VEREIT® Announces Fourth Quarter and Full Year 2016 Operating Results

PHOENIX, Feb. 23, 2017 /PRNewswire/ -- 

Exceeded Business Plan Disposition Targets with $2.6 Billion of Sales since 2015

Issued $1.0 Billion of Senior Notes and $702.5 Million of Equity; Significantly Improved Balance Sheet

Received Investment-Grade Ratings on Debt from Two Rating Agencies

VEREIT, Inc. (NYSE: VER) ("VEREIT" or the "Company") announced today its operating results for the three months and full year ending December 31, 2016, as well as progress on its business plan.

2016 Highlights

• Net Loss of $200.8 million and Net Loss per diluted share of $0.29
• Achieved $0.78 AFFO per diluted share, within the 2016 guidance range of $0.75 - $0.78
• Completed $1.14 billion in dispositions and $100.2 million of acquisitions
• Decreased Debt from $8.1 billion to $6.4 billion and Net Debt from $8.0 billion to $6.1 billion
• Reduced Net Debt to Normalized EBITDA from 7.0x to 5.7x since the beginning of 2016
• Issued $1.0 billion of senior notes and completed $702.5 million common stock offering; prepaid the Company's senior notes due February 2017
• Credit rating updates:
  • S&P raised its corporate credit rating of VEREIT to 'BB+' and the rating on corporate debt to 'BBB-'
  • Fitch issued VEREIT a first time investment grade rating of 'BBB-'
  • Moody's affirmed the 'Ba1' credit rating of VEREIT and revised the outlook to 'positive'
• Cole Capital® raised $487.2 million of new equity capital

Fourth Quarter and Full Year 2016 Consolidated Financial Results

Revenue

Consolidated revenue for the quarter ended December 31, 2016 decreased $31.5 million to $351.9 million as compared to revenue of $383.4 million for the same quarter in 2015. Consolidated revenue for 2016 decreased $0.1 billion to $1.5 billion as compared to revenue of $1.6 billion for 2015.

Net (Loss) Income and Net (Loss) Income Attributable to Common Stockholders and Limited Partners per Diluted Share

Consolidated net loss for the quarter ended December 31, 2016 decreased $74.0 million to a net loss of $118.2 million as compared to net loss of $192.2 million for the same quarter in 2015, and net loss per diluted share decreased $0.09 to $0.14 for the quarter ended December 31, 2016, as compared to a net loss per diluted share of $0.23 for the same quarter in 2015. Consolidated net loss for 2016 decreased $122.7 million to $200.8 million as compared to a net loss of $323.5 million in 2015. Net loss per diluted share decreased $0.14 to $0.29 for 2016, as compared to a net loss per diluted share of $0.43 for 2015.

Normalized EBITDA

Consolidated normalized EBITDA for the quarter ended December 31, 2016 decreased $15.3 million to $271.4 million as compared to normalized EBITDA of $286.7 million for the same quarter in 2015. Normalized EBITDA for 2016 decreased $0.1 billion to $1.1 billion as compared to $1.2 billion in 2015.

Funds From Operations Attributable to Common Stockholders and Limited Partners ("FFO") and FFO per Diluted Share

FFO for the quarter ended December 31, 2016 increased $48.9 million to $53.5 million, as compared to $4.6 million for the same quarter in 2015, and FFO per diluted share increased $0.05 to $0.05 for the quarter ended December 31, 2016, as compared to $0.00 for the same quarter in 2015. FFO for 2016 increased $28.2 million to $613.4 million, as compared to $585.2 million for 2015, and FFO per diluted share for 2016 increased $0.01 to $0.64, as compared to $0.63 for 2015.

Adjusted FFO Attributable to Common Stockholders and Limited Partners ("AFFO") and AFFO per Diluted Share

AFFO for the quarter ended December 31, 2016 decreased $12.6 million to $170.6 million, as compared to $183.2 million for the same quarter in 2015, and AFFO per diluted share decreased $0.03 to $0.17 for the quarter ended December 31, 2016, as compared to $0.20 for the same quarter in 2015. AFFO for 2016 decreased $40.6 million to $741.5 million, as compared to $782.1 million for 2015, and AFFO per diluted share for 2016 decreased $0.06 to $0.78, as compared to $0.84 for 2015.

