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Section 1: 10-Q (10-Q)

10-Q
Table of Contents

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

FORM 10-Q
(Mark One)
x
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 2015
 
OR
o
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 
For the transition period from _________ to __________

Commission file numbers: 001-35263 and 333-197780
VEREIT, Inc.
VEREIT Operating Partnership, L.P.
(Exact name of registrant as specified in its charter)
Maryland (VEREIT, Inc.)
 
45-2482685
Delaware (VEREIT Operating Partnership, L.P.)
 
45-1255683
(State or other jurisdiction of incorporation or organization)
 
(I.R.S. Employer Identification No.)
 
 
 
2325 E. Camelback Road, Suite 1100, Phoenix, AZ
 
85016
(Address of principal executive offices)
 
(Zip Code)
(800) 606-3610
(Registrant’s telephone number, including area code)

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.
VEREIT, Inc. Yes x No o VEREIT Operating Partnership, L.P. Yes x No o
Indicate by check mark whether the registrant submitted electronically and posted on its corporate Web Site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).
VEREIT, Inc. Yes x No o VEREIT Operating Partnership, L.P. Yes x No o
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See definition of “large accelerated filer,” “accelerated filer,” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.
VEREIT, Inc.
Large accelerated filer x
 
Accelerated filer o
 
Non-accelerated filer o
(Do not check if a smaller reporting company)
Smaller reporting company o
VEREIT Operating Partnership, L.P.
Large accelerated filer o
 
Accelerated filer o
 
Non-accelerated filer x
(Do not check if a smaller reporting company)
Smaller reporting company o
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).
VEREIT, Inc. Yes o No x VEREIT Operating Partnership, L.P. Yes o No x
As of November 3, 2015, there were 904,960,924 shares of common stock outstanding.


VEREIT, INC. and VEREIT OPERATING PARTNERSHIP, L.P.
(F/K/A AMERICAN REALTY CAPITAL PROPERTIES, INC. AND ARC PROPERTIES OPERATING PARTNERSHIP, L.P. )
For the quarterly period ended September 30, 2015

 
Page
PART I — FINANCIAL INFORMATION
PART II — OTHER INFORMATION


Table of Contents
VEREIT, INC.
(F/K/A AMERICAN REALTY CAPITAL PROPERTIES, INC.)
CONSOLIDATED BALANCE SHEETS
(In thousands, except for share and per share data) (Unaudited)

PART I — FINANCIAL INFORMATION
Item 1. Financial Statements.
 
 
September 30, 2015
 
December 31, 2014
ASSETS
 
 
 
 
Real estate investments, at cost:
 
 
 
 
Land
 
$
3,257,396

 
$
3,472,298

Buildings, fixtures and improvements
 
11,615,474

 
12,307,758

Land and construction in progress
 
37,356

 
77,450

Intangible lease assets
 
2,313,369

 
2,435,054

Total real estate investments, at cost
 
17,223,595

 
18,292,560

Less: accumulated depreciation and amortization
 
1,595,667

 
1,034,122

Total real estate investments, net
 
15,627,928

 
17,258,438

Investment in unconsolidated entities
 
57,247

 
98,053

Investment in direct financing leases, net
 
49,244

 
56,076

Investment securities, at fair value
 
54,455

 
58,646

Loans held for investment, net
 
40,002

 
42,106

Cash and cash equivalents
 
171,659

 
416,711

Restricted cash
 
47,775

 
62,651

Intangible assets, net
 
127,835

 
150,359

Deferred costs and other assets, net
 
385,806

 
389,922

Goodwill
 
1,828,005

 
1,894,794

Due from affiliates
 
66,981

 
86,122

Real estate assets held for sale, net
 
247,951

 
1,261

Total assets
 
$
18,704,888


$
20,515,139

 
 
 
 
 
LIABILITIES AND STOCKHOLDERS’ EQUITY
 
 
 
 
Mortgage notes payable and other debt, net
 
$
3,210,413

 
$
3,805,761

Corporate bonds, net
 
2,547,059

 
2,546,499

Convertible debt, net
 
981,031

 
977,521

Credit facility
 
2,110,000

 
3,184,000

Below-market lease liabilities, net
 
264,232

 
317,838

Accounts payable and accrued expenses
 
164,204

 
163,025

Deferred rent, derivative and other liabilities
 
114,343

 
127,611

Distributions payable
 
137,647

 
9,995

Due to affiliates
 
241

 
559

Mortgage notes payable associated with assets held for sale
 
118,493

 

