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Section 1: 10-Q (10-Q)

Document
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, 2016
 
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
There were 974,174,176 shares of common stock of VEREIT, Inc. outstanding as of October 31, 2016.




EXPLANATORY NOTE

This report combines the Quarterly Reports on Form 10-Q for the three and nine months ended September 30, 2016 of VEREIT, Inc., a Maryland corporation, and VEREIT Operating Partnership, L.P., a Delaware limited partnership, of which VEREIT, Inc. is the sole general partner. Unless otherwise indicated or unless the context requires otherwise, all references in this report to “we,” “us,” “our,” “VEREIT,” the “Company” or the “General Partner” mean VEREIT, Inc. together with its consolidated subsidiaries, including VEREIT Operating Partnership, L.P., and all references to the “Operating Partnership” or “OP” mean VEREIT Operating Partnership, L.P. together with its consolidated subsidiaries.
As the sole general partner of VEREIT Operating Partnership, L.P., VEREIT, Inc. has the full, exclusive and complete responsibility for the Operating Partnership’s day-to-day management and control.
We believe combining the Quarterly Reports on Form 10-Q of VEREIT, Inc. and VEREIT Operating Partnership, L.P. into this single report results in the following benefits:
enhancing investors’ understanding of the Company and the Operating Partnership by enabling investors to view the business as a whole in the same manner as management views and operates the business;
eliminating duplicative disclosure and providing a more streamlined and readable presentation since a substantial portion of the disclosure applies to both the Company and the Operating Partnership; and
creating time and cost efficiencies through the preparation of one combined report instead of two separate reports.
There are a few differences between the Company and the Operating Partnership, which are reflected in the disclosure in this report. We believe it is important to understand the differences between the Company and the Operating Partnership in the context of how we operate as an interrelated consolidated company. VEREIT, Inc. is a real estate investment trust whose only material asset is its ownership of partnership interests of the Operating Partnership. As a result, VEREIT, Inc. does not conduct business itself, other than acting as the sole general partner of the Operating Partnership, issuing public equity or debt from time to time and guaranteeing certain unsecured debt of the Operating Partnership and certain of its subsidiaries. The Operating Partnership holds substantially all of the assets of the Company and holds the ownership interests in the Company’s joint ventures. The Operating Partnership conducts the operations of the business and is structured as a partnership with no publicly traded equity. Except for net proceeds from public equity issuances by VEREIT, Inc., which are generally contributed to the Operating Partnership in exchange for partnership units, the Operating Partnership generates the capital required by the Company’s business through the Operating Partnership’s operations, by the Operating Partnership’s direct or indirect incurrence of indebtedness or through the issuance of partnership units. To help investors understand the significant differences between VEREIT, Inc. and the Operating Partnership, there are separate sections in this report that separately discuss VEREIT, Inc. and the Operating Partnership, including the consolidated financial statements and certain notes to the consolidated financial statements as well as separate Exhibit 31 and Exhibit 32 certifications. As general partner with control of the Operating Partnership, VEREIT, Inc. consolidates the Operating Partnership for financial reporting purposes. Therefore, the assets and liabilities of VEREIT, Inc. and VEREIT Operating Partnership, L.P. are the same on their respective consolidated financial statements. The separate discussions of VEREIT, Inc. and VEREIT Operating Partnership, L.P. in this report should be read in conjunction with each other to understand the results of the Company on a consolidated basis and how management operates the Company.



VEREIT, INC. and VEREIT OPERATING PARTNERSHIP, L.P.
For the quarterly period ended September 30, 2016

 
Page

1

Table of Contents
VEREIT, INC.
CONSOLIDATED BALANCE SHEETS
(In thousands, except for share and per share data) (Unaudited)

PART I — FINANCIAL INFORMATION
Item 1. Financial Statements.
 
