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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 June 30, 2018
 
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, a smaller reporting company or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
VEREIT, Inc.
Large accelerated filer
x
 
Accelerated filer
o
 
Non-accelerated filer
(Do not check if a smaller reporting company)
o
 
 
 
 
 
 
 
 
 
Smaller reporting company
o
 
Emerging growth company
o
 
 
VEREIT Operating Partnership, L.P.
Large accelerated filer
o
 
Accelerated filer
o
 
Non-accelerated filer
(Do not check if a smaller reporting company)
x
 
 
 
 
 
 
 
 
 
Smaller reporting company
o
 
Emerging growth company
o
 
 
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards pursuant to Section 13(a) of the Exchange Act. VEREIT, Inc. ¨ VEREIT Operating Partnership, L.P. 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 967,493,795 shares of common stock of VEREIT, Inc. outstanding as of July 31, 2018.





EXPLANATORY NOTE

This report combines the Quarterly Reports on Form 10-Q for the three and six months ended June 30, 2018 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 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 or debt 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 disclosures in Item 4. Controls and Procedures and 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 June 30, 2018

 
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. Unaudited Financial Statements
 
 
June 30, 2018
 
December 31, 2017
ASSETS
 
 
 
 
Real estate investments, at cost:
 
 
 
 
Land
 
$
2,859,265

 
$
2,865,855

Buildings, fixtures and improvements
 
10,714,456

 
10,711,845

Intangible lease assets
 
2,024,014

 
2,037,675

Total real estate investments, at cost
 
15,597,735

 
15,615,375

Less: accumulated depreciation and amortization
 
3,206,336

 
2,908,028

Total real estate investments, net
 
12,391,399

 
12,707,347

Investment in unconsolidated entities
 
33,972

 
39,520

Investment in direct financing leases, net
 
16,560

 
19,539

Investment securities, at fair value
 
35,489

 
40,974

Mortgage notes receivable, net
 
19,855

 
20,294

Cash and cash equivalents
 
18,434

 
34,176

Restricted cash
 
27,078

 
27,662

Rent and tenant receivables and other assets, net
 
351,163

 
308,253

Goodwill
 
1,337,773

 
1,337,773

Due from affiliates, net
 

 
6,041

Assets related to real estate assets held for sale and discontinued operations, net
 
29,884

 
163,999

Total assets
 
$
14,261,607


$
14,705,578

 
 
 
 
 
LIABILITIES AND EQUITY
 
 
 
 
Mortgage notes payable, net
 
$
2,031,171

 
$
2,082,692

Corporate bonds, net
 
2,824,176

 
2,821,494

Convertible debt, net
 
989,901

 
984,258

Credit facility, net
 
195,000

 
185,000

Below-market lease liabilities, net
 
187,352

 
198,551

Accounts payable and accrued expenses
 
141,746

 
136,474

Deferred rent and other liabilities
 
66,123

 
62,985

Distributions payable
 
180,734

 
175,301

Due to affiliates
 

 
66

Liabilities related to discontinued operations
 

 
15,881

Total liabilities
 
6,616,203

 
6,662,702

Commitments and contingencies (Note 13)
 

 


Preferred stock, $0.01 par value, 100,000,000 shares authorized and 42,834,138 issued and outstanding as of each of June 30, 2018 and December 31, 2017
 
428

 
428

Common stock, $0.01 par value, 1,500,000,000 shares authorized and 967,493,795 and 974,208,583 issued and outstanding as of June 30, 2018 and December 31, 2017, respectively
 
9,674

 
9,742

Additional paid-in-capital
 
12,609,145

 
12,654,258

Accumulated other comprehensive loss
 
(4,290
)
 
(3,569
)
Accumulated deficit
 
(5,120,240
)
 
(4,776,581
)
Total stockholders’ equity
 
7,494,717

 
7,884,278

Non-controlling interests
 
150,687

 
158,598

Total equity
 
7,645,404

 
8,042,876

Total liabilities and equity
 
$
14,261,607


$
14,705,578


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 June 30,
 
Six Months Ended June 30,
 
 
2018
 
2017
 
2018
 
2017
Revenues:
 
 
 
 
 
 
 
 
Rental income
 
$
290,641

 
$
286,694

 
$
581,272

 
$
580,866

Operating expense reimbursements
 
25,023

 
21,551

 
49,466

 
48,277

Total revenues
 
315,664

 
308,245

 
630,738


629,143

Operating expenses:
 
