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~~June 30, ~~2018~~2019



	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,~~	(VEREIT, Inc.)		45-2482685
Delaware ~~(VEREIT~~	(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,~~ 9th Floor	Phoenix	AZ	85016
(Address of principal executive offices)			(Zip Code)



~~(800)~~ 800	606-3610
(Registrant’s telephone number, including area code)




Securities registered pursuant to Section 12(b) of the Securities Exchange Act of 1934:
Title of each class:		Trading symbol(s):	Name of each exchange on which registered:
Common Stock	$0.01 par value per share (VEREIT, Inc.)	VER	New York Stock Exchange
6.70% Series F Cumulative Redeemable Preferred Stock	$0.01 par value per share (VEREIT, Inc.)	VER PF	New York Stock Exchange

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. Yesx No oVEREIT Operating Partnership, L.P. Yesx No o

Indicate by check mark whether the registrant has 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. Yesx No oVEREIT Operating Partnership, L.P. Yesx 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~~973,385,899 shares of common stock of VEREIT, Inc. outstanding as of ~~November 1, 2018.~~August 2, 2019.

EXPLANATORY NOTE

This report combines the Quarterly Reports on Form 10-Q for the three and ~~nine~~six months ended ~~September~~June 30, ~~2018~~2019 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~~June 30, ~~2018~~2019



	Page
PART I
Item 1. Unaudited Financial Statements	24
Consolidated Balance Sheets of VEREIT, Inc. as of ~~September~~June 30, ~~2018~~2019 and December 31, ~~2017~~2018	25
Consolidated Statements of Operations of VEREIT, Inc. for the Three and ~~Nine~~Six Months Ended ~~September~~June 30, ~~2018~~2019 and ~~2017~~2018	36
Consolidated Statements of Comprehensive Income (Loss) of VEREIT, Inc. for the Three and ~~Nine~~Six Months Ended ~~September~~June 30, ~~2018~~2019 and ~~2017~~2018	47
Consolidated Statements of Changes in Equity of VEREIT, Inc. for the ~~Nine~~Six Months Ended ~~September~~June 30, ~~2018~~2019 and ~~2017~~2018	58
Consolidated Statements of Cash Flows of VEREIT, Inc. for the ~~Nine~~Six Months Ended ~~September~~June 30, ~~2018~~2019 and ~~2017~~2018	710
Consolidated Balance Sheets of VEREIT Operating Partnership, L.P. as of ~~September~~June 30, ~~2018~~2019 and December 31, ~~2017~~2018	912
Consolidated Statements of Operations of VEREIT Operating Partnership, L.P. for the Three and ~~Nine~~Six Months Ended ~~September~~June 30, ~~2018~~2019 and ~~2017~~2018	1013
Consolidated Statements of Comprehensive Income (Loss) of VEREIT Operating Partnership, L.P. for the Three and ~~Nine~~Six Months Ended ~~September~~June 30, ~~2018~~2019 and ~~2017~~2018	1114
Consolidated Statements of Changes in Equity of VEREIT Operating Partnership, L.P. for the ~~Nine~~Six Months Ended ~~September~~June 30, ~~2018~~2019 and ~~2017~~2018	1215
Consolidated Statements of Cash Flows of VEREIT Operating Partnership, L.P. for the ~~Nine~~Six Months Ended ~~September~~June 30, ~~2018~~2019 and ~~2017~~2018	1417
Notes to Consolidated Financial Statements	1619
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations	5048
Item 3. Quantitative and Qualitative Disclosures About Market Risk	64
Item 4. Controls and Procedures	66
PART II
Item 1. Legal Proceedings	67
Item ~~4. Controls and Procedures~~1A. Risk Factors	6867
~~PART II~~
~~Item 1. Legal Proceedings~~	69
~~Item 1A. Risk Factors~~	69
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds	6967
Item 3. Defaults Upon Senior Securities	6967
Item 4. Mine Safety Disclosures	6967
Item 5. Other Information	6967
Item 6. Exhibits	68
Signatures	70
~~Signatures~~	72

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

Table of Contents

VEREIT, INC.

CONSOLIDATED BALANCE SHEETS

(In thousands, except for share and per share data) (Unaudited)


	September 30, 2018			December 31, 2017			June 30, 2019			December 31, 2018
ASSETS
Real estate investments, at cost:
Land	$	2,847,393		$	2,865,855		$	2,763,348		$	2,843,212
Buildings, fixtures and improvements	10,652,578			10,711,845			10,352,928			10,749,228
Intangible lease assets	2,019,718			2,037,675			1,927,699			2,012,399
Total real estate investments, at cost	15,519,689			15,615,375			15,043,975			15,604,839
Less: accumulated depreciation and amortization	3,323,990			2,908,028			3,488,838			3,436,772
Total real estate investments, net	12,195,699			12,707,347			11,555,137			12,168,067
Operating lease right-of-use assets							221,798			—
Investment in unconsolidated entities	34,293			39,520			68,633			35,289
Cash and cash equivalents	25,264			34,176			211,510			30,758
Restricted cash	27,449			27,662			20,692			22,905
Rent and tenant receivables and other assets, net	412,053			389,060			343,788			366,092
Goodwill	1,337,773			1,337,773			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
Real estate assets held for sale, net							22,553			2,609
Total assets	$	14,056,880		$	14,705,578		$	13,781,884		$	13,963,493

LIABILITIES AND EQUITY
Mortgage notes payable, net	$	1,936,586		$	2,082,692		$	1,745,331		$	1,922,657
Corporate bonds, net	2,825,541			2,821,494			2,621,130			3,368,609
Convertible debt, net	393,961			984,258			396,766			394,883
Credit facility, net	793,000			185,000			895,033			401,773
Below-market lease liabilities, net	179,192			198,551			152,654			173,479
Accounts payable and accrued expenses	269,150			136,474			127,799			145,611
Deferred rent and other liabilities	51,663			62,985			77,713			69,714
Distributions payable	183,913			175,301			187,359			186,623
Due to affiliates	—			66
Liabilities related to discontinued operations	—			15,881
Operating lease liabilities							225,972			—
Total liabilities	6,633,006			6,662,702			6,429,757			6,663,349
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
Commitments and contingencies (Note 10)
Preferred stock, $0.01 par value, 100,000,000 shares authorized and 42,871,246 and 42,834,138 issued and outstanding as of June 30, 2019 and December 31, 2018, respectively							429			428
Common stock, $0.01 par value, 1,500,000,000 shares authorized and 973,385,899 and 967,515,165 issued and outstanding as of June 30, 2019 and December 31, 2018, respectively							9,734			9,675
Additional paid-in-capital	12,612,407			12,654,258			12,655,018			12,615,472
Accumulated other comprehensive loss	(1,031		)	(3,569		)	(28,026		)	(1,280		)
Accumulated deficit	(5,343,368		)	(4,776,581		)	(5,416,759		)	(5,467,236		)
Total stockholders’ equity	7,278,110			7,884,278			7,220,396			7,157,059
Non-controlling interests	145,764			158,598			131,731			143,085
Total equity	7,423,874			8,042,876			7,352,127			7,300,144
Total liabilities and equity	$	14,056,880		$	14,705,578		$	13,781,884		$	13,963,493

The accompanying notes are an integral part of these statements.

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



	Three Months Ended June 30,						Six Months Ended June 30,
	2019			2018			2019			2018
Rental revenue	$	312,043		$	315,664		$	628,886		$	630,738
Operating expenses:
Acquisition-related	985			909			1,970			1,686
Litigation and non-routine costs, net	(3,769		)	107,087			(25,261		)	128,827
Property operating	32,503			31,436			64,881			62,001
General and administrative	16,416			16,287			31,262			31,527
Depreciation and amortization	118,022			164,235			254,577			330,387
Impairments	8,308			11,664			20,296			17,700
Restructuring	290			—			9,366			—
Total operating expenses	172,755			331,618			357,091			572,128
Other (expenses) income:
Interest expense	(69,803		)	(70,320		)	(141,057		)	(140,745		)
(Loss) gain on extinguishment and forgiveness of debt, net	(1,472		)	5,249			(1,472		)	5,249
Other income, net	3,175			1,320			2,773			9,029
Equity in income and gain on disposition of unconsolidated entities	505			327			1,005			1,392
Gain on disposition of real estate and real estate assets held for sale, net	221,755			5,821			232,586			23,156
Total other income (expenses), net	154,160			(57,603		)	93,835			(101,919		)
Income (loss) before taxes	293,448			(73,557		)	365,630			(43,309		)
Provision for income taxes	(1,164		)	(1,134		)	(2,375		)	(2,346		)
Income (loss) from continuing operations	292,284			(74,691		)	363,255			(45,655		)
Income from discontinued operations, net of income taxes	—			224			—			3,725
Net income (loss)	292,284			(74,467		)	363,255			(41,930		)
Net (income) loss attributable to non-controlling interests⁽¹⁾	(6,626		)	1,797			(8,293		)	1,055
Net income (loss) attributable to the General Partner	$	285,658		$	(72,670	)	$	354,962		$	(40,875	)

Basic and diluted net income (loss) per share from continuing operations attributable to common stockholders	$	0.27		$	(0.09	)	$	0.33		$	(0.08	)
Basic and diluted net income per share from discontinued operations attributable to common stockholders	$	—		$	0.00		$	—		$	0.00
Basic and diluted net income (loss) per share attributable to common stockholders	$	0.27		$	(0.09	)	$	0.33		$	(0.08	)


(1)	Represents ~~net~~(income) loss ~~(income)~~ attributable to limited partners and a consolidated joint venture ~~partners.~~


~~(2)~~	~~Amounts may not total due to rounding.~~partner.

The accompanying notes are an integral part of these statements.

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



	Three Months Ended June 30,						Six Months Ended June 30,
	2019			2018			2019			2018
Net income (loss)	$	292,284		$	(74,467	)	$	363,255		$	(41,930	)
Other comprehensive loss:
Unrealized loss on interest rate derivatives	(16,308		)	—			(27,594		)	—
Reclassification of previous unrealized loss on interest rate derivatives into net income (loss)	99			56			196			161
Unrealized loss on investment securities, net	—			(62		)	—			(899		)
Total other comprehensive loss	(16,209		)	(6		)	(27,398		)	(738		)

Total comprehensive income (loss)	276,075			(74,473		)	335,857			(42,668		)
Comprehensive (income) loss attributable to non-controlling interests ⁽¹⁾	(6,241		)	1,797			(7,641		)	1,072
Total comprehensive income (loss) attributable to the General Partner	$	269,834		$	(72,676	)	$	328,216		$	(41,596	)


(1)	Represents comprehensive (income) loss ~~(income)~~ attributable to limited partners and a consolidated joint venture ~~partners.~~partner.

The accompanying notes are an integral part of these statements.

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




	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, 2019	42,834,138	$	428	967,515,165		$	9,675		$	12,615,472		$	(1,280	)	$	(5,467,236	)	$	7,157,059		$	143,085		$	7,300,144
Issuance of Common Stock, net	—	—		3,309,808		33			27,511			—			—			27,544			—			27,544
Conversion of OP Units to Common Stock	—	—		—		—			(26		)	—			—			(26		)	26			—
Conversion of Series F Preferred Units to Series F Preferred Stock	37,108	1		—		—			922			—			—			923			(923		)	—
Repurchases of Common Stock to settle tax obligation	—	—		(199,083	)	(2		)	(1,593		)	—			—			(1,595		)	—			(1,595		)
Equity-based compensation, net	—	—		950,487		10			2,862			—			—			2,872			—			2,872
Contributions from non-controlling interest holders	—	—		—		—			—			—			—			—			64			64
Distributions declared on Common Stock — $0.1375 per common share	—	—		—		—			—			—			(133,480		)	(133,480		)	—			(133,480		)
Distributions to non-controlling interest holders	—	—		—		—			—			—			—			—			(3,262		)	(3,262		)
Dividend equivalents on awards granted under the Equity Plan	—	—		—		—			—			—			(1,222		)	(1,222		)	—			(1,222		)
Distributions to preferred shareholders and unitholders	—	—		—		—			—			—			(17,940		)	(17,940		)	(33		)	(17,973		)
Net income	—	—		—		—			—			—			69,304			69,304			1,667			70,971
Other comprehensive loss	—	—		—		—			—			(10,922		)	—			(10,922		)	(267		)	(11,189		)
Balance, March 31, 2019	42,871,246	$	429	971,576,377		$	9,716		$	12,645,148		$	(12,202	)	$	(5,550,574	)	$	7,092,517		$	140,357		$	7,232,874
Issuance of Common Stock, net	—	—		1,773,456		18			14,516			—			—			14,534			—			14,534
Repurchases of Common Stock to settle tax obligation	—	—		—		—			(9		)	—			—			(9		)	—			(9		)
Equity-based compensation, net	—	—		36,066		—			3,883			—			—			3,883			—			3,883
Distributions declared on Common Stock— $0.1375 per common share	—	—		—		—			—			—			(133,841		)	(133,841		)	—			(133,841		)
Distributions to non-controlling interest holders	—	—		—		—			—			—			—			—			(3,264		)	(3,264		)
Dividend equivalents on awards granted under the Equity Plan	—	—		—		—			—			—			(44		)	(44		)	—			(44		)
Distributions to preferred shareholders and unitholders	—	—		—		—			—			—			(17,958		)	(17,958		)	(15		)	(17,973		)
Distributions payable relinquished	—	—		—		—			—			—			—			—			6,429			6,429
Surrender of Limited Partner OP Units	—	—		—		—			(8,520		)	—			—			(8,520		)	(18,017		)	(26,537		)
Net income	—	—		—		—			—			—			285,658			285,658			6,626			292,284
Other comprehensive loss	—	—		—		—			—			(15,824		)	—			(15,824		)	(385		)	(16,209		)
Balance, June 30, 2019	42,871,246	$	429	973,385,899		$	9,734		$	12,655,018		$	(28,026	)	$	(5,416,759	)	$	7,220,396		$	131,731		$	7,352,127

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



	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 programs	—	—		(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	—	—		—		—			—			—			(133,104		)	(133,104		)	—			(133,104		)
Distributions to non-controlling interest holders	—	—		—		—			—			—			—			—			(3,264		)	(3,264		)
Dividend equivalents on awards granted under the Equity Plan	—	—		—		—			—			—			(522		)	(522		)	—			(522		)
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 programs	—	—		(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	—	—		—		—			—			—			(133,010		)	(133,010		)	—			(133,010		)
Distributions to non-controlling interest holders	—	—		—		—			—			—			—			—			(3,262		)	(3,262		)
Dividend equivalents on awards granted under the Equity Plan	—	—		—		—			—			—			(274		)	(274		)	—			(274		)
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

Table of Contents

VEREIT, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS

(In thousands) (Unaudited)


	Nine Months Ended September 30,						Six Months Ended June 30,
	2018			2017			2019			2018
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:
Net income (loss)							$	363,255		$	(41,930	)
Adjustments to reconcile net income (loss) to net cash provided by operating activities:
Depreciation and amortization	503,529			562,673			260,771			342,316
Gain on real estate assets, net	(70,188		)	(54,432		)	(232,597		)	(23,857		)
Impairments	36,082			30,857			20,296			17,700
Equity-based compensation	10,203			11,224			6,755			6,880
Equity in income of unconsolidated entities and gain on joint venture	(1,644		)	(805		)	(1,005		)	(691		)
Distributions from unconsolidated entities	1,365			1,641			—			1,328
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		)
Loss (gain) on investments							464			(5,638		)
Loss (gain) on derivative instruments							58			(378		)
Non-cash restructuring expense							4,048			—
Loss (gain) on extinguishment and forgiveness of debt, net							1,472			(5,249		)
Surrender of Limited Partner OP Units							(26,536		)	—
Changes in assets and liabilities:
Investment in direct financing leases	1,524			1,575			821			1,041
Rent and tenant receivables and other assets, net	(28,520		)	(15,105		)
Rent and tenant receivables, operating lease right-of-use and other assets, net							(9,596		)	(23,561		)
Assets held for sale classified as discontinued operations	(2,492		)	—			—			(2,492		)
Accounts payable and accrued expenses	132,686			13,759			(13,104		)	4,240
Deferred rent and other liabilities	(11,001		)	(27		)
Deferred rent, operating lease and other liabilities							(27,084		)	3,781
Due to affiliates	(66		)	(8		)	—			(66		)
Liabilities related to discontinued operations	(13,861		)	—			—			(13,861		)
Net cash provided by operating activities	433,657			595,356			348,018			259,563
Cash flows from investing activities:
Investments in real estate assets	(278,385		)	(403,886		)	(191,550		)	(179,198		)
Capital expenditures and leasing costs	(13,116		)	(14,081		)	(19,695		)	(7,735		)
Real estate developments	(7,477		)	(10,863		)	(10,537		)	(4,609		)
Principal repayments received on investment securities and mortgage notes receivable	5,555			6,281			88			5,045
Investments in unconsolidated entities							(2,767		)	—
Return of investment from unconsolidated entities	48			1,141			—			85
Proceeds from disposition of real estate and joint venture	358,443			366,237			739,873			180,723
Proceeds from disposition of discontinued operations	123,925			—			—			123,925
Payments related to disposition of discontinued operations	(1,010		)	—			—			(1,010		)
Investment in leasehold improvements and other assets	(616		)	(446		)	(798		)	(359		)
Deposits for real estate assets	(11,957		)	(32,946		)	(3,072		)	(6,648		)
Proceeds from sale of investments and other assets	10,880			—			8,199			1,351
Uses and refunds of deposits for real estate assets	8,552			20,989			2,946			7,070
Proceeds from the settlement of property-related insurance claims	1,354			53			334			747
Line of credit advances to Cole REITs	(2,200		)	(400		)	—			(2,200		)
Line of credit repayments from Cole REITs	3,800			10,700			—			3,800
Net cash provided by (used in) investing activities	197,796			(57,221		)
Net cash provided by investing activities							523,021			120,987
Cash flows from financing activities:
Proceeds from mortgage notes payable	182			4,283			—			128
Payments on mortgage notes payable and other debt, including debt extinguishment costs	(125,418		)	(392,390		)	(175,962		)	(32,373		)
Proceeds from credit facility	1,558,000			—			1,034,000			675,000
Payments on credit facility	(950,000		)	(501,107		)	(537,000		)	(665,000		)
Proceeds from corporate bonds	—			600,000
Repayment of convertible notes	(597,500		)	—
Payments on corporate bonds, including extinguishment costs							(750,000		)	—
Payments of deferred financing costs	(20,719		)	(9,313		)	(182		)	(20,578		)
Repurchases of common stock under the Share Repurchase Program	(50,154		)	(518		)
Repurchases of common stock to settle tax obligations	(2,209		)	(1,913		)
Repurchases of Common Stock under the Share Repurchase Programs							—			(50,154		)
Repurchases of Common Stock to settle tax obligations							(1,604		)	(2,148		)
Proceeds from the issuance of Common Stock, net of underwriters’ discount							42,078			—
Contributions from non-controlling interest holders	120			—			64			—
Distributions paid	(455,078		)	(456,487		)	(303,894		)	(303,949		)
Net cash used in financing activities	(642,776		)	(757,445		)	(692,500		)	(399,074		)
Net change in cash and cash equivalents and restricted cash	(11,323		)	(219,310		)

710

Table of Contents

VEREIT, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS – (Continued)

(In thousands)


	Nine Months Ended September 30,						Six Months Ended June 30,
							2019		2018
Net change in cash and cash equivalents and restricted cash							$	178,539	$	(18,524	)
	2018			2017
Cash and cash equivalents and restricted cash, beginning of period	$	64,036		$	301,470		53,663		64,036
Less: cash and cash equivalents of discontinued operations	(2,198		)	(2,973		)	—		(2,198		)
Cash and cash equivalents and restricted cash from continuing operations, beginning of period	61,838			298,497			53,663		61,838

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		$	232,202	$	45,512
Reconciliation of Cash and Cash Equivalents and Restricted Cash
Cash and cash equivalents at beginning of period	$	34,176		$	253,479		$	30,758	$	34,176
Restricted cash at beginning of period	27,662			45,018			22,905		27,662
Cash and cash equivalents and restricted cash at beginning of period	61,838			298,497			53,663		61,838

Cash and cash equivalents at end of period	25,264			51,891			211,510		18,434
Restricted cash at end of period	27,449			27,797			20,692		27,078
Cash and cash equivalents and restricted cash at end of period	$	52,713		$	79,688		$	232,202	$	45,512

The accompanying notes are an integral part of these statements.

811

Table of Contents

VEREIT OPERATING PARTNERSHIP, L.P.

CONSOLIDATED BALANCE SHEETS

(In thousands, except for unit data) (Unaudited)


	September 30, 2018		December 31, 2017		June 30, 2019		December 31, 2018
ASSETS
Real estate investments, at cost:
Land	$	2,847,393	$	2,865,855	$	2,763,348	$	2,843,212
Buildings, fixtures and improvements	10,652,578		10,711,845		10,352,928		10,749,228
Intangible lease assets	2,019,718		2,037,675		1,927,699		2,012,399
Total real estate investments, at cost	15,519,689		15,615,375		15,043,975		15,604,839
Less: accumulated depreciation and amortization	3,323,990		2,908,028		3,488,838		3,436,772
Total real estate investments, net	12,195,699		12,707,347		11,555,137		12,168,067
Operating lease right-of-use assets					221,798		—
Investment in unconsolidated entities	34,293		39,520		68,633		35,289
Cash and cash equivalents	25,264		34,176		211,510		30,758
Restricted cash	27,449		27,662		20,692		22,905
Rent and tenant receivables and other assets, net	412,053		389,060		343,788		366,092
Goodwill	1,337,773		1,337,773		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
Real estate assets held for sale, net					22,553		2,609
Total assets	$	14,056,880	$	14,705,578	$	13,781,884	$	13,963,493

LIABILITIES AND EQUITY
Mortgage notes payable, net	$	1,936,586	$	2,082,692	$	1,745,331	$	1,922,657
Corporate bonds, net	2,825,541		2,821,494		2,621,130		3,368,609
Convertible debt, net	393,961		984,258		396,766		394,883
Credit facility, net	793,000		185,000		895,033		401,773
Below-market lease liabilities, net	179,192		198,551		152,654		173,479
Accounts payable and accrued expenses	269,150		136,474		127,799		145,611
Deferred rent and other liabilities	51,663		62,985		77,713		69,714
Distributions payable	183,913		175,301		187,359		186,623
Due to affiliates	—		66
Liabilities related to discontinued operations	—		15,881
Operating lease liabilities					225,972		—
Total liabilities	6,633,006		6,662,702		6,429,757		6,663,349
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
Commitments and contingencies (Note 10)
General Partner's preferred equity, 42,871,246 and 42,834,138 General Partner Series F Preferred Units issued and outstanding as of June 30, 2019 and December 31, 2018, respectively					675,350		710,325
General Partner's common equity, 973,385,899 and 967,515,165 General Partner OP Units issued and outstanding as of June 30, 2019 and December 31, 2018, respectively					6,545,046		6,446,734
Limited Partner's preferred equity, 49,766 and 86,874 Limited Partner Series F Preferred Units issued and outstanding as of June 30, 2019 and December 31, 2018, respectively					1,912		2,883
Limited Partner's common equity, 20,793,463 and 23,715,908 Limited Partner OP Units issued and outstanding as of June 30, 2019 and December 31, 2018, respectively					128,542		138,931
Total partners’ equity	7,422,562		8,041,571		7,350,850		7,298,873
Non-controlling interests	1,312		1,305		1,277		1,271
Total equity	7,423,874		8,042,876		7,352,127		7,300,144
Total liabilities and equity	$	14,056,880	$	14,705,578	$	13,781,884	$	13,963,493

The accompanying notes are an integral part of these statements.

912

Table of Contents

VEREIT OPERATING PARTNERSHIP, L.P.

CONSOLIDATED STATEMENTS OF OPERATIONS

(In thousands, except for per unit data) (Unaudited)



	Three Months Ended June 30,						Six Months Ended June 30,
	2019			2018			2019			2018
Rental revenue	$	312,043		$	315,664		$	628,886		$	630,738
Operating expenses:
Acquisition-related	985			909			1,970			1,686
Litigation and non-routine costs, net	(3,769		)	107,087			(25,261		)	128,827
Property operating	32,503			31,436			64,881			62,001
General and administrative	16,416			16,287			31,262			31,527
Depreciation and amortization	118,022			164,235			254,577			330,387
Impairments	8,308			11,664			20,296			17,700
Restructuring	290			—			9,366			—
Total operating expenses	172,755			331,618			357,091			572,128
Other (expenses) income:
Interest expense	(69,803		)	(70,320		)	(141,057		)	(140,745		)
(Loss) gain on extinguishment and forgiveness of debt, net	(1,472		)	5,249			(1,472		)	5,249
Other income, net	3,175			1,320			2,773			9,029
Equity in income and gain on disposition of unconsolidated entities	505			327			1,005			1,392
Gain on disposition of real estate and real estate assets held for sale, net	221,755			5,821			232,586			23,156
Total other income (expenses), net	154,160			(57,603		)	93,835			(101,919		)
Income (loss) before taxes	293,448			(73,557		)	365,630			(43,309		)
Provision for income taxes	(1,164		)	(1,134		)	(2,375		)	(2,346		)
Income (loss) from continuing operations	292,284			(74,691		)	363,255			(45,655		)
Income from discontinued operations, net of income taxes	—			224			—			3,725
Net income (loss)	292,284			(74,467		)	363,255			(41,930		)
Net loss attributable to non-controlling interests ⁽¹⁾	30			16			58			56
Net income (loss) attributable to the OP	$	292,314		$	(74,451	)	$	363,313		$	(41,874	)

Basic and diluted net income (loss) per unit from continuing operations attributable to common unitholders	$	0.27		$	(0.09	)	$	0.33		$	(0.08	)
Basic and diluted net income per unit from discontinued operations attributable to common unitholders	$	—		$	0.00		$	—		$	0.00
Basic and diluted net income (loss) per unit attributable to common unitholders	$	0.27		$	(0.09	)	$	0.33		$	(0.08	)

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 a consolidated joint venture ~~partners.~~


~~(2)~~	~~Amounts may not total due to rounding.~~partner.

The accompanying notes are an integral part of these statements.

1013

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 ) (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⁾
57
(9 ) 113
12
Total comprehensive (loss) income attributable to the OP $ (70,547 ) $ 15,049

$ (113,159 )
$ 64,689



	Three Months Ended June 30,						Six Months Ended June 30,
	2019			2018			2019			2018
Net income (loss)	$	292,284		$	(74,467	)	$	363,255		$	(41,930	)
Other comprehensive loss:
Unrealized loss on interest rate derivatives	(16,308		)	—			(27,594		)	—
Reclassification of previous unrealized loss on interest rate derivatives into net income (loss)	99			56			196			161
Unrealized loss on investment securities, net	—			(62		)	—			(899		)
Total other comprehensive loss	(16,209		)	(6		)	(27,398		)	(738		)

Total comprehensive income (loss)	276,075			(74,473		)	335,857			(42,668		)
Comprehensive loss attributable to non-controlling interests ⁽¹⁾	30			16			58			56
Total comprehensive income (loss) attributable to the OP	$	276,105		$	(74,457	)	$	335,915		$	(42,612	)


(1)	Represents comprehensive loss attributable to a consolidated joint venture ~~partners.~~partner.

The accompanying notes are an integral part of these statements.

1114

Table of Contents

VEREIT OPERATING PARTNERSHIP, L.P.

CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY

(In thousands, except for unit data) (Unaudited)

Preferred Units Common Units
General Partner Limited Partner General Partner Limited Partner
Number of Units Capital Number of Units Capital Number of Units Capital Number of Units Capital Total Partners' Capital Non-Controlling Interests Total Capital
Balance, January 1, 2018 42,834,138
$ 782,073
86,874
$ 3,027
974,208,583
$ 7,102,205
23,748,347
$ 154,266
$ 8,041,571
$ 1,305
$ 8,042,876
Repurchases of common stock under Share Repurchase Program —
—
—
—
(6,399,666 ) (44,585 ) —
—
(44,585 ) —
(44,585 )
Repurchases of common OP units to settle tax obligation —
—
—
—
(230,436 ) (1,660 ) —
—
(1,660 ) —
(1,660 )
Equity-based compensation, net forfeitures —
—
—
—
576,005
2,932
—
—
2,932
—
2,932
Distributions to Common OP Units and non-controlling interests —$0.1375 per common unit —
—
—
—
—
(133,626 ) —
(3,264 ) (136,890 ) —
(136,890 )
Distributions to Preferred OP Units —
(17,937 ) —
(36 ) —
—
—
—
(17,973 ) —
(17,973 )
Net income (loss) —
—
—
—
—
31,795
—
782
32,577
(40 ) 32,537
Other comprehensive loss —
—
—
—
—
(715 ) —
(17 ) (732 ) —
(732 )
Balance, March 31, 2018 42,834,138

$ 764,136

86,874

$ 2,991

968,154,486

$ 6,956,346

23,748,347

$ 151,767

$ 7,875,240

$ 1,265

$ 7,876,505
Conversion of Limited Partners' Common OP Units to General Partner's Common OP Units —
—
—
—
32,439
241
(32,439 ) (241 ) —
—
—
Repurchases of common stock under Share Repurchase Program —
—
—
—
(807,210 ) (5,569 ) —
—
(5,569 ) —
(5,569 )
Repurchases of common OP units to settle tax obligation —
—
—
—
(69,931 ) (488 ) —
—
(488 ) —
(488 )
Equity-based compensation, net forfeitures —
—
—
—
184,011
3,948
—
—
3,948
—
3,948
Distributions to Common OP Units and non-controlling interests —$0.1375 per common unit —
—
—
—
—
(133,284 ) —
(3,262 ) (136,546 ) —
(136,546 )
Distributions to Preferred OP Units —
(17,937 ) —
(36 ) —
—
—
—
(17,973 ) —
(17,973 )
Net loss —
—
—
—
—
(72,670 ) —
(1,781 ) (74,451 ) (16 ) (74,467 )
Other comprehensive loss —
—
—
—
—
(6 ) —
—
(6 ) —
(6 )
Balance, June 30, 2018 42,834,138

$ 746,199

86,874

$ 2,955

967,493,795

$ 6,748,518

23,715,908

$ 146,483

$ 7,644,155

$ 1,249

$ 7,645,404
Repurchases of common OP units to settle tax obligation —
—
—
—
(7,597 ) (61 ) —
—
(61 ) —
(61 )
Equity-based compensation, net forfeitures —
—
—
—
35,915
3,323
—
—
3,323
—
3,323
Contributions from non-controlling interest holders —
—
—
—
—
—
—
—
—
120
120
Distributions to Common OP Units and non-controlling interests —$0.1375 per common unit —
—
—
—
—
(133,074 ) —
(3,261 ) (136,335 ) —
(136,335 )
Distributions to Preferred OP Units —
(17,937 ) —
(36 ) —
—
—
—
(17,973 ) —
(17,973 )
Net loss —
—
—
—
—
(72,117 ) —
(1,768 ) (73,885 ) (57 ) (73,942 )
Other comprehensive income —
—
—
—
—
3,259
—
79
3,338
—
3,338
Balance, September 30, 2018 42,834,138

$ 728,262

86,874

$ 2,919

967,522,113

$ 6,549,848

23,715,908

$ 141,533

$ 7,422,562

$ 1,312

$ 7,423,874



	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, 2019	42,834,138	$	710,325		86,874		$	2,883		967,515,165		$	6,446,734		23,715,908		$	138,931		$	7,298,873		$	1,271		$	7,300,144
Issuance of common OP Units, net	—	—			—		—			3,309,808		27,544			—		—			27,544			—			27,544
Conversion of Limited Partners' Common OP Units to General Partner's Common OP Units	—	—			—		—			—		(26		)	—		26			—			—			—
Conversion of Limited Partner Series F Preferred Units to Series F Preferred Stock	37,108	923			(37,108	)	(923		)	—		—			—		—			—			—			—
Repurchases of common OP Units to settle tax obligation	—	—			—		—			(199,083	)	(1,595		)	—		—			(1,595		)	—			(1,595		)
Equity-based compensation, net	—	—			—		—			950,487		2,872			—		—			2,872			—			2,872
Contributions from non-controlling interest holders	—	—			—		—			—		—			—		—			—			64			64
Distributions to common OP Units and non-controlling interests —$0.1375 per common unit	—	—			—		—			—		(133,480		)	—		(3,262		)	(136,742		)	—			(136,742		)
Dividend equivalents on awards granted under the Equity Plan	—	—			—		—			—		(1,222		)	—		—			(1,222		)	—			(1,222		)
Distributions to Series F Preferred Units	—	(17,940		)	—		(33		)	—		—			—		—			(17,973		)	—			(17,973		)
Net income (loss)	—	—			—		—			—		69,304			—		1,695			70,999			(28		)	70,971
Other comprehensive loss	—	—			—		—			—		(10,922		)	—		(267		)	(11,189		)	—			(11,189		)
Balance, March 31, 2019	42,871,246	$	693,308		49,766		$	1,927		971,576,377		$	6,399,209		23,715,908		$	137,123		$	7,231,567		$	1,307		$	7,232,874
Issuance of common OP Units, net	—	—			—		—			1,773,456		14,534			—		—			14,534			—			14,534
Repurchases of common OP Units to settle tax obligation	—	—			—		—			—		(9		)	—		—			(9		)	—			(9		)
Equity-based compensation, net	—	—			—		—			36,066		3,883			—		—			3,883			—			3,883
Distributions to common OP Units and non-controlling interests —$0.1375 per common unit	—	—			—		—			—		(133,841		)	—		(3,264		)	(137,105		)	—			(137,105		)
Dividend equivalents on awards granted under the Equity Plan	—	—			—		—			—		(44		)	—		—			(44		)	—			(44		)
Distributions to Series F Preferred Units	—	(17,958		)	—		(15		)	—		—			—		—			(17,973		)	—			(17,973		)
Distributions payable relinquished	—	—			—		—			—		—			—		6,429			6,429			—			6,429
Surrender of Limited Partner OP Units	—	—			—		—			—		(8,520		)	(2,922,445	)	(18,017		)	(26,537		)	—			(26,537		)
Net income (loss)	—	—			—		—			—		285,658			—		6,656			292,314			(30		)	292,284
Other comprehensive loss	—	—			—		—			—		(15,824		)	—		(385		)	(16,209		)	—			(16,209		)
Balance, June 30, 2019	42,871,246	$	675,350		49,766		$	1,912		973,385,899		$	6,545,046		20,793,463		$	128,542		$	7,350,850		$	1,277		$	7,352,127

1215

Table of Contents

VEREIT OPERATING PARTNERSHIP, L.P.

CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY

(In thousands, except for unit data) (Unaudited)

Preferred Units Common Units
General Partner Limited Partner General Partner Limited Partner
Number of Units Capital Number of Units Capital Number of Units Capital Number of Units Capital Total Partners' Capital Non-Controlling Interests Total Capital
Balance, January 1, 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 to settle tax obligation —
—
—
—
(140,832 ) (1,184 ) —
—
(1,184 ) —
(1,184 )
Equity-based compensation, net forfeitures —
—
—
—
232,640
3,113
—
—
3,113
—
3,113
Distributions to Common OP Units, LTIPs and non-controlling interests—
$0.1375 per common unit —
—
—
—
—
(134,107 ) —
(3,266 ) (137,373 ) (60 ) (137,433 )
Distributions to Preferred OP Units —
(17,937 ) —
(36 ) —
—
—
—
(17,973 ) —
(17,973 )
Net income —
—
—
—
—
14,438
—
359
14,797
(7 ) 14,790
Other comprehensive income —
—
—
—
—
761
—
19
780
—
780
Balance, March 31, 2017 42,834,138

$ 835,884

86,874

$ 3,135

974,238,458

$ 7,476,561

23,748,347

$ 163,710

$ 8,479,290

$ 2,336

$ 8,481,626
Repurchases of common stock under Share Repurchase Program —
—
—
—
(68,759 ) (518 ) —
—
(518 ) —
(518 )
Repurchases of common OP units to settle tax obligation —
—
—
—
(81,279 ) (722 ) —
—
(722 ) —
(722 )
Equity-based compensation, net forfeitures —
—
—
—
161,782
4,450
—
—
4,450
—
4,450
Distributions to Common OP Units, LTIPs and non-controlling interests—$0.1375 per common unit —
—
—
—
—
(134,150 ) —
(3,265 ) (137,415 ) (19 ) (137,434 )
Distributions to Preferred OP Units —
(17,937 ) —
(36 ) —
—
—
—
(17,973 ) —
(17,973 )
Net income —
—
—
—
—
33,408
—
792
34,200
(14 ) 34,186
Other comprehensive loss —
—
—
—
—
(133 ) —
(3 ) (136 ) —
(136 )
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
Repurchases of common OP units to settle tax obligation —
—
—
—
(812 ) (7 ) —
—
(7 ) —
(7 )
Equity-based compensation, net forfeitures —
—
—
—
(4,045 ) 3,665
—
—
3,665
—
3,665
Distributions to Common OP Units, LTIPs and non-controlling interests—$0.1375 per common unit —
—
—
—
—
(133,982 ) —
(3,264 ) (137,246 ) (6 ) (137,252 )
Distributions to Preferred OP Units —
(17,937 ) —
(36 ) —
—
—
—
(17,973 ) —
(17,973 )
Net income —
—
—
—
—
16,094
—
391
16,485
9
16,494
Other comprehensive loss —
—
—
—
—
(1,401 ) —
(35 ) (1,436 ) —
(1,436 )
Balance, September 30, 2017 42,834,138

$ 800,010

86,874

$ 3,063

974,245,345

$ 7,263,265

23,748,347

$ 158,326

$ 8,224,664

$ 2,306

$ 8,226,970



	Preferred Units								Common Units
	General Partner				Limited Partner				General Partner					Limited Partner
	Number of Units	Capital			Number of Units	Capital			Number of Units		Capital			Number of Units		Capital			Total Partners' Capital			Non-Controlling Interests			Total Capital
Balance, January 1, 2018	42,834,138	$	782,073		86,874	$	3,027		974,208,583		$	7,102,205		23,748,347		$	154,266		$	8,041,571		$	1,305		$	8,042,876
Repurchases of common OP Units under share repurchase programs	—	—			—	—			(6,399,666	)	(44,585		)	—		—			(44,585		)	—			(44,585		)
Repurchases of common OP Units to settle tax obligation	—	—			—	—			(230,436	)	(1,660		)	—		—			(1,660		)	—			(1,660		)
Equity-based compensation, net	—	—			—	—			576,005		2,932			—		—			2,932			—			2,932
Distributions to common OP Units and non-controlling interests —$0.1375 per common unit	—	—			—	—			—		(133,104		)	—		(3,264		)	(136,368		)	—			(136,368		)
Dividend equivalents on awards granted under the Equity Plan	—	—			—	—			—		(522		)	—		—			(522		)	—			(522		)
Distributions to Series F Preferred Units	—	(17,937		)	—	(36		)	—		—			—		—			(17,973		)	—			(17,973		)
Net income (loss)	—	—			—	—			—		31,795			—		782			32,577			(40		)	32,537
Other comprehensive loss	—	—			—	—			—		(715		)	—		(17		)	(732		)	��			(732		)
Balance, March 31, 2018	42,834,138	$	764,136		86,874	$	2,991		968,154,486		$	6,956,346		23,748,347		$	151,767		$	7,875,240		$	1,265		$	7,876,505
Conversion of Limited Partners' Common OP Units to General Partner's Common OP Units	—	—			—	—			32,439		241			(32,439	)	(241		)	—			—			—
Repurchases of common OP Units under share repurchase programs	—	—			—	—			(807,210	)	(5,569		)	—		—			(5,569		)	—			(5,569		)
Repurchases of common OP Units to settle tax obligation	—	—			—	—			(69,931	)	(488		)	—		—			(488		)	—			(488		)
Equity-based compensation, net	—	—			—	—			184,011		3,948			—		—			3,948			—			3,948
Distributions to common OP Units and non-controlling interests —$0.1375 per common unit	—	—			—	—			—		(133,010		)	—		(3,262		)	(136,272		)	—			(136,272		)
Dividend equivalents on awards granted under the Equity Plan	—	—			—	—			—		(274		)	—		—			(274		)	—			(274		)
Distributions to Series F Preferred Units	—	(17,937		)	—	(36		)	—		—			—		—			(17,973		)	—			(17,973		)
Net loss	—	—			—	—			—		(72,670		)	—		(1,781		)	(74,451		)	(16		)	(74,467		)
Other comprehensive loss	—	—			—	—			—		(6		)	—		—			(6		)	—			(6		)
Balance, June 30, 2018	42,834,138	$	746,199		86,874	$	2,955		967,493,795		$	6,748,518		23,715,908		$	146,483		$	7,644,155		$	1,249		$	7,645,404

1316

Table of Contents

VEREIT OPERATING PARTNERSHIP, L.P.