Total liabilities
 
9,647,663

 
11,132,809

Commitments and contingencies (Note 14)
 

 

Preferred stock, $0.01 par value, 100,000,000 shares authorized and 42,834,138 issued and outstanding as of each of September 30, 2015 and December 31, 2014
 
428

 
428

Common stock, $0.01 par value, 1,500,000,000 shares authorized and 904,960,234 and 905,530,431 issued and outstanding as of September, 30, 2015 and December 31, 2014, respectively
 
9,050

 
9,055

Additional paid-in-capital
 
11,928,184

 
11,920,253

Accumulated other comprehensive (loss) income
 
(9,806
)
 
2,728

Accumulated deficit
 
(3,085,906
)
 
(2,778,576
)
Total stockholders’ equity
 
8,841,950

 
9,153,888

Non-controlling interests
 
215,275

 
228,442

Total equity
 
9,057,225

 
9,382,330

Total liabilities and equity
 
$
18,704,888


$
20,515,139

The accompanying notes are an integral part of these statements.

-1

Table of Contents
VEREIT, INC.
(F/K/A AMERICAN REALTY CAPITAL PROPERTIES, INC.)
CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands, except for per share data) (Unaudited)

 
 
Three Months Ended September 30,
 
Nine Months Ended September 30,
 
 
2015
 
2014
 
2015
 
2014
Revenues:
 
 
 
 
 
 
 
 
Rental income
 
$
333,766

 
$
365,712

 
$
1,017,708

 
$
924,646

Direct financing lease income
 
659

 
625

 
2,097

 
2,812

Operating expense reimbursements
 
22,983

 
30,984

 
71,269

 
81,716

Cole Capital revenue
 
27,546

 
59,797

 
81,569

 
151,276

Total revenues
 
384,954


457,118


1,172,643


1,160,450

Operating expenses:
 
 
 
 
 
 
 
 
Cole Capital reallowed fees and commissions
 
3,896

 
15,398

 
9,637

 
56,902

Acquisition related (1)
 
1,764

 
13,998

 
5,509

 
34,616

Merger and other non-routine transactions (2)
 
8,957

 
7,632

 
42,244

 
175,352

Property operating
 
31,950

 
40,977

 
95,547

 
110,018

Management fees to affiliates
 

 

 

 
13,888

General and administrative (3)
 
32,842

 
30,213

 
99,906

 
122,806

Depreciation and amortization
 
208,542

 
265,150

 
645,196

 
689,731

Impairments
 

 
2,299

 
85,341

 
3,855

Total operating expenses
 
287,951


375,667


983,380


1,207,168

Operating income (loss)
 
97,003


81,451


189,263


(46,718
)
Other (expense) income:
 
 
 
 
 
 
 
 
Interest expense, net
 
(89,530
)
 
(101,643
)
 
(275,801
)
 
(326,491
)
Extinguishment and forgiveness of debt, net
 

 
(5,396
)
 
5,302

 
(21,264
)
Other income, net
 
3,401

 
8,687

 
12,791

 
17,104

Gain on disposition of interest in joint venture
 
6,729

 

 
6,729

 

Loss on derivative instruments, net
 
(1,420
)
 
(17,484
)
 
(2,137
)
 
(10,398
)
Gain on sale of investments
 

 
6,357

 

 
6,357

Total other expenses, net
 
(80,820
)

(109,479
)

(253,116
)

(334,692
)
Income (loss) before income and franchise taxes and loss on disposition of real estate and held for sale assets
 
16,183

 
(28,028
)
 
(63,853
)
 
(381,410
)
Loss on disposition of real estate and held for sale
assets, net
 
(6,542
)
 
(256,894
)
 
(62,584
)
 
(275,768
)
Income (loss) before income and franchise taxes
 
9,641


(284,922
)

(126,437
)

(657,178
)
(Provision for) benefit from income and franchise taxes
 
(1,500
)
 
(3,125
)
 
(4,824
)
 
6,693

Net income (loss)
 
8,141


(288,047
)

(131,261
)
 
(650,485
)
Net (income) loss attributable to non-controlling interests
 
(612
)
 
7,649

 
2,298

 
23,923

Net income (loss) attributable to the Company
 
$
7,529


$
(280,398
)

$
(128,963
)

$
(626,562
)
 
 
 
 


 
 
 
 
Basic and diluted net loss per share attributable to common stockholders
 
$
(0.01
)
 
