VEREIT® Announces Second Quarter 2019 Operating Results

PHOENIX, Aug. 7, 2019 /PRNewswire/ -- VEREIT, Inc. (NYSE: VER) ("VEREIT" or the "Company") announced today its operating results for the three months ending June 30, 2019.

The financial results below reflect continuing operations only.

Second Quarter 2019 Financial and Operating Highlights

• Net income of $292.3 million and net income per diluted share of $0.27
• Achieved $0.18 AFFO per diluted share
• Acquisitions totaled $118.7 million in the second quarter of 2019 and $221.2 million year-to-date
• Formed an 80/20 industrial partnership on May 30, 2019, including six VEREIT industrial assets totaling approximately $407.5 million which contributed $326.0 million to total dispositions
• Portfolio dispositions totaled $332.3 million in the second quarter of 2019 and $430.3 million year-to-date
• Total debt decreased from $6.02 billion to $5.66 billion; Net Debt from $6.05 billion to $5.51 billion, or 36.9% Net Debt to Gross Real Estate Investments
• Net Debt to Normalized EBITDA was reduced from 5.7x to 5.3x

Second Quarter 2019 Financial Results

Rental Revenue
Rental Revenue for the quarter ended June 30, 2019 decreased $3.7 million to $312.0 million as compared to revenue of $315.7 million for the same quarter in 2018.

Net Income and Net Income Attributable to Common Stockholders per Diluted Share
Net income for the quarter ended June 30, 2019 increased $367.0 million to $292.3 million as compared to net loss of $(74.7) million for the same quarter in 2018, and net income per diluted share increased $0.36 to $0.27 for the quarter ended June 30, 2019, as compared to net loss per diluted share of $(0.09) for the same quarter in 2018.

Normalized EBITDA
Normalized EBITDA for the quarter ended June 30, 2019 increased $0.9 million to $260.3 million as compared to Normalized EBITDA of $259.4 million for the same quarter in 2018.

Funds From Operations Attributable to Common Stockholders and Limited Partners ("FFO") and FFO per Diluted Share
FFO for the quarter ended June 30, 2019 increased $102.0 million to $179.0 million, as compared to $77.0 million for the same quarter in 2018, and FFO per diluted share increased $0.10 to $0.18 for the quarter ended June 30, 2019, as compared to FFO per diluted share of $0.08 for the same quarter in 2018.

Adjusted FFO Attributable to Common Stockholders and Limited Partners ("AFFO") and AFFO per Diluted Share
AFFO for the quarter ended June 30, 2019 decreased $1.7 million to $177.1 million, as compared to $178.8 million for the same quarter in 2018, and AFFO per diluted share remained constant at $0.18 for the quarter ended June 30, 2019, as compared to the same quarter in 2018.

Management Commentary
Glenn J. Rufrano, Chief Executive Officer, stated, "VEREIT continues to focus on three objectives:  lowering our debt levels, refreshing and diversifying our portfolio through reinvestment, and maintaining an experienced execution team.  We have reduced net debt to normalized EBITDA from 5.9x to 5.3x year-to-date, strengthened the portfolio through the recycling of capital, and retained a seasoned real estate team with Company tenure of more than eight years."

Common Stock Dividend Information
On August 5, 2019, the Company's Board of Directors declared a quarterly dividend of $0.1375 per share for the third quarter of 2019, representing an annual distribution rate of $0.55 per share. The dividend will be paid on October 15, 2019 to common stockholders of record as of September 30, 2019.

Balance Sheet and Liquidity
As of the end of the quarter, the Company had paid down its revolving line of credit, leaving $2.0 billion undrawn as of June 30, 2019.  The Company also has a $900.0 million term loan as part of the credit facility.  In addition, secured debt was reduced by $172.3 million in the second quarter, bringing the total reduction amount for the year to $174.7 million.

Subsequent to the quarter, the Company redeemed 4.0 million shares of its 6.70% Series F Cumulative Redeemable Preferred Stock, representing approximately 9.33%, or $100.0 million, of its approximately 42.9 million shares outstanding on July 5, 2019.  The shares were redeemed at a redemption price of $25.00 per share.