CONSOLIDATED STATEMENTS OF CASH FLOWS

(In thousands) (Unaudited)


	Nine Months Ended September 30,						Six Months Ended June 30,
	2018			2017			2019			2018
Cash flows from operating activities:
Net (loss) income	$	(115,872	)	$	65,470
Adjustments to reconcile net income to net cash provided by operating activities:
Net income (loss)							$	363,255		$	(41,930	)
Adjustments to reconcile net income (loss) to net cash provided by operating activities:
Depreciation and amortization	503,529			562,673			260,771			342,316
Gain on real estate assets, net	(70,188		)	(54,432		)	(232,597		)	(23,857		)
Impairments	36,082			30,857			20,296			17,700
Equity-based compensation	10,203			11,224
Equity in income of unconsolidated entities and gain on joint venture	(1,644		)	(805		)
Equity based compensation							6,755			6,880
Equity in income of unconsolidated entities							(1,005		)	(691		)
Distributions from unconsolidated entities	1,365			1,641			—			1,328
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		)
Loss (gain) on investments							464			(5,638		)
Loss (gain) on derivative instruments							58			(378		)
Non-cash restructuring expense							4,048			—
Loss (gain) on extinguishment and forgiveness of debt, net							1,472			(5,249		)
Surrender of Limited Partner OP Units							(26,536		)	—
Changes in assets and liabilities:
Investment in direct financing leases	1,524			1,575			821			1,041
Rent and tenant receivables and other assets, net	(28,520		)	(15,105		)
Rent and tenant receivables, operating lease right-of-use and other assets, net							(9,596		)	(23,561		)
Assets held for sale classified as discontinued operations	(2,492		)	—			—			(2,492		)
Accounts payable and accrued expenses	132,686			13,759			(13,104		)	4,240
Deferred rent and other liabilities	(11,001		)	(27		)
Deferred rent, operating lease and other liabilities							(27,084		)	3,781
Due to affiliates	(66		)	(8		)	—			(66		)
Liabilities related to discontinued operations	(13,861		)	—			—			(13,861		)
Net cash provided by operating activities	433,657			595,356			348,018			259,563
Cash flows from investing activities:
Investments in real estate assets	(278,385		)	(403,886		)	(191,550		)	(179,198		)
Capital expenditures and leasing costs	(13,116		)	(14,081		)	(19,695		)	(7,735		)
Real estate developments	(7,477		)	(10,863		)	(10,537		)	(4,609		)
Principal repayments received on investment securities and mortgage notes receivable	5,555			6,281			88			5,045
Investments in unconsolidated entities							(2,767		)	—
Return of investment from unconsolidated entities	48			1,141			—			85
Proceeds from disposition of real estate and joint venture	358,443			366,237			739,873			180,723
Proceeds from disposition of discontinued operations	123,925			—			—			123,925
Payments related to disposition of discontinued operations	(1,010		)	—			—			(1,010		)
Investment in leasehold improvements and other assets	(616		)	(446		)	(798		)	(359		)
Deposits for real estate assets	(11,957		)	(32,946		)	(3,072		)	(6,648		)
Proceeds from sale of investments and other assets	10,880			—			8,199			1,351
Uses and refunds of deposits for real estate assets	8,552			20,989			2,946			7,070
Proceeds from the settlement of property-related insurance claims	1,354			53			334			747
Line of credit advances to Cole REITs	(2,200		)	(400		)	—			(2,200		)
Line of credit repayments from Cole REITs	3,800			10,700			—			3,800
Net cash provided by (used in) investing activities	197,796			(57,221		)
Net cash provided by investing activities							523,021			120,987
Cash flows from financing activities:
Proceeds from mortgage notes payable	182			4,283			—			128
Payments on mortgage notes payable and other debt, including debt extinguishment costs	(125,418		)	(392,390		)	(175,962		)	(32,373		)
Proceeds from credit facility	1,558,000			—			1,034,000			675,000
Payments on credit facility	(950,000		)	(501,107		)	(537,000		)	(665,000		)
Proceeds from corporate bonds	—			600,000
Repayment of convertible notes	(597,500		)	—
Payments on corporate bonds, including extinguishment costs							(750,000		)	—
Payments of deferred financing costs	(20,719		)	(9,313		)	(182		)	(20,578		)
Repurchases of common stock under the Share Repurchase Program	(50,154		)	(518		)
Repurchases of common stock to settle tax obligations	(2,209		)	(1,913		)
Repurchases of Common Stock under the Share Repurchase Programs							—			(50,154		)
Repurchases of Common Stock to settle tax obligations							(1,604		)	(2,148		)
Proceeds from the issuance of Common Stock, net of underwriters’ discount							42,078			—
Contributions from non-controlling interest holders	120			—			64			—
Distributions paid	(455,078		)	(456,487		)	(303,894		)	(303,949		)
Net cash used in financing activities	(642,776		)	(757,445		)	(692,500		)	(399,074		)
Net change in cash and cash equivalents and restricted cash	(11,323		)	(219,310		)

1417

Table of Contents

VEREIT OPERATING PARTNERSHIP, L.P.

CONSOLIDATED STATEMENTS OF CASH FLOWS – (Continued)

(In thousands)


	Nine Months Ended September 30,						Six Months Ended June 30,
							2019		2018
Net change in cash and cash equivalents and restricted cash							$	178,539	$	(18,524	)
	2018			2017
Cash and cash equivalents and restricted cash, beginning of period	$	64,036		$	301,470		53,663		64,036
Less: cash and cash equivalents of discontinued operations	(2,198		)	(2,973		)	—		(2,198		)
Cash and cash equivalents and restricted cash from continuing operations, beginning of period	61,838			298,497			53,663		61,838

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		$	232,202	$	45,512
Reconciliation of Cash and Cash Equivalents and Restricted Cash
Cash and cash equivalents at beginning of period	$	34,176		$	253,479		$	30,758	$	34,176
Restricted cash at beginning of period	27,662			45,018			22,905		27,662
Cash and cash equivalents and restricted cash at beginning of period	61,838			298,497			53,663		61,838

Cash and cash equivalents at end of period	25,264			51,891			211,510		18,434
Restricted cash at end of period	27,449			27,797			20,692		27,078
Cash and cash equivalents and restricted cash at end of period	$	52,713		$	79,688		$	232,202	$	45,512

The accompanying notes are an integral part of these statements.

1518

Table of Contents

VEREIT, INC. and VEREIT OPERATING PARTNERSHIP, L.P.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

~~September~~June 30, ~~2018~~2019 (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,~~“VER PF,” respectively. As used herein, the terms the “Company,” “we,” “our” and “us” refer to VEREIT, together with its consolidated subsidiaries, including the OP.

VEREIT is a full-service real estate operating company which owns and manages one of the largest portfolios of single-tenant commercial properties in the U.S. VEREIT’s business model provides equity capital to creditworthy corporations in return for long-term leases on their properties. The Company actively manages its portfolio considering a number of metrics including property type, concentration and key economic factors for appropriate balance and diversity.

Substantially all of the Company’s operations are conducted through the OP. VEREIT is the sole general partner and holder of ~~97.6%~~97.9% of the common equity interests in the OP as of ~~September~~June 30, ~~2018~~2019 with the remaining ~~2.4%~~2.1% of the common equity interests owned by unaffiliated investors and certain former directors, officers and employees of ARC Properties Advisors, LLC (the “Former Manager”)., which is net of the surrendered 2.9 million Limited Partner OP Units discussed in Note 12 – Equity. Under the limited partnership agreement of the OP, as amended (the “LPA”), after holding common units of limited partner interests in the OP (“OP Units”) or Series F Preferred Units of limited partnership interests in the OP (“Series F Preferred Units”), for a period of one year and meeting the other requirements in the LPA, unless we otherwise consent to an earlier redemption, ~~is otherwise consented to by VEREIT,~~ holders ~~of OP Units~~ have the right to redeem the ~~OP Units~~units for the cash value of a corresponding number of shares of ~~VEREIT’s~~ Common Stock or Series F Preferred Stock, as applicable, or, at ~~the~~our option, ~~of VEREIT,~~ a corresponding number of shares of ~~VEREIT’s~~ Common ~~Stock.~~Stock or Series F Preferred Stock, as applicable, subject to adjustment pursuant to the terms of the LPA. 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.

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 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~~Board of ~~directors,~~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 and Series F Preferred Units issued to the General Partner are referred to as ~~General~~“General Partner OP ~~Units.~~Units” and “General Partner Series F Preferred Units,” respectively. OP Units and Series F Preferred Units issued to parties other than the General Partner are referred to as ~~Limited~~“Limited Partner OP ~~Units.~~Units” and “Limited Partner Series F Preferred Units,” respectively. 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~~Board of ~~directors~~Directors authorizes the issuance of any new class of equity securities.

~~As discussed in~~ ~~Note 4 —Discontinued Operations~~, on February 1, 2018, the Company completed the sale of its investment management segment, Cole Capital. The assets, liabilities and related financial results of substantially all of the Cole Capital segment are reflected in the financial statements as discontinued operations.

Note 2 –Summary of Significant Accounting Policies

Basis of Accounting

The consolidated financial statements of the Company presented herein include the accounts of the General Partner and its consolidated subsidiaries, including the OP. All intercompany transactions have been eliminated upon consolidation. The financial statements are prepared on the accrual basis of accounting in accordance with generally accepted accounting principles in the United States (“U.S. GAAP”). The information furnished includes all adjustments and accruals of a normal recurring nature, which, in the opinion of management, are necessary for a fair presentation of results for the interim periods. The results of operations for the three and ~~nine~~six months ended ~~September~~June 30, ~~2018~~2019 are not necessarily indicative of the results for the entire year or any subsequent interim period.

1619

Table of Contents

VEREIT, INC. and VEREIT OPERATING PARTNERSHIP, L.P.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

~~September~~June 30, ~~2018~~2019 (Unaudited) – (Continued)

These consolidated financial statements should be read in conjunction with the audited consolidated financial statements and notes thereto as of and for the year ended December 31, ~~2017~~2018 of the Company, which are included in the Company’s Annual Report on Form 10-K filed on February ~~22, 2018.~~21, 2019. There have been no significant changes to the Company’s significant accounting policies during the ~~nine~~six months ended ~~September~~June 30, ~~2018,~~2019, except any policies ~~that are no longer applicable due to the Company’s sale of Cole Capital, as discussed in~~ ~~Note 4 —Discontinued Operations, and~~impacted by the adoption of the ~~Revenue~~Leasing ASUs, as defined in the ~~“Revenue Recognition” and~~ “Recent Accounting Pronouncements” ~~sections~~section herein. Information and footnote disclosures normally included in financial statements have been condensed or omitted pursuant to the rules and regulations of the U.S. Securities and Exchange Commission (the “SEC”) and U.S. GAAP.

Principles of Consolidation and Basis of Presentation

The consolidated financial statements include the accounts of the Company and its consolidated subsidiaries and a consolidated joint ~~venture arrangements.~~venture. The ~~portions~~portion of the consolidated joint venture ~~arrangements~~ not owned by the Company ~~are~~is presented as non-controlling ~~interests~~interest in VEREIT’s and the OP’s consolidated balance sheets, statements of operations, statements of comprehensive income (loss) and statements of changes in equity. In addition, as described in Note 1 – Organization, and Note 12 – Equity, certain third parties have been issued OP Units and Series F Preferred Units. Holders of OP Units are considered to be non-controlling interest holders in the OP and their ownership interest in the limited partner’s share is presented as non-controlling interests in VEREIT’s consolidated balance sheets, statements of operations, statements of comprehensive income (loss) and statements of changes in equity. Further, a portion of the earnings and losses of the OP are allocated to non-controlling interest holders based on their respective ownership percentages. Upon conversion of OP Units to Common Stock or Series F Preferred Units to Series F Preferred Stock, any difference between the fair value of shares of Common Stock or Series F Preferred Stock, as applicable, issued and the carrying value of the OP Units or Series F Preferred Units, as applicable, converted is recorded as a component of equity. As of ~~each of September~~June 30, ~~2018~~2019 and December 31, ~~2017,~~2018, there were approximately 20.8 million, net of the surrendered 2.9 million Limited Partner OP Units discussed in Note 12 – Equity, and 23.7 million Limited Partner OP Units ~~outstanding.~~issued and outstanding, respectively, and 49,766 and 86,874 Limited Partner Series F Preferred Units issued and outstanding, respectively.

For legal entities being evaluated for consolidation, the Company must first determine whether the interests that it holds and fees it receives qualify as variable interests in the entity. A variable interest is an investment or other interest that will absorb portions of an entity’s expected losses or receive portions of the entity’s expected residual returns. The Company’s evaluation includes consideration of fees paid to the Company where the Company acts as a decision maker or service provider to the entity being evaluated. If the Company determines that it holds a variable interest in an entity, it evaluates whether that entity is a variable interest entity (“VIE”). VIEs are entities where investors lack sufficient equity at risk for the entity to finance its activities without additional subordinated financial support or where equity investors, as a group, lack one of the following characteristics: (a) the power to direct the activities that most significantly impact the entity’s economic performance, (b) the obligation to absorb the expected losses of the entity, or (c) the right to receive the expected returns of the entity.

The Company then qualitatively assesses whether it is (or is not) the primary beneficiary of a VIE, which is generally defined as the party who has a controlling financial interest in the VIE. Consideration of various factors include, but are not limited to, the Company’s ability to direct the activities that most significantly impact the entity’s economic performance and its obligation to absorb losses from or right to receive benefits of the VIE that could potentially be significant to the VIE. The Company consolidates any VIEs when the Company is determined to be the primary beneficiary of the VIE and the difference between consolidating the VIE and accounting for it using the equity method could be material to the Company’s consolidated financial statements. The Company continually evaluates the need to consolidate these VIEs based on standards set forth in U.S. GAAP.

Reclassification

As described below, the following items previously reported have been reclassified to conform with the current period’s presentation.

The ~~investment in direct financing leases, net, investment securities, at fair value and mortgage notes receivable, net~~operating expense reimbursements line ~~items from prior periods have~~item has been combined into rental revenue for prior periods presented to be consistent with the ~~rent and tenant receivables and other assets,~~current year presentation. The (loss) gain on derivative instruments, net ~~caption on the consolidated balance sheets. Direct financing lease income of $0.4 million and $1.2 million~~line item has been ~~reclassified to rental~~combined into other income, during the three and nine months ended September 30, 2017, respectively, and investments in the Cole REITs, as defined in “Investment in Cole REITs” section herein, of $3.3 million has been reclassified as of December 31, 2017 to rent and tenant receivables and other assets, net ~~from investment in unconsolidated entities~~for prior periods presented to be consistent with the current year presentation.

The distributions declared on Common Stock line item from prior periods has been updated to exclude distributions on restricted stock units (“Restricted Stock Units”) and deferred stock units (“Deferred Stock Units”) on the consolidated statements of changes in equity for all periods presented. These amounts are now included in the line item dividend equivalents on awards granted under the Equity Plan (as defined below), which also includes dividend equivalents on restricted share awards (“Restricted Shares”). The dividend equivalents on Restricted Shares were previously included in the line item distributions to participating securities in the consolidated statements of changes in equity.

1720

Table of Contents

VEREIT, INC. and VEREIT OPERATING PARTNERSHIP, L.P.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

~~September~~June 30, ~~2018~~2019 (Unaudited) – (Continued)

In connection with the adoption of Accounting Standards Update ASU 2016-15, Statement of Cash Flows (Topic 230): Classification of Certain Cash Receipts and Cash Payments (“ASU 2016-15”) and ASU 2016-18 Statement of Cash Flows (Topic 230): Restricted Cash (“ASU 2016-18”), during the fourth quarter of fiscal year 2017, as discussed in the Company’s Annual Report on Form 10-K filed on February 22, 2018, certain reclassifications have been made to prior period balances to conform to current presentation in the consolidated statement of cash flows. Under ASU 2016-15, the Company reclassified $1.1 million of distributions received from equity method investments from cash flows provided by operating activities to cash flows provided by investing activities in the consolidated statement of cash flows for the nine months ended September 30, 2017. The Company also reclassified $0.1 million of proceeds from the settlement of property-related insurance claims from cash flows provided by operating activities to cash flows provided by investing activities for the nine months ended September 30, 2017. Under ASU 2016-18, transfers to or from restricted cash are now required to be shown as part of the total change in cash, cash equivalents and restricted cash in the consolidated statements of cash flows. Accordingly, for the nine months ended September 30, 2017, the Company included restricted cash with cash and cash equivalents when reconciling the beginning-of-period and end-of-period amounts shown on the statements of cash flows and removed the change in restricted cash from cash flows used in investing activities. This change resulted in an increase in cash flows provided by investing activities of $14.6 million during the nine months ended September 30, 2017. Additionally, this change resulted in a decrease in cash flows used in financing activities of $2.6 million, related to restricted cash relinquished to the lenders of two mortgage loans, which were satisfied through foreclosure sale or execution of a deed-in lieu of foreclosure agreement during the nine months ended September 30, 2017.

~~Derivatives~~

The Company may use derivative financial instruments, including interest rate swaps, caps, options, floors and other interest rate derivative contracts, to hedge all or a portion of the interest rate risk associated with its borrowings. The principal objective of such arrangements is to minimize the risks and/or costs associated with the Company’s operating and financial structure as well as to hedge specific anticipated transactions. The Company does not intend to utilize derivatives for purposes other than interest rate risk management.

As of September 30, 2018 and December 31, 2017, the Company had the following outstanding interest rate derivatives that were not designated as qualifying hedging relationships (dollar amounts in thousands):

Interest Rate Swap September 30, 2018 December 31, 2017
Number of Instruments 1
2
Notional Amount $ 50,850
$ 78,949

~~Revenue Recognition~~

In May 2014, the U.S. Financial Accounting Standards Board (“FASB”) issued ASU 2014-09, Revenue from Contracts with Customers (“ASU 2014-09”) (Topic 606), which supersedes the revenue recognition requirements in Revenue Recognition, Accounting Standards Codification (“ASC”) (Topic 605) and requires an entity to recognize revenue in a way that depicts the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. Subsequent to the issuance of ASU 2014-09, the FASB issued ASU 2016-10, Revenue from Contracts with Customers (Topic 606) Identifying Performance Obligations and Licensing (“ASU 2016-10”), ASU 2016-08, Principal versus Agent Considerations (Reporting Revenue Gross versus Net) (“ASU 2016-08”), ASU 2016-12, Revenue from Contracts with Customers (Topic 606) Narrow-Scope Improvements and Practical Expedients (“ASU 2016-12”) and ASU 2016-20 Technical Corrections and Improvements to Topic 606, Revenue from Contracts with Customers (“ASU 2016-20”), which provided various technical corrections and practical expedients to the requirements of ASU 2014-09. ASU 2014-09 together with ASU 2016-08, ASU 2016-10, ASU 2016-12 and ASU 2016-20 are referred to as the “Revenue ASUs”. The Company adopted the Revenue ASUs during the first quarter of 2018 using the modified retrospective approach, which allows a cumulative effect adjustment to beginning retained earnings equal to initially applying the Revenue ASUs to all contracts with customers not completed as of the date of adoption. Adoption of the Revenue ASUs did not result in a cumulative effect adjustment to retained earnings as all contracts not completed as of adoption within the scope of Topic 606 have the same revenue recognition timing and measurement under Topic 605. Revenues generated through leasing arrangements are excluded from the Revenue ASUs as discussed below.

~~Table of Contents~~

~~VEREIT, INC. and VEREIT OPERATING PARTNERSHIP, L.P.~~

~~NOTES TO CONSOLIDATED FINANCIAL STATEMENTS~~

~~September 30, 2018 (Unaudited)~~ – ~~(Continued)~~

Revenue Recognition - Real Estate

~~Revenue recognized as rental income~~The Company continually reviews receivables related to rent and unbilled rent receivables and determines collectability by taking into consideration the tenant’s payment history, the financial condition of the tenant, business conditions in the industry in which the tenant operates and economic conditions in the area in which the property is ~~not within the scope of Topic 606 and therefore was not impacted by its adoption.~~located. Upon adoption of ~~ASU 2016-02,~~Accounting Standards Codification (“ASC”) Topic 842, Leases (“~~ASU 2016-02”~~ASC 842”) on, effective January 1, 2019, operating expense reimbursement revenue will be within the scope of Topic 606 and may be considered a non-lease component, as defined in ASU 2016-02. Refer to “Recent Accounting Pronouncements” section herein for further discussion regarding ASU 2016-02. Operating expense reimbursement revenue was not impacted by the adoption of Topic 606 for the three and nine months ended September 30, 2018.

~~Revenue Recognition - Cole Capital~~

~~As discussed in~~ ~~Note 4 —Discontinued Operations, on February 1, 2018,~~ the Company ~~completed the sale of its investment management segment, Cole Capital. The assets, liabilities and related financial results of substantially~~recognizes all ~~of the Cole Capital segment are reflected~~changes in the ~~financial statements~~collectability assessment for an operating lease as ~~discontinued operations.~~

~~Cole Capital earned securities sales commissions, dealer manager fees, distribution~~an adjustment to rental income and ~~stockholder servicing fees, real estate acquisition fees, financing coordination fees, property management fees, advisory fees, asset management fees and performance fees~~does not record an allowance for ~~services relating to the Cole REITs’ offerings and the investment and management of their respective assets, in accordance with the respective dealer manager and advisory agreements.~~

Cole Capital recorded dealer manager fees, excluding those related to INAV, as defined in “Investment in Cole REITs” section herein, and securities sales commissions as revenue upon satisfying its performance obligation, which occurred at the point in time in which the sale was complete. Dealer manager fees from the sale of INAV shares and distribution and stockholder servicing fees were a form of variable consideration associated with the performance obligation of selling shares. Although the performance obligation of selling shares was completed upon sale, the variable consideration was constrained due to the uncertainty associated with estimating the transaction price. As the fees were accrued daily based upon the fund’s net asset value, revenue was recognized daily as the uncertainty was resolved. The Company recorded revenue related to acquisition and financing coordination fees upon satisfaction of the related performance obligations, which occurred upon completion of a transaction. Advisory, asset and property management fees were recorded over time as services were performed. Performance fees were a form of variable consideration relating to INAV earned at a point in time in which for any year the total return on stockholders’ capital exceeded 6% per annum on a calendar year basis. Although the performance obligation associated with the performance fee would have been satisfied over time, revenue recognition was constrained due to the uncertainty associated with estimating the transaction price. The Company was also reimbursed for certain costs incurred in providing these services, which were recorded as revenue as the expenses were incurred subject to revenue constraint due to the limitations on the amount that was reimbursable based on the terms of the respective dealer manager and advisory agreements. Refer to ~~Note 14 –Related Party Transactions and Arrangements~~ ~~for a disaggregation of Cole Capital revenues.~~

~~Revenue Recognition - Other~~

~~The Company entered into a services agreement (the “Services Agreement”) with the Cole Purchaser, as defined in~~ ~~Note 4 —Discontinued Operations~~, pursuant to which the Company will continue to provide certain services to the Cole Purchaser and the Cole REITs, including operational real estate support, for a specified period of time (“Transition Services Revenues”). Under the terms of the Services Agreement, the Company will be entitled to receive reimbursement for certain of the services provided. The Company recorded Transition Services Revenues as costs associated with providing such services were incurred, which coincided with the timing in which the performance obligations of the contract had been met. During the three months ended September 30, 2018, the Company incurred $4.1 million of costs as a result of providing such services and recognized revenues of $4.0 million. During the period from February 1, 2018 through September 30, 2018, the Company incurred $12.2 million of such costs and recognized revenues of $12.1 million, which are recorded in other income, net in the consolidated statement of operations. The Company may also receive Net Revenue Payments, as defined in ~~Note 4 —Discontinued Operations, over the next six years if future revenues of Cole Capital exceed a specified dollar threshold, up to an aggregate of $80.0 million in Net Revenue Payments.~~

~~Goodwill~~

In connection with prior mergers, the Company recorded goodwill as a result of the merger consideration exceeding the net assets acquired. As of September 30, 2018 and December 31, 2017, the carrying value of goodwill was $1.3 billion.

~~Table of Contents~~

~~VEREIT, INC. and VEREIT OPERATING PARTNERSHIP, L.P.~~

~~NOTES TO CONSOLIDATED FINANCIAL STATEMENTS~~

~~September 30, 2018 (Unaudited)~~ – ~~(Continued)~~

The Company evaluates goodwill for impairment annually or more frequently when an event occurs or circumstances change that indicate the carrying value may not be recoverable. The Company’s annual testing date is during the fourth quarter. During the nine months ended September 30, 2018 and 2017, management monitored the actual performance relative to the fair value assumptions used during the annual goodwill impairment testing. For the periods presented, management determined it remained more likely than not that the fair value was greater than its carrying value. Goodwill related to discontinued operations is discussed in ~~Note 4 —Discontinued Operations~~.uncollectible accounts.

Litigation and ~~Other Non-routine~~Non-Routine Costs, Net ~~of Insurance Recoveries~~

The Company has incurred legal fees and other costs associated with litigations and investigations resulting from the Audit Committee Investigation (defined below), which are considered non-routine. The ~~Company has directors’ and officers’ insurance and the~~Company’s insurance carriers have paid certain defense costs subject to standard reservation of rights under the respective policies.

Litigation and ~~other~~ non-routine costs, net ~~of insurance recoveries~~ include the following costs and recoveries (amounts in thousands):


	Three Months Ended September 30,					Nine Months Ended September 30,					Three Months Ended June 30,						Six Months Ended June 30,
	2018			2017		2018			2017		2019			2018			2019			2018
Litigation and other non-routine costs:
Litigation and non-routine costs, net:
Audit Committee Investigation and related matters ⁽¹⁾	$	13,009		$	9,476	$	51,969		$	36,501	$	22,767		$	17,232		$	37,458		$	38,960
Legal fees and expenses ⁽²⁾	386			31		521			292		—			123			2			135
Litigation settlements ⁽³⁾	127,500			—		217,500			—		—			90,000			12,235			90,000
Total costs	140,895			9,507		269,990			36,793		22,767			107,355			49,695			129,095
Insurance recoveries ⁽⁴⁾	(2,300		)	—		(2,568		)	—		—			(268		)	(48,420		)	(268		)
Other recoveries ⁽⁴⁾											(26,536		)	—			(26,536		)	—
Total	$	138,595		$	9,507	$	267,422		$	36,793	$	(3,769	)	$	107,087		$	(25,261	)	$	128,827

___________________________________

(1)

Includes all fees and costs associated with various litigations and investigations prompted by the results of the 2014 investigation conducted by the audit committee (the “Audit Committee”) of the Company’s ~~board~~Board of ~~directors~~Directors (the “Audit Committee Investigation”), including fees and costs incurred pursuant to the Company’s advancement obligations, litigation related thereto and in connection with related insurance recovery ~~matters.~~matters, net of accrual reversals.


(2)	Includes legal fees and expenses associated with litigation resulting from prior mergers ~~and related insurance recovery matters~~ and excludes amounts presented in income from discontinued operations, net of income taxes in the consolidated statements of operations for the ~~nine~~six months ended ~~September~~June 30, 2018.


(3)	Refer to Note 1210 –Commitments and Contingencies for additional information.


(4)	~~$2.3~~Represents the surrender of 2.9 million ~~relates~~Limited Partner OP Units. Refer to ~~litigation resulting from prior mergers.~~Note 12 – Equity for additional information.

~~Investment in Cole REITs~~

As of December 31, 2017, the Company owned equity investments in Cole Credit Property Trust IV, Inc. (“CCPT IV”), Cole Real Estate Income Strategy (Daily NAV), Inc. (“INAV”), Cole Office & Industrial REIT (CCIT II), Inc. (“CCIT II”), Cole Office & Industrial REIT (CCIT III), Inc. (“CCIT III”), and Cole Credit Property Trust V, Inc. (“CCPT V” and collectively with CCPT IV, INAV, CCIT II and CCIT III, the “Cole REITs”). On February 1, 2018, the Company sold certain of its equity investments to the Cole Purchaser, retaining interests in CCIT II, CCIT III and CCPT V. Subsequent to the sale of Cole Capital and the adoption of ASU 2016-01, the Company carried these investments at fair value, as the Company does not exert significant influence over CCIT II, CCIT III or CCPT V, and any changes in the fair value were recognized in other income, net in the accompanying consolidated statement of operations for the nine months ended September 30, 2018.Prior to the sale of Cole Capital, the Company accounted for these investments using the equity method of accounting, which required the investment to be initially recorded at cost and subsequently adjusted for the Company’s share of equity in the respective Cole REIT’s earnings and distributions. The Company recorded its proportionate share of net income or loss from the Cole REITs in equity in income and gain on disposition of unconsolidated entities in the consolidated statement of operations for the three and nine months ended September 30, 2017. The Company’s equity investments in the Cole REITs, consisting of $7.8 million and $3.3 million, are presented in rent and tenant receivables and other assets, net in the consolidated balance sheet as of September 30, 2018 and December 31, 2017, respectively.

2021

Table of Contents

VEREIT, INC. and VEREIT OPERATING PARTNERSHIP, L.P.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

~~September~~June 30, ~~2018~~2019 (Unaudited) – (Continued)

Equity-based Compensation

The Company has an equity-based incentive award plan ~~which provides~~(the “Equity Plan”) for ~~the grant of stock options, stock appreciation rights, restricted shares of common stock, restricted stock units, deferred stock units and dividend equivalent rights and other stock-based awards to~~ non-executive directors, officers, other employees and advisors or consultants who provide services to the Company, as applicable, and a non-executive director restricted share plan, which are accounted for under U.S. GAAP for share-based payments. The expense for such awards is recognized over the vesting ~~period.~~period or when the requirements for exercise of the award have been met. As of ~~September~~June 30, ~~2018,~~2019, the General Partner had cumulatively awarded under its Equity Plan approximately 16.6 million shares of Common Stock, which was comprised of 4.0 million ~~restricted shares,~~Restricted Shares, net of the forfeiture of 3.7 million ~~restricted shares~~Restricted Shares through that date, ~~5.8~~6.6 million ~~restricted stock units,~~Restricted Stock Units, net of the forfeiture/cancellation of ~~1.3~~1.8 million ~~restricted stock units~~Restricted Stock Units through that date, ~~0.5~~0.6 million ~~deferred stock units,~~Deferred Stock Units, and ~~2.8~~5.4 million stock options, net of forfeiture/cancellation of ~~approximately 40,000~~0.2 million stock options through that date. Accordingly, as of such date, ~~collectively representing 13.1~~approximately 88.2 million additional shares were available for future issuance, excluding the effect of ~~Common Stock.~~the 5.4 million stock options. At June 30, 2019, a total of 45,000 shares were awarded under the non-executive director restricted share plan out of the 99,000 shares reserved for issuance.

~~During~~The following is a summary of equity-based compensation expense for the three and ~~nine~~six months ended ~~September~~June 30, 2019 and 2018 the Company recorded $0.1 million and $0.5 million, respectively, of expense related to restricted shares of common stock, $1.3 million and $3.9 million, respectively, of expense related to time-based restricted stock units, $1.6 million and $4.3 million, respectively, of expense related to long-term incentive-based restricted stock units, $0.1 million and $1.1 million, respectively, of expense related to deferred stock units and $0.2 million and $0.4 million, respectively, of expense related to stock options. (in thousands):



	Three Months Ended June 30,				Six Months Ended June 30,
	2019		2018		2019		2018
Restricted Shares	$	—	$	157	$	77	$	317
Time-Based Restricted Stock Units⁽¹⁾	1,234		1,233		2,484		2,602
Long-Term Incentive-Based Restricted Stock Units	1,383		1,485		2,612		2,697
Deferred Stock Units	947		957		1,018		1,015
Stock Options	319		173		564		249
Total	$	3,883	$	4,005	$	6,755	$	6,880


(1)	Includes stock compensation expense attributable to awards for which the requisite service period begins prior to the assumed future grant date.

As of ~~September~~June 30, ~~2018,~~2019, total unrecognized compensation expense related to these awards was approximately ~~$16.3~~$20.3 million, with an aggregate weighted-average remaining term of ~~1.9~~2.3 years.

Restructuring

On February 1, 2018, the Company completed the sale of its investment management segment and entered into a services agreement (the “Services Agreement”) with the purchaser, pursuant to which the Company continued to provide certain investment management and other services through March 31, 2019. See Note 13 —Discontinued Operations for further discussion. During the ~~three and nine~~six months ended ~~September~~June 30, ~~2017,~~2019, in connection with the cessation of services under the Services Agreement, the Company recorded ~~$0.4~~$9.4 million of restructuring expenses related to the reorganization of its business, of which $8.4 million related to office lease terminations and modifications and $1.3 million ~~respectively, of expense~~ related to ~~restricted shares~~the cessation of ~~common stock, $1.4~~services under the Services Agreement, including severance, net of ASC 842 operating lease adjustments of $0.3 million. No restructuring expenses were recorded prior to January 1, 2019. The Company expects to incur an additional $1.6 million ~~and $3.9 million, respectively,~~ of expense related to time-based restricted stock units and $1.8 million and $5.1 million, respectively, of expense related to long-term incentive-based restricted stock units. During the three and nine months ended September 30, 2017, the Company recorded less than $0.1 million and $1.0 million, respectively, of expense related to deferred stock units. During the three and nine months ended September 30, 2017, there were norestructuring expenses ~~recorded relating to stock options.~~

~~Income Taxes~~

The General Partner currently qualifies and has elected to be taxed as a REIT for U.S. federal income tax purposes under Sections 856 through 860 of the Internal Revenue Code. As a REIT, the General Partner generally is not subject to federal income tax, with the exception of its TRS entities. However, the General Partner, including its TRS entities, and the Operating Partnership are still subject to certain state and local income and franchise taxes in the various jurisdictions in which they operate, which are included in provision for income taxes in the accompanying consolidated statements of operations.during 2019.

Recent Accounting Pronouncements

~~Refer to the section “Revenue Recognition” herein for ASU 2014-09 and related Revenue ASUs.~~Adopted Accounting Standards

InThe Company adopted ASC 842, effective January 2016, the FASB issued ASU 2016-01, Financial Instruments – Overall (Subtopic 825-10), Recognition and Measurement of Financial Assets and Financial Liabilities (“ASU 2016-01”), which requires equity investments (except those accounted for under the equity method of accounting or those that result in consolidation of the investee) to be measured at fair value with changes in fair value recognized in net income (loss). An entity may choose to measure equity investments that do1, 2019. The adoption did not have a ~~readily determinable fair value at costs minus impairment, if any, plus or minus changes resulting from observable price changes in orderly transactions for~~material impact on the identical or a similar investment of the same issue. ASU 2016-01 is effective for fiscal years, and interim periods within, beginning after December 15, 2017 and requires prospective treatment of equity securities without readily determinable fair values. The Company adopted ASU 2016-01 as of January 1, 2018 and recorded a $5.1 million gain, which is included in other income, net in the accompanyingCompany’s consolidated statements of ~~operations, on measuring the Company’s investments in the Cole REITs at fair value after the investments were no longer accounted for using the equity method.~~

~~Table of Contents~~

~~VEREIT, INC. and VEREIT OPERATING PARTNERSHIP, L.P.~~

~~NOTES TO CONSOLIDATED FINANCIAL STATEMENTS~~

~~September 30, 2018 (Unaudited)~~ – ~~(Continued)~~

In February 2016, the FASB issued ASU 2016-02, which will require that a lessee recognize assets and liabilities on the balance sheet for all leases with a lease term of more than 12 months, with the result beingoperations. The most significant impact was the recognition of ~~a right of use~~operating lease right-of-use (“ROU”) ~~asset~~assets and aoperating lease ~~liability~~liabilities for operating leases pursuant to which the Company is the lessee. The Company’s impairment assessment for ROU assets will be consistent with the impairment analysis for the Company's other long-lived assets and is reviewed quarterly, which is discussed in the ~~disclosure of key information about~~Company’s Annual Report on Form 10-K for the ~~entity’s leasing arrangements.~~year ended December 31, 2018. The lessor accounting model under ~~ASU 2016-02~~ASC 842 is similar to existing guidance, however, it limits the capitalization of initial direct leasing costs, such as internally generated costs. ~~ASU 2016-02 retains a~~

The Company elected all practical expedients permitted under ASC 842, other than the hindsight practical expedient. Accordingly, the Company will retain distinction between a finance lease (~~i.e.~~(i.e., capital leases under existing guidance) and an operating ~~lease. The classification criteria~~lease and account for ~~distinguishing between finance leases and~~its existing operating leases ~~will be substantially similar to~~as operating leases under the new guidance, which did not require the reassessment of lease arrangements, lease classification criteria under current U.S. GAAP. The amendments in ASU 2016-02 and the below mentioned amendments, are effective for fiscal years beginning after December 15, 2018, including interim periods within those fiscal years, with early adoption permitted.or initial direct costs. The Company ~~has developed an inventory~~does not have a cumulative effect adjustment to retained earnings upon adoption.

Table of ~~all leases~~Contents

VEREIT, INC. and ~~is identifying any non-lease components in the lease agreements and is evaluating the impact to the~~VEREIT OPERATING PARTNERSHIP, L.P.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

June 30, 2019 (Unaudited) – (Continued)

The Company, ~~both~~ as lessor, identified three separate lease components as follows: 1) land lease component, 2) single property lease component comprised of building, land improvements and ~~lessee,~~tenant improvements, and ~~its consolidated financial statements.~~3) furniture and fixtures. The nonlease components relate to service obligations under certain lease contracts for service of the building, land improvements or tenant improvements. The Company ~~currently does not record such expenses and~~determined the ~~related operating expense reimbursement revenue. Upon adoption of ASU 2016-02, operating expense reimbursement revenue will~~nonlease components are eligible to be ~~within~~combined under the ~~scope of Topic 606 and may be considered a non-lease component, as defined~~practical expedient in ~~ASU 2016-02, subject to~~ ASU 2018-11, Leases (Topic 842)~~, discussed below.~~

~~In January 2018,~~ (“ASU 2018-11,” combined with ASC 842, “Leasing ASUs”) and the FASB issued ASU 2018-01, Leases (Topic 842): Land Easement Practical Expedient for Transition to Topic 842. The amendments to Topic 842 help address transition guidance as it relates to land easements. The ASU provides an optional practical expedient to not evaluate under Topic 842 existing or expired land easements that were not previously accounted for as leases under the current leases guidance in Topic 840. An entity that elects this practical expedient should evaluate new or modified land easements under Topic 842 beginning at the date the entity adopts Topic 842. An entity that does not elect this practical expedient should evaluate all existing or expired land easements in connectionnonlease components will be included with the ~~adoption of~~single property lease component as the ~~new lease requirements in Topic 842 to assess whether they meet the definition of a lease.~~

In July 2018, the FASB issued ASU No. 2018-10, Leases (Topic 842), which contained targeted improvements to amend inconsistencies and clarify guidance that were brought about by stakeholders. Additionally, in July 2018, the FASB issued ASU 2018-11, Leases (Topic 842), which provided the following practical expedients to entities: (1) a transition method that allows entities to apply the new standard at the adoption date and to recognize a cumulative-effect adjustment to the opening balance of retained earnings effective at the adoption date; and (2) the option for lessors to not separate lease and non-lease components provided that certain criteria are met.

