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EX-32.4 - EXHIBIT 32.4 - VEREIT, Inc.vereit6302017-ex324.htm
EX-32.3 - EXHIBIT 32.3 - VEREIT, Inc.vereit6302017-ex323.htm
EX-32.2 - EXHIBIT 32.2 - VEREIT, Inc.vereit6302017-ex322.htm
EX-32.1 - EXHIBIT 32.1 - VEREIT, Inc.vereit6302017-ex321.htm
EX-31.4 - EXHIBIT 31.4 - VEREIT, Inc.vereit6302017-ex314.htm
EX-31.3 - EXHIBIT 31.3 - VEREIT, Inc.vereit6302017-ex313.htm
EX-31.2 - EXHIBIT 31.2 - VEREIT, Inc.vereit6302017-ex312.htm
EX-31.1 - EXHIBIT 31.1 - VEREIT, Inc.vereit6302017-ex311.htm
EX-12.1 - EXHIBIT 12.1 - VEREIT, Inc.vereit63017ex121.htm
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, 2017
 
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. ¨
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 974,249,180 shares of common stock of VEREIT, Inc. outstanding as of July 31, 2017.




EXPLANATORY NOTE

This report combines the Quarterly Reports on Form 10-Q for the three and six months ended June 30, 2017 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 June 30, 2017

 
Page

1

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

PART I — FINANCIAL INFORMATION
Item 1. Financial Statements.
 
 
June 30, 2017
 
December 31, 2016
ASSETS
 
 
 
 
Real estate investments, at cost:
 
 
 
 
Land
 
$
2,858,662

 
$
2,895,625

Buildings, fixtures and improvements
 
10,496,710

 
10,644,296

Intangible lease assets
 
2,000,292

 
2,044,521

Total real estate investments, at cost
 
15,355,664

 
15,584,442

Less: accumulated depreciation and amortization
 
2,623,050

 
2,331,643

Total real estate investments, net
 
12,732,614

 
13,252,799

Investment in unconsolidated entities
 
44,931

 
46,077

Investment in direct financing leases, net
 
33,892

 
39,455

Investment securities, at fair value
 
42,250

 
47,215

Mortgage notes receivable, net
 
20,722

 
22,764

Cash and cash equivalents
 
292,498

 
256,452

Restricted cash
 
40,995

 
45,018

Intangible assets, net
 
16,319

 
24,609

Rent and tenant receivables and other assets, net
 
349,013

 
330,705

Goodwill
 
1,462,585

 
1,462,203

Due from affiliates
 
8,085

 
21,349

Real estate assets held for sale, net
 
4,136

 
38,928

Total assets
 
$
15,048,040


$
15,587,574

 
 
 
 
 
LIABILITIES AND EQUITY
 
 
 
 
Mortgage notes payable and other debt, net
 
$
2,381,031

 
$
2,671,106

Corporate bonds, net
 
2,228,422

 
2,226,224

Convertible debt, net
 
978,738

 
973,340

Credit facility, net
 
497,718

 
496,578

Below-market lease liabilities, net
 
209,566

 
224,023

Accounts payable and accrued expenses
 
149,309

 
146,137

Deferred rent, derivative and other liabilities
 
70,735

 
68,039

Distributions payable
 
168,953

 
162,578

Due to affiliates
 
89

 
16

Total liabilities
 
6,684,561

 
6,968,041

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 June 30, 2017 and December 31, 2016
 
428

 
428

Common stock, $0.01 par value, 1,500,000,000 shares authorized and 974,250,202 and 974,146,650 issued and outstanding as of June 30, 2017 and December 31, 2016, respectively
 
9,742

 
9,741

Additional paid-in-capital
 
12,645,309

 
12,640,171

Accumulated other comprehensive loss
 
(1,928
)
 
(2,556
)
Accumulated deficit
 
(4,456,708
)
 
(4,200,423
)
Total stockholders’ equity
 
8,196,843

 
8,447,361

Non-controlling interests
 
166,636

 
172,172

Total equity
 
8,363,479

 
8,619,533

Total liabilities and equity
 
$
15,048,040


$
15,587,574


The accompanying notes are an integral part of these statements.