 
 
 
 
 
 
 
Acquisition-related
 
909

 
756

 
1,686

 
1,373

Litigation and other non-routine costs, net of insurance recoveries
 
107,087

 
14,411

 
128,827

 
27,286

Property operating
 
31,436

 
31,627

 
62,001

 
65,643

General and administrative
 
16,287

 
14,429

 
31,527

 
27,108

Depreciation and amortization
 
164,235

 
180,148

 
330,387

 
359,160

Impairments
 
11,664

 
17,769

 
17,700

 
24,494

Total operating expenses
 
331,618

 
259,140

 
572,128


505,064

Operating (loss) income
 
(15,954
)
 
49,105

 
58,610


124,079

Other (expense) income:
 
 
 
 
 
 
 
 
Interest expense
 
(70,320
)
 
(73,621
)
 
(140,745
)
 
(147,364
)
Gain on extinguishment and forgiveness of debt, net
 
5,249

 
9,005

 
5,249

 
8,935

Other income, net
 
1,215

 
2,463

 
8,651

 
3,122

Equity in income and gain on disposition of unconsolidated entities
 
327

 
513

 
1,392

 
431

Gain on derivative instruments, net
 
105

 
592

 
378

 
1,416

Total other expenses, net
 
(63,424
)
 
(61,048
)
 
(125,075
)

(133,460
)
Loss before taxes and real estate dispositions
 
(79,378
)
 
(11,943
)
 
(66,465
)

(9,381
)
Gain on disposition of real estate and real estate assets held for sale, net
 
5,821

 
42,639

 
23,156

 
55,120

(Loss) income before taxes
 
(73,557
)
 
30,696

 
(43,309
)

45,739

Provision for income taxes
 
(1,134
)
 
(1,146
)
 
(2,346
)
 
(4,254
)
(Loss) income from continuing operations
 
(74,691
)
 
29,550

 
(45,655
)

41,485

Income from discontinued operations, net of income taxes
 
224

 
4,636

 
3,725

 
7,491

Net (loss) income
 
(74,467
)
 
34,186

 
(41,930
)
 
48,976

Net loss (income) attributable to non-controlling interests (1)
 
1,797

 
(778
)
 
1,055

 
(1,130
)
Net (loss) income attributable to the General Partner
 
$
(72,670
)
 
$
33,408

 
$
(40,875
)

$
47,846

 
 
 
 
 
 
 
 
 
Basic and diluted net (loss) income per share from continuing operations attributable to common stockholders
 
$
(0.09
)
 
$
0.01

 
$
(0.08
)
 
$
0.01

Basic and diluted net income per share from discontinued operations attributable to common stockholders
 
$
0.00

 
$
0.01

 
$
0.00

 
$
0.01

Basic and diluted net (loss) income per share attributable to common stockholders
 
$
(0.09
)
 
$
0.02

 
$
(0.08
)
 
$
0.01

Distributions declared per common share
 
$
0.1375

 
$
0.1375

 
$
0.2750

 
$
0.2750

_______________________________________________
(1)
Represents net loss (income) 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 June 30,
 
Six Months Ended June 30,
 
 
2018
 
2017
 
2018
 
2017
Net (loss) income
 
$
(74,467
)
 
$
34,186

 
$
(41,930
)
 
$
48,976

Other comprehensive (loss) income:
 
 
 
 
 
 
 
 
Unrealized (loss) gain on interest rate derivatives
 

 
(307
)
 

 
197

Reclassification of previous unrealized loss on interest rate derivatives into net income
 
56

 
240

 
161

 
710

Unrealized loss on investment securities, net
 
(62
)
 
(69
)
 
(899
)
 
(263
)
Total other comprehensive (loss) income
 
(6
)

(136
)

(738
)

644

 
 
 
 
 
 
 
 
 
Total comprehensive (loss) income
 
(74,473
)
 
34,050

 
(42,668
)
 
49,620

Comprehensive loss (income) attributable to non-controlling interests (1)
 
1,797

 
(775
)
 
1,072

 
(1,146
)
Total comprehensive (loss) income attributable to the General Partner
 
$
(72,676
)
 
$
33,275

 
$
(41,596
)
 
$
48,474

_______________________________________________
(1)
Represents comprehensive loss (income) 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, 2018
 