~~The Company is currently evaluating the impact of adoption, and anticipates this standard will have a material impact on its consolidated balance sheets. However,~~predominant component. Therefore, the Company ~~does not expect adoption~~ will ~~have~~account for the combined component as a ~~material impact on its consolidated statements of operations. While~~lease component under ASC 842. Refer to Note 11 - Leases for the Company is continuing to assess potential impacts of the standard, it currently expects the most significant impact will be the recognition of ROU assets and lease liabilities for operating leases. The Company expects its accounting for capital leases to remain substantially unchanged. The Company expects to adopt the guidance using the new transition method provided by ASU 2018-11. Leases pursuant to which the Company is the lessee primarily consist of approximately 200 leases, of which the majority are ground leases.related disclosures.

Accounting Standards Not Yet Adopted

In June 2016, the ~~FASB~~U.S. Financial Accounting Standards Board (“FASB”) issued ASU 2016-13, Financial Instruments – Credit Losses (Topic 326) (“ASU 2016-13”). ASU 2016-13 is intended to improve financial reporting by requiring more timely recognition of credit losses on loans and other financial instruments that are not accounted for at fair value through net income ~~including loans held for investment, held-to-maturity debt securities, trade~~ and ~~other receivables, net investment in leases and other such commitments. ASU 2016-13~~ requires that financial assets measured at amortized cost be presented at the net amount expected to be collected, through an allowance for credit losses that is deducted from the amortized cost basis. The amendments in ASU 2016-13 require the Company to measure all expected credit losses based upon historical experience, current conditions, and reasonable and supportable forecasts that affect the collectability of the financial assets and eliminates the “incurred loss” methodology under current U.S. GAAP. The effective date for ASU 2016-13 is ~~effective~~ for fiscal years ~~and~~(including the interim periods ~~within,~~therein) beginning after December 15, 2019. ~~Early adoption is permitted for fiscal years, and interim periods within, beginning after December 15, 2018.~~ The Company is currently evaluating the impact ~~this amendment~~these amendments will have on its consolidated financial statements.

In February 2017, the FASB issued ASU 2017-05, Other Income – Gains and Losses from the Derecognition of Nonfinancial Assets (Subtopic 610-20): Clarifying the Scope of Asset Derecognition Guidance and Accounting for Partial Sales of Nonfinancial Assets (“ASU 2017-05”), which clarifies the following: 1) nonfinancial assets within the scope of Subtopic 610-20 may include nonfinancial assets transferred within a legal entity to a counterparty; 2) an entity should allocate consideration to each distinct asset by applying the guidance in Topic 606 on allocating the transaction price to performance obligations; and 3) requires entities to derecognize a distinct nonfinancial asset or distinct in substance nonfinancial asset in a partial sale transaction when it (a) does not have (or ceases to have) a controlling financial interest in the legal entity that holds the asset in accordance with Subtopic 810 and (b) transfers control of the asset in accordance with Topic 606. The adoption of this standard will result in higher gains on the sale of partial real estate interests, including contributions of nonfinancial assets to a joint venture or other noncontrolling investee, due to recognizing the full gain when the derecognition criteria are met and recording the retained noncontrolling interest at its

~~Table of Contents~~

~~VEREIT, INC. and VEREIT OPERATING PARTNERSHIP, L.P.~~

~~NOTES TO CONSOLIDATED FINANCIAL STATEMENTS~~

~~September 30, 2018 (Unaudited)~~ – ~~(Continued)~~

fair value. ASU 2017-05 is effective for annual periods, and interim periods therein, beginning after December 15, 2017. ASU 2017-05 was adopted during the first quarter of fiscal year 2018, in conjunction with the Revenue ASUs, using the modified retrospective approach. The Company also elected the practical expedient to only apply the guidance to contracts that were not completed upon adoption. At adoption, the Company did not have any contracts that were not completed within the scope of ASU 2017-05 and as such, the adoption of ASU 2017-05 did not impact the Company’s financial statements.

Note ~~3 –~~ 3–Real Estate Investments and Related Intangibles

Property Acquisitions

During the ~~nine~~six months ended ~~September~~June 30, ~~2018,~~2019, the Company acquired controlling financial interests in 4233 commercial properties for an aggregate purchase price of ~~$280.4~~$200.5 million (the ~~“2018~~“2019 Acquisitions”), which includes ~~$2.1 million related to an outstanding tenant improvement allowance recorded as a payable as of the acquisition date and for which the Company received a credit at close, and $1.6~~$1.0 million of external acquisition-related expenses that were capitalized. During the ~~nine~~six months ended ~~September~~June 30, ~~2017,~~2018, the Company acquired a controlling interest in 6519 commercial properties ~~and three land parcels~~ for an aggregate purchase price of ~~$453.9~~$181.2 million (the ~~“2017~~“2018 Acquisitions”), which includes ~~$1.9~~$1.1 million of external acquisition-related expenses that were ~~capitalized and includes 22 properties acquired in a nonmonetary exchange.~~capitalized.

The following table presents the allocation of the fair values of the assets acquired and liabilities assumed during the periods presented (in thousands):



	Six Months Ended June 30,
	2019		2018
Real estate investments, at cost:
Land	$	40,460	$	37,732
Buildings, fixtures and improvements	135,182		121,310
Total tangible assets	175,642		159,042
Acquired intangible assets:
In-place leases and other intangibles ⁽¹⁾	24,817		19,564
Above-market leases⁽²⁾	—		2,750
Assumed intangible liabilities:
Below-market leases⁽³⁾	—		(116		)
Total purchase price of assets acquired	$	200,459	$	181,240

Nine Months Ended September 30,
2018 2017
Real estate investments, at cost:
Land $ 54,732
$ 82,337
Buildings, fixtures and improvements 181,011
293,419
Total tangible assets 235,743
375,756
Acquired intangible assets:
In-place leases and other intangibles ⁽¹⁾
42,050
68,306
Above-market leases⁽²⁾
2,750
10,270
Assumed intangible liabilities:
Below-market leases ⁽³⁾
(116 ) (395 )
Total purchase price of assets acquired $ 280,427
$ 453,937


(1)	The weighted average amortization period for acquired in-place leases and other intangibles is ~~15.7~~15.8 years and ~~16.7~~13.9 years for ~~2018~~2019 Acquisitions and ~~2017~~2018 Acquisitions, respectively.


(2)	The weighted average amortization period for acquired above-market leases is 10.8 years ~~and 18.1 years~~ for 2018 ~~Acquisitions and 2017 Acquisitions, respectively.~~Acquisitions.


(3)	The weighted average amortization period for ~~acquired~~assumed intangible lease liabilities is 9.9 years ~~and 20.0 years~~ for 2018 ~~Acquisitions and 2017 Acquisitions, respectively.~~Acquisitions.

As of June 30, 2019, the Company invested $16.4 million, including $0.5 million of external acquisition-related expenses and interest that were capitalized, in one build-to-suit development project. The Company’s estimated remaining committed investment is $11.9 million, and the project is expected to be completed within the next 12 months.

Table of Contents

VEREIT, INC. and VEREIT OPERATING PARTNERSHIP, L.P.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

~~September~~June 30, ~~2018~~2019 (Unaudited) – (Continued)

~~Future Lease Payments~~

The following table presents future minimum base rent payments due to the Company over the next five years and thereafter. These amounts exclude contingent rent payments, as applicable, that may be collected from certain tenants based on provisions related to sales thresholds and increases in annual rent based on exceeding certain economic indexes among other items (in thousands):

Future Minimum Operating Lease
Base Rent Payments
Future Minimum
Direct Financing Lease Payments ⁽¹⁾
October 1, 2018 - December 31, 2018 $ 264,955
$ 727
2019 1,098,352
2,508
2020 1,068,111
2,135
2021 1,030,610
2,014
2022 952,610
1,925
Thereafter 6,062,338
2,254
Total $ 10,476,976
$ 11,563


~~(1)~~	~~Related to~~25 properties which are subject to direct financing leases and, therefore, revenue is recognized as direct financing lease income on the discounted cash flows of the lease payments. Amounts reflected are the minimum base rental cash payments due to the Company under the lease agreements on these respective properties.

Property Dispositions and Real Estate Assets Held for Sale

During the ~~nine~~six months ended ~~September~~June 30, 2019, the Company disposed of 75 properties, including the sale of six consolidated properties to two newly-formed joint ventures in which the Company owns a 20% equity interest (the “Industrial Partnership”), for an aggregate gross sales price of $809.2 million, of which our share was $796.4 million after the profit participation payments related to the disposition of 23 Red Lobster properties. The dispositions resulted in proceeds of $739.9 million after closing costs and contributions to the Industrial Partnership. The Company recorded a gain of $233.4 million related to the dispositions which is included in gain on disposition of real estate and real estate assets held for sale, net in the accompanying consolidated statements of operations.

During the six months ended June 30, 2018, the Company disposed of ~~112~~77 properties, including one property conveyed to a lender in a deed-in-lieu of foreclosure transaction, ~~as discussed in~~ ~~Note 9 –Debt~~, for an aggregate gross sales price of ~~$371.0~~$181.6 million, of which our share was ~~$356.6~~$175.5 million after the profit participation ~~payments~~payment related to the disposition of 2211 Red Lobster properties. The dispositions resulted in proceeds of ~~$352.8~~$175.1 million after closing costs. The Company recorded a gain of ~~$70.3~~$24.2 million related to the sales which is included in gain on disposition of real estate and real estate assets held for sale, net in the accompanying consolidated statements of operations.

During the ~~nine~~six months ended ~~September~~June 30, 2018, the Company also disposed of one property owned by an unconsolidated joint venture for a gross sales price of $34.1 million, of which our share was $17.1 million based on our ownership interest in the joint venture, resulting in proceeds of $5.6 million after debt repayments of $20.4 million and closing costs. The Company recorded a gain of $0.7 million related to the sale and liquidation of the joint venture, which is included in equity in income and gain on disposition of unconsolidated entities in the accompanying consolidated statements of operations.

~~During the nine months ended September~~As of June 30, ~~2017, the Company disposed of 112 properties, including~~2019, there were six properties ~~transferred to the lender in either a deed-in-lieu of foreclosure or foreclosure~~classified as held for sale ~~transaction and 15 properties disposed of in connection~~ with a ~~nonmonetary exchange, for an aggregate gross sales price~~carrying value of ~~$507.5~~$22.6 million, of which our share was $491.0 million after the profit participation payment related to the disposition of 24 Red Lobster properties. The dispositions resulted in proceeds of $366.2 million after a mortgage loan assumption of $66.0 million and closing costs. Additionally, the Company’s tax provision for the nine months ended September 30, 2017 included $1.7 million of Canadian tax gain on the gain on sale of certain Canadian properties. The Company recorded a gain of $54.9 million, which is included in ~~gain on disposition of real estate and~~ real estate assets held for sale, net in the accompanying consolidated ~~statements of operations.~~

As of September 30, 2018, there were eight properties classified as held for sale with a carrying value of $24.3 million, included in assets related to real estate assets held for sale and discontinued operations, net in the accompanying consolidated balance ~~sheet,~~sheets, which are expected to be sold in the next 12 months as part of the Company’s portfolio management strategy. As of December 31, ~~2017,~~2018, there were 30five properties classified as held for sale. During the ~~nine~~six months ended ~~September~~June 30, ~~2018,~~2019, the Company recorded a loss of ~~$1.9~~$0.8 million related to held for sale properties. During the ~~nine~~six months ended ~~September~~June 30, ~~2017,~~2018, the Company recorded a loss of ~~$0.5~~$1.1 million related to held for sale properties.

~~Table of Contents~~

~~VEREIT, INC. and VEREIT OPERATING PARTNERSHIP, L.P.~~

~~NOTES TO CONSOLIDATED FINANCIAL STATEMENTS~~

~~September 30, 2018 (Unaudited)~~ – ~~(Continued)~~

Intangible Lease Assets and Liabilities

Intangible lease assets and liabilities of the Company consisted of the following as of ~~September~~June 30, ~~2018~~2019 and December 31, ~~2017~~2018 (amounts in thousands, except weighted-average useful life):



	Weighted-Average Useful Life	June 30, 2019		December 31, 2018
Intangible lease assets:
In-place leases and other intangibles, net of accumulated amortization of $722,414 and $703,909, respectively	15.7	$	902,319	$	980,971
Leasing commissions, net of accumulated amortization of $4,747 and $4,048, respectively	10.0	15,364		15,660
Above-market lease assets and deferred lease incentives, net of accumulated amortization of $104,395 and $105,936, respectively	16.3	178,460		201,875
Total intangible lease assets, net		$	1,096,143	$	1,198,506

Intangible lease liabilities:
Below-market leases, net of accumulated amortization of $93,481 and $89,905, respectively	19.0	$	152,654	$	173,479

The aggregate amount of amortization of above‑ and below-market leases and deferred lease incentives included as a net decrease to rental revenue was $1.3 million and $2.2 million for the six months ended June 30, 2019 and 2018, respectively. The aggregate amount of in-place leases, leasing commissions and other lease intangibles amortized and included in depreciation and amortization expense was $65.8 million and $70.1 million for the six months ended June 30, 2019 and 2018, respectively.

Table of Contents

VEREIT, INC. and VEREIT OPERATING PARTNERSHIP, L.P.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

June 30, 2019 (Unaudited) – (Continued)

Weighted-Average Useful Life September 30, 2018 December 31, 2017
Intangible lease assets:
In-place leases and other intangibles, net of accumulated amortization of $680,775 and $599,680, respectively 15.4 $ 1,006,399
$ 1,091,433
Leasing commissions, net of accumulated amortization of $3,526 and $2,902, respectively 11.0 13,547
13,876
Above-market lease assets and deferred lease incentives, net of accumulated amortization of $102,355 and $88,335, respectively 16.4 213,116
241,449
Total intangible lease assets, net $ 1,233,062
$ 1,346,758

Intangible lease liabilities:
Below-market leases, net of accumulated amortization of $85,844 and $73,916, respectively 18.6 $ 179,192
$ 198,551

The following table provides the projected amortization expense and adjustments to rental ~~income~~revenue related to the intangible lease assets and liabilities for the next five years as of ~~September~~June 30, ~~2018~~2019 (amounts in thousands):



	Remainder of 2019		2020		2021		2022		2023
In-place leases and other intangibles:
Total projected to be included in amortization expense	$	62,166	$	116,036	$	108,821	$	95,259	$	84,774
Leasing commissions:
Total projected to be included in amortization expense	1,128		2,120		1,962		1,871		1,690
Above-market lease assets and deferred lease incentives:
Total projected to be deducted from rental revenue	10,145		19,556		19,128		18,315		17,371
Below-market lease liabilities:
Total projected to be included in rental revenue	8,661		15,815		14,674		13,832		13,110

Remainder of 2018 2019 2020 2021 2022
In-place leases and other intangibles:
Total projected to be included in amortization expense $ 33,935
$ 126,466
$ 119,158
$ 111,333
$ 97,138
Leasing commissions:
Total projected to be included in amortization expense 407
1,589
1,567
1,510
1,452
Above-market lease assets and deferred lease incentives:
Total projected to be deducted from rental income 5,793
21,326
20,913
20,483
19,670
Below-market lease liabilities:
Total projected to be included in rental income 5,775
18,116
16,962
15,797
14,950

~~Impairment of Real Estate Investments~~

The Company performs quarterly impairment review procedures, primarily through continuous monitoring of events and changes in circumstances that could indicate the carrying value of its real estate assets may not be recoverable.

As part of the Company’s quarterly impairment review procedures, net real estate assets with carrying values totaling $83.1 million were deemed to be impaired and their carrying values were reduced to their estimated fair values of $47.0 million resulting in impairment charges of $36.1 million during the nine months ended September 30, 2018. The impairment charges relate to certain restaurant and retail properties that, during 2018, management identified for potential sale or determined, based on discussions with the current tenants, will not be re-leased.

During the nine months ended September 30, 2017, net real estate assets with carrying values totaling $87.9 million were deemed to be impaired and their carrying values were reduced to their estimated fair values of $57.0 million, resulting in impairment charges of $30.9 million.

~~Table of Contents~~

~~VEREIT, INC. and VEREIT OPERATING PARTNERSHIP, L.P.~~

~~NOTES TO CONSOLIDATED FINANCIAL STATEMENTS~~

~~September 30, 2018 (Unaudited)~~ – ~~(Continued)~~

Consolidated Joint Ventures

The Company had an interest in one consolidated joint venture that owned one property as of ~~September~~June 30, ~~2018~~2019 and December 31, ~~2017.~~2018. As of ~~September~~June 30, ~~2018~~2019 and December 31, ~~2017,~~2018, the consolidated joint venture had total assets of ~~$32.6~~$32.1 million and ~~$33.7~~$32.5 million, respectively, of which ~~$29.9~~$29.6 million and ~~$30.7~~$29.9 million, respectively, were real estate investments, net of accumulated depreciation and ~~amortization.~~amortization at each of the respective dates. The property ~~was~~is secured by a mortgage note payable, which ~~was~~is non-recourse to the Company and had a balance of ~~$14.1~~$13.9 million and ~~$14.9~~$14.0 million, as of ~~September~~June 30, ~~2018~~2019 and December 31, ~~2017,~~2018, respectively. The Company has the ability to control operating and ~~financial~~financing policies of the consolidated joint venture. There are restrictions on the use of these assets as the Company would generally be required to obtain the approval of the joint venture partner in accordance with the joint venture agreement for any major transactions. The Company and the joint venture partner are subject to the provisions of the joint venture agreement, which includes provisions for when additional contributions may be required to fund certain cash shortfalls. ~~The partner’s share of the loss from the consolidated joint venture was $0.1 million for each of the three and nine months ended September 30, 2018, respectively.~~

As of September 30, 2017, the Company had interests in two consolidated joint ventures. The partners’ share of the two consolidated joint ventures’ income was less than $0.1 million for the three months ended September 30, 2017. The partners’ share of the Consolidated Joint Ventures’ loss was less than $0.1 million for the nine months ended September 30, 2017.

Unconsolidated Joint Ventures

~~As of September 30, 2018, the Company held an~~The Company’s investment in an unconsolidated joint venture ~~that owned~~arrangements (the “Unconsolidated Joint Ventures”) consisted of interests in the Industrial Partnership and one ~~property with a carrying value~~joint venture as of ~~$34.3 million. As~~June 30, 2019 and an interest in one joint venture as of December 31, ~~2017, the Company held investments in two unconsolidated joint ventures that each owned one property with an aggregate carrying value of $39.5 million.~~ 2018.

During the ~~nine~~six months ended ~~September~~June 30, 2018, the Company disposed of one property owned by an unconsolidated joint venture as previously discussed in the “Property Dispositions and Real Estate Assets Held for Sale” section herein.

The ~~Company~~Unconsolidated Joint Ventures had ~~a 90% legal ownership interest in the unconsolidated joint venture at September 30, 2018 and December 31, 2017 and accounts for its investment using the equity method~~total aggregate debt outstanding of accounting as the Company has the ability to exercise significant influence, but not control, over operating and financing policies of the investment. The equity method of accounting requires the investment to be initially recorded at cost and subsequently adjusted for the Company’s share of equity in earnings and distributions from the joint venture. During the three and nine months ended September 30, 2018 the Company recognized $0.3 million and $1.1 million of net income, respectively, from unconsolidated joint ventures. During the three and nine months ended September 30, 2017, the Company recognized $0.4 million and $1.3 million of net income, respectively, from two unconsolidated joint ventures. The Company’s legal ownership interest may, at times, not equal the Company’s economic interest because of various provisions in certain joint venture agreements regarding distributions of cash flow based on capital account balances, allocations of profits and losses and payments of preferred returns.

~~The carrying amount of the unconsolidated joint venture was greater than the underlying equity in net assets by $4.8 million and $5.0~~$269.3 million as of ~~September~~June 30, ~~2018 and~~2019, which is non-recourse to the Company, as discussed in Note 6 –Debt. There was no debt outstanding related to the Unconsolidated Joint Venture as of December 31, 2017, respectively. This difference relates to a purchase price allocation of goodwill and a step up in fair value of the investment assets acquired in connection with mergers. The step up in fair value was allocated to the individual investment assets and is being amortized in accordance with the Company’s depreciation policy. 2018.

The Company and the respective unconsolidated joint venture ~~partner~~partners are subject to the provisions of the applicable joint venture agreement, which includes provisions for when additional contributions may be required to fund certain cash ~~shortfalls.~~shortfalls, including the Company’s share of expansion project capital expenditures.

~~Note 4 — Discontinued Operations~~

On February 1, 2018, the Company completed the sale of its investment management segment, Cole Capital. Substantially all of the Cole Capital segment’s operations were conducted through Cole Capital Advisors, Inc. (“CCA”), an Arizona corporation and a wholly owned subsidiary of the OP. The OP sold all of the issued and outstanding shares of common stock of CCA and certain of CCA’s subsidiaries to CCA Acquisition, LLC (the “Cole Purchaser”), an affiliate of CIM Group, LLC, for approximately $120.0 million paid in cash at closing. The Company could also receive additional fees over the next six years if future revenues of Cole Capital exceed a specified dollar threshold (the “Net Revenue Payments”), up to an aggregate of $80.0 million in Net Revenue Payments. Substantially all of the Cole Capital segment financial results are reflected in the financial statements as discontinued operations.

2625

Table of Contents

VEREIT, INC. and VEREIT OPERATING PARTNERSHIP, L.P.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

~~September~~June 30, ~~2018~~2019 (Unaudited) – (Continued)

The following is a summary of the ~~financial information for discontinued operations~~Company’s investments in unconsolidated joint ventures as of June 30, 2019 and December 31, 2018 and for the ~~three and nine~~six months ended ~~September~~June 30, 2019 and 2018 ~~and 2017 (in~~(dollar amounts in thousands):

Three Months Ended September 30, Nine Months Ended September 30,
Revenues: 2018 2017 2018 2017
Offering-related fees and reimbursements $ —
$ 3,882
$ 1,027
$ 12,721
Transaction service fees and reimbursements —
3,964
334
12,110
Management fees and reimbursements —
19,152
6,452
56,388
Total revenues $ —

$ 26,998
$ 7,813

$ 81,219
Operating expenses:
Cole Capital reallowed fees and commissions —
2,373
602
7,907
Transaction costs ⁽¹⁾
—
—
(654 ) —
General and administrative —
16,072
4,450
46,426
Amortization of intangible assets —
4,140
—
12,420
Total operating expenses —

22,585
4,398

66,753
Operating income —

4,413
3,415

14,466
Other income, net ⁽²⁾
—
460
(1,785 ) 469
Income before taxes —

4,873
1,630

14,935
Benefit from (provision for) income taxes —
(868 ) 2,095
(3,439 )
Income from discontinued operations $ —

$ 4,005
$ 3,725

$ 11,496



			Carrying Amount of Investment ⁽²⁾				Equity in Income
			Carrying Amount of Investment ⁽²⁾				Six Months Ended
Investment	Ownership % ⁽¹⁾	Number of Properties	June 30, 2019		December 31, 2018		June 30, 2019			June 30, 2018
Faison JV Bethlehem GA	90%	1	$	39,087	$	35,289	$	1,035		$	673
Industrial Partnership	20%	6	29,546		—		(30		)	—
			$	68,633	$	35,289	$	1,005		$	673

(1)

The ~~negative balance for~~Company’s ownership interest reflects its legal ownership interest. Legal ownership may, at times, not equal the ~~nine months ended September 30, 2018 is~~Company’s economic interest in the listed properties because of various provisions in certain joint venture agreements regarding distributions of cash flow based on capital account balances, allocations of profits and losses and payments of preferred returns. As a result, the Company’s actual economic interest (as distinct from its legal ownership interest) in certain of ~~estimated costs accrued in prior periods that exceeded actual expenses incurred.~~the properties could fluctuate from time to time and may not wholly align with its legal ownership interests.

(2)

~~Includes a $1.8~~The total carrying amount of the investments was greater than the underlying equity in net assets by $4.7 million ~~loss on disposition during the nine months ended September~~as of June 30, ~~2018. The Company recognized a loss on classification as held for sale of $20.0 million during the three months ended~~2019 and December 31, ~~2017.~~2018. This difference relates to a purchase price allocation of goodwill and a step up in fair value of the investment assets acquired in connection with mergers. The step up in fair value was allocated to the individual investment assets and is being amortized in accordance with the Company’s depreciation policy.

~~Assets related to discontinued operations as of December 31, 2017 were $125.7 million.~~

~~The following is a summary of cash flows related to discontinued operations for the nine months ended September 30, 2018 and 2017 (in thousands):~~

Nine Months Ended September 30,
2018 2017
Cash flows related to discontinued operations:
Cash flows (used in) from operating activities $ (10,438 ) $ 26,727
Cash flows from investing activities $ 122,915
$ —

~~Table of Contents~~

~~VEREIT, INC. and VEREIT OPERATING PARTNERSHIP, L.P.~~

~~NOTES TO CONSOLIDATED FINANCIAL STATEMENTS~~

~~September 30, 2018 (Unaudited)~~ – ~~(Continued)~~

Note ~~5 – Rent~~4 –Rent and Tenant Receivables and Other Assets, Net

Rent and tenant receivables and other assets, net consisted of the following as of ~~September~~June 30, ~~2018~~2019 and December 31, ~~2017~~2018 (in thousands):

September 30, 2018 December 31, 2017

Straight-line rent receivable, net ⁽¹⁾
$ 255,336
$ 230,529
Accounts receivable, net⁽²⁾
35,908
36,921
Investment securities, at fair value⁽³⁾
26,282
40,974
Deferred costs, net ⁽⁴⁾
20,324
5,746
Mortgage notes receivable, net ⁽⁵⁾
18,757
20,294
Investment in direct financing leases, net 14,082
19,539
Leasehold improvements, property and equipment, net ⁽⁶⁾
10,604
12,089
Restricted escrow deposits 8,400
4,995
Prepaid expenses 8,398
6,493
Investment in Cole REITs 7,844
3,264
Other assets, net ⁽⁷⁾
3,971
5,003
Income tax receivable 2,147
3,213
Total $ 412,053

$ 389,060



	June 30, 2019		December 31, 2018
Straight-line rent receivable, net ⁽¹⁾	$	258,579	$	259,106
Accounts receivable, net⁽¹⁾	36,895		36,939
Deferred costs, net ⁽²⁾	11,197		17,515
Investment in direct financing leases, net	10,323		13,254
Investment in Cole REITs ⁽³⁾	7,552		7,844
Prepaid expenses	6,058		5,022
Leasehold improvements, property and equipment, net ⁽⁴⁾	5,506		9,754
Other assets, net	7,678		16,658
Total	$	343,788	$	366,092

___________________________________

(1)

~~Allowance~~

As ofDecember 31, 2018, allowance for uncollectible accounts included in straight-line rent receivable, net and accounts receivable, net was ~~$1.2~~$1.0 million and ~~$2.0~~$5.3 million, respectively. Upon adoption of ASC 842, the Company recognizes all changes in the collectability assessment for an operating lease as an adjustment to rental revenue and does not record an allowance for uncollectible accounts. Any recoveries for those receivables reserved prior to adoption of ~~September 30, 2018 and December 31, 2017, respectively.~~ASC 842 will be recorded as an adjustment to rental revenue.

(2)

In the event that the collectability of a receivable is uncertain, the Company will record an increase in the allowance for uncollectible accounts in the consolidated balance sheets and bad debt expense in property operating expenses in the consolidated statements of operations. Allowance for uncollectible accounts was $5.4 million and $6.3 million as of September 30, 2018 and December 31, 2017, respectively. The Company suspends revenue recognition when the collectability of amounts due pursuant to a lease is no longer reasonably assured. As of September 30, 2018 and December 31, 2017, the allowance related to suspended revenue recognition was $9.4 million and $12.6 million, respectively.


~~(3)~~	~~Refer to~~ ~~Note 6 –~~ ~~Investment Securities, at Fair Valuefor additional information.~~

~~(4)~~

Amortization expense for deferred costs related to the revolving credit facilities totaled ~~$1.3~~$0.9 million and ~~$2.6~~$2.1 million for the three months ended ~~September~~June 30, ~~2018~~2019 and ~~2017,~~2018, respectively, and ~~$6.0~~$2.0 million and ~~$7.8~~$4.7 million for the ~~nine~~six months ended ~~September~~June 30, ~~2018~~2019 and ~~2017,~~2018, respectively. Accumulated amortization for deferred costs related to the ~~Revolving Credit Facility, as defined in~~ ~~Note 9 –Debt~~,revolving credit facilities was ~~$46.3~~$49.7 million and ~~$40.3~~$47.6 million as of ~~September~~June 30, ~~2018~~2019 and December 31, ~~2017,~~2018, respectively.


(3)	On February 1, 2018, the Company completed the sale of Cole Capital (as described in Note 13 —Discontinued Operations), retaining interests in Cole Office & Industrial REIT (CCIT II), Inc. (“CCIT II”), Cole Office & Industrial REIT (CCIT III), Inc. (“CCIT III”) and Cole Credit Property Trust V, Inc. (“CCPT V”).


~~(5)~~(4)	~~Refer to~~ ~~Note 7 – Mortgage Notes Receivable, Net~~ ~~for additional information.~~

~~(6)~~

Amortization expense for leasehold improvements totaled ~~$0.3~~$0.1 million and $0.3 millionfor ~~each of~~ the three months ended ~~September~~June 30, 2019 and 2018, respectively, and ~~2017~~$0.4 million and ~~$0.9~~$0.6 million for ~~each of~~ the ~~nine~~six months ended ~~September~~June 30, 2019 and 2018, ~~and 2017.~~respectively, with no related write-offs. Accumulated amortization was ~~$5.6~~$2.8 million and ~~$4.7~~$5.9 million as of ~~September~~June 30, ~~2018~~2019 and December 31, ~~2017,~~2018, respectively. Depreciation expense for property and equipment totaled $0.3 million and ~~$0.5~~$0.4 million for the three months ended ~~September~~June 30, 2019 and 2018, respectively, with no related write-offs. Depreciation expense for property and ~~2017, respectively, and $1.2 million and $1.3~~equipment totaled $0.7 million for the ~~nine~~six months ended ~~September~~June 30, 2019, inclusive of write-offs of less than $0.1 million and $0.8 million for the six months ended June 30, 2018, with no related write-offs. Accumulated depreciation was $4.9 million and ~~2017, respectively.~~

~~(7)~~

~~Net of $1.8~~$7.0 million ~~of interest receivable reserves~~ as of June 30, 2019 and December 31, ~~2017. As~~2018, respectively. The Company disposed of ~~September~~$4.1 million, net, of leasehold improvements, property and equipment, which is included in restructuring in the accompanying consolidated statements of operations for the six months ended June 30, ~~2018, there were no interest receivable reserves.~~2019.

~~Note 6 – Investment Securities, at Fair Value~~

Investment securities are considered available-for-sale and, therefore, increases or decreases in the fair value of these investments are recorded in accumulated other comprehensive income (loss) as a component of equity in the consolidated balance sheets unless the securities are considered to be other-than-temporarily impaired at which time the losses are reclassified to expense.

~~The following tables detail the unrealized gains and losses on investment securities as of September 30, 2018 and December 31, 2017 (in thousands):~~

September 30, 2018
Amortized Cost Gross Unrealized Gains Gross Unrealized Losses Fair Value
CMBS $ 25,928
$ 354
$ —
$ 26,282

December 31, 2017

Amortized Cost Gross Unrealized Gains Gross Unrealized Losses Fair Value
CMBS $ 43,006
$ 895
$ (2,927 ) $ 40,974

Table of Contents

VEREIT, INC. and VEREIT OPERATING PARTNERSHIP, L.P.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

~~September~~June 30, ~~2018~~2019 (Unaudited) – (Continued)

As of September 30, 2018 and December 31, 2017, the Company owned three and eight commercial mortgage-backed securities (“CMBS”), respectively, with an estimated aggregate fair value of $26.3 million and $41.0 million, respectively. During the nine months ended September 30, 2018, two CMBS were repaid and three CMBS were sold for an aggregate gross sales price of $9.9 million for a realized loss of $2.4 million, which is included in other income, net in the accompanying consolidated statements of operations. The Company generally receives monthly payments of principal and interest on the CMBS. As of September 30, 2018, the Company earned interest on the CMBS at rates ranging between 5.9% and 7.8%.

In estimating other-than-temporary impairment losses, management considers a variety of factors, including: (i) whether the Company has the intent to sell the security, (ii) whether the Company expects to hold the investment for a period of time sufficient to allow for anticipated recovery in fair value, and (iii) whether the Company expects to recover the entire amortized cost basis of the security. As of September 30, 2018, the fair value of two CMBS were below their amortized cost. The Company does not expect to hold these securities until maturity or to fully recover the entire amortized cost basis of these securities. Therefore, the Company recorded an other-than-temporary impairment of approximately $0.1 million, which is included in other income, net in the accompanying consolidated statements of operations.

~~The scheduled maturity of the Company’s CMBS as of September 30, 2018 are as follows (in thousands):~~

September 30, 2018
Amortized Cost Fair Value
Due after one year through five years $ 13,721
$ 14,075
Due after five years through 10 years 12,207
12,207
Total $ 25,928

$ 26,282

~~Note 7 – Mortgage Notes Receivable, Net~~

As of September 30, 2018, the Company owned eight mortgage notes receivable with a weighted-average interest rate of 6.2% and weighted-average years to maturity of 11.9 years. The following table details the mortgage notes receivable as of September 30, 2018 (dollar amounts in thousands):

Outstanding Balance Net Carrying Value Interest Rate Range Maturity Date Range
$ 21,878
$ 18,757
5.9 % – 6.8% December 2026 – January 2033

The Company’s mortgage notes receivable are comprised primarily of fully-amortizing or nearly fully-amortizing first mortgage loans. The Company has one mortgage note receivable where the Company does not receive monthly payments of principal and interest but rather the interest is capitalized into the outstanding balance that is due at maturity. The mortgage notes receivable are primarily on commercial real estate, each leased to a single tenant. Therefore, the Company’s monitoring of the credit quality of its mortgage notes receivable is focused primarily on an analysis of the tenant, including review of tenant quality and ratings, trends in the tenant’s industry and general economic conditions and an analysis of measures of collateral coverage, such as an estimate of the loan-to-value ratio (principal amount outstanding divided by the estimated value of the property) and its remaining term until maturity.

During the three months ended September 30, 2018, the Company decided to sell its mortgage notes receivable and classified them as held for sale. Mortgage notes receivable held for sale are carried at the lower of cost or estimated fair value. The carrying value of seven of the eight mortgage notes receivable, totaling $17.3 million, exceeded the fair value, totaling $16.4 million, resulting in a valuation allowance of $0.9 million, which is included in other income, net in the accompanying consolidated statements of operations. See ~~Note 8 – Fair Value Measures~~ for a discussion of the Company’s fair value measurements regarding mortgage notes receivable. Prior to September 30, 2018, the Company classified its mortgage notes receivable as long-term investments, as the Company intended to hold the mortgage notes receivable for the foreseeable future or until maturity, and were carried on the Company’s consolidated balance sheets at amortized cost, net of any allowance for mortgage notes receivable losses.

~~Table of Contents~~

~~VEREIT, INC. and VEREIT OPERATING PARTNERSHIP, L.P.~~

~~NOTES TO CONSOLIDATED FINANCIAL STATEMENTS~~

~~September 30, 2018 (Unaudited)~~ – ~~(Continued)~~

~~The following table summarizes the scheduled aggregate principal payments due to the Company on the mortgage notes receivable subsequent to September 30, 2018 (in thousands):~~

Outstanding Balance
Due within one year $ 976
Due after one year through five years 4,673
Due after five years through 10 years 7,145
Due after 10 years⁽¹⁾
12,793
Total $ 25,587


~~(1)~~	~~Includes additional $3.7 million of interest that will be capitalized into the outstanding balance of the mortgage note receivable subsequent to September 30, 2018.~~

Note 85 – Fair Value Measures

The Company determines fair value based on quoted prices when available or through the use of alternative approaches, such as discounting the expected cash flows using market interest rates commensurate with the credit quality and duration of the investment. U.S. GAAP guidance defines three levels of inputs that may be used to measure fair value:

Level 1 – Quoted prices in active markets for identical assets and liabilities that the reporting entity has the ability to access at the measurement date.

Level 2 – Inputs other than quoted prices included within Level 1 that are observable for the asset and liability or can be corroborated with observable market data for substantially the entire contractual term of the asset or liability.

Level 3 – Unobservable inputs reflect the entity’s own assumptions about the assumptions that market participants would use in the pricing of the asset or liability and are consequently not based on market activity, but rather through particular valuation techniques.

The determination of where an asset or liability falls in the hierarchy requires significant judgment and considers factors specific to the asset or liability. In instances where the determination of the fair value measurement is based on inputs from different levels of the fair value hierarchy, the level in the fair value hierarchy within which the entire fair value measurement falls is based on the lowest level input that is significant to the fair value measurement in its entirety. The Company evaluates its hierarchy disclosures each quarter and depending on various factors, it is possible that an asset or liability may be classified differently from quarter to quarter. Changes in the type of inputs may result in a reclassification for certain assets. ~~As discussed below, based on new pricing information obtained during the three months ended September 30, 2018, two Level 3 CMBS were transferred to Level 1.~~ The Company does not expect that changes in classifications between levels will be frequent.

Items Measured at Fair Value on a Recurring Basis

The following tables present information about the Company’s assets and liabilities measured at fair value on a recurring basis as of ~~September~~June 30, ~~2018~~2019 and December 31, ~~2017,~~2018, aggregated by the level in the fair value hierarchy within which those instruments fall (in thousands):



	Level 1		Level 2			Level 3		Balance as of June 30, 2019
Assets:
Investment in Cole REITs	$	—	$	—		$	7,552	$	7,552
Liabilities:
Derivative liabilities	$	—	$	(27,594	)	$	—	$	(27,594	)

	Level 1		Level 2			Level 3		Balance as of December 31, 2018
Assets:
Derivative assets	$	—	$	544		$	—	$	544
Investment in Cole REITs	—		—			7,844		7,844
Total assets	$	—	$	544		$	7,844	$	8,388

Level 1
Level 2
Level 3
Balance as of September 30, 2018
Assets:

CMBS $ 12,756
$ —
$ 13,526
$ 26,282
Derivative assets
—
764
—

764
Investment in Cole REITs —
—
7,844
7,844
Total assets $ 12,756
$ 764
$ 21,370
$ 34,890

Level 1
Level 2
Level 3
Balance as of December 31, 2017
Assets:
CMBS $ —
$ —
$ 40,974
$ 40,974
Derivative assets —
627
—
627
Total assets $ —
$ 627
$ 40,974
$ 41,601

~~Table of Contents~~

~~VEREIT, INC. and VEREIT OPERATING PARTNERSHIP, L.P.~~

~~NOTES TO CONSOLIDATED FINANCIAL STATEMENTS~~

~~September 30, 2018 (Unaudited)~~ – ~~(Continued)~~

~~CMBS~~ ~~– As discussed in~~ ~~Note 16 – Subsequent Events~~, the Company sold two of the remaining three CMBS subsequent to September 30, 2018. The Company determined fair value for these two CMBS using Level 1 inputs, specifically trade confirmations, which set forth, among other things, the sales price, the interest rate and the market value of the underlying loan asset.

