WP Carey Inc (WPC) 2007 Q4 法說會逐字稿

Greetings and welcome to the W.P. Carey and Company fourth quarter and year-end 2007 earnings release conference call. At this time, all participants are in a listen-only mode. A brief question-and-answer session will follow the following presentation. (Operator Instructions) As a reminder, this conference is being recorded.

It is now my pleasure to introduce your host, Ms. Susan Hyde, Director of Investor Relations for W.P. Carey and Company. Thank you. Ms. Hyde, you may begin.

Thank you. Good morning and welcome, everyone, to our fourth quarter and year-end 2007 earnings conference call. Joining us today are W.P. Carey's Chairman, Bill Carey; CEO, Gordon DuGan; acting Chief Financial Officer, Mark DeCesaris; and Chief Operating Officer, Tom Zacharias. Today's call is being simulcast on our website, wpcarey.com and will be archived for 90 days.

Before I turn the call over to our CEO, Gordon DuGan, I need to inform you that the statements made in this earnings call that are not historic fact may be deemed forward-looking statements. Factors that could cause actual results to differ materially from W.P. Carey's expectations are listed in our SEC filings.

Now I'd like to turn the call over to Gordon.

Good morning. Thank you, Susan, and thank you, all, for joining us this morning. I want to cover three things this morning in this call. First of all, 2007 results at a high level. Secondly, I want to get into a detailed discussion of our investment activity at the end of 2007 and give you some flavor for the current investment market conditions as we see them today.

For 2007, as you see our four-year results were strong with a nice increase in revenues in adjusted cash flow from operations. I would point out as we begin to discuss the numbers that the fourth quarter 2007 results are somewhat hard to compare to the fourth quarter 2006 due to the backend revenue we received relating to the successful liquidation of CPA 12.

Additionally, the results we have released include a reserve. This reserve has been taken in connection with an agreement in principle to settle matters relating to our previously disclosed SEC investigation, primarily relating to the offering of shares of our CPA rate funds between 2000 and 2003. You should note this is an agreement in principle with the staff and has not been approved by the commissioners of the SEC; and, therefore, it is not a final agreement.

Now, let's get into the numbers. Mark will provide a more detailed review of the financial results, so I'll just touch on some highlights. Revenues for 2007, as you see, increased 22% to $249 million versus $204 million in 2006. This reflects greater investment volume, higher assets under management and recognition of the hurdle return in our CPA 16 fund.

Net income, excluding the reserve, would have increased to $100.3 million. After this reserve, net income for 2007 was $79.3 million. Quarter net income was $6 million after the reserve. Without the reserve, fourth quarter net income would have been $27 million, versus $44 million the year before. Again, 2006 included the backend revenues that I discussed earlier from the successful completion of CPA 12. Including the reserve, FFO for 2007 was $133 million, compared to $128.5 million, an increase of 3.4%.

I also want to talk about two additional performance metrics that we disclose, EBITDA and adjusted cash flow from operations. EBITDA here that I'll mention includes both our investment management segment as well as our real estate ownership segment. Including the reserve, EBITDA increased from $176.3 million in 2006 to $179.4 million for the full year of 2007.

Adjusted cash flow from operations is another metric that we've disclosed, and this is a new metric that we provide in our supplemental disclosure that we think is attempt to identify our core cash earnings, excluding one-time events such as the recognition of backend revenues, working capital changes and timing of tax payments and things like that. For 2007, our adjusted cash flow from operations was $84.2 million. In 2006, the comparable number was $70.2 million, which is a nice increase of 19.9%.

In terms of our investment activity, I wanted to spend a couple of minutes talking about our investment activity in the fourth quarter. And, of course, all of the investment activity that I'll discuss in our call this morning relates to the investment activity that we conduct on behalf of our managed CPA rate funds. For the fourth quarter, investment volume was $171 million, versus $269 million in the fourth quarter of 2006. For the full year, we completed $1.1 billion of new investments versus $720 million for the -- for 2006. Fifty-five percent of the investments we completed in 2007 were made internationally. And as you can see in the release, based on all of this, we experienced a strong increase in assets under management in 2007 to $8.4 billion as of December 31, 2007.

