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 March 31, ~~2019~~2020



	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, 9th Floor	Phoenix	AZ	85016
(Address of principal executive offices)			(Zip Code)



(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 PRF	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. Yes x No o VEREIT Operating Partnership, L.P. Yes x 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. Yes x No oVEREIT Operating Partnership, L.P. Yes x No o

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.



VEREIT, Inc.	Large accelerated filer	x☒	Accelerated filer	o☐	Non-accelerated filer	o☐

	Smaller reporting company	o☐	Emerging growth company	o☐



VEREIT Operating Partnership, L.P.	Large accelerated filer	o☐	Accelerated filer	o☐	Non-accelerated filer	x☒

	Smaller reporting company	o☐	Emerging growth company	o☐

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards pursuant to Section 13(a) of the Exchange Act. VEREIT, Inc. ¨ VEREIT Operating Partnership, L.P. o

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).

VEREIT, Inc. Yes o☐ No x VEREIT Operating Partnership, L.P. Yes o☐ No x




~~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~~

There were ~~973,307,068~~1,077,848,554 shares of common stock of VEREIT, Inc. outstanding as of May ~~3, 2019.~~14, 2020.

EXPLANATORY NOTE

This report combines the Quarterly Reports on Form 10-Q for the three months ended March 31, ~~2019~~2020 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 sole 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 March 31, ~~2019~~2020



	Page
PART I
Item 1. Unaudited Financial Statements	4
Consolidated Balance Sheets of VEREIT, Inc. as of March 31, ~~2019~~2020 and December 31, ~~2018~~2019	4
Consolidated Statements of Operations of VEREIT, Inc. for the Three Months Ended March 31, ~~2019~~2020 and ~~2018~~2019	5
Consolidated Statements of Comprehensive Income (Loss) of VEREIT, Inc. for the Three Months Ended March 31, ~~2019~~2020 and ~~2018~~2019	6
Consolidated Statements of Changes in Equity of VEREIT, Inc. for the Three Months Ended March 31, ~~2019~~2020 and ~~2018~~2019	7
Consolidated Statements of Cash Flows of VEREIT, Inc. for the Three Months Ended March 31, ~~2019~~2020 and ~~2018~~2019	89
Consolidated Balance Sheets of VEREIT Operating Partnership, L.P. as of March 31, ~~2019~~2020 and December 31, ~~2018~~2019	1011
Consolidated Statements of Operations of VEREIT Operating Partnership, L.P. for the Three Months Ended March 31, ~~2019~~2020 and ~~2018~~2019	1112
Consolidated Statements of Comprehensive Income (Loss) of VEREIT Operating Partnership, L.P. for the Three Months Ended March 31, ~~2019~~2020 and ~~2018~~2019	1213
Consolidated Statements of Changes in Equity of VEREIT Operating Partnership, L.P. for the Three Months Ended March 31, ~~2019~~2020 and ~~2018~~2019	1314
Consolidated Statements of Cash Flows of VEREIT Operating Partnership, L.P. for the Three Months Ended March 31, ~~2019~~2020 and ~~2018~~2019	1416
Notes to Consolidated Financial Statements	1618
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations	4439
Item 3. Quantitative and Qualitative Disclosures About Market Risk	5953
Item 4. Controls and Procedures	6055
PART II
Item 1. Legal Proceedings	6156
Item 1A. Risk Factors	6156
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds	6157
Item 3. Defaults Upon Senior Securities	6157
Item 4. Mine Safety Disclosures	6157
Item 5. Other Information	6157
Item 6. Exhibits	6258
Signatures	6560

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


	March 31, 2019			December 31, 2018			March 31, 2020			December 31, 2019
ASSETS
Real estate investments, at cost:
Land	$	2,824,666		$	2,843,212		$	2,715,625		$	2,738,679
Buildings, fixtures and improvements	10,741,995			10,749,228			10,135,933			10,200,550
Intangible lease assets	2,003,825			2,012,399			1,899,900			1,904,641
Total real estate investments, at cost	15,570,486			15,604,839			14,751,458			14,843,870
Less: accumulated depreciation and amortization	3,544,252			3,436,772			3,659,980			3,594,247
Total real estate investments, net	12,026,234			12,168,067			11,091,478			11,249,623
Operating lease right-of-use assets	224,859			—			211,187			215,227
Investment in unconsolidated entities	35,790			35,289			78,718			68,825
Cash and cash equivalents	12,788			30,758			600,945			12,921
Restricted cash	18,517			22,905			18,720			20,959
Rent and tenant receivables and other assets, net	361,641			366,092			345,103			348,395
Goodwill	1,337,773			1,337,773			1,337,773			1,337,773
Real estate assets held for sale, net	36,022			2,609			88,513			26,957
Total assets	$	14,053,624		$	13,963,493		$	13,772,437		$	13,280,680

