UNITED STATES SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-K

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

For the fiscal year ended December 31, 2007

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

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

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

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

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

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

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

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

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, 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. (Check one):

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 Act). Yes o No þ

As of June 30, 2007, the aggregate market value of the registrants’ Listed Shares held by non-affiliates was $867,710,563.

As of February 22, 2008, there are 39,314,671 Listed Shares of registrant outstanding.

The registrant incorporates by reference its definitive Proxy Statement with respect to its 2008 Annual Meeting of Shareholders, to be filed with the Securities and Exchange Commission within 120 days following the end of its fiscal year, into Part III of this Annual Report on Form 10-K.

 

 

TABLE OF CONTENTS

		Page No.
PART I
Item 1. Business			2
Item 1A. Risk Factors			12
Item 1B. Unresolved Staff Comments			19
Item 2. Properties			19
Item 3. Legal Proceedings			19
Item 4. Submission of Matters to a Vote of Security Holders			20
PART II			21
Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities			21
Item 6. Selected Financial Data			22
Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations			23
Item 7A. Quantitative and Qualitative Disclosures About Market Risk			44
Item 8. Financial Statements and Supplementary Data			46
Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure			85
Item 9A. Controls and Procedures			85
Item 9B. Other Information			85
PART III			86
Item 10. Directors, Executive Officers and Corporate Governance			86
Item 11. Executive Compensation			86
Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters			86
Item 13. Certain Relationships and Related Transactions, and Director Independence			86
Item 14. Principal Accounting Fees and Services			86
PART IV			87
Item 15. Exhibits, Financial Statement Schedules			87
SIGNATURES			89
EX-21.1: SUBSIDIARIES
EX-23.1: CONSENT OF PRICEWATERHOUSECOOPERS LLP
EX-31.1: CERTIFICATION
EX-31.2: CERTIFICATION
EX-32: CERTIFICATION

Forward-Looking Statements

This annual report on Form 10-K, including “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in Item 7 of Part II of this report, contains forward-looking statements that involve risks, uncertainties and assumptions. Forward-looking statements discuss matters that are not historical facts. Because they discuss future events or conditions, forward-looking statements may include words such as “anticipate,” “believe,” “expect,” “estimate,” “intend,” “could,” “should,” “would,” “may,” “seek,” “plan” or similar expressions. Do not unduly rely on forward-looking statements. They give our expectations about the future and are not guarantees, and speak only as of the date they are made. Such statements involve known and unknown risks, uncertainties and other factors that may cause our actual results, performance or achievement to be materially different from the results of operations or plan expressed or implied by such forward-looking statements. While we cannot predict all of the risks and uncertainties, they include, but are not limited to, those described below in Item 1A – Risk Factors. Accordingly, such information should not be regarded as representations that the results or conditions described in such statements or that our objectives and plans will be achieved.

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

W. P. Carey 2007 10-K – 1

PART I

Financial information in this report is in thousands except share and per share amounts.

Item 1. Business.

(a) General Development of Business

Overview:

We are a provider of long-term net lease financing for companies worldwide. 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”), and were the advisor to Corporate Property Associates 12 Incorporated (“CPA^®:12”) until its merger with CPA^®:14 in 2006. We also hold ownership interests in these CPA^® REITs.

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

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

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

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

Our principal executive offices are located at 50 Rockefeller Plaza, New York, NY 10020 and our telephone number is (212) 492-1100. As of December 31, 2007, we employed 135 individuals through our wholly-owned subsidiaries.

W. P. Carey 2007 10-K – 2

Significant Developments During 2007

Managed Portfolio Update:

Acquisition / Disposition Activity – We earn revenue from the acquisition and disposition of properties 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 year ended December 31, 2007, we structured investments totaling approximately $1,095,000 on behalf of the CPA^® REITs. Approximately 55% of these investments were for international transactions. During 2007, we sold several properties on behalf of the CPA^® REITs for approximately $145,000, net of selling costs.

CPA^®:16 – Global Performance Criterion – In June 2007, CPA^®:16 – Global met its performance criterion (a non-compounded cumulative distribution return of 6% per annum), as defined in its advisory agreement, and as a result, we recognized previously deferred revenue totaling $45,919 (consisting of asset-based revenue of $11,945, structuring revenue of $31,674 and interest income on the previously deferred structuring revenue of $2,300). 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 $6,191 and interest thereon of $434 that had previously been deferred.

We received the deferred asset-based revenue of $11,945 in July 2007 from CPA^®:16 – Global in the form of 1,194,549 shares of CPA^®:16 – Global’s restricted common stock while the deferred structuring revenue of $31,674 and interest thereon of $2,300 is due to us in cash in annual installments beginning in January 2008. We received the first installment of $28,259 in January 2008 (including accrued interest). CPA^®:16 – Global will pay the remaining deferred structuring revenue of $4,663 in January 2009 and $1,052 in January 2010. Interest will accrue on amounts outstanding at the rate of 5% per annum.

CPA^®:17 – Global – In February 2007, we formed CPA^®:17 – Global, an affiliated REIT, for the purpose of investing in a diversified portfolio of income-producing commercial properties and other real estate related assets, both domestically and outside the United States. In November 2007, the SEC declared the registration statement to raise up to $2,475,000 of common stock of CPA^®:17 – Global (including up to $475,000 under its distribution reinvestment and stock purchase plan) effective. We commenced fundraising for CPA^®:17 – Global in late December 2007. Through February 27, 2008, we have raised $39,922 on CPA^®:17 – Global’s behalf.

Company and Owned Portfolio Update:

SEC Investigation – As we have previously disclosed, in 2004 the staff of the U.S. Securities and Exchange Commission began investigating whether, in connection with a public offering of shares of CPA^®:15 in late 2002 and early 2003, Carey Financial, LLC (“Carey Financial”), our wholly-owned broker-dealer subsidiary, sold such shares without an effective registration statement, and whether that and other registration statements and prospectuses of REITs managed by us contained material misrepresentations and omissions, including with respect to payments made by certain of the REITs in the 2000-03 period to broker-dealers that distributed the REITs’ shares. We and Carey Financial have now reached an agreement in principle with the staff of the SEC to settle all matters relating to this investigation. See Item 3 – Legal Proceedings for a discussion of this investigation.

Acquisition Activity – During 2007, we entered into an investment in Poland for $13,905. In addition, we also acquired interests in two joint ventures that purchased properties in Germany. Our contribution to these equity investments totaled $42,770. We account for our interests in the joint ventures under the equity method of accounting.

During 2007, our subsidiary Carey Storage acquired seven domestic self-storage properties totaling $35,000. These acquisitions were funded in part through borrowings totaling $20,080 under Carey Storage’s secured credit facility.

Disposition Activity – During 2007, we sold several properties for approximately $46,000, net of selling costs and, in addition, received lease termination proceeds of $1,905. In connection with these sales, we recorded a net gain of $15,827, exclusive of the recognition of an impairment charge in 2007 of $2,317 to reduce a property’s carrying value to its estimated net sales proceeds and impairment charges of $2,687 recognized in prior years.

Credit Facility – In June 2007, we entered into an unsecured credit facility for a $250,000 revolving line of credit to replace our previous $175,000 line of credit that was due to expire in July 2007. The credit facility, which matures in June 2011, can be increased to up to $300,000 upon satisfaction of certain conditions. We used $28,000 of funds from this facility to repay our previous credit facility.

Corporate Restructuring – In October 2007, we completed our restructuring plan by transferring our real estate assets from a wholly owned subsidiary into a newly formed wholly owned REIT subsidiary. This restructuring is intended to simplify tax reporting for our

W. P. Carey 2007 10-K – 3

shareholders and has no impact on the presentation of financial results. The use of a REIT subsidiary should also provide beneficial tax treatment to certain types of investors, including certain tax exempt investors and individuals investing through tax deferred accounts such as IRAs.

Share Repurchase Program – In June 2007, our Board of Directors approved a $20,000 share repurchase program. In September 2007, our board approved the repurchase of up to an additional $20,000 of our stock under this share repurchase program. Under this program, we may now repurchase up to $40,000 of our common stock in the open market through March 31, 2008 as conditions warrant. Through December 31, 2007, we repurchased shares totaling $25,525 under this program.

Financing Activity – In connection with our investment activity, one of the German joint ventures obtained non-recourse mortgage financing at a rate and term of 5.5% and 10 years, respectively. Our share of this financing is $14,247. In addition, in June 2007, one of our joint ventures refinanced its mortgage obligation and distributed the proceeds to the venture partners. Our share of the new financing, which carries a fixed annual interest rate of 6.2% and which matures in July 2017, is $17,675.

Directors and Senior Management – Trevor Bond was appointed to the Board of Directors in April 2007 and elected to the board at the annual shareholders’ meeting in June 2007 and is serving as an independent director. Robert Mittelstaedt was elected to the Board of Directors in June 2007 at the annual shareholders’ meeting and is serving as an independent director. In June 2007, Thomas Ridings, an executive director, was appointed chief accounting officer.

(b) Financial Information About Segments

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

(c) Narrative Description of Business

Business Objectives and Strategy

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

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

Investment Management

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

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

We are currently exploring alternatives for expanding our Investment Management operations beyond advising the CPA^® REITs. Any such expansion could involve the purchase of properties or other investments as principal, with the intention of transferring such investments to a newly created fund, as well as the sponsorship of one or more funds to make investments other than primarily net lease investments.

Asset Management Revenue

Generally, we earn asset management revenues based on a percentage of average invested assets for each CPA^® REIT, with additional revenues (“performance revenue”) being contingent upon specific performance criteria for each CPA^® REIT (generally, the payment of a specified cumulative distribution return to shareholders). For CPA^®:14, CPA^®:15 and CPA^®:16 – Global, asset management revenues and performance revenues total 1% per annum. For CPA^®:17 – Global, asset management revenues will be ¹/2 of 1% per annum of average market value for long-term net leased properties and certain other assets and 1.5% to 1.75% of average equity value for certain types of real-estate related loans and marketable real estate securities. In addition, through a subsidiary which intends to qualify as a REIT, we may receive up to 10% of distributions of available cash made by CPA^®:17 – Global’s operating partnership subsidiary which we would include in our investment management segment for financial reporting purposes. We seek to increase our base asset management and performance revenue by increasing assets under management, both as

W. P. Carey 2007 10-K – 4

the CPA^® REITs make new investments and from organizing new investment entities. Such revenue may also increase, or decrease, based on changes in the value of the assets of the individual CPA^® REITs. Real property asset valuations are performed annually by a third party, beginning for each CPA^® REIT generally three years after completion of its public offering. Assets under management, and the resultant revenue earned by us, may also decrease if investments are disposed of, either individually or in connection with the liquidation of a CPA^® REIT. The advisory agreements allow us to elect to receive restricted stock for any revenue due from a CPA^® REIT.

Structuring Revenue

In connection with structuring and negotiating investments and related mortgage financing for the CPA^® REITs, the advisory agreements provide for acquisition revenue based on the cost of investments. Under each of the advisory agreements, we may charge acquisition revenue of up to an average of 4.5% of the total cost of all long-term net lease 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. For CPA^®:17 – Global, total acquisition revenue for long-term net leased investments is essentially the same. (For certain types of non-long term net lease investments made by CPA^®:17 – Global, a lower acquisition revenue schedule may apply.) Unpaid installments bear interest at annual rates ranging from 5% to 6%. The amount of this revenue is primarily dependent on the volume of new investments, which is affected by numerous factors, including general economic, market and competitive conditions, and may be subject to considerable fluctuation from period to period. In addition, we may be entitled to loan refinancing revenue of up to 1% of the principal amount refinanced. This loan refinancing revenue, together with the acquisition revenue, is referred to as structuring revenue.