As everyone is well aware, August of 2007 was the beginning of a change in the credit cycle and the beginning of substantial turmoil in the capital markets. And in that light, I wanted to talk specifically about our fourth quarter volume in a couple of different ways. First of all, in the fourth quarter we completed four investments in the United States for $126 million. In Europe, we completed two investments, one in Finland, one in Germany, for $45 million, for a total, again, for the fourth quarter of $171 million.

From our perspective, we're pleased with this investment activity, given all the turmoil in the capital markets, including the substantial turmoil in the commercial mortgage conduit market, and that's the market that accesses the capital markets to make commercial mortgages.

Let me step back and review. We typically, for our investment activity, utilize investment-by-investment mortgage financing to leverage our investments on a non-recourse basis. The market for commercial mortgages is quite challenging, but it is not dead. In terms of our mortgage activity, we closed five loans in 2007 in the fourth quarter; three of those loans were in the United States; two were in Europe; and we had a weighted average interest rate of 5.99%. In addition, we closed one loan in January on a U.S. investment that actually closed at the end of 2006. The loan didn't close until the beginning of this year, and that loan was for $39 million, at an interest rate of 6.6%.

The reason I wanted to focus on this mortgage activity is to point out that we have been able to obtain financing for our investments and make a number of investments since August of 2007, even in a very challenging commercial mortgage environment. For early 2008, the credit market conditions, as you may know, have not improved. The mortgage markets have continued to be very rocky, both in the United States and in Europe.

In the U.S., January was the first month in a long time that a CMBS transaction did not come to market. And in the last CMBS transaction completed a couple of weeks ago, the triple A CMBS bonds traded at nearly 300 over treasury. Since then, my understanding is the CMBS market conditions have improved somewhat, and spreads have tightened, and those triple A bonds are trading around 250 basis points over treasury.

While this is occurring in the securitized commercial mortgage market and the difficulty in that market is very well known, it is still a bit of a tale of two cities for mortgage lenders. Lenders that need to securitize their loans are facing an extremely challenging environment. At the same time, we are finding lenders that are holding for their own portfolio, and those lenders are taking advantage of this environment in commercial mortgage loans. Again, the reason this is important is we typically finance our investment with commercial mortgages on an investment-by-investment basis; and while the conditions are very difficult, we are finding financing for our investments.

The last point I'd like to make about recent investment activity is that the capital markets turmoil is creating an environment where, in general, fewer transactions of any kind are taking place as buyers and sellers adjust to the new market conditions. This is the case in corporate merger and acquisition activity, for instance, which might reduce our sale- lease spec activity related to this corporate M&A activity in the short-term. We are looking, however, at other areas to increase our investment activity due to this potential short-term decrease. And we believe that companies worldwide are increasingly seeking to raise capital through the sale and lease [practice] of their own real estate, seeing what is obviously a tougher credit environment.

As we enter 2008, I also want to highlight two things. One is the theme of cycle tested investment strategy. We've been investing on behalf of our CPA fund since 1979 and in that time have invested and managed these assets through a variety of cycles. We've built a long track record over that time by focusing our investment strategy on diversification and purchasing assets that are critically important to the operations of our tenants and having an independent investment committee that has seen many cycles improve these investments. The cycle has not been eliminated, as you know, and we have managed through these periods before.

This cycle, we believe, will present both some challenges and opportunities. One challenge, I think, will be managing our existing portfolio through what is expected to be a time of higher credits and potentially increasing mortgage faults generally. That said, we believe that -- well, as I said before, we've seen this before, and it is one reason that we focus our investment strategy on diversification. Fifty-five percent of our investment funds remain outside the U.S., and we diversify our portfolios by tenant industry, tenant exposure and property types. We also focused our investment on properties that are critically important to the operation of that kind of business.

We've experienced many examples of tenants that have needed to restructure, and where their balance sheet's been restructured for the Company, and we continue to receive rents uninterrupted through that period. It doesn't always happen, of course, but we've been securing it many times.