LIABILITIES AND EQUITY
Mortgage notes payable, net	$	1,918,826		$	1,922,657		$	1,405,701		$	1,528,134
Corporate bonds, net	2,619,956			3,368,609			2,814,474			2,813,739
Convertible debt, net	395,823			394,883			319,120			318,183
Credit facility, net	1,089,725			401,773			1,767,306			1,045,669
Below-market lease liabilities, net	166,708			173,479			134,410			143,583
Accounts payable and accrued expenses	141,126			145,611			125,358			126,320
Deferred rent and other liabilities	70,220			69,714
Derivative, deferred rent and other liabilities							146,893			90,349
Distributions payable	190,246			186,623			150,493			150,364
Operating lease liabilities	228,120			—			217,567			221,061
Total liabilities	6,820,750			6,663,349			7,081,322			6,437,402
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 March 31, 2019 and December 31, 2018, respectively	429			428
Common stock, $0.01 par value, 1,500,000,000 shares authorized and 971,576,377 and 967,515,165 issued and outstanding as of March 31, 2019 and December 31, 2018, respectively	9,716			9,675
Additional paid-in-capital	12,645,148			12,615,472
Preferred stock, $0.01 par value, 100,000,000 shares authorized and 30,871,246 issued and outstanding as of each of March 31, 2020 and December 31, 2019, respectively							309			309
Common stock, $0.01 par value, 1,500,000,000 shares authorized and 1,077,781,479 and 1,076,845,984 issued and outstanding as of March 31, 2020 and December 31, 2019, respectively							10,778			10,768
Additional paid-in capital							13,252,447			13,251,962
Accumulated other comprehensive loss	(12,202		)	(1,280		)	(104,217		)	(27,670		)
Accumulated deficit	(5,550,574		)	(5,467,236		)	(6,475,568		)	(6,399,626		)
Total stockholders’ equity	7,092,517			7,157,059			6,683,749			6,835,743
Non-controlling interests	140,357			143,085			7,366			7,535
Total equity	7,232,874			7,300,144			6,691,115			6,843,278
Total liabilities and equity	$	14,053,624		$	13,963,493		$	13,772,437		$	13,280,680

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 March 31,						Three Months Ended March 31,
	2019			2018			2020			2019
Rental revenue	$	316,843		$	315,074
Revenues:
Rental							$	298,586		$	316,843
Fees from managed partnerships							596			37
Total revenues							299,182			316,880
Operating expenses:
Acquisition-related	985			777			1,523			985
Insurance recoveries, net of litigation and non-routine costs	(21,492		)	21,740
Litigation and non-routine costs, net							(8,564		)	(21,492		)
Property operating	32,378			30,565			30,490			32,378
General and administrative	14,846			15,240			15,056			14,846
Depreciation and amortization	136,555			166,152			124,080			136,555
Impairments	11,988			6,036			8,380			11,988
Restructuring	9,076			—			—			9,076
Total operating expenses	184,336			240,510			170,965			184,336
Other (expenses) income:
Interest expense	(71,254		)	(70,425		)	(64,696		)	(71,254		)
Other (loss) income, net	(402		)	7,709
Equity in income and gain on disposition of unconsolidated entities	500			1,065
Loss on extinguishment and forgiveness of debt, net							(1,280		)	—
Other income (loss), net							175			(439		)
Equity in income of unconsolidated entities							246			500
Gain on disposition of real estate and real estate assets held for sale, net	10,831			17,335			25,249			10,831
Total other expenses, net	(60,325		)	(44,316		)	(40,306		)	(60,362		)
Income before taxes	72,182			30,248			87,911			72,182
Provision for income taxes	(1,211		)	(1,212		)	(1,048		)	(1,211		)
Income from continuing operations	70,971			29,036
Income from discontinued operations, net of income taxes	—			3,501
Net income	70,971			32,537			86,863			70,971
Net income attributable to non-controlling interests⁽¹⁾	(1,667		)	(742		)	(55		)	(1,667		)
Net income attributable to the General Partner	$	69,304		$	31,795		$	86,808		$	69,304