Other Revenue

We may also earn revenue related to the disposition of properties, subject to subordination provisions, which will only be recognized as the relevant conditions are met. Such revenue may include subordinated disposition revenue of no more than 3% of the value of any assets sold, payable only after shareholders have received back their initial investment plus a specified preferred return, and subordinated incentive revenue of 15% of the net cash proceeds distributable to shareholders from the disposition of properties, after recoupment by shareholders of their initial investment plus a specified preferred return. We may also, in connection with the termination of the advisory agreement for CPA^®:14, CPA^®:15 and CPA^®:16 – Global, be entitled to a termination payment based on the amount by which the fair value of a CPA^® REIT’s properties, less indebtedness, exceeds investors’ capital plus a specified preferred return. CPA^®:17 – Global, upon certain terminations, has the right, but not the obligation, beginning two years after the start of its operations, to repurchase our interest in its operating partnership at its then fair market value. We will not receive a termination payment in circumstances where we receive subordinated incentive revenue. In current and past years we have earned substantial disposition and incentive or termination revenue in connection with providing liquidity to CPA^® REIT shareholders. In general, we begin evaluating liquidity alternatives for CPA^® REIT shareholders about eight years after a CPA^® REIT has substantially invested the net proceeds received in its initial public offering. These liquidity alternatives may include listing the CPA^® REIT’s shares on a national securities exchange or including them for quotation on Nasdaq, selling the assets of the CPA^® REIT or merging the affected CPA^® REIT with another entity, which could include another CPA^® REIT. However, the timing of liquidity events depends on market conditions and may also depend on other factors, including approval of the proposed course of action by the independent directors, and in some instances the shareholders, of the affected CPA^® REIT, and may occur well after the eighth anniversary of the completion of an offering. Because of these factors, CPA^® REIT liquidity events have not typically taken place every year. In consequence, given the relatively substantial amounts of disposition revenue, as compared with the ongoing revenue earned from asset management and structuring investments, income from this business segment may be significantly higher in those years where a liquidity event takes place. As CPA^®:14 was substantially fully invested in 2000, we have begun discussing liquidity alternatives with the Board of Directors of CPA^®:14. However, no decisions have been reached by that board and there can be no assurances that a liquidity event for CPA^®:14 will occur in the near future.

We are also reimbursed by our affiliates for certain costs, primarily broker-dealer commissions paid on behalf of the CPA^® REITs and marketing and personnel costs. We are also reimbursed by the CPA^® REITs for many of our costs associated with the evaluation of transactions on behalf of the CPA^® REITs that are not completed. Marketing and personnel costs are apportioned based on the assets of each entity. These reimbursements may be substantial. These reimbursements, together with asset management revenue payable by a specific CPA^® REIT, may be subject to deferral or reduction if they exceed a specified percentage of that CPA^® REIT’s income or invested assets.

Equity Investments in CPA^® REITs

As discussed above, we may elect to receive certain of our revenues from the CPA^® REITs in restricted shares of those entities. As of December 31, 2007, we owned 2.9% of the outstanding shares of CPA^®:16 – Global, 4.5% of the outstanding shares of CPA^®:15 and 6.6% of the outstanding shares of CPA^®:14. As a result of our election to receive asset management revenue for 2008 in restricted shares of these entities, we expect our ownership percentages to increase in 2008. We account for these investments under the equity

W. P. Carey 2007 10-K – 5

method of accounting, pursuant to which we include in equity investments in real estate our proportionate share of the net income of each of these entities. We also receive distributions on these shares from the CPA^® REITs, and include any distributions in excess of equity income in our cash flows from investing activities.

Real Estate Ownership

We invest in commercial properties that are leased to companies domestically and internationally, primarily on a single-tenant, triple-net leased basis. While our acquisition of new properties is constrained by our obligation to provide a continuing and suitable investment program to the CPA^® REITs, we seek to maximize the value of our existing portfolio through prudent management of our real estate assets, which may involve follow-on transactions, dispositions and favorable lease modifications, as well as refinancing of existing debt. In connection with providing liquidity alternatives to CPA^® REIT shareholders, we may acquire additional properties from the liquidating CPA^® REIT, as we did during 2006. We have also acquired properties and interests in properties through tax-free exchanges and as part of joint ventures with the CPA^® REITs. We may also, in the future, seek to increase our portfolio by making investments, including non-net lease investments and including investments in emerging markets, that may not meet the investment criteria of the CPA^® REITs, particularly investments that are not current-income oriented. See Our Portfolio section below for an analysis of our portfolio as of December 31, 2007.

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

Investment Strategies

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

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

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

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

Diversification – We attempt to diversify the CPA^® REIT portfolios to avoid dependence on any one particular tenant, borrower, collateral type, geographic location or tenant/borrower industry. By diversifying these portfolios, we seek to reduce the adverse effect of a single under-performing investment or a downturn in any particular industry or geographic region. Because of the emphasis we have placed on property acquisitions on behalf of the CPA^® REITs, we have not endeavored to maintain any particular standard of diversity in our own portfolio.

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

Collateral Evaluation – We review the physical condition of the property, and conduct a market evaluation to determine the likelihood of replacing the rental stream if the tenant defaults, or of a sale of the property in such circumstances. We also generally will conduct, or require the seller to conduct, Phase I or similar environmental site assessments (including a visual inspection for the

W. P. Carey 2007 10-K – 6

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

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

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

As other opportunities arise, we may also seek to expand the CPA^® REIT portfolios to include other types of real estate-related investments, such as the following:

	–		equity investments in real properties that are not long-term net leased to a single tenant and may include partially leased properties, multi-tenanted properties, vacant or undeveloped properties and properties subject to short-term net leases, among others;
	–		mortgage loans secured by commercial real properties;
	–		subordinated interests in first mortgage real estate loans, or B Notes;
	–		mezzanine loans related to commercial real estate that is senior to the borrower’s equity position but subordinated to other third-party financing;
	–		commercial mortgage-backed securities, or CMBS; and
	–		equity and debt securities (including preferred equity and other higher-yielding structured debt and equity investments) issued by companies that are engaged in real-estate related businesses including other REITs.

To date, our investments on behalf of the CPA^® REITs have not included significant amounts of these types of investments.

Investment Committee – We have an investment committee that provides services to the CPA^® REITs and may provide services to us. Our investment department, under the oversight of our Chief Investment Officer, is primarily responsible for evaluating, negotiating and structuring potential investment opportunities. Before a property is acquired by a CPA^® REIT, the transaction is reviewed by the investment committee. The investment committee is not directly involved in originating or negotiating potential investments, but instead functions as a separate and final step in the investment process. We place special emphasis on having experienced individuals serve on our investment committee and, subject to limited exceptions, generally do not invest in a transaction on behalf of the CPA^® REITs unless the investment committee approves it. In addition, the investment committee may at the request of our Board of Directors or executive committee also review any initial investment in which we propose to engage directly, although it is not required to do so. Our Board of Directors or executive committee may also determine that certain investments that may not meet the CPA^® REITs’ investment criteria (particularly transactions in emerging markets and investments that are not current income oriented) may be acceptable to us. For transactions that meet the investment criteria of more than one CPA^® REIT, the chief

W. P. Carey 2007 10-K – 7

investment officer has discretion as to which CPA^® REIT or REITs will hold the investment. In cases where two or more CPA^® REITs (or one or more CPA^® REITs and us) will hold the investment, the independent directors of each CPA^® REIT investing in the property must also approve the transaction.

The following people currently serve on the investment committee:

	–		Nathaniel S. Coolidge – Former senior vice president and head of the bond and corporate finance department of John Hancock Mutual Life Insurance (currently known as John Hancock Life Insurance Company). Mr. Coolidge’s responsibilities included overseeing its entire portfolio of fixed income investments.
	–		Trevor P. Bond – Co-founder of Credit Suisse’s real estate equity group. Currently managing member of private investment vehicle, Maidstone Investment Co., LLC.
	–		Frank J. Hoenemeyer – Former vice chairman and chief investment officer of the Prudential Insurance Company of America. As chief investment officer, he was responsible for all of Prudential Insurance Company of America’s investments including stocks, bonds and real estate.
	–		Dr. Lawrence R. Klein – Currently serving as professor emeritus of economics and finance at the University of Pennsylvania and its Wharton School. Recipient of the 1980 Nobel Prize in economic sciences and former consultant to both the Federal Reserve Board and the President’s Council of Economic Advisors.
	–		George E. Stoddard – Former officer-in-charge of the direct placement department of The Equitable Life Assurance Society of the United States and our former chief investment officer.
	–		Dr. Karsten von Köller – Currently chairman of Lone Star Germany GmbH and deputy chairman of the supervisory board of Corealcredit Bank AG.

Each of these individuals, other than Mr. Hoenemeyer, also serves as a member of our Board of Directors.

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

Self-Storage Investments

In November 2006, we formed a subsidiary (“Carey Storage”), for the purpose of investing in self-storage real estate properties and their related businesses within the United States. In December 2006, we contributed $5,012 in cash for equity interests in Carey Storage and loaned Carey Storage $5,900. In December 2006, Carey Storage began acquiring domestic self-storage properties using a portion of the proceeds from our contribution and loan along with borrowings under its $105,000 secured credit facility. We are evaluating raising third party capital in connection with these investments. See Real Estate Ownership for further discussion of our self-storage investments.

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

W. P. Carey 2007 10-K – 8

Our Portfolio

As of December 31, 2007, we own and manage over 850 commercial properties domestically and internationally including our own portfolio. Our owned portfolio is comprised of our full or partial ownership interest in 176 commercial properties net leased to 98 tenants and totaling approximately 17 million square feet (on a pro rata basis) with an occupancy rate of 97%. We also own 13 domestic self-storage properties totaling approximately 0.9 million square feet.

Our portfolio has the following property and lease characteristics:

Geographic Diversification

Information regarding the geographic diversification of our properties as of December 31, 2007 is set forth below:

		Consolidated Investments								Equity Investments in Real Estate(b)
		Annualized				% of Annualized				Annualized				% of Annualized
		Contractual Lease				Contractual				Contractual Lease				Contractual
Region		Revenue(a)				Lease Revenue				Revenue(a)				Lease Revenue
United States
South		$	28,919				35	%		$	2,915				12	%
West			20,146				25				1,941				8
Midwest			15,527				19				2,355				9
East			9,669				12				2,141				9
Total U.S.			74,261				91				9,352				38
International
Europe			7,001				9				15,407				62
Total		$	81,262				100	%		$	24,759				100	%

Property Diversification

Information regarding our property diversification as of December 31, 2007 is set forth below:

		Consolidated Investments								Equity Investments in Real Estate(b)
		Annualized				% of Annualized				Annualized				% of Annualized
		Contractual Lease				Contractual				Contractual Lease				Contractual
Property Type		Revenue(a)				Lease Revenue				Revenue(a)				Lease Revenue
Industrial		$	31,222				38	%		$	5,254				21	%
Office			27,865				34				5,544				23
Warehouse/Distribution			11,810				15				10,236				41
Retail			6,239				8				–				–
Other Properties			4,126				5				3,725				15
Total		$	81,262				100	%		$	24,759				100	%

W. P. Carey 2007 10-K – 9

Tenant Diversification

Information regarding our tenant diversification as of December 31, 2007 is set forth below:

		Consolidated Investments								Equity Investments in Real Estate(b)
		Annualized				% of Annualized				Annualized				% of Annualized
		Contractual Lease				Contractual				Contractual Lease				Contractual
Tenant Industry(c)		Revenue(a)				Lease Revenue				Revenue(a)				Lease Revenue
Telecommunications		$	11,947				15	%		$	–				–	%
Business and Commercial Services			11,466				14				1,863				8
Retail Stores			6,855				8				9,796				39
Electronics			5,677				7				1,194				5
Automobile			5,284				7				–				–
Aerospace and Defense			4,892				6				–				–
Beverages, Food and Tobacco			4,747				6				383				1
Forest Products and Paper			4,414				5				–				–
Transportation – Personal			3,962				5				–				–
Healthcare, Education and Childcare			3,854				5				5,397				22
Consumer Non-Durable Goods			3,620				5				–				–
Consumer and Durable Goods			2,176				3				–				–
Media: Printing and Publishing			1,941				2				–				–
Chemicals, Plastics, Rubber and Glass			1,750				2				–				–
Machinery			771				1				2,401				10
Transportation – Cargo			307				–				2,777				11
Other (d)			7,599				9				948				4
Total		$	81,262				100	%		$	24,759				100	%

Lease Expirations

As of December 31, 2007, lease expirations of our properties are as follows:

		Consolidated Investments								Equity Investments in Real Estate(b)
		Annualized				% of Annualized				Annualized				% of Annualized
		Contractual Lease				Contractual				Contractual Lease				Contractual
Year of Lease Expiration		Revenue(a)				Lease Revenue				Revenue(a)				Lease Revenue
2008		$	4,949				6	%		$	–				–	%
2009			10,901				13				383				2
2010			14,770				18				3,209				13
2011			9,370				12				8,483				34
2012			5,523				7				1,314				5
2013			6,224				8				1,863				8
2014			10,249				13				–				–
2015			5,800				7				–				–
2016			1,149				1				516				2
2017			2,403				3				–				–
2018 - 2022			8,875				11				5,642				23
2023 - 2027			1,049				1				3,349				13
Total		$	81,262				100	%		$	24,759				100	%

W. P. Carey 2007 10-K – 10

Financing Strategies

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

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

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

Asset Management

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

We monitor, on an ongoing basis, compliance by tenants with their lease obligations and other factors that could affect the financial performance of any of our properties. Monitoring involves receiving assurances that each tenant has paid real estate taxes, assessments and other expenses relating to the properties it occupies and confirming that appropriate insurance coverage is being maintained by the tenant. For international compliance, we often rely on third party asset managers. We review financial statements of tenants and undertake regular physical inspections of the condition and maintenance of properties. Additionally, we periodically analyze each tenant’s financial condition, the industry in which each tenant operates and each tenant’s relative strength in its industry.