A major opportunity that this market presents is that we believe in times when credit is less available there are more attractive investment opportunities available to us. To that end, we are currently raising CPA 16 -- excuse me, CPA 17 global in which we hope to raise up to $2[million] cap-wise on the current market conditions. We've begun raising CPA 16's global -- we started really practically speaking at the beginning of January and have raised roughly $40 million and are pleased with the pace of fundraising.

The other thing that we mentioned in our press release is that we maintain a conservative financial profile through this past season of credit cycles. We have a very strong balance sheet; and as we've said in past conference calls, having a strong financial profile and dry powder will be to our advantage someday. I guess we think that this current environment is proving that out.

Before I turn it over to Mark, I just wanted to thank our investors for their support over the many years, and we look forward to tackling our challenges and opportunities as we head into 2008. Now Mark will provide a more detailed discussion of our financial results.

Thank you, Gordon, and good morning. Our reported net income for the fourth quarter 2007 will be $6 million or $0.15 per share. And year-to-date 2007 will be $79.3 million or $2.05 per share. These results compare with $43.6 million or $1.12 per share for the fourth quarter in 2006, and $86.3 million or $2.22 per share for the year ended December 31, 2006. This represents a decrease of approximately 8% year over year.

Included in our reported operating results is a charge of approximately $21 million, the [end] of a tax benefit that represents the amount we have agreed to in principle to settle the matter with the staff of the SEC. While we have reached an agreement in principle with the staff of the SEC, I would caution you that the settlement is still subject to approval by the commission.

Excluding this charge, the net income for the fourth quarter would have been approximately $27 million or $0.68 per share, and $100.3 million for the year, or $2.58 per share. This represents a 16% increase over the prior year.

As I discuss our results on a comparative basis with the prior year, I will break out the impact both on a pre- and post-charge basis. Further impacting our year-over-year comparisons are two events. The merger occurring in the fourth quarter of last year in which we recognized approximately $46 million of revenues, and the recognition of the preferred return for CPA 16 in the second quarter of 2007 in which we also recognized approximately $46 million of previously deferred revenues.

FFO for the quarter including the full impact of the above charge was $2.9 million or $0.07 per share, as compared to $54.9 million or $1.39 per share for the fourth quarter of 2006. Full year of FFO, including this charge, was $133.3 million or $3.34 per share, as compared to $128.5 million or $3.29 per share in the prior year, representing an increase of 3%. Excluding this charge, FFO for the year ended 2007 would have been $163.2 million or $4.09 per share. This represents an increase of 27% over the prior year on a pre-charge basis.

In our investment management segment, revenues, exclusive of reimbursed costs, increased 28% to $161.2 million in 2007. Accounting for this increase was the attainment of the cumulative preferred return requirement by CPA 16, which means we now recognize 100% of the structuring and management revenues associated with that fund, as well as a 52% increase in investment volume. In 2007, we invested approximately $1.1 billion of assets on behalf of the CPA funds, compared with $720 million in 2006.

Within this segment, our revenue streams appear to have some volatility as a result of the timing of recognition of certain revenue streams. What we look at to ascertain our growth in this segment is the annual manager revenues that we earn on assets under management. This revenue stream for 2007, excluding the CPA 16 revenues recognized from previous periods, grew 23% year-over-year to $71.1 million. This metric is important because it represents a stable revenue stream from the assets we manage on behalf of the CPA series of funds.

While there can be period-to-period fluctuations, we have experienced a return to investors of the CPA funds of approximately 11.5% on the 12 CPA funds that have gone full cycle, and continue to experience strong returns on the outstanding funds. As of December 31, 2007, we [had] approximately $8.4 billion in assets under management in the CPA series funds.

Structuring revenues earned this year, excluding deferred revenues in prior periods, increased 107% to $46.5 million, an increase in investment volume of $380 million over the prior year as well as full recognition of structuring revenues on investments in CPA 16 accounted for this increase.

EBITDA generated by the investment management segment including the charge was $91.1 million for the year ended December 31, 2007 or $2.29 per share as compared with $105.7 million for the year ended 2006 or $2.70 per share. Excluding this charge, EBITDA in the investment management segment for the year ended 2007 would have been $121.1 million or $3.04 per share, an increase of 15% over the prior year.