Basic and diluted net income per share from continuing operations attributable to common stockholders	$	0.05		$	0.01
Basic and diluted net income per share from discontinued operations attributable to common stockholders	$	—		$	0.00
Basic and diluted net income per share attributable to common stockholders	$	0.05		$	0.01		$	0.07		$	0.05


(1)	Represents net income attributable to limited partners and a consolidated joint venture 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 March 31,						Three Months Ended March 31,
	2019			2018			2020			2019
Net income	$	70,971		$	32,537		$	86,863		$	70,971
Other comprehensive loss:
Total other comprehensive loss
Unrealized loss on interest rate derivatives	(11,286		)	—			(78,550		)	(11,286		)
Reclassification of previous unrealized loss on interest rate derivatives into net income	97			105			1,948			97
Unrealized loss on investment securities, net	—			(837		)
Total other comprehensive loss	(11,189		)	(732		)	(76,602		)	(11,189		)

Total comprehensive income	59,782			31,805			10,261			59,782
Comprehensive income attributable to non-controlling interests⁽¹⁾	(1,400		)	(725		)	—			(1,400		)
Total comprehensive income attributable to the General Partner	$	58,382		$	31,080		$	10,261		$	58,382


(1)	Represents comprehensive income attributable to limited partners and a consolidated joint venture 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
	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
	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
Balance, January 1, 2020																											30,871,246	$	309	1,076,845,984		$	10,768		$	13,251,962		$	(27,670	)	$	(6,399,626	)	$	6,835,743		$	7,535		$	6,843,278
Conversion of OP Units to Common Stock	—	—		—		—			(26		)	—			—			(26		)	26			—			—	—		4,549		1			44			—			—			45			(45		)	—
Conversion of Series F Preferred Units to Series F Preferred Stock	37,108	1		—		—			922			—			—			923			(923		)	—
Redemption of Series F Preferred Stock																											—	—		—		—			(27		)	—			—			(27		)	—			(27		)
Repurchases of Common Stock to settle tax obligation	—	—		(199,083	)	(2		)	(1,593		)	—			—			(1,595		)	—			(1,595		)	—	—		(241,092	)	(2		)	(2,376		)	—			—			(2,378		)	—			(2,378		)
Equity-based compensation, net	—	—		950,487		10			2,862			—			—			2,872			—			2,872			—	—		1,172,038		11			2,844			—			—			2,855			—			2,855
Contributions from non-controlling interest holders	—	—		—		—			—			—			—			—			64			64
Distributions declared on Common Stock — $0.1375 per common share	—	—		—		—			—			—			(133,480		)	(133,480		)	—			(133,480		)	—	—		—		—			—			—			(148,194		)	(148,194		)	—			(148,194		)
Distributions to non-controlling interest holders	—	—		—		—			—			—			—			—			(3,262		)	(3,262		)	—	—		—		—			—			—			—			—			(105		)	(105		)
Dividend equivalents on awards granted under the Equity Plan	—	—		—		—			—			—			(1,222		)	(1,222		)	—			(1,222		)	—	—		—		—			—			—			(1,628		)	(1,628		)	—			(1,628		)
Distributions to preferred shareholders and unitholders	—	—		—		—			—			—			(17,940		)	(17,940		)	(33		)	(17,973		)	—	—		—		—			—			—			(12,928		)	(12,928		)	(19		)	(12,947		)
Net income	—	—		—		—			—			—			69,304			69,304			1,667			70,971			—	—		—		—			—			—			86,808			86,808			55			86,863
Other comprehensive loss	—	—		—		—			—			(10,922		)	—			(10,922		)	(267		)	(11,189		)	—	—		—		—			—			(76,547		)	—			(76,547		)	(55		)	(76,602		)
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
Balance, March 31, 2020																											30,871,246	$	309	1,077,781,479		$	10,778		$	13,252,447		$	(104,217	)	$	(6,475,568	)	$	6,683,749		$	7,366		$	6,691,115

Table of Contents

VEREIT, INC.

CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY

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


	Preferred Stock			Common Stock																							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			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, 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		)
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	—	—		(230,436	)	(2		)	(1,658		)	—			—			(1,660		)	—			(1,660		)	—	—		(199,083	)	(2		)	(1,593		)	—			—			(1,595		)	—			(1,595		)
Equity-based compensation, net	—	—		576,005		5			2,927			—			—			2,932			—			2,932			—	—		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	—	—		—		—			—			—			(133,104		)	(133,104		)	—			(133,104		)	—	—		—		—			—			—			(133,480		)	(133,480		)	—			(133,480		)
Distributions to non-controlling interest holders	—	—		—		—			—			—			—			—			(3,264		)	(3,264		)	—	—		—		—			—			—			—			—			(3,262		)	(3,262		)
Dividend equivalents on awards granted under the Equity Plan	—	—		—		—			—			—			(522		)	(522		)	—			(522		)	—	—		—		—			—			—			(1,222		)	(1,222		)	—			(1,222		)
Distributions to preferred shareholders and unitholders	—	—		—		—			—			—			(17,937		)	(17,937		)	(36		)	(17,973		)	—	—		—		—			—			—			(17,940		)	(17,940		)	(33		)	(17,973		)
Net income	—	—		—		—			—			—			31,795			31,795			742			32,537			—	—		—		—			—			—			69,304			69,304			1,667			70,971
Other comprehensive loss	—	—		—		—			—			(715		)	—			(715		)	(17		)	(732		)	—	—		—		—			—			(10,922		)	—			(10,922		)	(267		)	(11,189		)
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
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

The accompanying notes are an integral part of these statements.

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VEREIT, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS

(In thousands) (Unaudited)


	Three Months Ended March 31,						Three Months Ended March 31,
	2019			2018			2020			2019
Cash flows from operating activities:
Net income	$	70,971		$	32,537		$	86,863		$	70,971
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization	139,394			172,458			126,980			139,394
Gain on real estate assets, net	(10,831		)	(18,036		)	(25,508		)	(10,831		)
Impairments	11,988			6,036			8,380			11,988
Equity-based compensation	2,872			2,927			2,855			2,872
Equity in income of unconsolidated entities and gain on joint venture	(500		)	(364		)
Equity in income of unconsolidated entities							(246		)	(500		)
Distributions from unconsolidated entities	—			936			259			—
Loss (Gain) on investments	470			(5,638		)
Loss (Gain) on derivative instruments	34			(273		)
Loss on investments							541			470
Loss on derivative instruments							—			34
Non-cash restructuring expense	4,018			—			—			4,018
Loss on extinguishment and forgiveness of debt, net							1,280			—
Changes in assets and liabilities:
Investment in direct financing leases	409			538			364			409
Rent and tenant receivables, operating lease right-of-use and other assets, net	(7,160		)	(23,344		)	(4,462		)	(7,160		)
Assets held for sale classified as discontinued operations	—			(2,490		)
Accounts payable and accrued expenses	(2,415		)	(7,653		)	(2,749		)	(2,415		)
Deferred rent, operating lease and other liabilities	(15,216		)	6,158			(22,546		)	(15,216		)
Due to affiliates	—			(66		)
Liabilities related to discontinued operations	—			(13,861		)
Net cash provided by operating activities	194,034			149,865			172,011			194,034
Cash flows from investing activities:
Investments in real estate assets	(81,065		)	(139,882		)	(147,121		)	(81,065		)
Capital expenditures and leasing costs	(7,498		)	(4,993		)	(9,502		)	(7,498		)
Real estate developments	(3,232		)	(1,899		)	(3,231		)	(3,232		)
Principal repayments received on investment securities and mortgage notes receivable	62			4,615
Principal repayments received on mortgage notes receivable							—			62
Investments in unconsolidated entities							(2,669		)	—
Return of investment from unconsolidated entities	—			386			257			—
Proceeds from disposition of real estate and joint venture	60,496			122,526
Proceeds from disposition of discontinued operations	—			123,925
Proceeds from disposition of real estate							140,428			60,496
Investment in leasehold improvements and other assets	(177		)	(85		)	(87		)	(177		)
Deposits for real estate assets	(900		)	(4,000		)	(895		)	(900		)
Proceeds from sale of investments and other assets	8,199			1,351			—			8,199
Uses and refunds of deposits for real estate assets	1,240			5,120			3,130			1,240
Proceeds from the settlement of property-related insurance claims	32			269			38			32
Line of credit advances to Cole REITs	—			(2,200		)
Line of credit repayments from Cole REITs	—			3,800
Net cash (used in) provided by investing activities	(22,843		)	108,933
Net cash used in investing activities							(19,652		)	(22,843		)
Cash flows from financing activities:
Proceeds from mortgage notes payable	—			89			913			—
Payments on mortgage notes payable and other debt, including debt extinguishment costs	(2,426		)	(2,676		)	(123,574		)	(2,426		)
Proceeds from credit facility	899,000			380,000			831,313			899,000
Payments on credit facility	(207,000		)	(445,000		)	(110,000		)	(207,000		)
Payments on corporate bonds, including extinguishment costs	(750,000		)	—
Redemptions of corporate bonds, including extinguishment costs							(26		)	(750,000		)
Extinguishment costs related to the repurchases of convertible notes							(13		)	—
Payments of deferred financing costs	(172		)	—			(35		)	(172		)
Repurchases of Common Stock under the Share Repurchase Programs	—			(44,585		)
Repurchases of Common Stock to settle tax obligations	(1,595		)	(1,659		)	(2,378		)	(1,595		)
Proceeds from the issuance of Common Stock, net of underwriters’ discount	20,894			—
Proceeds from the issuance of Common Stock, net of underwriters’ discount and offering expenses							—			20,894
Series F Preferred Stock redemption expenses							(27		)	—
Contributions from non-controlling interest holders	64			—			—			64
Distributions paid	(152,314		)	(152,519		)	(162,747		)	(152,314		)
Net cash used in financing activities	(193,549		)	(266,350		)
Net cash provided by (used in) financing activities							433,426			(193,549		)
Net change in cash and cash equivalents and restricted cash	(22,358		)	(7,552		)	$	585,785		$	(22,358	)