42,834,138

 
$
428

 
974,208,583

 
$
9,742

 
$
12,654,258

 
$
(3,569
)
 
$
(4,776,581
)
 
$
7,884,278

 
$
158,598

 
$
8,042,876

Conversion of OP Units to common stock
 

 

 
32,439

 

 
241

 

 

 
241

 
(241
)
 

Repurchases of common stock under Share Repurchase Programs
 

 

 
(7,206,876
)
 
(72
)
 
(50,082
)
 

 

 
(50,154
)
 

 
(50,154
)
Repurchases of common stock to settle tax obligation
 

 

 
(300,367
)
 
(3
)
 
(2,145
)
 

 

 
(2,148
)
 

 
(2,148
)
Equity-based compensation, net
 

 

 
760,016

 
7

 
6,873

 

 

 
6,880

 

 
6,880

Distributions declared on common stock
 

 

 

 

 

 

 
(266,888
)
 
(266,888
)
 

 
(266,888
)
Distributions to non-controlling interest holders
 

 

 

 

 

 

 

 

 
(6,526
)
 
(6,526
)
Distributions to participating securities
 

 

 

 

 

 

 
(22
)
 
(22
)
 

 
(22
)
Distributions to preferred shareholders and unitholders
 

 

 

 

 

 

 
(35,874
)
 
(35,874
)
 
(72
)
 
(35,946
)
Net loss
 

 

 

 

 

 

 
(40,875
)
 
(40,875
)
 
(1,055
)
 
(41,930
)
Other comprehensive loss
 

 

 

 

 

 
(721
)
 

 
(721
)
 
(17
)
 
(738
)
Balance, June 30, 2018
 
42,834,138


$
428


967,493,795


$
9,674


$
12,609,145


$
(4,290
)

$
(5,120,240
)

$
7,494,717


$
150,687


$
7,645,404

 
 
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, 2017
 
42,834,138

 
$
428

 
974,146,650

 
$
9,741

 
$
12,640,171

 
$
(2,556
)
 
$
(4,200,423
)
 
$
8,447,361

 
$
172,172

 
$
8,619,533

Repurchases of common stock under 2017 Share Repurchase Program
 

 

 
(68,759
)
 
(1
)
 
(517
)
 

 

 
(518
)
 

 
(518
)
 Repurchases of common stock to settle tax obligation
 

 

 
(222,111
)
 
(2
)
 
(1,904
)
 

 

 
(1,906
)
 

 
(1,906
)
 Equity-based compensation, net
 

 

 
394,422

 
4

 
7,559

 

 

 
7,563

 

 
7,563

 Distributions declared on common stock
 

 

 

 

 

 

 
(267,866
)
 
(267,866
)
 

 
(267,866
)
 Distributions to non-controlling interest holders
 

 

 

 

 

 

 

 

 
(6,610
)
 
(6,610
)
 Distributions to participating securities
 

 

 

 

 

 

 
(391
)
 
(391
)
 

 
(391
)
 Distributions to preferred shareholders and unitholders
 

 

 

 

 

 

 
(35,874
)
 
(35,874
)
 
(72
)
 
(35,946
)
 Net income
 

 

 

 

 

 

 
47,846

 
47,846

 
1,130

 
48,976

 Other comprehensive income
 

 

 

 

 

 
628

 

 
628

 
16

 
644

Balance, June 30, 2017
 
42,834,138

 
$
428

 
974,250,202

 
$
9,742

 
$
12,645,309

 
$
(1,928
)
 
$
(4,456,708
)
 
$
8,196,843

 
$
166,636

 
$
8,363,479


The accompanying notes are an integral part of these statements.

5

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

 
 
Six Months Ended June 30,
 
 
2018
 
2017
Cash flows from operating activities:
 
 
 
 

Net (loss) income
 
$
(41,930
)
 
$
48,976

Adjustments to reconcile net (loss) income to net cash provided by operating activities:
 
 
 
 
Depreciation and amortization
 
342,316

 
380,416

Gain on real estate assets and joint venture, net
 
(23,857
)
 
(55,120
)
Impairments
 
17,700

 
24,494

Equity-based compensation
 
6,880

 
7,559

Equity in income of unconsolidated entities
 
(691
)
 
(431
)
Distributions from unconsolidated entities
 
1,328

 
1,129

Gain on investments
 
(5,638
)
 
