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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, 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 every Interactive Data File required to be submitted 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 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
o
 
 
 
 
 
 
 
 
 
Smaller reporting company
o
 
Emerging growth company
o
 
 
VEREIT Operating Partnership, L.P.
Large accelerated filer
o
 
Accelerated filer
o
 
Non-accelerated filer
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 967,505,575 shares of common stock of VEREIT, Inc. outstanding as of November 1, 2018.





EXPLANATORY NOTE

This report combines the Quarterly Reports on Form 10-Q for the three and nine months ended September 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 September 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
 
 
September 30, 2018
 
December 31, 2017
ASSETS
 
 
 
 
Real estate investments, at cost:
 
 
 
 
Land
 
$
2,847,393

 
$
2,865,855

Buildings, fixtures and improvements
 
10,652,578

 
10,711,845

Intangible lease assets
 
2,019,718

 
2,037,675

Total real estate investments, at cost
 
15,519,689

 
15,615,375

Less: accumulated depreciation and amortization
 
3,323,990

 
2,908,028

Total real estate investments, net
 
12,195,699

 
12,707,347

Investment in unconsolidated entities
 
34,293

 
39,520

Cash and cash equivalents
 
25,264

 
34,176

Restricted cash
 
27,449

 
27,662

Rent and tenant receivables and other assets, net
 
412,053

 
389,060

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
 
24,349

 
163,999

Total assets
 
$
14,056,880


$
14,705,578

 
 
 
 
 
LIABILITIES AND EQUITY
 
 
 
 
Mortgage notes payable, net
 
$
1,936,586

 
$
2,082,692

Corporate bonds, net
 
2,825,541

 
2,821,494

Convertible debt, net
 
393,961

 
984,258

Credit facility, net
 
793,000

 
185,000

Below-market lease liabilities, net
 
179,192

 
198,551

Accounts payable and accrued expenses
 
269,150

 
136,474

Deferred rent and other liabilities
 
51,663

 
62,985

Distributions payable
 
183,913

 
175,301

Due to affiliates
 

 
66

Liabilities related to discontinued operations
 

 
15,881

Total liabilities
 
6,633,006

 
6,662,702

Commitments and contingencies (Note 12)
 

 


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

 
428

Common stock, $0.01 par value, 1,500,000,000 shares authorized and 967,522,113 and 974,208,583 issued and outstanding as of September 30, 2018 and December 31, 2017, respectively
 
9,674

 
9,742

Additional paid-in-capital
 
12,612,407

 
12,654,258

Accumulated other comprehensive loss
 
(1,031
)
 
(3,569
)
Accumulated deficit
 
(5,343,368
)
 
(4,776,581
)
Total stockholders’ equity
 
7,278,110

 
7,884,278

Non-controlling interests
 
145,764

 
158,598

Total equity
 
7,423,874

 
8,042,876

Total liabilities and equity
 
$
14,056,880


$
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 September 30,
 
Nine Months Ended September 30,
 
 
2018
 
2017
 
2018
 
2017
Revenues:
 
 
 
 
 
 
 
 
Rental income
 
$
289,033

 
$
282,717

 
$
870,305

 
$
863,583

Operating expense reimbursements
 
24,833

 
23,826

 
74,299

 
72,103

Total revenues
 
313,866

 
306,543

 
944,604


935,686

Operating expenses:
 
 
 
 
 
 
 
 
Acquisition-related
 
810

 
909

 
2,496

 
2,282

Litigation and other non-routine costs, net of insurance recoveries
 
138,595

 
9,507

 
267,422

 
36,793

Property operating
 
31,893

 
30,645

 
93,894

 
96,288

General and administrative
 
15,186

 
13,221

 
46,713

 
40,329

Depreciation and amortization
 
157,181

 
172,383

 
487,568

 
531,543

Impairments
 
18,382

 
6,363

 
36,082

 
30,857

Total operating expenses
 
362,047

 
233,028

 
934,175


738,092

Operating (loss) income
 
(48,181
)
 
73,515

 
10,429


197,594

Other (expense) income:
 
 
 
 
 
 
 
 
Interest expense
 
(69,310
)
 
(71,708
)
 
(210,055
)
 
(219,072
)
Gain on extinguishment and forgiveness of debt, net
 
90

 
9,756

 
5,339

 
18,691

Other (loss) income, net
 
(1,016
)
 