$
(0.35
)
 
$
(0.20
)
 
$
(0.94
)
Distributions declared per common share
 
$
0.14

 
$
0.25

 
$
0.14

 
$
0.79

_______________________________________________
(1)
Includes $1.7 million of expenses incurred during the nine months ended September 30, 2014, paid to affiliates. No such expenses were incurred during the three months ended September 30, 2014 or the three and nine months ended September 30, 2015.
(2)
Includes $137.8 million of expenses incurred during the nine months ended September 30, 2014, paid to affiliates. No such expenses were incurred during the three months ended September 30, 2014 or the three and nine months ended September 30, 2015.
(3)
Includes $60,000 and $16.1 million of expenses incurred during the three and nine months ended September 30, 2014, respectively, paid to affiliates. No such expenses were incurred during the three and nine months ended September 30, 2015.

The accompanying notes are an integral part of these statements.

2

Table of Contents
VEREIT, INC.
(F/K/A AMERICAN REALTY CAPITAL PROPERTIES, INC.)
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)
(In thousands) (Unaudited)


 
 
Three Months Ended September 30,
 
Nine Months Ended September 30,
 
 
2015
 
2014
 
2015
 
2014
Net income (loss)
 
$
8,141

 
$
(288,047
)
 
$
(131,261
)
 
$
(650,485
)
Other comprehensive (loss) income:
 
 
 
 
 
 
 
 
Unrealized (loss) gain on interest rate derivatives
 
(10,076
)
 
5,800

 
(21,057
)
 
(7,896
)
Amount of loss reclassified from accumulated other comprehensive loss into income as interest expense
 
2,787

 
2,669

 
8,316

 
6,784

Unrealized (loss) gain on investment securities, net
 
(918
)
 
725

 
(232
)
 
9,698

Reclassification of previous unrealized (loss) gain on investment securities into net loss
 

 
(7,652
)
 
110

 
(7,652
)
Total other comprehensive (loss) income
 
(8,207
)

1,542


(12,863
)

934

 
 
 
 
 
 
 
 
 
Total comprehensive loss
 
(66
)
 
(286,505
)
 
(144,124
)
 
(649,551
)
Comprehensive (income) loss attributable to non-controlling interests
 
(283
)
 
7,649

 
2,627

 
23,923

Total comprehensive loss attributable to the Company

$
(349
)

$
(278,856
)

$
(141,497
)

$
(625,628
)

The accompanying notes are an integral part of these statements.



3

Table of Contents
VEREIT, INC.
(F/K/A AMERICAN REALTY CAPITAL PROPERTIES, INC.)
CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY
(In thousands, except for share data) (Unaudited)

 
 
Preferred Stock
 
Common Stock
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Number
of Shares
 
Par
Value
 
Number
of Shares
 
Par
Value
 
Additional Paid-In Capital
 
Accumulated Other Comprehensive Income (Loss)
 
Accumulated
Deficit
 
Total Stock-holders’ Equity
 
Non-Controlling Interests
 
Total Equity
Balance, January 1, 2015
 
42,834,138

 
$
428

 
905,530,431

 
$
9,055

 
$
11,920,253

 
$
2,728

 
$
(2,778,576
)

$
9,153,888


$
228,442


$
9,382,330

Repurchases of common stock to settle tax obligation
 

 

 
(183,492
)
 
(1
)
 
(1,633
)
 

 

 
(1,634
)
 

 
(1,634
)
Equity-based compensation, net of forfeitures
 

 

 
(386,705
)
 
(4
)
 
10,193

 

 

 
10,189

 

 
10,189

Tax shortfall from equity-based compensation
 

 

 

 

 
(629
)
 

 

 
(629
)
 

 
(629
)
Distributions declared on common stock
 

 

 

 

 

 

 
(124,225
)
 
(124,225
)
 


 
(124,225
)
Distributions to non-controlling interest holders
 

 

 

 

 

 

 

 

 
(16,879
)
 
(16,879
)
Distributions to participating securities
 

 

 

 

 

 

 
(222
)
 
(222
)
 

 
(222
)
Distributions to preferred shareholders
 

 

 

 

 

 

 
(53,920
)
 
(53,920
)
 

 
(53,920
)
Disposition of consolidated joint venture interest
 

 

 

 

 

 

 

 

 
6,339

 
6,339

Net loss
 

 

 

 

 

 

 
(128,963
)
 
(128,963
)
 
