VEREIT® Announces Third Quarter 2018 Operating Results

PHOENIX, Nov. 6, 2018 /PRNewswire/ -- VEREIT, Inc. (NYSE: VER) ("VEREIT" or the "Company") announced today its operating results for the three months ending September 30, 2018.

The financial results below reflect continuing operations only.

Third Quarter 2018 Highlights

• Net loss of $(73.9) million and net loss per diluted share of $(0.09)
• Achieved $0.18 AFFO per diluted share
• Completed $98.6 million of acquisitions and $191.0 million of dispositions
• Decreased Debt from $6.04 billion to $5.95 billion; Net Debt decreased from $6.05 billion to $5.95 billion, or 38.7% Net Debt to Gross Real Estate Investments
• Net Debt to Normalized EBITDA decreased from 5.8x to 5.7x
• Company narrows 2018 AFFO per diluted share guidance range from $0.70 - $0.72 to $0.71 - $0.72 (see reconciliation to earnings per share at the end of this release)

Third Quarter 2018 Financial Results

Revenue

Revenue for the quarter ended September 30, 2018 increased $7.4 million to $313.9 million as compared to revenue of $306.5 million for the same quarter in 2017, primarily due to net acquisitions since July 1, 2017.

Net (Loss) Income  and Net (Loss) Attributable to Common Stockholders per Diluted Share

Net loss for the quarter ended September 30, 2018 increased $86.4 million to $(73.9) million as compared to net income of $12.5 million for the same quarter in 2017, and net loss per diluted share increased $0.08 to $(0.09) for the quarter ended September 30, 2018, as compared to a net loss per diluted share of $(0.01) for the same quarter in 2017.  The differences were primarily due to the settlement with twelve opt out plaintiffs along with higher impairments and a smaller gain on the extinguishment of debt offset by higher revenue, lower depreciation and amortization, and a net gain on the disposition of real estate in 2018 versus a net loss in the same quarter of 2017.

Normalized EBITDA

Normalized EBITDA for the quarter ended September 30, 2018 increased $3.1 million to $261.1 million as compared to Normalized EBITDA of $258.0 million for the same quarter in 2017, primarily due to higher revenue partially offset by higher property operating and G&A expenses and a lower contribution from equity in income and unconsolidated entities.

Funds From Operations Attributable to Common Stockholders and Limited Partners ("FFO") and FFO per Diluted Share

FFO for the quarter ended September 30, 2018 decreased $135.6 million to $38.1 million, as compared to $173.7 million for the same quarter in 2017, and FFO per diluted share decreased $0.13 to $0.04 for the quarter ended September 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 Share

AFFO for the quarter ended September 30, 2018 increased $3.7 million to $178.5 million, as compared to $174.8 million for the same quarter in 2017, and AFFO per diluted share remained at $0.18 for the quarter ended September 30, 2018, as compared to the same quarter in 2017.

Management Commentary

Glenn J. Rufrano, Chief Executive Officer, stated, "The Company has made progress on civil litigation and we continue to maintain a very liquid and flexible balance sheet.  The successful bond offering in October allowed us to increase availability on our line of credit and the $900.0 million delayed-draw term loan is available to pay off the $750.0 million bond coming due in February 2019.  This leaves us with no major maturities until December 2020. We are closely monitoring our debt balances and continue to unencumber our assets as we are cognizant of the settlement payments we have been making."

Common Stock Dividend Information

On November 5, 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 January 15, 2019 to common stockholders of record as of December 31, 2018.

Balance Sheet and Liquidity

On 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.   During the quarter, the Company had net draws on its revolving line of credit of $598.0 million, resulting in a balance of $793.0 million and leaving $1.2 billion of capacity available as of September 30, 2018 on the Company's $2.0 billion revolving line of credit.  In addition, secured debt was reduced by $94.6 million.  The Company also has full capacity on its $900.0 million delayed-draw term loan.

Subsequent to the quarter, the Company completed a $550.0 million bond issuance on October 16, 2018 and used the net proceeds to repay borrowings on the revolving line of credit.

Consolidated Financial Statistics

Financial Statistics as of the quarter ended September 30, 2018 are as follows:  Net Debt to Normalized EBITDA of 5.7x, Fixed Charge Coverage Ratio of 3.0x, Unencumbered Asset Ratio of 74.8%, Net Debt to Gross Real Estate Investments of 38.7% and Weighted Average Debt Term of 4.2 years.

Real Estate Portfolio

As of September 30, 2018, the Company's portfolio consisted of 4,021 properties with total portfolio occupancy of 99.1%, investment grade tenancy of 42.7% and a weighted-average remaining lease term of 8.9 years.  During the quarter ended September 30, 2018, same-store rents (3,946 properties) increased 0.3% 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 0.9%.