 
September 30, 2016
 
December 31, 2015
ASSETS
 
 
 
 
Real estate investments, at cost:
 
 
 
 
Land
 
$
2,946,105

 
$
3,120,653

Buildings, fixtures and improvements
 
10,800,316

 
11,445,690

Intangible lease assets
 
2,073,076

 
2,218,378

Total real estate investments, at cost
 
15,819,497

 
16,784,721

Less: accumulated depreciation and amortization
 
2,188,998

 
1,778,597

Total real estate investments, net
 
13,630,499

 
15,006,124

Investment in unconsolidated entities
 
24,711

 
56,824

Investment in direct financing leases, net
 
40,785

 
46,312

Investment securities, at fair value
 
48,098

 
53,304

Mortgage notes receivable, net
 
23,014

 
24,238

Cash and cash equivalents
 
116,618

 
69,103

Restricted cash
 
61,828

 
59,767

Intangible assets, net
 
30,849

 
50,779

Rent and tenant receivables and other assets, net
 
339,529

 
303,637

Goodwill
 
1,602,610

 
1,656,374

Due from affiliates
 
20,883

 
60,633

Real estate assets held for sale, net
 
118,396

 
18,771

Total assets
 
$
16,057,820


$
17,405,866

 
 
 
 
 
LIABILITIES AND STOCKHOLDERS’ EQUITY
 
 
 
 
Mortgage notes payable and other debt, net
 
$
2,861,210

 
$
3,111,985

Corporate bonds, net
 
2,225,157

 
2,536,333

Convertible debt, net
 
970,691

 
962,894

Credit facility, net
 
496,008

 
1,448,590

Below-market lease liabilities, net
 
229,340

 
251,692

Accounts payable and accrued expenses
 
139,150

 
151,877

Deferred rent, derivative and other liabilities
 
89,154

 
87,490

Distributions payable
 
159,415

 
140,816

Due to affiliates
 

 
230

Total liabilities
 
7,170,125

 
8,691,907

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, 2016 and December 31, 2015
 
428

 
428

Common stock, $0.01 par value, 1,500,000,000 shares authorized and 974,183,819 and 904,884,394 issued and outstanding as of September 30, 2016 and December 31, 2015, respectively
 
9,742

 
9,049

Additional paid-in-capital
 
12,637,049

 
11,931,768

Accumulated other comprehensive loss
 
(4,687
)
 
(2,025
)
Accumulated deficit
 
(3,933,092
)
 
(3,415,233
)
Total stockholders’ equity
 
8,709,440

 
8,523,987

Non-controlling interests
 
178,255

 
189,972

Total equity
 
8,887,695

 
8,713,959

Total liabilities and equity
 
$
16,057,820


$
17,405,866


The accompanying notes are an integral part of these statements.

2

Table of Contents
VEREIT, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands, except for per share data) (Unaudited)

 
 
Three Months Ended September 30,
 
Nine Months Ended September 30,
 
 
2016
 
2015
 
2016
 
2015
Revenues:
 
 
 
 
 
 
 
 
Rental income
 
$
303,383

 
$
333,766

 
$
928,706

 
$
1,017,708

Direct financing lease income
 
494

 
659

 
1,598

 
2,097

Operating expense reimbursements
 
27,969

 
22,983

 
77,862

 
71,269

Cole Capital revenue
 
31,069

 
27,546

 
94,788

 
81,569

Total revenues
 
362,915


384,954

 
1,102,954


1,172,643

Operating expenses:
 
 
 
 
 
 
 
 
Cole Capital reallowed fees and commissions
 
5,897

 
3,896

 
20,940

 
9,637

Acquisition related 
 
90

 
1,764

 
373

 
5,509

Litigation and other non-routine costs, net of insurance recoveries
 
4,630

 
8,032

 
2,372

 
41,319

Property operating
 
34,820

 
31,950

 
107,832

 
95,547

General and administrative
 
29,761

 
32,842

 
92,255

 
99,906

Depreciation and amortization
 
195,173

 
208,542

 
596,826

 
645,196

Impairments
 
6,872

 

 
176,214

 
85,341

Total operating expenses
 
277,243


287,026

 
996,812


982,455

Operating income
 
85,672


97,928

 
106,142


190,188

Other (expense) income:
 
 
 
 
 
 
 
 
Interest expense
 
(79,869
)
 
(89,530
)
 
(242,763
)
 
(275,801
)
(Loss) gain on extinguishment and forgiveness of debt, net
 
(2,003
)
 

 
(1,751
)
 
5,302

Other income, net
 
1,744

 
2,368

 
4,022

 
10,255

Equity in income and gain on disposition of unconsolidated entities
 
212

 
6,837

 
10,686

 
8,340

Loss on derivative instruments, net
 
(2,023
)
 
(1,420
)
 
(3,286
)
 
(2,137
)
Total other expenses, net
 
(81,939
)