(2,298
)
 
(131,261
)
Other comprehensive loss
 

 

 

 

 

 
(12,534
)
 

 
(12,534
)
 
(329
)
 
(12,863
)
Balance, September 30, 2015
 
42,834,138

 
$
428

 
904,960,234

 
$
9,050

 
$
11,928,184

 
$
(9,806
)
 
$
(3,085,906
)
 
$
8,841,950

 
$
215,275

 
$
9,057,225


 
 
Preferred Stock
 
Common Stock
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Number
of Shares
 
Par
Value
 
Number
of Shares
 
Par
Value
 
Additional Paid-In Capital
 
Accumulated Other Comprehensive Income
 
Accumulated
Deficit
 
Total Stock-holders’ Equity
 
Non-Controlling Interests
 
Total Equity
Balance, January 1, 2014
 
42,199,547

 
$
422

 
239,234,725

 
$
2,392

 
$
2,940,907

 
$
7,666

 
$
(877,957
)
 
$
2,073,430

 
$
155,798

 
$
2,229,228

Issuance of common stock (1)
 

 

 
662,305,318

 
6,623

 
8,916,830

 

 

 
8,923,453

 

 
8,923,453

Conversion of Common OP Units to common stock
 

 

 
1,098,074

 
11

 
16,264

 

 

 
16,275

 
(16,275
)
 

Conversion of Preferred OP Units to Series F Preferred Stock
 
622,836

 
6

 

 

 
12,464

 

 

 
12,470

 
(12,470
)
 

Issuance of restricted share awards, net
 

 

 
5,326,404

 
54

 
(4,310
)
 

 

 
(4,256
)
 

 
(4,256
)
Equity-based compensation, net of forfeitures
 

 

 

 

 
23,183

 

 

 
23,183

 
9,622

 
32,805

Distributions declared on common stock
 

 

 

 

 

 

 
(593,846
)
 
(593,846
)
 

 
(593,846
)
Issuance of OP Units
 

 

 

 

 

 

 

 

 
152,484

 
152,484

Distributions to non-controlling interest holders
 

 

 

 

 

 

 

 

 
(28,809
)
 
(28,809
)
Distributions to participating securities
 

 

 

 

 

 

 
(3,617
)
 
(3,617
)
 

 
(3,617
)
Distributions to preferred shareholders
 

 

 

 

 

 

 
(80,749
)
 
(80,749
)
 

 
(80,749
)
Contributions from non-controlling interest holders
 

 

 

 

 

 

 

 

 
982

 
982

Non-controlling interests retained in Cole Merger
 

 

 

 

 

 

 

 

 
24,766

 
24,766

Net loss
 

 

 

 

 

 

 
(626,562
)
 
(626,562
)
 
(23,923
)
 
(650,485
)
Other comprehensive loss
 

 

 

 

 

 
934

 

 
934

 

 
934

Balance, September 30, 2014
 
42,822,383

 
$
428

 
907,964,521

 
$
9,080

 
$
11,905,338

 
$
8,600

 
$
(2,182,731
)
 
$
9,740,715

 
$
262,175

 
$
10,002,890

_______________________________________________
(1) Includes $2.2 million issued to affiliates of the Former Manager (as defined in Note 15 – Equity) for the nine months ended September 30, 2014.

The accompanying notes are an integral part of these statements.

4

Table of Contents
VEREIT, INC.
(F/K/A AMERICAN REALTY CAPITAL PROPERTIES, INC.)
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands) (Unaudited)

 
 
Nine Months Ended September 30,
 
 
2015
 
2014
Cash flows from operating activities:
 
 

 
 

Net loss
 
$
(131,261
)
 
$
(650,485
)
Adjustments to reconcile net loss to net cash provided by operating activities:
 
 
 
 
Issuance of OP Units
 

 
92,884

Depreciation and amortization
 
660,715

 
744,545

Loss on real estate assets and interest in joint venture, net
 
55,855

 
275,768

Impairments
 
85,341

 
3,855

Equity-based compensation
 
10,189

 
32,805

Equity in income of unconsolidated entities
 
(1,611
)
 
(247
)
Distributions from unconsolidated entities
 
9,578

 
6,149

Loss on derivative instruments
 
2,137

 
10,398

Gain on sale and unrealized gains of investments securities
 
(65
)
 
(6,357
)
Gain on extinguishment and forgiveness of debt
 
(5,307
)
 
(14,637
)
Changes in assets and liabilities:
 