Segments

We have two operating segments, investment management and real estate ownership. The investment management segment derives substantially all of its revenues from the affiliated CPA^® REITs. While no tenant at any of our consolidated investments represented more than 7% of our total lease revenues from our real estate ownership during 2007, a joint venture that leases property to Carrefour France, S.A. earned lease revenue of $19,061. We have a 46% interest in this joint venture.

Competition

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

We face active competition for investment opportunities in commercial properties net leased to major corporations both domestically and internationally from many sources, including insurance companies, credit companies, pension funds, private individuals, financial institutions, finance companies and investment companies. We also face competition from institutions that provide or arrange for other types of commercial financing through private or public offerings of equity or debt or traditional bank financings. We believe that our management’s experience in real estate, credit underwriting and transaction structuring should allow us to compete effectively for commercial properties. However, competitors may be willing to accept rates of return, lease terms, other transaction terms or levels of risk that we may find unacceptable. In addition, the investment committee’s evaluation of the acceptability of rates of return on behalf of the CPA^® REITs is affected by such factors as the cost of raising capital, the amount of revenue that the CPA^® REITs must pay us and the performance hurdle rates of the relevant CPA^® REITs.

W. P. Carey 2007 10-K – 11

Environmental Matters

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

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

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

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

(d) Financial Information About Geographic Areas

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

(e) Available Information

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

Item 1A. Risk Factors.

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

W. P. Carey 2007 10-K – 12

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

The agreement in principle with the SEC is subject to certain contingencies.

As we have previously disclosed, in 2004 the staff of the U.S. Securities and Exchange Commission began investigating whether, in connection with a public offering of shares of CPA^®:15 in late 2002 and early 2003, Carey Financial sold such shares without an effective registration statement, and whether that and other registration statements and prospectuses of REITs managed by us contained material misrepresentations and omissions, including with respect to payments made by certain of the REITs in the 2000-2003 period to broker-dealers that distributed the REITs’ shares. We and Carey Financial have now reached an agreement in principle with the staff of the SEC to settle all matters relating to this investigation. See Item 3 - Legal Proceedings for a discussion of this investigation.

The agreement in principle is subject to approval by the Commission and also to the satisfactory completion of settlement papers, and accordingly, the agreement in principle could fail to be implemented or be implemented in a different form, either of which could result in consequences materially adverse to us. If the settlement is implemented in its current form, we will be required to make cash payments of approximately $30,000, which will materially affect our cash flow from operations. Also, in connection with implementing the settlement, we would be subject to a federal court injunction enjoining us from violating a number of provisions of the federal securities laws. Any further violation of these laws could result in civil remedies, including sanctions, fines and penalties, which may be more severe than if the violation had occurred without the injunction being in place. Additionally, if we breach the terms of the injunction, the SEC may petition the court to vacate the settlement and restore the SEC’s original action to the active docket for all purposes.

The settlement would not be binding on other regulatory authorities, including FINRA, which regulates Carey Financial, state securities regulators, or other regulatory organizations, which may seek to commence proceedings or take action against us or our affiliates on the basis of the settlement or otherwise. As reported in Item 3, the Maryland Securities Commission has sought information from Carey Financial and CPA^®:15 relating to matters that were also the subject of the SEC investigation.

The revenue streams from the investment advisory agreements with the CPA^® REITs are subject to limitation or cancellation.

The agreements under which we provide investment advisory services may generally be terminated by each CPA^® REIT upon 60 days’ notice, with or without cause. There can be no assurance that these agreements will not be terminated. A termination without cause may, however, entitle us to termination revenue, equal to 15% of the amount by which the net fair value of the relevant CPA^® REIT’s assets exceeds the remaining amount necessary to provide investors with total distributions equal to their investment plus a preferred return. (In the case of CPA^®:17 – Global, that entity has the right, but not the obligation, upon certain terminations to repurchase our interests in its operating partnership at fair market value. If such right is not exercised, we would remain as a limited partner of the operating partnership.) Nonetheless, any such termination could have a material adverse effect on our business, results of operations and financial condition.

Changes in investor preferences or market conditions could limit our ability to raise funds or make new investments.

Substantially all of our and the CPA^® REITs’ current investments, as well as the majority of the investments we expect to originate for the CPA^® REITs in 2008, are investments in single-tenant commercial properties that are subject to triple-net leases. In addition, we have relied predominantly on raising funds from individual investors through the sale by participating selected dealers to their customers of publicly-registered, non-traded securities of the CPA^® REITs. Our recent fund raising efforts have been through one major selected dealer. Certain payments made to this selected dealer in connection with the distribution of our CPA^® REIT offerings to investors have been a subject of the SEC investigation described under Item 3 – Legal Proceedings. If, as a result of changes in market receptivity to investments that are not readily liquid and involve high selected dealer fees, or for other reasons, this capital raising method were to become less available as a source of capital, our ability to raise funds for CPA^® REIT programs, and consequently our ability to make investments on their behalf, could be adversely affected. While we are not limited to this particular method of raising funds for investment (and, among other things, the CPA^® REITs may themselves be able to borrow additional funds to invest), our experience with other means of raising capital is limited. Also, many factors, including changes in tax laws or accounting rules, may make these types of investments less attractive to potential sellers and lessees, which could negatively affect our ability to increase the amount of assets of this type under management.

Our investment management operations expose us to more volatility in earnings than our real estate investment business.

Growth in revenue from our investment management operations is dependent in large part on future capital raising in existing or future managed entities, as well as on our ability to make investments that meet the investment criteria of these entities, both of which are subject to uncertainty, including with respect to capital market and real estate market conditions. This uncertainty creates more volatility in our earnings because of the resulting increased volatility in transaction based revenue from our investment management operations as compared to revenue from our real estate operations, which historically has been less volatile. Asset management revenue may be affected by factors that include not only our ability to increase the CPA^® REITs’ portfolio of properties under management, but also changes in valuation of those properties, as well as sales (through planned liquidation or otherwise) of CPA^® REIT properties. In addition, revenue from our investment management operations, including our ability to earn performance revenue, as well as the value of our holdings of CPA^® REIT interests and dividend income from those interests, may be significantly affected by the results of operations of the CPA^® REITs. Each of the CPA^® REITs has invested substantially all of its assets (other than short-term investments) in triple-net leased properties substantially similar to those we hold, and consequently the results of operations of, and cash available for distribution by, each of the CPA^® REITs, is likely to be substantially affected by the same market conditions, and subject to the same risk factors, as the properties we own. Four of the sixteen CPA^® funds temporarily reduced the rate of distributions to their investors as a result of adverse developments involving tenants.

Each of the CPA^® REITs we currently advise and manage may incur significant debt. This significant debt load could restrict their ability to pay revenue owed to us when due, due to either liquidity problems or restrictive covenants contained in their borrowing agreements. In addition, the revenue payable under each of our current investment advisory agreements is subject to a variable annual cap based on a formula tied to the assets and income of that CPA^® REIT. This cap may limit the growth of our management revenue. Furthermore, our ability to earn revenue related to the disposition of properties is primarily tied to providing liquidity events for CPA^® REIT investors. Our ability to provide that liquidity, and to do so under circumstances that will satisfy the applicable subordination

W. P. Carey 2007 10-K – 13

requirements, will depend on market conditions at the relevant time, which may vary considerably over a period of years. In any case, liquidity events typically occur several years apart, and our investment management operations income is likely to be significantly higher in those years in which such events occur.

We face active competition.

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

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

The failure of Carey REIT II, our real estate subsidiary, to qualify as a REIT would adversely affect our operations and ability to make distributions.

If Carey REIT II, our wholly owned REIT subsidiary formed in 2007 (Note 2), fails to qualify as a REIT in any taxable year, we would be subject to U.S. federal income tax on our net taxable income in our real estate subsidiary at corporate rates. In addition, we would generally be disqualified from treatment of Carey REIT II as a REIT for the four taxable years following the year Carey REIT II lost its REIT qualification. Losing the REIT qualification would reduce our net earnings available for investment or distribution to shareholders because of the additional tax liability, and we would no longer be required to make distributions from the real estate subsidiary. We might be required to borrow funds or liquidate some investments in order to pay the applicable tax. Qualification as a REIT involves the application of highly technical and complex Internal Revenue Code provisions for which there are only limited judicial and administrative interpretations. The determination of various factual matters and circumstances not entirely within our control may affect our ability to qualify our real estate subsidiary as a REIT. In order to qualify as a REIT, we must satisfy a number of requirements regarding the composition of our assets and the sources of our gross income. Also, our real estate subsidiary must make distributions to its shareholders (primarily us) aggregating annually at least 90% of its net taxable income, excluding net capital gains. In addition, legislation, new regulations, administrative interpretations or court decisions may adversely affect our investors, our ability to qualify our real estate subsidiary as a REIT for U.S. federal income tax purposes or the desirability of an investment in a REIT relative to other investments.

The Internal Revenue Service may take the position that specific sale-leaseback transactions we will treat as true leases are not true leases for U.S. federal income tax purposes but are, instead, financing arrangements or loans. If a sale-leaseback transaction were so recharacterized, we might fail to satisfy the qualification requirements applicable to REITs.

Possible legislative or other actions affecting REITs could adversely affect our stockholders and us.

The rules dealing with U.S. federal income taxation are constantly under review by persons involved in the legislative process and by the Internal Revenue Service and the U.S. Treasury Department. Changes to tax laws (which changes may have retroactive application) could adversely affect our stockholders or us. It cannot be predicted whether, when, in what forms, or with what effective dates, the tax laws applicable to our stockholders or us will be changed.

The inability of a tenant in a single tenant property to pay rent will reduce our revenues.

Most of our properties are occupied by a single tenant and, therefore, the success of our investments is materially dependent on the financial stability of these tenants. Lease payment defaults by tenants negatively impact our net income and reduce the amounts available for distributions to shareholders. As our tenants generally may not have a recognized credit rating, they may have a higher risk of lease defaults than if our tenants had a recognized credit rating. In addition, the bankruptcy of a tenant could cause the loss of

W. P. Carey 2007 10-K – 14

lease payments as well as an increase in the costs incurred to carry the property. We have had tenants file for bankruptcy protection. In the event of a default, we may experience delays in enforcing our rights as landlord and may incur substantial costs in protecting the investment and re-leasing the property. If a lease is terminated, there is no assurance that we will be able to re-lease the property for the rent previously received or sell the property without incurring a loss.

We depend on major tenants.