1,131

 
7,635

 
4,253

Equity in income and gain on disposition of unconsolidated entities
 
252

 
374

 
1,644

 
805

Gain on derivative instruments, net
 
69

 
1,294

 
447

 
2,710

Gain (loss) on disposition of real estate and real estate assets held for sale, net
 
45,295

 
(688
)
 
68,451

 
54,432

Total other expenses, net
 
(24,620
)

(59,841
)

(126,539
)

(138,181
)
(Loss) income before taxes
 
(72,801
)

13,674


(116,110
)

59,413

Provision for income taxes
 
(1,141
)
 
(1,185
)
 
(3,487
)
 
(5,439
)
(Loss) income from continuing operations
 
(73,942
)
 
12,489

 
(119,597
)

53,974

Income from discontinued operations, net of income taxes
 

 
4,005

 
3,725

 
11,496

Net (loss) income
 
(73,942
)
 
16,494

 
(115,872
)
 
65,470

Net loss (income) attributable to non-controlling interests (1)
 
1,825

 
(400
)
 
2,880

 
(1,530
)
Net (loss) income attributable to the General Partner
 
$
(72,117
)
 
$
16,094

 
$
(112,992
)

$
63,940

 
 
 
 
 
 
 
 
 
Basic and diluted net (loss) income per share from continuing operations attributable to common stockholders
 
$
(0.09
)
 
$
(0.01
)
 
$
(0.18
)
 
$
(0.00
)
Basic and diluted net income per share from discontinued operations attributable to common stockholders
 
$

 
$
0.00

 
$
0.00

 
$
0.01

Basic and diluted net (loss) income per share attributable to common stockholders (2)
 
$
(0.09
)
 
$
(0.00
)
 
$
(0.17
)
 
$
0.01

_______________________________________________
(1)
Represents net loss (income) attributable to limited partners and consolidated joint venture partners.
(2)
Amounts may not total due to rounding.

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,
 
 
2018
 
2017
 
2018
 
2017
Net (loss) income
 
$
(73,942
)
 
$
16,494

 
$
(115,872
)
 
$
65,470

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

 
(214
)
 

 
(17
)
Reclassification of previous unrealized loss (gain) on interest rate derivatives into net income
 
53

 
(939
)
 
214

 
(229
)
Unrealized gain (loss) on investment securities, net
 
828

 
(283
)
 
(71
)
 
(547
)
Reclassification of previous unrealized loss on investment securities into net income as other income, net
 
2,457

 

 
2,457

 

Total other comprehensive income (loss)
 
3,338


(1,436
)

2,600


(793
)
 
 
 
 
 
 
 
 
 
Total comprehensive (loss) income
 
(70,604
)
 
15,058

 
(113,272
)
 
64,677

Comprehensive loss (income) attributable to non-controlling interests (1)
 
1,746

 
(365
)
 
2,818

 
(1,511
)
Total comprehensive (loss) income attributable to the General Partner
 
$
(68,858
)
 
$
14,693

 
$
(110,454
)
 
$
63,166

_______________________________________________
(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

Repurchases of common stock under Share Repurchase Program
 

 

 
(6,399,666
)
 
(64
)
 
(44,521
)
 

 

 
(44,585
)
 

 
(44,585
)
Repurchases of common stock to settle tax obligation
 

 

 
(230,436
)
 
(2
)
 
(1,658
)
 

 

 
(1,660
)
 

 
(1,660
)
Equity-based compensation, net
 

 

 
576,005

 
5

 
2,927

 

 

 
2,932

 

 
2,932

Distributions declared on common stock —
$0.1375 per common share
 

 

 

 

 

 

 
(133,615
)
 
(133,615
)
 

 
(133,615
)
Distributions to non-controlling interest holders
 

 

 

 

 

 

 

 

 
(3,264
)
 
(3,264
)
Distributions to participating securities
 

 

 

 

 

 

 
(11
)
 
(11
)
 

 
(11
)
Distributions to preferred shareholders and unitholders
 

 

 

 

 

 

 
(17,937
)
 
(17,937
)
 
(36
)
 
(17,973
)
Net income
 

 

 

 

 

 

 
31,795

 
31,795

 
742

 
32,537

Other comprehensive loss
 

 

 

 

 

 
(715
)
 

 
(715
)
 
(17
)
 