Common Stock Dividend Information

On February 22, 2017, the Company's Board of Directors declared a quarterly dividend of $0.1375 per share for the first quarter of 2017, representing an annual distribution rate of $0.55 per share. The dividend will be paid on April 17, 2017 to common stockholders of record as of March 31, 2017.

Balance Sheet and Liquidity

At the end of the quarter, the Company had $2.3 billion of capacity remaining under its $2.8 billion credit facility.  The credit facility is made up of a $500.0 million term loan and a revolving line of credit, which was fully undrawn.

2017 Guidance

The Company expects its 2017 AFFO per diluted share to be in a range between $0.70 and $0.73. This guidance assumes dispositions and acquisitions each totaling $450 million to $600 million at an average cash cap rate of 6.5% to 7.5%, real estate operations with average occupancy of approximately 98.0% and same-store rental growth approximating 0.5%. The guidance range also assumes Cole Capital will contribute $0.02 to $0.03 of AFFO per diluted share, including 2017 capital raise of $400 million to $500 million, excluding the Cole REITs' distribution reinvestment plans ("DRIP") proceeds, and Cole acquisitions of $800 million to $1.0 billion.

The Company also expects to target balance sheet net debt to normalized EBITDA between 5.7x and 6.0x.

Consolidated Financial Statistics

Consolidated Financial Statistics as of the quarter ended December 31, 2016 are as follows: Net Debt to Normalized EBITDA of 5.7x, Fixed Charge Coverage Ratio of 2.9x, Unencumbered Gross Real Estate Assets to Total Gross Assets ratio of 66.4%, Net Debt to Gross Real Estate Assets of 39.6% and Weighted Average Debt Term of 4.4 years.    

Management Commentary

Glenn J. Rufrano, Chief Executive Officer, stated, "By the end of 2016, we had substantially achieved the core components of our August 2015 business plan, exceeding expectations in many areas. Our successful execution created a more diversified portfolio, a stronger balance sheet, a healthier Cole Capital and a stable dividend. These efforts were rewarded with investment-grade ratings on our debt and the ability to acquire quality assets in the fourth quarter," stated Glenn J. Rufrano, Chief Executive Officer. "In 2017, we will continue to focus on providing a safe balance sheet along with a diversified portfolio through strategic dispositions and leverage neutral acquisitions."

Fourth Quarter and Full Year 2016 Real Estate Investment ("REI") Financial Results

Revenue

REI segment revenue for the quarter ended December 31, 2016 decreased $22.8 million to $327.3 million as compared to revenue of $350.1 million for the same quarter in 2015, primarily due to 2016 dispositions. Revenue for 2016 decreased $0.1 billion to $1.3 billion as compared to $1.4 billion in 2015, primarily due to 2015 and 2016 dispositions.

Net Income (Loss)

REI segment net income for the quarter ended December 31, 2016 increased $20.0 million to $14.0 million as compared to a net loss of $6.0 million for the same quarter in 2015, primarily due to lower interest expense, a smaller loss on disposition of real estate and a reserve taken for a note receivable in the fourth quarter of 2015 offset by lower operating income in the fourth quarter of 2016. Net loss for 2016 decreased $66.7 million to $69.4 million as compared to a net loss of $136.1 million in 2015, primarily due to lower interest expense, a gain on disposition of real estate in 2016 versus a loss on disposition of real estate in 2015 and a reserve taken for a note receivable in 2015 offset by lower operating income in 2016.

Normalized EBITDA

REI segment normalized EBITDA for the quarter ended December 31, 2016 decreased $11.9 million to $268.9 million as compared to normalized EBITDA of $280.8 million for the same quarter in 2015, primarily due to 2016 dispositions. Normalized EBITDA for 2016 decreased $0.1 billion to $1.1 billion as compared to $1.2 billion in 2015, primarily due to 2015 and 2016 dispositions.