 
 
 
Investment in direct financing leases
 
1,503

 
1,147

Deferred costs and other assets
 
(59,509
)
 
(116,614
)
Due from affiliates
 
19,141

 
(2,365
)
Accounts payable and accrued expenses
 
6,679

 
(53,434
)
Deferred rent, derivative and other liabilities
 
(24,939
)
 
(20,748
)
Due to affiliates
 
(318
)
 
(37,520
)
Net cash provided by operating activities
 
628,128

 
265,144

Cash flows from investing activities:
 
 
 
 
Investments in real estate and other assets
 
(10,207
)
 
(3,517,290
)
Acquisition of real estate businesses, net of cash acquired
 

 
(756,232
)
Capital expenditures and leasing costs
 
(10,880
)
 
(33,378
)
Real estate developments
 
(51,863
)
 
(33,610
)
Principal repayments received from borrowers
 
6,043

 
5,091

Investments in unconsolidated entities
 

 
(2,699
)
Proceeds from disposition of interest in joint venture
 
43,041

 

Proceeds from disposition of real estate assets, net
 
370,229

 
129,212

Investment in leasehold improvements, property and equipment
 

 
(11,074
)
Proceeds from sale of investments
 
229

 
159,049

Deposits for real estate assets
 
(15,105
)
 
(205,896
)
Uses and refunds of deposits for real estate assets
 
42,619

 
278,362

Line of credit advances to affiliates
 
(10,000
)
 
(130,300
)
Line of credit repayments from affiliates
 
10,000

 
80,300

Change in restricted cash
 
10,488

 
(18,709
)
Net cash provided by (used in) investing activities
 
384,594

 
(4,057,174
)
Cash flows from financing activities:
 
 
 
 
Proceeds from mortgage notes payable
 
1,379

 
1,007,787

Payments on mortgage notes payable and other debt
 
(113,570
)
 
(1,137,329
)
Proceeds from credit facilities
 

 
5,689,000

Payments on credit facilities
 
(1,074,000
)
 
(4,708,800
)
Proceeds from corporate bonds
 

 
2,545,760

Payments of deferred financing costs
 
(2,412
)
 
(92,233
)
Repurchases of common stock for tax obligation
 
(1,634
)
 

Proceeds from issuances of common stock, net of offering costs
 

 
1,593,345

Redemption of Series D Preferred Stock
 

 
(316,126
)
Contributions from non-controlling interest holders
 

 
982

Distributions paid
 
(67,537
)
 
(697,771
)
Net cash (used in) provided by financing activities
 
(1,257,774
)
 
3,884,615

Net change in cash and cash equivalents
 
(245,052
)
 
92,585

Cash and cash equivalents, beginning of period
 
416,711

 
52,725

Cash and cash equivalents, end of period
 
$
171,659

 
$
145,310

The accompanying notes are an integral part of these statements.

5

Table of Contents
VEREIT OPERATING PARTNERSHIP, L.P.
(F/K/A ARC PROPERTIES OPERATING PARTNERSHIP, L.P.)
CONSOLIDATED BALANCE SHEETS
(In thousands, except for unit data) (Unaudited)

 
 
September 30, 2015
 
December 31, 2014
ASSETS
 
 
 
 
Real estate investments, at cost:
 
 
 
 
Land
 
$
3,257,396

 
$
3,472,298

Buildings, fixtures and improvements
 
11,615,474

 
12,307,758

Land and construction in progress
 
37,356

 
77,450

Intangible lease assets
 
2,313,369

 
2,435,054

Total real estate investments, at cost
 
17,223,595

 
18,292,560

Less: accumulated depreciation and amortization
 
1,595,667

 
1,034,122

Total real estate investments, net
 
15,627,928

 
17,258,438

Investment in unconsolidated entities
 
57,247

 
98,053

Investment in direct financing leases, net
 
49,244

 
56,076

Investment securities, at fair value
 
54,455

 
58,646

Loans held for investment, net
 
40,002

 
42,106

Cash and cash equivalents
 
171,659

 
416,711

Restricted cash
 
47,775

 
62,651

Intangible assets, net
 
127,835

 
150,359

Deferred costs and other assets, net
 
385,806

 
389,922

Goodwill
 
1,828,005

 
1,894,794

Due from affiliates
 
66,981

 
86,122

Assets held for sale
 
247,951

 
1,261

Total assets
 
$
18,704,888


$
20,515,139

 
 
 
 