2

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

 
 
Three Months Ended June 30,
 
Six Months Ended June 30,
 
 
2017
 
2016
 
2017
 
2016
Revenues:
 
 
 
 
 
 
 
 
Rental income
 
$
286,291

 
$
311,352

 
$
580,030

 
$
625,323

Direct financing lease income
 
403

 
535

 
836

 
1,104

Operating expense reimbursements
 
21,551

 
26,646

 
48,277

 
49,893

Cole Capital revenue
 
28,685

 
32,486

 
55,816

 
63,719

Total revenues
 
336,930


371,019

 
684,959


740,039

Operating expenses:
 
 
 
 
 
 
 
 
Cole Capital reallowed fees and commissions
 
2,874

 
6,975

 
5,534

 
15,043

Acquisition-related 
 
756

 
41

 
1,373

 
283

Litigation and other non-routine costs, net of insurance recoveries
 
14,411

 
2,917

 
27,286

 
(2,258
)
Property operating
 
31,627

 
38,199

 
65,643

 
73,012

General and administrative
 
29,411

 
33,094

 
58,559

 
62,494

Depreciation and amortization
 
184,288

 
197,345

 
367,440

 
401,653

Impairments
 
17,769

 
8,825

 
24,494

 
169,342

Total operating expenses
 
281,136


287,396

 
550,329


719,569

Operating income
 
55,794


83,623

 
134,630


20,470

Other (expense) income:
 
 
 
 
 
 
 
 
Interest expense
 
(73,621
)
 
(82,468
)
 
(147,364
)
 
(162,894
)
Gain on extinguishment and forgiveness of debt, net
 
9,005

 
252

 
8,935

 
252

Other income, net
 
1,835

 
1,216

 
2,633

 
2,278

Equity in income and gain on disposition of unconsolidated entities
 
513

 
70

 
431

 
10,474

Gain (loss) on derivative instruments, net
 
592

 
(177
)
 
1,416

 
(1,263
)
Total other expenses, net
 
(61,676
)

(81,107
)
 
(133,949
)

(151,153
)
(Loss) income before taxes and real estate dispositions
 
(5,882
)

2,516

 
681

 
(130,683
)
Gain on disposition of real estate and held for sale assets, net
 
42,639

 
437

 
55,120

 
17,612

Income (loss) before taxes
 
36,757


2,953


55,801


(113,071
)
(Provision for) benefit from income taxes
 
(2,571
)
 
280

 
(6,825
)
 
224

Net income (loss)
 
34,186


3,233

 
48,976


(112,847
)
Net (income) loss attributable to non-controlling interests (1)
 
(778
)
 
(87
)
 
(1,130
)
 
2,907

Net income (loss) attributable to the General Partner
 
$
33,408


$
3,146

 
$
47,846


$
(109,940
)
 
 
 
 
 
 
 
 
 
Basic and diluted net income (loss) per share attributable to common stockholders
 
$
0.02

 
$
(0.02
)
 
$
0.01

 
$
(0.16
)
Distributions declared per common share
 
$
0.14

 
$
0.14

 
$
0.28

 
$
0.28

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

The accompanying notes are an integral part of these statements.

3

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

 
 
Three Months Ended June 30,
 
Six Months Ended June 30,
 
 
2017
 
2016
 
2017
 
2016
Net income (loss)
 
$
34,186

 
$
3,233

 
$
48,976

 
$
(112,847
)
Other comprehensive income (loss):
 
 
 
 
 
 
 
 
Unrealized (loss) gain on interest rate derivatives
 
(307
)
 
(3,287
)
 
197

 
(12,989
)
Reclassification of previous unrealized loss on interest rate derivatives into net income (loss)
 
240

 
1,919

 
710

 
4,018

Unrealized (loss) gain on investment securities, net
 
(69
)
 
391

 
(263
)
 
(1,570
)
Total other comprehensive (loss) income
 
(136
)
 
(977
)
 
644


(10,541
)
 
 
 
 
 
 
 
 
 
Total comprehensive income (loss)
 
34,050

 
2,256

 
49,620

 
(123,388
)
Comprehensive (income) loss attributable to non-controlling interests (1)
 
(775
)
 
(62
)
 
(1,146
)
 
3,176

Total comprehensive income (loss) attributable to the General Partner
 
$
33,275

 
$
2,194


$
48,474


$
(120,212
)
_______________________________________________
(1)
Represents comprehensive (income) loss attributable to limited partners and consolidated joint venture partners.

The accompanying notes are an integral part of these statements.