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VEREIT, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS – (Continued)

(In thousands) (Unaudited)


	Three Months Ended March 31,					Three Months Ended March 31,
	2019		2018			2020		2019
Cash and cash equivalents and restricted cash, beginning of period	$	53,663	$	64,036		$	33,880	$	53,663
Less: cash and cash equivalents of discontinued operations	—		(2,198		)
Cash and cash equivalents and restricted cash from continuing operations, beginning of period	53,663		61,838

Cash and cash equivalents and restricted cash from continuing operations, end of period	$	31,305	$	56,484
Cash and cash equivalents and restricted cash, end of period						$	619,665	$	31,305

Reconciliation of Cash and Cash Equivalents and Restricted Cash
Cash and cash equivalents at beginning of period	$	30,758	$	34,176		$	12,921	$	30,758
Restricted cash at beginning of period	22,905		27,662			20,959		22,905
Cash and cash equivalents and restricted cash at beginning of period	53,663		61,838			33,880		53,663

Cash and cash equivalents at end of period	12,788		28,435			600,945		12,788
Restricted cash at end of period	18,517		28,049			18,720		18,517
Cash and cash equivalents and restricted cash at end of period	$	31,305	$	56,484		$	619,665	$	31,305

The accompanying notes are an integral part of these statements.

910

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VEREIT OPERATING PARTNERSHIP, L.P.

CONSOLIDATED BALANCE SHEETS

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


	March 31, 2019		December 31, 2018		March 31, 2020		December 31, 2019
ASSETS
Real estate investments, at cost:
Land	$	2,824,666	$	2,843,212	$	2,715,625	$	2,738,679
Buildings, fixtures and improvements	10,741,995		10,749,228		10,135,933		10,200,550
Intangible lease assets	2,003,825		2,012,399		1,899,900		1,904,641
Total real estate investments, at cost	15,570,486		15,604,839		14,751,458		14,843,870
Less: accumulated depreciation and amortization	3,544,252		3,436,772		3,659,980		3,594,247
Total real estate investments, net	12,026,234		12,168,067		11,091,478		11,249,623
Operating lease right-of-use assets	224,859		—		211,187		215,227
Investment in unconsolidated entities	35,790		35,289		78,718		68,825
Cash and cash equivalents	12,788		30,758		600,945		12,921
Restricted cash	18,517		22,905		18,720		20,959
Rent and tenant receivables and other assets, net	361,641		366,092		345,103		348,395
Goodwill	1,337,773		1,337,773		1,337,773		1,337,773
Real estate assets held for sale, net	36,022		2,609		88,513		26,957
Total assets	$	14,053,624	$	13,963,493	$	13,772,437	$	13,280,680