The Company’s CMBS are generally carried at fair value and are valued using Level 3 inputs, except as noted above for the two CMBS sold subsequent to September 30, 2018. Level 3 inputs were used for all CMBS owned as of December 31, 2017 and for one CMBS as of September 30, 2018. The Company uses estimated non-binding quoted market prices from the trading desks of financial institutions that are dealers in such securities for similar CMBS tranches that actively participate in the CMBS market. Broker quotes are only indicative of fair value and may not necessarily represent what the Company would receive in an actual trade for the applicable instrument. Management determines that the prices are representative of fair value through its knowledge and experience in the market. The significant unobservable input used in valuing the CMBS is the discount rate or market yield used to discount the estimated future cash flows expected to be received from the underlying investment, which include both future principal and interest payments. Significant increases or decreases in the discount rate or market yield would result in a decrease or increase in the fair value measurement. The following risks are included in the consideration and selection of discount rates or market yields: risk of default, rating of the investment and comparable company investments.

Derivative Assets and Liabilities –The Company’s derivative financial instruments relate to interest rate ~~swaps, discussed in~~ ~~Note 2 –~~ ~~Summary of Significant Accounting Policies.~~swaps. The valuation of derivative instruments is determined using a discounted cash flow analysis on the expected cash flows of each derivative. This analysis reflects the contractual terms of the derivatives, including the period to maturity, as well as observable market-based inputs, including interest rate curves and implied volatilities. In addition, credit valuation adjustments are incorporated into the fair values to account for the Company’s potential nonperformance risk and the performance risk of the counterparties.

Although the Company ~~has~~ determined that the majority of the inputs used to value its derivatives fall within Level 2 of the fair value hierarchy, the credit valuation adjustments associated with those derivatives utilize Level 3 inputs, such as estimates of current credit spreads to evaluate the likelihood of default by the Company and its counterparties. However, as of ~~September~~June 30, 2019 and December 31, 2018, the Company ~~has~~ assessed the significance of the impact of the credit valuation adjustments on the overall valuation of its derivative positions and ~~has~~ determined that the credit valuation adjustments are not significant to the overall valuation of the Company’s derivatives. As a result, the Company ~~has~~ determined that its derivative valuations in their entirety are classified in Level 2 of the fair value hierarchy.

Table of Contents

VEREIT, INC. and VEREIT OPERATING PARTNERSHIP, L.P.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

June 30, 2019 (Unaudited) – (Continued)

Investment in Cole REITs –~~As discussed in~~ ~~Note 2 –~~ ~~Summary of Significant Accounting Policies, subsequent to the sale of Cole Capital and adoption of ASU 2016-01, the Company carried its investment in the Cole REITs at~~The fair ~~value, as the Company does not exert significant influence over~~values of CCIT II, CCIT III orand CCPT ~~V. The fair values of these investments have been~~V were estimated using the net asset value per ~~share of CCIT II and CCPT V. The Company determined that the CCIT III per share primary offering price net of selling commissions and dealer manager fees approximated fair value.~~share. Each of the Cole REIT’s share redemption programs includes restrictions that limit the number of shares redeemed by the respective Cole REIT. Beginning in 2017, CCIT II and CCPT V limited the amount of shares redeemed. During the three months ended September 30, 2018, CCIT III redeemed approximately 5,300 shares for less than $0.1 million at a redemption price of $9.00 per share. CCIT II has estimated that it will commence a liquidity event over the next three to five years. CCPT V has estimated that it will commence a liquidity event over the next three to six years following the termination of its initial public offering. CCIT III has estimated that it will commence a liquidity event five to seven years following the termination of its initial public offering.

~~Table of Contents~~

~~VEREIT, INC. and VEREIT OPERATING PARTNERSHIP, L.P.~~

~~NOTES TO CONSOLIDATED FINANCIAL STATEMENTS~~

~~September 30, 2018 (Unaudited)~~ – ~~(Continued)~~

The following are reconciliations of the changes in assets and liabilities with Level 3 inputs in the fair value hierarchy for the ~~nine~~six months ended ~~September~~June 30, ~~2018~~2019 (in thousands):

CMBS
Investment in Cole REITs⁽¹⁾
Balance as of December 31, 2017 $ 40,974
$ 3,264
Total gains and losses
Unrealized loss included in other comprehensive income, net (71 ) —
Realized loss included in other income, net (34 ) —
Valuation Allowance —
—
Unrealized gain included in other income, net —
5,102
Purchases, issuance, settlements
Return of principal received (4,864 ) —
Amortization included in net income, net 157
—
Sale of investments (9,880 ) (522 )
Transfers out of Level 3 into Level 1 ⁽²⁾
(12,756 ) —
Ending Balance, September 30, 2018 $ 13,526
$ 7,844

~~(1)~~

~~As discussed in~~ ~~Note 2 –~~ Summary of Significant Accounting Policies, as of December 31, 2017, the Company accounted for its investment in Cole REITs using the equity method of accounting. Subsequent to the sale of Cole Capital, the Company retained interests in CCIT II, CCIT III and CCPT V, which were carried at fair value as of September 30, 2018.



	Investment in Cole REITs
Beginning balance, January 1, 2019	$	7,844
Unrealized loss included in other income, net	(292		)
Ending Balance, June 30, 2019	$	7,552


~~(2)~~	~~As of December 31, 2017, the Company’s CMBS were carried at fair value and were valued using Level 3 inputs. As discussed in~~ ~~Note 16 – Subsequent Events~~, the Company sold two CMBS which resulted in transfers during the nine months ended September 30, 2018 from Level 3 to Level 1, as the Company had trade confirmations, which settled subsequent to September 30, 2018.



	CMBS ⁽¹⁾			Investment in Cole REITs
Beginning balance, January 1, 2018	$	40,974		$	3,264
Total gains and losses
Unrealized loss included in other comprehensive income, net	(899		)	—
Realized loss included in other income, net	(34		)	—
Unrealized gain included in other income, net	—			5,102
Purchases, issuance, settlements
Return of principal received	(4,632		)	—
Amortization included in net income, net	80			—
Sale of investments	—			(522		)
Ending Balance, June 30, 2018	$	35,489		$	7,844


(1)	As of December 31, 2018, the Company did not own any commercial mortgage-backed securities (“CMBS”). Prior to the repayment or sale, the Company’s CMBS were carried at fair value and were valued using Level 3 inputs.

CMBS
Balance as of December 31, 2016 $ 47,215
Total gains and losses
Unrealized loss included in other comprehensive income, net (547 )
Purchases, issuance, settlements
Return of principal received (4,077 )
Amortization included in net income, net (914 )
Ending Balance, September 30, 2017 $ 41,677

~~Table of Contents~~

~~VEREIT, INC. and VEREIT OPERATING PARTNERSHIP, L.P.~~

~~NOTES TO CONSOLIDATED FINANCIAL STATEMENTS~~

~~September 30, 2018 (Unaudited)~~ – ~~(Continued)~~

Items Measured at Fair Value on a Non-Recurring Basis

Certain financial and nonfinancial assets and liabilities are measured at fair value on a non-recurring basis and are subject to fair value adjustments in certain circumstances, such as when there is evidence of impairment.

~~Real Estate Investments~~

~~As discussed in~~ ~~Note 3 –~~Real Estate Investments –The Company performs quarterly impairment review procedures, primarily through continuous monitoring of events and ~~Related Intangibles~~,changes in circumstances that could indicate the carrying value of its real estate assets may not be recoverable.

As part of the Company’s quarterly impairment review procedures, net real estate assets representing 42 properties were deemed to be impaired resulting in impairment charges of $20.3 million during the ~~nine~~six months ended ~~September~~June 30, 2019. The impairment charges relate to certain office, retail and restaurant properties that, during 2019, management identified for potential sale or determined, based on discussions with the current tenants, would not be re-leased. During the six months ended June 30, 2018, net real estate assets ~~representing 53~~related to 31 properties were deemed to be impaired, ~~and their carrying values totaling $83.1 million were reduced to their estimated fair value of $47.0 million,~~ resulting in impairment charges of ~~$36.1~~$17.7 million. During the nine months ended September 30, 2017, net real estate assets related to 53 properties with carrying values totaling $87.9 million were deemed to be impaired and their carrying values were reduced to their estimated fair values of $57.0 million resulting in impairment charges of $30.9 million.

The Company estimates fair values using Level 3 inputs and ~~using~~uses a combined income and market approach, specifically using discounted cash flow analysis and recent comparable sales transactions. The evaluation of real estate assets for potential impairment requires the Company’s management to exercise significant judgment and to make certain key assumptions, including, but not limited to, the following: (1) capitalization rate; (2) discount rates; (3) number of years property will be held; (4) property operating expenses; and (5) re-leasing assumptions including number of months to re-lease, market rental ~~income~~revenue and required tenant improvements. There are inherent uncertainties in making these estimates such as market conditions and performance and sustainability of the Company’s tenants. For the Company’s impairment tests for the real estate assets during the ~~nine~~six months ended ~~September~~June 30, ~~2018,~~2019, the Company used a range of discount rates from ~~7.4%~~8.0% to ~~8.5%~~8.3% with a weighted-average rate of ~~7.9%~~8.1% and capitalization rates from ~~6.9%~~7.5% to ~~8.5%~~7.8% with a weighted-average rate of ~~7.9%~~7.6%.

~~The following table presents the impairment charges by asset class recorded during the nine months ended September 30, 2018 and 2017 (dollar amounts in thousands):~~

Nine Months Ended September 30,
2018 2017
Properties impaired 53
53

Asset classes impaired:
Investment in real estate assets, net $ 35,196
$ 30,327
Investment in direct financing leases, net 1,108
553
Below-market lease liabilities, net (222 ) (23 )
Total impairment loss $ 36,082
$ 30,857

~~Mortgage notes receivable~~ – ~~In connection with the Company’s~~ ~~decision to sell its mortgage notes receivable and classify them as held for sale, as discussed in~~ ~~Note 7 – Mortgage Notes Receivable, Net~~, the fair value of the Company’s mortgage notes receivable at September 30, 2018 was estimated using non-binding broker quotes obtained by third-party valuation services that utilize observable market inputs including current coupon rate for corresponding benchmark rates, the remaining loan term and market feedback. The fair value of the Company’s mortgage notes receivable at December 31, 2017 was estimated with a discounted cash flow analysis, utilizing scheduled cash flows and discount rates estimated by management to approximate market interest rates.

3328

Table of Contents

VEREIT, INC. and VEREIT OPERATING PARTNERSHIP, L.P.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

~~September~~June 30, ~~2018~~2019 (Unaudited) – (Continued)

Fair Value of Financial Instruments

The fair value of short-term financial instruments such as cash and cash equivalents, restricted cash ~~due to affiliates~~ and accounts payable approximate their carrying value in the accompanying consolidated balance sheets due to their short-term nature and are classified as Level 1 under the fair value hierarchy. The fair values of the Company’s financial instruments are reported below (dollar amounts in thousands):



	Level	Carrying Amount at June 30, 2019		Fair Value at June 30, 2019		Carrying Amount at December 31, 2018		Fair Value at December 31, 2018
Liabilities⁽¹⁾:
Mortgage notes payable and other debt, net	2	$	1,754,571	$	1,814,875	$	1,933,209	$	1,961,496
Corporate bonds, net	2	2,646,213		2,806,706		3,395,885		3,368,928
Convertible debt, net	2	399,561		406,372		398,591		396,905
Credit facility	2	900,000		900,000		403,000		403,000
Total liabilities		$	5,700,345	$	5,927,953	$	6,130,685	$	6,130,329

Level Carrying Amount at September 30, 2018 Fair Value at September 30, 2018 Carrying Amount at December 31, 2017 Fair Value at December 31, 2017
Assets:
Mortgage notes receivable, net 3 $ 18,757
$ 19,483
$ 20,294
$ 28,272

Liabilities⁽¹⁾:

Mortgage notes payable and other debt, net 2 $ 1,947,749
$ 1,957,907
$ 2,095,690
$ 2,144,522
Corporate bonds, net 2 2,849,306
2,826,897
2,848,768
2,922,027
Convertible debt, net 2 398,118
406,485
992,218
1,012,349
Credit facility 2 793,000
793,000
185,000
185,000
Total liabilities $ 5,988,173
$ 5,984,289
$ 6,121,676
$ 6,263,898


(1)	Current and prior period liabilities’ carrying and fair values exclude net deferred financing costs.

Debt – The fair value is estimated by an independent third party using a discounted cash flow analysis, based on management’s estimates of observable market interest rates. Corporate bonds and convertible debt are valued using quoted market prices in active markets with limited trading volume when available.

Table of Contents

VEREIT, INC. and VEREIT OPERATING PARTNERSHIP, L.P.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

June 30, 2019 (Unaudited) – (Continued)

Note 96 –Debt

As of ~~September~~June 30, ~~2018,~~2019, the Company had ~~$5.9~~$5.7 billion of debt outstanding, including net premiums and net deferred financing costs, with a weighted-average years to maturity of ~~4.2~~4.4 years and a weighted-average interest rate of ~~4.2%~~4.52%. The following table summarizes the carrying value of debt as of ~~September~~June 30, ~~2018~~2019 and December 31, ~~2017,~~2018, and the debt activity for the ~~nine~~six months ended ~~September~~June 30, ~~2018~~2019 (in thousands):


					Nine Months Ended September 30, 2018																Six Months Ended June 30, 2019
		Balance as of December 31, 2017			Debt Issuances			Repayments, Extinguishment and Assumptions			Accretion and Amortization			Balance as of September 30, 2018				Balance as of December 31, 2018			Debt Issuances			Repayments, Extinguishment and Assumptions			Accretion and Amortization			Balance as of June 30, 2019
Mortgage notes payable:	Mortgage notes payable:																Mortgage notes payable:
	Outstanding balance	$	2,071,038		$	182		$	(141,613	)	$	—		$	1,929,607		Outstanding balance	$	1,917,132		$	—		$	(174,725	)	$	—		$	1,742,407		⁽¹⁾
	Net premiums ⁽¹⁾	24,652			—			(169		)	(6,341		)	18,142			Net premiums ⁽²⁾	16,077			—			107			(4,020		)	12,164
	Deferred costs	(12,998		)	(43		)	29			1,849			(11,163		)	Deferred costs	(10,552		)	—			125			1,187			(9,240		)
Mortgages and other debt, net		2,082,692			139			(141,753		)	(4,492		)	1,936,586
Mortgages notes payable, net																	Mortgages notes payable, net	1,922,657			—			(174,493		)	(2,833		)	1,745,331
Corporate bonds:	Corporate bonds:																Corporate bonds:
	Outstanding balance	2,850,000			—			—			—			2,850,000			Outstanding balance	3,400,000			—			(750,000		)	—			2,650,000
	Discount ⁽²⁾	(1,232		)	—			—			538			(694		)	Discount ⁽³⁾	(4,115		)	—			—			328			(3,787		)
	Deferred costs	(27,274		)	—			—			3,509			(23,765		)	Deferred costs	(27,276		)	—			—			2,193			(25,083		)
Corporate bonds, net	Corporate bonds, net	2,821,494			—			—			4,047			2,825,541			Corporate bonds, net	3,368,609			—			(750,000		)	2,521			2,621,130
Convertible debt:	Convertible debt:																Convertible debt:
	Outstanding balance	1,000,000			—			(597,500		)	—			402,500			Outstanding balance	402,500			—			—			—			402,500
	Discount ⁽²⁾	(7,782		)	—			—			3,400			(4,382		)	Discount ⁽³⁾	(3,909		)	—			—			970			(2,939		)
	Deferred costs	(7,960		)	—			—			3,803			(4,157		)	Deferred costs	(3,708		)	—			—			913			(2,795		)
Convertible debt, net	Convertible debt, net	984,258			—			(597,500		)	7,203			393,961			Convertible debt, net	394,883			—			—			1,883			396,766
Credit facility		185,000			1,558,000			(950,000		)	—			793,000

Credit facility:																	Credit facility:
																	Outstanding balance	403,000			1,034,000			(537,000		)	—			900,000
																	Deferred costs ⁽⁴⁾	(1,227		)	(4,280		)	—			540			(4,967		)
Credit facility, net																	Credit facility, net	401,773			1,029,720			(537,000		)	540			895,033

Total debt	Total debt	$	6,073,444		$	1,558,139		$	(1,689,253	)	$	6,758		$	5,949,088		Total debt	$	6,087,922		$	1,029,720		$	(1,461,493	)	$	2,111		$	5,658,260


(1)	Includes $19.5 million related to one mortgage note payable in default.


(2)	Net premiums on mortgage notes payable were recorded upon the assumption of the respective mortgage notes in relation to the various mergers and acquisitions. Amortization of these net premiums is recorded as a reduction to interest expense over the remaining term of the respective mortgage notes using the effective-interest method.

~~Table of Contents~~

~~VEREIT, INC. and VEREIT OPERATING PARTNERSHIP, L.P.~~

~~NOTES TO CONSOLIDATED FINANCIAL STATEMENTS~~

~~September 30, 2018 (Unaudited)~~ – ~~(Continued)~~

~~acquisitions. Amortization of these net premiums is recorded as a reduction to interest expense over the remaining term of the respective mortgage notes using the effective-interest method.~~


~~(2)~~(3)	Discounts on the corporate bonds and convertible debt were recorded based upon the fair value of the respective debt instruments as of the respective issuance dates. Amortization of these discounts is recorded as an increase to interest expense over the remaining term of the respective debt instruments using the effective-interest method.


(4)	Deferred costs relate to the Credit Facility Term Loan, as defined in the “Credit Facility” section below.

3530

Table of Contents

VEREIT, INC. and VEREIT OPERATING PARTNERSHIP, L.P.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

~~September~~June 30, ~~2018~~2019 (Unaudited) – (Continued)

Mortgage Notes Payable

The Company’s mortgage notes payable consisted of the following as of ~~September~~June 30, ~~2018~~2019 (dollar amounts in thousands):



	Encumbered Properties	Gross Carrying Value of Collateralized Properties ⁽¹⁾		Outstanding Balance		Weighted-Average Interest Rate ⁽²⁾			Weighted-Average Years to Maturity ⁽³⁾
Fixed-rate debt	413	$	3,442,917	$	1,728,546	5.16	%		3.2
Variable-rate debt	1	33,723		13,861		5.63	%	⁽⁴⁾	0.1
Total ⁽⁵⁾	414	$	3,476,640	$	1,742,407	5.16	%		3.1

Encumbered Properties
Gross Carrying Value of Collateralized Properties ⁽¹⁾
Outstanding Balance
Weighted-Average
Interest Rate ⁽²⁾

Weighted-Average Years to Maturity ⁽³⁾
Fixed-rate debt ⁽⁴⁾
459
$ 3,802,907
$ 1,915,488
4.92 % 3.7
Variable-rate debt 1
33,041
14,119
5.42 %
⁽⁵⁾
0.9
Total 460
$ 3,835,948
$ 1,929,607
4.93 % 3.7


(1)	Gross carrying value is gross real estate assets, including investment in direct financing leases, net of gross real estate liabilities.


(2)	Weighted average interest rate is computed using the interest rate in effect until the anticipated repayment date. Should the loan not be repaid at the anticipated repayment date, the applicable interest rate will increase as specified in the respective loan agreement until the extended maturity date.


(3)	Weighted average years remaining to maturity is computed using the anticipated repayment date as specified in each loan agreement, where applicable.


(4)	~~Includes $50.9 million of variable-rate debt fixed by way of interest rate swap arrangements.~~


~~(5)~~	Weighted-average interest rate for variable-rate debt represents the interest rate in effect as of ~~September~~June 30, ~~2018.~~2019.


(5)	The table above does not include mortgage notes associated with Unconsolidated Joint Ventures of $269.3 million, which is non-recourse to the Company. The mortgage notes have a weighted-average fixed interest rate of 3.57% and mature on June 6, 2024.

The Company’s mortgage loan agreements generally restrict corporate guarantees and require the maintenance of financial covenants, including maintenance of certain financial ratios (such as debt service coverage ratios and minimum net operating income). The mortgage loan agreements contain no dividend restrictions except in the event of default or when a distribution would drive liquidity below the applicable thresholds. At ~~September~~June 30, ~~2018,~~2019, except for the loan in default described below, the Company believes that it was in compliance with the financial covenants under the mortgage loan agreements and had no restrictions on the payment of dividends.

~~On April 12, 2018,~~During the three months ended June 30, 2019, the Company ~~entered into~~received a ~~deed-in-lieu~~notice of ~~foreclosure agreement with~~default from the lender of ~~the mortgage~~a non-recourse loan secured by one property, ~~with~~which had an outstanding balance of ~~$16.2~~$19.5 million aton the ~~time~~notice date, due to intentional non-payment of ~~default and conveyed all interest~~amounts due in accordance with the ~~property~~loan documents. On July 2, 2019, a foreclosure sale occurred to ~~satisfy~~settle the mortgage loan. As a result of the deed-in-lieu of foreclosure transaction, the Company recognized a gain on forgiveness of debt of $5.2 million, which is included in gain on extinguishment and forgiveness of debt, net in the accompanying consolidated statements of operations.note obligation.

The following table summarizes the scheduled aggregate principal repayments due on mortgage notes subsequent to ~~September~~June 30, ~~2018~~2019 (in thousands):



	Total
July 1, 2019 - December 31, 2019⁽¹⁾	$	38,035
2020	264,823
2021	352,381
2022	290,854
2023	125,667
Thereafter	670,647
Total	$	1,742,407


(1)	Includes $19.5 million for the acceleration of principal payable related to one mortgage note in default with a stated maturity in 2023.

Table of Contents

VEREIT, INC. and VEREIT OPERATING PARTNERSHIP, L.P.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

June 30, 2019 (Unaudited) – (Continued)

Total
October 1, 2018 - December 31, 2018 $ 2,437
2019 177,317
2020 265,183
2021 352,767
2022 314,898
Thereafter 817,005
Total $ 1,929,607

Corporate Bonds

As of ~~September~~June 30, ~~2018,~~2019, the OP had ~~$2.85~~$2.65 billion aggregate principal amount of senior unsecured notes (the “Senior Notes”) outstanding comprised of the following (dollar amounts in thousands):



	Outstanding Balance June 30, 2019		Interest Rate		Maturity Date
2021 Senior Notes	$	400,000	4.125	%	June 1, 2021
2024 Senior Notes	500,000		4.600	%	February 6, 2024
2025 Senior Notes	550,000		4.625	%	November 1, 2025
2026 Senior Notes	600,000		4.875	%	June 1, 2026
2027 Senior Notes	600,000		3.950	%	August 15, 2027
Total balance and weighted-average interest rate	$	2,650,000	4.449	%

Outstanding Balance September 30, 2018 Interest Rate Maturity Date
2019 Senior Notes $ 750,000
3.000 % February 6, 2019
2021 Senior Notes 400,000
4.125 % June 1, 2021
2024 Senior Notes 500,000
4.600 % February 6, 2024
2026 Senior Notes 600,000
4.875 % June 1, 2026
2027 Senior Notes 600,000
3.950 % August 15, 2027
Total balance and weighted-average interest rate $ 2,850,000
4.033 %

~~Table~~On February 6, 2019, $750.0 million of ~~Contents~~

~~VEREIT, INC.~~senior notes (the “2019 Senior Notes”) matured and ~~VEREIT OPERATING PARTNERSHIP, L.P.~~

~~NOTES TO CONSOLIDATED FINANCIAL STATEMENTS~~

~~September 30, 2018 (Unaudited)~~ – ~~(Continued)~~

the principal plus accrued and unpaid interest thereon, were repaid, utilizing borrowings under the Credit Facility.

The Senior Notes are guaranteed by the General Partner. The OP may redeem all or a part of any series of the Senior Notes at any time, at its option, for the redemption prices set forth in the indenture governing the Senior Notes. If the redemption date is 30 or fewer days prior to the maturity date with respect to the ~~2019~~2021 Senior Notes, ~~and~~is 60 or fewer days prior to the ~~2021~~maturity date with respect to the 2025 Senior Notes or is 90 or fewer days prior to the maturity date with respect to the 2024 Senior Notes, the 2026 Senior Notes and the 2027 Senior Notes, the redemption price will equal 100% of the principal amount of the Senior Notes of the applicable series to be redeemed, plus accrued and unpaid interest on the amount being redeemed to, but excluding, the applicable redemption date. The Senior Notes are registered under the Securities Act of 1933, as amended (the “Securities Act”) and are freely transferable.

The indenture governing our Senior Notes requires us to maintain financial ratios which include maintaining (i) a maximum limitation on incurrence of total debt less than or equal to 65% of Total Assets (as defined in the indenture), (ii) maximum limitation on incurrence of secured debt less than or equal to 40% of Total Assets (as defined in the indenture), (iii) a minimum debt service coverage ratio of at least 1.5x and (iv) a minimum unencumbered asset value of at least 150% of the aggregate principal amount of all of the outstanding Unsecured Debt (as defined in the indenture). ~~The~~As of June 30, 2019, the Company believes that it was in compliance with the financial covenants ~~pursuant to the indenture governing the~~of our Senior Notes ~~as of September 30, 2018.~~based on the covenant limits and calculations in place at that time.

Convertible Debt

During the three months ended September 30, 2018, the Company’s convertible senior notes due August 1, 2018 (the “2018 Convertible Notes”) matured and the principal outstanding of $597.5 million, plus accrued and unpaid interest thereon, was repaid. The interest rate on the 2018 Convertible Notes was 3.00% annually.

As of ~~September~~June 30, ~~2018,~~2019, the Company had convertible senior notes due December 15, 2020 (the “2020 Convertible ~~Notes” and, together with the 2018 Convertible Notes, the “Convertible~~ Notes”) with a balance of $402.5 million outstanding, which excludes the carrying value of the conversion options recorded within additional paid-in capital of $12.8 million and the unamortized discount of ~~$4.4~~$2.9 million. The discount will be amortized over the remaining term of ~~2.2~~1.5 years. The 2020 Convertible Notes bear interest at an annual rate of 3.75%.

The 2020 Convertible Notes may be converted into cash, shares of the Company’s ~~common stock~~Common Stock or a combination thereof, in limited circumstances prior to June 15, 2020, and may be converted into such consideration at any time on or after June 15, 2020. As of ~~September~~June 30, ~~2018,~~2019, the conversion rate was 66.7249 ~~General Partner OP Units~~shares of the Company’s Common Stock per $1,000 principal amount of 2020 Convertible Notes, ~~as adjusted in accordance with~~which reflects adjustments to the initial conversion rate pursuant to the terms of the applicable ~~indentures~~indenture as a result of cash dividend payments. There were no changes to the terms of the 2020 Convertible Notes during the ~~nine~~six months ended ~~September~~June 30, ~~2018~~2019 and the Company believes that it was in compliance with the financial covenants pursuant to the indenture governing the 2020 Convertible Notes as of ~~September~~June 30, ~~2018.~~2019.

Credit Facility

On May 23, 2018, the General Partner, as guarantor, and the OP, as borrower, entered into a credit agreement with Wells Fargo Bank, National Association ~~(“Wells Fargo”)~~ as administrative agent and other lenders party thereto (the “Credit Agreement”). The Credit Agreement provides for a $2.0 billion unsecured revolving credit facility (the “Revolving Credit Facility”) and a $900.0 million unsecured ~~delayed-draw~~ term loan facility (the ~~“Delayed-Draw~~“Credit Facility Term ~~Loan”,~~Loan,” together with the Revolving Credit Facility, the “Credit Facility”). ~~In connection with entering into the Credit Agreement, the OP repaid all of the outstanding obligations under the amended and restated credit agreement dated as~~

As of June 30, ~~2014 (as amended, the “2014 Credit Agreement”) and the 2014 Credit Agreement~~2019, there was ~~terminated. The 2014 Credit Agreement provided for a $2.3 billion revolving credit facility and was scheduled to terminate on June 30, 2018.~~

~~As of September 30, 2018, the~~no outstanding balance under the Revolving Credit Facility. As of June 30, 2019, $900.0 million had been drawn on the Credit Facility ~~was $793.0 million.~~Term Loan. The maximum aggregate dollar amount of letters of credit that may be outstanding at any one time under the Credit Facility is $50.0 million. As of ~~September~~June 30, ~~2018, no amounts had been drawn~~2019, letters of credit outstanding were $3.9 million.

Table of Contents

VEREIT, INC. and VEREIT OPERATING PARTNERSHIP, L.P.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

June 30, 2019 (Unaudited) – (Continued)

As discussed in Note 7 –Derivatives and Hedging Activities, on January 24, 2019, the ~~Delayed-Draw~~Company entered into interest rate swap agreements with an aggregate $900.0 million notional amount, effective on February 6, 2019 and maturing on January 31, 2023, to hedge interest rate volatility. The swap agreements effectively fixed the Credit Facility Term ~~Loan.~~Loan interest rate, including the spread which can vary based on our credit rating, at approximately 3.84%.

The Revolving Credit Facility generally bears interest at an annual rate of London Inter-Bank Offer Rate (“LIBOR”) plus 0.775% to 1.55% or Base Rate plus 0.00% to 0.55% (based upon the General Partner’s then current credit rating). “Base Rate” is defined as the highest of the prime rate, the federal funds rate plus 0.50% or a floating rate based on one month LIBOR plus 1.0%, determined on a daily basis. The ~~Delayed-Draw~~Credit Facility Term Loan generally bears interest at an annual rate of LIBOR plus 0.85% to 1.75%, or Base Rate plus 0.00% to 0.75% (based upon the General Partner’s then current credit rating). In addition, the Credit Agreement provides the flexibility for interest rate auctions, pursuant to which, at the Company’s election, the Company may request that lenders make competitive bids to provide revolving loans, which competitive bids may be at pricing levels that differ from the foregoing interest rates.

~~Table of Contents~~

~~VEREIT, INC. and VEREIT OPERATING PARTNERSHIP, L.P.~~

~~NOTES TO CONSOLIDATED FINANCIAL STATEMENTS~~

~~September 30, 2018 (Unaudited)~~ – ~~(Continued)~~

In the event of default, at the election of a majority of the lenders (or automatically upon a bankruptcy event of default with respect to the OP or the General Partner), the commitments of the lenders under the Credit Facility will terminate, and payment of any unpaid amounts in respect of the Credit Facility will be accelerated. The Revolving Credit Facility terminates on May 23, 2022, unless extended in accordance with the terms of the Credit Agreement. The Credit Agreement provides for two six-month extension options with respect to the Revolving Credit Facility, exercisable at the OP’s election and subject to certain customary conditions, as well as certain customary “amend and extend” provisions. Any term loans outstanding under the ~~Delayed-Draw~~Credit Facility Term Loan mature on May 23, 2023. At any time, upon timely notice by the OP and subject to any breakage fees, the OP may prepay borrowings under the Credit Facility (subject to certain limitations applicable to the prepayment of any loans obtained through an interest rate auction, as described above). The OP incurs a facility fee equal to 0.10% to 0.30% per annum (based upon the General Partner’s then current credit rating) multiplied by the commitments (whether or not utilized) in respect of the Revolving Credit Facility. ~~In addition, the OP incurs a ticking fee equal to 0.25% multiplied by unused commitments in respect of the Delayed-Draw Term Loan.~~ The OP also incurs customary administrative agent, letter of credit issuance, letter of credit fronting, extension and other fees.

The Credit Facility requires restrictions on corporate guarantees, as well as the maintenance of financial covenants, including the maintenance of certain financial ratios (such as specified debt to equity and debt service coverage ratios). The key financial covenants in the Credit Facility, as defined and calculated per the terms of the Credit Agreement, include maintaining (i) a maximum leverage ratio less than or equal to 60%, (ii) a minimum fixed charge coverage ratio of at least 1.5x, (iii) a secured leverage ratio less than or equal to 45%, (iv) a total unencumbered asset value ratio less than or equal to 60% and (v) a minimum unencumbered interest coverage ratio of at least 1.75x. The Company believes that it was in compliance with the financial covenants pursuant to the Credit Agreement and is not restricted from accessing any borrowing availability under the Credit Facility as of ~~September~~June 30, ~~2018.~~2019.

In connection with entering into the Credit Agreement, the Company capitalized an aggregate $20.7 million in lender fees and third-party costs in respect of the Revolving Credit Facility and the ~~Delayed-Draw~~Credit Facility Term Loan, which ~~will be~~is being amortized over the respective terms. Deferred financing costs, net of accumulated amortization, related to the Revolving Credit Facility are included in rent and ~~other~~ tenant receivables and other assets, net in the accompanying consolidated balance sheets. Deferred financing costs, net of accumulated amortization, related to the Credit Facility Term Loan outstanding balance are included in credit facility, net in the accompanying consolidated balance sheets.

Note 7 –Derivatives and Hedging Activities

The Company may use derivative financial instruments, including interest rate swaps, caps, options, floors and other interest rate derivative contracts, to hedge all or a portion of the interest rate risk associated with its borrowings. The Company does not intend to utilize derivatives for purposes other than interest rate risk management. The use of derivative financial instruments carries certain risks, including the risk that the counterparties to these contractual arrangements are not able to perform under the agreements. To mitigate this risk, the Company only enters into derivative financial instruments with counterparties with high credit ratings and with major financial institutions with which the Company may also have other financial relationships. The Company does not anticipate that any of the counterparties will fail to meet their obligations.

Table of Contents

VEREIT, INC. and VEREIT OPERATING PARTNERSHIP, L.P.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

June 30, 2019 (Unaudited) – (Continued)

The Company records all derivatives on the consolidated balance sheets at fair value. The accounting for changes in the fair value of derivatives depends on the intended use of the derivative, whether the Company has elected to designate a derivative in a hedging relationship and apply hedge accounting and whether the hedging relationship has satisfied the criteria necessary to apply hedge accounting. Derivatives designated and qualifying as a hedge of the exposure to changes in the fair value of an asset, liability, or firm commitment attributable to a particular risk, such as interest rate risk, are considered fair value hedges. Derivatives designated and qualifying as a hedge of the exposure to variability in expected future cash flows, or other types of forecasted transactions, are considered cash flow hedges.

The accounting for subsequent changes in the fair value of these derivatives depends on whether each has been designated and qualifies for hedge accounting treatment. If the Company elects not to apply hedge accounting treatment, any changes in the fair value of these derivative instruments is recognized immediately in other income, net in the consolidated statements of operations and consolidated statements of comprehensive income (loss). If the derivative is designated and qualifies for hedge accounting treatment, the change in fair value of the derivative is recorded in other comprehensive income (loss). Unrealized gains and losses in other comprehensive income (loss) are reclassified to interest expense when the related hedged items impact earnings.

Cash Flow Hedges of Interest Rate Risk

On January 24, 2019, the Company entered into interest rate swap agreements with an aggregate $900.0 million notional amount, effective on February 6, 2019 and maturing on January 31, 2023, which were designated as cash flow hedges. Based on the General Partner’s then credit rating and interest rate of LIBOR + 1.35%, the swap agreements effectively fixed the Credit Facility Term Loan interest rate at approximately 3.84%. As of June 30, 2019, these interest rate swaps were in a liability position with a fair value of $27.6 million, which is included in deferred rent and other liabilities in the accompanying consolidated balance sheets. As of December 31, 2018, the Company had no interest rate derivatives that were designated as cash flow hedges of interest rate risk.

The Company reclassified previously unrealized losses of $0.1 million and $0.2 million for the three and six months ended June 30, 2019, respectively, and losses of $0.1 million and $0.2 million for the three and six months ended June 30, 2018, respectively, from accumulated other comprehensive income into interest expense as a result of the hedged transactions impacting earnings.

During the three and six months ended June 30, 2019, the Company recorded unrealized losses of $16.3 million and $27.6 million, respectively, for changes in the fair value of the cash flow hedges in accumulated other comprehensive income. There were no similar amounts during the three and six months ended June 30, 2018.

During the next twelve months, the Company estimates that an additional $6.1 million will be reclassified from other comprehensive income as an increase to interest expense.

Derivatives Not Designated as Hedging Instruments

As of June 30, 2019, the Company had no interest rate swaps that were not designated as qualifying hedging relationships. As of December 31, 2018, the Company had one interest rate swap that was not designated as a qualifying hedging relationship, with a notional amount of $50.7 million and was in an asset position with an estimated fair value of $0.5 million, which is included in rent and tenant receivables and other assets, net in the accompanying consolidated balance sheet.

A loss of less than $0.1 million for each of the three and six months ended June 30, 2019, and a gain of $0.1 million and $0.4 million for the three and six months ended June 30, 2018, respectively, related to the change in the fair value of derivatives not designated as hedging instruments were recorded in other income, net in the accompanying consolidated statements of operations.

Table of Contents

VEREIT, INC. and VEREIT OPERATING PARTNERSHIP, L.P.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

June 30, 2019 (Unaudited) – (Continued)

Note 10 8 – Supplemental Cash Flow Disclosures

Supplemental cash flow information was as follows for the ~~nine~~six months ended ~~September~~June 30, ~~2018~~2019 and ~~2017~~2018 (in thousands):



	Six Months Ended June 30,
	2019		2018
Supplemental disclosures:
Cash paid for interest	$	147,317	$	59,136
Cash paid for income taxes	3,962		4,919
Non-cash investing and financing activities:
Accrued capital expenditures, tenant improvements and real estate developments	$	8,551	$	4,490
Accrued deferred financing costs	—		98
Real estate contributions to Industrial Partnership	29,577		—
Distributions declared and unpaid	143,306		142,494
Distributions payable relinquished	6,429		—
Mortgage note payable relieved by foreclosure or a deed-in-lieu of foreclosure	—		16,200
Exchange of real estate investments	8,900		—

Nine Months Ended September 30,
2018 2017
Supplemental disclosures:
Cash paid for interest $ 204,366
$ 200,617
Cash paid for income taxes $ 5,346
$ 10,690
Non-cash investing and financing activities:
Accrued capital expenditures, tenant improvements and real estate developments $ 5,762
$ 6,750
Accrued deferred financing costs $ 169
$ 181
Distributions declared and unpaid $ 145,673
$ 146,596
Mortgage note payable relieved by foreclosure or a deed-in-lieu of foreclosure $ 16,200
$ 100,388
Mortgage notes payable assumed in real estate disposition $ —
$ 66,000
Real estate investments received from a ground lease expiration and other lease related transactions $ 1,386
$ 259
Nonmonetary exchanges:
Real estate investments received $ —
$ 50,204
Real estate investments relinquished and gain on disposition $ —
$ (47,474 )
Rent and tenant receivables, intangible lease liability and other assets, net $ —
$ (2,511 )

~~Table of Contents~~

~~VEREIT, INC. and VEREIT OPERATING PARTNERSHIP, L.P.~~

~~NOTES TO CONSOLIDATED FINANCIAL STATEMENTS~~

~~September 30, 2018 (Unaudited)~~ – ~~(Continued)~~

Note 11 9 – Accounts Payable and Accrued Expenses

Accounts payable and accrued expenses consisted of the following as of ~~September~~June 30, ~~2018~~2019 and December 31, ~~2017~~2018 (in thousands):



	June 30, 2019		December 31, 2018
Accrued interest	$	33,789	$	43,916
Accrued real estate and other taxes	29,214		25,208
Accrued legal fees	25,492		32,715
Accounts payable	2,799		2,673
Accrued other	36,505		41,099
Total	$	127,799	$	145,611

September 30, 2018 December 31, 2017
Accrued interest $ 38,890
$ 47,116
Accrued real estate taxes 34,131
26,131
Accrued litigation settlements and legal fees 159,043
30,854
Accounts payable 3,778
2,570
Accrued other 33,308
29,803
Total $ 269,150
$ 136,474

Note 1210 – Commitments and Contingencies

Litigation

The Company is involved in various routine legal proceedings and claims incidental to the ordinary course of its business. There are no material legal proceedings pending against the Company, except as follows:

Government Investigations and Litigation Relating to the Audit Committee Investigation

As previously reported, on October 29, 2014, the Company filed a Current Report on Form 8-K (the “October 29 8-K”) reporting the Audit Committee’s conclusion, based on the preliminary findings of its investigation, that certain previously issued consolidated financial statements of the Company, including those included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2013 and Quarterly Reports on Form 10-Q for the quarters ended March 31, 2014 and June 30, 2014, and related financial information should no longer be relied upon. The Company also reported that the Audit Committee had based its conclusion on the preliminary findings of its investigation into concerns regarding accounting practices and other matters that were first reported to the Audit Committee in early September 2014 and that the Audit Committee believed that an error in the calculation of adjusted funds from operations for the first quarter of 2014 had been identified but intentionally not corrected when the Company reported its financial results for the three and six months ended June 30, 2014. Prior to the filing of the October 29 8-K, the Audit Committee previewed for the SEC the information contained in the filing. Subsequent to that filing, the SEC provided notice that it had commenced a formal investigation and issued subpoenas calling for the production of various documents. In addition, the United States Attorney’s Office for the Southern District of New York contacted counsel for the Audit Committee and counsel for the Company with respect to this matter, and the Secretary of the Commonwealth of Massachusetts issued a subpoena calling for the production of various documents. The Company has been cooperating with these regulators in their investigations.