(65
)
Gain on derivative instruments, net
 
(378
)
 
(1,416
)
Gain on extinguishment and forgiveness of debt, net
 
(5,249
)
 
(8,935
)
Changes in assets and liabilities:
 
 
 
 
Investment in direct financing leases
 
1,041

 
1,085

Rent and tenant receivables and other assets, net
 
(23,561
)
 
(26,116
)
Assets held for sale classified as discontinued operations
 
(2,492
)
 

Accounts payable and accrued expenses
 
4,240

 
9,106

Deferred rent, derivative and other liabilities
 
3,781

 
5,010

Due to affiliates
 
(66
)
 
73

Liabilities related to discontinued operations
 
(13,861
)
 

Net cash provided by operating activities
 
259,563

 
385,765

Cash flows from investing activities:
 
 
 
 
Investments in real estate assets
 
(179,198
)
 
(154,371
)
Capital expenditures and leasing costs
 
(7,735
)
 
(9,887
)
Real estate developments
 
(4,609
)
 
(6,841
)
Principal repayments received on investment securities and mortgage notes receivable
 
5,045

 
5,781

Return of investment from unconsolidated entities
 
85

 
449

Proceeds from disposition of real estate and joint venture
 
180,723

 
301,320

Proceeds from disposition of discontinued operations
 
123,925

 

Payments related to disposition of discontinued operations
 
(1,010
)
 

Investment in leasehold improvements and other assets
 
(359
)
 
(192
)
Deposits for real estate assets
 
(6,648
)
 
(25,827
)
Proceeds from sale of investments and other assets
 
1,351

 

Uses and refunds of deposits for real estate assets
 
7,070

 
20,201

Proceeds from the settlement of property-related insurance claims
 
747

 
44

Line of credit advances to Cole REITs
 
(2,200
)
 

Line of credit repayments from Cole REITs
 
3,800

 
6,250

Net cash provided by investing activities
 
120,987

 
136,927

Cash flows from financing activities:
 
 
 
 
Proceeds from mortgage notes payable
 
128

 
3,091

 Payments on mortgage notes payable and other debt, including debt extinguishment costs
 
(32,373
)
 
(187,090
)
Proceeds from credit facility
 
675,000

 

Payments on credit facility
 
(665,000
)
 

Payments of deferred financing costs
 
(20,578
)
 
(16
)
Repurchases of common stock under the Share Repurchase Program
 
(50,154
)
 
(518
)
Repurchases of common stock to settle tax obligations
 
(2,148
)
 
(1,698
)
Distributions paid
 
(303,949
)
 
(304,438
)
Net cash used in financing activities
 
(399,074
)
 
(490,669
)
Net change in cash and cash equivalents and restricted cash
 
(18,524
)
 
32,023

 
 
 
 
 

6

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


 
 
Six Months Ended June 30,
 
 
2018
 
2017
Cash and cash equivalents and restricted cash, beginning of period
 
64,036

 
301,470

Less: cash and cash equivalents of discontinued operations
 
(2,198
)
 
(2,973
)
Cash and cash equivalents and restricted cash from continuing operations, beginning of period
 
61,838

 
298,497

 
 
 
 
 
Cash and cash equivalents, and restricted cash, end of period
 
45,512

 
333,493

Less: cash and cash equivalents of discontinued operations
 

 
(2,538
)
Cash and cash equivalents and restricted cash from continuing operations, end of period
 
$
45,512

 
$
330,955

Reconciliation of Cash and Cash Equivalents and Restricted Cash
 
 
 
 
Cash and cash equivalents at beginning of period
 
$
34,176

 
$
253,479

Restricted cash at beginning of period
 
27,662

 
45,018

Cash and cash equivalents and restricted cash at beginning of period
 
61,838

 
298,497

 
 
 
 
 
Cash and cash equivalents at end of period
 
18,434

 
289,960

Restricted cash at end of period
 
27,078

 
40,995

Cash and cash equivalents and restricted cash at end of period
 
$
45,512

 
$
330,955


The accompanying notes are an integral part of these statements.

