,834				3,764				70				10,261				9,879				382
			22,793				22,729				64				67,844				66,462				1,382
Operating Expenses
General and administrative			(1,590	)			(1,862	)			272				(6,077	)			(5,857	)			(220	)
Depreciation and amortization			(5,235	)			(5,037	)			(198	)			(15,480	)			(16,422	)			942
Property expenses			(1,815	)			(2,282	)			467				(5,555	)			(5,069	)			(486	)
Impairment charge			(538	)			—				(538	)			(538	)			—				(538	)
Other real estate expenses			(1,989	)			(2,255	)			266				(6,204	)			(6,080	)			(124	)
			(11,167	)			(11,436	)			269				(33,854	)			(33,428	)			(426	)
Other Income and Expenses
Other interest income			166				201				(35	)			526				556				(30	)
Income from equity investments in real estate			2,072				2,941				(869	)			6,158				5,340				818
Minority interest in income			(407	)			(351	)			(56	)			(1,193	)			(1,041	)			(152	)
Gain on sale of investment in direct financing lease			1,103				—				1,103				1,103				—				1,103
(Loss) gain on sale of securities, foreign currency transactions and other, net			(1,566	)			1,029				(2,595	)			1,243				1,396				(153	)
Interest expense			(5,004	)			(5,269	)			265				(14,579	)			(15,271	)			692
			(3,636	)			(1,449	)			(2,187	)			(6,742	)			(9,020	)			2,278
Income from continuing operations before income taxes			7,990				9,844				(1,854	)			27,248				24,014				3,234
Benefit from (provision for) income taxes			7				(225	)			232				(219	)			(1,128	)			909
Income from continuing operations			7,997				9,619				(1,622	)			27,029				22,886				4,143
(Loss) income from discontinued operations			—				(1,895	)			1,895				3,863				1,179				2,684
Net income from real estate operations		$	7,997			$	7,724			$	273			$	30,892			$	24,065			$	6,827