(732
)
Balance, March 31, 2018
 
42,834,138


$
428


968,154,486


$
9,681


$
12,611,006


$
(4,284
)

$
(4,896,349
)

$
7,720,482


$
156,023


$
7,876,505

Conversion of OP Units to common stock
 

 

 
32,439

 

 
241

 

 

 
241

 
(241
)
 

Repurchases of common stock under Share Repurchase Program
 

 

 
(807,210
)
 
(8
)
 
(5,561
)
 

 

 
(5,569
)
 

 
(5,569
)
Repurchases of common stock to settle tax obligation
 

 

 
(69,931
)
 
(1
)
 
(487
)
 

 

 
(488
)
 

 
(488
)
Equity-based compensation, net
 

 

 
184,011

 
2

 
3,946

 

 

 
3,948

 

 
3,948

Distributions declared on common stock —
$0.1375 per common share
 

 

 

 

 

 

 
(133,273
)
 
(133,273
)
 

 
(133,273
)
Distributions to non-controlling interest holders
 

 

 

 

 

 

 

 

 
(3,262
)
 
(3,262
)
Distributions to participating securities
 

 

 

 

 

 

 
(11
)
 
(11
)
 

 
(11
)
Distributions to preferred shareholders and unitholders
 

 

 

 

 

 

 
(17,937
)
 
(17,937
)
 
(36
)
 
(17,973
)
Net loss
 

 

 

 

 

 

 
(72,670
)
 
(72,670
)
 
(1,797
)
 
(74,467
)
Other comprehensive loss
 

 

 

 

 

 
(6
)
 

 
(6
)
 

 
(6
)
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

Repurchases of common stock to settle tax obligation
 

 

 
(7,597
)
 

 
(61
)
 

 

 
(61
)
 

 
(61
)
Equity-based compensation, net
 

 

 
35,915

 

 
3,323

 

 

 
3,323

 

 
3,323

Contributions from non-controlling interest holders
 

 

 

 

 

 

 

 

 
120

 
120

Distributions declared on common stock —
$0.1375 per common share
 

 

 

 

 

 

 
(133,063
)
 
(133,063
)
 

 
(133,063
)
Distributions to non-controlling interest holders
 

 

 

 

 

 

 

 

 
(3,261
)
 
(3,261
)
Distributions to participating securities
 

 

 

 

 

 

 
(11
)
 
(11
)
 

 
(11
)
Distributions to preferred shareholders and unitholders
 

 

 

 

 

 

 
(17,937
)
 
(17,937
)
 
(36
)
 
(17,973
)
Net loss
 

 

 

 

 

 

 
(72,117
)
 
(72,117
)
 
(1,825
)
 
(73,942
)
Other comprehensive income
 

 

 

 

 

 
3,259

 

 
3,259

 
79

 
3,338

Balance, September 30, 2018
 
42,834,138


$
428


967,522,113


$
9,674


$
12,612,407


$
(1,031
)

$
(5,343,368
)

$
7,278,110


$
145,764


$
7,423,874


5

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 Income
 
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 to settle tax obligation
 

 

 
(140,832
)
 
(1
)
 
(1,183
)
 

 

 
(1,184
)
 

 
(1,184
)
 Equity-based compensation, net forfeitures
 

 

 
232,640

 
2

 
3,111

 

 

 
3,113

 

 
3,113

 Distributions declared on common stock—
$0.1375 per share of common stock
 

 

 

 

 

 

 
(133,929
)
 
(133,929
)
 

 
(133,929
)
 Distributions to non-controlling interest holders
 

 

 

 

 

 

 

 

 
(3,326
)
 
(3,326
)
 Distributions to participating securities
 

 

 

 

 

 

 
(178
)
 
(178
)
 

 
(178
)
 Distributions to preferred shareholders
 

 

 

 

 

 

 
(17,937
)
 
(17,937
)
 
(36
)
 
(17,973
)
 Net income
 

 

 

 

 

 

 
14,438

 
14,438

 
352

 
14,790

 Other comprehensive income
 
 
 
 
 

 

 

 
761

 

 
761

 
19

 
780

Balance, March 31, 2017
 
42,834,138


$
428


974,238,458


$
9,742


$
12,642,099


$
(1,795
)

$
(4,338,029
)

$
8,312,445


$
169,181


$
8,481,626

Repurchases of common stock under Share Repurchase Program
 

 

