VEREIT™ Announces Second Quarter 2015 Operating Results

PHOENIX, Aug. 6, 2015 /PRNewswire/ -- VEREIT, Inc. (NYSE: VER) ("VEREIT" or the "Company") announced today its operating results for the three months ended June 30, 2015, details on its business plan and enhancements to its corporate governance.

Second Quarter 2015 Consolidated Financial Results

RevenueConsolidated revenue for the quarter ended June 30, 2015 increased $11.5 million to $393.7 million as compared to revenue of $382.2 million for the same quarter in 2014.

Net LossConsolidated net loss for the quarter ended June 30, 2015 increased $52.1 million to $(108.7) million as compared to a net loss of $(56.6) million for the same quarter in 2014.

Normalized EBITDAConsolidated normalized EBITDA for the quarter ended June 30, 2015 increased $17.6 million to $309.3 million as compared to normalized EBITDA of $291.7 million for the same quarter in 2014.

FFO and FFO per Diluted Common ShareFunds From Operations ("FFO") for the quarter ended June 30, 2015 increased $37.0 million to $194.0 million, as compared to $157.0 million for the same quarter in 2014 and FFO per diluted share increased $0.03 to $0.21 for the quarter ended June 30, 2015, as compared to $0.18 per diluted share, for the same quarter in 2014.

AFFO and AFFO per Diluted Common ShareAdjusted Funds From Operations ("AFFO") for the quarter ended June 30, 2015 increased $16.4 million to $202.3 million, as compared to $185.9 million for the same quarter in 2014 and AFFO per diluted share increased $0.01 to $0.22 for the quarter ended June 30, 2015, as compared to $0.21 per diluted share, for the same quarter in 2014.

Consolidated Financial StatisticsConsolidated Financial Statistics as of the quarter ended June 30, 2015 are as follows: Net Debt to Normalized EBITDA of 7.5x, Fixed Charge Coverage Ratio of 2.7x, Unencumbered Gross Real Estate Assets to Total Gross Assets ratio of 64.1% and Weighted Average Debt Term of 4.7 years.

Company Business PlanVEREIT's business plan establishes the foundation for future growth.  The four key pillars of the business plan focus on enhancing the portfolio, supporting Cole Capital®, achieving balance sheet investment-grade metrics and establishing a sustainable dividend.

Enhanced PortfolioThe Company will enhance the portfolio by further diversifying and providing the proper risk-return relationship. After a detailed review of the portfolio, the Company intends to reduce the portfolio's exposure to non-controlled joint ventures, flat leases, restaurants and non-core assets by $1.8 billion to $2.2 billion by year-end 2016 through strategic dispositions. The expected average cash cap rate of the dispositions is estimated to range from 6.5% to 7.5%. This amount takes into consideration first quarter 2015 dispositions of $271.8 million at an average cash cap rate of 7.1%.

As part of the culling plan, sales completed in the second and third quarters through August 5, 2015 and dispositions under hard contract as of August 5, 2015, totaled approximately $690 million at an average cash cap rate of 6.2%.

Of the $690 million of dispositions, $81 million closed during the quarter at an average cash cap rate of 6.5%, $318 million closed subsequent to the second quarter at an average cash cap rate of 6.2% and an additional $291 million is under hard contract at an average cash cap rate of 6.1%.

Re-establish Cole Capital's Brand Value.The Company is committed to re-establishing the investment manager's brand value by delivering consistent returns to its investors, while building and managing strong net-lease portfolios.

Establish Investment Grade Balance Sheet MetricsThe Company intends to reduce net debt to EBITDA to a range of 6.0x to 7.0x (excluding preferred stock), maintain a fixed charge coverage ratio greater than 2.2x and maintain unencumbered gross real estate assets to total gross assets at a percentage greater than 60% by year-end 2016. Additionally, the Company intends to improve its weighted average debt term to five to six years.

2015 Guidance and Common Stock Dividend PolicyThe Company expects its 2015 AFFO per diluted share to be in a range between $0.80 and $0.83, which includes an approximate$0.01 contribution from Cole Capital. This guidance assumes $1.2 billion to $1.4 billion of dispositions for the year 2015, of which approximately $960 million have been completed or are under hard contract at an average cash cap rate of 6.4%.  The guidance also assumes operations consistent with prior quarters.

On August 5, 2015, the Company's Board of Directors declared a quarterly dividend of $0.1375 per share for each of the third and fourth quarters of 2015, representing an annual distribution rate of $0.55 per share. The dividend will be paid on October 15, 2015 and January 15, 2016 to common stockholders of record as of September 30, 2015 and December 31, 2015, respectively.