Capital Market Activity
Year-to-date, the Company issued 5.0 million shares at a weighted average price of $8.42 for gross proceeds of $42.5 million under its "at the market" equity offering program, including $14.5 million during the second quarter.

Consolidated Financial Statistics
Financial Statistics as of the quarter ended June 30, 2019 are as follows:  Net Debt to Normalized EBITDA of 5.3x, Fixed Charge Coverage Ratio of 3.0x, Unencumbered Asset Ratio of 76.0%, Net Debt to Gross Real Estate Investments of 36.9%, Weighted Average Debt Term of 4.4 years and 99.8% Fixed Rate Debt.

Litigation Settlements
Between March 31 and April 5, 2019, the Company entered into a series of agreements to settle claims with additional shareholders who decided not to participate as class members in the SDNY Consolidated Class Action for approximately $12.2 million, which was accrued in the first quarter of 2019 and paid in the second quarter of 2019 and is reflected in the net debt to normalized EBITDA for the quarter.  In total, the Company has now settled claims of shareholders who held shares of common stock and swaps referencing common stock representing approximately 35.3% of VEREIT's outstanding shares of common stock held at the end of the period covered by the various pending shareholder actions for approximately $245.4 million. The Company retains the right to pursue any and all claims against the other defendants in the litigations and/or third parties, including claims for contribution for amounts paid in the settlements.

SEC Settlement With Former Manager and Principals
In connection with a settlement entered into between the SEC and the Company's former manager and certain of its principals, approximately 2.9 million Limited Partner OP units of VEREIT's Operating Partnership, which were owned by principals of the former manager, were forfeited and canceled on July 26, 2019, along with $6.4 million in associated dividends that have not been paid on those units since October 2015.  In accordance with U.S. GAAP, the Company recorded the surrender of the OP units and the associated dividends in the Company's financials for the period ended June 30, 2019.

Real Estate Portfolio
As of June 30, 2019, the Company's portfolio consisted of 3,950 properties with total portfolio occupancy of 99.0%, investment grade tenancy of 39.6% and a weighted-average remaining lease term of 8.6 years.  During the quarter ended June 30, 2019, same-store rents (3,873 properties) increased 1.0% as compared to the same quarter in 2018.

Property Acquisitions
During the second quarter of 2019, the Company acquired 25 properties for approximately $118.7 million at an average cash cap rate of 7.3%.  In addition, the Company invested $8.3 million in one build-to-suit project. As of June 30, 2019, build-to-suit programs included one property with an investment to date of $15.8 million and remaining estimated investment of $11.9 million.

Industrial Partnership
On May 30, 2019, the Company formed an industrial partnership with the objective of creating an increasing, long term asset base of investment grade tenants in the U.S. industrial market.  The partnership is a traditional 80/20 structure and initially includes six VEREIT assets totaling approximately $407.5 million, which contributed $326.0 million to total dispositions.

Property Dispositions
During the quarter ended June 30, 2019, the Company disposed of 53 properties for an aggregate sales price of $658.3 million, which includes the 80% share of the industrial partnership. Of this amount, $493.2 million was used in the total weighted average cash cap rate calculation of 6.5%, including $53.5 million in net sales of Red Lobster restaurants.  The gain on second quarter sales was approximately $222.5 million.  Excluding the industrial partnership, portfolio dispositions totaled $332.3 million for the quarter.

2019 Guidance
The Company reaffirms its 2019 AFFO per diluted share to be in a range between $0.68 and $0.70 (see reconciliation to net income per share and updated assumptions at the end of this release).

Subsequent Events

Property Acquisitions
From July 1, 2019 through July 31, 2019, the Company acquired three properties for approximately $21.8 million.  Acquisitions year-to-date through July 31, 2019, totaled $221.2 million.

Property Dispositions
From July 1, 2019 through July 31, 2019, the Company disposed of 12 properties for an aggregate sales price of $27.5 million. Dispositions year-to-date through July 31, 2019, totaled $748.0 million, including the industrial partnership.  Excluding the partnership, portfolio dispositions year-to-date totaled $430.3 million.  In addition, the Company sold certain legacy mortgage related investments for an aggregate sales price of $8.3 million.