Table of Contents

VEREIT, INC. and VEREIT OPERATING PARTNERSHIP, L.P.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

June 30, 2019 (Unaudited) – (Continued)

In connection with these investigations, on September 8, 2016, the United States Attorney’s Office for the Southern District of New York announced the filing of criminal charges against the Company’s former Chief Financial Officer and former Chief Accounting Officer (the “Criminal Action”), as well as the fact that the former Chief Accounting Officer pleaded guilty to the charges filed. Also on September 8, 2016, the SEC announced the filing of a civil complaint against the same two individuals in the United States District Court for the Southern District of New ~~York (the “SEC Civil Action”).~~York. On June 30, 2017, following a jury trial, the former Chief Financial Officer was convicted of the charges filed. Both the former Chief Accounting Officer and the former Chief Financial Officer have entered into settlement agreements with the SEC resolving the charges brought against them.

The United States Attorney’s Office has indicated that it does not intend to bring criminal charges against the Company arising from its investigation. In addition, the Company has not been in contact with the Massachusetts regulator since June 2015 and believes the investigation is concluded. In March 2018, investigative staff of the SEC’s enforcement division inquired whether the Company wished to discuss a resolution of potential civil charges the SEC may bring with respect to certain matters investigated by the staff stemming from the announcement made on October 29, 2014. The Company has been cooperating with the SEC staff’s investigation since its inception and is engaged in such discussions with the staff. The timing and substance of the ultimate resolution of these discussions is unknown.

As discussed below, the Company and certain of its former officers and directors have been named as defendants in a number of lawsuits filed following the October 29 8-K, including class actions, individual actions and derivative actions seeking money

~~Table of Contents~~

~~VEREIT, INC. and VEREIT OPERATING PARTNERSHIP, L.P.~~

~~NOTES TO CONSOLIDATED FINANCIAL STATEMENTS~~

~~September 30, 2018 (Unaudited)~~ – ~~(Continued)~~

damages and other relief under the federal securities laws and state laws in both federal and state courts in New York, Maryland and Arizona.

Between October 30, 2014 and January 20, 2015, the Company and certain of its former officers and directors, among other individuals and entities, were named as defendants in ten securities class action complaints filed in the United States District Court for the Southern District of New York. The court consolidated these actions under the caption In re American Realty Capital Properties, Inc. Litigation, No. 15-MC-00040 (AKH) (the “SDNY Consolidated Securities Class Action”). The plaintiffs filed a second amended class action complaint on December 11, 2015, which asserted claims for violations of Sections 11, 12(a)(2) and 15 of the Securities Act of 1933 and Sections 10(b) and 20(a) of the Securities Exchange Act of 1934 and Rule 10b-5 promulgated thereunder. Certain defendants, including the Company and the OP, filed motions to dismiss the second amended class action complaint (or portions thereof), which were granted in part and denied in part by the court. The Company and the OP answered the second amended class action complaint on July 29, 2016. On September 8, 2016, the court issued an order directing plaintiffs to file a third amended complaint to reflect certain prior rulings by the ~~court.~~court in connection with various motions to dismiss. The third amended complaint was filed on September 30, 2016 and the defendants were not required to file new answers. ~~Discovery is ongoing. Plaintiffs in the SDNY Consolidated Securities Class Action filed a motion for class certification and a hearing on the motion was held on August 24, 2017.~~ On August 31, 2017, the court issued an order granting plaintiffs’ motion for class certification. Defendants’ petitions seeking leave to appeal the court’s order granting class certification were denied on January 24, 2018. ~~During~~Fact depositions were concluded at the end of 2018. At a status conference ~~with~~in April 2019, the court ~~on June 11, 2018,~~denied the summary judgment motions filed by the defendants. The court ~~ordered that all fact depositions should be~~also set a schedule for expert discovery, which was completed byat the end of ~~2018 and set a trial date for~~July 2019. Trial has been adjourned from September 9, ~~2019. The next status~~2019 to January 21, 2020 and the Court has scheduled conferences during the week of September 9, 2019 to address pre-trial motions. A final pre-trial conference ~~with the court is~~was also scheduled for November ~~29, 2018.~~7, 2019.

The Company, certain of its former officers and directors, and the OP, among others, ~~have~~were also ~~been~~ named as defendants in thirteen individual securities fraud actions filed in the United States District Court for the Southern District of New York: Jet Capital Master Fund, L.P. v. American Realty Capital Properties, Inc., et al., No. ~~15-cv-307;~~15-cv-307 (the “Jet Capital Action”); Twin Securities, Inc. v. American Realty Capital Properties, Inc., et al., No. 15-cv-1291; HG Vora Special Opportunities Master Fund, Ltd v. American Realty Capital Properties, Inc., et al., No. 15-cv-4107; BlackRock ACS US Equity Tracker Fund, et al. v. American Realty Capital Properties, Inc. et al., No. 15-cv-08464; PIMCO Funds: PIMCO Diversified Income Fund, et al. v. American Realty Capital Properties, Inc. et al., No. 15-cv-08466; Clearline Capital Partners LP, et al. v. American Realty Capital Properties, Inc. et al., No. 15-cv-08467; Pentwater Equity Opportunities Master Fund Ltd., et al. v. American Realty Capital Properties, Inc. et al., No. 15-cv-08510; Archer Capital Master Fund, et al. v. American Realty Capital Properties, Inc. et al, No. 16-cv-05471; Atlas Master Fund et al. v. American Realty Capital Properties, Inc. et al., No. 16-cv-05475; Eton Park Fund, L.P. v. American Realty Capital Properties, Inc., et al., No. 16-cv-09393; Reliance Standard Life Insurance Company, et al, v. American Realty Capital Properties, Inc. et al, No. 17-cv-02796; Fir Tree Capital Opportunity Master Fund, L.P. et al. v. American Realty Capital Properties, Inc. et al., No. 17-cv-04975; and Cohen & Steers Institutional Realty Shares, Inc. et al v. American Realty Capital Properties, Inc. et al., No. 18-cv-06770, (collectively, the “Opt-Out Actions”). The Opt-Out Actions assert claims arising out of allegedly false and misleading statements in connection with the purchase or sale of the Company’s securities. Discovery in the Opt-Out Actions is being coordinated with discovery in the SDNY Consolidated Securities Class Action. On March 28, 2018, plaintiffs in the Opt-Out Actions filed a motion for partial summary judgment against the Company as to certain elements of certain of the alleged claims. On July 12, 2018, the court denied the plaintiffs’ motion with leave to refile after discovery is completed. The Company entered into a series of agreements dated September 30 through October 26, 2018, to settle twelve of the thirteen pending ~~opt out actions~~Opt-Out Actions (the “Opt Out Settlement Agreements”)~~. Eight of the settled opt out actions, representing approximately 11% of VEREIT’s outstanding~~ brought by plaintiffs holding shares of common stock and swaps referencing common stock representing approximately 18% of VEREIT’s outstanding shares of common stock held at the end of the period covered by the litigations, ~~were settled~~ for an aggregate payment of ~~$85~~$127.5 million. The remaining four settled opt out actions, representing approximately 7% of VEREIT’s outstanding shares of common stock and swaps referencing common stock, were settled for an aggregate payment of $42.5 million. Pursuant to the terms of the Opt Out Settlement Agreements, the Plaintiffs filed, or will file, a motion to dismiss all claims against the Company and the other defendants with prejudice in exchange for payments by the Company totaling $127.5 million in connection with the settlement of the claims, which is recorded in “Litigation and other non-routine costs, net of insurance recoveries” in the accompanying consolidated statement of operations for the three and nine months ended September 30, 2018. The Opt Out Settlement Agreements contain mutual releases by both Plaintiffs and the Company, although the Company retains the right to pursue any and all claims against the other defendants in each Action and/or

Table of Contents

VEREIT, INC. and VEREIT OPERATING PARTNERSHIP, L.P.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

June 30, 2019 (Unaudited) – (Continued)

third parties, including claims for contribution for amounts paid in the settlement. The Opt Out Settlement Agreements do not contain any admission of liability, wrongdoing or responsibility by any of the parties. The only remaining opt out action in the Southern District of New York is the Jet Capital ~~Master Fund, L.P. v. American Realty Capital Properties, Inc., et al., No. 15-cv-307.~~

~~Table of Contents~~

~~VEREIT, INC. and VEREIT OPERATING PARTNERSHIP, L.P.~~

~~NOTES TO CONSOLIDATED FINANCIAL STATEMENTS~~

~~September 30, 2018 (Unaudited)~~ – ~~(Continued)~~

Action, which is proceeding on the same schedule as the SDNY Consolidated Securities Class Action.

On October 27, 2015, the Company and certain of its former officers, among others, were also named as defendants in an individual securities fraud action filed in the United States District Court for the District of Arizona, captioned Vanguard Specialized Funds, et al. v. VEREIT, Inc. et al., No. 15-cv-02157 (the “Vanguard Action”, and such plaintiffs, “Plaintiffs”). The Vanguard Action asserted claims arising out of allegedly false and misleading statements in connection with the purchase or sale of the Company’s securities. On June 7, 2018, the Company entered into a Settlement Agreement and Release (the “Settlement Agreement”) to settle the Vanguard ~~Action. Pursuant to the terms of the Settlement Agreement, the Plaintiffs filed~~Action for a ~~motion to dismiss all claims against the Company and the other defendants with prejudice, which was granted by the court on June 19, 2018, and the Company paid Plaintiffs the sum~~payment of $90 million in connection with the settlement of the claims, which is recorded in “Litigation and other non-routine costs, net of insurance recoveries” in the accompanying consolidated statement of operations for the nine months ended September 30, 2018.million. The Settlement Agreement contains mutual releases by ~~both~~ Plaintiffs and the Company, although the Company retains the right to pursue any and all claims against the other defendants in the Action and/or third parties, including claims for contribution for amounts paid in the settlement. The Settlement Agreement does not contain any admission of liability, wrongdoing or responsibility by any of the parties. Vanguard’s holdings accounted for approximately ~~13 percent~~13% of the Company’s outstanding shares of common stock held at the end of the period covered by the various pending shareholder actions.

In addition to the settlement of the opt-out actions and the Vanguard Action discussed above, between February 5, 2019 and April 5, 2019, the Company entered into a series of agreements to settle claims with shareholders who decided not to participate as class members in the SDNY Consolidated Securities Class Action. Pursuant to the terms of the settlement agreements, the shareholders released all claims that were the subject matter of the SDNY Consolidated Securities Class Action and the Company made payments totaling $27.9 million. In total, the Company has now settled claims ~~brought by plaintiffs representing approximately 31%~~ of ~~VEREIT’s outstanding~~shareholders who held shares of common stock and swaps referencing common stock representing approximately 35.3% of VEREIT’s outstanding shares of common stock held at the end of the period covered by the various pending shareholder actions for payments totaling ~~$217.5~~approximately $245.4 million. Of the $27.9 million in payments referenced above, $12.2 million is recorded in “Litigation and non-routine costs, net” in the accompanying consolidated statement of operations for the six months ended June 30, 2019, and the balance of $15.7 million was recorded in the Company’s consolidated financial statements for the year ended December 31, 2018.

On June 24, 2019, the Company and certain of its former officers were named as defendants in an individual action filed in the Supreme Court of the State of New York captioned Lakewood Capital Partners, L.P. v. American Realty Capital Properties, Inc., et al., Index No. 653676/2019, alleging claims of common law fraud arising out of allegedly false and misleading statements similar to those that are the subject of the SDNY Consolidated Securities Class Action. The Company is not yet required to respond to the complaint.

The Company was also named as a nominal defendant, and certain of its former officers and directors were named as defendants, in shareholder derivative actions filed in the United States District Court for the Southern District of New York: Witchko v. Schorsch, et al., No. 15-cv-06043 (the “Witchko Action”); and Serafin, et al. v. Schorsch, et al., No. 15-cv-08563 (the “Serafin Action”). The court consolidated the Witchko Action and the Serafin Action (together ~~“the SDNY~~the “SDNY Derivative Action”) and the plaintiffs designated the complaint filed in the Witchko Action as the operative complaint in the SDNY Derivative Action. The SDNY Derivative Action seeks money damages and other relief on behalf of the Company for alleged breaches of fiduciary duty, among other claims. ~~On February 12, 2016,~~Fact discovery and summary judgment briefing in the ~~Company and other defendants filed a motion to dismiss~~Witchko Action was coordinated with the SDNY Consolidated Securities Class Action. At the April 2019 status conference, the court denied the summary judgement motions in the SDNY Derivative Action ~~due~~as premature, with leave to ~~plaintiffs’ failure to plead facts demonstrating that the Board’s decision to refuse plaintiffs’ pre-suit demands was wrongful and~~refile at a later date. The court has not yet set a protected business judgment. On June 9, 2016, the court granted in part and denied in part the Company’s and other defendants’ motions to dismiss. Plaintiffs filed an amended complaint on June 30, 2016, and the Company and other defendants filed answers to the amended complaint on July 22, 2016. Discovery in the Witchko Action is being coordinated with discoverytrial date in the SDNY ~~Consolidated Securities Class~~Derivative Action.

On December 3, 2015, the Company was named as a nominal defendant and certain of its former officers and directors were named as defendants in a shareholder derivative action filed in the Circuit Court for Baltimore City in Maryland, Frampton v. Schorsch, et al., No. 24-C-15-006269 (the “Frampton Action”). The Frampton Action seeks money damages and other relief on behalf of the Company for, among other things, alleged breaches of fiduciary duty and contribution and indemnification. By order dated November 4, 2016, the Frampton Action was stayed pending resolution of the SDNY Derivative Action.

On June 10, 2016, the Company was named as a nominal defendant, and certain of its former officers and directors, among others, were named as defendants, in a shareholder derivative action filed in the Supreme Court of the State of New York, Kosky v. Schorsch, et al., No. 653093/2016 (the “Kosky Action”). The Kosky Action seeks money damages and other relief on behalf of the Company for, among other things, alleged breaches of fiduciary duty, negligence, and breach of contract. On October 6, 2016, the parties filed a stipulation staying the Kosky Action until resolution of the SDNY Consolidated Securities Class Action.

Table of Contents

VEREIT, INC. and VEREIT OPERATING PARTNERSHIP, L.P.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

June 30, 2019 (Unaudited) – (Continued)

On October 6, 2016, the Company was named as a nominal defendant, and certain of its former officers and directors, among others, were named as defendants, in a shareholder derivative action filed in the United States District Court for the District of Maryland, captioned Meloche v. Schorsch, et al., 16-cv-03366 (the “Meloche Action”). An amended complaint was filed on January 17, 2017. The Meloche Action seeks money damages and other relief on behalf of the Company for alleged breaches of fiduciary duty and negligence. By order dated May 16, 2017, the Meloche Action was stayed until resolution of the SDNY Derivative Action.

~~Table of Contents~~

~~VEREIT, INC. and VEREIT OPERATING PARTNERSHIP, L.P.~~

~~NOTES TO CONSOLIDATED FINANCIAL STATEMENTS~~

~~September 30, 2018 (Unaudited)~~ – ~~(Continued)~~

There can be no assurance as to whether or how the ~~Vanguard and other opt out~~completed settlements may affect any potential future resolution of any other pending lawsuit or claims, the timing of any such resolution, or the amount at which any other matter may be resolved. The Company has not reserved amounts for the SEC investigation, the on-going class action and the remaining opt out ~~action~~actions discussed above because it believes that any probable loss or reasonably possible range of loss is not reasonably estimable at this time. With respect to the class action specifically, which represents substantially all of the remaining shares with alleged claims, although the Company believes a loss is probable, it is currently unable to reasonably estimate a possible range of loss because the litigation involves significant uncertainties, including, but not limited to, the complexity of the facts, the legal theories and the nature of the claims, the ~~information to be produced in discovery, which has not yet concluded,~~resolution of significant pre-trial motions, the applicable methodology for determining any damages for each of the different types of claims, the extent to which members of the class would or would not file a claim, and the uncertainty inherent in a class action where the trading history and other relevant characteristics of the claimants are not currently known. The ultimate resolution of all of these matters, the timing and substance of which is unknown, may materially impact the Company’s business, financial condition, liquidity and results of operations.

Cole Litigation Matter

In December 2013, Realistic Partners filed a putative class action lawsuit against the Company and the then-members of its board of directors in the Supreme Court for the State of New York, captioned Realistic Partners v. American Realty Capital Partners, et al., No. 654468/2013. The plaintiff alleged, among other things, that the board of the Company breached its fiduciary duties in connection with the transactions contemplated under the Cole Merger Agreement (in connection with the merger between a wholly owned subsidiary of Cole Credit Property Trust III, Inc. and Cole Holdings Corporation) and that Cole Credit Property Trust III, Inc. aided and abetted those breaches. In January 2014, the parties entered into a memorandum of understanding regarding settlement of all claims asserted on behalf of the alleged class of the Company’s stockholders. The proposed settlement terms required the Company to make certain additional disclosures related to the Cole Merger, which were included in a Current Report on Form 8-K filed by the Company with the SEC on January 17, 2014. The memorandum of understanding also contemplated that the parties would enter into a stipulation of settlement, which would be subject to customary conditions, including confirmatory discovery and court approval following notice to the Company’s stockholders, and provided that the defendants would not object to a payment of up to $625,000 for attorneys’ fees. If the parties enter into a stipulation of settlement, which has not occurred, a hearing will be scheduled at which the court will consider the fairness, reasonableness and adequacy of the settlement. There can be no assurance that the parties will enter into a stipulation of settlement, that the court will approve any proposed settlement, or that any eventual settlement will be under the same terms as those contemplated by the memorandum of understanding.

~~Contractual Lease Obligations~~

~~The following table reflects the minimum base rent payments due from the Company over the next five years~~Purchase and ~~thereafter for certain ground lease obligations, which are substantially reimbursable by our tenants, and office lease obligations (in thousands):~~

Future Minimum Base Rent Payments
Ground Leases Office Leases
October 1, 2018 - December 31, 2018 $ 3,476
$ 1,123
2019 13,984
4,446
2020 13,734
4,451
2021 13,568
4,388
2022 13,781
4,419
Thereafter 210,426
3,996
Total $ 268,969
$ 22,823

~~Purchase~~Build-to-Suit Commitments

~~The~~In the normal course of business, the Company enters into various types of commitments to purchase ~~and sale agreements and deposits funds into escrow towards the purchase of~~ real estate ~~assets.~~properties. These commitments are generally subject to the Company’s customary due diligence process and, accordingly, a number of specific conditions must be met before the Company is obligated to purchase the properties. As of ~~September~~June 30, 2018, the Company was a party to eight purchase and sale agreements with unaffiliated third-party sellers to purchase a 100% interest in 11 properties, subject to meeting certain criteria, for an aggregate purchase price of $218.4 million, exclusive of closing costs. As of September 30, 2018,2019, the Company had ~~$8.4 million~~one build-to-suit development project with an estimated remaining committed investment of property escrow deposits held by escrow agents in connection with these future property acquisitions, which may be forfeited if the transactions are not completed under certain circumstances. In accordance with the Services Agreement, the Company will be reimbursed by the assigned Cole REIT for amounts escrowed when the property is assigned to the respective Cole REIT.

~~Table of Contents~~

~~VEREIT, INC. and VEREIT OPERATING PARTNERSHIP, L.P.~~

~~NOTES TO CONSOLIDATED FINANCIAL STATEMENTS~~

~~September 30, 2018 (Unaudited)~~ – ~~(Continued)~~

$11.9 million.

Environmental Matters

In connection with the ownership and operation of real estate, the Company may potentially be liable for costs and damages related to environmental matters. The Company has not been notified by any governmental authority of any non-compliance, liability or other claim, and is not aware of any other environmental condition, in each case, that it believes will have a material adverse effect on the results of operations.

Table of Contents

VEREIT, INC. and VEREIT OPERATING PARTNERSHIP, L.P.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

June 30, 2019 (Unaudited) – (Continued)

Note 11 - Leases

Lessor

The Company is the lessor for its 3,951 retail, restaurant, office and industrial properties. The Company’s operating and direct financing leases have non-cancelable lease terms of 0.04 years to 25.6 years. Certain leases with tenants include options to extend or terminate the lease agreements or to purchase the underlying asset. Lease agreements may also contain rent increases that are based on an index or rate (e.g., the consumer price index (“CPI”) or LIBOR). The Company believes the residual value risk is not a primary risk because of the long-lived nature of the assets.

The components of rental revenue from the Company’s operating and direct financing leases were as follows (in thousands):



	Three Months Ended June 30,						Six Months Ended June 30,
	2019			2018			2019			2018
Fixed:
Cash rent	$	277,324		$	279,662		$	559,899		$	560,550
Straight-line rent	8,043			11,422			15,455			22,387
Lease intangible amortization	(611		)	(688		)	(1,342		)	(2,175		)
Sub-lease ⁽¹⁾	5,282			4,080			10,771			8,009
Total fixed	290,038			294,476			584,783			588,771

Variable ⁽²⁾	21,794			20,943			43,675			41,457
Income from direct financing leases	211			245			428			510
Total rental revenue	$	312,043		$	315,664		$	628,886		$	630,738

____________________________________


(1)	The Company’s tenants are generally sub-tenants under certain ground leases and are responsible for paying the rent under these leases.


(2)	Includes costs reimbursed related to property operating expenses, common area maintenance and percentage rent, including these costs reimbursed by ground lease sub-tenants.

The following table presents future minimum operating lease payments due to the Company over the next five years and thereafter (in thousands). These amounts exclude contingent rent payments, as applicable, that may be collected from certain tenants based on provisions related to sales thresholds and increases in annual rent based on exceeding certain economic indexes.



	Future Minimum Operating Lease Payments		Future Minimum Direct Financing Lease Payments ⁽¹⁾
July 1, 2019 - December 31, 2019	$	517,007	$	1,209
2020	1,067,012		2,215
2021	1,031,450		2,095
2022	961,627		2,006
2023	881,681		1,622
Thereafter	5,320,409		788
Total	$	9,779,186	$	9,935


(1)	Related to24 properties which are subject to direct financing leases and, therefore, revenue is recognized as rental income on the discounted cash flows of the lease payments. Amounts reflect undiscounted cash flows to be received by the Company under the lease agreements on these respective properties.

Lessee

The Company is the lessee under ground lease arrangements and corporate office leases. All leases for which the Company is the lessee meet the criteria of an operating lease. The Company’s leases have remaining lease terms of 0.5 years to 80.1 years, some of which include options to extend. The weighted average remaining lease term for the Company’s operating leases was 16.6 years as of June 30, 2019. Under certain ground lease arrangements, the Company pays variable costs, including property operating expenses and common area maintenance, which are generally reimbursed by the ground lease sub-tenants. The weighted average discount rate for the Company’s operating leases was 4.92% as of June 30, 2019. As the Company’s leases do not provide an implicit rate, the Company used an estimated incremental borrowing rate based on the information available at the adoption date in determining the present value of lease payments.

Table of Contents

VEREIT, INC. and VEREIT OPERATING PARTNERSHIP, L.P.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

June 30, 2019 (Unaudited) – (Continued)

The Company incorporated renewal periods in the calculation of the majority of ground lease right-of-use assets and lease liabilities. Pursuant to certain leases, the Company is required to execute renewal options available under the ground lease through the building lease term. No renewals were incorporated in the calculation of the corporate lease right-of-use assets and liabilities, as it is not reasonably certain that the Company will exercise the options. The Company’s lease agreements do not contain any material residual value guarantees or material restrictive covenants.

The following table presents the lease expense components for the three and six months ended June 30, 2019 (in thousands):



	Three Months Ended June 30, 2019			Six Months Ended June 30, 2019
Operating lease cost ⁽¹⁾	$	5,418		$	12,396
Sublease income ⁽²⁾	$	(5,282	)	$	(10,771	)


(1)	No cash paid for operating lease liabilities was capitalized.


(2)	The Company’s tenants are generally sub-tenants under certain ground leases and are responsible for paying the rent under these leases.

Subsequent to initial measurement of $233.3 million and $236.3 million, respectively, the Company reduced the right-of-use assets by $2.8 million and operating lease liabilities by $3.1 million, for non-cash activity related to dispositions and lease modifications during the six months ended June 30, 2019.

The following table reflects the future minimum lease payments due from the Company over the next five years and thereafter for ground lease obligations, which are substantially reimbursable by our tenants, and office lease obligations as of June 30, 2019 (in thousands).



	Future Minimum Lease Payments
July 1, 2019 - December 31, 2019	$	11,031
2020	23,022
2021	22,708
2022	22,541
2023	21,280
Thereafter	244,406
Total	344,988
Less: imputed interest	119,016
Total	$	225,972

The following table reflects the future minimum lease payments due from the Company over the five years subsequent to December 31, 2018, as disclosed in the Company's Annual Report on Form 10-K for the year ended December 31, 2018 (in thousands), which excluded certain ground leases under which the Company's sub-tenants are responsible for paying the rent under these leases directly to the ground lessor.



	Future Minimum Lease Payments
2019	$	18,479
2020	18,191
2021	17,929
2022	18,118
2023	17,772
Thereafter	196,670
Total	$	287,159

Note 1312 – Equity

Common Stock and General Partner OP Units

The General Partner is authorized to issue up to 1.5 billion shares of Common Stock. As of ~~September~~June 30, ~~2018,~~2019, the General Partner had approximately ~~967.5~~973.4 million shares of Common Stock issued and outstanding.

Table of Contents

VEREIT, INC. and VEREIT OPERATING PARTNERSHIP, L.P.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

June 30, 2019 (Unaudited) – (Continued)

Additionally, the Operating Partnership had approximately ~~967.5~~973.4 million General Partner OP Units issued and outstanding as of ~~September~~June 30, ~~2018,~~2019, corresponding to the General Partner’s outstanding shares of Common Stock.

Common Stock Continuous Offering ~~Program~~Programs

On September 19, 2016, the Company registered a continuous equity offering program (the ~~“Program”~~“Prior Program”) pursuant to which the Company ~~can~~could offer and sell, from time to time, ~~through September 19, 2019~~ in “at-the-market” offerings or certain other transactions, shares of Common Stock with an aggregate gross sales price of up to $750.0 million, through its sales agents. As of ~~September~~and during the six months ended June 30, ~~2018, no~~2019, the Company had issued 5.0 million shares under the Prior Program, at a weighted average price per share of $8.42, for gross proceeds of $42.5 million. The weighted average price per share, net of offering costs, was $8.30, for net proceeds of $41.8 million.

On April 15, 2019, the Company established a new continuous equity offering program pursuant to which the Company may sell shares of Common Stock having an aggregate offering price of up to $750.0 million from time to time through April 15, 2022 in “at-the-market” offerings or certain other transactions ( the “Current ATM Program”). The Current ATM Program replaced the Prior Program. The proceeds from any sale of shares under the Prior Program or the Current ATM Program have been or will be used for general corporate purposes, which may include funding potential acquisitions and repurchasing or repaying outstanding indebtedness. No shares have been issued ~~pursuant to~~under the ~~Program.~~

~~Preferred Stock and Preferred OP Units~~Current ATM Program as of June 30, 2019.

Series F Preferred Stock and Series F Preferred OP Units

As of ~~September~~June 30, ~~2018,~~2019, there were approximately ~~42.8~~42.9 million shares of Series F Preferred Stock (and approximately ~~42.8~~42.9 million corresponding General Partner Series F Preferred Units) and ~~86,874~~49,766 Limited Partner Series F Preferred Units issued and outstanding.

The Series F Preferred Stock pays cumulative cash dividends at the rate of 6.70% per annum on their liquidation preference of $25.00 per share (equivalent to $1.675 per share on an annual basis). The Series F Preferred Stock iswas not redeemable by the Company before January 3, 2019, the fifth anniversary of the date on which such Series F Preferred Stock was issued (the “Initial Redemption Date”), except under circumstances intended to preserve the General Partner’s status as a REIT for federal and/or state income tax purposes and except upon the occurrence of a change of control. On and after the Initial Redemption Date, the General Partner may, at its option, redeem shares of the Series F Preferred Stock, in whole or from time to time in part, at a redemption price of $25.00 per share plus, subject to exceptions, any accrued and unpaid dividends thereon to the date fixed for redemption. The shares of Series F Preferred Stock have no stated maturity, are not subject to any sinking fund or mandatory redemption and will remain outstanding indefinitely unless the General Partner redeems or otherwise repurchases them or they become convertible and are converted into Common Stock (or, if applicable, alternative consideration). The Series F Preferred Stock trades on the NYSE under the symbol ~~“VER PRF”~~VER PF. The Series F Preferred Units contain the same terms as the Series F Preferred Stock.

Table of Contents

VEREIT, INC. and VEREIT OPERATING PARTNERSHIP, L.P.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

June 30, 2019 (Unaudited) – (Continued)

Limited Partner OP Units

As of ~~each of September~~June 30, ~~2018 and December 31, 2017,~~2019 the Operating Partnership had approximately ~~23.7~~20.8 million Limited Partner OP Units ~~outstanding.~~outstanding, net of the subsequently surrendered 2.9 million Limited Partner OP Units discussed below.

On July 16, 2019, the SEC filed a complaint in United States District Court for the Southern District of New York charging the Company’s Former Manager and certain of the Former Manager’s principals with securities law violations for, among other things, wrongfully obtaining certain incentive fees in connection with mergers entered into by the Company in 2013 and 2014. Simultaneously with the filing of the complaint, the parties entered into proposed settlement agreements, without admitting or denying the allegations of the complaint, pursuant to which 2.9 million Limited Partner OP Units were surrendered by the Former Manager and its principals to the Company. In accordance with U.S. GAAP, the Company recorded the surrender of the Limited Partner OP Units as a reduction to litigation and non-routine costs, net, of $26.5 million, using a per share price of $9.08, during the three and six months ended June 30, 2019 in the accompanying consolidated statements of operations. In addition to surrendering the 2.9 million Limited Partner OP Units, the Former Manager and its principals have relinquished any rights to $6.4 million of dividends on those units, which the Company has withheld payment of since October 2015. The Company reduced distributions payable and non-controlling interests in the accompanying financial statements of VEREIT, Inc. and distributions payable, General Partner’s common equity and Limited Partner’s common equity in the accompanying financial statements of the OP. The court approved the settlements on July 17, 2019 and the Limited Partner OP Units were subsequently canceled on July 26, 2019. In accordance with U.S. GAAP, the diluted per share calculation reflects a reduction of the canceled Limited Partner OP Units as of June 30, 2019.

As of ~~September~~June 30, ~~2018,~~2019, the Company has received redemption requests totaling approximately 13.1 million Limited Partner OP Units from certain affiliates of the Former Manager, which would have been redeemable for a corresponding number of shares of Common Stock. The Company believes it has potential claims against recipients of those OP Units and has engaged in discussions with affiliates of the Former Manager regarding the redemption requests. Pending any resolution, the Company does not currently intend to satisfy any of the redemption requests. In light of the potential claims, since October 15, 2015, the OP has not paid distributions in respect of a substantial portion of the outstanding Limited Partner OP Units when the Common Stock dividends were otherwise paid.

~~Table of Contents~~

~~VEREIT, INC. and VEREIT OPERATING PARTNERSHIP, L.P.~~

~~NOTES TO CONSOLIDATED FINANCIAL STATEMENTS~~

~~September 30, 2018 (Unaudited)~~ – ~~(Continued)~~

Common Stock Dividends

~~The~~On May 6, 2019, the Company’s ~~board~~Board of ~~directors~~Directors declared a quarterly cash dividend of $0.1375 per share of ~~common stock~~Common Stock (equaling an annualized dividend rate of $0.55 per share) for the ~~third~~second quarter of ~~2018 on August 2, 2018~~2019 to stockholders of record as of ~~September~~June 28, ~~2018,~~2019, which was paid on ~~October~~July 15, ~~2018.~~2019. An equivalent distribution by the Operating Partnership is applicable per OP ~~unit.~~Unit.

Share Repurchase ~~Program~~Programs

On May 12, 2017, the Company’s board of directors authorized the repurchase of up to $200.0 million of the Company’s outstanding Common Stock over the subsequent 12 months, as market conditions warranted (the “2017 Share Repurchase Program”). On May 3, 2018, the Company’s ~~board~~Board of ~~directors~~Directors terminated ~~the 2017 Share Repurchase Program~~its prior share repurchase program and authorized a new program (the “2018 Share Repurchase Program”)~~, collectively with the 2017 Share Repurchase Program (the “Share Repurchase Programs”)~~ that ~~permits~~permitted the Company to repurchase up to $200.0 million of its outstanding Common Stock through May 3, 2019, as market conditions ~~warrant. Repurchases~~warranted. On May 6, 2019, the Company’s Board of Directors authorized a new share repurchase program (the “2019 Share Repurchase Program”) that permits the Company to repurchase up to $200.0 million of its outstanding Common Stock through May 6, 2022. Under the programs, repurchases can be made through open market purchases, privately negotiated transactions, structured or derivative transactions, including accelerated stock repurchase transactions, or other methods of acquiring shares in accordance with applicable securities laws and other legal requirements. The ~~Share Repurchase Programs~~share repurchase programs do not obligate the Company to make any repurchases at a specific time or in a specific ~~situation. Repurchases~~situation and repurchases are subject to prevailing market conditions, the trading price of the ~~stock,~~Common Stock, the Company’s financial performance and other conditions.

~~During the period from January 1, 2018 through May 2, 2018, the Company repurchased approximately 6.4 million shares~~ Shares of Common Stock ~~in multiple open market transactions, at a weighted average~~repurchased by the Company under the share ~~price~~repurchase programs, if any, will be returned to the status of ~~$6.94 for an aggregate purchase price of $44.6 million as part of the 2017 Share Repurchase Program, which are currently deemed to be~~ authorized but unissued shares of Common Stock. ~~During~~

There were no share repurchases under the ~~period from May 12, 2017 through December 31, 2017,~~2018 or 2019 Share Repurchase Programs during the six months ended June 30, 2019. As of June 30, 2019, the Company ~~repurchased approximately 69,000 shares of Common Stock in multiple open market transactions, at a weighted average~~had $200.0 million available for share ~~price of $7.50 for an aggregate purchase price of $0.5 million, for an aggregate of $45.1 million of shares repurchased as part of~~repurchases under the ~~2017~~2019 Share Repurchase ~~Program.~~

~~From May 3, 2018 through September 30, 2018, the Company~~Program and had repurchased ~~approximately~~ 0.8 million shares of Common Stock in multiple open market transactions, at a weighted average share price of $6.95 for an aggregate purchase price of $5.6 million as part of the 2018 Share Repurchase Program, which are currently deemed to be authorized but unissued shares of Common Stock. None of the share repurchases under the 2018 Share Repurchase Program occurred during the third quarter of 2018. As of September 30, 2018, the Company had $194.4 million available for share repurchases under the 2018 Share Repurchase Program. ~~Additional~~

Table of Contents

VEREIT, INC. and VEREIT OPERATING PARTNERSHIP, L.P.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

June 30, 2019 (Unaudited) – (Continued)

Note 13 —Discontinued Operations

On November 13, 2017, the Company entered into a purchase and sale agreement (as amended by that certain First Amendment to the Purchase and Sale Agreement, dated as of February 1, 2018, the “Cole Capital Purchase and Sale Agreement”). On February 1, 2018, the Company completed the sale of its investment management segment, Cole Capital, under the terms of the Cole Capital Purchase and Sale Agreement. Substantially all of the Cole Capital segment’s operations were conducted through Cole Capital Advisors, Inc. (“CCA”), an Arizona corporation and a wholly owned subsidiary of the OP. The OP sold all of the issued and outstanding shares of ~~Common Stock repurchased by~~common stock of CCA and certain of CCA’s subsidiaries to CCA Acquisition, LLC (the “Cole Purchaser”), an affiliate of CIM Group, LLC for approximately $120.0 million paid in cash at closing. The Company could also receive up to an aggregate of $80.0 million of additional fees over the ~~Company under~~next five years if future revenues of Cole Capital exceed a specified dollar threshold (the “Net Revenue Payments”). There were no Net Revenue Payments received or earned since the ~~2018 Share Repurchase Program, if any, will be returned to~~sale. Substantially all of the ~~status of authorized but unissued shares of Common Stock.~~

~~Common Stock Repurchases to Settle Tax Obligations~~

~~Under~~Cole Capital segment financial results are reflected in the ~~General Partner’s Equity Plan, certain participants have~~financial statements as discontinued operations. There were no discontinued operations or cash flows for the ~~option to have the General Partner repurchase shares vesting from awards made under the Equity Plan in order to satisfy the minimum federal~~three and ~~state tax withholding obligations. During the nine~~six months ended ~~September~~June 30, 2019.

The following is a summary of the financial information for discontinued operations for the three and six months ended June 30, 2018 (in thousands):



	Three Months Ended June 30, 2018		Six Months Ended June 30, 2018
Revenues:
Offering-related fees and reimbursements	$	—	$	1,027
Transaction service fees and reimbursements	—		334
Management fees and reimbursements	—		6,452
Total revenues	—		7,813
Operating expenses:
Cole Capital reallowed fees and commissions	—		602
Transaction costs	—		(654		)
General and administrative	—		4,450
Total operating expenses	—		4,398
Operating income	—		3,415
Gain (loss) on disposition and assets held for sale ⁽¹⁾	224		(1,785		)
Income before taxes	224		1,630
Benefit from income taxes	—		2,095
Income from discontinued operations, net of income taxes	$	224	$	3,725


(1)	The positive balance for the three months ended June 30, 2018 is a result of estimated expenses used to calculate the loss on disposition in prior periods that exceeded actual expenses incurred. The Company recognized a loss on classification as held for sale of $20.0 million during the three months ended December 31, 2017.