 
LIABILITIES AND EQUITY
 
 

 
 

Mortgage notes payable and other debt, net
 
$
3,210,413

 
$
3,805,761

Corporate bonds, net
 
2,547,059

 
2,546,499

Convertible debt, net
 
981,031

 
977,521

Credit facility
 
2,110,000

 
3,184,000

Below-market lease liabilities, net
 
264,232

 
317,838

Accounts payable and accrued expenses
 
164,204

 
163,025

Deferred rent, derivative and other liabilities
 
114,343

 
127,611

Distributions payable
 
137,647

 
9,995

Due to affiliates
 
241

 
559

Mortgage notes payable associated with assets held for sale
 
118,493

 

Total liabilities
 
9,647,663


11,132,809

Commitments and contingencies (Note 14)
 

 

General partner's preferred equity, 42,834,138 General Partner Preferred Units issued and outstanding as of each of September 30, 2015 and December 31, 2014
 
943,067

 
996,987

General partner's common equity, 904,960,234 and 905,530,431 General Partner OP Units issued and outstanding as of September 30, 2015 and December 31, 2014, respectively
 
7,899,149

 
8,157,167

Limited partner's preferred equity, 86,874 Limited Partner Preferred Units issued and outstanding as of each of September 30, 2015 and December 31, 2014
 
3,375

 
3,375

Limited partner's common equity, 23,763,797 Limited Partner OP Units issued and outstanding as of each of September 30, 2015 and December 31, 2014
 
194,009

 
201,102

Total partners’ equity
 
9,039,600


9,358,631

Non-controlling interests
 
17,625

 
23,699

Total equity
 
9,057,225


9,382,330

Total liabilities and equity
 
$
18,704,888


$
20,515,139

The accompanying notes are an integral part of these statements.


6

Table of Contents
VEREIT OPERATING PARTNERSHIP, L.P.
(F/K/A ARC PROPERTIES OPERATING PARTNERSHIP, L.P.)
CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands, except for per unit data) (Unaudited)

 
 
Three Months Ended September 30,
 
Nine Months Ended September 30,
 
 
2015
 
2014
 
2015
 
2014
Revenues:
 
 
 
 
 
 
 
 
Rental income
 
$
333,766

 
$
365,712

 
$
1,017,708

 
$
924,646

Direct financing lease income
 
659

 
625

 
2,097

 
2,812

Operating expense reimbursements
 
22,983

 
30,984

 
71,269

 
81,716

Cole Capital revenue
 
27,546

 
59,797

 
81,569

 
151,276

Total revenues
 
384,954


457,118


1,172,643


1,160,450

Operating expenses:
 

 

 
 
 
 
Cole Capital reallowed fees and commissions
 
3,896

 
15,398

 
9,637

 
56,902

Acquisition related (1)
 
1,764

 
13,998

 
5,509

 
34,616

Merger and other non-routine transactions (2)
 
8,957

 
7,632

 
42,244

 
175,352

Property operating
 
31,950

 
40,977

 
95,547

 
110,018

Management fees to affiliates
 

 

 

 
13,888

General and administrative (3)
 
32,842

 
30,213

 
99,906

 
122,806

Depreciation and amortization
 
208,542

 
265,150

 
645,196

 
689,731

Impairments
 

 
2,299

 
85,341

 
3,855

Total operating expenses
 
287,951


375,667


983,380


1,207,168

Operating income (loss)
 
97,003


81,451


189,263


(46,718
)
Other (expense) income:
 

 

 
 
 
 
Interest expense, net
 
(89,530
)
 
(101,643
)
 
(275,801
)
 
(326,491
)
Extinguishment and forgiveness of debt, net
 

 
(5,396
)
 
5,302

 
(21,264
)
Other income, net
 
3,401

 
8,687

 
12,791

 
17,104

Gain on disposition of interest in joint venture
 
6,729

 

 
6,729

 

Gain (loss) on derivative instruments, net
 
(1,420
)
 
(17,484
)
 
(2,137
)
 
(10,398
)
Gain (loss) on sale of investments
 

 
6,357

 

 
6,357

Total other expenses, net
 
(80,820
)

(109,479
)

(253,116
)

(334,692
)
Income (loss) before income and franchise taxes and loss on disposition of real estate and held for sale assets
 
16,183


(28,028
)

(63,853
)

(381,410
)
Loss on disposition of real estate and held for sale
assets, net
 
(6,542
)
 
(256,894
)
 
