VEREIT® Announces Second Quarter 2018 Operating Results

PHOENIX, Aug. 3, 2018 /PRNewswire/ -- VEREIT, Inc. (NYSE: VER) ("VEREIT" or the "Company") announced today its operating results for the three months ending June 30, 2018.

The financial results below reflect continuing operations only.

Second Quarter 2018 Highlights

• Net loss of $(74.7) million and net loss per diluted share of $(0.09)
• Achieved $0.18 AFFO per diluted share
• Completed $41.0 million of acquisitions and $56.4 million of dispositions
• Entered into new $2.9 billion credit facility enhancing liquidity and financial flexibility
• Settled pending litigation with Vanguard for $90.0 million
• Reaffirming 2018 AFFO per diluted share guidance range of $0.70 and $0.72 (see reconciliation to earnings per share at the end of this release)

Second Quarter 2018 Financial Results

RevenueRevenue for the quarter ended June 30, 2018 increased $7.4 million to $315.7 million as compared to revenue of $308.2 million for the same quarter in 2017, primarily due to net acquisitions since April 1, 2017.

Net Income (Loss) and Net Income (Loss) Attributable to Common Stockholders per Diluted ShareNet income for the quarter ended June 30, 2018 decreased $104.3 million to a net loss of $(74.7) million as compared to net income of $29.6 million for the same quarter in 2017, and net income per diluted share decreased $0.10 to a net loss per diluted share of $(0.09) for the quarter ended June 30, 2018, as compared to net income per diluted share of $0.01 for the same quarter in 2017.  The differences were primarily due to the Vanguard settlement along with a smaller gain on the disposition of real estate partially offset by higher revenue and lower depreciation and amortization and impairment expenses.

Normalized EBITDANormalized EBITDA for the quarter ended June 30, 2018 increased $1.6 million to $259.4 million as compared to Normalized EBITDA of $257.8 million for the same quarter in 2017, primarily due to higher revenue, partially offset by higher property operating and G&A expenses along with lower other income and lower contribution from equity in income and unconsolidated entities.

Funds From Operations Attributable to Common Stockholders and Limited Partners ("FFO") and FFO per Diluted ShareFFO for the quarter ended June 30, 2018 decreased $89.8 million to $77.0 million, as compared to $166.8 million for the same quarter in 2017, and FFO per diluted share decreased $0.09 to $0.08 for the quarter ended June 30, 2018, as compared to FFO per diluted share of $0.17 for the same quarter in 2017.

Adjusted FFO Attributable to Common Stockholders and Limited Partners ("AFFO") and AFFO per Diluted ShareAFFO for the quarter ended June 30, 2018 increased $4.1 million to $178.8 million, as compared to $174.7 million for the same quarter in 2017, and AFFO per diluted share remained at $0.18 for the quarter ended June 30, 2018, as compared to the same quarter in 2017.

Management CommentaryGlenn J. Rufrano, Chief Executive Officer, stated, "During the second quarter, VEREIT executed a new $2.9 billion credit facility providing long-term balance sheet flexibility.  Our portfolio remains well-diversified with occupancy of 98.8% and a focus to increase unencumbered assets which now approximate 74%.  Debt metrics are well within our investment grade rating and we continue to have a great deal of liquidity."

Common Stock Dividend InformationOn August 2, 2018, the Company's Board of Directors declared a quarterly dividend of $0.1375 per share for the third quarter of 2018, representing an annual distribution rate of $0.55 per share. The dividend will be paid on October 15, 2018 to common stockholders of record as of September 28, 2018.

Balance Sheet and LiquidityOn May 23, 2018, the Company closed on a new $2.9 billion unsecured credit facility to replace its previous $2.3 billion revolving credit facility. The new credit facility is comprised of a $2.0 billion unsecured revolving credit facility and a $900.0 million unsecured delayed-draw term loan facility.

During the second quarter, the Company had net draws on its revolving line of credit of $75.0 million, resulting in a balance of $195.0 million and leaving $1.8 billion of capacity available as of June 30, 2018 on the Company's $2.0 billion revolving line of credit.  In addition, secured debt was reduced by $45.9 million.

Share Repurchase ActivityDuring the second quarter of 2018, the Company repurchased approximately 0.8 million shares of its common stock at an average price of $6.95 per share.  Year-to-date the Company has repurchased 7.2 million shares at an average price of $6.94 per share.

Consolidated Financial StatisticsFinancial Statistics as of the quarter ended June 30, 2018 are as follows:  Net Debt to Normalized EBITDA of 5.8x, Fixed Charge Coverage Ratio of 3.0x, Unencumbered Asset Ratio of 73.5%, Net Debt to Gross Real Estate Investments of 39.1% and Weighted Average Debt Term of 4.0 years.

Vanguard SettlementOn June 11, 2018, the Company announced it entered into a settlement agreement and release to settle its pending litigation with Vanguard for $90.0 million. Vanguard's holdings accounted for approximately 13.0% of VEREIT's outstanding shares of common stock held at the end of the period covered by the various pending shareholder actions.  The Company retains the right to pursue any and all claims against the other defendants in the litigation and/or third parties, including claims for contribution for amounts paid in the settlement.

Real Estate PortfolioAs of June 30, 2018, the Company's portfolio consisted of 4,033 properties with total portfolio occupancy of 98.8%, investment grade tenancy of 42.7% and a weighted-average remaining lease term of 9.1 years.  During the quarter ended June 30, 2018, same-store rents (3,942 properties) increased 0.5% as compared to the same quarter in 2017.  Excluding the effects of an early lease renewal, the increase in same store rents would have been 1.1%.