FFO and FFO per Diluted Share

REI segment FFO for the quarter ended December 31, 2016 decreased $5.1 million to $185.8 million, as compared to $190.9 million for the same quarter in 2015, and FFO per diluted share decreased $0.02 to $0.19 for the quarter ended December 31, 2016, as compared to $0.21 for the same quarter in 2015. FFO for 2016 decreased $27.7 million to $744.9 million, as compared to $772.6 million for 2015, and FFO per diluted share for 2016 decreased $0.05 to $0.78, as compared to $0.83 for 2015.

AFFO and AFFO per Diluted Share

REI segment AFFO for the quarter ended December 31, 2016 decreased $7.5 million to $179.8 million, as compared to $187.3 million for the same quarter in 2015, and AFFO per diluted share decreased $0.02 to $0.18 for the quarter ended December 31, 2016, as compared to $0.20 for the same quarter in 2015. AFFO for 2016 decreased $43.9 million to $725.3 million, as compared to $769.2 million for 2015, and AFFO per diluted share for 2016 decreased $0.07 to $0.76, as compared to $0.83 for 2015.

Real Estate Portfolio Update

As of December 31, 2016, the Company's portfolio consisted of 4,142 properties with total portfolio occupancy of 98.3%, investment grade tenancy of 41.2% and a weighted-average remaining lease term of 9.9 years.

Same-Store Rent Increases

During the quarter ended December 31, 2016, same-store rents (4,119 properties) increased 0.1% as compared to the same quarter in 2015.  Excluding the impact of the bankruptcy filing of Ovation Brands, Inc., same store rental revenue increased 0.8%, during the quarter ended December 31, 2016, as compared to the same quarter in 2015.

Property Dispositions

During the quarter ended December 31, 2016, the Company disposed of 78 properties for approximately $394.9 million at an average cash cap rate of 7.4%, including $86.9 million in net sales of Red Lobster restaurants.  The gain on fourth quarter sales was approximately $17.7 million, excluding goodwill allocation.

During 2016, the Company disposed of 302 properties for approximately $1.14 billion at a weighted average cash cap rate of 6.9%, including $246.5 million in net sales of Red Lobster restaurants.  The gain on 2016 sales was approximately $108.0 million, excluding goodwill allocation.

Property Acquisitions

During the fourth quarter of 2016, the Company acquired seven properties for approximately $80.2 million at an average cash cap rate of 6.7%.

During 2016, the Company acquired eight properties for approximately $100.2 million at an average cash cap rate of 6.8%.

Fourth Quarter and Full Year 2016 Cole Capital^® Financial Results

Revenue

Cole Capital segment revenue for the quarter ended December 31, 2016 decreased $8.7 million to $24.6 million, as compared to revenue of $33.3 million for the same quarter in 2015, primarily due to lower transaction and offering related revenue associated with lower capital raise during the fourth quarter of 2016.  Revenue for 2016 increased $4.5 million to $119.4 million, as compared to $114.9 million in 2015, primarily due to an increase in offering and advisory related fees as a consequence of increased capital raise offset by a decrease in transaction related revenue.

Net Income (Loss)

Cole Capital segment net loss for the quarter ended December 31, 2016 decreased $54.1 million to $132.2 million, as compared to a net loss of $186.3 million for the same quarter in 2015, primarily due to the lower goodwill impairment charge, no intangible asset impairment charge, partially offset by a reduction of the tax benefit in the fourth quarter of 2016.  Net Loss for 2016 decreased $55.9 million to $131.5 million, as compared to $187.4 million in 2015, primarily due to the lower goodwill impairment charge, no intangible asset impairment charge, partially offset by a reduction of the tax benefit in 2016.

Normalized EBITDA

Cole Capital segment normalized EBITDA for the quarter ended December 31, 2016 decreased $3.5 million to $2.4 million, as compared to normalized EBITDA of $5.9 million for the same quarter in 2015, primarily due to the decrease in net revenue in the fourth quarter of 2016. Normalized EBITDA for 2016 decreased $2.2 million to $25.5 million, as compared to $27.7 million in 2015, primarily due to the decrease in net revenue in 2016. 