 
(68,759
)
 
(1
)
 
(517
)
 

 

 
(518
)
 

 
(518
)
Repurchases of common stock to settle tax obligation
 

 

 
(81,279
)
 
(1
)
 
(721
)
 

 

 
(722
)
 

 
(722
)
Equity-based compensation, net forfeitures
 

 

 
161,782

 
2

 
4,448

 

 

 
4,450

 

 
4,450

 Distributions declared on common stock—
$0.1375 per share of common stock
 

 

 

 

 

 

 
(133,937
)
 
(133,937
)
 

 
(133,937
)
Distributions to non-controlling interest holders
 

 

 

 

 

 

 

 

 
(3,284
)
 
(3,284
)
Distributions to participating securities
 

 

 

 

 

 

 
(213
)
 
(213
)
 

 
(213
)
Distributions to preferred shareholders
 

 

 

 

 

 

 
(17,937
)
 
(17,937
)
 
(36
)
 
(17,973
)
Net income
 

 

 

 

 

 

 
33,408

 
33,408

 
778

 
34,186

Other comprehensive loss
 

 

 

 

 

 
(133
)
 

 
(133
)
 
(3
)
 
(136
)
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

Repurchases of common stock to settle tax obligation
 

 

 
(812
)
 

 
(7
)
 

 

 
(7
)
 

 
(7
)
Equity-based compensation, net forfeitures
 

 

 
(4,045
)
 

 
3,665

 

 

 
3,665

 

 
3,665

 Distributions declared on common stock—
$0.1375 per share of common stock
 

 

 

 

 

 

 
(133,939
)
 
(133,939
)
 

 
(133,939
)
Distributions to non-controlling interest holders
 

 

 

 

 

 

 

 

 
(3,270
)
 
(3,270
)
Distributions to participating securities
 

 

 

 

 

 

 
(43
)
 
(43
)
 

 
(43
)
Distributions to preferred shareholders
 

 

 

 

 

 

 
(17,937
)
 
(17,937
)
 
(36
)
 
(17,973
)
Net income
 

 

 

 

 

 

 
16,094

 
16,094

 
400

 
16,494

Other comprehensive loss
 

 

 

 

 

 
(1,401
)
 

 
(1,401
)
 
(35
)
 
(1,436
)
Balance, September 30, 2017
 
42,834,138


$
428


974,245,345


$
9,742


$
12,648,967


$
(3,329
)

$
(4,592,533
)

$
8,063,275


$
163,695


$
8,226,970


6

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

 
 
Nine Months Ended September 30,
 
 
2018
 
2017
Cash flows from operating activities:
 
 
 
 

Net (loss) income
 
$
(115,872
)
 
$
65,470

Adjustments to reconcile net (loss) income to net cash provided by operating activities:
 
 
 
 
Depreciation and amortization
 
503,529

 
562,673

Gain on real estate assets, net
 
(70,188
)
 
(54,432
)
Impairments
 
36,082

 
30,857

Equity-based compensation
 
10,203

 
11,224

Equity in income of unconsolidated entities and gain on joint venture
 
(1,644
)
 
(805
)
Distributions from unconsolidated entities
 
1,365

 
1,641

Gain on investments
 
(2,302
)
 
(65
)
Gain on derivative instruments, net
 
(447
)
 
(2,710
)
Gain on extinguishment and forgiveness of debt, net
 
(5,339
)
 
(18,691
)
Changes in assets and liabilities:
 
 
 
 
Investment in direct financing leases
 
1,524

 
1,575

Rent and tenant receivables and other assets, net
 
(28,520
)
 
(15,105
)
Assets held for sale classified as discontinued operations
 
(2,492
)
 

Accounts payable and accrued expenses
 
132,686

 
13,759

Deferred rent and other liabilities
 
(11,001
)
 
(27
)
Due to affiliates
 
(66
)
 
(8
)
Liabilities related to discontinued operations
 
(13,861
)
 

Net cash provided by operating activities
 
433,657

 
595,356

Cash flows from investing activities:
 
 
 
 
Investments in real estate assets
 
(278,385
)
 
(403,886
)
Capital expenditures and leasing costs
 
(13,116
)
 
(14,081
)
Real estate developments
 
(7,477
)
 
(10,863
)
Principal repayments received on investment securities and mortgage notes receivable
 