Credit Facility ModificationTo accommodate the execution of the business plan, the Company has amended the terms of its credit facility. The significant elements of the amendment are as follows: the minimum unencumbered asset pool requirement has been reduced from $10.5 billion to $8.0 billion, which will allow greater flexibility in the execution of the Company's property disposition initiatives, and the capacity of the revolving line of credit component of the credit facility has been reduced by $300.0 million to $2.3 billion. This amendment was completed subsequent to the second quarter.

During the quarter, $884.0 million was used to pay down the line of credit, bringing the total amount outstanding under the Company's revolving line of credit to $1.3 billion. Net Debt to Normalized EBITDA was reduced from 7.6x to 7.5x from the previous quarter. The Company also has $1.0 billion outstanding on its term loan.

Corporate GovernanceSupporting the Company's business plan and foundation, the following improvements towards establishing best-in-class corporate governance have been made:

• Opting-out of Maryland Anti-Takeover Statutes: The Board of Directors adopted changes that restrict the Company's ability to make use of three Maryland anti-takeover statutes without the prior approval of stockholders. These include the Maryland Business Combination Act, the Maryland Control Share Acquisition Act and provisions of the Maryland Unsolicited Takeover Act (MUTA).
• Majority Voting: The Board of Directors has adopted changes to the bylaws that require a majority voting standard in uncontested elections of Directors, beginning with the Company's upcoming annual meeting. This means Director nominees will be elected only if they receive affirmative votes from a majority of the votes cast at the meeting.
• Stockholder Rights Plan Limits: The Board of Directors has adopted a new policy for inclusion in the Company's corporate governance guidelines that states that any poison pill that the Board might adopt in the future will automatically terminate after 12 months if it is not also approved by stockholders.
• Proxy Access: The Board of Directors adopted amendments to the Company's bylaws that require the Company to include nominees for the Board submitted by certain stockholders in the Company's proxy statement, beginning with the 2016 annual meeting. Specifically, stockholders holding at least 3% of the Company's outstanding shares for at least three consecutive years will be able to directly nominate up to 25% of the Board of Directors in a given year.

Management CommentaryGlenn J. Rufrano, Chief Executive Officer, stated, "There was a solid base in place when I joined the Company in April with a talented team, good assets and a strong operational infrastructure. Now, we have the opportunity for a fresh start, represented by a new name, culture and business approach. Continuing our momentum, the changes adopted by our Board represent major steps towards establishing 'best-in-class' corporate governance. With the introduction of our business plan, we now have a strategy in place and are rapidly executing."

Second Quarter 2015 Real Estate Investment ("REI") Financial Results

RevenueREI segment revenue for the quarter ended June 30, 2015 increased $22.2 million to $367.2 million as compared to revenue of $345.0 million for the same quarter in 2014, mainly due to net acquisitions of 679 properties subsequent to June 30, 2014.

Net LossREI segment net loss for the quarter ended June 30, 2015 increased $62.2 million to $(108.3) million as compared to a net loss of $(46.1) million for the same quarter in 2014, mainly due to impairments that were recorded in the quarter ended June 30, 2015.

Normalized EBITDAREI segment normalized EBITDA for the quarter ended June 30, 2015 increased $19.8 million to $303.3 million as compared to normalized EBITDA of $283.5 million, for the same quarter in 2014, mainly due to net acquisitions of 679 properties subsequent to June 30, 2014.

FFO and FFO per Diluted Common ShareREI segment FFO for the quarter ended June 30, 2015 increased $27.0 million to $194.4 million, or $0.21 per diluted share, as compared to $167.4 million, or $0.19 per diluted share, for the same quarter in 2014.

AFFO and AFFO per Diluted Common ShareREI segment AFFO for the quarter ended June 30, 2015 increased $27.2 million to $195.4 million, or $0.21 per diluted share, as compared to $168.2 million, or $0.19 per diluted share, for the same quarter in 2014.

Real Estate Portfolio UpdateAs of June 30, 2015, the Company's portfolio consisted of 4,645 properties with total portfolio occupancy of 98.4%, investment grade tenancy of 47.4% and a weighted average remaining lease term of 11.5 years.

Same Store Rent IncreasesDuring the quarter ended June 30, 2015, same store rents (3,597 properties) increased 1.2% to $248.6 million as compared to $245.7 million for the same quarter in 2014.

Property Acquisitions and DevelopmentDuring the second quarter of 2015, the Company acquired one property for $2.1 million at a cash cap rate of 6.7%. The Company also acquired three land parcels for $503,000. In addition, the Company capitalized $14.7 million of development costs and placed $7.5 million of assets into service at an average cap rate of 7.3%. As of June 30, 2015, build-to-suits and redevelopment programs included 24 properties with an investment to date of $67.9 million and remaining estimated investment of $26.2 million.