FFO and FFO per Diluted Share

Cole Capital segment FFO for the quarter ended December 31, 2016 increased $54.1 million to $(132.2) million, as compared to $(186.3) million for the same quarter in 2015, and FFO per diluted share for 2016 increased $0.07 to $(0.13) per diluted share, as compared to $(0.20) for the quarter ending December 31, 2015. FFO for 2016 increased $55.9 million to $(131.5) million, as compared to $(187.4) million for 2015, and FFO per diluted share for 2016 increased $0.06 to $(0.14), as compared to $(0.20) for 2015.

AFFO and AFFO per Diluted Share

Cole Capital segment AFFO for the quarter ended December 31, 2016 decreased $5.0 million to $(9.2) million, as compared to $(4.2) million for the same quarter in 2015, and AFFO per diluted share increased $0.01 to $0.01 per diluted share, as compared to $0.00 for the same quarter in 2015. AFFO for 2016 increased $3.3 million to $16.2 million, as compared to $12.9 million for 2015, and AFFO per diluted share for 2016 increased $0.01 to $0.02, as compared to $0.01 for 2015.

Investment Management Capital Raise

During the quarter, Cole Capital raised $104.0 million of capital on behalf of its sponsored non-listed REITs (the "Cole REITs"), including $36.5 million through the Cole REITs' DRIP, compared to $150.2 million, including $33.8 million of DRIP proceeds, in the fourth quarter of 2015. During 2016, Cole Capital raised $629.7 million, including $142.6 million of DRIP proceeds, compared to $403.7 million, including $132.8 million of DRIP proceeds for 2015.

Investment Management Acquisitions

Cole Capital invested $173.1 million in 15 properties on behalf of the Cole REITs in the fourth quarter of 2016, compared to $236.4 million in 26 properties in the fourth quarter of 2015. Cole Capital invested $660.2 million in 55 properties on behalf of the Cole REITs in 2016, compared to $992.2 million in 158 properties for 2015.

Subsequent Events - Consolidated

Property Acquisitions

From January 1, 2017 through February 17, 2017, the Company acquired one property for a purchase price of $46.0 million at a cash cap rate of 7.1%.  In addition, the Company consolidated the fee and leasehold interest of three properties with the accompanying land purchases for $20.4 million.

Property Dispositions

From January 1, 2017 through February 17, 2017, the Company disposed of 19 properties for an aggregate sales price of $62.3 million at an average cash cap rate of 7.5%, including $29.2 million in net sales of Red Lobster restaurants.

Cole Capital Equity Raise

In January 2017, Cole Capital raised $33.4 million of capital on behalf of the Cole REITs, including $12.4 million through DRIP.

Audio Webcast Details

The live audio webcast, beginning at 10:00 a.m. ET on Thursday, February 23, 2017, is available by accessing this link: http://ir.vereit.com/.   Participants should log in 10-15 minutes early.

Following the call, a replay of the webcast will be available at the link above and archived for up to 12 months following the call.

About the Company

VEREIT is a leading, full-service real estate operating company with investment management capability. VEREIT owns and actively manages a diversified portfolio of retail, restaurant, office and industrial real estate assets with a total asset book value of $15.6 billion including 4,142 properties totaling approximately 93.3 million square feet, located in 49 states, as well as Puerto Rico and Canada. Additionally, VEREIT manages $7.3 billion of gross real estate investments on behalf of the Cole Capital^® non-listed REITs. VEREIT is a publicly traded Maryland corporation listed on the New York Stock Exchange.  Additional information about VEREIT can be found on its website at www.VEREIT.com and through social media platforms such as Twitter and LinkedIn.

Definitions

Descriptions of FFO and AFFO, EBITDA and Normalized EBITDA, Debt Outstanding, Net Debt and Interest Expense, Excluding Non-Cash Amortization are provided below. Refer to pages 8 through 27 for reconciliations of these non-GAAP financial measures to the most directly comparable GAAP financial measure and the calculations of our Fixed Charge Coverage Ratio, Net Debt to Normalized EBITDA Annualized Ratio, Net Debt Leverage Ratio and Unencumbered Asset Ratio.