Our investment management segment continues to be the growth driver in our business. Full recognition of the firm's management revenue streams, an increase in investment volume made 2007 a strong year. In addition, we went effective with CPA 17 in December of 2007. CPA 17 is a $2 billion offering that is currently being raised and represents the firm's 16th fund in its 35-year history.

In our real estate ownership segment, leased revenues increased $4.7 million for the quarter and $6.2 million for the year to $18.8 million and $75.4 million respectively. These increases were primarily due to properties acquired in the merger of CPA 12 and 14, as well as rent increases from existing properties.

Net income from the real estate ownership segment increased 72% for the quarter to $18.4 million and increased 29% for the year to $42.4 million. The gain on the sale of certain properties in France of approximately $10 million accounted for most of the increase in the fourth quarter.

FFO in this segment for the quarter increased 17% or $17.2 million and increased 10% to $64.1 million for the year. This compares with $14.6 million in the fourth quarter of 2006 and $58.5 million for the year ended 2006. Properties acquired in the CPA 12 / 14 merger accounted for the majority of the increase and results reported in this segment were not affected by the settlement charge.

For the year ended 2007, cash flow from operations totaled $47.5 million as compared to $119.9 million in the previous year. Included in the amount reported in the prior year was approximately $46 million in cash proceeds received in a merger of CPA 12 and 14. In addition, the amount reported in 2007 included the payment of approximately $21 million of tax liabilities incurred in 2006 in connection with the merger but were paid in 2007. This resulted in the swing of approximately $67 million in cash flow year-over- year.

As I reported, cash flow from operations tends to be affected by the attainment of liabilities paid in one period but incurred in another as well as the realization of certain revenue streams that have built up over time. We have reported adjusted cash flow as an additional metric we utilize to evaluate cash generated from core operations and available for distribution.

For the year ended December 31, 2007, adjusted cash flow from operations totaled $84.2 million or $2.11 per share as compared to $70.2 million or $1.79 per share for 2006. Based on this metric, our payout ratio is 85% for 2007 as compared to 98% in 2006.

We feel that our strong balance sheet positions our Company very well in the current climate. Total recourse debt of $62.7 million represents less than 5.5% of the total assets of the Company. Non-recourse debt of $254 million represents approximately 22% of the total assets of the Company.

Our interest coverage ratio is nine times. During 2007 we replaced our credit facility with a four-year, $250 million facility. As of today, we have approximately $64 million outstanding on the line and are paying an interest cost at a rate of 75 basis points over [inaudible].

The firm experienced a solid year from an operational perspective. We have attained a distribution hurdle in CPA 16, which allows us to recognize 100% of our management revenue stream going forward. We have accomplished a restructuring which should eliminate UBTI from state filing requirements for our investors. We have gone effective and are currently raising CPA 17 from a $2 billion offer. With CPA 17, we have put in place a more tax-efficient revenue structure. We have this year and we'll continue in the next few years to review our structure and make changes with an eye towards lowering our overall effective tax rate. We feel we have an underleveraged balance sheet and access to capital, which positions our firm well for the current economic climate. In short, we are looking forward to this year, our 35th year in business.

With that, I'd like turn it over to Tom who will have some comments about our portfolio.

Thank you, Mark. I would like to make a brief portfolio report for the year-end 2007 before turning the call over to our founder, William Polk Carey.

In our segment analysis of the earnings for 2007, the 17.4 million square feet of properties owned by the LLC produced funds from operations of $64.1 million, which equates to $1.61 per share. Therefore, the owned real estate portfolio produces a significant contribution to the current annual dividend of $1.91 per share.

FFO from the real estate portfolio increased by 10% in 2007, due primarily to the additional assets that were acquired in late 2006 for CPA 12. In 2007, we sold four properties for approximately $25 million and sold a joint venture interest in five properties in France for an additional $20 million. Combined GAAP gain on these asset sales was approximately $10.6 million.

On the investment front, the LLC invested in the property in Poland for approximately $13.9 million and invested in two joint ventures in Germany for $41.6 million. Two of these transactions were structured as 1031 exchanges to postpone capital gains on the previously mentioned asset sales.