Revenues from several of our tenants and/or their guarantors constitute a significant percentage of our lease revenues. Our five largest tenants/guarantors represented approximately 30% of total lease revenues in 2007 and 31% in both 2006 and 2005. The default, financial distress or bankruptcy of any of these tenants could cause interruptions in the receipt of lease revenues from these tenants and/or result in vacancies in the respective properties, which would reduce our revenues at least until the affected property is re-leased, and could decrease the ultimate sale value of each such property.

A substantial amount of our leases will expire within the next five years.

Within the next five years, approximately 56% of our leases are due to expire. If these leases are not renewed, or if the properties cannot be re-leased on terms that yield payments comparable to those currently being received, then our lease revenues could be substantially adversely affected. The terms of any new or renewed leases of these properties may depend on market conditions prevailing at the time of lease expiration. In addition, if properties are vacated by the current tenants, we may incur substantial costs in attempting to re-lease such properties. We may also seek to sell these properties, in which event we may incur losses, depending upon market conditions prevailing at the time of sale.

Our sale-leaseback agreements may permit tenants to purchase a property at a predetermined price, which could limit our realization of any appreciation or result in a loss.

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

We may recognize substantial impairment charges on our properties.

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

Investments in properties outside of the United States subject us to foreign currency risks which may adversely affect distributions.

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

International investments involve additional risks.

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

	–		Changing governmental rules and policies;
	–		Enactment of laws relating to the foreign ownership of property and laws relating to the ability of foreign entities to remove invested capital or profits earned from activities within the country to the United States;
	–		Expropriation;
	–		Legal systems under which the ability to enforce contractual rights and remedies may be more limited than would be the case under U.S. law;
	–		The difficulty in conforming obligations in other countries and the burden of complying with a wide variety of foreign laws;
	–		Adverse market conditions caused by changes in national or local economic or political conditions;
	–		Tax requirements vary by country and we may be subject to additional taxes as a result of our international investments;

W. P. Carey 2007 10-K – 15

	–		Changes in relative interest rates;
	–		Changes in the availability, cost and terms of mortgage funds resulting from varying national economic policies;
	–		Changes in real estate and other tax rates and other operating expenses in particular countries;
	–		Changes in land use and zoning laws; and
	–		More stringent environmental laws or changes in such laws.

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

Also, we may rely on third-party asset managers in international jurisdictions to monitor compliance with legal requirements and lending agreements with respect to properties we own or manage on behalf of the CPA^® REITs. Failure to comply with applicable requirements may expose us or our operating subsidiaries to additional liabilities.

We may have difficulty re-leasing or selling our properties.

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

Our participation in joint ventures creates additional risk.

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

We do not fully control the management of our properties.

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

We are subject to possible liabilities relating to environmental matters.

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

	–		Responsibility and liability for the cost of investigation and removal or remediation of hazardous substances released on our property, generally without regard to our knowledge of or responsibility for the presence of the contaminants;
	–		Liability for the costs of investigation and removal or remediation of hazardous substances at disposal facilities for persons who arrange for the disposal or treatment of such substances;
	–		Potential liability for common law claims by third parties based on damages and costs of environmental contaminants; and
	–		Claims being made against us by the CPA® REITs for inadequate due diligence.

W. P. Carey 2007 10-K – 16

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

Our use of debt to finance investments could adversely affect our cash flow.

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

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

2008		$	40,581	(a)
2009			26,755	(b)
2010			6,612
2011			85,025	(b)(c)
2012			28,260

Deterioration in the credit markets could adversely affect our ability to finance or refinance investments and the ability of our tenants to meet their obligations, which could affect our ability to make distributions.

Industry concerns over asset quality have increased in recent quarters due in large part to issues related to subprime residential mortgage lending, declining real estate activity and general economic concerns. This has led to deterioration in credit markets domestically and internationally. This deterioration has been severe in the real estate lending sector, where available liquidity, including through collateralized debt obligations (“CDOs”) and other securitizations, significantly declined during the second half of 2007 and remains depressed as of the date of this filing.

While our investment portfolio does not include investments in residential mortgage loans or in CDOs backed by residential mortgage loans, the general reduction in available financing for real-estate related investments may impact our financial condition by increasing our cost of borrowing, reducing our overall leverage (which may reduce our returns on investment) and making it more difficult for us to obtain financing on future acquisitions or to refinance existing debt. These effects could in turn adversely affect our ability to make distributions.

In addition, the creditworthiness of our tenants may be adversely affected if their assets include investments in CDOs and residential mortgage loans, or if they have difficulty obtaining financing to fund their business operations. Any such effects could adversely impact our tenants’ ability to meet their ongoing lease obligations to us, which could in turn adversely affect our ability to make distributions.

W. P. Carey 2007 10-K – 17

We may be unable to make investments on an advantageous basis.

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

Our portfolio growth is constrained by our obligations to offer property transactions to the CPA^® REITs.

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

We may suffer uninsured losses.

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

Changes in market interest rates could cause our stock price to go down.

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

A potential change in United States accounting standards regarding operating leases may make the leasing of facilities less attractive to our potential domestic tenants, which could reduce overall demand for our leasing services.

Under Statement of Financial Accounting Standard No. 13, Accounting for Leases, a lease is classified by a tenant as a capital lease if the significant risks and rewards of ownership are considered to reside with the tenant. This situation is considered to be met if, among other things, the non-cancellable lease term is more than 75% of the useful life of the asset or if the present value of the minimum lease payments equals 90% or more of the leased property’s fair value. Under capital lease accounting for a tenant, both the leased asset and liability are reflected on their balance sheet. If the lease does not meet any of the criteria for a capital lease, the lease is considered an operating lease by the tenant, and the obligation does not appear on the tenant’s balance sheet; rather the contractual future minimum payment obligations are only disclosed in the footnotes thereto. Thus, entering into an operating lease can appear to enhance a tenant’s balance sheet in comparison to direct ownership. In 2005, the SEC conducted a study of off-balance-sheet financing which, among other areas, included lease accounting. This study raised concerns that the current accounting model does not clearly portray the resources and obligations arising from long term lease transactions with sufficient transparency. In July 2006, the Financial Accounting Standards Board and the International Accounting Standards Board announced a joint project to re-evaluate lease accounting. Changes to the accounting guidance could affect both our accounting for leases as well as that of our current and potential customers. These changes may affect how the real estate leasing business is conducted both domestically and internationally. For example, if the accounting standards regarding the financial statement classification of operating leases are revised, then companies may be less willing to enter into leases in general or desire to enter into leases with shorter terms because the apparent benefits to their balance sheets could be reduced or eliminated. This in turn could make it more difficult for us to enter leases on terms we find favorable.

The value of our real estate is subject to fluctuation.

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

W. P. Carey 2007 10-K – 18

that lease revenue will be insufficient to cover all corporate operating expenses and debt service payments on indebtedness we incur. General risks associated with the ownership of real estate include:

	–		Adverse changes in general or local economic conditions,
	–		Changes in the supply of or demand for similar or competing properties,
	–		Changes in interest rates and operating expenses,
	–		Competition for tenants,
	–		Changes in market rental rates,
	–		Inability to lease properties upon termination of existing leases,
	–		Renewal of leases at lower rental rates,
	–		Inability to collect rents from tenants due to financial hardship, including bankruptcy,
	–		Changes in tax, real estate, zoning and environmental laws that may have an adverse impact upon the value of real estate,
	–		Uninsured property liability, property damage or casualty losses,
	–		Unexpected expenditures for capital improvements or to bring properties into compliance with applicable federal, state and local laws, and
	–		Acts of God and other factors beyond the control of our management.

We depend on key personnel for our future success.

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

Our governing documents and capital structure may discourage a takeover.

Wm. Polk Carey, Chairman, is the beneficial owner of approximately 28% of our outstanding shares. The provisions of our Amended and Restated Limited Liability Company Agreement and the share ownership of Mr. Carey may discourage a tender offer for our shares or a hostile takeover, even though these may be attractive to shareholders.

Proposed legislation may prevent us from qualifying for treatment as a partnership for U.S. federal income tax purposes, which may significantly increase our tax liability and may affect the market value of our shares.

Members of the United States Congress have introduced legislation that would, if enacted, preclude us from qualifying for treatment as a partnership for U.S. federal income tax purposes under the publicly traded partnership rules. If this or any similar legislation or regulation were to be enacted and to apply to us, we would incur a material increase in our tax liability and the market value of our shares could decline materially.

Item 1B. Unresolved Staff Comments.

None.

Item 2. Properties.

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

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

Item 3. Legal Proceedings.

SEC Investigation

In 2004, following a broker-dealer examination of Carey Financial, our wholly-owned broker-dealer subsidiary, the staff of the SEC commenced an investigation into compliance with the registration requirements of the Securities Act of 1933 in connection with the public offerings of shares of CPA^®:15 during 2002 and 2003. The matters investigated by the staff of the SEC principally included whether, in connection with a public offering of shares of CPA^®:15, Carey Financial and its retail distributors sold certain securities without an effective registration statement; specifically, whether the delivery of the investor funds into escrow after completion of the first phase of the offering, completed in the fourth quarter of 2002, but before a registration statement with respect to the second phase of the offering became effective in the first quarter of 2003, constituted sales of securities in violation of Section 5 of the Securities Act of 1933.

W. P. Carey 2007 10-K – 19

The investigation was later expanded to include matters relating to compensation arrangements with broker-dealers in connection with the CPA^® REITs managed by us, including principally certain payments, aggregating in excess of $9,600, made to a broker-dealer which distributed shares of the REITs, the disclosure of such arrangements and compliance with applicable Financial Industry Regulatory Authority, Inc. (FINRA) requirements. The costs associated with these payments, which were made during the period from early 2000 through the end of 2003, were borne by and accounted for on the books and records of the REITs.

We have now reached an agreement in principle with the staff of the SEC to settle all matters relating to the above-described investigations. The agreement in principle is subject to approval by the Commission and also to the satisfactory completion of settlement papers, and accordingly the agreement in principle could fail to be implemented or be implemented in a different form. Pursuant to the agreement in principle with the SEC staff, and assuming approval by the Commission, the SEC would file a complaint in federal court alleging violations of certain provisions of the federal securities laws, and seeking to enjoin us from violating those laws in the future. In its complaint the SEC would allege violations of Section 5 of the Securities Act of 1933, in connection with the offering of shares of CPA^®:15, and Section 17(a) of the Securities Act of 1933 and Sections 10(b), 13(a), 13(b)(2)(A) and 14(a) of the Securities Exchange Act of 1934, and Rules 10b-5, 12b-20, 13a-1, 13a-13 and 14a-9 thereunder, among others, in connection with the above-described payments to broker-dealers and related disclosures. With respect to Carey Financial, the complaint would allege violations of, and seek to enjoin Carey Financial from violating, Section 5 of the Securities Act of 1933. Without admitting or denying the allegations in the SEC’s complaint, we would consent to the entry of the injunction, which would be subject to court approval. As part of the agreement in principle with the SEC staff, and assuming approval by the Commission, we would expect to make “disgorgement” payments of $19,979, including interest, with the payments being made to certain of our managed REITs, and we would also pay a $10,000 civil penalty.

In connection with the agreement in principle, we have taken a charge of approximately $29,979 in the fourth quarter of 2007, and recognized an offsetting $8,967 tax benefit in the same period.

We expect that the SEC’s complaint would also allege violations of certain provisions of the federal securities laws by our officers John Park, who was formerly our Chief Financial Officer, and Claude Fernandez, who was formerly our Chief Accounting Officer, and it is our understanding that Messrs. Park and Fernandez have separately reached agreements in principle to settle the charges against them, the terms of which are subject to approval by the Commission. The terms of such settlement agreements, if approved, are not expected to have a material effect on us.

Other

The Maryland Securities Commission has sought information from Carey Financial and CPA^®:15 relating to the matters described above. While it may commence proceedings against Carey Financial in connection with these inquiries, we do not currently expect that these inquiries and proceedings will have a material effect on us incremental to that caused by the SEC agreement in principle described above.

As of December 31, 2007, we were not involved in any material litigation.

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

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

Item 4. Submission of Matters to a Vote of Security Holders.

No matters were submitted to a vote of security holders during the fourth quarter of the year ended December 31, 2007.

W. P. Carey 2007 10-K – 20

PART II

Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities.