Partial Redemption of Preferred Stock
On July 5, 2019, the Company redeemed 4.0 million shares of its 6.7% Series F Cumulative Redeemable Preferred Stock, representing approximately 9.33%, or $100.0 million, of its approximately 42.9 million shares outstanding.  The shares were redeemed at a redemption price of $25.00 per share.

Capital Market Activity
Subsequent to June 30, 2019, the Company entered into forward starting interest rate swaps with a total notional amount of $400.0 million and an average effective treasury rate of approximately 2.1%.  The swaps are structured to hedge the 10-year Treasury interest rate risk component associated with the potential issuance of 10-year public debt between May 1, 2020 and December 31, 2021.

Audio Webcast and Call Details

The live audio webcast, beginning at 1:30 p.m. ET on Wednesday, August 7, 2019, is available by accessing this link: http://ir.vereit.com/.  Dial-in information is as follows: (844) 746-0748 (domestic) or (412) 317-5274 (international).  Participants should log in 10-15 minutes early.

Following the call, a replay of the webcast will be available at the link above and archived for up to 12 months following the call.

About the Company
VEREIT is a full-service real estate operating company which owns and manages one of the largest portfolios of single-tenant commercial properties in the U.S.  The Company has total real estate investments of $15.0 billion including approximately 4,000 properties and 90.6 million square feet. VEREIT's business model provides equity capital to creditworthy corporations in return for long-term leases on their properties. VEREIT is a publicly traded Maryland corporation listed on the New York Stock Exchange. VEREIT uses, and intends to continue to use, its Investor Relations website, which can be found at www.VEREIT.com, as a means of disclosing material nonpublic information and for complying with its disclosure obligations under Regulation FD.  Additional information about VEREIT can be found through social media platforms such as Twitter and LinkedIn.

Definitions

Descriptions of FFO and AFFO, EBITDA and Normalized EBITDA, Principal Outstanding and Adjusted Principal Outstanding, Net Debt, Interest Expense, Excluding Non-Cash Amortization, Fixed Charge Coverage Ratio, Net Debt to Normalized EBITDA Annualized Ratio, Net Debt Leverage Ratio, and Unencumbered Asset Ratio are provided below. Refer to the subsequent tables for reconciliations of these non-GAAP financial measures to the most directly comparable GAAP financial measure and the calculations of these financial ratios.

We determined that adjusted funds from operations ("AFFO"), a non-GAAP measure, and our real estate portfolio and economic metrics should exclude the impact of properties owned by the Company for the month beginning with the date that (i) the related mortgage loan is in default, and (ii) management decides to transfer the properties to the lender in connection with settling the mortgage note obligation ("Excluded Properties") and ending with the disposition date, to better reflect our ongoing operations. At and during the three months ended June 30, 2019, the Excluded Property was one office property comprising 145,186 square feet, of which 6,926 was vacant, with Principal Outstanding of $19.5 million. At March 31, 2019, December 31, 2018, and June 30, 2018, there were no Excluded Properties. During the three months ended June 30, 2018, the Excluded Property was one vacant industrial property, comprising 307,725 square feet with Principal Outstanding of $16.2 million.

Funds from Operations ("FFO") and Adjusted Funds from Operations ("AFFO")

Due to certain unique operating characteristics of real estate companies, as discussed below, the National Association of Real Estate Investment Trusts, Inc. ("Nareit"), an industry trade group, has promulgated a supplemental performance measure known as funds from operations ("FFO"), which we believe to be an appropriate supplemental performance measure to reflect the operating performance of a REIT. FFO is not equivalent to our net income or loss as determined under U.S. GAAP.

Nareit defines FFO as net income or loss computed in accordance with U.S. GAAP adjusted for gains or losses from disposition of property, depreciation and amortization of real estate assets, impairment write-downs on real estate, and our pro rata share of FFO adjustments related to unconsolidated partnerships and joint ventures. We calculate FFO in accordance with Nareit's definition described above.