Funds From Operations ("FFO") and Adjusted Funds From Operations ("AFFO")

Due to certain unique operating characteristics of real estate companies, as discussed below, the National Association of Real Estate Investment Trusts, Inc. ("NAREIT"), an industry trade group, has promulgated a supplemental performance measure known as FFO, which we believe to be an appropriate supplemental performance measure to reflect the operating performance of a REIT. FFO is not equivalent to our net income or loss as determined under U.S. GAAP.

NAREIT defines FFO as net income or loss computed in accordance with U.S. GAAP, excluding gains or losses from disposition of property, depreciation and amortization of real estate assets and impairment write-downs on real estate including the pro rata share of adjustments for unconsolidated partnerships and joint ventures. We calculated FFO in accordance with NAREIT's definition described above.

In addition to FFO, we use adjusted funds from operations as a non-GAAP supplemental financial performance measure to evaluate the operating performance of the Company. AFFO, as defined by the Company, excludes from FFO non-routine items such as acquisition related expenses, litigation and other non-routine costs, gains or losses on sale of investment securities or mortgage notes receivable and legal settlements and insurance recoveries not in the ordinary course of business. We also exclude certain non-cash items such as impairments of goodwill and intangible assets, straight-line rental revenue, unrealized gains or losses on derivatives, reserves for loan loss, gains or losses on the extinguishment or forgiveness of debt, non-current portion of the tax benefit or expense, equity-based compensation and amortization of intangible assets, deferred financing costs, above-market lease assets and below-market lease liabilities. Management believes that excluding these costs from FFO provides investors with supplemental performance information that is consistent with the performance models and analysis used by management, and provides investors a view of the performance of our portfolio over time. AFFO allows for a comparison of the performance of our operations with other publicly-traded REITs, as AFFO, or an equivalent measure, is routinely reported by publicly-traded REITs, and we believe often used by analysts and investors for comparison purposes.

For all of these reasons, we believe FFO and AFFO, in addition to net income (loss), as defined by GAAP, are helpful supplemental performance measures and useful in understanding the various ways in which our management evaluates the performance of the Company over time. However, not all REITs calculate FFO and AFFO the same way, so comparisons with other REITs may not be meaningful. FFO and AFFO should not be considered as alternatives to net income (loss) and are not intended to be used as a liquidity measure indicative of cash flow available to fund our cash needs. Neither the SEC, NAREIT, nor any other regulatory body has evaluated the acceptability of the exclusions used to adjust FFO in order to calculate AFFO and its use as a non-GAAP financial performance measure.

EBITDA and Normalized EBITDA

Normalized EBITDA as disclosed represents EBITDA, or earnings before interest, taxes, depreciation and amortization, modified to exclude non-routine items such as acquisition related expenses, merger and other non-routine transactions costs, gains or losses on sale of investments, legal settlements and insurance recoveries not in the ordinary course of business and extinguishment of debt cost. We also exclude certain non-cash items such as impairments of intangible assets, straight-line rental revenue, unrealized gains or losses on derivatives, write-off of program development costs, and amortization of intangibles, deferred financing costs, above-market lease assets and below-market lease liabilities. Management believes that excluding these costs from EBITDA provides investors with supplemental performance information that is consistent with the performance models and analysis used by management, and provides investors a view of the performance of our portfolio over time. The Company believes that Normalized EBITDA is a useful non-GAAP supplemental measure to investors and analysts for assessing the performance of the Company's business segments. Normalized EBITDA should not be considered as an alternative to net income, as computed in accordance with GAAP, or as an indicator of the Company's financial performance. The Company uses Normalized EBITDA as one measure of its operating performance when formulating corporate goals and evaluating the effectiveness of the Company's strategies. Normalized EBITDA may not be comparable to similarly titled measures of other companies.

Debt Outstanding

Debt Outstanding is a non-GAAP measure that represents the Company's outstanding principal debt balance, excluding certain GAAP adjustments, such as premiums and discounts, financing and issuance costs, and related accumulated amortization. We believe that the presentation of Debt Outstanding, which shows our contractual debt obligations, provides useful information to investors to assess our overall liquidity, financial flexibility, capital structure and leverage. Debt Outstanding should not be considered as an alternative to the Company's consolidated debt balance as determined in accordance with GAAP or any other GAAP financial measures and should only be considered together with, and as a supplement to, the Company's financial information prepared in accordance with GAAP.