(81,745
)
 
(233,092
)

(254,041
)
Income (loss) before taxes and real estate dispositions
 
3,733


16,183

 
(126,950
)
 
(63,853
)
Gain (loss) on disposition of real estate, net
 
28,111

 
(6,542
)
 
45,723

 
(62,584
)
Income (loss) before taxes
 
31,844


9,641


(81,227
)

(126,437
)
Provision for income taxes
 
(1,598
)
 
(1,500
)
 
(1,374
)
 
(4,824
)
Net income (loss)
 
30,246


8,141

 
(82,601
)

(131,261
)
Net (income) loss attributable to non-controlling interests (1)
 
(751
)
 
(612
)
 
2,156

 
2,298

Net income (loss) attributable to the General Partner
 
$
29,495


$
7,529

 
$
(80,445
)

$
(128,963
)
 
 
 
 
 
 
 
 
 
Basic and diluted net income (loss) per share attributable to common stockholders and limited partners
 
$
0.01

 
$
(0.01
)
 
$
(0.15
)
 
$
(0.20
)
Distributions declared per common share
 
$
0.14

 
$
0.14

 
$
0.41

 
$
0.14

_______________________________________________
(1)
Represents (income) loss attributable to limited partners and consolidated joint venture partners.

The accompanying notes are an integral part of these statements.

3

Table of Contents
VEREIT, INC.
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)
(In thousands) (Unaudited)

 
 
Three Months Ended September 30,
 
Nine Months Ended September 30,
 
 
2016
 
2015
 
2016
 
2015
Net income (loss)
 
$
30,246

 
$
8,141

 
$
(82,601
)
 
$
(131,261
)
Other comprehensive income (loss):
 
 
 
 
 
 
 
 
Unrealized gain (loss) on interest rate derivatives
 
3,178

 
(10,076
)
 
(9,811
)
 
(21,057
)
Reclassification of previous unrealized loss on interest rate derivatives into net income (loss)
 
4,650

 
2,787

 
8,668

 
8,316

Unrealized loss on investment securities, net
 
(29
)
 
(918
)
 
(1,599
)
 
(232
)
Reclassification of previous unrealized loss on investment securities into net income (loss) as other income, net
 

 

 

 
110

Total other comprehensive income (loss)
 
7,799

 
(8,207
)
 
(2,742
)

(12,863
)
 
 
 
 
 
 
 
 
 
Total comprehensive income (loss)
 
38,045

 
(66
)
 
(85,343
)
 
(144,124
)
Comprehensive (income) loss attributable to non-controlling interests (1)
 
(940
)
 
(283
)
 
2,236

 
2,627

Total comprehensive income (loss) attributable to the General Partner
 
$
37,105

 
$
(349
)

$
(83,107
)

$
(141,497
)
_______________________________________________
(1)
Represents (income) loss attributable to limited partners and consolidated joint venture partners.

The accompanying notes are an integral part of these statements.



4

Table of Contents
VEREIT, 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 Loss
 
Accumulated
Deficit
 
Total Stock-holders’ Equity
 
Non-Controlling Interests
 
Total Equity
Balance, January 1, 2016
 
42,834,138

 
$
428

 
904,884,394

 
$
9,049

 
$
11,931,768

 
$
(2,025
)
 
$
(3,415,233
)
 
$
8,523,987

 
$
189,972

 
$
8,713,959

Issuance of common stock, net
 

 

 
69,000,000

 
690

 
701,792

 

 

 
702,482

 

 
702,482

Conversion of OP Units to common stock
 

 

 
15,450

 

 
159

 

 

 
159

 
(159
)
 

Repurchases of common stock to settle tax obligation
 

 

 
(424,726
)
 
(4
)
 
(4,144
)
 

 

 
(4,148
)
 

 
(4,148
)
Equity-based compensation, net
 

 

 
708,701

 
7

 
7,090

 

 

 
7,097

 

 
7,097

Contributions from non-controlling interest holders
 

 

 

 

 

 

 

 

 
675

 
675

Distributions declared on common stock
 

 

 

 

 

 

 
(382,819
)
 
(382,819
)
 

 
(382,819
)
Distributions to non-controlling interest holders
 

 

 

 

 

 

 

 

 
(9,889
)
 
(9,889
)
Distributions to participating securities
 

 

 

 

 