LIABILITIES AND EQUITY
Mortgage notes payable, net	$	1,918,826	$	1,922,657	$	1,405,701	$	1,528,134
Corporate bonds, net	2,619,956		3,368,609		2,814,474		2,813,739
Convertible debt, net	395,823		394,883		319,120		318,183
Credit facility, net	1,089,725		401,773		1,767,306		1,045,669
Below-market lease liabilities, net	166,708		173,479		134,410		143,583
Accounts payable and accrued expenses	141,126		145,611		125,358		126,320
Deferred rent and other liabilities	70,220		69,714
Derivative, deferred rent and other liabilities					146,893		90,349
Distributions payable	190,246		186,623		150,493		150,364
Operating lease liabilities	228,120		—		217,567		221,061
Total liabilities	6,820,750		6,663,349		7,081,322		6,437,402
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 March 31, 2019 and December 31, 2018, respectively	693,308		710,325
General Partner's common equity, 971,576,377 and 967,515,165 General Partner OP Units issued and outstanding as of March 31, 2019 and December 31, 2018, respectively	6,399,209		6,446,734
Limited Partner's preferred equity, 49,766 and 86,874 Limited Partner Series F Preferred Units issued and outstanding as of March 31, 2019 and December 31, 2018, respectively	1,927		2,883
Limited Partner's common equity, 23,715,908 Limited Partner OP Units issued and outstanding as of each of March 31, 2019 and December 31, 2018	137,123		138,931
General Partner's preferred equity, 30,871,246 General Partner Series F Preferred Units issued and outstanding as of each of March 31, 2020 and December 31, 2019, respectively					447,549		460,504
General Partner's common equity, 1,077,781,479 and 1,076,845,984 General Partner OP Units issued and outstanding as of March 31, 2020 and December 31, 2019, respectively					6,236,200		6,375,239
Limited Partner's preferred equity, 49,766 Limited Partner Series F Preferred Units issued and outstanding as of each of March 31, 2020 and December 31, 2019, respectively					1,850		1,869
Limited Partner's common equity, 782,170 and 786,719 Limited Partner OP Units issued and outstanding as of March 31, 2020 and December 31, 2019, respectively					4,290		4,433
Total partners’ equity	7,231,567		7,298,873		6,689,889		6,842,045
Non-controlling interests	1,307		1,271		1,226		1,233
Total equity	7,232,874		7,300,144		6,691,115		6,843,278
Total liabilities and equity	$	14,053,624	$	13,963,493	$	13,772,437	$	13,280,680

The accompanying notes are an integral part of these statements.

1011

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VEREIT OPERATING PARTNERSHIP, L.P.

CONSOLIDATED STATEMENTS OF OPERATIONS

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


	Three Months Ended March 31,						Three Months Ended March 31,
	2019			2018			2020			2019
Rental revenue	$	316,843		$	315,074
Revenues:
Rental							$	298,586		$	316,843
Fees from managed partnerships							596			37
Total revenues							299,182			316,880
Operating expenses:
Acquisition-related	985			777			1,523			985
Insurance recoveries, net of litigation and non-routine costs	(21,492		)	21,740
Litigation and non-routine costs, net							(8,564		)	(21,492		)
Property operating	32,378			30,565			30,490			32,378
General and administrative	14,846			15,240			15,056			14,846
Depreciation and amortization	136,555			166,152			124,080			136,555
Impairments	11,988			6,036			8,380			11,988
Restructuring	9,076			—			—			9,076
Total operating expenses	184,336			240,510			170,965			184,336
Other (expenses) income:
Interest expense	(71,254		)	(70,425		)	(64,696		)	(71,254		)
Other (loss) income, net	(402		)	7,709
Equity in income and gain on disposition of unconsolidated entities	500			1,065
Loss on extinguishment and forgiveness of debt, net							(1,280		)	—
Other income (loss), net							175			(439		)
Equity in income of unconsolidated entities							246			500
Gain on disposition of real estate and real estate assets held for sale, net	10,831			17,335			25,249			10,831
Total other expenses, net	(60,325		)	(44,316		)	(40,306		)	(60,362		)
Income before taxes	72,182			30,248			87,911			72,182
Provision for income taxes	(1,211		)	(1,212		)	(1,048		)	(1,211		)
Income from continuing operations	70,971			29,036
Income from discontinued operations, net of income taxes	—			3,501
Net income	70,971			32,537			86,863			70,971
Net loss attributable to non-controlling interests ⁽¹⁾	28			40			7			28
Net income attributable to the OP	$	70,999		$	32,577		$	86,870		$	70,999

Basic and diluted net income per unit from continuing operations attributable to common unitholders	$	0.05		$	0.01
Basic and diluted net income per unit from discontinued operations attributable to common unitholders	$	—		$	0.00
Basic and diluted net income per unit attributable to common unitholders	$	0.05		$	0.01		$	0.07		$	0.05


(1)	Represents net loss attributable to a consolidated joint venture partner.