7

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

 
 
June 30, 2018
 
December 31, 2017
ASSETS
 
 
 
 
Real estate investments, at cost:
 
 
 
 
Land
 
$
2,859,265

 
$
2,865,855

Buildings, fixtures and improvements
 
10,714,456

 
10,711,845

Intangible lease assets
 
2,024,014

 
2,037,675

Total real estate investments, at cost
 
15,597,735


15,615,375

Less: accumulated depreciation and amortization
 
3,206,336

 
2,908,028

Total real estate investments, net
 
12,391,399


12,707,347

Investment in unconsolidated entities
 
33,972

 
39,520

Investment in direct financing leases, net
 
16,560

 
19,539

Investment securities, at fair value
 
35,489

 
40,974

Mortgage notes receivable, net
 
19,855

 
20,294

Cash and cash equivalents
 
18,434

 
34,176

Restricted cash
 
27,078

 
27,662

Rent and tenant receivables and other assets, net
 
351,163

 
308,253

Goodwill
 
1,337,773

 
1,337,773

Due from affiliates, net
 

 
6,041

Assets related to real estate assets held for sale and discontinued operations, net
 
29,884

 
163,999

Total assets
 
$
14,261,607


$
14,705,578

 
 
 
 
 
LIABILITIES AND EQUITY
 
 
 
 

Mortgage notes payable, net
 
$
2,031,171

 
$
2,082,692

Corporate bonds, net
 
2,824,176

 
2,821,494

Convertible debt, net
 
989,901

 
984,258

Credit facility, net
 
195,000

 
185,000

Below-market lease liabilities, net
 
187,352

 
198,551

Accounts payable and accrued expenses
 
141,746

 
136,474

Deferred rent and other liabilities
 
66,123

 
62,985

Distributions payable
 
180,734

 
175,301

Due to affiliates
 

 
66

Liabilities related to discontinued operations
 

 
15,881

Total liabilities
 
6,616,203


6,662,702

Commitments and contingencies (Note 13)
 


 


General Partner's preferred equity, 42,834,138 General Partner Preferred Units issued and outstanding as of each of June 30, 2018 and December 31, 2017
 
746,199

 
782,073

General Partner's common equity, 967,493,795 and 974,208,583 General Partner OP Units issued and outstanding as of June 30, 2018 and December 31, 2017, respectively
 
6,748,518

 
7,102,205

Limited Partner's preferred equity, 86,874 Limited Partner Preferred Units issued and outstanding as of each of June 30, 2018 and December 31, 2017
 
2,955

 
3,027

Limited Partner's common equity, 23,715,908 and 23,748,347 Limited Partner OP Units issued and outstanding as of June 30, 2018 and December 31, 2017, respectively
 
146,483

 
154,266

Total partners’ equity
 
7,644,155


8,041,571

Non-controlling interests
 
1,249

 
1,305

Total equity
 
7,645,404


8,042,876

Total liabilities and equity
 
$
14,261,607


$
14,705,578


The accompanying notes are an integral part of these statements.

8

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

 
 
Three Months Ended June 30,
 
Six Months Ended June 30,
 
 
2018
 
2017
 
2018
 
2017
Revenues:
 
 
 
 
 
 
 
 
Rental income
 
$
290,641

 
$
286,694

 
$
581,272

 
$
580,866

Operating expense reimbursements
 
25,023

 
21,551

 
49,466

 
48,277

Total revenues
 
315,664


308,245


630,738


629,143

Operating expenses:
 
 
 
 
 
 
 
 
Acquisition-related
 
909

 
756

 
1,686

 
1,373

Litigation and other non-routine costs, net of insurance recoveries
 
107,087

 
14,411

 
128,827

 
27,286

Property operating
 
31,436

 
31,627

 
62,001

 
65,643

General and administrative
 
16,287

 
14,429

 
31,527

 
27,108

Depreciation and amortization
 
164,235

 
180,148

 
330,387

 
359,160

Impairments
 
11,664

 
17,769

 
17,700

 
24,494

Total operating expenses
 
331,618


259,140


572,128


505,064

Operating (loss) income
 
(15,954
)

49,105


58,610


124,079

Other (expense) income:
 
 
 
 
 
 
 
 
Interest expense
 
(70,320
)
 
(73,621
)
 
(140,745
)
 
(147,364
)
Gain on extinguishment and forgiveness of debt, net
 
5,249

 
9,005

 
5,249

 
8,935

Other income, net
 
1,215

 
2,463

 
8,651

 
3,122

Equity in income and gain on disposition of unconsolidated entities
 
327

 
513

 
1,392

 
431

Gain on derivative instruments, net
 
105

 
592

 
378

 
1,416

Total other expenses, net
 
(63,424
)