 

 
(400
)
 
(400
)
 

 
(400
)
Distributions to preferred shareholders and unitholders
 

 

 

 

 

 

 
(53,811
)
 
(53,811
)
 
(108
)
 
(53,919
)
Cumulative-effect adjustment for equity-based compensation forfeitures
 

 

 

 

 
384

 

 
(384
)
 

 

 

Net loss
 

 

 

 

 

 

 
(80,445
)
 
(80,445
)
 
(2,156
)
 
(82,601
)
Other comprehensive loss
 

 

 

 

 

 
(2,662
)
 

 
(2,662
)
 
(80
)
 
(2,742
)
Balance, September 30, 2016
 
42,834,138

 
$
428

 
974,183,819

 
$
9,742

 
$
12,637,049

 
$
(4,687
)
 
$
(3,933,092
)
 
$
8,709,440

 
$
178,255

 
$
8,887,695

 
 
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
 

 

 
(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


The accompanying notes are an integral part of these statements.

5

Table of Contents
VEREIT, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands) (Unaudited)

 
 
Nine Months Ended September 30,
 
 
2016
 
2015
Cash flows from operating activities:
 
 

 
 

Net loss
 
$
(82,601
)
 
$
(131,261
)
Adjustments to reconcile net loss to net cash provided by operating activities:
 
 
 
 
Depreciation and amortization
 
610,291

 
660,715

(Gain) loss on real estate assets and joint venture, net
 
(55,921
)
 
55,855

Impairments
 
176,214

 
85,341

Equity-based compensation
 
7,097

 
10,189

Equity in income of unconsolidated entities
 
(488
)
 
(1,611
)
Distributions from unconsolidated entities
 
3,007

 
9,578

Loss on derivative instruments
 
3,286

 
2,137

(Gain) on investment securities
 

 
(65
)
Loss (gain) on extinguishment and forgiveness of debt, net
 
1,751

 
(5,307
)
Changes in assets and liabilities:
 
 
 
 
Investment in direct financing leases
 
1,861

 
1,503

Rent and tenant receivables and other assets, net
 
(51,702
)
 
(59,509
)
Due from affiliates
 
50

 
19,141

Accounts payable and accrued expenses
 
(6,726
)
 
6,679

Deferred rent, derivative and other liabilities
 
(1,235
)
 
(24,939
)
Due to affiliates
 
(230
)
 
(318
)
Net cash provided by operating activities
 
604,654

 
628,128

Cash flows from investing activities:
 
 
 
 
Investments in real estate assets
 
(19,952
)
 
(10,207
)
Capital expenditures and leasing costs
 
(15,892
)
 
(10,880
)
Real estate developments
 
(6,288
)
 
(51,863
)
Principal repayments received from borrowers
 
4,906

 
6,043

Investments in unconsolidated entities
 
(2,500
)
 

Proceeds from disposition of real estate and joint venture
 
615,246

 
413,270

Investment in leasehold improvements and other assets
 
(726
)
 

Proceeds from sale of investments and other assets
 

 
229

Deposits for real estate assets
 
(11,686
)
 
(15,105
)
Uses and refunds of deposits for real estate assets
 
9,753

 
42,619

Line of credit advances to affiliates
 
(10,300
)
 
(10,000
)
Line of credit repayments from affiliates
 
50,000

 
10,000

Change in restricted cash
 
(5,674
)
 
10,488

Net cash provided by investing activities
 
606,887

 
384,594

Cash flows from financing activities:
 
 
 
 
Proceeds from mortgage notes payable
 
1,450

 
1,379

Payments on mortgage notes payable and other debt, including extinguishment costs
 
(145,802
)
 
(113,570
)
Proceeds from credit facility
 
783,000

 

Payments on credit facility
 
(1,743,000
)
 
(1,074,000
)
Proceeds from corporate bonds
 
1,000,000

 

Payments on corporate bonds, including extinguishment costs
 
(1,311,208
)
 

Payments of deferred financing costs
 
(19,056
)
 
(2,412
)
Proceeds from 2016 Term Loan
 
300,000

 

Repayment of 2016 Term Loan
 
(300,000
)
 

Repurchases of common stock to settle tax obligations
 
(4,148
)
 
(1,634
)
Proceeds from the issuance of Common Stock, net of underwriters’ discount
 
702,765

 

Payments of equity issuance costs
 
(274
)
 

Contributions from non-controlling interest holders
 
675

 

Distributions paid
 
(428,428
)
 
(67,537
)
Net cash used in financing activities
 
(1,164,026
)
 
(1,257,774
)
Net change in cash and cash equivalents
 
47,515

 
(245,052
)
Cash and cash equivalents, beginning of period
 
69,103

 
416,711

Cash and cash equivalents, end of period
 
$
116,618

 
$
171,659


The accompanying notes are an integral part of these statements.