5,555

 
6,281

Return of investment from unconsolidated entities
 
48

 
1,141

Proceeds from disposition of real estate and joint venture
 
358,443

 
366,237

Proceeds from disposition of discontinued operations
 
123,925

 

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

Investment in leasehold improvements and other assets
 
(616
)
 
(446
)
Deposits for real estate assets
 
(11,957
)
 
(32,946
)
Proceeds from sale of investments and other assets
 
10,880

 

Uses and refunds of deposits for real estate assets
 
8,552

 
20,989

Proceeds from the settlement of property-related insurance claims
 
1,354

 
53

Line of credit advances to Cole REITs
 
(2,200
)
 
(400
)
Line of credit repayments from Cole REITs
 
3,800

 
10,700

Net cash provided by (used in) investing activities
 
197,796

 
(57,221
)
Cash flows from financing activities:
 
 
 
 
Proceeds from mortgage notes payable
 
182

 
4,283

 Payments on mortgage notes payable and other debt, including debt extinguishment costs
 
(125,418
)
 
(392,390
)
Proceeds from credit facility
 
1,558,000

 

Payments on credit facility
 
(950,000
)
 
(501,107
)
Proceeds from corporate bonds
 

 
600,000

Repayment of convertible notes
 
(597,500
)
 

Payments of deferred financing costs
 
(20,719
)
 
(9,313
)
Repurchases of common stock under the Share Repurchase Program
 
(50,154
)
 
(518
)
Repurchases of common stock to settle tax obligations
 
(2,209
)
 
(1,913
)
Contributions from non-controlling interest holders
 
120

 

Distributions paid
 
(455,078
)
 
(456,487
)
Net cash used in financing activities
 
(642,776
)
 
(757,445
)
Net change in cash and cash equivalents and restricted cash
 
(11,323
)
 
(219,310
)
 
 
 
 
 

7

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


 
 
Nine Months Ended September 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
 
52,713

 
82,160

Less: cash and cash equivalents of discontinued operations
 

 
(2,472
)
Cash and cash equivalents and restricted cash from continuing operations, end of period
 
$
52,713

 
$
79,688

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
 
25,264

 
51,891

Restricted cash at end of period
 
27,449

 
27,797

Cash and cash equivalents and restricted cash at end of period
 
$
52,713

 
$
79,688


The accompanying notes are an integral part of these statements.

8

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

 
 
September 30, 2018
 
December 31, 2017
ASSETS
 
 
 
 
Real estate investments, at cost:
 
 
 
 
Land
 
$
2,847,393

 
$
2,865,855

Buildings, fixtures and improvements
 
10,652,578

 
10,711,845

Intangible lease assets
 
2,019,718

 
2,037,675

Total real estate investments, at cost
 
15,519,689


15,615,375

Less: accumulated depreciation and amortization
 
3,323,990

 
2,908,028

Total real estate investments, net
 
12,195,699


12,707,347

Investment in unconsolidated entities
 
34,293

 
39,520

Cash and cash equivalents
 
25,264

 
34,176

Restricted cash
 
27,449

 
27,662

Rent and tenant receivables and other assets, net
 
412,053

 
389,060

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
 
24,349

 
163,999

Total assets
 
$
14,056,880


$
14,705,578

 
 
 
 
 
LIABILITIES AND EQUITY
 
 
 
 

Mortgage notes payable, net
 
$
1,936,586

 
$
2,082,692

Corporate bonds, net
 
2,825,541

 
2,821,494

Convertible debt, net
 
393,961

 
984,258

Credit facility, net
 
793,000

 
185,000

Below-market lease liabilities, net
 
179,192

 
198,551

Accounts payable and accrued expenses
 
269,150

 
136,474

Deferred rent and other liabilities
 
51,663

 
62,985

Distributions payable
 
183,913

 
175,301

Due to affiliates
 

 
66

Liabilities related to discontinued operations
 

 
15,881

Total liabilities
 
6,633,006


6,662,702

Commitments and contingencies (Note 12)
 


 


General Partner's preferred equity, 42,834,138 General Partner Preferred Units issued and outstanding as of each of September 30, 2018 and December 31, 2017
 
728,262

 
782,073

General Partner's common equity, 967,522,113 and 974,208,583 General Partner OP Units issued and outstanding as of September 30, 2018 and December 31, 2017, respectively
 
6,549,848

 
7,102,205

Limited Partner's preferred equity, 86,874 Limited Partner Preferred Units issued and outstanding as of each of September 30, 2018 and December 31, 2017
 
2,919

 
3,027

Limited Partner's common equity, 23,715,908 and 23,748,347 Limited Partner OP Units issued and outstanding as of September 30, 2018 and December 31, 2017, respectively
 
141,533

 
154,266

Total partners’ equity
 
7,422,562


8,041,571

Non-controlling interests
 
1,312

 
1,305

Total equity
 
7,423,874


8,042,876

Total liabilities and equity
 
$
14,056,880


$
14,705,578


The accompanying notes are an integral part of these statements.