(61,048
)

(125,075
)

(133,460
)
Loss before taxes and real estate dispositions
 
(79,378
)

(11,943
)

(66,465
)

(9,381
)
Gain on disposition of real estate and real estate assets held for sale, net
 
5,821

 
42,639

 
23,156

 
55,120

(Loss) income before taxes
 
(73,557
)

30,696


(43,309
)
 
45,739

Provision for income taxes
 
(1,134
)
 
(1,146
)
 
(2,346
)
 
(4,254
)
(Loss) income from continuing operations
 
(74,691
)
 
29,550

 
(45,655
)
 
41,485

Income from discontinued operations, net of income taxes
 
224

 
4,636

 
3,725

 
7,491

Net (loss) income
 
(74,467
)

34,186


(41,930
)

48,976

Net loss attributable to non-controlling interests (1)
 
16

 
14

 
56

 
21

Net (loss) income attributable to the OP
 
$
(74,451
)

$
34,200


$
(41,874
)

$
48,997

 
 
 
 
 
 
 
 
 
Basic and diluted net (loss) income per unit from continuing operations attributable to common unitholders
 
$
(0.09
)
 
$
0.01

 
$
(0.08
)
 
$
0.01

Basic and diluted net income per unit from discontinued operations attributable to common unitholders
 
$
0.00

 
$
0.01

 
$
0.00

 
$
0.01

Basic and diluted net (loss) income per unit attributable to common unitholders
 
$
(0.09
)
 
$
0.02

 
$
(0.08
)
 
$
0.01

Distributions declared per common unit
 
$
0.1375

 
$
0.1375

 
$
0.2750

 
$
0.2750

_______________________________________________
(1)
Represents net 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 COMPREHENSIVE INCOME (LOSS)
(In thousands) (Unaudited)

 
 
Three Months Ended June 30,
 
Six Months Ended June 30,
 
 
2018
 
2017
 
2018
 
2017
Net (loss) income
 
$
(74,467
)
 
$
34,186

 
$
(41,930
)
 
$
48,976

Other comprehensive (loss) income:
 
 
 
 
 
 
 
 
Unrealized (loss) gain on interest rate derivatives
 

 
(307
)
 

 
197

Reclassification of previous unrealized loss on interest rate derivatives into net income
 
56

 
240

 
161

 
710

Unrealized loss on investment securities, net
 
(62
)
 
(69
)
 
(899
)
 
(263
)
Total other comprehensive (loss) income
 
(6
)

(136
)

(738
)

644

 
 
 
 
 
 
 
 
 
Total comprehensive (loss) income
 
(74,473
)
 
34,050


(42,668
)

49,620

Comprehensive loss attributable to non-controlling interests (1)
 
16

 
14

 
56

 
21

Total comprehensive (loss) income attributable to the OP
 
$
(74,457
)
 
$
34,064


$
(42,612
)

$
49,641

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

The accompanying notes are an integral part of these statements.


10

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, 2018
 
42,834,138

 
$
782,073

 
86,874

 
$
3,027

 
974,208,583

 
$
7,102,205

 
23,748,347

 
$
154,266

 
$
8,041,571

 
$
1,305

 
$
8,042,876

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

 

 

 

 
32,439

 
241

 
(32,439
)
 
(241
)
 

 

 

Repurchases of common stock under Share Repurchase Programs
 

 

 

 

 
(7,206,876
)
 
(50,154
)
 

 

 
(50,154
)
 

 
(50,154
)
 Repurchases of common OP units to settle tax obligation
 

 

 

 

 
(300,367
)
 
(2,148
)
 

 

 
(2,148
)
 

 
(2,148
)
 Equity-based compensation, net forfeitures
 

 

 

 

 
760,016

 
6,880

 

 

 
6,880

 

 
6,880

 Distributions to Common OP Units and non-controlling interests
 

 

 

 

 

 
(266,910
)
 

 
(6,526
)
 
(273,436
)
 

 
(273,436
)
 Distributions to Preferred OP Units
 

 
(35,874
)
 

 
(72
)
 

 

 

 

 
(35,946
)
 

 
(35,946
)
 Net loss
 

 

 

 

 

 
(40,875
)
 

 
(999
)
 
(41,874
)
 
(56
)
 
(41,930
)
 Other comprehensive loss
 

 