Property AcquisitionsDuring the second quarter of 2018, the Company acquired 7 properties for approximately $41.0 million at an average cash cap rate of 7.2%.

Property DispositionsDuring the quarter ended June 30, 2018, the Company disposed of 37 properties for an aggregate sales price of $56.4 million. Of this amount, $28.4 million was used in the total weighted average cash cap rate calculation of 7.4%, including $25.9 million in net sales of Red Lobster restaurants.  The gain on second quarter sales was approximately $6.0 million.

Subsequent Events

Property AcquisitionsFrom July 1, 2018 through July 26, 2018, the Company acquired 14 properties for $74.2 million at a cash cap rate of 7.1%.

Property DispositionsFrom July 1, 2018 through July 26, 2018, the Company disposed of 10 properties for an aggregate sales price of $39.3 million at an average cash cap rate of 6.8%.

Capital Market ActivityOn August 1, 2018, the Company repaid $597.5 million of principal outstanding related to the 2018 convertible notes, which was temporarily funded using borrowings under the revolving credit facility.  The Company is evaluating options for permanent financing, including borrowings on the delayed-draw term loan or the issuance of a senior note offering.

Audio Webcast Details

The live audio webcast, beginning at 1:00 p.m. ET on Friday, August 3, 2018, is available by accessing this link: http://ir.vereit.com/. 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 CompanyVEREIT 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 a total asset book value of $14.3 billion including approximately 4,000 properties and 94.6 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. Additional information about VEREIT can be found on its website at www.VEREIT.com and through social media platforms such as Twitter and LinkedIn.

Definitions

Descriptions of FFO and AFFO, EBITDA and Normalized EBITDA, Debt Outstanding and Adjusted Debt 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 pages 7 through 13 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. Excluded Properties during the three months ended June 30, 2017 were two vacant office properties and five industrial properties, two of which were vacant. Excluded Properties at June 30, 2017 were two vacant office properties and one vacant industrial property, comprising an aggregate 991,000 square feet with aggregate Debt Outstanding of $83.9 million. During the three months ended June 30, 2018, the Excluded Property was one vacant industrial property, comprising 307,725 square feet with Debt Outstanding of $16.2 million. At June 30, 2018 there were no Excluded Properties. The Company did not update data presented for prior periods as the impact on prior period non-GAAP measures, including AFFO and Normalized EBITDA, and operating metrics was immaterial.

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, excluding gains or losses from disposition of property, depreciation and amortization of real estate assets and impairment write-downs on depreciable real estate including the pro rata share of adjustments for unconsolidated partnerships and joint ventures. We calculated 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 other non-routine costs, net of insurance recoveries, held for sale loss on discontinued operations, net revenue or expense earned or incurred that is related to the services agreement we entered into with Cole Capital on February 1, 2018, gains or losses on sale of investment securities or mortgage notes receivable and legal settlements and insurance recoveries not in the ordinary course of business. 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") and Normalized EBITDA

Normalized EBITDA, as disclosed, represents EBITDA, or earnings before interest, taxes, depreciation and amortization, modified to exclude non-routine items such as acquisition-related expenses, litigation and other non-routine costs, net of insurance recoveries, gains or losses on disposition of real estate, held for sale loss on discontinued operations, net revenue or expense earned or incurred that is related to  the services agreement we entered into with Cole Capital on February 1, 2018, gains or losses on sale of investment securities or mortgage notes receivable and legal settlements and insurance recoveries not in the ordinary course of business. We also exclude certain non-cash items such as impairments of goodwill and real estate 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 EBITDA 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 and Normalized EBITDA should not be considered as an alternative to net income, as computed in accordance with GAAP, or as an indicator of the Company's financial performance. The Company uses 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.

Debt Outstanding and Adjusted Debt Outstanding

Debt Outstanding and Adjusted Debt Outstanding are non-GAAP measures that represent 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 Debt Outstanding omits the outstanding principal balance of mortgage notes secured by Excluded Properties. We believe that the presentation of Debt Outstanding and Adjusted Debt Outstanding, which show our contractual debt obligations, provides useful information to investors to assess our overall liquidity, financial flexibility, capital structure and leverage. Debt Outstanding and Adjusted Debt 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

Net Debt is a non-GAAP measure used to show the Company's Adjusted Debt Outstanding, less all cash and cash equivalents, including those related to discontinued operations. 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.  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 Debt 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 current 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, including net investments in unconsolidated entities, investment in direct financing leases, investment securities backed by real estate and loans held for investment, net of gross intangible lease liabilities.

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 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 regarding future events and plans, VEREIT's future financial condition, results of operations and business including the strength and liquidity of its balance sheet, permanent financing for the repayment of its 2018 convertible notes, and VEREIT's focus to increase unencumbered assets in its portfolio. 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 subject to a number of known and unknown risks, uncertainties and assumptions, 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 execute on and realize success from its business plan; VEREIT's ability to meet its 2018 guidance; the unpredictability of the business plans and financial condition of VEREIT's tenants; risks associated with tenant, geographic and industry concentrations with respect to VEREIT's properties; the impact of impairment charges in respect of certain of VEREIT's properties or other assets; 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 or from tenant defaults generally; risks associated with pending government investigations and litigations related to VEREIT's previously disclosed audit committee investigation; 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.

 

 

 

 

 

 

 

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SOURCE VEREIT, Inc.