In addition to FFO, we use adjusted funds from operations ("AFFO") as a non-GAAP supplemental financial performance measure to evaluate the operating performance of the Company. AFFO, as defined by the Company, excludes from FFO non-routine items such as acquisition-related expenses, litigation and non-routine costs, net, loss on disposition of discontinued operations, net revenue or expense earned or incurred that is related to the services agreement, gains or losses on sale of investment securities or mortgage notes receivable and restructuring expenses. We also exclude certain non-cash items such as impairments of goodwill and intangible assets, straight-line rent, net of bad debt expense related to straight-line rent, net direct financing lease adjustments, gains or losses on derivatives, reserves for loan loss, gains or losses on the extinguishment or forgiveness of debt, non-current portion of the tax benefit or expense, equity-based compensation and amortization of intangible assets, deferred financing costs, premiums and discounts on debt and investments, above-market lease assets and below-market lease liabilities. We omit the impact of the Excluded Properties and related non-recourse mortgage notes from FFO to calculate AFFO. Management believes that excluding these costs from FFO provides investors with supplemental performance information that is consistent with the performance models and analysis used by management, and provides investors a view of the performance of our portfolio over time. AFFO allows for a comparison of the performance of our operations with other publicly-traded REITs, as AFFO, or an equivalent measure, is routinely reported by publicly-traded REITs, and we believe often used by analysts and investors for comparison purposes.

For all of these reasons, we believe FFO and AFFO, in addition to net income (loss), as defined by U.S. GAAP, are helpful supplemental performance measures and useful in understanding the various ways in which our management evaluates the performance of the Company over time. However, not all REITs calculate FFO and AFFO the same way, so comparisons with other REITs may not be meaningful. FFO and AFFO should not be considered as alternatives to net income (loss) and are not intended to be used as a liquidity measure indicative of cash flow available to fund our cash needs. Neither the SEC, Nareit, nor any other regulatory body has evaluated the acceptability of the exclusions used to adjust FFO in order to calculate AFFO and its use as a non-GAAP financial performance measure.

Earnings Before Interest, Taxes, Depreciation and Amortization ("EBITDA"), EBITDA for Real Estate ("EBITDAre") and Normalized EBITDA

Due to certain unique operating characteristics of real estate companies, as discussed below, Nareit has promulgated a supplemental performance measure known as Earnings Before Interest, Taxes, Depreciation and Amortization for Real Estate ("EBITDAre"). Nareit defines EBITDAre as net income or loss computed in accordance with GAAP, adjusted for interest expense, income tax expense (benefit), depreciation and amortization, impairment write-downs on real estate, gains or losses from disposition of property and our pro rata share of EBITDAre adjustments related to unconsolidated partnerships and joint ventures. We calculated EBITDAre in accordance with Nareit's definition described above.

In addition to EBITDAre, we use Normalized EBITDA as a non-GAAP supplemental performance measure to evaluate the operating performance of the Company. Normalized EBITDA, as defined by the Company, represents EBITDAre, modified to exclude non-routine items such as acquisition-related expenses, litigation and non-routine costs, net, loss on disposition of discontinued operations, net revenue or expense earned or incurred that is related to  the services agreement, gains or losses on sale of investment securities or mortgage notes receivable, legal settlements and insurance recoveries not in the ordinary course of business, payments on fully reserved loan receivables and restructuring expenses. We also exclude certain non-cash items such as impairments of goodwill and intangible assets, straight-line rental revenue, gains or losses on derivatives, gains or losses on the extinguishment or forgiveness of debt, write-off of program development costs, and amortization of intangibles, above-market lease assets and below-market lease liabilities. Normalized EBITDA omits the Normalized EBITDA impact of Excluded Properties. Management believes that excluding these costs from EBITDAre provides investors with supplemental performance information that is consistent with the performance models and analysis used by management, and provides investors a view of the performance of our portfolio over time. Therefore, EBITDA, EBITDAre, and Normalized EBITDA should not be considered as an alternative to net income, as computed in accordance with GAAP. The Company uses EBITDA, EBITDAre, and Normalized EBITDA as one measure of its operating performance when formulating corporate goals and evaluating the effectiveness of the Company's strategies. Normalized EBITDA may not be comparable to similarly titled measures of other companies.