4

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, 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 the Share Repurchase Program (1)
 

 

 
(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

 
 
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

Repurchases of common stock to settle tax obligation
 

 

 
(205,325
)
 
(2
)
 
(1,796
)
 

 

 
(1,798
)
 

 
(1,798
)
Equity-based compensation, net
 

 

 
118,891

 
1

 
4,508

 

 

 
4,509

 

 
4,509

Contributions from non-controlling interest holders
 

 

 

 

 

 

 

 

 
675

 
675

Distributions declared on common stock
 

 

 

 

 

 

 
(248,575
)
 
(248,575
)
 

 
(248,575
)
Distributions to non-controlling interest holders
 

 

 

 

 

 

 

 

 
(6,596
)
 
(6,596
)
Distributions to participating securities
 

 

 

 

 

 

 
(335
)
 
(335
)
 

 
(335
)
Distributions to preferred shareholders
 

 

 

 

 

 

 
(35,874
)
 
(35,874
)
 
(72
)
 
(35,946
)
Cumulative effect adjustment for equity-based compensation forfeitures
 

 

 

 

 
384

 

 
(384
)
 

 

 

Net loss
 

 

 

 

 

 

 
(109,940
)
 
(109,940
)
 
(2,907
)
 
(112,847
)
Other comprehensive loss
 

 

 

 

 

 
(10,272
)
 

 
(10,272
)
 
(269
)
 
(10,541
)
Balance, June 30, 2016
 
42,834,138


$
428


904,797,960


$
9,048


$
11,934,864


$
(12,297
)

$
(3,810,341
)

$
8,121,702


$
180,803


$
8,302,505

___________________________________
(1)
The Company’s Share Repurchase Program (as defined in Note 15 – Equity), which was authorized by the board of directors on May 12, 2017, allows for the repurchase of up to $200.0 million of the Company’s outstanding shares of Common Stock over the next 12 months.

The accompanying notes are an integral part of these statements.

5

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

 
 
Six Months Ended June 30,
 
 
2017
 
2016
Cash flows from operating activities:
 
 
 
 

Net income (loss)
 
$
48,976

 
$
(112,847
)
Adjustments to reconcile net income (loss) to net cash provided by operating activities:
 
 
 
 
Depreciation and amortization
 
380,416

 
410,268

Gain on real estate assets and joint venture, net
 
(55,120
)
 
(27,810
)
Impairments
 
24,494

 
169,342

Equity-based compensation
 
7,559

 
4,509

Equity in loss (income) of unconsolidated entities
 
(431
)
 
(276
)
Distributions from unconsolidated entities
 
1,578

 
2,571

(Gain) loss on investment securities
 
(65
)
 

(Gain) loss on derivative instruments, net
 
(1,416
)
 
1,263

Gain on extinguishment and forgiveness of debt, net
 
(8,935
)
 
(252
)
Changes in assets and liabilities:
 
 
 
 
Investment in direct financing leases
 
1,085

 
1,290

Rent and tenant receivables and other assets, net
 
(33,086
)
 
(34,799
)
Due from affiliates
 
7,014

 
2,590

Accounts payable and accrued expenses
 
9,106

 
6,717

Deferred rent, derivative and other liabilities
 
5,010

 
(12,140
)
Due to affiliates
 
73

 
(230
)
Net cash provided by operating activities
 
386,258

 
410,196

Cash flows from investing activities:
 
 
 
 
Investments in real estate assets
 
(154,371
)
 
(19,952
)
Capital expenditures and leasing costs
 
(9,887
)
 
(6,022
)
Real estate developments
 
(6,841
)
 
(5,071
)
Principal repayments received from borrowers
 
5,781

 
4,370

Proceeds from disposition of real estate and joint venture
 
301,320

 
345,251

Investment in leasehold improvements and other assets
 
(192
)
 
(1,007
)
Deposits for real estate assets
 
(25,827
)
 
(7,573
)
Uses and refunds of deposits for real estate assets
 
20,201

 
6,014

Line of credit repayments from affiliates
 
6,250

 
50,000

Change in restricted cash
 
4,023

 
(1,070
)
Net cash provided by investing activities
 
140,457

 
364,940

Cash flows from financing activities:
 
 
 
 
Proceeds from mortgage notes payable
 
3,091

 
511

Payments on mortgage notes payable and other debt, including extinguishment costs
 
(187,090
)
 