(62,584
)
 
(275,768
)
Income (loss) before income and franchise taxes
 
9,641

 
(284,922
)
 
(126,437
)
 
(657,178
)
(Provision for) benefit from income and franchise taxes
 
(1,500
)
 
(3,125
)
 
(4,824
)
 
6,693

Net income (loss)
 
8,141


(288,047
)

(131,261
)

(650,485
)
Net income attributable to non-controlling interests
 
(404
)
 
(155
)
 
(1,197
)
 
(235
)
Net income (loss) attributable to the OP
 
$
7,737


$
(288,202
)

$
(132,458
)

$
(650,720
)
 
 
 
 
 
 
 
 
 
Basic and diluted net loss from continuing operations per unit attributable to common unitholders
 
$
(0.01
)
 
$
(0.35
)
 
$
(0.20
)
 
$
(0.94
)
Distributions declared per common unit
 
$
0.14

 
$
0.25

 
$
0.14

 
$
0.79

_______________________________________________
(1)
Includes $1.7 million of expenses incurred during the nine months ended September 30, 2014, paid to affiliates. No such expenses were incurred during the three months ended September 30, 2014 or the three and nine months ended September 30, 2015.
(2)
Includes $137.8 million of expenses incurred during the nine months ended September 30, 2014, paid to affiliates. No such expenses were incurred during the three months ended September 30, 2014 or the three and nine months ended September 30, 2015.
(3)
Includes $60,000 and $16.1 million of expenses incurred during the three and nine months ended September 30, 2014, respectively, paid to affiliates. No such expenses were incurred during the three and nine months ended September 30, 2015.

The accompanying notes are an integral part of these statements.

7

Table of Contents
VEREIT OPERATING PARTNERSHIP, L.P.
(F/K/A ARC PROPERTIES OPERATING PARTNERSHIP, L.P.)
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)
(In thousands) (Unaudited)

 
 
Three Months Ended September 30,
 
Nine Months Ended September 30,
 
 
2015
 
2014
 
2015
 
2014
Net income (loss)
 
$
8,141

 
$
(288,047
)
 
$
(131,261
)
 
$
(650,485
)
Other comprehensive (loss) income:
 
 
 
 
 
 
 
 
Unrealized (loss) gain on interest rate derivatives
 
(10,076
)
 
5,800

 
(21,057
)
 
(7,896
)
Amount of loss reclassified from accumulated other comprehensive loss into income as interest expense
 
2,787

 
2,669

 
8,316

 
6,784

Unrealized (loss) gain on investment securities, net
 
(918
)
 
725

 
(232
)
 
9,698

Reclassification of previous unrealized (loss) gain on investment securities into net loss
 

 
(7,652
)
 
110

 
(7,652
)
Total other comprehensive (loss) income
 
(8,207
)

1,542


(12,863
)

934

 
 
 
 
 
 
 
 
 
Total comprehensive loss
 
(66
)

(286,505
)

(144,124
)

(649,551
)
Comprehensive (income) loss attributable to non-controlling interests
 
(404
)
 
(155
)
 
(1,197
)
 
(235
)
Total comprehensive loss attributable to the OP
 
$
(470
)

$
(286,660
)

$
(145,321
)

$
(649,786
)

The accompanying notes are an integral part of these statements.


8

Table of Contents
VEREIT OPERATING PARTNERSHIP, L.P.
(F/K/A ARC PROPERTIES OPERATING PARTNERSHIP, L.P.)
CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY
(In thousands, except for unit data) (Unaudited)

 
 
Preferred Units
 
Common Units
 
 
 
 
 
 
 
 
General Partner
 
Limited Partner
 
General Partner
 
Limited Partner
 
 
 
 
 
 
 
 
Number of Units
 
Capital
 
Number of Units
 
Capital
 
Number of Units
 
Capital
 
Number of Units
 
Capital
 
Total Partners' Capital
 
Non-Controlling Interests
 
Total Capital
 Balance, January 1, 2015
 
42,834,138

 
$
996,987

 
86,874

 
$
3,375

 
905,530,431

 
$
8,157,167

 
23,763,797

 
$
201,102

 
$
9,358,631

 
$
23,699

 
$
9,382,330

 Repurchases of common OP Units to settle tax obligation
 

 

 

 

 
(183,492
)
 
(1,634
)
 

 

 
(1,634
)
 

 
(1,634
)
 Equity-based compensation, net of forfeitures
 

 

 