The following is a summary of cash flows related to discontinued operations for the ~~General Partner repurchased approximately 0.3 million shares to satisfy the federal and state tax withholding obligations on behalf of employees that made this election.~~six months ended June 30, 2018 (in thousands):



	Six Months Ended June 30, 2018
Cash flows related to discontinued operations:
Cash flows used in operating activities	$	(10,438	)
Cash flows from investing activities	$	122,915

Table of Contents

VEREIT, INC. and VEREIT OPERATING PARTNERSHIP, L.P.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

June 30, 2019 (Unaudited) – (Continued)

Note 14 –Related Party Transactions and Arrangements

Cole Capital

Through February 1, 2018, the Company was contractually responsible for managing CCIT II, CCIT III, Cole Credit Property Trust IV, Inc. (“CCPT IV”), CCPT V, and CIM Income NAV, Inc. (formerly known as Cole Real Estate Income Strategy (Daily NAV), Inc.) (“INAV” and collectively with CCIT II, CCIT III, CCPT IV, CCPT V, the ~~Cole REITs’~~“Cole REITs”) affairs 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. In addition, the Company was responsible for raising capital for certain Cole REITs, advised them regarding offerings, managed relationships with participating broker-dealers and financial advisors, and provided assistance in connection with compliance matters relating to the offerings. The Company received compensation and reimbursement for services relating to the Cole REITs’ offerings and the investment, management and disposition of their respective assets, as applicable.

As discussed in Note 413 —Discontinued Operations,, on February 1, 2018, the Company completed the sale of Cole Capital. The ~~assets and liabilities transferred pursuant to the~~ Cole Capital ~~Purchase and Sale Agreement and related~~ financial results are reflected in the ~~consolidated balance sheets and~~ consolidated statements of operations as discontinued operations for all periods presented. As a result of the sale of Cole Capital, the Cole REITs are no longer affiliated with the Company.

~~Table of Contents~~

~~VEREIT, INC.~~During the three and ~~VEREIT OPERATING PARTNERSHIP, L.P.~~

~~NOTES TO CONSOLIDATED FINANCIAL STATEMENTS~~

~~September~~six months ended June 30, 2018, ~~(Unaudited)~~ – ~~(Continued)~~

~~The table below reflects~~ the ~~revenue~~Company earned less than $0.1 million and $7.9 million, respectively of offering-related, transaction services and management fees and reimbursements from the Cole ~~REITs (including closed programs, as applicable) for the period from January 1, 2018 through January 31, 2018 and~~REITs. No such fees were earned during the three and ~~nine~~six months ended ~~September~~June 30, ~~2017 and revenue earned from unconsolidated joint ventures for the three and nine months ended September 30, 2018 and 2017 (in thousands)~~2019.

Three Months Ended September 30, Nine Months Ended September 30,
2018 2017
2018 ⁽¹⁾
2017
Offering-related fees and reimbursements
Selling commissions ⁽²⁾
$ —
$ 1,816
$ 407
$ 6,336
Dealer manager and distribution fees ⁽³⁾
—
1,278
431
3,766
Reimbursement revenue —
788
189
2,619
Offering-related fees and reimbursements —
3,882
1,027
12,721

Transaction service fees and reimbursements
Acquisition fees —
3,320
119
9,965
Reimbursement revenues —
644
215
2,145
Transaction service fees and reimbursements —
3,964
334
12,110

Management fees and reimbursements
Asset and property management fees and leasing fees ⁽⁴⁾
37
56
123
161
Advisory and performance fee revenue —
14,532
5,023
42,318
Reimbursement revenues —
4,620
1,429
14,070
Management fees and reimbursements 37
19,208
6,575
56,549

Interest income on Affiliate Lines of Credit —
24
28
221

Total related party revenues $ 37
$ 27,078
$ 7,964
$ 81,601


~~(1)~~	~~Represents the revenue earned during the period from January 1, 2018 through January 31, 2018.~~


~~(2)~~	~~The Company reallowed 100% of selling commissions to participating broker-dealers from January 1, 2018 through January 31, 2018 and during the three and nine months ended September 30, 2017.~~


~~(3)~~	During the nine months ended September 30, 2018, the Company reallowed $0.2 million of dealer manager fees and/or distribution and stockholder servicing fees to participating broker-dealers as a marketing and due diligence expense reimbursement. During the three and nine months ended September 30, 2017, the Company reallowed $0.6 million and $1.6 million, respectively, of such fees.


~~(4)~~	~~Represents asset and property management fees and leasing fees related to properties owned through the Company’s unconsolidated joint ventures.~~

Investment in the Cole REITs

On February 1, 2018, the Company sold certain of its equity investments, recognizing a gain of $0.6 million, which is included in other income, net in the accompanying consolidated statement of operations for the ~~nine~~six months ended ~~September~~June 30, 2018, to the Cole Purchaser, retaining interests in ~~CCIT II, CCIT III and CCPT V.~~the Cole REITs. As of ~~September~~June 30, ~~2018~~2019 and December 31, ~~2017,~~2018, the Company owned aggregate equity investments of ~~$7.8~~$7.6 million and ~~$3.3~~$7.8 million, respectively, in the Cole REITs. ~~As discussed in~~ ~~Note 2 –~~ ~~Summary of Significant Accounting Policies, subsequent to~~During the sale of Cole Capital and the adoption of ASU 2016-01, the Company carries these investments at fair value, as the Company does not exert significant influence over CCIT II, CCIT III or CCPT V, in rent and tenant receivables and other assets, net in the accompanying consolidated balance sheet as of September 30, 2018 and any changes in the fair value are recognized in other income, net in the accompanying consolidated statement of operations for the three and ninesix months ended ~~September 30, 2018. During the nine months ended September~~June 30, 2018, the Company recognized a gain of $5.1 million related to the change in fair value from the carrying value at December 31, 2017, which is included in other income, net in the accompanying consolidated statement of operations. ~~Prior to~~During the sale of Cole Capital, the Company accounted for these investments using the equity method of accounting, which requires the investment to be initially recorded at cost and subsequently adjusted for the Company’s share of equity in the respective Cole REIT’s earnings and distributions. The Company recorded its proportionate share of net income or loss from the Cole REITs in equity in income and gain on disposition of unconsolidated entities in the consolidated statement of operations for the three and ninesix months ended ~~September~~June 30, ~~2017. During the three and nine months ended September 30, 2017,~~2019, the Company recognized a ~~net~~ loss of ~~less than $0.1~~$0.3 million ~~and $0.5 million~~related to the change in fair value from the ~~Cole REITs, respectively.~~

~~Table of Contents~~

~~VEREIT, INC. and VEREIT OPERATING PARTNERSHIP, L.P.~~

~~NOTES TO CONSOLIDATED FINANCIAL STATEMENTS~~

~~September 30,~~carrying value at December 31, 2018, ~~(Unaudited)~~ – ~~(Continued)~~

~~Due to Cole REITs~~

~~As of September 30, 2018, less than $0.1 million was due to the Cole REITs,~~ which is included in accounts payable and accrued expenses in the accompanying consolidated balance sheet. As of December 31, 2017, due to affiliates was $0.1 million, related to amounts due to the Cole REITs, which is included in due to affiliates,other income, net in the accompanying consolidated ~~balance sheet.~~

~~Due from Cole REITs~~

Asstatements of September 30, 2018, $0.1 million was expected to be collected from the Cole REITs. As of December 31, 2017, $4.4 million was expected to be collected from affiliates, excluding any outstanding balances from a line of credit with one of the Cole REITs, discussed below, related to services provided by the Company and expenses subject to reimbursement by the Cole REITs in accordance with their respective advisory and property management agreements.

On September 23, 2016, the Company entered into a $30.0 million revolving line of credit (the “Subordinate Promissory Note”) with Cole Corporate Income Operating Partnership III, LP (“CCI III OP”), the operating partnership of CCIT III (the “Subordinate Promissory Note Agreement”). The Subordinate Promissory Note bears variable interest rates of one-month LIBOR plus the Credit Facility Margin (as defined in the Subordinate Promissory Note Agreement), which ranges from 2.20% to 2.75%, plus 1.75% and was originally scheduled to mature on September 22, 2017. On March 28, 2017, CCI III OP entered into a modification agreement in order to extend the maturity date of the Subordinate Promissory Note from September 22, 2017 to September 30, 2018. As of September 30, 2018, the Subordinate Promissory Note had matured and no amounts were outstanding. As of December 31, 2017, $1.6 million was outstanding, which is included in due from affiliates, net in the accompanying consolidated balance sheet.operations.

Note 15 –Net Income (Loss) Per Share/Unit

The General Partner’s unvested ~~restricted shares~~Restricted Shares contain non-forfeitable rights to dividends and are considered to be participating securities in accordance with U.S. GAAP and, therefore, are included in the computation of earnings per share under the two-class computation method. Under the two-class computation method, net losses are not allocated to participating securities unless the holder of the security has a contractual obligation to share in the losses. The unvested ~~restricted shares~~Restricted Shares are not allocated losses as the awards do not have a contractual obligation to share in losses of the General Partner. The two-class computation method is an earnings allocation formula that determines earnings per share for each class of shares of Common Stock and participating securities according to dividends declared (or accumulated) and participation rights in undistributed earnings.

4644

Table of Contents

VEREIT, INC. and VEREIT OPERATING PARTNERSHIP, L.P.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

~~September~~June 30, ~~2018~~2019 (Unaudited) – (Continued)

Net Income (Loss) Per Share

The following is a summary of the basic and diluted net income (loss) per share computation for the General Partner for the three and ~~nine~~six months ended ~~September~~June 30, ~~2018~~2019 and ~~2017~~2018 (dollar amounts in thousands):



	Three Months Ended June 30,						Six Months Ended June 30,
	2019			2018			2019			2018
Income (loss) from continuing operations	$	292,284		$	(74,691	)	$	363,255		$	(45,655	)
Noncontrolling interests’ (income) loss from continuing operations	(6,626		)	1,802			(8,293		)	1,144
Net income (loss) from continuing operations attributable to the General Partner	285,658			(72,889		)	354,962			(44,511		)
Dividends to preferred shares and units	(17,973		)	(17,973		)	(35,946		)	(35,946		)
Net income (loss) from continuing operations available to the General Partner	267,685			(90,862		)	319,016			(80,457		)
Earnings allocated to participating securities	—			(11		)	—			(22		)
Income from discontinued operations, net of income taxes	—			224			—			3,725
Income from discontinued operations attributable to limited partners	—			(5		)	—			(89		)
Net income (loss) available to common stockholders used in basic net income (loss) per share	267,685			(90,654		)	319,016			(76,843		)
Income attributable to limited partners	6,656			—			8,351			—
Net income (loss) used in basic and diluted net income (loss) per share	$	274,341		$	(90,654	)	$	327,367		$	(76,843	)

Weighted average number of Common Stock outstanding - basic	973,723,139			968,192,162			971,106,256			970,398,002
Effect of Limited Partner OP Units and dilutive securities	26,054,596			—			25,636,664			—
Weighted average number of common shares - diluted	999,777,735			968,192,162			996,742,920			970,398,002

Basic and diluted net income (loss) per share from continuing operations attributable to common stockholders	$	0.27		$	(0.09	)	$	0.33		$	(0.08	)
Basic and diluted net income per share from discontinued operations attributable to common stockholders	$	—		$	0.00		$	—		$	0.00
Basic and diluted net income (loss) per share attributable to common stockholders	$	0.27		$	(0.09	)	$	0.33		$	(0.08	)

Three Months Ended September 30, Nine Months Ended September 30,
2018 2017 2018
2017
(Loss) income from continuing operations $ (73,942 ) $ 12,489
$ (119,597 ) $ 53,974
Noncontrolling interests’ share in continuing operations 1,825
(305 ) 2,969
(1,259 )
Net (loss) income from continuing operations attributable to the General Partner (72,117 )
12,184

(116,628 ) 52,715
Dividends to preferred shares and units (17,973 ) (17,973 ) (53,919 ) (53,919 )
Net loss from continuing operations available to the General Partner (90,090 ) (5,789 ) (170,547 ) (1,204 )
Earnings allocated to participating securities (11 ) (43 ) (33 ) (434 )
Income from discontinued operations, net of income taxes —
4,005
3,725
11,496
Income from discontinued operations attributable to limited partners —
(95 ) (89 ) (271 )
Net (loss) income available to common stockholders used in basic net (loss) income per share (90,101 )
(1,922 )
(166,944 ) 9,587
Income attributable to limited partners —
—
—
1,542
Net (loss) income available to common stockholders used in diluted net (loss) income per share $ (90,101 )
$ (1,922 )
$ (166,944 ) $ 11,129

Weighted average number of common stock outstanding - basic 967,798,401
974,167,088
969,521,946
974,060,160
Effect of Limited Partner OP Units and dilutive securities —
—
—
24,025,813
Weighted average number of common shares - diluted 967,798,401

974,167,088

969,521,946

998,085,973

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 ⁽¹⁾
$ (0.09 ) $ (0.00 )
$ (0.17 ) $ 0.01


~~(1)~~	~~Amounts may not total due to rounding.~~

~~For the three months ended September 30, 2018,~~The following were excluded from diluted net ~~loss~~income (loss) per share attributable to common stockholders, ~~excludes approximately 0.4 million weighted average unvested restricted shares and restricted stock units, 23.7 million OP Units and 2.8 million weighted average stock options~~ as the effect would have been antidilutive. For the nine months ended September 30, 2018, diluted net loss per share attributable to common stockholders excludes approximately 0.2 million weighted average unvested restricted shares and restricted stock units, 23.7 million OP Units and 2.3 million weighted average stock options, as the effect would have been antidilutive.

For the three months ended September 30, 2017, diluted net loss per share attributable to common stockholders excludes approximately 0.5 million weighted average unvested restricted shares and restricted stock units and approximately 23.7 million OP Units as the effect would have been antidilutive. For the nine months ended September 30, 2017, diluted net income per share attributable to common stockholders excludes approximately 0.1 million weighted average unvested restricted shares as the effect would have been antidilutive.

antidilutive:



	Three Months Ended June 30,		Six Months Ended June 30,
	2019	2018	2019	2018
Weighted average unvested Restricted Shares and Restricted Stock Units	—	185,652	—	214,899
OP Units	—	23,722,325	—	23,735,264

Table of Contents

VEREIT, INC. and VEREIT OPERATING PARTNERSHIP, L.P.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

~~September~~June 30, ~~2018~~2019 (Unaudited) – (Continued)

Net Income (Loss) Per Unit

The following is a summary of the basic and diluted net income (loss) per unit attributable to common unitholders, which includes all common ~~general partner~~General Partner unitholders and limited partner ~~unitholders. The computation for the OP~~unitholders, for the three and ~~nine~~six months ended ~~September~~June 30, ~~2018~~2019 and ~~2017~~2018 (dollar amounts in thousands):



	Three Months Ended June 30,						Six Months Ended June 30,
	2019			2018			2019			2018
Income (loss) from continuing operations	$	292,284		$	(74,691	)	$	363,255		$	(45,655	)
Noncontrolling interests’ loss from continuing operations	30			16			58			56
Net income (loss) from continuing operations attributable to the Operating Partnership	292,314			(74,675		)	363,313			(45,599		)
Dividends to preferred units	(17,973		)	(17,973		)	(35,946		)	(35,946		)
Net income (loss) from continuing operations available to the Operating Partnership	274,341			(92,648		)	327,367			(81,545		)
Earnings allocated to participating units	—			(11		)	—			(22		)
Income from discontinued operations, net of income taxes	—			224			—			3,725
Net income (loss) used in basic and diluted net income (loss) per unit	$	274,341		$	(92,435	)	$	327,367		$	(77,842	)

Weighted average number of common units outstanding - basic	997,406,933			991,914,486			994,806,018			994,133,266
Effect of dilutive securities	2,370,802			—			1,936,902			—
Weighted average number of common units - diluted	999,777,735			991,914,486			996,742,920			994,133,266

Basic and diluted net income (loss) per unit from continuing operations attributable to common unitholders	$	0.27		$	(0.09	)	$	0.33		$	(0.08	)
Basic and diluted net income per unit from discontinued operations attributable to common unitholders	$	—		$	0.00		$	—		$	0.00
Basic and diluted net income (loss) per unit attributable to common unitholders	$	0.27		$	(0.09	)	$	0.33		$	(0.08	)

Three Months Ended September 30, Nine Months Ended September 30,

2018 2017 2018 2017
(Loss) income from continuing operations $ (73,942 ) $ 12,489
$ (119,597 ) $ 53,974
Noncontrolling interests’ share in continuing operations 57
(9 ) 113
12
Net (loss) income from continuing operations attributable to the Operating Partnership $ (73,885 ) $ 12,480
$ (119,484 ) $ 53,986
Dividends to preferred units (17,973 ) (17,973 ) (53,919 ) (53,919 )
Net (loss) income from continuing operations available to the Operating Partnership (91,858 )
(5,493 )
(173,403 ) 67
Earnings allocated to participating units (11 ) (43 ) (33 ) (434 )
Income from discontinued operations, net of income taxes —
4,005
3,725
11,496
Net (loss) income available to common unitholders used in basic and diluted net loss per unit $ (91,869 ) $ (1,531 ) $ (169,711 ) $ 11,129

Weighted average number of common units outstanding - basic 991,514,309
997,915,435
993,250,687
997,808,507
Effect of dilutive securities —
—
—
277,466
Weighted average number of common units - diluted 991,514,309
997,915,435
993,250,687
998,085,973

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 ⁽¹⁾
$ (0.09 )
$ (0.00 )
$ (0.17 )
$ 0.01


~~(1)~~	~~Amounts may not total due to rounding.~~

~~For the three and nine months ended September 30, 2018,~~The following were excluded from diluted net ~~loss~~income (loss) per unit attributable to common unitholders, ~~excludes approximately 0.4 million and 0.2 million unvested restricted shares and restricted stock units, respectively, and 2.8 million and 2.3 million weighted average stock options~~ as the effect would have been ~~antidilutive.~~

For the three months ended September 30, 2017, diluted net loss per share attributable to common stockholders excludes approximately 0.5 million weighted average unvested restricted shares and restricted stock units as the effect would have been antidilutive. For the nine months ended September 30, 2017, diluted net income per share attributable to common stockholders excludes approximately 0.1 million weighted average unvested restricted shares as the effect would have been antidilutive.

antidilutive:



	Three Months Ended June 30,		Six Months Ended June 30,
	2019	2018	2019	2018
Weighted average unvested Restricted Shares and Restricted Stock Units	—	185,652	—	214,899

~~Table of Contents~~

~~VEREIT, INC. and VEREIT OPERATING PARTNERSHIP, L.P.~~

~~NOTES TO CONSOLIDATED FINANCIAL STATEMENTS~~

~~September 30, 2018 (Unaudited)~~ – ~~(Continued)~~

Note 16 – Subsequent Events

The following events occurred subsequent to ~~September~~June 30, ~~2018:~~

~~Litigation Settlements~~

~~The Company entered into a series of agreements dated September 30 through October 26, 2018, to settle twelve of the thirteen pending opt out actions, as discussed in~~ ~~Note 12 –Commitments and Contingencies~~, for $127.5 million in aggregate, which was recorded in litigation and other non-routine costs, net of insurance recoveries in the consolidated statements of operations. Subsequent to September 30, 2018, the Company paid the outstanding settlement amounts.2019:

Real Estate Investment Activity

From ~~October~~July 1, ~~2018~~2019 through ~~October 29, 2018,~~July 31, 2019 the Company disposed of ~~nine~~11 properties for an aggregate gross sales price of ~~$43.0~~$30.7 million, of which ~~five~~four were held for sale with an aggregate carrying value of ~~$20.0~~$9.1 million as of ~~September~~June 30, ~~2018.~~2019. The Company’s share of the aggregate sales price was ~~$41.0~~$27.5 million with an estimated gain of ~~$7.2~~$4.2 million. ~~In addition,~~Additionally, on July 2, 2019, the foreclosure sale of one property occurred to settle the related mortgage note obligation for which the Company was in default as of June 30, 2019.

From July 1, 2019 through July 31, 2019 the Company acquired ~~five~~three properties for an aggregate purchase price of ~~$66.7~~$21.8 million, excluding capitalized external acquisition-related expenses.

Table of Contents

VEREIT, INC. and VEREIT OPERATING PARTNERSHIP, L.P.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

June 30, 2019 (Unaudited) – (Continued)

Debt Activity

~~On October 16, 2018,~~ Subsequent to June 30, 2019, the Company ~~closed~~entered into forward starting interest rate swaps with a ~~senior note offering, consisting of $550.0 million aggregate principal~~total notional amount of ~~the Operating Partnership’s 4.625% Senior Notes due 2025 (the “2025 Senior Notes”)~~$400.0 million and an average effective treasury rate of approximately 2.10%. The ~~Operating Partnership used~~swaps are structured to hedge the ~~net proceeds from~~10-year Treasury interest rate risk component associated with the ~~offering~~expected issuance of ~~the notes to repay borrowings under its Revolving Credit Facility.~~

~~CMBS Sale~~

~~On October 2, 2018, the Company sold two, of the remaining three, CMBS for an aggregate gross sales price of $12.8 million.~~

~~Mortgage Notes Receivable~~

~~On October 24, 2018, the Company disposed of one mortgage note with a carrying value of $2.4 million for $2.6 million.~~10-year public debt between May 1, 2020 and December 31, 2021.

Common Stock Dividend

On ~~November~~August 5, ~~2018,~~2019, the Company’s ~~board~~Board of ~~directors~~Directors declared a quarterly cash dividend of $0.1375 per share of ~~common stock~~Common Stock (equaling an annualized dividend rate of $0.55 per share) for the ~~fourth~~third quarter of ~~2018~~2019 to stockholders of record as of ~~December 31, 2018,~~September 30, 2019, which will be paid on ~~January~~October 15, 2019. An equivalent distribution by the Operating Partnership is applicable per OP ~~unit.~~Unit.

Preferred Stock Dividend

On ~~November~~August 5, ~~2018,~~2019, the Company’s ~~board~~Board of ~~directors~~Directors declared a monthly cash dividend to holders of the Series F Preferred Stock for ~~January~~October 2019 through ~~March~~December 2019 with respect to the periods included in the table below. The corresponding record and payment dates for each month's Series F Preferred Stock dividend are also shown in the table below. The dividend for the Series F Preferred Stock accrues daily on a 360-day annual basis equal to an annualized dividend rate of $1.675 per share, or $0.1395833 per 30-day month.



Period	Record Date	Payment Date
~~December~~September 15, ~~2018~~2019 - ~~January~~October 14, 2019	~~January~~October 1, 2019	~~January~~October 15, 2019
~~January~~October 15, 2019 - ~~February~~November 14, 2019	~~February~~November 1, 2019	~~February~~November 15, 2019
~~February~~November 15, 2019 - ~~March~~December 14, 2019	~~March~~December 1, 2019	~~March 15,~~December 16, 2019

Series F Preferred Stock

On July 5, 2019, the Company redeemed 4.0 million shares of its Series F Preferred Stock, representing approximately 9.33% of its issued and outstanding shares. The shares of Series F Preferred Stock were redeemed at a redemption price of $25.00 per share.

Table of Contents

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations.

The following discussion and analysis should be read in conjunction with the accompanying consolidated financial statements and notes thereto appearing elsewhere in this Quarterly Report on Form 10-Q. We make statements in this section that are forward-looking statements within the meaning of the federal securities laws. Certain risks may cause our actual results, performance or achievements to differ materially from those expressed or implied by the following discussion. For a complete discussion of such risk factors, see the Company’s Annual Report on Form 10-K for the year ended December 31, ~~2017.~~2018. Capitalized terms used herein, but not otherwise defined, shall have the meaning ascribed to those terms in the “Part I – Financial Information,” including the notes to the consolidated financial statements contained therein.

Forward-Looking Statements

This Quarterly Report on Form 10-Q includes “forward-looking statements” (within the meaning of the federal securities laws, Section 27A of the Securities Act, ~~of 1933, as amended (the “Securities Act”),~~ and Section 21E of the Exchange Act of 1934, as amended (the “Exchange Act”)) that reflect our expectations and projections about our future results, performance, prospects and opportunities. We have attempted to identify these forward-looking statements by the use of words such as “may,” “will,” “seek,” “expects,” “anticipates,” “believes,” “targets,” “intends,” “should,” “estimates,” “could,” “continue,” “assume,” “projects,” “plans” or similar expressions. These forward-looking statements are based on information currently available to us and are subject to a number of known and unknown risks, uncertainties and other factors that may cause our actual results, performance or achievements to be materially different from any future results, performance or achievements expressed or implied by these forward-looking statements. These factors include, among other things, those discussed below. We intend for all such forward-looking statements to be covered by the safe harbor provisions for forward-looking statements contained in Section 27A of the Securities Act and Section 21E of the Exchange Act, as applicable by law. We do not undertake publicly to update or revise any forward-looking statements, whether as a result of changes in underlying assumptions or new information, future events or otherwise, except as may be required to satisfy our obligations under federal securities law.

The following are some, but not all, of the assumptions, risks, uncertainties and other factors that could cause our actual results to differ materially from those presented in our forward-looking statements:

We may be unable to renew leases, lease vacant space or re-lease space as leases expire on favorable terms or at all.

We are subject to risks associated with tenant, geographic and industry concentrations with respect to our properties.

Our properties, goodwill and intangible assets and other assets may be subject to impairment charges.

We could be subject to unexpected costs or ~~unexpected~~ liabilities that may arise from potential dispositions, including related to limited partnership, tenant-in-common and Delaware statutory trust real estate programs ~~(“1031 real estate programs”)~~ and VEREIT’s management with respect to such programs.

We are subject to competition in the acquisition and disposition of properties and in the leasing of our properties and we may be unable to acquire, dispose of, or lease properties on advantageous terms.

We could be subject to risks associated with bankruptcies or insolvencies of tenants, from tenant defaults generally or from the unpredictability of the business plans and financial condition of our tenants.

We are subject to risks associated with pending government investigations relating to the findings of the Audit Committee Investigation and related litigation, including the expense of such investigations and litigation and any additional potential payments upon resolution.

We have substantial indebtedness, which may affect our ability to pay dividends, and expose us to interest rate fluctuation risk and the risk of default under our debt obligations.

We may be subject to increases in our borrowing costs as a result of changes in interest rates and other factors, including the potential phasing out of LIBOR after 2021.

Our overall borrowing and operating flexibility may be adversely affected by the terms and restrictions within the ~~agreements governing our indebtedness, including the~~ indenture governing the Senior Notes, and the ~~2025 Senior Notes, and the~~ Credit Agreement governing ~~our~~the terms of the Credit Facility.

Our access to capital and terms of future financings may be affected by adverse changes to our credit rating.

We may be affected by the incurrence of additional secured or unsecured debt.

We may not be able to achieve and maintain profitability.

We may not generate cash flows sufficient to pay our dividends to stockholders or meet our debt service obligations.

We may be affected by risks resulting from losses in excess of insured limits.

We may fail to remain qualified as a ~~real estate investment trust (“REIT”)~~REIT for U.S. federal income tax purposes.

Compliance with the REIT annual distribution requirements may limit our operating flexibility.

We may be unable to retain or hire key personnel.

Table of Contents

All forward-looking statements should be read in light of the risks identified in Part I, Item 1A. Risk Factors within our Annual Report on Form 10-K for the year ended December 31, ~~2017.~~2018.

We use certain defined terms throughout this Quarterly Report on Form 10-Q that have the following meanings:

When we refer to “annualized rental income,” we mean the rental revenue under our leases on operating properties owned at the respective reporting date on a straight-line basis, which includes the effect of rent escalations and any tenant concessions, such as free rent, and excludes any bad debt allowances and any contingent rent, such as percentage rent. Management uses annualized rental income as a basis for tenant, industry and geographic concentrations and other metrics within the portfolio. Annualized rental income is not indicative of future performance.

When we refer to a “creditworthy tenant,” we mean a tenant that has entered into a lease that we determine is creditworthy and may include tenants with an investment grade or below investment grade credit rating, as determined by major credit rating agencies, or unrated tenants. To the extent we determine that a tenant is a “creditworthy tenant” even though it does not have an investment grade credit rating, we do so based on our management’s determination that a tenant should have the financial wherewithal to honor its obligations under its lease with us. As explained further below, this determination is based on our management’s substantial experience performing credit analysis and is made after evaluating all of a tenant’s due diligence materials that are made available to us, including financial statements and operating data.

When we refer to a “direct financing lease,” we mean a lease that requires specific treatment due to the significance of the lease payments from the inception of the lease compared to the fair value of the property, term of the lease, a transfer of ownership, or a bargain purchase option. These leases are recorded as a net asset on the balance sheet. The amount recorded is calculated as the fair value of the remaining lease payments on the leases and the estimated fair value of any expected residual property value at the end of the lease term.

When we refer to properties that are net leased on a “long term basis,” we mean properties with remaining primary lease terms of generally seven to 10 years or longer on average, depending on property type.

Under a “net lease,” the tenant occupying the leased property (usually as a single tenant) does so in much the same manner as if the tenant were the owner of the property. There are various forms of net leases, most typically classified as triple net or double net. Triple net leases typically require that the tenant pay all expenses associated with the property (e.g., real estate taxes, insurance, maintenance and repairs). Double net leases typically require that the tenant pay all operating expenses associated with the property (e.g., real estate taxes, insurance and maintenance), but excludes some or all major repairs (e.g., roof, structure and parking lot). Accordingly, the owner receives the rent “net” of these expenses, rendering the cash flow associated with the lease predictable for the term of the lease. Under a net lease, the tenant generally agrees to lease the property for a significant term and agrees that it will either have no ability or only limited ability to terminate the lease or abate rent prior to the expiration of the term of the lease as a result of real estate driven events such as casualty, condemnation or failure by the landlord to fulfill its obligations under the lease.

When we refer to “operating properties” we mean properties owned and consolidated by the Company, omitting properties for which (i) the related mortgage loan is in default, and (ii) management decides to transfer the properties to the lender in connection with settling the mortgage note obligation (the “Excluded Properties”). During the nine months ended September 30, 2018, one vacant industrial property was considered an Excluded Property. The Company entered into a deed-in-lieu of foreclosure agreement and conveyed its interest in this property to the lender in April 2018. As of and during the three months ended September 30, 2018, there were no Excluded Properties.obligation. During the three months ended ~~September~~June 30, ~~2017, two vacant~~2019, the Company determined that the real estate portfolio and economic metrics of operating properties should include the Company's pro rata share of square feet and annualized rental income from the Company's unconsolidated joint ventures, based upon the Company's legal ownership percentage, which may, at times, not equal the Company's economic interest because of various provisions in certain joint venture agreements regarding distributions of cash flow based on capital account balances, allocations of profits and losses and payments of preferred returns. The Company did not update data presented for prior periods as the impact on prior period metrics was immaterial.

As of June 30, 2019, our portfolio was comprised of 3,951 retail, restaurant, office and industrial real estate properties ~~and one vacant industrial property were considered Excluded Properties. During the nine months ended September 30, 2017, two vacant office properties and five industrial properties, two~~with an aggregate 89.8 million square feet, of which ~~were~~98.9% was leased, with a weighted-average remaining lease term of 8.5 years. As of June 30, 2019, one office property (the “Excluded Property”), comprised of 145,186 square feet, of which 6,926 was vacant, ~~were~~that secured a mortgage note payable with debt outstanding of $19.5 million, was not considered an operating property. Omitting the Excluded ~~Properties.~~Property and the square feet of one redevelopment property and including the pro rata share of square feet and annualized rental income from the Company’s unconsolidated joint ventures, we owned 3,950 retail, restaurant, office and industrial real estate properties with an aggregate of 90.6 million square feet, of which 99.0% was leased, with a weighted-average remaining lease term of 8.6 years as of June 30, 2019.

Table of Contents

Overview

VEREIT is a full-service real estate operating company which owns and manages one of the largest portfolios of single-tenant commercial properties in the U.S. The Company has ~~4,021~~3,950 retail, restaurant, office and industrial operating properties with an aggregate ~~93.9~~90.6 million rentable square feet and economic occupancy rate of ~~which 99.1% was leased~~99.0% as of ~~September~~June 30, ~~2018,~~2019, with a weighted-average remaining lease term of ~~8.9~~8.6 years.

Operating Highlights and Key Performance Indicators

~~2018~~2019 Activity

Acquired controlling financial interests in 4233 commercial properties for an aggregate purchase price of ~~$280.4~~$200.5 million, which includes ~~$1.6~~$1.0 million of external acquisition-related expenses that were capitalized.

Disposed of ~~112~~75 properties, ~~and one property owned by an unconsolidated~~including the sale of six consolidated properties to two newly-formed joint ~~venture~~ventures in which the Company owns a 20% equity interest, for an aggregate sales price of ~~$405.1~~$809.2 million, of which the Company’s share was ~~$373.7~~$796.4 million, resulting in ~~consolidated~~ proceeds of ~~$358.4~~$739.9 million after ~~repayment of the unconsolidated joint venture’s mortgage loan and~~ closing costs. The Company recorded a gain of ~~$71.0~~$233.4 million related to the sales.

Entered into the Credit Agreement which allows for maximum borrowings of $2.9 billion, consisting of a $2.0 billion Revolving Credit Facility and a $900.0 million Delayed-Draw Term Loan. In connection with entering into the Credit Agreement, the existing 2014 Credit Agreement was terminated.

~~Total secured debt decreased by$141.4 million, from $2.07 billion to $1.93 billion.~~

The Company’s ~~2018 Convertible~~2019 Senior Notes matured and the principal outstanding of ~~$597.5~~$750.0 million, plus accrued and unpaid interest thereon, was ~~repaid.~~

On October 16, 2018, the Company closed a senior note offering, consisting of $550.0 million aggregate principal amount of the OP’s 4.625% Senior Notes due 2025. The OP used the net proceeds from the offering of the notes to repayrepaid utilizing borrowings under ~~its Revolving~~the Credit Facility.

Declared a quarterly dividend of $0.1375 per share of ~~common stock~~Common Stock for ~~each~~the second quarter of ~~the first three quarters of 2018,~~2019, representing an annualized dividend rate of $0.55 per share.

~~Sold substantially all of Cole Capital for approximately $120.0~~Aggregate shares issued under the Prior Program through June 30, 2019, totaled 5.0 million ~~paid in cash at closing.~~

~~Repurchased approximately 6.4 million shares of Common Stock in multiple open market transactions,~~ at a weighted average price per share ~~price~~ of ~~$6.94,~~$8.42, for ~~an aggregate purchase price~~gross proceeds of ~~$44.6 million, as part of the 2017 Share Repurchase Program and 0.8 million shares of Common Stock in multiple open market transactions, at a~~$42.5 million. The weighted average price per share, ~~price~~net of ~~$6.95~~offering costs, was $8.30 for ~~an aggregate purchase price~~net proceeds of ~~$5.6 million~~$41.8 million. No shares have been issued under the Current ATM Program as ~~part~~ of ~~the 2018 Share Repurchase Program.~~June 30, 2019.

Entered into a settlement agreement in connection with the Vanguard Action for $90.0 million on June 7, 2018 and entered into settlement agreements with 12 class action opt out plaintiffs for $127.5 million between September 30 and October 26, 2018.

Table of Contents

Real Estate Portfolio Metrics

In managing our portfolio, we are committed to diversification by property type, tenant, geography and industry. Below is a summary of our operating property type diversification and our top ten concentrations as of ~~September~~June 30, ~~2018,~~2019, based on annualized rental income of $1.1 billion.

Table of Contents

Our financial performance is influenced by the timing of acquisitions and dispositions and the operating performance of our real estate properties. The following table shows the property statistics of our operating properties ~~excluding properties owned through our unconsolidated joint ventures~~ as of ~~September~~June 30, ~~2018~~2019 and ~~2017:~~2018:


	September 30, 2018	September 30, 2017	June 30, 2019	June 30, 2018
Portfolio Metrics
Operating properties	4,021	4,093	3,950	4,033
Rentable square feet (in millions)(1)	93.9	92.2	90.6	94.6
Economic occupancy rate ⁽¹⁾⁽²⁾	99.1%	99.0%	99.0%	98.8%
Investment-grade tenants⁽²⁾⁽³⁾	42.7%	40.1%	39.6%	42.7%


(1)	As of June 30, 2019, rentable square feet and economic occupancy rate exclude one redevelopment property.


(2)	Economic occupancy rate equals the sum of square feet leased (including space subject to month-to-month agreements) divided by ~~total~~rentable square feet.


~~(2)~~(3)	Investment-grade tenants are those with a credit rating of BBB- or higher by Standard & Poor’s Financial Services LLC or a credit rating of Baa3 or higher by Moody’s Investor Service, Inc. The ratings may reflect those assigned by Standard & Poor’s Financial Services LLC or Moody’s Investor Service, Inc. to the lease guarantor or the parent company, as applicable.

The following table shows the economic metrics of our operating properties ~~excluding properties owned through our unconsolidated joint ventures,~~ as of ~~September~~June 30, ~~2018~~2019 and ~~2017:~~2018:


	September 30, 2018	September 30, 2017	June 30, 2019	June 30, 2018
Economic Metrics
Weighted-average lease term (in years) ⁽¹⁾	8.9	9.5	8.6	9.1
Lease rollover: ⁽¹⁾⁽²⁾
Annual average	5.4%	4.6%	5.8%	5.1%
Maximum for a single year	8.0%	8.3%	7.7%	7.5%


(1)	Based on annualized rental income of our real estate portfolio as of ~~September~~June 30, ~~2018.~~2019.


(2)	Through the end of the next five years as of the respective reporting date.

Table of Contents

Operating Performance

In addition, management uses the following financial metrics to assess our operating performance (dollar amounts in thousands, except per share amounts). Data presented includes both continuing operations, which primarily represent the Company's real estate operations, and discontinued operations, which represent substantially all of Cole Capital, except as otherwise indicated.