Listed Shares and Distributions

Our common stock is listed on the New York Stock Exchange under the ticker symbol “WPC”. As of December 31, 2007 there were 27,060 holders of record of our common stock. The following table shows the high and low prices per share and quarterly cash distributions declared for the past two fiscal years:

		2007												2006
										Cash												Cash
										Distributions												Distributions
Period		High				Low				Declared				High				Low				Declared
First quarter		$	34.75			$	29.84			$	0.462			$	27.59			$	25.29			$	0.452
Second quarter			35.50				29.71				0.467				28.18				24.60				0.454
Third quarter			33.14				27.67				0.472				27.98				24.10				0.456
Fourth quarter			36.86				31.02				0.477	(a)			31.00				27.50				0.458

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

Maximum number (or

Total number of shares

approximate dollar value)

purchased as part of

of shares that may yet be

Total number of

Average price

publicly announced

purchased under the

2007 Period

shares purchased(a)

paid per share

plans or programs(a)

plans or programs(a)

October

139,517

$

31.69

139,517

$

14,475

November

–

–

–

14,475

December

–

–

–

14,475

Total

139,517

W. P. Carey 2007 10-K – 21

Item 6. Selected Financial Data.

(In thousands except per share amounts)

		Years ended December 31,
		2007				2006				2005				2004				2003
Operating Data (a)
Revenues from continuing operations (b)		$	263,129			$	267,487			$	163,240			$	214,156			$	146,610
Income from continuing operations			68,603				85,567				44,868				63,493				54,176
Basic earnings from continuing operations per share			1.80				2.27				1.19				1.70				1.48
Diluted earnings from continuing operations per share			1.78				2.20				1.15				1.63				1.43
Net income			79,252				86,303				48,604				65,841				62,878
Basic earnings per share			2.08				2.29				1.29				1.76				1.72
Diluted earnings per share			2.05				2.22				1.25				1.69				1.64
Cash provided by operating activities			47,471				119,940				52,707				98,849				67,295
Cash distributions paid			71,608				68,615				67,004				65,073				62,978
Cash distributions declared per share			1.88	(c)			1.82				1.79				1.76				1.73
Payment of mortgage principal (d)			16,072				11,742				9,229				9,428				8,548
Balance Sheet Data
Real estate, net (e)		$	586,594			$	574,110			$	462,343			$	485,505			$	421,543
Net investment in direct financing leases			89,463				108,581				131,975				190,644				182,452
Total assets			1,153,284				1,093,010				983,262				1,013,539				906,505
Long-term obligations (f)			316,751				279,314				247,298				294,629				211,426

W. P. Carey 2007 10-K – 22

Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations.

(In thousands, except share and per share amounts)

Executive Overview

Business Overview

As described in more detail in Item 1 of this annual report on Form 10-K, we are a publicly traded limited liability company. Our stock is listed on the New York Stock Exchange. We operate in two operating segments, investment management and real estate ownership. 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 – Global Incorporated (“CPA^®:17 – Global”) and were the advisor to Corporate Property Associates 12 Incorporated (“CPA^®:12”) until its merger with CPA^®:14 in 2006 (collectively, the “CPA^® REITs”).

Current Developments and Trends

Significant business developments that occurred during 2007 are detailed in the Significant Developments During 2007 section of Item 1 of this annual report.

Current trends include:

Credit and real estate financing markets have experienced significant deterioration beginning in the second half of 2007, both domestically and internationally. We expect this trend may continue in 2008 and market turbulence could increase.

As a result of this deterioration, we believe mortgage financing will continue to be difficult to obtain, which may affect our ability to finance or complete certain transactions. While we continue to obtain domestic financing on satisfactory terms for the investments we make on behalf of the CPA^® REITs, we have experienced greater challenges to our ability to secure such financing in both the U.S. and European markets. In addition, certain of our sale-leaseback transaction opportunities arise in connection with corporate merger and acquisition activity. To the extent that the deterioration in the credit markets may hinder the ability of third parties to obtain financing for other aspects of their transactions, these opportunities may be less available or the timing of our investments may be delayed. However, in times when financing is more difficult to obtain, we believe sale-leaseback transactions are often a more attractive financing alternative, which may result in increased investment opportunities for us. In addition, long-term U.S. Treasury rates remain near historical lows, which we anticipate will continue to drive investor demand for yield-based investments such as the CPA^® REITs.

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 aggresive credit conditions. 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 the credit spreads across the credit spectrum. Increases in credit spreads or deterioration in individual tenant credit 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 our portfolios we manage. In addition, corporate defaults may increase in 2008, which will require more intensive management of the assets we own and manage. We believe that our emphasis on ownership of assets that are critically important to a tenant’s operations mitigates the risk of a tenant defaulting on its lease upon filing for bankruptcy protection. 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 require us to incur impairment charges on properties we own, even where the tenant is continuing to make the required lease payments.

Despite slow economic growth rates in recent periods, inflation rates in the United States 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 generally have rent increases based on formulas indexed to increases in the Consumer Price Index (“CPI”) or other 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.

Although there has been deterioration in the real estate and credit markets, we believe there is still active competition for the investments we make domestically and internationally. We believe competition is driven in part by investor demand for yield-based investments including triple net lease real estate. We believe that we have competitive strengths that will enable us to continue to find attractive investment opportunities, both domestically and internationally, despite active competition levels. We currently believe that

W. P. Carey 2007 10-K – 23

several factors may also provide us with continued investment opportunities, including the merger and acquisition market, which may provide additional sale-leaseback opportunities as a source of financing (notwithstanding the issues that could affect this market, as discussed above), a continued desire of corporations to divest themselves of real estate holdings both in the U.S. and internationally and increasing opportunities for sale-leaseback transactions in the international market, which continues to make up a large portion of our investment opportunities.

For the year ended December 31, 2007, international investments accounted for 55% of total investments made on behalf of the CPA^® REITs. For the year ended December 31, 2006, international investments accounted for 48% of total investments. We currently expect international commercial real estate to continue to comprise a significant portion of the investments we make on behalf of the CPA^® REITs, although the percentage of international investments in any given period may vary substantially.

How We Earn Revenue

As described in more detail in Item 1 of this annual report on Form 10-K, our investment management segment earns revenue by providing services to the CPA^® REITs in connection with structuring and negotiating investment and debt placement transactions (structuring revenue) and providing on-going management of their portfolios (asset-based management and performance revenues). Asset-based management and performance revenues for the CPA^® REITs are generally determined based on real estate related assets under management. As funds available to the CPA^® REITs are invested, the asset base for which we earn revenue increases. We may elect to receive revenue in cash or restricted shares of the CPA^® REITs. We may also earn incentive and disposition revenue and receive termination payments in connection with providing liquidity alternatives to CPA^® REIT shareholders.

As described in more detail in Item 1 of this annual report on Form 10-K, our real estate ownership segment earns revenue primarily from our ownership and investment in commercial properties on a global basis that are then leased to companies, primarily on a triple net leased basis. We also invest in other properties on an opportunistic basis.

How Management Evaluates Results of Operations

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

Management’s evaluation of operating results includes our ability to generate necessary cash flow in order to fund distributions to our shareholders. As a result, management’s assessment of operating results gives less emphasis to the effects of unrealized gains and losses, which may cause fluctuations in net income for comparable periods but have no impact on cash flows, and to other non-cash charges such as depreciation and impairment charges. Management does not consider unrealized gains and losses resulting from short-term foreign currency fluctuations when evaluating our ability to fund distributions. Management’s evaluation of our potential for generating cash flow includes an assessment of the long-term sustainability of both our real estate portfolio and the assets we manage on behalf of the CPA^® REITs.

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

Management considers cash flows from operating activities plus cash distributions from equity investments in real estate and CPA^® REITs in excess of equity income as a supplemental measure of liquidity in evaluating our ability to sustain distributions to shareholders. Management considers this measure useful as a supplemental measure to the extent the source of distributions in excess of equity income is the result of non-cash charges, such as depreciation and amortization, because it allows management to evaluate such cash flows from consolidated and unconsolidated investments in a comparable manner. In deriving this measure, cash distributions from equity investments in real estate and CPA^® REITs that are sourced from sales of equity investee’s assets or refinancing of debt are excluded because they are deemed to be returns of investment.

Management focuses on measures of cash flows from investing activities and cash flows from financing activities in its evaluation of our capital resources. Investing activities typically consist of the acquisition or disposition of investments in real property and the

W. P. Carey 2007 10-K – 24

funding of capital expenditures with respect to real properties. Financing activities primarily consist of the payment of distributions to shareholders, borrowings and repayments under our lines of credit and the payment of mortgage principal amortization.

Results of Operations

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

Investment Management

		Years ended December 31,
		2007				2006				Change				2006				2005				Change
Revenues
Asset management revenue		$	83,051			$	57,633			$	25,418			$	57,633			$	52,332			$	5,301
Structuring revenue			78,175				22,506				55,669				22,506				28,197				(5,691	)
Incentive, termination and subordinated disposition revenue from merger			–				46,018				(46,018	)			46,018				–				46,018
Reimbursed costs from affiliates			13,782				63,630				(49,848	)			63,630				9,962				53,668
Other income			–				–				–				–				372				(372	)
			175,008				189,787				(14,779	)			189,787				90,863				98,924
Operating Expenses
General and administrative			(54,565	)			(35,742	)			(18,823	)			(35,742	)			(39,458	)			3,716
Provision for settlement			(29,979	)			–				(29,979	)			–				–				–
Reimbursable costs			(13,782	)			(63,630	)			49,848				(63,630	)			(9,962	)			(53,668	)
Depreciation and amortization			(4,179	)			(7,643	)			3,464				(7,643	)			(5,602	)			(2,041	)
			(102,505	)			(107,015	)			4,510				(107,015	)			(55,022	)			(51,993	)
Other Income and Expenses
Other interest income			6,031				2,853				3,178				2,853				3,176				(323	)
Income from equity investments in CPA® REITs			11,166				5,002				6,164				5,002				2,092				2,910
Minority interest in (income) loss			(2,734	)			892				(3,626	)			892				235				657
Gain on sale of securities, foreign currency transactions and other, net			–				6,521				(6,521	)			6,521				2,000				4,521
			14,463				15,268				(805	)			15,268				7,503				7,765
Income from continuing operations before income taxes			86,966				98,040				(11,074	)			98,040				43,344				54,696
Provision for income taxes			(50,158	)			(44,710	)			(5,448	)			(44,710	)			(18,662	)			(26,048	)
Net income from investment management		$	36,808			$	53,330			$	(16,522	)		$	53,330			$	24,682			$	28,648

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 asset valuations of CPA^® REIT funds (which are not recorded for financial reporting purposes); and (iv) 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.

2007 vs. 2006 – For the year ended December 31, 2007 as compared to 2006, asset management revenue increased $25,418 primarily due to the recognition of $19,032 of performance revenue from CPA^®:16 – Global as well as a net increase in our assets under management. In connection with CPA^®:16 – Global meeting its performance criterion in June 2007, we recognized $11,945 of previously deferred performance revenue and have subsequently earned performance revenue of $7,087. We did not recognize performance revenue from CPA^®:16 – Global during 2006 as CPA^®:16 – Global had not met its performance criterion. Revenue earned from assets under management increased primarily as a result of recent investment activity of the CPA^® REITs and increases in the annual asset valuations of CPA^®:14 and CPA^®:15, which were performed as of December 31, 2006. These increases were partially offset by a reduction in revenue resulting from our acquisition of properties from CPA^®:12 (the “CPA^®:12 Acquisition”) for $126,006 and the sale of properties by CPA^®:12 to third parties prior to its merger with CPA^®:14 (the “CPA^®:12/14 Merger”) in December

W. P. Carey 2007 10-K – 25

2006. The purchase of assets from CPA^®:12 had a negative impact on asset management revenue of approximately $1,300 during 2007.