6

Table of Contents
VEREIT OPERATING PARTNERSHIP, L.P.
CONSOLIDATED BALANCE SHEETS
(In thousands, except for unit data) (Unaudited)

 
 
September 30, 2016
 
December 31, 2015
ASSETS
 
 
 
 
Real estate investments, at cost:
 
 
 
 
Land
 
$
2,946,105

 
$
3,120,653

Buildings, fixtures and improvements
 
10,800,316

 
11,445,690

Intangible lease assets
 
2,073,076

 
2,218,378

Total real estate investments, at cost
 
15,819,497


16,784,721

Less: accumulated depreciation and amortization
 
2,188,998

 
1,778,597

Total real estate investments, net
 
13,630,499


15,006,124

Investment in unconsolidated entities
 
24,711

 
56,824

Investment in direct financing leases, net
 
40,785

 
46,312

Investment securities, at fair value
 
48,098

 
53,304

Mortgage notes receivable, net
 
23,014

 
24,238

Cash and cash equivalents
 
116,618

 
69,103

Restricted cash
 
61,828

 
59,767

Intangible assets, net
 
30,849

 
50,779

Rent and tenant receivables and other assets, net
 
339,529

 
303,637

Goodwill
 
1,602,610

 
1,656,374

Due from affiliates
 
20,883

 
60,633

Real estate assets held for sale, net
 
118,396

 
18,771

Total assets
 
$
16,057,820


$
17,405,866

 
 
 
 
 
LIABILITIES AND EQUITY
 
 
 
 

Mortgage notes payable and other debt, net
 
$
2,861,210

 
$
3,111,985

Corporate bonds, net
 
2,225,157

 
2,536,333

Convertible debt, net
 
970,691

 
962,894

Credit facility, net
 
496,008

 
1,448,590

Below-market lease liabilities, net
 
229,340

 
251,692

Accounts payable and accrued expenses
 
139,150

 
151,877

Deferred rent, derivative and other liabilities
 
89,154

 
87,490

Distributions payable
 
159,415

 
140,816

Due to affiliates
 

 
230

Total liabilities
 
7,170,125


8,691,907

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, 2016 and December 31, 2015
 
871,758

 
925,569

General Partner's common equity, 974,183,819 and 904,884,394 General Partner OP Units issued and outstanding as of September 30, 2016 and December 31, 2015, respectively
 
7,837,682

 
7,598,418

Limited Partner's preferred equity, 86,874 Limited Partner Preferred Units issued and outstanding as of each of September 30, 2016 and December 31, 2015
 
3,207

 
3,315

Limited Partner's common equity, 23,748,347 and 23,763,797 Limited Partner OP Units issued and outstanding as of September 30, 2016 and December 31, 2015, respectively
 
172,625

 
184,800

Total partners’ equity
 
8,885,272


8,712,102

Non-controlling interests
 
2,423

 
1,857

Total equity
 
8,887,695


8,713,959

Total liabilities and equity
 
$
16,057,820


$
17,405,866


The accompanying notes are an integral part of these statements.


7

Table of Contents
VEREIT 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,
 
 
2016
 
2015
 
2016
 
2015
Revenues:
 
 
 
 
 
 
 
 
Rental income
 
$
303,383

 
$
333,766

 
$
928,706

 
$
1,017,708

Direct financing lease income
 
494

 
659

 
1,598

 
2,097

Operating expense reimbursements
 
27,969

 
22,983

 
77,862

 
71,269

Cole Capital revenue
 
31,069

 
27,546

 
94,788

 
81,569

Total revenues
 
362,915


384,954


1,102,954


1,172,643

Operating expenses:
 
 
 
 
 
 
 