 

 

 

 
(721
)
 

 
(17
)
 
(738
)
 

 
(738
)
Balance, June 30, 2018
 
42,834,138


$
746,199


86,874


$
2,955


967,493,795


$
6,748,518


23,715,908


$
146,483


$
7,644,155


$
1,249


$
7,645,404

 
 
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, 2017
 
42,834,138

 
$
853,821

 
86,874

 
$
3,171

 
974,146,650

 
$
7,593,540

 
23,748,347

 
$
166,598

 
$
8,617,130

 
$
2,403

 
$
8,619,533

Repurchases of common stock under 2017 Share Repurchase Program
 

 

 

 

 
(68,759
)
 
(518
)
 

 

 
(518
)
 

 
(518
)
 Repurchases of common OP units to settle tax obligation
 

 

 

 

 
(222,111
)
 
(1,906
)
 

 

 
(1,906
)
 

 
(1,906
)
 Equity-based compensation, net
 

 

 

 

 
394,422

 
7,563

 

 

 
7,563

 

 
7,563

 Distributions to Common OP Units and non-controlling interests holders
 

 

 

 

 

 
(268,257
)
 

 
(6,531
)
 
(274,788
)
 
(79
)
 
(274,867
)
 Distributions to Preferred OP Units
 

 
(35,874
)
 

 
(72
)
 

 

 

 

 
(35,946
)
 

 
(35,946
)
 Net income
 

 

 

 

 

 
47,846

 

 
1,151

 
48,997

 
(21
)
 
48,976

 Other comprehensive income
 

 

 

 

 

 
628

 

 
16

 
644

 

 
644

Balance, June 30, 2017
 
42,834,138

 
$
817,947

 
86,874

 
$
3,099

 
974,250,202

 
$
7,378,896

 
23,748,347

 
$
161,234

 
$
8,361,176

 
$
2,303

 
$
8,363,479


The accompanying notes are an integral part of these statements.

11

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

 
 
Six Months Ended June 30,
 
 
2018
 
2017
Cash flows from operating activities:
 
 
 
 
Net (loss) income
 
$
(41,930
)
 
$
48,976

Adjustments to reconcile net income to net cash provided by operating activities:
 
 
 
 
Depreciation and amortization
 
342,316

 
380,416

Gain on real estate assets and joint venture, net
 
(23,857
)
 
(55,120
)
Impairments
 
17,700

 
24,494

Equity-based compensation
 
6,880

 
7,559

Equity in income of unconsolidated entities
 
(691
)
 
(431
)
Distributions from unconsolidated entities
 
1,328

 
1,129

Gain on investments
 
(5,638
)
 
(65
)
Gain on derivative instruments, net
 
(378
)
 
(1,416
)
Gain on extinguishment and forgiveness of debt, net
 
(5,249
)
 
(8,935
)
Changes in assets and liabilities:
 
 
 
 
Investment in direct financing leases
 
1,041

 
1,085

Rent and tenant receivables and other assets, net
 
(23,561
)
 
(26,116
)
Assets held for sale classified as discontinued operations
 
(2,492
)
 

Accounts payable and accrued expenses
 
4,240

 
9,106

Deferred rent, derivative and other liabilities
 
3,781

 
5,010

Due to affiliates
 
(66
)
 
73

Liabilities related to discontinued operations
 
(13,861
)
 

Net cash provided by operating activities
 
259,563


385,765

Cash flows from investing activities:
 
 
 
 
Investments in real estate assets
 
(179,198
)
 
(154,371
)
Capital expenditures and leasing costs
 
(7,735
)
 
(9,887
)
Real estate developments
 
(4,609
)
 
(6,841
)
Principal repayments received on investment securities and mortgage notes receivable
 
5,045

 
5,781

Return of investment from unconsolidated entities
 
85

 
449

Proceeds from disposition of real estate and joint venture
 
180,723

 
301,320

Proceeds from disposition of discontinued operations
 
123,925

 

Payments related to disposition of discontinued operations
 
(1,010
)
 

Investment in leasehold improvements and other assets
 
(359
)
 
(192
)
Deposits for real estate assets
 
(6,648
)
 
(25,827
)
Proceeds from sale of investments and other assets
 
1,351

 

Uses and refunds of deposits for real estate assets
 
7,070

 
20,201

Proceeds from the settlement of property-related insurance claims