2006 vs. 2005 – For the year ended December 31, 2006 as compared to 2005, asset management revenue increased $5,301 primarily due to a net increase in our assets under management as a result of investment activity by the CPA^® REITs, including the investment by CPA^®:16 – Global of proceeds from its public offerings, as well as increases in the annual asset valuations of the CPA^® REITs, including CPA^®:15, which had its initial appraisal in December 2005. The CPA^®:12 Acquisition had a minimal impact on our asset management revenue for 2006.

A portion of the CPA^® REIT asset management revenue is based on each CPA^® REIT meeting specific performance criteria and is earned only if the criteria are achieved. The performance criterion for CPA^®:16 – Global had not been satisfied as of December 31, 2006, resulting in our deferral of $5,527 in performance revenue for the year ended December 31, 2006. As discussed above, CPA^®:16 – Global met its performance criterion in June 2007.

Structuring Revenue

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

2007 vs. 2006 – For the year ended December 31, 2007 as compared to 2006, structuring revenue increased $55,669 primarily due to the recognition of $42,435 of deferred structuring revenue from CPA^®:16 – Global and an increase in investment volume. In connection with CPA^®:16 – Global meeting its performance criterion in June 2007, we recognized $31,674 of previously deferred structuring revenue and have subsequently earned deferred structuring revenue of $10,761. We did not recognize deferred structuring revenue from CPA^®:16 – Global during 2006 as CPA^®:16 – Global had not met its performance criterion. We structured investments for the CPA^® REITs totaling approximately $1,095,000 and $720,000 for the years ended December 31, 2007 and 2006, respectively.

2006 vs. 2005 – For the year ended December 31, 2006 as compared to 2005, structuring revenue decreased $5,691, primarily due to a reduction in investment volume and a change in the mix of investment volume between the CPA^® REITs. We structured investments totaling $720,000 and $865,000 for the years ended December 31, 2006 and 2005, respectively. Approximately 76% of these investments were structured for CPA^®:16 – Global in 2006 as compared with approximately 68% for 2005. As CPA^®:16 – Global had not achieved its performance criterion, no deferred acquisition revenue was recorded for these investments resulting in our deferral of $10,809 in structuring revenue in 2006. The increase in the percentage of investments structured on behalf of CPA^®:16 – Global resulted in a larger deferral of revenue until CPA^®:16 – Global’s performance criterion was achieved. The reduction in structuring revenue was partially offset by our having charged a reduced fee on an investment completed on behalf of CPA^®:16 – Global during the first quarter of 2005.

Incentive, Termination and Subordinated Disposition Revenue from Merger

Incentive, termination and disposition revenues are generally earned in connection with events which provide liquidity or alternatives to the CPA^® REIT shareholders. These events do not occur every year and no such events occurred in either 2007 or 2005.

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

Reimbursed and Reimbursable Costs

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

2007 vs. 2006 – For the year ended December 31, 2007 as compared to 2006, reimbursed and reimbursable costs decreased $49,848, primarily because we were not actively raising funds on behalf of the CPA^® REITs in 2007. During 2006, we were reimbursed for broker-dealer commissions and marketing costs related to CPA^®:16 – Global’s second public offering which was completed in December 2006. Fund raising efforts for CPA^®:17 – Global’s public offering began in late December 2007 and are expected to continue throughout 2009.

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

W. P. Carey 2007 10-K – 26

General and Administrative

2007 vs. 2006 – For the year ended December 31, 2007 as compared to 2006, general and administrative expenses increased by $18,823, primarily due to increases in compensation related costs of $15,465 and professional fees of $1,240. Compensation related costs increased primarily due to CPA^®:16 – Global achieving its performance criterion in June 2007 and an increase in investment volume over the prior year. As a result of CPA^®:16 – Global achieving its performance criterion, we recognized $6,625 of previously deferred compensation costs and no longer defer recognition of a portion of investment and senior officer compensation. Investments during 2007 totaled $1,095,000 versus $720,000 for the prior year. The increase in professional fees includes costs incurred in studying various corporate restructuring alternatives and other legal and consulting fees. We completed our corporate restructuring in October 2007 (Item 1 – Significant Developments During 2007).

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

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

Provision for Settlement

In the fourth quarter of 2007, we incurred a charge of $29,979 in connection with reaching an agreement in principle with the staff of the SEC to settle all matters relating to its investigation. The charge is comprised of expected payments to certain of the CPA^® REITs, including interest, of $19,979 and a civil penalty of $10,000. See Item 3 – Legal Proceedings for a discussion of this investigation and the agreement in principle.

Depreciation and Amortization

2007 vs. 2006 – For the year ended December 31, 2007 as compared to 2006, depreciation and amortization expense decreased by $3,464 primarily due to accelerated amortization on intangible assets during 2006 related to an advisory agreement with CPA^®:12 that was terminated as a result of the CPA^®:12/14 Merger in December 2006.

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

Other Interest Income

2007 vs. 2006 – For the year ended December 31, 2007 as compared to 2006, other interest income increased by $3,178 primarily due to the recognition of interest income on deferred structuring revenue from CPA^®:16 – Global both as a result of the achievement of its performance criterion and interest earned subsequently, as well as an increase in investment volume. As a result of CPA^®:16 – Global meeting its performance criterion in June 2007, we recognized interest income of $2,300 that had been previously deferred. No such income was recognized in 2006 as CPA^®:16 – Global had not met the criterion.

2006 vs. 2005 – For the year ended December 31, 2006 as compared to 2005, other interest income decreased by $323 primarily due to a decrease in interest income on deferred structuring revenue from CPA^®:15, which had invested a significant amount of the proceeds of its public offerings prior to 2005.

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.

2007 vs. 2006 – For the year ended December 31, 2007 as compared to 2006, income from equity investments in CPA^® REITs increased by $6,164 primarily due to the recognition of an out of period adjustment in the third quarter of 2007 (Note 2) totaling approximately $3,500. In addition, income from equity investments in the CPA^® REITs increased due to the recognition of our share of the overall increase in net income of CPA^®:14 and CPA^®:15 as compared to 2006. These increases were partially offset by the

W. P. Carey 2007 10-K – 27

impact of the CPA^®:12/14 Merger, in which we disposed of a significant portion of our interests in CPA^®:12 and exchanged the remainder for CPA^®:14 shares.

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

Minority Interest in (Income) Loss

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.

2007 vs. 2006 – For the year ended December 31, 2007, we recognized minority interest in income of $2,734 as compared to minority interest in losses of $892 in 2006. Two employees own a minority interest in our subsidiary W. P. Carey International LLC that had a significant increase in net income as a result of the recognition of previously deferred asset management and structuring revenue from CPA^®:16 – Global following CPA^®:16 – Global’s achievement of its performance criterion in June 2007, as well as an increase in investment volume.

2006 vs. 2005 – For the year ended December 31, 2006 as compared to 2005, minority interest in losses increased by $657 primarily due to the consolidation, beginning in 2006, of the results of operations of a limited partnership, which leases our home office space. We participate in a partnership agreement with certain affiliates, including the CPA^® REITs, to share the costs associated with leasing the home office space and as a result, reimbursements from affiliates are reflected within minority interest. During 2005 (prior to consolidation) our share of costs related to this agreement were included within general and administrative expenses but the share of costs that were reimbursable by our affiliates was not reflected in general and administrative expenses and therefore reimbursements were not reflected within minority interest.

Gain on Sale of Securities, Foreign Currency Transactions and Other, Net

2006 – We recognized a gain of $6,521 during 2006, in accordance with SFAS No. 140, “Accounting for Transfers and Servicing of Financial Assets and Extinguishments of Liabilities” (“SFAS 140”), from the disposal of our interests in CPA^®:12 in the CPA^®:12/14 Merger. We owned 2,134,140 shares of CPA^®:12 at the time of the merger and elected to receive $9,861 in cash and 1,022,800 shares of CPA^®:14 stock.

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

Provision for Income Taxes

2007 vs. 2006 – For the year ended December 31, 2007 as compared to 2006, our provision for income taxes increased $5,448 primarily as a result of asset management and structuring revenue recognized from increases in investment volume as well as CPA^®:16 – Global achieving its performance criterion in June 2007. These increases were partially offset by a reduction in termination and subordinated disposition revenue and other gains earned from the CPA^®:12/14 Merger in 2006. We also recognized an $8,967 tax benefit in the fourth quarter of 2007 in connection with incurring a charge related to an agreement in principle to settle the SEC investigation (see Item 3 – Legal Proceedings for a discussion of this investigation and the agreement in principle). The effective tax rate for the years ended December 31, 2007 and 2006 for this segment of our business was 58% and 46%, respectively. The effective tax rate for this segment increased primarily because performance and asset management revenues in respect of CPA^®:12’s assets that had been paid directly to us under CPA^®:12’s advisory agreements were, subsequent to the acquisition of those assets by CPA^®:14 in the CPA^®:12/14 Merger, paid to a taxable, wholly owned subsidiary which is the advisor to CPA^®:14. Periodically, we distribute shares in the CPA^® REITs received for services rendered from our taxable subsidiaries to the LLC. While this generates current taxable income on the current appreciation of those shares (which is eliminated for financial accounting purposes), it reduces corporate level taxability of future dividends and future appreciation on these distributed shares. In addition, investment management income presented above excludes income that has been eliminated in consolidation but is subject to taxation. The adoption of FIN 48 did not have a material impact on our income tax provision during 2007 (Note 15).

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

W. P. Carey 2007 10-K – 28

Net Income from Investment Management

2007 vs. 2006 – For the year ended December 31, 2007 as compared to 2006, net income from investment management decreased by $16,522 primarily due to revenue and other gains earned in 2006 from the CPA^®:12/14 Merger totaling $52,539 and a $21,012 charge, net of tax, incurred in the fourth quarter of 2007 in connection with an agreement in principle to settle the SEC investigation. These decreases were partially offset by the net positive impact of CPA^®:16 – Global achieving its performance criterion. We recognized revenue totaling $61,467 during 2007 as a result of CPA^®:16 – Global achieving its performance criterion, which was partially offset by corresponding increases in general and administrative expenses and our provision for income taxes. Net income also benefited from the recognition of an out of period adjustment in the third quarter of 2007 as described in Note 2. These variances are described above.

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

Real Estate Ownership

		Years ended December 31,
		2007				2006				Change				2006				2005				Change
Revenues
Lease revenues		$	75,403			$	69,197			$	6,206			$	69,197			$	62,476			$	6,721
Other real estate income			12,718				8,503				4,215				8,503				9,901				(1,398	)
			88,121				77,700				10,421				77,700				72,377				5,323
Operating Expenses
General and administrative			(7,256	)			(5,634	)			(1,622	)			(5,634	)			(5,523	)			(111	)
Depreciation and amortization			(21,364	)			(17,494	)			(3,870	)			(17,494	)			(14,449	)			(3,045	)
Property expenses			(6,245	)			(5,984	)			(261	)			(5,984	)			(6,155	)			171
Impairment charges			(1,017	)			(1,147	)			130				(1,147	)			(5,704	)			4,557
Other real estate expenses			(7,690	)			(5,881	)			(1,809	)			(5,881	)			(6,327	)			446
			(43,572	)			(36,140	)			(7,432	)			(36,140	)			(38,158	)			2,018
Other Income and Expenses
Other interest income			811				452				359				452				331				121
Income from equity investments in real estate			7,191				2,606				4,585				2,606				3,090				(484	)
Minority interest in income			(1,409	)			(1,167	)			(242	)			(1,167	)			(499	)			(668	)
Gain (loss) on sale of securities, foreign currency transactions and other, net			3,114				6,448				(3,334	)			6,448				(641	)			7,089
Interest expense			(20,880	)			(17,016	)			(3,864	)			(17,016	)			(15,768	)			(1,248	)
			(11,173	)			(8,677	)			(2,496	)			(8,677	)			(13,487	)			4,810
Income from continuing operations before income taxes			33,376				32,883				493				32,883				20,732				12,151
Provision for income taxes			(1,581	)			(646	)			(935	)			(646	)			(546	)			(100	)
Income from continuing operations			31,795				32,237				(442	)			32,237				20,186				12,051
Income from discontinued operations			10,649				736				9,913				736				3,736				(3,000	)
Net income from real estate ownership		$	42,444			$	32,973			$	9,471			$	32,973			$	23,922			$	9,051