Property DispositionsThe Company sold four properties and one land parcel for approximately $80.5 million at an average cash cap rate of 6.5% during the quarter ended June 30, 2015. The gain on second quarter sales was approximately $4.3 million, excluding goodwill allocation.

Second Quarter 2015 Cole Capital Financial Results

RevenueCole Capital segment revenue for the quarter ended June 30, 2015 decreased $10.7 million to $26.5 million as compared to revenue of $37.2 million for the same quarter in 2014 as a consequence of reduced capital raise.

Net LossCole Capital segment net loss for the quarter ended June 30, 2015 decreased $10.1 million to $(0.4) million as compared to a net loss of $(10.5) million for the same quarter in 2014, primarily driven by the decrease in intangible assets which led to lower amortization being recorded in the period ending June 30, 2015.

Normalized EBITDACole Capital segment normalized EBITDA for the quarter ended June 30, 2015 decreased $2.1 million to $6.0 million as compared to normalized EBITDA of $8.1 million for the same quarter in 2014, mainly due to higher transactional fees recorded in the period ending June 30, 2014.

FFO and FFO per Diluted Common ShareCole Capital segment FFO for the quarter ended June 30, 2015 increased $10.0 million to $(0.4) million, or $0.00 per diluted share, as compared to $(10.5) million, or $(0.01) per diluted share, for the same quarter in 2014.

AFFO and AFFO per Diluted Common ShareCole Capital segment AFFO for the quarter ended June 30, 2015 decreased $10.7 million to $7.0 million, or $0.01 per diluted share, as compared to $17.7 million, or $0.02 per diluted share, for the same quarter in 2014.

Investment Management Capital RaiseCole Capital raised $91.3 million of capital on behalf of the non-traded REITs  sponsored by Cole Capital (the "Managed REITs"), including $33.1 million through the Managed REITs' distribution reinvestment plans ("DRIP"), compared to $160.6 million, including $47.4 million of DRIP proceeds, in the second quarter of 2014.

Investment Management AcquisitionsInvested $214.7 million in 21 properties on behalf of the Cole Capital Managed REITs, compared to $754.6 million in 134 properties in the second quarter of 2014.

Subsequent Events - Consolidated

Property DispositionsOn July 10, 2015, the Company disposed of a portfolio of 68 CVS properties for approximately $318.2 million at an average cash cap rate of 6.2%. The gain on sales was approximately $8.5 million, excluding goodwill allocation. The properties had an aggregate outstanding debt balance of $276.7 million at the time of their sale.

Cole Capital DistributionIn July 2015, Cole Capital raised $34.6 million of capital on behalf of the Managed REITs, including $10.9 million through the Managed REITs' DRIPs.

Series F Preferred Stock DividendIn addition, the Company's Board of Directors declared a monthly dividend to holders of its 6.70% Series F Cumulative Redeemable Preferred Stock, par value $0.01 per share ("Series F Preferred Stock"), for September 2015 through December of 2015 in respect of the periods included in the table below.  The corresponding record and payment dates for each month's Series F Preferred Stock dividend are also shown in the table below. The dividend for the Series F Preferred Stock accrues daily on a 360-day annual basis equal to an annualized dividend rate of $1.675 per share, or $0.13958333 per 30-day month.

Board Composition

On June 17, 2015, the Company announced the appointment of Mark S. Ordan as an Independent Director and a member of the Audit Committee and the Nominating and Corporate Governance Committee.  More recently, William G. Stanley and Thomas A. Andruskevich notified the Company's Board of Directors that they have decided not to seek re-election to the Board. As such, two new independent directors, David B. Henry, Vice Chairman and Chief Executive Officer, Kimco Realty Corporation, and Eugene A. Pinover, Of Counsel, Willkie Farr & Gallagher LLP, will be up for election at the Annual Meeting of Stockholders on September 29, 2015.

Messrs. Stanley and Andruskevich were integral to stabilizing and operating the Company following the events that transpired late last year. Mr. Stanley served as the Interim Chairman and CEO, and led the organization through the financial restatement, the process of becoming current with SEC periodic reporting and returning to good standing with lenders. Mr. Andruskevich  served as Interim Lead Independent Director and headed the Search Committee for the new CEO and new Independent Board members. He also served as the chairman of our Compensation Committee and the Nominating and Corporate Governance Committee, two very important responsibilities as the Company worked to re-establish its credibility.