 
Cole Capital reallowed fees and commissions
 
5,897

 
3,896

 
20,940

 
9,637

Acquisition related
 
90

 
1,764

 
373

 
5,509

Litigation and other non-routine costs, net of insurance recoveries
 
4,630

 
8,032

 
2,372

 
41,319

Property operating
 
34,820

 
31,950

 
107,832

 
95,547

General and administrative
 
29,761

 
32,842

 
92,255

 
99,906

Depreciation and amortization
 
195,173

 
208,542

 
596,826

 
645,196

Impairments
 
6,872

 

 
176,214

 
85,341

Total operating expenses
 
277,243


287,026


996,812


982,455

Operating income
 
85,672


97,928


106,142


190,188

Other (expense) income:
 
 
 
 
 
 
 
 
Interest expense
 
(79,869
)
 
(89,530
)
 
(242,763
)
 
(275,801
)
(Loss) gain on extinguishment and forgiveness of debt, net
 
(2,003
)
 

 
(1,751
)
 
5,302

Other income, net
 
1,744

 
2,368

 
4,022

 
10,255

Equity in income and gain on disposition of unconsolidated entities
 
212

 
6,837

 
10,686

 
8,340

Loss on derivative instruments, net
 
(2,023
)
 
(1,420
)
 
(3,286
)
 
(2,137
)
Total other expenses, net
 
(81,939
)

(81,745
)

(233,092
)

(254,041
)
Income (loss) before taxes and real estate dispositions
 
3,733


16,183


(126,950
)

(63,853
)
Gain (loss) on disposition of real estate, net
 
28,111

 
(6,542
)
 
45,723

 
(62,584
)
Income (loss) before taxes
 
31,844


9,641


(81,227
)
 
(126,437
)
Provision for income taxes
 
(1,598
)
 
(1,500
)
 
(1,374
)
 
(4,824
)
Net income (loss)
 
30,246


8,141


(82,601
)

(131,261
)
Net (income) loss attributable to non-controlling interests (1)
 
(12
)
 
(404
)
 
23

 
(1,197
)
Net income (loss) attributable to the OP
 
$
30,234


$
7,737


$
(82,578
)

$
(132,458
)
 
 
 
 
 
 
 
 
 
Basic and diluted net income (loss) per unit attributable to common unitholders
 
$
0.01

 
$
(0.01
)
 
$
(0.15
)
 
$
(0.20
)
Distributions declared per common unit
 
$
0.14

 
$
0.14

 
$
0.41

 
$
0.14

_______________________________________________
(1)
Represents (income) loss attributable to consolidated joint venture partners.

The accompanying notes are an integral part of these statements.

8

Table of Contents
VEREIT OPERATING PARTNERSHIP, L.P.
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)
(In thousands) (Unaudited)

 
 
Three Months Ended September 30,
 
Nine Months Ended September 30,
 
 
2016
 
2015
 
2016
 
2015
Net income (loss)
 
$
30,246

 
$
8,141

 
$
(82,601
)
 
$
(131,261
)
Other comprehensive income (loss):
 
 
 
 
 
 
 
 
Unrealized gain (loss) on interest rate derivatives
 
3,178

 
(10,076
)
 
(9,811
)
 
(21,057
)
Reclassification of previous unrealized loss on interest rate derivatives into net income (loss)
 
4,650

 
2,787

 
8,668

 
8,316

Unrealized loss on investment securities, net
 
(29
)
 
(918
)
 
(1,599
)
 
(232
)
Reclassification of previous unrealized loss on investment securities into net income (loss) as other income, net
 

 

 

 
110

Total other comprehensive income (loss)
 
7,799

 
(8,207
)

(2,742
)

(12,863
)
 
 
 
 
 
 
 
 
 
Total comprehensive income (loss)
 
38,045

 
(66
)

(85,343
)

(144,124
)
Comprehensive (income) loss attributable to non-controlling interests (1)
 
(12
)
 
(404
)
 
23

 
(1,197
)
Total comprehensive income (loss) attributable to the OP
 
$
38,033

 
$
(470
)

$
(85,320
)

$
(145,321
)
_______________________________________________
(1)
Represents (income) loss attributable to consolidated joint venture partners.

The accompanying notes are an integral part of these statements.