Net Debt, Principal Outstanding and Adjusted Principal Outstanding

Principal Outstanding is a non-GAAP measure that represents the Company's outstanding principal debt balance, excluding certain GAAP adjustments, such as premiums and discounts, financing and issuance costs, and related accumulated amortization. Adjusted Principal Outstanding includes the Company's pro rata share of the unconsolidated joint ventures' outstanding principal debt balance and omits the outstanding principal balance of mortgage notes secured by Excluded Properties. We believe that the presentation of Principal Outstanding and Adjusted Principal Outstanding, which show our contractual debt obligations, provides useful information to investors to assess our overall liquidity, financial flexibility, capital structure and leverage. Principal Outstanding and Adjusted Principal Outstanding should not be considered as alternatives to the Company's consolidated debt balance as determined in accordance with GAAP or any other GAAP financial measures and should only be considered together with, and as a supplement to, the Company's financial information prepared in accordance with GAAP.

Net Debt is a non-GAAP measure used to show the Company's Adjusted Principal Outstanding, less all cash and cash equivalents and the Company's pro rata share of unconsolidated joint ventures' cash and cash equivalents. We believe that the presentation of Net Debt provides useful information to investors because our management reviews Net Debt as part of its management of our overall liquidity, financial flexibility, capital structure and leverage.

Interest Expense, Excluding Non-Cash Amortization

Interest Expense, excluding non-cash amortization is a non-GAAP measure that represents interest expense incurred on the outstanding principal balance of our debt and the Company's pro rata share of the unconsolidated joint ventures' outstanding principal balance.  This measure excludes (i) the amortization of deferred financing costs, premiums and discounts, which is included in interest expense in accordance with GAAP, and (ii) the impact of Excluded Properties and related non-recourse mortgage notes. We believe that the presentation of Interest Expense, excluding non-cash amortization, which shows the interest expense on our contractual debt obligations, provides useful information to investors to assess our overall solvency and financial flexibility. Interest Expense, excluding non-cash amortization should not be considered as an alternative to the Company's interest expense as determined in accordance with GAAP or any other GAAP financial measures and should only be considered together with and as a supplement to the Company's financial information prepared in accordance with GAAP.

Fixed Charge Coverage Ratio

Fixed Charge Coverage Ratio is the sum of (i) Interest Expense, excluding non-cash amortization, (ii) secured debt principal amortization on Adjusted Principal Outstanding and (iii) dividends attributable to preferred shares divided by Normalized EBITDA. Management believes that Fixed Charge Coverage Ratio is a useful supplemental measure of our ability to satisfy fixed financing obligations.

Net Debt to Normalized EBITDA Annualized Ratio

Net Debt to Normalized EBITDA Annualized equals Net Debt divided by the respective quarter Normalized EBITDA multiplied by four. We believe that the presentation of Net Debt to Normalized EBITDA Annualized provides useful information to investors because our management reviews Net Debt to Normalized EBITDA Annualized as part of its management of our overall liquidity, financial flexibility, capital structure and leverage.

Net Debt Leverage Ratio

Net Debt Leverage Ratio equals Net Debt divided by Gross Real Estate Investments. We believe that the presentation of Net Debt Leverage Ratio provides useful information to investors because our management reviews Net Debt Leverage Ratio as part of its management of our overall liquidity, financial flexibility, capital structure and leverage.

Gross Real Estate Investments

Gross Real Estate Investments represent total gross real estate and related assets of Operating Properties, equity investments in the Cole REITs, investment in direct financing leases, investment securities backed by real estate and mortgage notes receivable, and the Company's pro rata share of such amounts related to properties owned by unconsolidated joint ventures, net of gross intangible lease liabilities. We believe that the presentation of Gross Real Estate Investments, which shows our total investments in real estate and related assets, in connection with Net Debt, provides useful information to investors to assess our overall financial flexibility, capital structure and leverage. Gross Real Estate Investments should not be considered as an alternative to the Company's real estate investments balance as determined in accordance with GAAP or any other GAAP financial measures and should only be considered together with, and as a supplement to, the Company's financial information prepared in accordance with GAAP.