Messrs. Stanley and Andruskevich were instrumental in effecting the management and board changes necessary to stabilize the organization and set the Company's course in a new direction, as well as initiating essential changes in the management compensation and corporate governance practices. Because of their contributions, this was a difficult decision for each of them, but they feel now is the appropriate time to step aside as the Company moves forward. The Board thanks Messrs. Stanley and Andruskevich for their leadership and service to the Company.

Audio Webcast Details

The live audio webcast, beginning at 1:00 p.m. ET on Thursday, August 6, 2015, is available by accessing this link: http://services.choruscall.com/links/ver150806

A replay of the webcast will be available at the link above and archived for up to 12 months following the call. Participants should log in 10-15 minutes early.

About the CompanyVEREIT is a leading, full-service real estate operating company with investment management capability. VEREIT owns and actively manages a diversified portfolio of retail, restaurant, office and industrial real estate assets with a total asset book value of $19.2 billion including approximately 4,645 properties totaling 101.8 million square feet. Additionally, VEREIT manages $6.3 billion of gross real estate investments on behalf of the Cole Capital® non-traded REITs. 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. VEREIT may disseminate important information regarding it and its operations, including financial information, through social media platforms such as Twitter, Facebook and LinkedIn.

Definitions

Descriptions of FFO, AFFO, EBITDA and Normalized EBITDA are provided below.  Refer to pages 8 through 17 for reconciliations of these non-GAAP financial measures to the most directly comparable GAAP financial measure.

Funds From Operations and Adjusted Funds From OperationsDue 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 measure known as funds from operations ("FFO"), which we believe to be an appropriate supplemental measure to reflect the operating performance of a REIT. The use of FFO, a non-GAAP supplemental financial performance measure, is recommended by the REIT industry as a supplemental performance measure. 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 real estate including the pro rata share of adjustments for unconsolidated partnerships and joint ventures. Our FFO calculation complies with NAREIT's policy 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 costs, merger and other non-routine transactions costs, gains or losses on sale of investments, insurance and litigation settlements and extinguishment of debt cost. We also exclude certain non-cash items such as impairments of intangible, straight-line rental revenue, unrealized gains or losses on derivatives, amortization of intangibles, deferred financing costs, above and below market lease amortization as well as equity-based compensation. 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, including after we cease to acquire properties on a frequent and regular basis. AFFO also allows for a comparison of the performance of our operations with other traded REITs that are not currently engaging in acquisitions and mergers, as well as a comparison of our performance with that of other traded REITs, as AFFO, or an equivalent measure, is routinely reported by 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 loss and cash flows from operating activities, as defined by 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 loss or to cash flows from operating activities, and are not intended to be used as a liquidity measure indicative of cash flow available to fund our cash needs.

AFFO may provide investors with a view of our future performance and future dividend policy. However, because AFFO excludes items that are an important component in an analysis of the historical performance of a property, AFFO should not be construed as a historic performance measure. Neither the SEC, NAREIT, nor any other regulatory body has evaluated the acceptability of the exclusions contemplated to adjust FFO in order to calculate AFFO and its use as a non-GAAP financial performance measure.

EBITDA and Normalized EBITDANormalized EBITDA as disclosed represents EBITDA, or earnings before interest, taxes, depreciation and amortization, modified to exclude one-time items such as acquisition related costs, merger and other non-routine transactions costs, gains or losses on sale of investments, insurance and litigation settlements and extinguishment of debt cost. We also exclude certain non-cash items such as impairments of intangible, straight-line rental revenue, unrealized gains or losses on derivatives, amortization of intangibles, deferred financing costs, and above and below market lease amortization. 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.  The Company believes that Normalized EBITDA is a useful supplemental measure to investors and analysts for assessing the performance of the Company's business segments, although it does not represent net income that is computed in accordance with GAAP. Therefore, Normalized EBITDA should not be considered as an alternative to net income 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.

Forward Looking StatementsInformation set forth herein (including information included or incorporated by reference herein) contains "forward-looking statements" (within the meaning of section 27A of the Securities Act of 1933, as amended, and in Section 21E of the Securities Exchange Act of 1934, as amended), which reflect VEREIT's expectations regarding future events. 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," "targets," "goals," "projects," "intends," "plans," "believes," "seeks," "estimates," variations of such words and similar expressions identify forward-looking statements, and any statements regarding VEREIT's future financial condition, results of operations and business are also forward-looking statements. These forward-looking statements are subject to a number of 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 its 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 2015 guidance; the unpredictability of the business plans and financial condition of VEREIT's tenants; the impact of impairment charges in respect of certain of VEREIT's properties or other assets; the inability 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 to reflect changes in underlying assumptions or factors, new information, future events or other changes, except as required by law.

 

 

 

 

 

 

 

 

 

 

 

 

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SOURCE VEREIT, Inc.