9

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,
 
 
2018
 
2017
 
2018
 
2017
Revenues:
 
 
 
 
 
 
 
 
Rental income
 
$
289,033

 
$
282,717

 
$
870,305

 
$
863,583

Operating expense reimbursements
 
24,833

 
23,826

 
74,299

 
72,103

Total revenues
 
313,866


306,543


944,604


935,686

Operating expenses:
 
 
 
 
 
 
 
 
Acquisition-related
 
810

 
909

 
2,496

 
2,282

Litigation and other non-routine costs, net of insurance recoveries
 
138,595

 
9,507

 
267,422

 
36,793

Property operating
 
31,893

 
30,645

 
93,894

 
96,288

General and administrative
 
15,186

 
13,221

 
46,713

 
40,329

Depreciation and amortization
 
157,181

 
172,383

 
487,568

 
531,543

Impairments
 
18,382

 
6,363

 
36,082

 
30,857

Total operating expenses
 
362,047


233,028


934,175


738,092

Operating (loss) income
 
(48,181
)

73,515


10,429


197,594

Other (expense) income:
 
 
 
 
 
 
 
 
Interest expense
 
(69,310
)
 
(71,708
)
 
(210,055
)
 
(219,072
)
Gain on extinguishment and forgiveness of debt, net
 
90

 
9,756

 
5,339

 
18,691

Other (loss) income, net
 
(1,016
)
 
1,131

 
7,635

 
4,253

Equity in income and gain on disposition of unconsolidated entities
 
252

 
374

 
1,644

 
805

Gain on derivative instruments, net
 
69

 
1,294

 
447

 
2,710

Gain (loss) on disposition of real estate and real estate assets held for sale, net
 
45,295

 
(688
)
 
68,451

 
54,432

Total other expenses, net
 
(24,620
)

(59,841
)

(126,539
)

(138,181
)
(Loss) income before taxes
 
(72,801
)

13,674


(116,110
)

59,413

Provision for income taxes
 
(1,141
)
 
(1,185
)
 
(3,487
)
 
(5,439
)
(Loss) income from continuing operations
 
(73,942
)
 
12,489

 
(119,597
)
 
53,974

Income from discontinued operations, net of income taxes
 

 
4,005

 
3,725

 
11,496

Net (loss) income
 
(73,942
)

16,494


(115,872
)

65,470

Net loss (income) attributable to non-controlling interests (1)
 
57

 
(9
)
 
113

 
12

Net (loss) income attributable to the OP
 
$
(73,885
)

$
16,485


$
(115,759
)

$
65,482

 
 
 
 
 
 
 
 
 
Basic and diluted net (loss) income per unit from continuing operations attributable to common unitholders
 
$
(0.09
)
 
$
(0.01
)
 
$
(0.18
)
 
$
(0.00
)
Basic and diluted net income per unit from discontinued operations attributable to common unitholders
 
$

 
$
0.00

 
$
0.00

 
$
0.01

Basic and diluted net (loss) income per unit attributable to common unitholders (2)
 
$
(0.09
)
 
$
(0.00
)
 
$
(0.17
)
 
$
0.01

_______________________________________________
(1)
Represents net loss (income) attributable to consolidated joint venture partners.
(2)
Amounts may not total due to rounding.

The accompanying notes are an integral part of these statements.

10

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,
 
 
2018
 
2017
 
2018
 
2017
Net (loss) income
 
$
(73,942
)
 
$
16,494

 
$
(115,872
)
 
$
65,470

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

 
(214
)
 

 
(17
)
Reclassification of previous unrealized loss (gain) on interest rate derivatives into net income
 
53

 
(939
)
 
214

 
(229
)
Unrealized gain (loss) on investment securities, net
 
828

 
(283
)