(106,707
)
Proceeds from credit facility
 

 
453,000

Payments on credit facility
 

 
(858,000
)
Proceeds from corporate bonds
 

 
1,000,000

Payments of deferred financing costs
 
(16
)
 
(16,727
)
Repurchases of common stock under the Share Repurchase Program
 
(518
)
 

Repurchases of common stock to settle tax obligations
 
(1,698
)
 
(1,798
)
Contributions from non-controlling interest holders
 

 
675

Distributions paid
 
(304,438
)
 
(285,573
)
Net cash (used in) provided by financing activities
 
(490,669
)
 
185,381

Net change in cash and cash equivalents
 
36,046

 
960,517

Cash and cash equivalents, beginning of period
 
256,452

 
69,103

Cash and cash equivalents, end of period
 
$
292,498

 
$
1,029,620


The accompanying notes are an integral part of these statements.

6

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

 
 
June 30, 2017
 
December 31, 2016
ASSETS
 
 
 
 
Real estate investments, at cost:
 
 
 
 
Land
 
$
2,858,662

 
$
2,895,625

Buildings, fixtures and improvements
 
10,496,710

 
10,644,296

Intangible lease assets
 
2,000,292

 
2,044,521

Total real estate investments, at cost
 
15,355,664


15,584,442

Less: accumulated depreciation and amortization
 
2,623,050

 
2,331,643

Total real estate investments, net
 
12,732,614


13,252,799

Investment in unconsolidated entities
 
44,931

 
46,077

Investment in direct financing leases, net
 
33,892

 
39,455

Investment securities, at fair value
 
42,250

 
47,215

Mortgage notes receivable, net
 
20,722

 
22,764

Cash and cash equivalents
 
292,498

 
256,452

Restricted cash
 
40,995

 
45,018

Intangible assets, net
 
16,319

 
24,609

Rent and tenant receivables and other assets, net
 
349,013

 
330,705

Goodwill
 
1,462,585

 
1,462,203

Due from affiliates
 
8,085

 
21,349

Real estate assets held for sale, net
 
4,136

 
38,928

Total assets
 
$
15,048,040


$
15,587,574

 
 
 
 
 
LIABILITIES AND EQUITY
 
 
 
 

Mortgage notes payable and other debt, net
 
$
2,381,031

 
$
2,671,106

Corporate bonds, net
 
2,228,422

 
2,226,224

Convertible debt, net
 
978,738

 
973,340

Credit facility, net
 
497,718

 
496,578

Below-market lease liabilities, net
 
209,566

 
224,023

Accounts payable and accrued expenses
 
149,309

 
146,137

Deferred rent, derivative and other liabilities
 
70,735

 
68,039

Distributions payable
 
168,953

 
162,578

Due to affiliates
 
89

 
16

Total liabilities
 
6,684,561


6,968,041

Commitments and contingencies (Note 14)
 


 


General Partner's preferred equity, 42,834,138 General Partner Preferred Units issued and outstanding as of each of June 30, 2017 and December 31, 2016
 
817,947

 
853,821

General Partner's common equity, 974,250,202 and 974,146,650 General Partner OP Units issued and outstanding as of June 30, 2017 and December 31, 2016, respectively
 
7,378,896

 
7,593,540

Limited Partner's preferred equity, 86,874 Limited Partner Preferred Units issued and outstanding as of each of June 30, 2017 and December 31, 2016
 
3,099

 
3,171

Limited Partner's common equity, 23,748,347 Limited Partner OP Units issued and outstanding as of each of June 30, 2017 and December 31, 2016, respectively
 
161,234

 
166,598

Total partners’ equity
 
8,361,176


8,617,130

Non-controlling interests
 
2,303

 
2,403

Total equity
 
8,363,479


8,619,533

Total liabilities and equity
 
$
15,048,040


$
15,587,574


The accompanying notes are an integral part of these statements.