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

W. P. Carey 2007 10-K – 29

Our real estate ownership consists of the investment in and the leasing of commercial real estate. Management’s evaluation of the sources of lease revenues is as follows:

		Years ended December 31,
		2007				2006				2005
Rental income		$	63,682			$	55,747			$	47,025
Interest income from direct financing leases			11,721				13,450				15,451
		$	75,403			$	69,197			$	62,476

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

		Years ended December 31,
Lessee		2007				2006				2005
Bouygues Telecom, S.A. (a) (b) (c)		$	5,529			$	4,786			$	4,674
CheckFree Holdings Corporation Inc. (b) (d)			4,711				4,604				–
Daimler Trucks North America LLC			4,634				4,615				4,396
Dr Pepper Bottling Company of Texas			4,501				4,444				4,382
Orbital Sciences Corporation			3,023				3,023				3,023
Titan Corporation			2,912				2,912				2,898
U. S. Airways Group			2,838				2,838				2,838
AutoZone, Inc. (e)			2,058				2,320				2,326
Quebecor Printing, Inc. (f)			1,941				1,941				1,941
Lucent Technologies, Inc. (g)			1,876				1,518				1,518
Sybron Dental Specialties Inc.			1,770				1,770				1,770
Unisource Worldwide, Inc.			1,686				1,694				1,609
Eagle Hardware & Garden, a subsidiary of Lowe’s Companies			1,680				1,543				1,549
Werner Corporation (h)			1,627				–				–
BE Aerospace, Inc.			1,580				1,575				1,580
CSS Industries, Inc. (i)			1,570				1,570				1,380
Career Education Corporation (j)			1,502				125				–
Sprint Spectrum, L.P.			1,425				1,425				1,425
Enviro Works, Inc.			1,350				1,326				1,254
PPD Development, Inc. (j)			1,340				113				–
AT&T Corporation			1,259				1,259				1,259
Omnicom Group Inc.			1,251				1,168				1,140
BellSouth Telecommunications, Inc.			1,224				1,224				1,224
United States Postal Service			1,179				1,231				1,233
Other (a) (j)			20,937				20,173				19,057
		$	75,403			$	69,197			$	62,476

W. P. Carey 2007 10-K – 30

We recognize income from equity investments in real estate of which lease revenues are a significant component. Net lease revenues from these ventures (for the entire venture, not our proportionate share) are as follows:

		Ownership
		Interest at				Years ended December 31,
Lessee		December 31, 2007				2007				2006				2005
Carrefour France, S.A. (a) (b) (c)			46	%		$	19,061			$	16,303			$	15,973
Federal Express Corporation			40	%			6,892				6,817				6,742
Medica – France, S.A. (a) (d) (e)			46	%			6,348				493				–
Information Resources, Inc. (c)			33	%			4,972				4,972				4,479
Sicor, Inc.			50	%			3,343				3,343				3,343
Hologic, Inc.			36	%			3,212				3,169				3,156
Consolidated Systems, Inc. (d)			60	%			1,810				478				–
Childtime Childcare, Inc.			34	%			1,280				1,297				1,203
The Retail Distribution Group (d)			40	%			808				67				–
Schuler A.G. (a) (f)			33	%			582				–				–
CheckFree Holdings Corporation Inc. (g)			50	%			–				–				4,494
						$	48,308			$	36,939			$	39,390

The above table does not reflect our share of interest income from our 5% interest in a venture which acquired a note receivable in 2007. The venture recognized interest income of $19,508 in 2007.

Lease Revenues

2007 vs. 2006 – For the year ended December 31, 2007 as compared to 2006, lease revenues (rental income and interest income from direct financing leases) increased by $6,206 primarily due to lease revenues earned on properties acquired in the CPA^®:12 Acquisition in December 2006, which contributed $3,258, rent increases and rent from new tenants at existing properties, which contributed $1,892. Lease revenue also benefited from the favorable impact of fluctuations in foreign currency exchange rates. These increases were partially offset by the impact of recent lease expirations.

2006 vs. 2005 – For the year ended December 31, 2006 as compared to 2005, lease revenues increased by $6,721 primarily due to the consolidation of an investment that we previously accounted for as an equity investment in real estate, rent increases and new lease activity at existing properties and to a lesser extent, revenue earned from properties acquired in the CPA^®:12 Acquisition in December 2006. As a result of adopting EITF 04-05 effective January 1, 2006, we recognized revenue of $4,605 from the consolidation of our investment in a property leased to CheckFree Holdings. Rent increases and rent from new tenants at existing properties contributed $2,302 while lease revenue from the CPA^®:12 Acquisition contributed $405 of the increase. These increases were partially offset by a lease expiration in July 2006.

Our net leases generally have rent increases based on formulas indexed to increases in the CPI or other indices for the jurisdiction in which the property is located, sales overrides or other periodic increases, which are designed to increase lease revenues in the future.

Other Real Estate Income

Other real estate income generally consists of revenue from Carey Storage, a subsidiary that invests in domestic self-storage properties and Livho, a subsidiary that operates a Radisson hotel franchise in Livonia, Michigan. Other real estate income also includes lease termination payments and other non-rent related revenues from real estate ownership including, but not limited to, settlements of claims against former lessees. We receive settlements in the ordinary course of business; however, the timing and amount of settlements cannot always be estimated.

W. P. Carey 2007 10-K – 31

2007 vs. 2006 – For the year ended December 31, 2007 as compared to 2006, other real estate income increased by $4,215 primarily due to income from Carey Storage which commenced operations in December 2006 and recognized income of $5,733 in 2007. Other real estate income also increased by $1,000 as a result of increases in reimbursable tenant costs, which are recorded as both revenue and expense and therefore have no impact on net income. These increases were partially offset by a reduction in income from Livho, whose operations have been impacted by renovation work at the hotel.

2006 vs. 2005 – For the year ended December 31, 2006 as compared to 2005, other operating income decreased by $1,398, primarily due to the receipt of bankruptcy proceeds of $1,169 during the year ended December 31, 2005.

General and Administrative

2007 vs. 2006 – For the year ended December 31, 2007 as compared to 2006, general and administrative expenses increased by $1,622 primarily due to increases in compensation related costs and professional fees. During 2007, compensation costs increased by $902 primarily due to increased investment volume and the achievement by CPA^®:16 – Global of its performance criterion in June 2007.

2006 vs. 2005 – For the year ended December 31, 2006 as compared to 2005, general and administrative expenses remained relatively unchanged at $5,634 and $5,523, respectively.

Depreciation and Amortization

2007 vs. 2006 – For the year ended December 31, 2007 as compared to 2006, depreciation and amortization expense increased by $3,870 primarily due to recent investment activity, which includes the CPA^®:12 Acquisition in December 2006 and our self-storage acquisitions, which contributed $2,748 of the increase, as well as the acceleration of depreciation on certain Livho assets.

2006 vs. 2005 – For the year ended December 31, 2006 as compared to 2005, depreciation and amortization expense increased by $3,045 primarily due to depreciation of $1,744 from the reclassification of a property as an operating lease that we previously accounted for as a direct financing lease and depreciation of $935 related to the consolidation of our investment in the CheckFree Holdings property that we previously accounted for as an equity investment in real estate. The CPA^®:12 Acquisition had a minimal impact on our depreciation and amortization expense for 2006.

Impairment Charges

For the years ended December 31, 2007, 2006 and 2005, we recorded impairment charges related to our continuing real estate ownership operations totaling $1,017, $1,147 and $5,704, respectively. The table below summarizes the impairment charges recorded for the past three fiscal years for both continuing and discontinued operations:

Property		2007				2006				2005				Reason
West Mifflin, Pennsylvania		$	–			$	817			$	2,684			Decline in unguaranteed residual value of property
Livonia, Michigan			–				–				1,130			Decline in asset value
Various properties			1,017				330				1,890			Decline in unguaranteed residual value of properties or decline in asset value
Impairment charges from continuing operations		$	1,017			$	1,147			$	5,704
Walbridge, Ohio		$	2,317			$	–			$	–			Property sold for less than carrying value
Amberly Village, Ohio			–				3,200				9,450			Property sold for less than carrying value
Berea, Kentucky			–				–				5,241			Property sold for less than carrying value
Various properties			–				157				1,375			Property sold sold for less than carrying value or property value has declined
Impairment charges from discontinued operations		$	2,317			$	3,357			$	16,066

Other Real Estate Expenses

2007 vs. 2006 – For the year ended December 31, 2007 as compared to 2006, other real estate expenses increased by $1,809 primarily due to operating expenses of our self-storage properties, which we began acquiring in December 2006. This increase was partially offset by reductions in operating expenses of our Livho subsidiary, whose operations have been impacted by renovation work at the hotel.

2006 vs. 2005 – For the year ended December 31, 2006 as compared to 2005, other real estate expenses decreased by $446 primarily due to reductions in operating expenses of our Livho subsidiary which experienced a downturn in room occupancy rates during 2006.

W. P. Carey 2007 10-K – 32

Income from Equity Investments in Real Estate

Income from equity investments in real estate represents our proportionate share of net income (revenue less expenses) from investments entered into with affiliates or third parties in which we have a non-controlling interest but exercise significant influence.

2007 vs. 2006 – For the year ended December 31, 2007 as compared to 2006, income from equity investments in real estate increased by $4,585 primarily due to recent investment activity, including investments acquired in the CPA^®:12 Acquisition and the recognition of an out of period adjustment in the third quarter of 2007 as described in Note 2.

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

Minority Interest in 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.

2007 vs. 2006 – For the year ended December 31, 2007 as compared to 2006, minority interest in income increased by $242 primarily due to an increase in the net income from our French investments. The increase in net income is mainly attributable to rent increases and an increase in foreign exchange translation gains over the prior year resulting from the weakening of the U.S. dollar against the Euro. During the fourth quarter of 2007, we sold our interest in four of our French investments.

2006 vs. 2005 – For the year ended December 31, 2007 as compared to 2006, minority interest in income increased by $668. This increase is primarily due to increases in income generated by our French investments resulting from an increase in foreign exchange translation gains over the prior year resulting from the weakening of the U.S. dollar against the Euro.

Gain (Loss) on Sale of Securities, Foreign Currency Transactions and Other Gains, net

2007 vs. 2006 – For the year ended December 31, 2007 as compared to 2006, gain on sale of securities, foreign currency transactions and other gains, net decreased by $3,334 primarily due to the recognition in 2006 of a gain of $4,800 from the sale of our common stock holdings in Meristar Hospitality Corp. Impairment charges totaling $11,345 were recognized in prior periods to write down the value of this investment to its estimated fair value. This decrease was partially offset by foreign currency translation gains. 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. During 2007, the average rate for the U.S. dollar in relation to the Euro was considerably weaker than during the prior year, and as a result, we experienced a positive impact on our results of foreign operations for the current year as compared to 2006.

2006 vs. 2005 – For the year ended December 31, 2006, we recognized net gains on the sale of securities, foreign currency transactions and other gains, net of $6,448 as compared with a net loss of $641 for 2005. The net gain for 2006 is comprised primarily of the $4,800 gain from the sale of our Meristar Hospitality Corp. stock as described above, as well as net gains on foreign currency transactions as we benefited from the relative weakening of the U.S. dollar against the Euro in 2006. The net loss for 2005 is comprised primarily of net losses on foreign currency transactions due to the relative strengthening of the U.S. dollar against the Euro in 2005.

Interest Expense

2007 vs. 2006 – For the year ended December 31, 2007 as compared to 2006, interest expense increased $3,864 primarily due to additional borrowings under our credit facilities which were used for investments and other recurring operating activities as well as the impact of new mortgage financing obtained in 2007 and 2006, including the mortgage obligations assumed in connection with the CPA^®:12 Acquisition in December 2006. Interest expense on our secured credit facility increased by $2,341, primarily due to storage property acquisitions during 2007 and a full year’s interest expense on storage properties acquired during 2006. Interest expense on the unsecured credit facility increased $1,474, primarily from a $36,000 higher average outstanding balance during 2007 versus the comparable year. The average annual interest rate on this facility remained relatively unchanged year over year.