9

Table of Contents
VEREIT 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, 2016
 
42,834,138

 
$
925,569

 
86,874

 
$
3,315

 
904,884,394

 
$
7,598,418

 
23,763,797

 
$
184,800

 
$
8,712,102

 
$
1,857

 
$
8,713,959

Issuance of common units, net
 

 

 

 

 
69,000,000

 
702,482

 

 

 
702,482

 

 
702,482

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

 

 

 

 
15,450

 
159

 
(15,450
)
 
(159
)
 

 

 

 Repurchases of common OP Units to settle tax obligation
 

 

 

 

 
(424,726
)
 
(4,148
)
 

 

 
(4,148
)
 

 
(4,148
)
 Equity-based compensation, net
 

 

 

 

 
708,701

 
7,097

 

 

 
7,097

 

 
7,097

 Contributions from non-controlling interest holders
 

 

 

 

 

 

 

 

 

 
675

 
675

 Distributions to Common OP Units and non-controlling interest holders
 

 

 

 

 

 
(383,219
)
 

 
(9,803
)
 
(393,022
)
 
(86
)
 
(393,108
)
 Distributions to Preferred OP Units
 

 
(53,811
)
 

 
(108
)
 

 

 

 

 
(53,919
)
 

 
(53,919
)
 Net loss
 

 

 

 

 

 
(80,445
)
 

 
(2,133
)
 
(82,578
)
 
(23
)
 
(82,601
)
 Other comprehensive loss
 

 

 

 

 

 
(2,662
)
 

 
(80
)
 
(2,742
)
 

 
(2,742
)
Balance, September 30, 2016
 
42,834,138


$
871,758


86,874


$
3,207


974,183,819


$
7,837,682


23,748,347


$
172,625


$
8,885,272


$
2,423


$
8,887,695


 
 
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
 

 

 

 

 
(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 interest holders
 

 

 

 

 

 
(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
 

 

 

 

 

 
(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



The accompanying notes are an integral part of these statements.


10

Table of Contents
VEREIT OPERATING PARTNERSHIP, L.P.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands) (Unaudited)

 
 
Nine Months Ended September 30,
 
 
2016
 
2015
Cash flows from operating activities:
 
 
 
 
Net loss
 
$
(82,601
)
 
$
(131,261
)
Adjustments to reconcile net loss to net cash provided by operating activities:
 
 
 
 
Depreciation and amortization
 
610,291

 
660,715

(Gain) loss on real estate assets and joint venture, net
 
(55,921
)
 
55,855

Impairments
 
176,214

 
85,341

Equity-based compensation
 
7,097

 
10,189

Equity in income of unconsolidated entities
 
(488
)
 
(1,611
)
Distributions from unconsolidated entities
 
3,007

 
9,578

Loss on derivative instruments
 
3,286

 
2,137

(Gain) on investment securities
 

 
(65
)
Loss (gain) on extinguishment and forgiveness of debt, net
 
1,751

 
(5,307
)
Changes in assets and liabilities:
 
 
 
 
Investment in direct financing leases
 
1,861

 
1,503

Rent and tenant receivables and other assets, net
 
(51,702
)
 
(59,509
)
Due from affiliates
 
50

 
19,141

Accounts payable and accrued expenses
 
(6,726
)
 
6,679

Deferred rent, derivative and other liabilities
 
(1,235
)
 
(24,939
)
Due to affiliates
 
(230
)
 
(318
)
Net cash provided by operating activities
 
604,654


628,128

Cash flows from investing activities:
 
 
 
 
Investments in real estate assets
 
(19,952
)
 
(10,207
)
Capital expenditures and leasing costs
 
(15,892
)
 
(10,880
)
Real estate developments
 
(6,288
)
 
(51,863
)
Principal repayments received from borrowers
 
4,906

 
6,043

Investments in unconsolidated entities
 
(2,500
)
 

Proceeds from disposition of real estate and joint venture
 
615,246

 
413,270

Investment in leasehold improvements and other assets
 
(726
)
 

Proceeds from sale of investments and other assets
 

 
229

Deposits for real estate assets
 
(11,686
)
 
(15,105
)
Uses and refunds of deposits for real estate assets
 
9,753

 
42,619

Line of credit advances to affiliates
 
(10,300
)
 
(10,000
)
Line of credit repayments from affiliates
 
50,000

 
10,000

Change in restricted cash
 
(5,674
)
 
10,488

Net cash provided by investing activities
 
606,887

 
384,594

Cash flows from financing activities:
 
 
 
 
Proceeds from mortgage notes payable
 
1,450