7

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,
 
 
2017
 
2016
 
2017
 
2016
Revenues:
 
 
 
 
 
 
 
 
Rental income
 
$
286,291

 
$
311,352

 
$
580,030

 
$
625,323

Direct financing lease income
 
403

 
535

 
836

 
1,104

Operating expense reimbursements
 
21,551

 
26,646

 
48,277

 
49,893

Cole Capital revenue
 
28,685

 
32,486

 
55,816

 
63,719

Total revenues
 
336,930


371,019


684,959


740,039

Operating expenses:
 
 
 
 
 
 
 
 
Cole Capital reallowed fees and commissions
 
2,874

 
6,975

 
5,534

 
15,043

Acquisition-related
 
756

 
41

 
1,373

 
283

Litigation and other non-routine costs, net of insurance recoveries
 
14,411

 
2,917

 
27,286

 
(2,258
)
Property operating
 
31,627

 
38,199

 
65,643

 
73,012

General and administrative
 
29,411

 
33,094

 
58,559

 
62,494

Depreciation and amortization
 
184,288

 
197,345

 
367,440

 
401,653

Impairments
 
17,769

 
8,825

 
24,494

 
169,342

Total operating expenses
 
281,136


287,396


550,329


719,569

Operating income
 
55,794


83,623


134,630


20,470

Other (expense) income:
 
 
 
 
 
 
 
 
Interest expense
 
(73,621
)
 
(82,468
)
 
(147,364
)
 
(162,894
)
Gain on extinguishment and forgiveness of debt, net
 
9,005

 
252

 
8,935

 
252

Other income, net
 
1,835

 
1,216

 
2,633

 
2,278

Equity in income and gain on disposition of unconsolidated entities
 
513

 
70

 
431

 
10,474

Gain (loss) on derivative instruments, net
 
592

 
(177
)
 
1,416

 
(1,263
)
Total other expenses, net
 
(61,676
)

(81,107
)

(133,949
)

(151,153
)
(Loss) income before taxes and real estate dispositions
 
(5,882
)

2,516


681


(130,683
)
Gain on disposition of real estate and held for sale assets, net
 
42,639

 
437

 
55,120

 
17,612

Income (loss) before taxes
 
36,757


2,953


55,801

 
(113,071
)
(Provision for) benefit from income taxes
 
(2,571
)
 
280

 
(6,825
)
 
224

Net income (loss)
 
34,186


3,233


48,976


(112,847
)
Net loss (income) attributable to non-controlling interests (1)
 
14

 
(4
)
 
21

 
35

Net income (loss) attributable to the OP
 
$
34,200


$
3,229


$
48,997


$
(112,812
)
 
 
 
 
 
 
 
 
 
Basic and diluted net income (loss) per unit attributable to common unitholders
 
$
0.02

 
$
(0.02
)
 
$
0.01

 
$
(0.16
)
Distributions declared per common unit
 
$
0.14

 
$
0.14

 
$
0.28

 
$
0.28

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

The accompanying notes are an integral part of these statements.

8

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

 
 
Three Months Ended June 30,
 
Six Months Ended June 30,
 
 
2017
 
2016
 
2017
 
2016
Net income (loss)
 
$
34,186

 
$
3,233

 
$
48,976

 
$
(112,847
)
Other comprehensive income (loss):
 
 
 
 
 
 
 
 
Unrealized (loss) gain on interest rate derivatives
 
(307
)
 
(3,287
)
 
197

 
(12,989
)
Reclassification of previous unrealized loss on interest rate derivatives into net income (loss)
 
240

 
1,919

 
710

 
4,018

Unrealized (loss) gain on investment securities, net
 
(69
)
 
391

 
(263
)
 
(1,570
)
Total other comprehensive income (loss)
 
(136
)
 
(977
)

644


(10,541
)
 
 
 
 
 
 
 
 
 
Total comprehensive income (loss)
 
34,050

 
2,256


49,620


(123,388
)
Comprehensive loss (income) attributable to non-controlling interests (1)
 
14

 
(4
)
 
21

 
35

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

 
$
2,252


$
49,641


$
(123,353
)
_______________________________________________
(1)
Represents loss (income) attributable to consolidated joint venture partners.

The accompanying notes are an integral part of these statements.


9

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, 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 OP Units under the 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 interest holders
 

 

 

 

 

 
(268,257
)
 

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

 
(35,874
)
 

 
(72
)
 

 

 

 

 
(35,946
)
 

 
(35,946
)
 Net income (loss)
 

 

 

 

 

 
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


 
 
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

 Repurchases of common OP Units to settle tax obligation
 

 

 

 

 
(205,325
)
 
(1,798
)
 

 

 
(1,798
)
 

 
(1,798
)
 Equity-based compensation, net
 

 

 

 

 
118,891

 
4,509

 

 

 
4,509

 

 
4,509

 Contributions from non-controlling interest holders
 

 

 

 

 

 

 

 

 

 
675

 
675

 Distributions to Common OP Units and non-controlling interest holders
 

 