Three Months Ended September 30, Nine Months Ended September 30,
2018 2017 2018 2017
Financial Metrics
Revenues⁽¹⁾
$ 313,866
$ 306,543
$ 944,604
$ 935,686
Operating (loss) income⁽¹⁾
$ (48,181 ) $ 73,515
$ 10,429
$ 197,594
(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

Loss from continuing operations attributable to common stockholders per diluted share ⁽²⁾
$ (0.09 ) $ (0.01 ) $ (0.18 ) $ (0.00 )
Income from discontinued operations attributable to common stockholders per diluted share ⁽²⁾
$ —
$ 0.00
$ 0.00
$ 0.01
Net (loss) income attributable to common stockholders per diluted share ^{(2) (4)}
$ (0.09 ) $ (0.00 ) $ (0.17 ) $ 0.01

FFO attributable to common stockholders and limited partners from continuing operations ⁽³⁾
$ 38,055
$ 173,708
$ 279,765
$ 507,725
FFO attributable to common stockholders and limited partners from discontinued operations ⁽³⁾
—
4,005
3,725
11,496
FFO attributable to common stockholders and limited partners ⁽³⁾
$ 38,055
$ 177,713
$ 283,490
$ 519,221

AFFO attributable to common stockholders and limited partners from continuing operations ⁽³⁾
$ 178,529
$ 174,774
$ 538,177
$ 526,749
AFFO attributable to common stockholders and limited partners from discontinued operations ⁽³⁾
—
16,086
3,202
32,300
AFFO attributable to common stockholders and limited partners ⁽³⁾
$ 178,529
$ 190,860
$ 541,379
$ 559,049

AFFO attributable to common stockholders and limited partners from continuing operations per diluted share ⁽³⁾
$ 0.18
$ 0.18
$ 0.54
$ 0.53
AFFO attributable to common stockholders and limited partners from discontinued operations per diluted share ⁽³⁾
$ —
$ 0.02
$ 0.00
$ 0.03
AFFO attributable to common stockholders and limited partners per diluted share ^{(3) (4)}
$ 0.18
$ 0.19
$ 0.54
$ 0.56



	Three Months Ended June 30,					Six Months Ended June 30,
	2019		2018			2019		2018
Financial Metrics
Revenues⁽¹⁾	$	312,043	$	315,664		$	628,886	$	630,738
Income (loss) from continuing operations	$	292,284	$	(74,691	)	$	363,255	$	(45,655	)
Income from discontinued operations, net of income taxes	$	—	$	224		$	—	$	3,725

Income (loss) from continuing operations attributable to common stockholders per diluted share⁽²⁾	$	0.27	$	(0.09	)	$	0.33	$	(0.08	)
Income from discontinued operations attributable to common stockholders per diluted share⁽²⁾	$	—	$	0.00		$	—	$	0.00
Net income (loss) attributable to common stockholders per diluted share⁽²⁾	$	0.27	$	(0.09	)	$	0.33	$	(0.08	)

FFO attributable to common stockholders and limited partners from continuing operations⁽³⁾	$	179,038	$	77,019		$	369,342	$	241,710
FFO attributable to common stockholders and limited partners from discontinued operations⁽³⁾	—		224			—		3,725
FFO attributable to common stockholders and limited partners⁽³⁾	$	179,038	$	77,243		$	369,342	$	245,435

AFFO attributable to common stockholders and limited partners from continuing operations⁽³⁾	$	177,099	$	178,794		$	355,502	$	359,648
AFFO attributable to common stockholders and limited partners from discontinued operations⁽³⁾	—		—			—		3,202
AFFO attributable to common stockholders and limited partners⁽³⁾	$	177,099	$	178,794		$	355,502	$	362,850

AFFO attributable to common stockholders and limited partners from continuing operations per diluted share⁽³⁾	$	0.18	$	0.18		$	0.36	$	0.36
AFFO attributable to common stockholders and limited partners from discontinued operations per diluted share⁽³⁾	$	—	$	—		$	—	$	0.00
AFFO attributable to common stockholders and limited partners per diluted share⁽³⁾	$	0.18	$	0.18		$	0.36	$	0.36


(1)	Represents continuing operations as presented on the ~~statement~~statements of operations in accordance with U.S. GAAP.


(2)	See “Note 15 –Net Income (Loss) Per Share/Unit” for calculation of net income (loss) per share.


(3)	See the “Non-GAAP Measures” section below for descriptions of our non-GAAP measures and reconciliations to the most comparable U.S. GAAP measure.


~~(4)~~	~~Amounts may not total due to rounding.~~

Table of Contents

Results of Operations

On February 1, 2018, the Company sold substantially all of Cole Capital, which is presented as discontinued operations for all periods presented. The ~~Company's~~Company’s continuing operations represent primarily those of the real estate investment segment. The operating expense reimbursements line item has been combined into rental revenue for prior periods presented to be consistent with the current year presentation.

Rental ~~Income~~Revenue

The table below sets forth, for the periods presented, rental ~~income~~revenue information and the dollar amount change year over year (dollar amounts in thousands):

Three Months Ended September 30, Nine Months Ended September 30,
2018 2017 2018 vs 2017
Increase/(Decrease) 2018 2017 2018 vs 2017
Increase/(Decrease)
Rental income $ 289,033
$ 282,717
$ 6,316
$ 870,305
$ 863,583
$ 6,722



	Three Months Ended June 30,							Six Months Ended June 30,
	2019		2018		2019 vs 2018 Increase/(Decrease)			2019		2018		2019 vs 2018 Increase/(Decrease)
Rental revenue	$	312,043	$	315,664	$	(3,621	)	$	628,886	$	630,738	$	(1,852	)

The ~~increase~~decrease in rental ~~income of $6.3 million and $6.7 million~~revenue during the three and ~~nine~~six months ended ~~September~~June 30, ~~2018, respectively,~~2019 as compared to the same periods in ~~2017~~2018 was primarily due to ~~the acquisition and disposition of~~ real estate properties. Subsequent to January 1, 2017 the Company acquired 130 occupied properties for an aggregate purchase price of $1.0 billion and disposed of 249 consolidated properties, of which 61 were vacant, for an aggregate sales price of $931.5 million.dispositions, partially offset by real estate acquisitions.

Operating Expenses

The table below sets forth, for the periods presented, certain operating expense information and the dollar amount change year over year (dollar amounts in thousands):


	Three Months Ended September 30,							Nine Months Ended September 30,							Three Months Ended June 30,								Six Months Ended June 30,
	2018		2017		2018 vs 2017 Increase/(Decrease)			2018		2017		2018 vs 2017 Increase/(Decrease)			2019			2018		2019 vs 2018 Increase/(Decrease)			2019			2018		2019 vs 2018 Increase/(Decrease)
Acquisition-related	$	810	$	909	$	(99	)	$	2,496	$	2,282	$	214		$	985		$	909	$	76		$	1,970		$	1,686	$	284
Litigation and other non-routine costs, net of insurance recoveries	138,595		9,507		129,088			267,422		36,793		230,629
Litigation and non-routine costs, net															(3,769		)	107,087		(110,856		)	(25,261		)	128,827		(154,088		)
Property operating	31,893		30,645		1,248			93,894		96,288		(2,394		)	32,503			31,436		1,067			64,881			62,001		2,880
General and administrative	15,186		13,221		1,965			46,713		40,329		6,384			16,416			16,287		129			31,262			31,527		(265		)
Depreciation and amortization	157,181		172,383		(15,202		)	487,568		531,543		(43,975		)	118,022			164,235		(46,213		)	254,577			330,387		(75,810		)
Impairments	18,382		6,363		12,019			36,082		30,857		5,225			8,308			11,664		(3,356		)	20,296			17,700		2,596
Restructuring															290			—		290			9,366			—		9,366
Total operating expenses	$	362,047	$	233,028	$	129,019		$	934,175	$	738,092	$	196,083		$	172,755		$	331,618	$	(158,863	)	$	357,091		$	572,128	$	(215,037	)

Acquisition-Related Expenses

Acquisition-related expenses, which consist of allocated internal salaries related to time spent on acquiring commercial properties and costs associated with unconsummated deals, remained relatively constant ~~as there were no significant changes in the Company’s acquisition activity~~ during the three and ~~nine~~six months ended ~~September~~June 30, ~~2018,~~2019, as compared to the same periods in ~~2017~~.2018.

Litigation and ~~Other Non-routine~~Non-Routine Costs, Net ~~of Insurance Recoveries~~

~~The increase of $129.1 million~~Litigation and ~~$230.6~~non-routine costs, net decreased $110.9 million during the three ~~and nine~~ months ended ~~September~~June 30, ~~2018, respectively,~~2019, as compared to the same ~~periods~~period in ~~2017~~2018, which was primarily due to the payment of $90.0 million of litigation settlements related to litigation filed as a result of ~~$127.5~~the findings of the Audit Committee Investigation during the three months ended June 30, 2018 and $26.5 million of other recoveries recorded during the three months ended June 30, 2019 related to the surrender of Limited Partner OP Units by the Former Manager and ~~$217.5~~its principals as described in Note 12 – Equity.

Litigation and non-routine costs, net decreased $154.1 million during the ~~three and nine~~six months ended ~~September~~June 30, ~~2018, respectively,~~2019, as ~~well as an overall increase~~compared to the same period in 2018. During the ~~level~~six months ended June 30, 2019, the Company received $48.4 million of ~~activity~~insurance recoveries related to ~~the~~a settlement and release agreement with certain insurance carriers which related to litigation ~~and investigations stemming from the results~~filed as a result of the ~~2014~~findings of the Audit Committee Investigation and ~~increased expenses recognized in connection with~~recorded $26.5 million of other recoveries related to the ~~Company’s advancement obligations or claims for advancement which continue to be disputed~~surrender of Limited Partner OP Units by the ~~Company.~~Former Manager and its principals as described in Note 12 – Equity. During the six months ended June 30, 2018, the Company paid $90.0 million of litigation settlements related to litigation filed as a result of the findings of the Audit Committee Investigation, as compared to $12.2 million during the six months ended June 30, 2019.

Table of Contents

Property Operating Expenses ~~and Operating Expense Reimbursements~~

The table below sets forth, for the periods presented, the property operating expenses, net of operating expense reimbursements, and the dollar amount change year over year (dollar amounts in thousands):

Three Months Ended September 30, Nine Months Ended September 30,
2018 2017 2018 vs 2017
Increase/(Decrease) 2018 2017 2018 vs 2017
Increase/(Decrease)
Property operating expenses $ 31,893
$ 30,645
$ 1,248
$ 93,894
$ 96,288
$ (2,394 )
Less: Operating expense reimbursements 24,833
23,826
1,007
74,299
72,103
2,196
Property operating expenses, net of operating expense reimbursements $ 7,060
$ 6,819
$ 241
$ 19,595

$ 24,185
$ (4,590 )

Property operating expenses such as taxes, insurance, ground rent and maintenance include both reimbursable and non-reimbursable property expenses. Operating expense reimbursement revenue represents reimbursements for such costs that are reimbursable by the tenants per their respective leases. Property operating expenses, net of operating expense reimbursements remained relatively constant during the three months ended September 30, 2018 and 2017. The ~~decrease~~increase in ~~net~~ property operating expenses ~~net~~ of operating expense reimbursements, of $4.6 million during the nine months ended September 30, 2018, as compared to the same period in 2017 was primarily due to the disposition of vacant properties and certain properties subject to gross, modified gross and double-net leases.

~~General and Administrative Expenses~~

~~The increase of $2.0~~$1.1 million and ~~$6.4~~$2.9 million during the three and ~~nine~~six months ended ~~September~~June 30, ~~2018,~~2019, respectively, as compared to the same periods in ~~2017~~2018 was primarily due to ~~an increase~~additional reimbursable ground rent recorded in ~~compensation~~conjunction with the adoption of ASC 842 on January 1, 2019.

General and ~~benefits, including equity based compensation.~~Administrative Expenses

General and administrative expenses remained relatively constant during the three and six months ended June 30, 2019, as compared to the same periods in 2018.

Depreciation and Amortization Expenses

The decrease of ~~$15.2~~$46.2 million and ~~$44.0~~$75.8 million during the three and ~~nine~~six months ended ~~September~~June 30, ~~2018,~~2019, respectively, as compared to the same periods in ~~2017~~2018 was primarily due to ~~property~~furniture and ~~equipment reaching~~fixtures that were fully depreciated during 2018, as they had reached the end of ~~its~~their useful ~~life~~lives, and ~~the disposition of 249 consolidated properties,~~real estate dispositions, partially offset by the acquisition of 130 properties, subsequent to January 1, 2017. During the nine months ended September 30, 2018 and the year ended December 31, 2017, the Company recorded $36.1 million and $50.5 million, respectively, of impairment charges on real estate ~~investments, which reduced the carrying value being depreciated and amortized.~~acquisitions.

Impairments

The decrease of $3.4 million and increase of ~~$12.0~~$2.6 million ~~and $5.2 million~~in impairments during the three and ~~nine~~six months ended ~~September~~June 30, ~~2018,~~2019, respectively, as compared to the same periods in ~~2017~~2018 was primarily ~~attributable~~due to ~~management’s change in strategy related to certain retail properties.~~the various types of properties impaired. The Company impaired 2218 and 5342 properties during the three and ~~nine~~six months ended ~~September~~June 30, ~~2018,~~2019, respectively, as compared to 1619 and 5331 properties ~~impaired~~ during the same periods in ~~2017.~~2018.

Restructuring Expenses

During the three and six months ended June 30, 2019, the Company recorded $0.3 million and $9.4 million, respectively, of restructuring expenses related to the reorganization of the business after the sale of its investment management segment and cessation of services performed pursuant to the Services Agreement.

Other ~~(Expense)~~ Income, Provision for Income ~~Tax (Provision) Benefit~~Taxes and Income from Discontinued Operations

The table below sets forth, for the periods presented, certain financial information and the dollar amount change year over year (dollar amounts in thousands):


	Three Months Ended September 30,									Nine Months Ended September 30,									Three Months Ended June 30,									Six Months Ended June 30,
	2018			2017			2018 vs 2017 Increase/(Decrease)			2018			2017			2018 vs 2017 Increase/(Decrease)			2019			2018			2019 vs 2018 Increase/(Decrease)			2019			2018			2019 vs 2018 Increase/(Decrease)
Interest expense	$	(69,310	)	$	(71,708	)	$	(2,398	)	$	(210,055	)	$	(219,072	)	$	(9,017	)	$	(69,803	)	$	(70,320	)	$	(517	)	$	(141,057	)	$	(140,745	)	$	312
Gain on extinguishment and forgiveness of debt, net	90			9,756			(9,666		)	5,339			18,691			(13,352		)
(Loss) gain on extinguishment and forgiveness of debt, net																			(1,472		)	5,249			(6,721		)	(1,472		)	5,249			(6,721		)
Other income, net	(1,016		)	1,131			(2,147		)	7,635			4,253			3,382			3,175			1,320			1,855			2,773			9,029			(6,256		)
Equity in income and gain on disposition of unconsolidated entities	252			374			(122		)	1,644			805			839			505			327			178			1,005			1,392			(387		)
Gain on derivative instruments, net	69			1,294			(1,225		)	447			2,710			(2,263		)
Gain (loss) on disposition of real estate and real estate assets held for sale, net	45,295			(688		)	45,983			68,451			54,432			14,019
Gain on disposition of real estate and real estate assets held for sale, net																			221,755			5,821			215,934			232,586			23,156			209,430
Provision for income taxes	(1,141		)	(1,185		)	(44		)	(3,487		)	(5,439		)	(1,952		)	(1,164		)	(1,134		)	30			(2,375		)	(2,346		)	29
Income from discontinued operations, net of income taxes	—			4,005			(4,005		)	3,725			11,496			(7,771		)	—			224			(224		)	—			3,725			(3,725		)

Interest Expense

~~The decrease of $2.4 million and $9.0 million~~Interest expense remained relatively constant during the three and ~~nine~~six months ended ~~September~~June 30, ~~2018, respectively,~~2019 as compared to the same periods in ~~2017 was primarily due to the repayment~~2018.

Table of convertible notes of $597.5 million and a $173.0 million reduction of secured debt subsequent to September 30, 2017, partially offset by an increase in net borrowings under the credit facilities of $793.0 million subsequent to September 30, 2017.Contents

(Loss) Gain on Extinguishment and Forgiveness of Debt, Net

~~Gain on extinguishment and forgiveness of debt, net decreased $9.7 million during the three months ended September 30, 2018 as compared to the same period in 2017.~~ During the three and six months ended ~~September~~June 30, ~~2017,~~2019, the Company ~~recognized~~recorded a ~~gain~~loss on ~~forgiveness~~extinguishment of debt of ~~$11.5~~$1.5 million ~~as a result~~related to the prepayment of ~~two~~one mortgage ~~loans, each secured by one property, which were settled by foreclosure or deed-in-lieu of foreclosure transactions, with no comparable gains during~~note payable. During the ~~same period in 2018.~~

~~Gain on extinguishment~~three and ~~forgiveness of debt, net decreased $13.4 million during the nine~~six months ended ~~September 30, 2018 as compared to the same period in 2017. During the nine months ended September~~June 30, 2018, the Company entered into a deed-in-lieu of foreclosure agreement with the lender of a mortgage loan, which was secured by one property, which resulted in a gain on forgiveness of debt of $5.2 million. During the same period in 2017, the Company entered into deed-in-lieu of foreclosure agreements with the lenders of three mortgage loans, secured by six properties, which resulted in a gain on forgiveness of debt of $20.5 million.

Other Income, Net

The ~~decrease~~increase of ~~$2.1~~$1.9 million in other income, net during the three months ended ~~September~~June 30, ~~2018~~2019, as compared to the same period in ~~2017~~2018 was primarily due to a ~~loss of $2.4~~$2.5 million ~~related to three CMBS which were sold~~payment received during the three months ended ~~September~~June 30, ~~2018, with no comparable activity~~2019 related to the Company’s bankruptcy claim related to a prior tenant.

The decrease of $6.3 million in other income, net during the ~~same period in 2017. The increase of $3.4 million during the nine~~six months ended ~~September~~June 30, ~~2018~~2019, as compared to the same period in ~~2017~~2018 was primarily due to a $5.1 million gain onin 2018 from measuring the Company’s investments in the Cole REITs at fair value after the investments were no longer accounted for using the equity method ~~as discussed in~~ ~~Note 2 –~~ ~~Summary of Significant Accounting Policies,~~ and a $0.6 million gain recognized upon the sale of certain investments in the Cole REITs towith no comparable gains in the ~~Cole Purchaser,~~same period in 2019, offset by a ~~loss of $2.4~~$2.5 million payment received related to ~~three CMBS which were sold and~~the Company’s bankruptcy claim related to a ~~reduction of $1.2 million in 1031 real estate program revenues during the nine months ended September 30, 2018.~~prior tenant.

Equity in Income and Gain on Disposition of Unconsolidated Entities

~~Equity~~The increase of $0.2 million in equity in income and gain on disposition of unconsolidated entities ~~remained relatively constant~~ during the three months ended ~~September~~June 30, ~~2018 and 2017. The increase of $0.8 million during the nine months ended September 30, 2018~~2019, as compared to the same period in ~~2017~~2018 was primarily due to two newly-formed joint ventures during the ~~result~~three months ended June 30, 2019, for which the Company owns a 20% equity interest.

The decrease of $0.4 million in equity in income and gain on disposition of unconsolidated entities during the six months ended June 30, 2019, as compared to the same period in 2018, is primarily due to a gain of $0.7 million ~~recognized on~~related to the disposition and liquidation of ~~one property owned by an unconsolidated~~a joint venture during the ~~nine~~six months ended ~~September 30, 2018.~~

~~Gain on Derivative Instruments, Net~~

~~The $1.2 million and $2.3 million decrease during the three and nine months ended September~~June 30, 2018, ~~respectively, as compared to~~offset by the ~~same periods~~increase in ~~2017, was primarily a result of~~equity in income from the ~~termination of 13 derivative instruments with aggregate notional value of $662.4 million and the de-designation of one derivative instrument with a notional value of $27.8 million during 2017.~~Industrial Partnership in 2019.

Gain ~~(Loss)~~ on Disposition of Real Estate and Real Estate Assets Held ~~For~~for Sale, Net

The increase in gain on disposition of real estate and real estate assets held for sale, ~~assets,~~ net of ~~$46.0~~$215.9 million during the three months ended ~~September~~June 30, ~~2018~~2019, as compared to the same period in ~~2017~~2018 was primarily due to the Company’s disposition of 3553 properties for an aggregate sales price of ~~$189.5~~$743.2 million, which resulted in a gain of ~~$46.1~~$222.5 million during the three months ended ~~September~~June 30, ~~2018,~~2019, as compared to the disposal of 23 properties, excluding two properties conveyed to a lender in either a deed-in-lieu of foreclosure or foreclosure sale transaction, for an aggregate gross sales price of $65.4 million, which resulted in loss of $0.7 million during the same period in 2017. During the three months ended September 30, 2018, the Company also recognized a loss of $0.8 million related to assets classified as held for sale, with no comparable loss during the same period in 2017.

~~The increase in gain on~~ disposition of ~~real estate and held for sale assets, net of $14.0 million during the nine months ended September 30, 2018 as compared to the same period in 2017 was due to the Company’s disposition of 111~~36 properties, excluding one property conveyed to a lender in a deed-in-lieu of foreclosure transaction, for an aggregate sales price of $371.0 million which resulted in a gain of $70.3 million during the nine months ended September 30, 2018, as compared to the disposal of 106 properties, excluding six properties conveyed to a lender in either a deed-in-lieu of foreclosure or foreclosure sale transaction, for an aggregate sales price of $507.5 million, which resulted in a gain of $54.9$60.8 million during the same period in ~~2017.~~2018 for a gain of $6.0 million. During the ~~nine~~three months ended ~~September~~June 30, ~~2018,~~2019, the Company also recognized a loss of ~~$1.9~~$0.8 million related to assets classified as held for sale, as compared to a loss of ~~$0.5~~$0.2 million during the same period in ~~2017.~~2018.

~~Provision~~The increase in gain on disposition of real estate and real estate assets held for ~~Income Taxes~~

~~Provision for income taxes remained relatively constant during the three months ended September 30, 2018 and 2017. The decrease in provision for income taxes~~sale, net of ~~$2.0~~$209.4 million during the ~~nine~~six months ended ~~September~~June 30, ~~2018~~2019, as compared to the same period in ~~2017 is primarily~~2018, was due to the Company’s disposition of 75 properties for an aggregate sales price of $809.2 million which resulted in a ~~tax on the~~ gain ~~on the sale~~ of ~~certain Canadian properties~~$233.4 million during the ~~nine~~six months ended ~~September~~June 30, ~~2017.~~2019, as compared to the disposition of 76 properties, excluding one property conveyed to a lender in a deed-in-lieu of foreclosure transaction, for an aggregate sales price of $181.6 million during the same period in 2018 for a gain of $24.2 million. During the six months ended June 30, 2019, the Company also recognized a loss of $0.8 million related to assets classified as held for sale, as compared to a loss of $1.1 million during the same period in 2018.

Provision for Income Taxes

The provision for income taxes remained constant during the three and six months ended June 30, 2019 as compared to the same periods in 2018.

Income from Discontinued Operations, Net of Income Taxes

The decrease in income from discontinued operations, net of income taxes of ~~$4.0~~$0.2 million and ~~$7.8~~$3.7 million during the three and ~~nine~~six months ended ~~September~~June 30, ~~2018,~~2019, respectively, was primarily due to the completion of the sale of Cole Capital on February 1, 2018.

Table of Contents

Non-GAAP Measures

Our results are presented in accordance with U.S. GAAP. We also disclose certain non-GAAP measures, as discussed further below. Management uses these non-GAAP financial measures in our internal analysis of results and believes these measures are useful to investors for the reasons explained below. These non-GAAP financial measures should not be considered as substitutes for any measures derived in accordance with U.S. GAAP.

Funds from Operations and Adjusted Funds from Operations

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 funds from operations (“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~~adjusted for gains or losses from disposition of property, depreciation and amortization of real estate assets, ~~and~~ impairment write-downs on ~~depreciable~~ real estate, ~~including the~~and our pro rata share of FFO adjustments ~~for~~related to unconsolidated partnerships and joint ventures. We ~~calculated~~calculate FFO in accordance with Nareit’s definition described above.

In addition to FFO, we use adjusted funds from operations (“AFFO”) 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, net, ~~of insurance recoveries, held for sale~~ loss on disposition of discontinued operations, net revenue or expense earned or incurred that is related to the ~~services agreement we entered into with Cole Capital on February 1, 2018,~~Services Agreement, 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.~~restructuring expenses. We also exclude certain non-cash items such as impairments of goodwill and intangible assets, straight-line rent, net of bad debt expense related to straight-line rent, net direct financing lease adjustments, 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, premiums and discounts on debt and investments, above-market lease assets and below-market lease liabilities. We omit the impact of the Excluded Properties and related non-recourse mortgage notes from FFO to calculate AFFO. 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 U.S. 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.

Table of Contents

The table below presents FFO and AFFO for the three and ~~nine~~six months ended ~~September~~June 30, ~~2018~~2019 and ~~2017~~2018 (in thousands, except share and per share data) and includes both continuing operations, which primarily represent the Company's real estate operations, and discontinued operations, which represent substantially all of Cole Capital.


	Three Months Ended September 30,						Nine Months Ended September 30,						Three Months Ended June 30,						Six Months Ended June 30,
	2018			2017			2018			2017			2019			2018			2019			2018
Net (loss) income	$	(73,942	)	$	16,494		$	(115,872	)	$	65,470
Net income (loss)													$	292,284		$	(74,467	)	$	363,255		$	(41,930	)
Dividends on non-convertible preferred stock	(17,973		)	(17,973		)	(53,919		)	(53,919		)	(17,973		)	(17,973		)	(35,946		)	(35,946		)
(Gain) Loss on disposition of real estate assets and interests in unconsolidated joint ventures, net	(45,226		)	688			(69,083		)	(54,432		)
Gain on disposition of real estate assets and interests in unconsolidated joint ventures, net													(221,762		)	(5,821		)	(232,593		)	(23,857		)
Depreciation and amortization of real estate assets	156,527			171,576			485,260			529,304			117,616			163,551			253,477			328,733
Impairment of real estate	18,382			6,363			36,082			30,857			8,308			11,664			20,296			17,700
Proportionate share of adjustments for unconsolidated entities	287			565			1,022			1,941			565			289			853			735
FFO attributable to common stockholders and limited partners	38,055			177,713			283,490			519,221			179,038			77,243			369,342			245,435
Acquisition-related expenses	810			909			2,496			2,282			985			909			1,970			1,686
Litigation and other non-routine costs, net of insurance recoveries	138,595			9,507			266,768			36,793
(Gain) loss on disposition of discontinued operations	—			—			1,785			—
Loss (gain) on investments	3,336			—			(2,302		)	(65		)
Gain on derivative instruments, net	(69		)	(1,294		)	(447		)	(2,710		)
Litigation and non-routine costs, net													(3,769		)	107,087			(25,261		)	128,173
Loss on disposition of discontinued operations													—			(224		)	—			1,785
(Gain) loss on investment securities and mortgage notes receivable													(5		)	—			465			(5,638		)
Loss (gain) on derivative instruments, net													24			(105		)	58			(378		)
Amortization of premiums and discounts on debt and investments, net	(1,123		)	(1,442		)	(2,332		)	(3,989		)	(1,392		)	(603		)	(2,656		)	(1,209		)
Amortization of above-market lease assets and deferred lease incentives, net of amortization of below-market lease liabilities	1,058			1,210			3,233			4,218			611			688			1,342			2,175
Net direct financing lease adjustments	483			491			1,525			1,576			410			503			819			1,042
Amortization and write-off of deferred financing costs	3,926			6,028			15,451			18,702			3,346			5,650			6,840			11,525
Amortization of management contracts	—			4,146			—			12,438
Deferred and other tax (benefit) expense ⁽¹⁾	—			6,277			(1,855		)	3,608
Gain on extinguishment and forgiveness of debt, net	(90		)	(9,756		)	(5,339		)	(18,691		)
Straight-line rent, net of bad debt expense related to straight-line rent	(8,720		)	(9,955		)	(31,382		)	(33,622		)
Deferred and other tax benefit ⁽¹⁾													—			—			—			(1,855		)
Loss (gain) on extinguishment and forgiveness of debt, net													1,472			(5,249		)	1,472			(5,249		)
Straight-line rent, net of bad debt expense related to straight-line rent ⁽²⁾													(8,043		)	(11,402		)	(15,455		)	(22,662		)
Equity-based compensation	3,003			3,664			9,493			11,223			3,706			3,716			6,393			6,490
Other adjustments, net	(726		)	739			354			2,000
Restructuring expenses													290			—			9,366			—
Other amortization and non-cash charges, net													617			566			1,186			1,080
Proportionate share of adjustments for unconsolidated entities	(9		)	(2		)	(24		)	101			(196		)	(27		)	(384		)	(15		)
Adjustments for Excluded Properties	—			2,625			465			5,964			5			42			5			465
AFFO attributable to common stockholders and limited partners	$	178,529		$	190,860		$	541,379		$	559,049		$	177,099		$	178,794		$	355,502		$	362,850

Weighted-average shares of common stock outstanding - basic	967,798,401			974,167,088			969,521,946			974,060,160
Weighted-average shares of Common Stock outstanding - basic													973,723,139			968,192,162			971,106,256			970,398,002
Effect of Limited Partner OP Units and dilutive securities⁽²⁾⁽³⁾	24,125,616			24,258,683			23,894,095			24,109,327			26,054,596			23,907,976			25,636,664			23,950,163
Weighted-average shares of common stock outstanding - diluted⁽³⁾	991,924,017			998,425,771			993,416,041			998,169,487
Weighted-average shares of Common Stock outstanding - diluted ⁽⁴⁾													999,777,735			992,100,138			996,742,920			994,348,165

AFFO attributable to common stockholders and limited partners per diluted share	$	0.18		$	0.19		$	0.54		$	0.56		$	0.18		$	0.18		$	0.36		$	0.36


(1)	This adjustment represents the non-current portion of the ~~provision for or~~ benefit from income taxes in order to show only the current portion of the ~~provision for or~~ benefit from income taxes as an impact to AFFO.


(2)	~~Dilutive securities include unvested restricted shares~~Upon adoption of ~~common stock~~ASC 842, the Company recognizes all changes in the collectability assessment for an operating lease as an adjustment to rental revenue and ~~unvested restricted stock units.~~does not record bad debt expense for uncollectible accounts.


(3)	Dilutive securities include unvested Restricted Shares, unvested Restricted Stock Units and stock options.


(4)	Weighted-average shares for all periods presented exclude the effect of the convertible debt as the Company would expect to settle the debt with ~~cash.~~cash and any shares underlying Restricted Stock Units that are not issuable based on the Company’s level of achievement of certain performance targets through the respective reporting period.

Table of Contents

Liquidity and Capital Resources

General

Our principal liquidity needs for the next twelve months and beyond are to:

fund normal operating expenses;

fund capital expenditures, tenant improvements and leasing costs

meet debt service and principal repayment obligations, including balloon payments on maturing debt;

pay dividends;

pay litigation costs and ~~expenses;~~expenses (including any settlements and judgments); and

fund property ~~and/or common stock~~ acquisitions.

We expect to be able to satisfy these obligations using one or more of the following sources:

cash flow from operations;

proceeds from real estate dispositions;

utilization of existing ~~line of credit;~~Credit Facility;

cash and cash equivalents balance; and

issuance of VEREIT debt and equity securities.

Common Stock Continuous ~~Equity~~ Offering ~~Program~~Programs

On September 19, 2016, the Company registered ~~a continuous equity offering program~~the Prior Program pursuant to which the Company ~~can~~could offer and sell, from time to time, ~~through September 19, 2019~~ in “at-the-market” offerings or certain other transactions, shares of ~~common stock~~Common Stock with an aggregate gross sales price of up to $750.0 million, through its sales agents. During the three months ended June 30, 2019, the Company issued 1.7 million shares of Common stock pursuant to the Prior Program, at a weighted average price per share of $8.36, for gross proceeds of $14.5 million. The weighted average price per share, net of offering costs, was $8.23, for net proceeds of $14.2 million. During the six months ended June 30, 2019, the Company ~~intends~~issued 5.0 million shares of Common Stock pursuant to ~~use~~ the Prior Program, at a weighted average price per share of $8.42, for gross proceeds of $42.5 million. The weighted average price per share, net of offering costs, was $8.30, for net proceeds of $41.8 million. The proceeds from any sale of shares have been or will be used for general corporate purposes, which may include funding potential acquisitions and repurchasing or repaying outstanding indebtedness. As

On April 15, 2019, the Company established the Current ATM Program, which replaced the Company’s Prior Program. The proceeds from any sale of ~~September 30, 2018, no~~ shares ~~of common stock~~in the Current ATM Program will be used for general corporate purposes, which may include funding potential acquisitions and repurchasing or repaying outstanding indebtedness. No shares have been issued ~~pursuant~~under the Current ATM Program as of June 30, 2019. As of June 30, 2019, an aggregate gross sales price of up to $750.0 million, through its sales agents, is available under the Current ATM Program.

Share Repurchase ~~Program~~Programs

There were no share repurchases under the 2018 or 2019 ~~as market conditions warrant.~~

During the period from May 12, 2017 through December 31, 2017, the Company repurchased approximately 69,000 shares of Common Stock in multiple open market transactions, at a weighted average share price of $7.50 for an aggregate purchase price of $0.5 million, for an aggregate of $45.1 million of shares repurchased as part of the 2017 Share Repurchase ~~Program. During~~Programs during the period from January 1, 2018 through May 2, 2018, the Company repurchased approximately 6.4 million shares of Common Stock in multiple open market transactions, at a weighted average share price of $6.94 for an aggregate purchase price of $44.6 million as part of the 2017 Share Repurchase Program, which are currently deemed to be authorized but unissued shares of Common Stock.

~~From May 3, 2018 through September~~six months ended June 30, 2018, the Company repurchased 0.8 million shares of Common Stock in multiple open market transactions, at a weighted average share price of $6.95 for an aggregate purchase price of $5.6 million as part of the 2018 Share Repurchase Program, which are currently deemed to be authorized but unissued shares of Common Stock.2019. As of ~~September~~June 30, ~~2018,~~2019, the Company had ~~$194.4~~$200.0 million available for share repurchases under the ~~2018~~2019 Share Repurchase ~~Program. Additional shares~~Program through the program’s expiration date of May 6, 2022. Shares of Common Stock repurchased by the Company, ~~under the 2018 Share Repurchase Program,~~ if any, will be returned to the status of authorized but unissued shares of Common Stock.

Series F Preferred Stock and Series F Preferred OP Units

Table of Contents

Disposition Activity

As part of our effort to optimize our real estate portfolio by focusing on holding core assets, during the ~~nine~~six months ended ~~September~~June 30, ~~2018,~~2019, the Company disposed of ~~112~~75 properties, including ~~one property conveyed~~the sale of six consolidated properties to the Industrial Partnership in which the Company owns a ~~lender in a deed-in-lieu of foreclosure transaction, and one property owned by an unconsolidated joint venture~~20% equity interest, for an aggregate sales price of ~~$405.1~~$809.2 million, of which the Company’s share was ~~$373.7~~$796.4 million, resulting in consolidated proceeds of ~~$358.4~~$739.9 million after ~~repayment of the unconsolidated joint venture’s mortgage loan and~~ closing costs. We expect to continue to explore opportunities to sell additional properties to provide us further financial flexibility and fund property acquisitions.

Credit Facility

Summary and Obligations

On May 23, 2018, the Company, as guarantor, and the Operating Partnership, as borrower, entered into a Credit Agreement with Wells Fargo Bank, National Association, as administrative agent, and the other lenders party thereto that allows for maximum borrowings of $2.9 billion, consisting of a $2.0 billion Revolving Credit Facility and a $900.0 million ~~Delayed-Draw~~Credit Facility Term Loan. As of ~~September~~June 30, ~~2018,~~2019, the Revolving Credit Facility had anno outstanding balance ~~of $793.0~~and $900.0 million ~~and no amounts~~ had been drawn on the ~~Delayed-Draw~~Credit Facility Term Loan. The maximum aggregate dollar amount of letters of credit that may be outstanding at any one time under the Credit Facility is $50.0 million. ~~In connection~~As of June 30, 2019, letters of credit outstanding were $3.9 million.

On January 24, 2019, the Company entered into interest rate swap agreements with ~~entering into~~an aggregate $900.0 million notional amount, effective on February 6, 2019 and maturing on January 31, 2023, to hedge interest rate volatility. The swap agreements effectively fixed the Credit ~~Agreement,~~Facility Term Loan interest rate, including the ~~OP repaid all of the outstanding obligations under the 2014 Credit Agreement.~~spread which can vary based on our credit rating, at approximately 3.84%.

The Revolving Credit Facility generally bears interest at an annual rate of LIBOR plus 0.775% to 1.55% or Base Rate plus 0.00% to 0.55% (based upon our then current credit rating). ~~“Base Rate” is defined as the highest of the prime rate, the federal funds rate plus 0.50% or a floating rate based on one month LIBOR plus 1.0%, determined on a daily basis.~~ The ~~Delayed-Draw~~Credit Facility Term Loan generally bears interest at an annual rate of LIBOR plus 0.85% to 1.75%, or Base Rate plus 0.00% to 0.75% (based upon our then current credit rating). In addition, the Credit Agreement provides the flexibility for interest rate auctions, pursuant to which, at the Company’s election, the Company may request that lenders make competitive bids to provide revolving loans, which competitive bids may be at pricing levels that differ from the foregoing interest rates.

In the event of default, at the election of a majority of the lenders (or automatically upon a bankruptcy event of default with respect to the OP or the General Partner), the commitments of the lenders under the Credit Facility will mature, and payment of any unpaid amounts in respect of the Credit Facility will be accelerated. The Revolving Credit Facility terminates on May 23, 2022, unless extended in accordance with the terms of the Credit Agreement. The Credit Agreement provides for two six-month extension options with respect to the Revolving Credit Facility, exercisable at the Company’s election and subject to certain customary conditions, as well as certain customary “amend and extend” provisions. Amounts borrowed under the Delayed-Draw Term Loan mature on May 23, 2023. At any time, upon timely notice by the OP and subject to any breakage fees, the OP may prepay borrowings under the Credit Facility (subject to certain limitations applicable to the prepayment of any loans obtained through an interest rate auction, as described above). The OP incurs a facility fee equal to 0.10% to 0.30% per annum (based upon the General Partner’s then current credit rating) multiplied by the commitments (whether or not utilized) in respect of the Revolving Credit Facility. In addition, the OP incurs a ticking fee equal to 0.25% multiplied by unused commitments in respect of the Delayed-Draw Term Loan. The OP also incurs customary administrative agent, letter of credit issuance, letter of credit fronting, extension and other fees.

Credit Facility Covenants

The Credit Facility requires restrictions on corporate guarantees, as well as the maintenance of certain financial covenants. The key financial covenants in the Credit Facility, as defined and calculated per the terms of the Credit Agreement include maintaining the following:



Unsecured Credit Facility Key Covenants		Required
Ratio of total indebtedness to total asset value		≤ 60%
Ratio of adjusted EBITDA to fixed charges		≥ 1.5x
Ratio of secured indebtedness to total asset value		≤ 45%
Ratio of unsecured indebtedness to unencumbered asset value		≤ 60%
Ratio of unencumbered adjusted NOI to unsecured interest expense		≥ 1.75x

The Company believes that it was in compliance with the financial covenants pursuant to the Credit Agreement and is not restricted from accessing any borrowing availability under the Credit Facility as of ~~September~~June 30, ~~2018.~~2019.

Table of Contents

Corporate Bonds

Summary and Obligations

On February 6, 2019, the Company’s 2019 Senior Notes matured and the principal outstanding of $750.0 million, plus accrued and unpaid interest thereon, were repaid, utilizing borrowings under the Credit Facility.

As of ~~September~~June 30, ~~2018,~~2019, the OP had ~~$2.85~~$2.65 billion aggregate principal amount of Senior Notes outstanding. The indenture governing the Senior Notes requires that the Company be in compliance with certain key financial covenants, including maintaining the following:



Corporate Bond Key Covenants		Required
Limitation on incurrence of total debt		≤ 65%
Limitation on incurrence of secured debt		≤ 40%
Debt service coverage ratio		≥ 1.5x
Maintenance of total unencumbered assets		≥ 150%

~~There were no changes to the financial covenants of our existing Senior Notes during the nine months ended September 30, 2018.~~ As of ~~September~~June 30, ~~2018,~~2019, the Company believes that it was in compliance with these financial covenants based on the covenant limits and calculations in place at that time.

Convertible Debt

Summary and Obligations

~~On August 1, 2018, the Company’s 2018 Convertible Notes matured and the principal outstanding of $597.5 million, plus accrued and unpaid interest thereon, was repaid.~~ As of ~~September~~June 30, ~~2018,~~2019, the Company had $402.5 million aggregate principal amount of the 2020 Convertible Notes outstanding. The OP has issued corresponding identical convertible notes to the General Partner. There were no changes to the terms of the 2020 Convertible Notes during the ~~nine~~six months ended ~~September~~June 30, ~~2018~~2019 and the Company believes that it was in compliance with the financial covenants pursuant to the indenture governing the 2020 Convertible Notes as of ~~September~~June 30, ~~2018.~~2019.