In the asset management segment of our business, the asset management revenue for managing the CPA funds generally contributes a larger amount of EBITDA and FFO than the real estate ownership. The growth in the CPA asset management revenue is a growth engine for our Company as it grows far faster than real estate revenue. As Mark mentioned, our CPA assets under management at the end of 2007 were approximately $8.4 billion. This is a $1.1 billion increase in assets under management over the last 12 months, which is an increase of 15%.

The fixed-year annual compound growth rate for the CPA REIT assets under management through the end of 2007 is approximately 23%. In 2007, the REIT sold 11 properties for $145 million and recognized a gain of approximately $51 million.

In 2007 we completed $35 million of refinancings on a consolidated basis in the LLC and another $135 million of refinancing for the CPA REITs at a weighted average interest rate of 5.89%. The timing of the REIT financings was very fortuitous.

In the LLC portfolio, occupancy at year-end was approximately 97%. The portfolio is in excellent shape as we have sold the smaller and weakest assets over the last four years. Furthermore, in 2008 we have less than 4% of the lease revenue expiring.

As far as the CPA REITs, the CPA portfolio of approximately 87 million square feet occupancy at year-end was greater than 99%. We expect to release the third-party net asset values for each fund prior to March 14, the 12-31 net asset values. As we receive a portion of our revenue in shares of the CPA REITs, we now own over $165 million worth of CPA 14, 15 and 16 REIT shares.

In wrap-up, in 2008 we expect that our tenants will experience a more difficult operating environment, and we have already experienced bankruptcy of two tenants in the CPA funds and one in the LLC portfolio. As Gordon has mentioned, we have a positive track record of working our assets. We have found we have been able to either firm the lease because the facilities are a critical aspect of the operations or we're able to lease to a replacement tenant or sell the building to a user. In any event, we anticipate very active involvement with our portfolios, as we remain focused on creating value for our investors as we go forward.

Now, I would like to turn the call over to William Polk Carey, the Founder and Chairman of the Company.

Thank you very much, Tom. I appreciate (technical difficulty). An investment manager is no better than the job (technical difficulty) the average [amount of] returns (technical difficulty) of those funds (inaudible) 6% (technical difficulty). This year we expected to exceed that significantly. So we're (inaudible) investment [patterns] than any other investment manager that I know of or of any other financial institution.

That's all well and good. And some people ask me why we've been able to succeed at a time when (technical difficulty) is not simple. And I attribute it largely to the team we've been able to assemble. They are extraordinarily capable (technical difficult) Where there's turmoil, there's some superstars who want to jump ship, but they're not going to jump ship here. If I jump into the (inaudible) they're going to need (inaudible) to keep building an even better, stronger organization as time goes on.

And, of course, the other thing which sets us apart is our risk management (technical difficulty) independent investment committee which must approve every single investment we make for (technical difficulty) senior investment options and (technical difficulty). We consider [him] to be the [world's] foremost (inaudible) (technical difficult) international about this (inaudible).

(Technical difficulty). By adding these people to this, we just don't make (technical difficulty), and I don't (inaudible). (Technical difficulty).

Thank you very much. Thanks to all of our team (technical difficulty).

Thank you. That concludes our presentation part of the call. We'd now like to open this call to any questions you may have.

Thank you. We will now be conducting a question-and-answer session. (OPERATOR INSTRUCTIONS) Our first question comes from the line of Alex Crips from H.G. Wellington & Company.

Hi, guys. Congratulations on a good year. I just have some small arithmetic questions. Can you provide me the diluted share count for the fourth quarter?

We can. The total fully diluted shares were 39,868,208 shares. Alex, are you trying to come up with our fully diluted earnings per share number?

Yes, that's my next question.

Year-to-date, because of the minority ownership in our international Company, you'd have to -- in order to come up with the shares that relate to that component have been added in to the fully diluted share count. In order not to duplicate that, we'd have to add back to the dilution that occurs from that minority interest that shows up in our net income. That amount is $2,615,822 that would get added back to net income, and then divide it by that fully diluted share count.