Property Acquisitions

During the third quarter of 2018, the Company acquired 23 properties for approximately $98.6 million at an average cash cap rate of 7.4%.

Property Dispositions

During the quarter ended September 30, 2018, the Company disposed of 35 properties for an aggregate sales price of $181.1 million. Of this amount, $174.4 million was used in the total weighted average cash cap rate calculation of 6.3%, including $49.1 million in net sales of Red Lobster restaurants.  The gain on third quarter sales was approximately $46.1 million.  In addition, the Company sold certain legacy CMBS investments during the quarter for an aggregate sales price of $9.9 million.

Subsequent Events

Property Acquisitions

From October 1, 2018 through October 29, 2018, the Company acquired five properties for $66.7 million.  Acquisitions year-to-date through October 29, 2018, totaled $345.5 million.

Property Dispositions

From October 1, 2018 through October 29, 2018, the Company disposed of nine properties for an aggregate sales price of $41.0 million.  Dispositions year-to-date through October 29, 2018, totaled $414.6 million, including $98.4 million in net sales of Red Lobster restaurants.  In addition, from October 1, 2018 through October 29, 2018, the Company disposed of certain legacy investments in mortgage related securities for an aggregate sales price of $15.4 million and disposed of $25.2 million year-to-date through October 29, 2018.

Twelve Opt Out Plaintiff Settlements

The Company entered into a series of agreements dated September 30 through October 26, 2018, to settle twelve of the thirteen pending opt out actions.  Eight of the settled opt out actions, representing approximately 11.0% of VEREIT's outstanding shares of common stock and swaps referencing common stock outstanding at the end of the period covered by the litigations, were settled for an aggregate payment of $85.0 million and the remaining four settled opt out actions, representing approximately 7.0% of VEREIT's outstanding shares of common stock and swaps referencing common stock, were settled for an aggregate payment of $42.5 million.   Including the previously announced settlement with Vanguard, the Company has now settled claims brought by plaintiffs representing approximately 31.0% of VEREIT's outstanding shares of common stock and swaps referencing common stock held at the end of the period covered by the various pending shareholder actions for a total of $217.5 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.

Capital Market Activity

On October 16, 2018, the Company closed a senior note offering, consisting of $550.0 million aggregate principal amount of the Operating Partnership's 4.625% Senior Notes due 2025.  Proceeds from the offering were used to repay borrowings under the revolving credit facility.

Audio Webcast Details

The live audio webcast, beginning at 10:30 a.m. ET on Tuesday, November 6, 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 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 a total asset book value of $14.1 billion including approximately 4,000 properties and 93.9 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, 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 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 September 30, 2017 were two vacant office properties and one vacant industrial property, comprising an aggregate 991,000 square feet with aggregate Principal Outstanding of $83.9 million. At September 30, 2017, the Excluded Property was one vacant industrial property, comprising 307,725 square feet with Principal Outstanding of $16.2 million. During the three months ended September 30, 2018 and at September 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.

Principal Outstanding and Adjusted Principal Outstanding

Principal Outstanding and Adjusted Principal 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 Principal Outstanding 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

Net Debt is a non-GAAP measure used to show the Company's Adjusted Principal 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 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 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 and equity investments in the Cole REITs, investment in direct financing leases, investment securities backed by real estate and loans held for investment, 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, 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 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  liquidity and flexibility of its balance sheet, the repayment in February 2019 of $750.0 million of its 3.000% Senior Notes due 2019, the availability under its revolving credit facility and delayed-draw term loan facility, its debt balances and efforts to continue to unencumber its assets. 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 meet its updated 2018 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; the impact of impairment charges in respect of certain of VEREIT's properties, goodwill and intangible assets and other assets; unexpected costs or unexpected liabilities that may arise from potential dispositions, including related to 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 potential payments upon resolution; risks associated with VEREIT's substantial indebtedness, including that it may affect its ability to pay dividends and the terms and restrictions within the agreements governing its 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.CONSOLIDATED ADJUSTED FUNDS FROM OPERATIONS PER DILUTED SHARE  - 2018 GUIDANCE(Unaudited)

The Company expects its 2018 AFFO per diluted share to be in a range between $0.71 and $0.72.  This guidance assumes acquisitions and dispositions each totaling $300 million to $500 million at an average cash cap rate of 6.5% to 7.5%.  Acquisitions will be funded through a combination of internal equity, debt capacity within our Net Debt to Normalized EBITDA target, and proceeds from the sale of Cole Capital.  Guidance also assumes real estate operations with average occupancy above 98.0% and same-store rental growth in a range of 0.3% to 1.0%.  The Company also expects to target balance sheet Net Debt to Normalized EBITDA at approximately 6.0x. The estimated net loss per diluted share is not a projection and is provided solely to satisfy the disclosure requirements of the U.S. Securities and Exchange Commission.

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SOURCE VEREIT, Inc.