Net Debt

Net Debt is a non-GAAP measure used to show the Company's Debt Outstanding, less all cash and cash equivalents. We believe that the presentation of net debt provides useful information to investors because our management reviews net debt as part of its management of our overall liquidity, financial flexibility, capital structure and leverage.

Interest Expense, Excluding Non-Cash Amortization

Interest Expense, Excluding Non-Cash Amortization is a non-GAAP measure that represents interest expense incurred on the outstanding principal balance of our debt, which excludes the amortization of deferred financing costs, premiums and discounts, which are reported as interest expense in accordance with GAAP. We believe that the presentation of Interest Expense, Excluding Non-Cash Amortization, which shows the interest expense on our contractual debt obligations, provides useful information to investors to assess our overall solvency and financial flexibility. Interest Expense, Excluding Non-Cash Amortization should not be considered as an alternative to the Company's interest expense as determined in accordance with GAAP or any other GAAP financial measures and should only be considered together with and as a supplement to the Company's financial information prepared in accordance with GAAP.

Forward-Looking Statements

Information set forth herein (including information included or incorporated by reference herein) contains "forward-looking statements" (within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended), which reflect VEREIT's expectations regarding future events and VEREIT's future financial condition, results of operations and business, including VEREIT's 2017 guidance and its ability to provide a safe balance sheet and diversified portfolio. The forward-looking statements involve a number of assumptions, risks, uncertainties and other factors that could cause actual results to differ materially from those contained in the forward-looking statements. Generally, the words "expects," "anticipates," "assumes," "targets," "goals," "projects," "intends," "plans," "believes," "seeks," "estimates," variations of such words and similar expressions identify forward-looking statements. These forward-looking statements are subject to a number of risks, uncertainties and assumptions, most of which are difficult to predict and many of which are beyond VEREIT's control. If a change occurs, VEREIT's business, financial condition, liquidity and results of operations may vary materially from those expressed in the forward-looking statements.

The following factors, among others, could cause actual results to differ from those set forth in the forward-looking statements: VEREIT's plans, market and other expectations, objectives, intentions and other statements that are not historical facts; the developments disclosed herein; VEREIT's ability to execute on and realize success from its business plan; VEREIT's ability to meet its 2017 guidance; the unpredictability of the business plans and financial condition of VEREIT's tenants; the impact of impairment charges in respect of certain of VEREIT's properties or other assets; risks associated with pending government investigations related to VEREIT's previously disclosed audit committee investigation and related litigations; the inability of Cole Capital to regain its prior level of capital raise; the ability to retain or hire key personnel; and continuation or deterioration of current market conditions. Additional factors that may affect future results are contained in VEREIT's filings with the U.S. Securities and Exchange Commission (the "SEC"), which are available at the SEC's website at www.sec.gov. VEREIT disclaims any obligation to publicly update or revise any forward-looking statements, whether as a result of changes in underlying assumptions or factors, new information, future events or otherwise, except as required by law.

VEREIT, INC.

CONSOLIDATED ADJUSTED FUNDS FROM OPERATIONS PER DILUTED SHARE  - 2017 GUIDANCE

(Unaudited)

The Company expects its 2017 AFFO per diluted share to be in a range between $0.70 and $0.73. This guidance assumes dispositions and acquisitions each totaling $450 million to $600 million at an average cash cap rate of 6.5% to 7.5%, real estate operations with average occupancy of approximately 98.0% and same-store rental growth approximating 0.5%. The guidance range also assumes Cole Capital will contribute $0.02 to $0.03 of AFFO per diluted share, including 2017 capital raise of $400 million to $500 million, excluding DRIP, and Cole acquisitions of $800 million to $1.0 billion. The Company also expects to target balance sheet net debt to normalized EBITDA between 5.7x and 6.0x. The estimated net loss per basic and diluted share is not a projection and is provided solely to satisfy the disclosure requirements of the U.S. Securities and Exchange Commission.