Thank you so much. Last question, lease revenue, if I plug that in properly, decreased to the $15 million area after running at around $19 for the previous three quarters. Is there a seasonality here that I should expect? What was going on with that?

That was not a seasonality. Overall for the year, lease revenues have increased in the real estate segment to about $75.4 million, an increase year-over-year of $6.2 million for the quarter by about $4.7 million to $18.8.

I'm sorry. I had my wires crossed. Thank you very much.

No problem.

No problem.

Thank you. Our next question comes from the line of Everett Reveley with Davenport & Company.

Good morning.

Good morning, Everett.

A couple of questions for you. First, do you all have a sense when the agreement with the SEC will be finalized?

We don't know when it will be finalized. It goes to the Board of Commissioners. As I mentioned earlier, they have not approved it, but our expectation is -- our hope would be within the next 30 to 60 days.

And am I hearing you right that you still kind of view the credit crunch as a net positive for you all?

Well, time, Alex, I would say that time will tell whether it -- I'm sorry, Everett. Time will tell whether it's a net positive or not. From an investment standpoint, it's a net positive, an investment opportunity. If you go back to our calls a year ago or two years ago, we sounded pessimistic about the amount of competition there was and how people were underwriting risk, and Everett, I think that's changed. And so now we're seeing better investment opportunities because of it. If we can manage our portfolios well, it would be in the positive; but it's too hard to predict what the future holds from that, but we definitely are going to see a number of interesting investment opportunities.

And you mentioned that the M&A activity was kind of slowing up a little bit. What were some of the other opportunities you kind of mentioned or alluded to?

Well, what we've seen in the past is when there's a downturn in the credit cycle, companies need to be restructured either in or outside of bankruptcy, and we have in the past participated in sale lease back opportunities with companies that are restructuring their balance sheet again in or outside of bankruptcy. We've done a number of deals where the sale lease back allows the Company to restructure their bank debt. And we've done some exit financing transactions where companies emerging from bankruptcy want to sell their real estate as a way to help put extra liquidity on the balance sheet. And so in any part of the cycle, there appears a place where there's opportunity.

(inaudible - technical difficulty)

Thanks, Everett. (Technical difficulty)

Got you. And then a question about the health of the portfolio. Are you seeing a larger number of your tenants fall behind on their rent?

We monitor this very closely, and we have -- there has been a little bit of increase in receivables and special situations, but nothing that is causing us real concern.

And then going to the fundraising for the CPA 17. You've raised $40 million so far. Is that more or less on pace as you would like or is it a little bit slower than you would like?

Given that we've been out of the fundraising market for some period of time between CPA 16 and CPA 17, we are pleased with the fundraising pace today.

Do you have a goal for this year?

We have internal goals, but we don't have a stated public goal.

Okay. Are you all planning on doing more investment on your balance sheet itself?

Not necessarily, no. We expect the investment activity will be centered around the CPA entities, so not at this point.

When you say you have dry powder, what is the dry powder going to be?

Well, I don't know. I mean that's a very good question, Everett. We just don't know. But what we know is that in the past when we've said we have a conservative balance sheet and we've maintained a very conservative financial approach through the credit cycle. Our view is that having a strong financial position would be useful, but we don't know how that's going to play out. I think today it's useful in that companies with stronger balance sheets are recognized as better places to invest today because they have that kind of flexibility. What we do with it remains to be seen, and so I don't have an answer to that.

One thing that we did not point out is that our coverage of fixed charges on our Company level debt turns out 53 times, and that's true of the rates as well. That could be 52 or 54; I'm not sure exactly, but it's in that range, which means there's enormous (inaudible - technical difficulty)

Got you. Would you all ever consider doing other kind of funding sources, institutional money?

We have in the past, Everett, and our attitude is we're open to all options, whatever ends up being best for our business.

Okay. And then I just -- something that you all could remind me. Do the CPA funds get appraised once a year? Is that right?

Yes.

That's correct.

Have they been appraised for the end of last year yet?

No. We expect to release it prior to March 14 for the 12-31.

Of course, we know the work has been primarily completed. They just haven't given us the final numbers yet.