 

 

 

 
(248,910
)
 

 
(6,538
)
 
(255,448
)
 
(58
)
 
(255,506
)
 Distributions to Preferred OP Units
 

 
(35,874
)
 

 
(72
)
 

 

 

 

 
(35,946
)
 

 
(35,946
)
 Net loss
 

 

 

 

 

 
(109,940
)
 

 
(2,872
)
 
(112,812
)
 
(35
)
 
(112,847
)
 Other comprehensive loss
 

 

 

 

 

 
(10,272
)
 

 
(269
)
 
(10,541
)
 

 
(10,541
)
Balance, June 30, 2016
 
42,834,138


$
889,695


86,874


$
3,243


904,797,960


$
7,232,007


23,763,797


$
175,121


$
8,300,066


$
2,439


$
8,302,505



The accompanying notes are an integral part of these statements.


10

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

 
 
Six Months Ended June 30,
 
 
2017
 
2016
Cash flows from operating activities:
 
 
 
 
Net income (loss)
 
$
48,976

 
$
(112,847
)
Adjustments to reconcile net income (loss) to net cash provided by operating activities:
 
 
 
 
Depreciation and amortization
 
380,416

 
410,268

Gain on real estate assets and joint venture, net
 
(55,120
)
 
(27,810
)
Impairments
 
24,494

 
169,342

Equity-based compensation
 
7,559

 
4,509

Equity in loss (income) of unconsolidated entities
 
(431
)
 
(276
)
Distributions from unconsolidated entities
 
1,578

 
2,571

(Gain) loss on investment securities
 
(65
)
 

(Gain) loss on derivative instruments, net
 
(1,416
)
 
1,263

Gain on extinguishment and forgiveness of debt, net
 
(8,935
)
 
(252
)
Changes in assets and liabilities:
 
 
 
 
Investment in direct financing leases
 
1,085

 
1,290

Rent and tenant receivables and other assets, net
 
(33,086
)
 
(34,799
)
Due from affiliates
 
7,014

 
2,590

Accounts payable and accrued expenses
 
9,106

 
6,717

Deferred rent, derivative and other liabilities
 
5,010

 
(12,140
)
Due to affiliates
 
73

 
(230
)
Net cash provided by operating activities
 
386,258


410,196

Cash flows from investing activities:
 
 
 
 
Investments in real estate assets
 
(154,371
)
 
(19,952
)
Capital expenditures and leasing costs
 
(9,887
)
 
(6,022
)
Real estate developments
 
(6,841
)
 
(5,071
)
Principal repayments received from borrowers
 
5,781

 
4,370

Proceeds from disposition of real estate and joint venture
 
301,320

 
345,251

Investment in leasehold improvements and other assets
 
(192
)
 
(1,007
)
Deposits for real estate assets
 
(25,827
)
 
(7,573
)
Uses and refunds of deposits for real estate assets
 
20,201

 
6,014

Line of credit repayments from affiliates
 
6,250

 
50,000

Change in restricted cash
 
4,023

 
(1,070
)
Net cash provided by investing activities
 
140,457

 
364,940

Cash flows from financing activities:
 
 
 
 
Proceeds from mortgage notes payable
 
3,091

 
511

Payments on mortgage notes payable and other debt, including extinguishment costs
 
(187,090
)
 
(106,707
)
Proceeds from credit facility
 

 
453,000

Payments on credit facility
 

 
(858,000
)
Proceeds from corporate bonds
 

 
1,000,000

Payments of deferred financing costs
 
(16
)
 
(16,727
)
Repurchases of common units under the Share Repurchase Program
 
(518
)
 

Repurchases of common units to settle tax obligations
 
(1,698
)
 
(1,798
)
Contributions from non-controlling interest holders
 

 
675

Distributions paid
 
(304,438
)
 
(285,573
)
Net cash (used in) provided by financing activities
 
(490,669
)

185,381

Net change in cash and cash equivalents
 
36,046

 
960,517

Cash and cash equivalents, beginning of period
 
256,452

 
69,103

Cash and cash equivalents, end of period
 
$
292,498


$
1,029,620


The accompanying notes are an integral part of these statements.