Mortgage Notes Payable ~~and Other Debt~~

Summary and Obligations

As of ~~September~~June 30, ~~2018,~~2019, the Company had non-recourse mortgage indebtedness of ~~$1.9~~$1.7 billion, which was collateralized by ~~460~~414 properties, reflecting a decrease from December 31, ~~2017~~2018 of ~~$141.4~~$174.7 million derived primarily from our disposition activity during the ~~nine~~six months ended ~~September~~June 30, ~~2018.~~2019. Our mortgage indebtedness bore interest at the weighted-average rate of ~~4.93%~~5.16% per annum and had a weighted-average maturity of ~~3.7~~3.1 years. We may in the future incur additional mortgage debt on the properties we currently own or use long-term non-recourse financing to acquire additional ~~properties.~~properties and had no restrictions on the payment of dividends.

The payment terms of our loan obligations vary. In general, only interest amounts are payable monthly with all unpaid principal and interest due at maturity. Some of our loan agreements require that we comply with specific reporting and financial covenants mainly related to debt coverage ratios and loan-to-value ratios. Each loan that has these requirements has specific ratio thresholds that must be met.

Restrictions on Loan Covenants

Our mortgage loan obligations generally restrict corporate guarantees and require the maintenance of financial covenants, including maintenance of certain financial ratios (such as specified debt to equity and debt service coverage ratios), as well as the maintenance of a minimum net worth. The mortgage loan agreements contain no dividend restrictions except in the event of default or when a distribution would drive liquidity below the applicable thresholds. The Company believes that it was in compliance with the financial covenants under the mortgage loan agreements, except for the $19.5 million loan in default as described in Note 6 –Debt to our consolidated financial statements, and had no restrictions on the payment of dividends as of ~~September~~June 30, ~~2018.~~2019.

Table of Contents

Litigation

During the ~~three~~six months ended ~~September~~June 30, ~~2018,~~2019, the Company recorded $37.5 million of litigation costs in connection with litigations and investigations that arose from the findings of the Audit Committee Investigation and related matters and entered into settlement agreements with certain ~~opt out~~ plaintiffs for payments totaling approximately $12.2 million, both of which are presented in litigation and ~~accrued $127.5 million~~non-routine costs, net in the consolidated statement of ~~litigation costs related to those settlements.~~operations. During the three months ended ~~June 30,~~December 31, 2018, the Company ~~paid $90.0~~accrued $15.7 million related to a settlement agreements with ~~Vanguard Specialized Funds, and other Vanguard funds.~~

certain plaintiffs, which was paid during the six months ended June 30, 2019.

Dividends

On ~~August 2, 2018,~~May 6, 2019, the Company’s ~~board~~Board of ~~directors~~Directors declared a quarterly cash dividend of $0.1375 per share of ~~common stock~~Common Stock (equaling an annualized dividend rate of $0.55 per share) for the ~~third~~second quarter of ~~2018~~2019 to stockholders of record as of ~~September~~June 28, ~~2018,~~2019, which was paid on ~~October~~July 15, ~~2018.~~2019. An equivalent distribution by the Operating Partnership is applicable per OP ~~unit.~~Unit.

Our Series F Preferred Stock, as discussed in “Note 1312 – Equity” to our consolidated financial statements, will pay cumulative cash dividends at the rate of 6.70% per annum on their liquidation preference of $25.00 per share (equivalent to $1.675 per share on an annual basis). As of ~~September~~June 30, ~~2018,~~2019, there were approximately ~~42.8~~42.9 million shares of Series F Preferred Stock (and approximately ~~42.8~~42.9 million corresponding Series F Preferred Units that were issued to the General Partner) and ~~86,874~~49,766 Limited Partner Series F Preferred Units that were issued and outstanding.

Contractual Obligations

The following is a summary of our contractual obligations as of ~~September~~June 30, ~~2018~~2019 (in thousands):


	Total		Less than 1 year		1-3 years		4-5 years		More than 5 years		Total		Less than 1 year		1-3 years		4-5 years		More than 5 years
Principal payments - mortgage notes(1)	$	1,929,607	$	2,437	$	442,500	$	667,665	$	817,005	$	1,742,407	$	38,035	$	617,204	$	416,521	$	670,647
Interest payments - mortgage notes ^{(1) (2)}	346,436		24,511		177,182		108,534		36,209
Interest payments - mortgage notes ^{(2) (3) (4)}											267,101		44,052		141,305		79,322		2,422
Principal payments - Credit Facility	793,000		—		—		793,000		—		900,000		—		—		900,000		—
Interest payments - Credit Facility⁽²⁾	119,822		7,179		66,031		46,612		—
Interest payments - Credit Facility^{(2) (3)}											134,097		17,654		70,136		46,307		—
Principal payments - corporate bonds	2,850,000		—		750,000		400,000		1,700,000		2,650,000		—		400,000		—		2,250,000
Interest payments - corporate bonds	609,706		29,057		187,088		158,775		234,786		693,344		58,944		226,151		202,776		205,473
Principal payments - convertible debt	402,500		—		402,500		—		—		402,500		—		402,500		—		—
Interest payments - convertible debt	33,332		3,815		29,517		—		—		21,970		7,547		14,423		—		—
Operating and ground lease commitments	291,792		4,599		36,615		36,156		214,422		344,988		11,031		45,730		43,821		244,406
Build-to-suit and other commitments⁽⁵⁾											17,028		17,028		—		—		—
Total	$	7,376,195	$	71,598	$	2,091,433	$	2,210,742	$	3,002,422	$	7,173,435	$	194,291	$	1,917,449	$	1,688,747	$	3,372,948

____________________________________


(1)	Less than 1 year includes $19.5 million for the acceleration of principal payable related to one mortgage note in default with a stated maturity in 2023.


(2)	As of ~~September~~June 30, ~~2018,~~2019, we had ~~$50.9~~no variable rate mortgage notes and $900.0 million of variable rate ~~mortgage notes~~debt on the Credit Facility effectively fixed through the use of interest rate swap agreements. We used the effective interest rates fixed under our swap agreements to calculate the debt payment obligations in future periods.


~~(2)~~(3)	Interest payments due in future periods on the ~~$14.1~~$13.9 million of variable rate debt ~~and the Credit Facility payment obligations~~ were calculated using a forward LIBOR curve.


(4)	A foreclosure sale of the property securing one mortgage note payable in default occurred subsequent to June 30, 2019, as discussed in Note 16 – Subsequent Events. Includes interest payments through the date of the foreclosure sale based on the default rate.


(5)	Includes one build-to-suit development project, the Company’s share of capital expenditures related an expansion project of the property held within an unconsolidated joint venture and letters of credit outstanding.

Cash Flow Analysis for the ~~nine~~six months ended ~~September~~June 30, ~~2018~~2019

Operating Activities –During the ~~nine~~six months ended ~~September~~June 30, ~~2018,~~2019, net cash provided by operating activities ~~decreased $161.7~~increased $88.4 million to ~~$433.7~~$348.0 million from ~~$595.4~~$259.6 million during the same period in ~~2017.~~2018. The ~~decrease~~increase was primarily due to a $90.0 million litigation settlement ~~payment related to the Vanguard Action~~paid during the ~~nine~~six months ended ~~September~~June 30, 2018, as compared to $27.9 million paid during the same period in 2019, and ~~a decrease~~the receipt of ~~$49.9~~an insurance settlement of $48.4 million ~~in management fees and reimbursements from related parties, due to~~during the ~~completion of the sale of Cole Capital on February 1, 2018.~~six months ended June 30, 2019.

Investing Activities –Net cash provided by investing activities for the ~~nine~~six months ended ~~September~~June 30, ~~2018~~2019 increased ~~$255.0~~$402.0 million to ~~$197.8~~$523.0 million from ~~$57.2 million~~ net cash ~~used in~~provided by investing activities of $121.0 million during the same period in ~~2017.~~2018. The increase was primarily related to an increase of $559.2 million in net proceeds from disposition of real estate investments during the six months ended June 30, 2019, as compared to the same period in 2018, offset by proceeds from the disposition of discontinued operations of ~~$122.9~~$123.9 million during the six months ended June 30, 2018 and ~~a decrease~~increases in investments in real estate assets of ~~$125.5~~$12.4 million and capital expenditures, leasing costs and developments of $17.9 million during the ~~nine~~six months ended ~~September~~June 30, ~~2018,~~2019, as compared to the same period in ~~2017.~~2018.

Financing Activities –Net cash used in financing activities of ~~$642.8~~$692.5 million ~~decreased $114.6~~increased $293.4 million during the ~~nine~~six months ended ~~September~~June 30, ~~2018~~2019 from ~~$757.4~~$399.1 million during the same period in ~~2017.~~2018. The ~~decrease~~increase was primarily related to ~~a decrease~~the repayment of the 2019 Senior Notes, of $750.0 million and an increase of $143.6 million in payments on mortgage notes ~~payable~~ and other debt, including debt extinguishment costs, ~~of $267.0 million,~~partially offset by an increase in net borrowings on the Credit Facility of ~~$88.4~~$487.0 million from $10.0 million of net borrowings during the six months ended June 30, 2018 to $497.0 million of net borrowings during the six months ended June 30, 2019. In addition, the Company had no share repurchases in 2019, as compared to $50.2 million of repurchases in the same period in 2018 and proceeds from the issuance of Common Stock under the continuous equity offering program of $42.1 million in ~~net proceeds related to the credit facilities, corporate bonds and convertible notes and repurchases of common stock under the Share Repurchase Program of $50.2 million~~2019 with no comparable ~~repurchases~~issuances during the same period in ~~2017.~~2018.

Election as a REIT

The General Partner elected to be taxed as a REIT for U.S. federal income tax purposes under Sections 856 through 860 of the Internal Revenue Code of 1986, as amended, commencing with the taxable year ended December 31, 2011. As a REIT, except as discussed below, the General Partner generally is not subject to federal income tax on taxable income that it distributes to its stockholders so long as it distributes at least 90% of its annual taxable income (computed without regard to the deduction for dividends paid and excluding net capital gains). REITs are subject to a number of other organizational and operational requirements. Even if the

General Partner maintains its qualification for taxation as a REIT, it may be subject to certain state and local taxes on its income and property, federal income taxes on certain income and excise taxes on its undistributed income. We believe we are organized and operating in such a manner as to qualify to be taxed as a REIT for the taxable year ended December 31, ~~2018.~~2019.

The Operating Partnership is classified as a partnership for U.S. federal income tax purposes. As a partnership, the Operating Partnership is not a taxable entity for U.S. federal income tax purposes. Instead, each partner in the Operating Partnership is required to take into account its allocable share of the Operating Partnership’s income, gains, losses, deductions and credits for each taxable year. However, the Operating Partnership may be subject to certain state and local taxes on its income and property. Under the LPA, the Operating Partnership is required to conduct business in such a manner as to permit the General Partner at all times to qualify as a REIT.

As discussed in Note 413 —Discontinued Operations, on February 1, 2018, the Company completed the sale of its investment management segment, Cole Capital. The Company conducted substantially all of the Cole Capital business activities through a ~~TRS.~~taxable REIT subsidiary (“TRS”). A TRS is a subsidiary of a REIT that is subject to corporate federal, state and local income taxes, as applicable. The Company’s use of a TRS enables it to engage in certain business activities while complying with the REIT qualification requirements and to retain any income generated by these businesses for reinvestment without the requirement to distribute those earnings. The Company conducts all of its business in the United States and Puerto Rico ~~and Canada~~ and, as a result, it files income tax returns in the U.S. ~~federal jurisdiction, the Canadian~~ federal jurisdiction and various state and local jurisdictions. Certain of the Company’s inter-company transactions that have been eliminated in consolidation for financial accounting purposes are also subject to taxation.

Inflation

We may be adversely impacted by inflation on any leases that do not contain indexed escalation provisions. However, net leases that require the tenant to pay its allocable share of operating expenses, including common area maintenance costs, real estate taxes and insurance, may reduce our exposure to increases in costs and operating expenses resulting from inflation.

Related Party Transactions and Agreements

Through the closing of the Cole Capital sale, we were contractually responsible for managing the Cole REITs’ affairs on a day-to-day basis, identifying and making acquisitions and investments on the Cole REITs’ behalf, and recommending to each of the Cole REIT’s respective board of directors an approach for providing investors with liquidity. In addition, we distributed the shares of common stock for certain of the Cole REITs and advised them regarding offerings, managed relationships with participating broker-dealers and financial advisors, and provided assistance in connection with compliance matters relating to the offerings. We received compensation and reimbursement for services relating to the Cole REITs’ offerings and the investment, management and disposition of their respective assets, as applicable. See “Note 14 –Related Party Transactions and Arrangements” to our consolidated financial statements in this report for a further explanation of the various related party transactions, agreements and fees.

Table of Contents

Off-Balance Sheet Arrangements

We have no material off-balance sheet arrangements that have had or are reasonably likely to have a current or future effect on our financial condition, changes in financial condition, revenues or expenses, results of operations, liquidity, capital expenditures or capital resources.

Critical Accounting Policies and Significant Accounting Estimates

Our accounting policies have been established to conform with U.S. GAAP. The preparation of financial statements in conformity with U.S. GAAP requires us to use judgment in the application of accounting policies, including making estimates and assumptions. These judgments affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the dates of the financial statements and the reported amounts of revenue and expenses during the reporting periods. Management believes that we have made these estimates and assumptions in an appropriate manner and in a way that accurately reflects our financial condition. We continually test and evaluate these estimates and assumptions using our historical knowledge of the business, as well as other factors, to ensure that they are reasonable for reporting purposes. However, actual results may differ from these estimates and assumptions. If our judgment or interpretation of the facts and circumstances relating to the various transactions had been different, it is possible that different accounting policies would have been applied, thus resulting in a different presentation of the financial statements. Additionally, other companies may utilize different estimates that may impact comparability of our results of operations to those of companies in similar businesses. We believe the following critical accounting policies govern the significant judgments and estimates used in the preparation of our financial statements, which should be read in conjunction with the more complete discussion of our accounting policies and procedures included in our Annual Report on Form 10-K for the year ended December 31, ~~2017:~~2018:

•Loss Contingencies;

•Goodwill Impairment;

•Real Estate Investment Impairment; and

•~~Loans Held for Investment Impairment;~~

•Allocation of Purchase Price of Real Estate ~~Assets; and~~

•~~Income Taxes.~~Assets

Item 3. Quantitative and Qualitative Disclosures About Market Risk.

Market Risk

The market risk associated with financial instruments and derivative financial instruments is the risk of loss from adverse changes in market prices or interest rates. Our market risk arises primarily from interest rate risk relating to variable-rate borrowings. To meet our short and long-term liquidity requirements, we borrow funds at a combination of fixed and variable rates. Our interest rate risk management objectives are to limit the impact of interest rate changes on earnings and cash flows and to manage our overall borrowing costs. To achieve these objectives, from time to time, we may enter into interest rate hedge contracts such as swaps, collars and treasury lock agreements in order to mitigate our interest rate risk with respect to various debt instruments. We would not hold or issue these derivative contracts for trading or speculative purposes.

Interest Rate Risk

As of ~~September~~June 30, ~~2018,~~2019, our debt included fixed-rate debt, including debt that has interest rates that are fixed with the use of derivative instruments, with a fair value and carrying value ~~each~~ of ~~$5.2 billion.~~$5.9 billion and $5.7 billion, respectively. Changes in market interest rates on our fixed rate debt impact the fair value of the debt, but they have no impact on interest incurred or cash flow. For instance, if interest rates rise 100 basis points, and the fixed rate debt balance remains constant, we expect the fair value of our debt to decrease, the same way the price of a bond declines as interest rates rise. The sensitivity analysis related to our fixed-rate debt assumes an immediate 100 basis point move in interest rates from their ~~September~~June 30, ~~2018~~2019 levels, with all other variables held constant. A 100 basis point increase in market interest rates would result in a decrease in the fair value of our fixed rate debt of ~~$181.7~~$197.8 million. A 100 basis point decrease in market interest rates would result in an increase in the fair value of our fixed-rate debt of ~~$192.8~~$213.3 million.

As of ~~September~~June 30, ~~2018,~~2019, our debt included variable-rate debt with a fair value ~~of $807.3 million~~ and a carrying value each of ~~$807.1~~$13.9 million. The sensitivity analysis related to our variable-rate debt assumes an immediate 100 basis point move in interest rates from their ~~September~~June 30, ~~2018~~2019 levels, with all other variables held constant. A 100 basis point increase or decrease in variable interest rates on our variable-rate debt would increase or decrease our interest expense by ~~$8.1~~$0.1 million annually. See “Note 96 –Debt” to our consolidated financial statements.

Table of Contents

As of ~~September~~June 30, ~~2018,~~2019, our interest rate swap had a fair value that resulted in ~~assets~~liabilities of ~~$0.8~~$27.6 million. See “Note 27 –~~Summary of Significant Accounting Policies”~~Derivatives and Hedging Activities to our consolidated financial statements for further discussion.

As the information presented above includes only those exposures that existed as of ~~September~~June 30, ~~2018,~~2019, it does not consider exposures or positions arising after that date. The information presented herein has limited predictive value. Future actual realized gains or losses with respect to interest rate fluctuations will depend on cumulative exposures, hedging strategies employed and the magnitude of the fluctuations.

These amounts were determined by considering the impact of hypothetical interest rate changes on our borrowing costs and assume no other changes in our capital structure.

Credit Risk

Concentrations of credit risk arise when a number of tenants are engaged in similar business activities, or activities in the same geographic region, or have similar economic features that would cause their ability to meet contractual obligations, including those to the Company, to be similarly affected by changes in economic conditions. The Company is subject to tenant, geographic and industry concentrations. Any downturn of the economic conditions in one or more of these tenants, geographies or industries could result in a material reduction of our cash flows or material losses to us.

The factors considered in determining the credit risk of our tenants include, but are not limited to: payment history; credit status and change in status (credit ratings for public companies are used as a primary metric); change in tenant space needs (i.e., expansion/downsize); tenant financial performance; economic conditions in a specific geographic region; and industry specific credit considerations. We believe that the credit risk of our portfolio is reduced by the high quality of our existing tenant base, reviews of prospective tenants’ risk profiles prior to lease execution and consistent monitoring of our portfolio to identify potential problem tenants.

In the event that LIBOR is discontinued, the interest rate for the majority of our variable rate debt and the swap rate for the majority of our interest rate swaps following such event will be based on an alternative variable rate as specified in the applicable documentation governing such debt or swaps or as otherwise agreed upon. Such an event would not affect the Company's ability to borrow or maintain already outstanding borrowings or swaps, but the alternative variable rate could be higher and more volatile than LIBOR prior to its discontinuance. We understand that LIBOR is expected to remain available through the end of 2021, but may be discontinued or otherwise become unavailable thereafter.

Table of Contents

Item 4.4. Controls and Procedures.

I. Discussion of Controls and Procedures of the General Partner

~~For purposes of the discussion in this Part I of Item 4, the “Company” refers to the General Partner.~~

Evaluation of Disclosure Controls and Procedures

We maintain disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) of the ~~Securities~~ Exchange ~~Act of 1934, as amended (the “Exchange Act”))~~Act) that are designed to provide reasonable assurance that information required to be disclosed in our Exchange Act reports is recorded, processed, summarized and reported within the time periods specified in the ~~Securities and Exchange Commission’s~~SEC’s rules and forms, and that such information is accumulated and communicated to our management, including our Chief Executive Officer and Chief Financial Officer, as appropriate, to allow timely decisions regarding required disclosure. In designing and evaluating the disclosure controls and procedures, we recognize that no controls and procedures, no matter how well designed and operated, can provide absolute assurance of achieving the desired control objectives.

In accordance with Rules 13a-15(b) and 15d-15(b) of the Exchange Act, management, under the supervision and with the participation of our Chief Executive Officer and Chief Financial Officer, carried out an evaluation of the effectiveness of our disclosure controls and procedures as of ~~September~~June 30, ~~2018~~2019 and determined that the disclosure controls and procedures were effective at a reasonable assurance level as of that date.

Changes in Internal Control Over Financial Reporting

No change occurred in our internal control over financial reporting (as defined in Rules 13a-15(f) and 15d -15(f) of the Exchange Act) during the three months ended ~~September~~June 30, ~~2018~~2019 that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

II. Discussion of Controls and Procedures of the Operating Partnership

~~In the information incorporated by reference into this Part II of~~ ~~Item 4, the term “Company” refers to the Operating Partnership, except as the context otherwise requires.~~

Evaluation of Disclosure Controls and Procedures

We maintain disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) of the Exchange Act) that are designed to provide reasonable assurance that information required to be disclosed in our Exchange Act reports is recorded, processed, summarized and reported within the time periods specified in the ~~Securities and Exchange Commission’s~~SEC’s rules and forms, and that such information is accumulated and communicated to our management, including our Chief Executive Officer and Chief Financial Officer, as appropriate, to allow timely decisions regarding required disclosure. In designing and evaluating the disclosure controls and procedures, we recognize that no controls and procedures, no matter how well designed and operated, can provide absolute assurance of achieving the desired control objectives.

Changes in Internal Control Over Financial Reporting

Table of Contents

PART II — OTHER INFORMATION

Item 1.1. Legal Proceedings.

The information contained under the heading “Litigation” in “Note 1210 –Commitments and Contingencies” to our consolidated financial statements contained herein is incorporated by reference into this Part II, Item 1.1. Except as set forth therein, as of the end of the period covered by this Quarterly Report on Form 10-Q, we are not a party to, and none of our properties are subject to, any material pending legal proceedings.

Item 1A. Risk Factors.

There have been no material changes from the risk factors set forth in the Company’s Annual Report on Form 10-K for the year ended December 31, ~~2017.~~2018.

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds.

Repurchases of Equity Securities

Period
Total Number of Shares/ Units Purchased ⁽¹⁾

Average Price Paid Per Share/Unit ⁽²⁾
July 1, 2018 - July 31, 2018 228
$ 7.45
August 1, 2018 - August 31, 2018 884
7.81
September 1, 2018 - September 30, 2018 —
—
Total 1,112
$ 7.73

~~(1)~~

We are authorized to repurchase shares of the General Partner’s common stock to satisfy employee withholding tax obligations related to stock-based compensation. During the third quarter of 2018, the General Partner and the Operating Partnership repurchased shares of common stock and corresponding OP Units that were issued to the General Partner, respectively, in order to satisfy the minimum tax withholding obligation for state and federal payroll taxes on employee restricted shares.


~~(2)~~	~~The price paid per share/unit is based on the weighted average closing price on the respective vesting date.~~

~~On May 12, 2017, the Company’s board of directors authorized the repurchase of up to $200.0 million~~ of the General Partner’s outstanding shares of common stock over 12 months from the date of authorization, as market conditions warrant, under the 2017 Share Repurchase Program. On May 3, 2018, the Company’s board of directors terminated the 2017 Share Repurchase Program and authorized the 2018 Share Repurchase Program that permits the Company to repurchase up to $200.0 million of its outstanding Common Stock ~~through May 3, 2019, as market conditions warrant. The 2018 Share Repurchase Program has similar terms as the 2017 Share Repurchase Program.~~to satisfy employee withholding tax obligations related to stock-based compensation. During the ~~nine months ended September 30, 2018, the Company~~second quarter of 2019, there were no repurchased ~~approximately 6.4 million~~ shares of Common Stock or corresponding OP Units made in ~~multiple open market transactions~~order to satisfy the minimum tax withholding obligation for ~~$44.6 million~~state and federal payroll taxes as ~~part~~there was no vesting of ~~the 2017 Share Repurchase Program and approximately 0.8 million shares of Common Stock in multiple open market transactions for $5.6 million as part of the 2018 Share Repurchase Program. None of the~~employee Restricted Shares. There were also no share repurchases under the 2018 Share Repurchase Program ~~occurred~~or 2019 Share Repurchase Program during the ~~third~~second quarter of ~~2018.~~2019. See Note 12 – Equity for further discussion of the share repurchase programs.

Item 3. Defaults Upon Senior Securities.

None.

Item 4. Mine Safety Disclosures.

Not applicable.

Item 5. Other Information.

None.

Table of Contents

Item 6. Exhibits

~~The exhibits listed below are included in, or incorporated by reference into, this Quarterly Report on Form 10-Q.~~

~~Exhibit Index~~

The following exhibits are included, or incorporated by reference, in this Quarterly Report on Form 10-Q for the quarter ended ~~September~~June 30, ~~2018~~2019 (and are numbered in accordance with Item 601 of Regulation S-K):



Exhibit No.		Description
3.1		Articles of Amendment and Restatement of VEREIT, Inc. (Incorporated by reference to the Company’s Pre-Effective Amendment No. 5 to Form S-11 (Registration No. 333-172205), filed with the SEC on July 5, 2011).
3.2		Articles Supplementary Relating to the Series A Convertible Preferred Stock of VEREIT, Inc., dated May 10, 2012 (Incorporated by reference to the Company’s Form 8-K (File No. 001-35263), filed with the SEC on May 15, 2012).
3.3		Articles Supplementary Relating to the Series B Convertible Preferred Stock of VEREIT, Inc., dated July 24, 2012 (Incorporated by reference to the Company’s Form 8-K (File No. 001-35263), filed with the SEC on July 30, 2012).
3.4		Articles Supplementary for the Series C Convertible Preferred Stock of VEREIT, Inc., dated June 6, 2013 (Incorporated by reference to the Company’s Form 8-K (File No. 001-35263), filed with the SEC on June 12, 2013).
3.5		Articles of Amendment to Articles of Amendment and Restatement of VEREIT, Inc., effective July 2, 2013 (Incorporated by reference to the Company’s Form 8-K (File No. 001-35263), filed with the SEC on July 9, 2013).
3.6		Articles Supplementary for the Series D Cumulative Convertible Preferred Stock of VEREIT, Inc., filed November 8, 2013 (Incorporated by reference to the Company’s Form 8-K (File No. 001-35263), filed with the SEC on November 15, 2013).
3.7		Articles of Amendment to Articles of Amendment and Restatement of VEREIT, Inc., effective December 9, 2013 (Incorporated by reference to the Company’s Amended Current Report on Form 8-K/A (File No. 001-35263), filed with the SEC on December 20, 2013).
3.8		Articles Supplementary Relating to the 6.70% Series F Cumulative Redeemable Preferred Stock of VEREIT, Inc., dated January 2, 2014 (Incorporated by reference to the Company’s Registration Statement on Form 8-A (File No. 333-190056), filed with the SEC on January 3, 2014).
3.9		Articles of Amendment to Articles of Amendment and Restatement of VEREIT, Inc., dated July 28, 2015 (Incorporated by reference to the Company’s Form 8-K (File No. 001-35263), filed with the SEC on July 28, 2015).
3.10		Articles Supplementary to Articles of Amendment and Restatement of VEREIT, Inc., dated August 5, 2015 (Incorporated by reference to the Company’s Quarterly Report on Form 10-Q (File No. 001-35263), for the quarter ended June 30, 2015 filed with the SEC on August 6, 2015).
3.11		Amended and Restated Bylaws of VEREIT, Inc., effective as of January 1, 2016 (Incorporated by reference to the Company’s Quarterly Report on Form 10-Q (File No. 001-35263), for the quarter ended September 30, 2015 filed with the SEC on November 5, 2015).
3.12		Certificate of Limited Partnership of VEREIT Operating Partnership, L.P. (Incorporated by reference to the Company’s Registration Statement on Form S-4 (Registration No. 333-197780-01), filed with the SEC on August 1, 2014).
3.13		Amendment to Certificate of Limited Partnership of VEREIT Operating Partnership, L.P., effective July 28, 2015 (Incorporated by reference to the Company’s Quarterly Report on Form 10-Q (File No. 001-35263), for the quarter ended June 30, 2015 filed with the SEC on August 6, 2015).
4.1		Third Amended and Restated Agreement of Limited Partnership of VEREIT Operating Partnership, L.P., effective January 3, 2014 (Incorporated by reference to the Company’s Amendment No. 2 to its Annual Report on Form 10-K/A (File No. 001-35263), for the year ended December 31, 2013 filed with the SEC on March 2, 2015).
4.2		First Amendment to Third Amended and Restated Agreement of Limited Partnership of VEREIT Operating Partnership, L.P., dated January 26, 2015 (Incorporated by reference to the Company’s Quarterly Report on Form 10-Q (File No. 001-35263), for the quarter ended June 30, 2015 filed with the SEC on August 6, 2015).
4.3		Second Amendment to Third Amended and Restated Agreement of Limited Partnership of VEREIT Operating Partnership, L.P., dated July 28, 2015 (Incorporated by reference to the Company’s Quarterly Report on Form 10-Q (File No. 001-35263), for the quarter ended June 30, 2015 filed with the SEC on August 6, 2015).
4.4		Indenture, dated as of July 29, 2013, between American Realty Capital Properties, Inc. and U.S. Bank National Association, as trustee (Incorporated by reference to the Company’s Current Report on Form 8-K (File No. 001-35263), filed with the SEC on July 29, 2013).
4.5		First Supplemental Indenture, dated as of July 29, 2013, between American Realty Capital Properties, Inc. and U.S. Bank National Association, as trustee (Incorporated by reference to the Company’s Current Report on Form 8-K (File No. 001-35263), filed with the SEC on July 29, 2013).
4.6		~~Form of 3.00% Convertible Senior Notes due 2018 (Incorporated by reference to the Company’s Current Report on Form 8-K (File No. 001-35263), filed with the SEC on December 11, 2013).~~
~~4.7~~		Second Supplemental Indenture, dated as of December 10, 2013, between American Realty Capital Properties, Inc. and U.S. Bank National Association, as trustee (Incorporated by reference to the Company’s Current Report on Form 8-K (File No. 001-35263), filed with the SEC on December 11, 2013).
~~4.8~~4.7		Form of 3.75% Convertible Senior Notes due 2020 (Incorporated by reference to the Company’s Current Report on Form 8-K (File No. 001-35263), filed with the SEC on December 11, 2013).



~~Exhibit No.~~		~~Description~~
~~4.9~~4.8		Indenture, dated as of February 6, 2014, among ARC Properties Operating Partnership, L.P., Clark Acquisition, LLC, the guarantors named therein and U.S. Bank National Association, as trustee (Incorporated by reference to the Company’s Current Report on Form 8-K (File No. 001-35263), filed with the SEC on February 7, 2014).

Table of Contents

~~4.10~~

Exhibit No.		Description
4.9		Officers’ Certificate, dated as of February 6, 2014 (Incorporated by reference to the Company’s Current Report on Form 8-K (File No. 001-35263), filed with the SEC on February 7, 2014).
~~4.11~~4.10		First Supplemental Indenture, dated as of February 9, 2015, by and among ARC Properties Operating Partnership, L.P., American Realty Capital Properties, Inc. and U.S. Bank National Association (Incorporated by reference to the Company’s Current Report on Form 8-K (File No. 001-35263), filed with the SEC on February 13, 2015).
~~4.12~~4.11		Officer’s Certificate, dated as of June 2, 2016 (Incorporated by reference to the Company’s Current Report on Form 8-K (File No. 001-35263), filed with the SEC on June 3, 2016).
~~4.13~~4.12		Form of 4.125% Senior Notes due 2021 (Incorporated by reference to the Company’s Current Report on Form 8-K (File No. 001-35263), filed with the SEC on June 3, 2016).
~~4.14~~4.13		Form of 4.875% Senior Notes due 2026 (Incorporated by reference to the Company’s Current Report on Form 8-K (File No. 001-35263), filed with the SEC on June 3, 2016).
~~4.15~~4.14		Officers’ Certificate, dated as of August 11, 2017 (Incorporated by reference to the Company’s Current Report on Form 8-K (File No. 001-35263), filed with the SEC on August 11, 2017).
~~4.16~~4.15		Form of 3.950% Senior Notes due 2027 (Incorporated by reference to the Company’s Current Report on Form 8-K (File No. 001-35263), filed with the SEC on August 11, 2017).
~~4.17~~4.16		Officer’s Certificate, dated as of October 16, 2018 (Incorporated by reference to the Company’s Current Report on Form 8-K (File No. 001-35263), filed with the SEC on October 16, 2018).
~~4.18~~4.17		Form of 4.625% Senior Notes due 2025 (Incorporated by reference to the Company’s Current Report on Form 8-K (File No. 001-35263), filed with the SEC on October 16, 2018).
31.1*		Certification of the Chief Executive Officer of VEREIT, Inc. pursuant to Securities Exchange Act Rule 13a-14(a) or 15d-14(a), as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
31.2*		Certification of the Chief Financial Officer of VEREIT, Inc. pursuant to Securities Exchange Act Rule 13a-14(a) or 15d-14(a), as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
31.3*		Certification of the Chief Executive Officer of VEREIT, Inc., the sole general partner of VEREIT Operating Partnership, L.P., pursuant to Securities Exchange Act Rule 13a-14(a) or 15d-14(a), as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
31.4*		Certification of the Chief Financial Officer of VEREIT, Inc., the sole general partner of VEREIT Operating Partnership, L.P., pursuant to Securities Exchange Act Rule 13a-14(a) or 15d-14(a), as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
32.1**		Written statements of the Chief Executive Officer of VEREIT, Inc. pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
32.2**		Written statements of the Chief Financial Officer of VEREIT, Inc. pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
32.3**		Written statements of the Chief Executive Officer of VEREIT, Inc., the sole general partner of VEREIT Operating Partnership, L.P., pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
32.4**		Written statements of the Chief Financial Officer of VEREIT, Inc., the sole general partner of VEREIT Operating Partnership, L.P., pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
101.INS*		~~XBRL Instance Document.~~
101.SCH*		Inline XBRL Taxonomy Extension Schema Document.
101.CAL*		Inline XBRL Taxonomy Extension Calculation Linkbase Document.
101.DEF*		Inline XBRL Taxonomy Extension Definition Linkbase Document.
101.LAB*		Inline XBRL Taxonomy Extension Label Linkbase Document.
101.PRE*		Inline XBRL Taxonomy Extension Presentation Linkbase Document.
104*		Cover Page Interactive Data File (formatted as Inline XBRL with applicable taxonomy extension information contained in Exhibits 101.*).

_____________________________


*	Filed herewith

In accordance with Item 601(b)(32) of Regulation S-K, this Exhibit is not deemed “filed” for purposes of Section 18 of the Exchange Act or otherwise subject to the liabilities of that section. Such certifications will not be deemed incorporated by reference into any filing under the Securities Act or the Exchange Act, except to the extent that the registrant specifically incorporates it by reference.

Table of Contents

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, as amended, each registrant has duly caused this Quarterly Report on Form 10-Q to be signed on its behalf by the undersigned thereunto duly authorized.



	VEREIT, INC.
	By:	/s/ Michael J. Bartolotta
	Michael J. Bartolotta
	Executive Vice President and Chief Financial Officer (Principal Financial Officer)



	VEREIT OPERATING PARTNERSHIP, L.P.
	By: VEREIT, Inc., its sole general partner
	By:	/s/ Michael J. Bartolotta
	Michael J. Bartolotta
	Executive Vice President and Chief Financial Officer (Principal Financial Officer)

Dated: ~~November 5, 2018~~August 6, 2019

7270



Interest Rate Swap	September 30, 2018		December 31, 2017
Number of Instruments	1		2
Notional Amount	$	50,850	$	78,949



	Future Minimum Operating Lease Base Rent Payments		Future Minimum Direct Financing Lease Payments ⁽¹⁾
October 1, 2018 - December 31, 2018	$	264,955	$	727
2019	1,098,352		2,508
2020	1,068,111		2,135
2021	1,030,610		2,014
2022	952,610		1,925
Thereafter	6,062,338		2,254
Total	$	10,476,976	$	11,563



	Remainder of 2018		2019		2020		2021		2022
In-place leases and other intangibles:
Total projected to be included in amortization expense	$	33,935	$	126,466	$	119,158	$	111,333	$	97,138
Leasing commissions:
Total projected to be included in amortization expense	407		1,589		1,567		1,510		1,452
Above-market lease assets and deferred lease incentives:
Total projected to be deducted from rental income	5,793		21,326		20,913		20,483		19,670
Below-market lease liabilities:
Total projected to be included in rental income	5,775		18,116		16,962		15,797		14,950



	September 30, 2018
	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses		Fair Value
CMBS	$	25,928	$	354	$	—	$	26,282



Outstanding Balance		Net Carrying Value		Interest Rate Range				Maturity Date Range
$	21,878	$	18,757	5.9	%	–	6.8%	December 2026	–	January 2033



	Outstanding Balance
Due within one year	$	976
Due after one year through five years	4,673
Due after five years through 10 years	7,145
Due after 10 years⁽¹⁾	12,793
Total	$	25,587



	CMBS			Investment in Cole REITs⁽¹⁾
Balance as of December 31, 2017	$	40,974		$	3,264
Total gains and losses
Unrealized loss included in other comprehensive income, net	(71		)	—
Realized loss included in other income, net	(34		)	—
Valuation Allowance	—			—
Unrealized gain included in other income, net	—			5,102
Purchases, issuance, settlements
Return of principal received	(4,864		)	—
Amortization included in net income, net	157			—
Sale of investments	(9,880		)	(522		)
Transfers out of Level 3 into Level 1 ⁽²⁾	(12,756		)	—
Ending Balance, September 30, 2018	$	13,526		$	7,844



	CMBS
Balance as of December 31, 2016	$	47,215
Total gains and losses
Unrealized loss included in other comprehensive income, net	(547		)
Purchases, issuance, settlements
Return of principal received	(4,077		)
Amortization included in net income, net	(914		)
Ending Balance, September 30, 2017	$	41,677



	Level	Carrying Amount at September 30, 2018		Fair Value at September 30, 2018		Carrying Amount at December 31, 2017		Fair Value at December 31, 2017
Assets:
Mortgage notes receivable, net	3	$	18,757	$	19,483	$	20,294	$	28,272

Liabilities⁽¹⁾:
Mortgage notes payable and other debt, net	2	$	1,947,749	$	1,957,907	$	2,095,690	$	2,144,522
Corporate bonds, net	2	2,849,306		2,826,897		2,848,768		2,922,027
Convertible debt, net	2	398,118		406,485		992,218		1,012,349
Credit facility	2	793,000		793,000		185,000		185,000
Total liabilities		$	5,988,173	$	5,984,289	$	6,121,676	$	6,263,898



	Outstanding Balance September 30, 2018		Interest Rate		Maturity Date
2019 Senior Notes	$	750,000	3.000	%	February 6, 2019
2021 Senior Notes	400,000		4.125	%	June 1, 2021
2024 Senior Notes	500,000		4.600	%	February 6, 2024
2026 Senior Notes	600,000		4.875	%	June 1, 2026
2027 Senior Notes	600,000		3.950	%	August 15, 2027
Total balance and weighted-average interest rate	$	2,850,000	4.033	%



	Future Minimum Base Rent Payments
	Ground Leases		Office Leases
October 1, 2018 - December 31, 2018	$	3,476	$	1,123
2019	13,984		4,446
2020	13,734		4,451
2021	13,568		4,388
2022	13,781		4,419
Thereafter	210,426		3,996
Total	$	268,969	$	22,823



Period	Total Number of Shares/ Units Purchased ⁽¹⁾	Average Price Paid Per Share/Unit ⁽²⁾
July 1, 2018 - July 31, 2018	228	$	7.45
August 1, 2018 - August 31, 2018	884	7.81
September 1, 2018 - September 30, 2018	—	—
Total	1,112	$	7.73