Do you all have any concern going forward that the appraised value might go down?

Well, I think there are a couple of counteracting forces there. On the one side, our credit spreads have widened, and given that these are typically bond-type leases, with the widening of credit spreads, the lease value attributed or the bond value of the lease has the potential to go down as credit spreads have widened.

On the other hand, we have very long lease terms, and we should be less subject to the vagaries of the commercial mortgage markets, so it's more of a bond analysis than a real estate analysis.

On the other hand, we have a substantial portion of our assets outside the United States for last year -- and we don't have a prediction for this year -- but for last year, obviously, our euro denominated investments did well in dollar terms.

Also because we have [escalation] provisions in our releases. We don't have any provisions to reduce the rents. We're getting increased rents each year, and that influenced the appraisals -- the appraisers that were selected by the Board of Directors was Ernst & Young. We're not supposed to say that on the (inaudible)? They're very, very good. The appraisals are very independent of us.

All right. And just one last question. How exactly -- just to remind me again. How are we dividing up the income between -- the revenue between the investment management section and the REIT subsidiary, especially with, I guess, going forward with the new CPA 17 fund structure or fee structure? And then also, I guess, your policy on transferring your ownership in the CPA REIT into the REIT structure.

Yes, we recognize -- our investment management segment recognizes and our financial reporting segment analysis recognizes that based on the advisors earning that money. So any revenues that we earn as a result of advising the funds flows through our investment management segment. Any lease revenues that come from our wholly owned real estate investments flows through our real estate segments.

As you know, we take a substantial portion of our revenues in shares of the funds over a certain vesting period, and as those shares vest, we transfer those out of our C-Corp into the REIT underneath the LLC, primarily so that dividends and future appreciation on those shares aren't taxed at a C-Corp level.

How often do they vest?

Every year.

Great. Okay. So that's an annual thing you do?

No, it's a quarterly thing each year throughout the year as they vest.

And then with the new CPA 17 fee structure, are all of the, I guess, your share of the income going to get run through the investment management company?

For reporting purposes, the asset manager fee will run through the investment management company. For the performance portion that we earn, that will run through as a GP interest in CPA 17, which approximates about 10% of the cash flow of those funds.

And that will run through the REIT?

That will run through the REIT.

Through the real estate segment.

Through the real estate segment.

Yes, okay. All right. That's it. Thanks.

Thanks, Everett.

Thank you. Our next question comes from the line of Paul Adornato with BMO Capital Markets.

Thanks. Good morning. Just a quick follow-up on capital raising. What's been your experience raising capital from individual investors during their stock markets and times of recession?

Hey, Paul, good morning. Well, we've had a variety of different experiences with that. What we're seeing today with our broker dealers is that the financial planning community tends to use asset allocation as their model for investment. And the whole concept behind financial planning and asset allocation makes you less of a market timer in terms of how you allocate your investment funds.

So within the financial planning community, we see there's not the same volatility that you would see in what I would call an area of fundraising where it's more market timing related. So we've seen a fairly steady capital raise so far for CPA 17. It's very early, but we haven't seen a lot of volatility in that.

At the same time, interest rates remain -- real interest rates and nominal interest rates remain very low, and I think that our belief and our hope is that will continue to drive investors toward investment opportunities that have attractive yields. In the past, interest rates have been in various different places, but the dynamics we see today are primarily that. And I think interest rates, with retiring baby boomers, are going to be a very key component of how individual investors allocate their capital going forward because their returns are so low, again, in treasury securities both on a real and a nominal basis.

Okay. Thanks very much.

Thanks, Paul.

Thank you. (OPERATOR INSTRUCTIONS) There appears to be no further questions. I'd now like to turn the call back over for any closing comments.

Thank you. We'd just like to remind everyone that a replay of today's call will be available at after 2:00. The call number is 877-660-6853. The account number is 286, and the conference ID is 273699. This replay will be available through March 14.

We'd just like to thank everyone for joining us today, and we look forward to speaking with you again next quarter.

Thank you all very much.

Thank you. This will conclude today's teleconference. You may disconnect your lines at this time. Thank you for your participation.