2006 vs. 2005 – For the year ended December 31, 2006 as compared to 2005, interest expense increased $1,248, primarily due to an increase of $2,604 from the full year impact of new mortgage financing at existing properties that were obtained during 2005 and $1,721 related to the consolidation of our investment in the CheckFree Holdings property that we previously accounted for as an equity investment in real estate. These increases were partially offset by a reduction in interest expense of $2,640 related to our credit facility and a reduction in interest expense from making scheduled principal payments. The reduction in interest expense on the unsecured credit facility resulted from lower average outstanding balances during the comparable periods on our facility partially

W. P. Carey 2007 10-K – 33

offset by rising interest rates. The average outstanding balance on our unsecured facility decreased by approximately $65,000 whereas the average annual interest rate increased approximately 1.9% compared with 2005.

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

Income from Continuing Operations

2007 vs. 2006 – For the year ended December 31, 2007 as compared to 2006, income from continuing operations decreased $442, primarily due to the recognition in the second quarter of 2006 of a $4,800 gain on sale of our common stock holdings of Meristar Hospitality Corp. and an increase in interest expense of $3,864 as a result of increases in the amounts outstanding under our credit facilities. These decreases were primarily offset by increases in property level operating results, which benefited from recent investments including the CPA^®:12 Acquisition and self-storage properties, rent increases at existing properties and foreign currency transaction gains, and the recognition of an out of period adjustment in the third quarter of 2007 as described in Note 2. These variances are described above.

2006 vs. 2005 – For the year ended December 31, 2006 as compared to 2005, income from continuing operations increased $12,051, primarily due to realized gains totaling $4,800 on the sale of our Meristar common stock holdings and a reduction in impairment charges of $4,557, as well as increases in lease revenues of $2,302, primarily from rent increases and rent from new tenants at existing properties. These variances are described above.

Discontinued Operations

2007 – For the year ended December 31, 2007, we earned income from discontinued operations of $10,649. During 2007, we sold several properties and recognized a net gain of $15,486 and lease termination revenue of $1,905 in connection with these transactions. Income generated from these transactions were partially offset by the minority interest partners’ share of income totaling $5,394 and the recognition of an impairment charge on one of these properties of $2,317.

2006 – For the year ended December 31, 2006, we earned income from discontinued operations of $736 primarily due to gains on sales of properties totaling $3,452 and income of $1,178 from the operations of discontinued properties. This income was partially offset by impairment charges on these properties totaling $3,357 during 2006.

2005 – For the year ended December 31, 2005, we earned income from discontinued operations of $3,736 primarily from gains on sales of several properties totaling $10,474 and income of $9,328 from the operations of discontinued properties, which were largely offset by impairment charges totaling $16,066 on several of these properties.

Impairment charges for 2007, 2006 and 2005 are described in Impairment Charges above.

The effect of suspending depreciation expense as a result of the classification of properties as held for sale was $44, $238 and $235 for the years ended December 31, 2007, 2006 and 2005, respectively.

Financial Condition

Uses of Cash during the Year

Our cash flows fluctuate on an annual basis due to a number of factors which include the nature and timing of receipts of transaction-related revenue, the performance of the CPA^® REITs relative to their performance criteria, the timing of purchases and sales of real estate, purchases under our share repurchase plan, the timing of certain payments and the receipt of the annual installment of deferred acquisition revenue and interest thereon in the first quarter.

Although our cash flows may fluctuate from year to year, we believe that we will generate sufficient cash from operations and, if necessary, from the proceeds of non-recourse mortgage loans, unused capacity on our credit facility, unsecured indebtedness and the issuance of additional equity securities to meet our short-term and long-term liquidity needs. We assess our ability to access capital on an ongoing basis. There has been no material change in our financial condition since December 31, 2006. Our use of cash during the year is described below.

Operating Activities

During 2007, we used our cash flows from operations along with existing cash resources and borrowings under our unsecured credit facility to fund distributions to shareholders and make purchases of common stock under our share repurchase program. Cash flows from operations were impacted in 2007 by the timing of receipt of revenue earned and commissions paid in connection with CPA^®:16 – Global meeting its performance criterion and the payment in the first quarter of 2007 of taxes totaling $21,000 on revenue earned in

W. P. Carey 2007 10-K – 34

the fourth quarter of 2006 in connection with the CPA^®:12/14 Merger. In connection with CPA^®:16 – Global meeting its performance criterion in June 2007, we paid previously deferred compensation totaling $6,625 and recognized previously deferred asset-based and structuring revenue totaling $45,919, however we did not receive payment for any of this revenue in cash until 2008. We received previously deferred asset-based revenue of $11,945 in July 2007 in the form of restricted common stock of CPA^®:16 – Global. Previously deferred structuring revenues of $28,259 were paid in January 2008 as part of the annual installment of deferred acquisition revenue totaling $47,099 from the CPA^® REITs while the remainder of the deferred structuring revenue due from CPA^®:16 – Global is payable in January 2009 ($4,663) and January 2010 ($1,052).

During 2007, we received revenue of $27,517 from providing asset-based management services on behalf of the CPA^® REITs, exclusive of that portion of such revenue being satisfied by the CPA^® REITs through the issuance of their restricted common stock rather than paying cash (see below). We also received revenue of $27,654 in connection with structuring investments on behalf of the CPA^® REITs. In January 2007, we received $16,701 related to the annual installment of deferred acquisition revenue from CPA^®:14 and CPA^®:15, both of which have met their performance criteria, including interest. The next installment of deferred acquisition revenue was received in January 2008 as described above.

In 2007, we elected to receive all performance revenue from the CPA^® REITs as well as the asset management revenue payable by CPA^®:16 – Global in restricted shares rather than cash. For 2008, we have elected to continue to receive all performance revenue from the CPA^® REITs in restricted shares rather than cash. However, for 2008 we have elected to receive the base asset management revenue from CPA^®:16 – Global in cash (rather than in stock, as in the prior year), which we anticipate will benefit operating cash flows by approximately $10,300. We expect that the election to receive restricted shares will continue to have a negative impact on cash flows during 2008, as this election is annual.

During 2007, our real estate ownership provided cash flows (contractual lease revenues, net of property-level debt service) of approximately $50,500. The properties we acquired from CPA^®:12 provided cash flow, inclusive of minority interest, of approximately $4,011 and equity income of $972. This additional cash flow was partially offset by lower asset management revenue of approximately $1,300 as a result of CPA^®:12 selling several properties to us and third parties in connection with the CPA^®:12/14 Merger.

Investing Activities

Our investing activities are generally comprised of real estate transactions (purchases and sales) and capitalized property related costs. During 2007, we used $80,491 to enter into several domestic and international investments, used $15,987 to make capital improvements to existing properties and used $3,596 to fund capital contributions to existing equity investments. Cash inflows during this period included distributions from equity investments in real estate and CPA^® REITs in excess of equity income of $17,441 and net proceeds of $42,214 from the sale of several properties. Distributions from equity investments in real estate and CPA^® REITs are primarily comprised of our share of the proceeds from a non-recourse mortgage obtained by a venture in which we have a 50% interest and distributions from the CPA^® REITs. During 2007, proceeds of $19,515 from the sale of properties were placed into escrow in connection with a 1031 exchange transaction, of which $19,410 was released and used to purchase additional properties. Investing activity also included lending $8,676 to an affiliate in connection with a mortgage defeasance. These funds were repaid by the affiliate during the year.

Based on current distribution rates and our current investment in the CPA^® REITs, our annual distributions from the CPA^® REITs for 2008 are projected to be approximately $10,700.

Financing Activities

During 2007, we paid distributions to shareholders of $71,608 and made scheduled mortgage principal payments totaling $16,072. We incurred gross borrowings of $162,700 and $20,080 on our unsecured and secured credit facilities, respectively, and obtained $6,603 of mortgage financing, which were used for several purposes in the normal course of business, including the acquisition of real estate investments. During 2007, we made repayments of $102,000 on our unsecured credit facility which has increased overall by $60,700 since December 31, 2006 and made prepayments of mortgage principal totaling $13,090. Included in the gross borrowings and repayments above is $28,000 borrowed under our new $250,000 unsecured credit facility which was used to repay our previous credit facility. In 2007, we raised $20,682 from the issuance of shares, primarily as a result of the exercise of Carey Management warrants in December 2007 (Note 14) and to a lesser extent as a result of purchases under our distribution reinvestment program. In connection with our current share repurchase program, we repurchased shares totaling $25,525.

W. P. Carey 2007 10-K – 35

Summary of Financing

The table below summarizes our mortgage notes payable and credit facilities as of December 31, 2007 and 2006, respectively.

		December 31,
		2007				2006
Balance
Fixed rate		$	183,180			$	208,665
Variable rate (a)			133,571				69,988
		$	316,751			$	278,653
Percent of total debt
Fixed rate			58	%			75	%
Variable rate (a)			42	%			25	%
			100	%			100	%
Weighted average interest rate at end of year
Fixed rate			6.3	%			6.5	%
Variable rate (a)			5.9	%			5.5	%

Cash Resources

At December 31, 2007, our cash resources consisted of the following:

		–		Cash and cash equivalents totaling $12,137. Of this amount $4,203, at current exchange rates, was held in foreign bank accounts and we could be subject to significant costs should we decide to repatriate these amounts;
		–		Unsecured credit facility with unused capacity of up to $183,241, which may also be used to loan funds to our affiliates. Our lender has issued letters of credit totaling $4,029 on our behalf in connection with certain contractual obligations; and
		–		We can also borrow against our currently unleveraged properties which have a carrying value of $263,435.

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

		December 31, 2007								December 31, 2006
		Outstanding				Maximum				Outstanding				Maximum
		Balance				Available				Balance				Available
Unsecured credit facility		$	62,700			$	250,000			$	2,000			$	175,000
Secured credit facility			35,581				105,000				15,501				105,000
		$	98,281			$	355,000			$	17,501			$	280,000

Unsecured credit facility

In June 2007, we entered into an unsecured credit facility for a $250,000 revolving line of credit to replace our previous $175,000 line of credit that was due to expire in July 2007. The credit facility, which matures in June 2011, can be increased up to $300,000 upon satisfaction of certain conditions and provides for a one-year extension option subject to the satisfaction of certain conditions and the payment of an extension fee equal to 0.125% of the total commitments under the facility at that time. However, such expansion is at the discretion of the lenders.

The credit facility has an annual interest rate of either (i) LIBOR plus a spread which ranges from 75 to 120 basis points depending on our leverage or (ii) the greater of the lender’s prime rate and the Federal Funds Effective Rate plus 50 basis points. At December 31, 2007, the average interest rate on advances on the credit facility was 5.7%. In addition, we pay an annual fee ranging between 12.5 and 20 basis points of the unused portion of the credit facility, depending on our leverage ratio. Based on our leverage ratio at December 31, 2007, we pay interest at LIBOR plus 75 basis points and pay 12.5 basis points on the unused portion of the credit

W. P. Carey 2007 10-K – 36

facility. The credit facility has financial covenants that among other things require us to maintain a minimum equity value and meet or exceed certain operating and coverage ratios. We are in compliance with these covenants as of December 31, 2007.

Secured credit facility

In December 2006, Carey Storage, a wholly owned subsidiary, entered into a credit facility for up to $105,000 with Morgan Stanley Mortgage Capital Inc. that provides for advances through March 8, 2008 and matures in December 2008. The credit facility is collateralized by any self-storage real estate assets acquired by Carey Storage with proceeds from the facility. Advances from this facility bear interest at an annual fixed rate of 7.6% for the first month of borrowing and at an annual variable rate equal to the one-month LIBOR plus a spread which ranges from 175 to 235 basis points thereafter depending on the aggregate debt yield for the collateralized asset pool. At December 31, 2007, our interest rate was based on the one-month LIBOR plus 225 basis points. Advances can be prepaid at any time, however advances prepaid prior to March 8, 2008 are subject to a prepayment penalty of 1.25% of the principal amount of the loan being prepaid. This facility has financial covenants requiring Carey Storage, among other things, to meet or exceed certain operating and coverage ratios. Carey Storage is in compliance with these covenants as of December 31, 2007.