11

VEREIT, INC. and VEREIT OPERATING PARTNERSHIP, L.P.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
June 30, 2017 (Unaudited)


Note 1 – Organization
VEREIT® is a Maryland corporation, incorporated on December 2, 2010, that qualified as a real estate investment trust (“REIT”) for U.S. federal income tax purposes beginning in the taxable year ended December 31, 2011. The OP is a Delaware limited partnership of which the General Partner is the sole general partner. VEREIT’s common stock, par value $0.01 per share (“Common Stock”), and its 6.70% Series F Cumulative Redeemable Preferred Stock, par value $0.01 per share (“Series F Preferred Stock”) trade on the New York Stock Exchange (“NYSE”) under the trading symbols, “VER” and “VER PRF,” respectively. As used herein, the terms the “Company,” “we,” “our” and “us” refer to VEREIT, together with its consolidated subsidiaries, including the OP.
The Company is a full-service real estate operating company with investment management capabilities that operates through two reportable segments, its real estate investment (“REI”) segment and its investment management segment, Cole Capital® (“Cole Capital”), as further discussed in Note 3 – Segment Reporting. Through the REI segment, the Company owns and actively manages a diversified portfolio of retail, restaurant, office and industrial real estate properties subject to long-term net leases with creditworthy tenants. The Company actively manages its portfolio considering a number of metrics including property type, concentration and key economic factors for appropriate balance and diversity. Through the Cole Capital segment, the Company is responsible for raising capital for and managing the affairs of the Cole REITs® (as defined in Note 3 – Segment Reporting) on a day-to-day basis, identifying and making acquisitions and investments on the Cole REITs’ behalf, and recommending to the respective board of directors of each of the Cole REITs an approach for providing investors with liquidity. Cole Capital receives compensation and reimbursement for performing these services. To support both reportable segments, the Company employs a shared services model pursuant to which its personnel are integral in providing, among other things, transactional and operational functions to the Company’s owned portfolio and the Cole REITs.
Substantially all of the REI segment’s operations are conducted through the OP. VEREIT is the sole general partner and holder of 97.6% of the common equity interests in the OP as of June 30, 2017 with the remaining 2.4% of the common equity interests owned by unaffiliated investors and certain former directors, officers and employees of ARC Properties Advisors, LLC (the “Former Manager”). Under the limited partnership agreement of the OP, as amended (the “LPA”), after holding units of limited partner interests in the OP (“OP Units”) for a period of one year, unless an earlier redemption is otherwise consented to by VEREIT, holders of OP Units have the right to redeem the OP Units for the cash value of a corresponding number of shares of VEREIT’s Common Stock or, at the option of VEREIT, a corresponding number of shares of VEREIT’s Common Stock. The remaining rights of the holders of OP Units are limited, however, and do not include the ability to replace the General Partner or to approve the sale, purchase or refinancing of the OP’s assets.
Substantially all of the Cole Capital segment’s operations are conducted through Cole Capital Advisors, Inc. (“CCA”), an Arizona corporation and a wholly owned subsidiary of the OP. CCA is treated as a taxable REIT subsidiary (“TRS”) under Section 856 of the Internal Revenue Code of 1986, as amended (the “Internal Revenue Code”).
The actions of the OP and its relationship with the General Partner are governed by the LPA. The General Partner does not have any significant assets other than its investment in the OP. Therefore, the assets and liabilities of the General Partner and the OP are substantially the same. Additionally, pursuant to the LPA, all administrative expenses and expenses associated with the formation, continuity, existence and operation of the General Partner incurred by the General Partner on the OP’s behalf shall be treated as expenses of the OP. Further, when the General Partner issues any equity instrument that has been approved by the General Partner’s board of directors, the LPA requires the OP to issue to the General Partner equity instruments with substantially similar terms, to protect the integrity of the Company’s umbrella partnership REIT structure, pursuant to which each holder of interests in the OP has a proportionate economic interest in the OP reflecting its capital contributions thereto. OP Units issued to the General Partner are referred to as General Partner OP Units. OP Units issued to parties other than the General Partner are referred to as Limited Partner OP Units. The LPA also provides that the OP issue debt with terms and provisions consistent with debt issued by the General Partner. The LPA will be amended to provide for the issuance of any additional class of equivalent equity instruments to the extent the General Partner’s board of directors authorizes the issuance of any new class of equity securities.

12

VEREIT, INC. and VEREIT OPERATING PARTNERSHIP, L.P.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
June 30, 2017 (Unaudited) (Continued)

Note 2 – Summary of Significant Accounting Policies
Basis of Accounting