 

 
(386,705
)
 
10,189

 

 

 
10,189

 

 
10,189

 Tax shortfall from equity-based compensation
 

 

 

 

 

 
(629
)
 

 

 
(629
)
 

 
(629
)
 Distributions to Common OP Units and non-controlling interests
 

 

 

 

 

 
(124,447
)
 

 
(3,269
)
 
(127,716
)
 
(13,610
)
 
(141,326
)
 Distributions to Preferred OP Units
 

 
(53,920
)
 

 

 

 

 

 

 
(53,920
)
 

 
(53,920
)
 Disposition of consolidated joint venture interest
 

 

 

 

 

 

 

 

 

 
6,339

 
6,339

 Net (loss) income
 

 

 

 

 

 
(128,963
)
 

 
(3,495
)
 
(132,458
)
 
1,197

 
(131,261
)
 Other comprehensive loss
 

 

 

 

 

 
(12,534
)
 

 
(329
)
 
(12,863
)
 

 
(12,863
)
Balance, September 30, 2015
 
42,834,138


$
943,067


86,874


$
3,375


904,960,234


$
7,899,149


23,763,797


$
194,009


$
9,039,600


$
17,625


$
9,057,225

 
 
Preferred Units
 
Common Units
 
 
 
 
 
 
 
 
General Partner
 
Limited Partner
 
General Partner
 
Limited Partner
 
 
 
 
 
 
 
 
Number of Units
 
Capital
 
Number of Units
 
Capital
 
Number of Units
 
Capital
 
Number of Units
 
Capital
 
Total Partners' Capital
 
Non-Controlling Interests
 
Total Capital
 Balance, January 1, 2014
 
42,199,547

 
$
1,054,989

 
721,465

 
$
16,466

 
239,234,725

 
$
1,018,123

 
17,832,274

 
$
139,083

 
$
2,228,661

 
$
567

 
$
2,229,228

 Issuance of common OP units, net (1)
 

 

 

 

 
662,305,318

 
8,923,453

 
7,956,297

 
152,484

 
9,075,937

 

 
9,075,937

 Conversion of Limited Partners' Common OP Units to General Partner's Common OP Units
 

 

 

 

 
1,098,074

 
16,275

 
(1,098,074
)
 
(16,275
)
 

 

 

 Conversion of Limited Partners' Preferred OP Units to General Partner's Preferred OP Units
 
622,836

 
12,470

 
(622,836
)
 
(12,470
)
 

 

 

 

 

 

 

 Issuance of restricted share awards, net
 

 

 

 

 
5,326,404

 
(4,256
)
 

 

 
(4,256
)
 

 
(4,256
)
 Equity-based compensation, net of forfeitures
 

 

 

 

 

 
23,183

 
10,744,697

 
9,622

 
32,805

 

 
32,805

 Distributions to Common OP Units, LTIPs and non-controlling interests
 

 

 

 

 

 
(597,463
)
 

 
(27,561
)
 
(625,024
)
 
(1,248
)
 
(626,272
)
 Distributions to Preferred OP Units
 

 
(53,120
)
 

 

 

 
(27,629
)
 

 

 
(80,749
)
 

 
(80,749
)
 Contributions from non-controlling interest holders
 

 

 

 

 

 

 

 

 

 
982

 
982

 Non-controlling interests retained in Cole Merger
 

 

 

 

 

 

 

 

 

 
24,766

 
24,766

 Net (loss) income
 

 

 

 

 

 
(626,562
)
 

 
(24,158
)
 
(650,720
)
 
235

 
(650,485
)
 Other comprehensive loss
 

 

 

 

 

 
899

 

 
35

 
934

 

 
934

Balance, September 30, 2014
 
42,822,383

 
$
1,014,339

 
98,629

 
$
3,996

 
907,964,521

 
$
8,726,023

 
35,435,194

 
$
233,230

 
$
9,977,588

 
$
25,302

 
$
10,002,890

_______________________________________________
(1) Includes $2.2 million issued to affiliates of the Former Manager (as defined in Note 15 – Equity) for the nine months ended September 30, 2014.

The accompanying notes are an integral part of these statements.


9

Table of Contents
VEREIT OPERATING PARTNERSHIP, L.P.
(F/K/A ARC PROPERTIES OPERATING PARTNERSHIP, L.P.)
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands) (Unaudited)

 
 
Nine Months Ended September 30,
 
 
2015
 
2014
Cash flows from operating activities: