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Edited Transcript of VER earnings conference call or presentation 6-Nov-19 5:30pm GMT

Q3 2019 VEREIT Inc Earnings Call

New York Nov 26, 2019 (Thomson StreetEvents) -- Edited Transcript of VEREIT Inc earnings conference call or presentation Wednesday, November 6, 2019 at 5:30:00pm GMT

TEXT version of Transcript

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Corporate Participants

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* Bonni Rosen

VEREIT, Inc. - SVP of IR

* Glenn J. Rufrano

VEREIT, Inc. - CEO & Director

* Michael J. Bartolotta

VEREIT, Inc. - Executive VP & CFO

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Conference Call Participants

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* Caitlin Burrows

Goldman Sachs Group Inc., Research Division - Research Analyst

* Christopher Ronald Lucas

Capital One Securities, Inc., Research Division - Senior VP & Lead Equity Research Analyst

* Frank Lee

BMO Capital Markets Equity Research - Senior Associate

* Haendel Emmanuel St. Juste

Mizuho Securities USA LLC, Research Division - MD of Americas Research & Senior Equity Research Analyst

* Mitchell Bradley Germain

JMP Securities LLC, Research Division - MD and Senior Research Analyst

* Sheila Kathleen McGrath

Evercore ISI Institutional Equities, Research Division - Senior MD

* Vikram Malhotra

Morgan Stanley, Research Division - VP

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Presentation

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Operator [1]

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Hello, and welcome to the VEREIT Third Quarter 2019 Earnings Conference Call. (Operator Instructions) Please note, this event is being recorded.

I'd now like to turn the conference over to Bonni Rosen. Please go ahead, ma'am.

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Bonni Rosen, VEREIT, Inc. - SVP of IR [2]

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Thank you for joining us today for the VEREIT 2019 Third Quarter Earnings Call. Joining me today are Glenn Rufrano, our Chief Executive Officer; and Mike Bartolotta, our Chief Financial Officer.

Today's call is being webcast on our website at vereit.com in the Investor Relations section. There will be a replay of the call beginning at approximately 2:30 p.m. Eastern Time today. Dial-in for the replay is 1 (877) 344-7529 with the confirmation code of 10135550.

Before I turn the call over to Glenn, I would like to remind everyone that certain statements in this earnings call, which are not historical facts, will be forward-looking. VEREIT's actual results may differ materially from these forward-looking statements and factors that could cause these differences are detailed in our SEC filings, including the quarterly report filed today. In addition as stated more fully in our SEC reports, VEREIT disclaims any intent or obligation to update these forward-looking statements except as expressly required by law.

Let me quickly review the format of today's call. First, Glenn will begin by providing a business and operational update, followed by Mike presenting our quarterly financial results, Glenn will then wrap up with closing remarks. We will conclude today's call by opening the line for questions.

Glenn, let me turn the call over to you.

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Glenn J. Rufrano, VEREIT, Inc. - CEO & Director [3]

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Thanks, Bonni, and thanks for joining our call today. We've made a great deal of progress this quarter. AFFO per diluted share was $0.18. Year-to-date acquisitions totaled $284 million and dispositions $847 million, including $326 million from our industrial partnership.

We announced a global litigation settlement at a net cost of the company of $765.5 million and concluded an equity offering of $887 million. Net debt to normalized EBITDA ended at 5.5x, which included the stock issue and settlement funding.

Based upon this activity, we are reaffirming our AFFO guidance for this year of $0.68 to $0.70 and expect we'll be in the -- we'll be closer to the middle of the range.

Leasing for the quarter was very active at 1.6 million square feet leased and occupancy ended at a healthy 99%. Same-store rent was up 1%. Year-to-date, we have leased 2.8 million square feet representing 191 leases, of which 1.7 million square feet were renewals and 838,000 square feet early renewals. Leasing activity included 1.3 million square feet of retail, 664,000 square feet of industrial, 442,000 square feet of office and 378,000 square feet of restaurants. For renewal leases, we recaptured approximately 97% of prior rents.

From Q2 2015 when we announced our business plan, the capital markets have provided us a great deal of liquidity, and we've executed well. In total, we've had $13 billion of capital activity, including acquisitions, dispositions, debt and equity financing. In 2016, we were a net seller of assets, completed successful debt and equity offerings, all to bolster our balance sheet. During 2017/2018, we match-funded acquisitions and dispositions, improving our portfolio while continuing to reduce debt.

This year, we plan to be a net seller, reducing our debt ratios to cushion our ultimate litigation resolution. With this legacy issue behind us, we have now reset the bar starting in 2020 and expect to be a net acquirer next year.

With that background, year-to-date acquisitions totaled $284 million comprised of approximately 85% retail and 15% industrial. And we believe that we'll be within our guidance range of $400 million to $600 million. Retail included our preferred merchandise categories: convenience, entertainment, fitness, specialty grocers, automotive and discount retail.

Portfolio dispositions totaled $521 million, all within our strategic categories. In addition, there was $326 million from the industrial partnership with KIS. Through this partnership, we have extended our sourcing opportunities to both investment-grade and noninvestment-grade quality industrial properties. We're seeing good deal flow and expect to have more details to report at a later date.

Looking back to 2015, our debt load and core balance sheet liquidity placed us in a challenging position. The business plan prioritized not only debt reduction, but liquidity needs for litigation. We achieved that goal this year with a $2 billion undrawn revolver and expected litigation to be funded long term by various means at a time of our choosing. However, we found good market reaction to our settlement announcement and concluded funding quickly would position us best as we move forward. It's not often the market signals your decisions are appropriate or correct, but one of our rating agencies, Fitch, has moved us from BBB- with a stable outlook to BBB flat with a stable outlook. Our net debt to normalized EBITDA ended at 5.5x, which includes the effect of our equity offering and settlement funding.

Before Mike reviews our financial results, let me provide a brief update and summary on our recent litigation settlements. On September 9, we announced that we had entered into agreements to settle outstanding litigation at a net cost to the company of approximately $765.5 million. Pursuant to the class action settlement, certain defendants agreed to pay a total of $1.025 billion made up of $225 million from the company's former external manager and its principals; $12.5 million from the company's former CFO, $49 million from the company's former auditor; and the balance, $738.5 million, from the company. In addition, we settled with the remaining 2 opt outs for $27 million, which brings our total to the $765.5 million outlined above.

The company also entered into an agreement providing for the settlement of a derivative action lawsuit that was pending in the Southern District of New York. On October 4, the court gave preliminary approval to both the class action settlement and derivative settlement and scheduled a hearing on January 21, 2020, to consider final approval of both settlements. Funding of the settlements was required 10 days after preliminary approval, and this occurred on October 15. Mike will discuss the accounting associated with this funding.

Additional details regarding these settlements can be found in our 10-Q filed today. We believe the settlements were in the company's best interest and I'm very happy to put them behind us.

Now let me turn it over to Mike.

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Michael J. Bartolotta, VEREIT, Inc. - Executive VP & CFO [4]

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Thanks, Glenn, and thank you all for joining us today. We had another solid quarter, achieving AFFO of $0.18 per diluted share. And for the quarter, rental revenue decreased $9.1 million or about 3% to $303 million, mostly due to net dispositions year-to-date.

Net income decreased by approximately $1 billion to a net loss of $741.5 million primarily due to the higher litigation and nonroutine costs of $835.8 million, along with a lower gain on the disposition of real estate of $203.2 million mostly attributable to the large gain realized for the industrial partnership in Q2. The higher litigation and nonroutine costs included the impact of litigation settlements, which I will discuss in more detail in this presentation.

FFO per diluted share decreased $0.83 from $0.18 to a minus $0.66, mostly due to the higher litigation and nonroutine costs discussed above. And AFFO per share was essentially flat quarter-over-quarter at $0.18.

G&A decreased $1.9 million quarter-over-quarter to $14.5 million primarily due to certain equity compensation and annual proxy costs that are always recorded in the second quarter, and other cost reductions including reduced rent due to the restructuring of our Phoenix and New York offices. We anticipate fourth quarter G&A to be higher due to normal seasonality and that we will end up being just below our guidance range of $66 million to $69 million for the year.

Year-to-date litigation-related expenses have totaled $69.5 million, which includes the increased activity in Q3 with the litigation settlement.

And as Glenn discussed, the court gave preliminary approval to the class action on October 4. As such, we funded $966.3 million for the class on October 15, which included the cash value of the OP units and dividends surrendered by the former manager and former CFO. The amounts payable in cash pursuant to the class action settlement is included in the net debt as of September 30 and was made up of the following amounts: $738.5 million owned by the company; $227.8 million comprised primarily of 19.9 million OP units along with 1.4 million of dividends, which were surrendered by the former manager and former CFO and includes credit for the second quarter SEC settlement with the former manager.

The difference between the $225 million and $12.5 million of total contributions from the former manager and former CFO mentioned by Glenn earlier was made in cash by them. The OP units that were surrendered were treated as a reduction of noncontrolling interest and additional paid-in capital on the statement of equity and an increase in our accrued liabilities as of September 30, 2019. The 19.9 million in units won't be removed from the diluted share count until next quarter.

Turning to our third quarter real estate activity. The company purchased 7 properties for $60 million at a weighted average cash cap rate of 7%. In addition, the company invested $11 million in one build-to-suit project with an investment to date of $27 million, which was placed into service after quarter end.

During the quarter, we disposed of 32 properties for $109 million. And of this amount, $106 million was used in the total weighted average cash cap rate calculation of 7.3%, including $44 million in net sales of Red Lobster, which now brings us below our 5% threshold. The gain on the third quarter sales was approximately $19 million. And subsequent to the quarter, the company disposed of 2 properties for $7 million.

As Glenn discussed, since 2015, we have worked hard to put our balance sheet and liquidity in order. Upon the announcement of the litigation settlements, we found good reception in market conditions and thus decided to raise equity in order to provide the permanent financing for our announced settlements.

On September 23, we executed an underwritten offering for 71 million shares. We were almost 2x oversubscribed, which allowed us to upsize our offering to 94.3 million shares including the greenshoe, netting us approximately $887 million. And then subsequently, the rating agencies viewed this as a positive development with Fitch upgrading us from BBB- to BBB.

In addition, during the quarter, our previously announced partial redemption of $100 million in preferred stock was completed on July 5, which was from proceeds of the industrial partnership. Thus, our balance sheet remains in a very healthy spot with plenty of liquidity and flexibility.

Our net debt to normalized EBITDA ended at 5.5x. Our fixed charge coverage ratio remained healthy at 3x. And our net debt to gross real estate investments ratio was 38%. Our unencumbered asset ratio was 76%. The weighted average duration of our debt was 4.2 years. And at this point, we are 99.8% fixed.

And with that, I'll turn the call back to Glenn.

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Glenn J. Rufrano, VEREIT, Inc. - CEO & Director [5]

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Thanks, Mike. VEREIT has had 3 main goals since 2015.

One, create an enhanced and diversified portfolio. We've done so by selling over $4.6 billion of assets and acquiring $1.7 billion.

Two, build a secure well-laddered balance sheet. We've reduced debt from $10.5 billion to $5.7 billion and managed the company's ratings from noninvestment grade to investment grade split between BBB- and our goal of BBB flat.

And three, maintain an experienced management team. We've been in place for the last 4 years executing on all those goals above.

With regard to our portfolio, we established a series of diversifying metrics such as no tenant greater than 5%, no industry more than 10%, retail and restaurants approximately 60%, industrial and office both between 15% and 20%, investment-grade tenants between 30% and 40%, and flat leases below 20%. I'm pleased to report we have virtually met every single goal, reducing our need for outsized dispositions next year. As we move past the litigation overhang, our experienced management team has positioned us well, and we're ready to be on the offense as we lead into 2020.

Thank you very much for listening, and I'll open the line for questions.

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Questions and Answers

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Operator [1]

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(Operator Instructions) And the first question comes from Sheila McGrath of Evercore ISI.

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Sheila Kathleen McGrath, Evercore ISI Institutional Equities, Research Division - Senior MD [2]

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I guess, Glenn, it looks like you can refocus your efforts on growth again, which must be a relief. But where are you seeing the best opportunities in retail, restaurants or industrial? And should we assume no additional office in all industrial through the JV?

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Glenn J. Rufrano, VEREIT, Inc. - CEO & Director [3]

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Those are a good series of questions, Sheila. Let me start out with the first concept you brought up, which is growth in terms of us now focusing on growth. I would say that we have always focused on growth. And let's define growth as the growth in our share price. And in order for our share price to grow, we want a very good multiple, and we want growth in AFFO.

We have been focusing on the multiple since 2015. If you just -- if I go through a bit of what Mike and I have just said, we had $10.5 billion in debt in 2015, and we've reduced that to 5.7, roughly $5 billion. We had to work through a litigation, which has cost us $1 billion and $180 million in legal expenses net. So we've had $6 billion of issues to take care of over the last 4 years. By taking care of those issues, we clearly believe we've been working on multiple and growing the share price.

We were able to take care of those issues by selling $4.6 billion of assets and not only providing capital but improving our portfolio, and the market provided for us $1.6 billion in equity. So we had $6 billion of problems and we had $6 billion of capital. In 30 seconds, I was able to explain 4 years of work, but that clearly helped our multiple.

So we're now in a position where we can focus on the next level of growth, and that level of growth is to increase our multiple and increase our AFFO. So that is where we are, and we certainly intend to focus on both.

In terms of increasing AFFO, we've done a reasonable job at same store, and we need to be a net acquirer. And that's the position that we find ourselves in today, and we're very happy for it.

In terms of acquisitions which will lead that, we will continue to look at those areas that you just mentioned, discount-oriented retail, quick-service restaurants. We now, from a sourcing capability, can do both investment-grade and noninvestment-grade industrial, so we spread our wings a bit. And those will be our primary targets as we move into next year. We'll look at those targets [selling their shares away,] sale leasebacks, build-to-suits, forward commitments as well as just buying leases or groups of leases on the marketplace.

In terms of the industrial JV, I think the last part, we certainly intend to work through our industrial joint venture for investment-grade product. It's very expensive, and we don't intend to buy that on our balance sheet. Although we have no exclusivity as we've mentioned before, but we intend to put investment-grade assets through the partnership. And there may be assets that don't fit that partnership that we feel very good about and are priced correctly, that we'll put into the balance sheet.

It's a long answer. I think I answered most of what you asked.

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Sheila Kathleen McGrath, Evercore ISI Institutional Equities, Research Division - Senior MD [4]

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That was great. And just one follow-up, how should we think about the preferred? It's a fairly accretive opportunity to pay that down. Just how are you thinking about that going forward?

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Michael J. Bartolotta, VEREIT, Inc. - Executive VP & CFO [5]

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So Sheila, it's Mike. We've continually looked at our options on that. As you know, we took $100 million of it out of the industrial partnership when we received that liquidity that we did on July 5. And we'll continue to look at what we can do with it, whether we're constantly looking at where the pricing of it is and also what the options are. Whether there'd be 10-year bonds, 30-year bonds and a new pref, we'll continue to look at all of those options.

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Operator [6]

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And the next question comes from Frank Lee with BMO.

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Frank Lee, BMO Capital Markets Equity Research - Senior Associate [7]

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Glenn, you mentioned that you're now ready to be on the offensive heading into 2020. I just want to get a better feel on your kind of thought process and how you're looking to fund acquisitions while balancing the upcoming debt maturities you guys have.

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Glenn J. Rufrano, VEREIT, Inc. - CEO & Director [8]

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Mike, why don't you just touch on the debt maturities?

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Michael J. Bartolotta, VEREIT, Inc. - Executive VP & CFO [9]

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I mean on the debt maturities, I'm going to sound, Frank, a little bit like I answered the question for Sheila. We are working -- we have a 19-bank bank group. We're always working with them, looking at our options. And we'll continue to look at those. Obviously, we're very aware that the ones that come to mind, the [best] besides the prefs we've just talked about, is that we've got a convert that's coming due in 12/15 of '20, that's 3.75%. We've got a bond coming due in June of '21 at 4.12%. And so basically -- and the prefs, any of those 3 have the potential to be accretive if we can do the right type of transaction, and we'll continue to look at those. I think if you look at our past, we've done a reasonably good job of being opportunistic as the market allows, and we'll continue to look at those.

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Glenn J. Rufrano, VEREIT, Inc. - CEO & Director [10]

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And the only thing I'd add to that is that BBB rating is helpful.

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Michael J. Bartolotta, VEREIT, Inc. - Executive VP & CFO [11]

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Right.

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Glenn J. Rufrano, VEREIT, Inc. - CEO & Director [12]

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And we're going to work hard on the 2 other rating agencies to see if we could get them all to conform.

And then in terms of funding acquisitions, we -- when we fund anything, it's capital allocation. Capital allocation to us means it has to be accretive, or in some cases, least dilutive. It has to help the portfolio and it's got to help our balance sheet. We never want to be put in a corner. Just as we talked to everybody about funding the litigation, it's at our time and our option. We have options, and that's the most important thing. We have internal equity. We can sell assets with -- and generate spreads between what we sell and what we invest at. We have a partnership, which we can use to take some of our assets, if we choose, and put it in that partnership. And perhaps we could have equity. So our funding needs have options, and we're very comfortable with those options.

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Frank Lee, BMO Capital Markets Equity Research - Senior Associate [13]

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Okay. Great. And then now that you've got the upgrade from Fitch, how does that impact your cost of financing? And what rate do you think you can issue debt at today?

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Michael J. Bartolotta, VEREIT, Inc. - Executive VP & CFO [14]

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Well, I think right now, we were -- when we renegotiated the credit line as an example that we have, one of the changes we made when we renegotiated 1.5 years ago that we get an upgrade, we only need one agency. So with the Fitch agency as an example, and our margin on our revolver went from 1.2 to 1, and our term debt went from 1.35 to 1 and our facility fee got better by 5 bps. So there is a significant improvement that will happen just on that alone. Our spreads, if -- for those of you who follow our bonds, our spreads were already pretty reasonably tight, but we expect that they'll tighten up more. And as Glenn said, obviously we're working with S&P and Moody's, which would then improve that situation additionally.

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Operator [15]

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And the next question comes from Haendel St. Juste with Mizuho.

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Haendel Emmanuel St. Juste, Mizuho Securities USA LLC, Research Division - MD of Americas Research & Senior Equity Research Analyst [16]

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Glenn, I want to go back to your comments on next year, you mentioned being a net acquirer. But I'm curious, just do you think you could be a net AFFO earnings growth story in 2020? And I ask because your stock is -- it performed well this year. Certainly, some of that has been the anticipation of the litigation settlement. But now the bar gets raised, and I think earnings growth becomes even that much more important for your story. So do you think you can be an earnings growth story in 2020? Or was that more of a 2021 expectation? And if so, does that imply that leverage remains here in the mid-6 range, including the preferreds?

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Glenn J. Rufrano, VEREIT, Inc. - CEO & Director [17]

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Well, we're setting the bar for the -- our base-level AFFO in 2020, Haendel. I think that's part of your question. And from that bar, we expect to grow. So we can grow in 2020, but your point's well taken. 2020 is a bar set on which we grow from.

In terms of how we grow, we have some same store, but net acquisitions is a key element. We don't have a bad weighted average cost of capital right now. We believe we can spread invest from our weighted average cost of capital today. And we have as I've just mentioned, multiple options to keep our debt in order. So we're comfortable that there will be growth from our base level of 2020.

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Haendel Emmanuel St. Juste, Mizuho Securities USA LLC, Research Division - MD of Americas Research & Senior Equity Research Analyst [18]

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Okay. Fair enough. And so on the balance sheet, I'm curious if you have any expectations for perhaps leverage goals by year-end 2020 or 2021 and if you'd be willing to share those? And then would you be open to perhaps opportunistically over-equitizing acquisitions as a means to accelerate some deleveraging going forward?

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Glenn J. Rufrano, VEREIT, Inc. - CEO & Director [19]

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We're -- I understand your question, and I'm sorry, we're not giving guidance out. We will give full guidance out in the fourth quarter for next year.

And in terms of keeping our ratios where they are, or perhaps if we choose taking our ratios down, as I mentioned, there are a number of ways to do that, which include over-equitizing a transaction if we believe that's the best way to finance it. So the answer is yes to that.

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Operator [20]

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And the next question comes from Vikram Malhotra with Morgan Stanley.

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Vikram Malhotra, Morgan Stanley, Research Division - VP [21]

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Glenn, you talked about sort of the 2 goals going forward, the multiple and growth. And you've talked essentially about kind of how you plan to grow externally. I'm just curious. I know one may follow the other. But if you think about the multiple versus peers from here on, can you talk about what you're thinking or actions you can take to kind of demonstrate why the multiple should be higher?

And then just from a broader portfolio perspective, I'm just curious to kind of hear your thoughts on the portfolio today in terms of the 4 different buckets. Do you envision remaining in those buckets? Do you envision them being different over the next, call it, 2 to 4 years, either larger or smaller?

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Glenn J. Rufrano, VEREIT, Inc. - CEO & Director [22]

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The -- As I think about the multiple, and you can correct me. It's a combination of safety and growth in AFFO. It's both as I say it, and we've worked hard to get that first component in place. If you looked at us in 2015, we were very unsafe at $10.5 billion and litigation hanging over our head and a very -- and a portfolio that had 11.5% Red Lobster and not diversified. So if you looked at us back then, you'd worry about us and you needed to be rewarded for that. The only way you could be rewarded for that was to give us a low multiple. We've corrected almost all of that, in our view.

Moving forward therefore, we think the multiple increase should be based on our ability to increase AFFO. And that's where we sit here today and that's what we're dedicated to do. So that's how we think about the relationships of the 2.

In terms of the portfolio itself, we've laid out a series of diversifiers that I went through in this presentation. We did that 15 years -- in 2015, not 15 years ago. It feels like 15 years ago sometimes. 4 years ago, and we're just about there. And the proof is always in the pudding. Paul has put this portfolio in really good shape. We're 99% leased. Same-store has gotten better. We've reduced our top 10 from in the mid-30s to 27%. If you look at our top 47 tenants that are over 0.5%, they're really in good shape. Well over half are investment-grade and mostly public companies. So it's not only the portfolio metrics that we have focused on, it's the credit within those portfolio metrics. And we believe -- not believe, we have proved that this portfolio has been acting well.

Should it remain that way is your point. We're always thinking about that. We do a 5-year plan every year where we reevaluate our relationships, and we will do that once again. Clearly, the one that people point to is office. We were in the mid-20s. We're down to 18.5%. We want to be closer to 15 then 20 there. That's clearly a goal.

I think you mentioned flat leases. Flat leases have a good -- really good characteristic in that they're investment-grade, almost all of them. That's why they're flat. But as we sell those and bring that down, and I think we'll do some more of that, it provides a really good spread on cost of capital because we sell a lot of those in the 5s and maybe 6, so we can spread that. So we'll consider both of those being changed.

Red Lobster would be the last one I would mention, getting into -- breaking 5 was a pretty big deal for us. Just think about it. We sold $1.2 billion of Red Lobsters. Who would have thought there's that much Red Lobster product in the world? We sold that. We will slow down on some of that now. I mean those are good 20-year leases at 2% growth. We're happy with their metrics. So that will slow down a bit. But that will give you a sense of how we're thinking about the portfolio in the future.

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Vikram Malhotra, Morgan Stanley, Research Division - VP [23]

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That's helpful. I was just sort of trying to get a sense of relative to some of the -- your peers, you're one of the few, I guess, that have this diversity in terms of industrial, office, et cetera. Clearly, the retail and restaurants are similar. So I'm just wondering bigger picture, now that you're done with a lot of the heavy lifting, how are you thinking about portfolio composition more broadly? And do you feel you need to kind of -- is it advantageous to have these different buckets? Or is there a view that maybe you'd focus in on a -- on fewer?

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Glenn J. Rufrano, VEREIT, Inc. - CEO & Director [24]

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Of the 4 buckets, I would think we and most of the market will feel very comfortable with our retail, restaurants and industrial. The one I -- you would be pointing to is office, and we understand that. But we're very comfortable with the first 3. And in the fourth, we've not bought an office building since we've been here. We have sold 1.2 billion of our office portfolio at what we believe is really a fairly good cap rate and hasn't destroyed NAV. And so that's the one we would continue to work on of the 4.

The one point I would make though is having some diversification in property type, whether it's 3 or 4, has worked well for us. But we used to get a lot -- we used to have a lot of conversation about office and whether we should have any of it, until the first quarter of '17 when the retail world blew up and all of a sudden, retail wasn't so hot. Now our retail has done very well as, I believe, many in the triple-net space. But having a little diversification isn't a bad thing.

And the second part is sourcing optionality. When people or we speak about being a net acquirer, we prefer not to have to buy one of anything. At this point, that's a box that you don't want to be in. We like the fact that we can buy retail, we can buy restaurants, we can buy industrial. And as we've mentioned, we're considering not having office on our balance sheet to any great extent. Perhaps at an office JV because we have really good infrastructure, just to give us sourcing opportunities and create income to grow. We're not going to sit back and just hope and expect to find properties that we could spread against. We're going to look for opportunities to grow, and we'll never stop doing that. More property type give us those opportunities.

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Operator [25]

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And the next question comes from Mitch Germain with JMP Securities.

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Mitchell Bradley Germain, JMP Securities LLC, Research Division - MD and Senior Research Analyst [26]

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Glenn, what represents the best opportunity for capital to work right now? Is it one-off granular investments that you can kind of pick and choose the operator, the credit, location? Or do you see yourself maybe getting involved in some portfolio or entity-level trades where maybe you're not as thrilled with everything, but the population of buyers isn't as significant?

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Glenn J. Rufrano, VEREIT, Inc. - CEO & Director [27]

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Of the 2, pricing is clearly better on the second, Mitch. And we've done a little of this where we have bought a -- perhaps a portfolio of 6 or 8 industrial buildings and sold off 2 or 3 because we just knew we didn't like them. So we have actually participated in that arena for the last few years, and that will be better pricing. You take a little more risk, but if you believe in your infrastructure as we do, you've mitigated that risk. So I'd point to that.

Another form that we're looking at, and we have placed some in our portfolio, are build-to-suits where we have capital and we have construction expertise. And we could fund it along the way and then provide the takeout. So we get a very good property at the end of the day and very reasonable returns on our funding along the way. We're equipped to do that, and we're finding more of those transactions as well.

So it's a combination. Your point is just buying a single deal at 5% makes no sense. We agree with that. There are other ways that we can access the market. And the more opportunities we look at in terms of different property types as well as geographies will give us the ability to spread invest.

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Mitchell Bradley Germain, JMP Securities LLC, Research Division - MD and Senior Research Analyst [28]

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Got you. If I think about the weighted average share count, I'm just -- Mike, I'm just removing that 19-or-so million partnership units, right? Is that the way to think about how that winds up?

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Michael J. Bartolotta, VEREIT, Inc. - Executive VP & CFO [29]

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It will wind up going in, in Q4 though, yes. That's how it goes, yes.

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Mitchell Bradley Germain, JMP Securities LLC, Research Division - MD and Senior Research Analyst [30]

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Yes. So -- yes exactly. Around the mid-October, I guess?

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Michael J. Bartolotta, VEREIT, Inc. - Executive VP & CFO [31]

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Yes, October 15.

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Mitchell Bradley Germain, JMP Securities LLC, Research Division - MD and Senior Research Analyst [32]

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Okay. Great. And then did -- if I consider the litigation, is that -- so we have a hearing in January, right? And then what's left, I guess, is what I'm trying to figure out if there is anything left?

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Glenn J. Rufrano, VEREIT, Inc. - CEO & Director [33]

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The SEC has not closed the case on us. We continue to have conversations with the SEC. We've been a good steward of working with them. They're pleased with us, but we don't have a conclusion yet. We're hoping to have a conclusion, but we do not know. It's at their time, and we can't control that.

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Mitchell Bradley Germain, JMP Securities LLC, Research Division - MD and Senior Research Analyst [34]

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Is there any precedent that you could point to?

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Glenn J. Rufrano, VEREIT, Inc. - CEO & Director [35]

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The problem is if I point to precedents, I get in trouble. But to answer it, are there precedents? Yes. And so Mitch, -- what I'd do, Mitch, if you look around a little bit, one precedent that's clearly out there that I don't get in trouble about because it's out in the open, the former manager and their principals did have the case closed with the SEC, and they had a fine of $22 million. That's out there. Other than that, I think you'll have to look around yourself a little bit.

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Operator [36]

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And the next question comes from Chris Lucas with Capital One Securities.

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Christopher Ronald Lucas, Capital One Securities, Inc., Research Division - Senior VP & Lead Equity Research Analyst [37]

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Glenn, just kind of a follow-up to some earlier questions. It just relates to sort of moving towards a more offensive perspective. I guess first question for you would be do you have the team in place to sort of quickly get ramped back up from an acquisitions front? Or are there [holes] in the team right now that you need to be thinking about filling?

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Glenn J. Rufrano, VEREIT, Inc. - CEO & Director [38]

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I'll come back to some real numbers. But Chris, what I'd remind you of is we bought $1.7 billion of assets this year that's on our balance sheet. But we have also bought $2.8 billion of assets for Cole with the same team leadership. So as a team, we bought $4.5 billion of assets over 4 years, which is over $1 billion a year. I'd also point out that we have sold $4.6 billion of assets. So we have a team that, in total, has done over $9 billion of capital activity over 4 years. All the leadership of that team is here. It remains. We have between underwriting and acquisitions about 15 people we feel comfortable with. If we needed some more staff because we see activity really growing, we'd have no hesitation, but we're in pretty good shape right now.

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Christopher Ronald Lucas, Capital One Securities, Inc., Research Division - Senior VP & Lead Equity Research Analyst [39]

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Okay. Great. And then I guess just as it relates to some of the questions related to sort of fine-tuning the portfolio perspective, I guess one of the issues that you're also going to be facing is a bit of a ramp in lease expiration schedule going forward. So we think about that, we think about the flat leases, we think about the office exposure. Are we looking at growth to sort of get you through this? Or is this a combination of multiple factors to sort of manage that risk?

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Glenn J. Rufrano, VEREIT, Inc. - CEO & Director [40]

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It is a combination of multiple factors, but let me just -- you've hit on the importance of the lease expiration schedule. We very much focus on that. And this -- if you look at 2019, we started the year with about -- with 3.1% expiring. If you go back to 2017, Chris, we had 4.7 expiring. So we got ahead of that by leasing 1.6% before 2019. Paul and his group are continually looking at that. If you look at 2020, we have about 3.2% coming due. It was 3.9% in 2018. We've already taken care of 0.7%. So we are in front of the expiration schedules on a daily basis, and that is very important as we look at ramping up growth. Your point, which I understand, is growth is a combination of not only net acquisitions, but are you losing anything, and that both of those are built into our equations, yes.

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Operator [41]

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The next question comes from Caitlin Burrows with Goldman Sachs.

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Caitlin Burrows, Goldman Sachs Group Inc., Research Division - Research Analyst [42]

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I don't think we talked about this yet, but it looked like the 3Q acquisition volume was the lightest quarter in a while. So while the full year guidance hasn't changed, that means there's a noticeable pickup assumed. So I was wondering if you could just go through some of the pieces and how confident you are in getting to that near-term 4Q target amount.

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Glenn J. Rufrano, VEREIT, Inc. - CEO & Director [43]

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Caitlin, the -- as we planned the year as we spoke to you about, we were going to be a net disposition -- in a net disposition position in a very deep way, right, because the purpose of this year was to make sure our debt was going to be down. We did not know when the settlement was going to occur, but we wanted to be in position. So we positioned ourselves for that, and that's what you see in the third quarter. We are -- we certainly believe that we'll be in the $400 million to $600 million range of guidance for acquisitions for the year. Keeping that down, we believe, will help us though because we like being in a nice debt position by year-end.

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Caitlin Burrows, Goldman Sachs Group Inc., Research Division - Research Analyst [44]

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Got it. Okay. And I guess when we look out to 2020 and being on the offensive, can you go through -- I think you did talk about how you have options, but how you think your share price will impact your acquisition activity and how that impacts reliance on your ATM, or just the ability to be a net acquirer to the extent that you want to be.

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Glenn J. Rufrano, VEREIT, Inc. - CEO & Director [45]

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All of the above, right? Certainly, our share price and fixed cost of capital, which will be within our thoughts anytime we're thinking about capital allocation. But that's why we always want options, and having options will give us the ability to maximize our net acquirer position. So absolutely it's important, but we don't want it to be the most important one.

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Caitlin Burrows, Goldman Sachs Group Inc., Research Division - Research Analyst [46]

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Okay. And then maybe just last one, I think you also talked a little bit before about how there are some pieces that you could consider still pruning and doing dispositions to some extent next year. When you do those, do you think those could be at positive cap rate spreads versus the acquisitions you're doing? Or kind of what they -- would we be thinking of that not necessarily as funding the acquisitions?

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Glenn J. Rufrano, VEREIT, Inc. - CEO & Director [47]

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It will depend where it comes from. Certainly, there could be some office dispositions, which could be dilutive. Flat leases could absolutely be accretive. Anything into a joint venture would certainly be accretive. So there'll be a mixture of where we are. And if you looked at everything this year that we've sold, we have had an average cap rate of 6.7% on what we've sold versus what we've acquired, which is about 7 1. So there are ways to certainly spread invest that, but it will depend upon where those pockets are.

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Operator [48]

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And at this time, I would like to return the floor to Glenn Rufrano for any closing comments.

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Glenn J. Rufrano, VEREIT, Inc. - CEO & Director [49]

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We thank everybody for joining us. As I mentioned in the beginning, this team has done a great job. We've had a very good and active quarter and really look forward to positioning ourselves in 2020. Thank you very much.

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Operator [50]

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Thank you. The conference has now concluded. Thank you for attending today's presentation. You may now disconnect your lines.