Unencumbered Asset Ratio

Unencumbered Asset Ratio equals unencumbered Gross Real Estate Investments divided by Gross Real Estate Investments. Management believes that Unencumbered Asset Ratio is a useful supplemental measure of our overall liquidity and leverage.

Forward-Looking Statements

Information set forth herein contains "forward-looking statements" (within the meaning of the federal securities laws, Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended), which reflect VEREIT's expectations and projections regarding future events and plans, VEREIT's future financial condition, results of operations and business including the performance of its portfolio and industrial partnership, its access to the capital markets, including lowering debt levels, its focus on and execution of its capital allocation strategy, and maintaining an experienced execution team. The forward-looking statements involve a number of assumptions, risks, uncertainties and other factors that could cause actual results to differ materially from those contained in the forward-looking statements. Generally, the words "expects," "anticipates," "assumes," "targets," "goals," "projects," "intends," "plans," "believes," "seeks," "estimates," "may," "will," "should," "could," "continues," variations of such words and similar expressions identify forward- looking statements. These forward-looking statements are based on information currently available to us and are subject to a number of known and unknown risks, uncertainties and other factors, most of which are difficult to predict and many of which are beyond VEREIT's control. If a change occurs, VEREIT's business, financial condition, liquidity and results of operations may vary materially from those expressed in or implied by the forward-looking statements.

The following factors, among others, could cause actual results to differ from those set forth in the forward-looking statements: VEREIT's plans, market and other expectations, objectives, intentions and other statements that are not historical facts; the developments disclosed herein; VEREIT's ability to meet its 2019 guidance; VEREIT's ability to renew leases, lease vacant space or re-lease space as leases expire on favorable terms or at all; risks associated with tenant, geographic and industry concentrations with respect to VEREIT's properties; risks accompanying the management of its industrial partnership; the impact of impairment charges in respect of certain of VEREIT's properties, goodwill and intangible assets and other assets; unexpected costs or liabilities that may arise from potential dispositions, including related to limited partnership, tenant-in-common and Delaware statutory trust real estate programs and VEREIT's management with respect to such programs; competition in the acquisition and disposition of properties and in the leasing of its properties; the inability to acquire, dispose of, or lease properties on advantageous terms; risks associated with bankruptcies or insolvencies of tenants, from tenant defaults generally or from the unpredictability of the business plans and financial condition of VEREIT's tenants; risks associated with pending government investigations and litigations related to VEREIT's previously disclosed audit committee investigation, including the expense of such investigations and litigation and any additional potential payments upon resolution; risks associated with VEREIT's substantial indebtedness, including that such indebtedness may affect VEREIT's ability to pay dividends and the terms and restrictions within the agreements governing VEREIT's indebtedness may restrict its borrowing and operating flexibility; the ability to retain or hire key personnel; and continuation or deterioration of current market conditions. Additional factors that may affect future results are contained in VEREIT's filings with the U.S. Securities and Exchange Commission (the "SEC"), which are available at the SEC's website at www.sec.gov. VEREIT disclaims any obligation to publicly update or revise any forward-looking statements, whether as a result of changes in underlying assumptions or factors, new information, future events or otherwise, except as required by law.

VEREIT, INC.
ADJUSTED FUNDS FROM OPERATIONS PER DILUTED SHARE - 2019 GUIDANCE
(Unaudited)

The Company expects its 2019 AFFO per diluted share to be in a range between $0.68 and $0.70.  This guidance assumes acquisitions totaling $400 million to $600 million at an average cash cap rate of 6.5% to 7.5% and portfolio dispositions totaling $500 million to $650 million within the same cap rate range.  The assumption regarding portfolio dispositions is in addition to the industrial partnership, which contributed $326 million to dispositions.  Guidance also assumes real estate operations with average occupancy above 98.0%, same-store rental growth in a range of 0.3% to 1.0% and Net Debt to Normalized EBITDA between 5.5x and 5.7x. The estimated net income per diluted share is not a projection and is provided solely to satisfy the disclosure requirements of the U.S. Securities and Exchange Commission.

SOURCE VEREIT, Inc.