The accompanying notes are an integral part of these statements.

Table of Contents

VEREIT OPERATING PARTNERSHIP, L.P.

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)

(In thousands) (Unaudited)


	Three Months Ended March 31,						Three Months Ended March 31,
	2019			2018			2020			2019
Net income	$	70,971		$	32,537		$	86,863		$	70,971
Other comprehensive loss:
Total other comprehensive loss
Unrealized loss on interest rate derivatives	(11,286		)	—			(78,550		)	(11,286		)
Reclassification of previous unrealized loss on interest rate derivatives into net income	97			105			1,948			97
Unrealized loss on investment securities, net	—			(837		)
Total other comprehensive loss	(11,189		)	(732		)	(76,602		)	(11,189		)

Total comprehensive income	59,782			31,805			10,261			59,782
Comprehensive loss attributable to non-controlling interests⁽¹⁾	28			40			7			28
Total comprehensive income attributable to the OP	$	59,810		$	31,845		$	10,268		$	59,810


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

The accompanying notes are an integral part of these statements.

1213

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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, 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 —
—
—
—
—
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



	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, 2020	30,871,246	$	460,504		49,766	$	1,869		1,076,845,984		$	6,375,239		786,719		$	4,433		$	6,842,045		$	1,233		$	6,843,278
Conversion of Limited Partners' Common OP Units to General Partner's Common OP Units	—	—			—	—			4,549		45			(4,549	)	(45		)	—			—			—
Redemption of Series F Preferred Stock	—	(27		)	—	—			—		—			—		—			(27		)	—			(27		)
Repurchases of common OP Units to settle tax obligation	—	—			—	—			(241,092	)	(2,378		)	—		—			(2,378		)	—			(2,378		)
Equity-based compensation, net	—	—			—	—			1,172,038		2,855			—		—			2,855			—			2,855
Distributions to Common OP Units and non-controlling interests —$0.1375 per common unit	—	—			—	—			—		(148,194		)	—		(105		)	(148,299		)	—			(148,299		)
Dividend equivalents on awards granted under the Equity Plan	—	—			—	—			—		(1,628		)	—		—			(1,628		)	—			(1,628		)
Distributions to Series F Preferred Units	—	(12,928		)	—	(19		)	—		—			—		—			(12,947		)	—			(12,947		)
Net income (loss)	—	—			—	—			—		86,808			—		62			86,870			(7		)	86,863
Other comprehensive loss	—	—			—	—			—		(76,547		)	—		(55		)	(76,602		)	—			(76,602		)
Balance, March 31, 2020	30,871,246	$	447,549		49,766	$	1,850		1,077,781,479		$	6,236,200		782,170		$	4,290		$	6,689,889		$	1,226		$	6,691,115

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																		Preferred Units									Common Units
	General Partner				Limited Partner				General Partner					Limited Partner													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			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 the 2017 Share Repurchase Program	—	—			—	—			(6,399,666	)	(44,585		)	—	—			(44,585		)	—			(44,585		)
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	—	—			—	—			(230,436	)	(1,660		)	—	—			(1,660		)	—			(1,660		)	—	—			—		—			(199,083	)	(1,595		)	—	—			(1,595		)	—			(1,595		)
Equity-based compensation, net	—	—			—	—			576,005		2,932			—	—			2,932			—			2,932			—	—			—		—			950,487		2,872			—	—			2,872			—			2,872
Distributions to common OP Units and non-controlling interests —$0.1375 per common unit	—	—			—	—			—		(133,104		)	—	(3,264		)	(136,368		)	—			(136,368		)
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	—	—			—	—			—		(522		)	—	—			(522		)	—			(522		)	—	—			—		—			—		(1,222		)	—	—			(1,222		)	—			(1,222		)
Distributions to Series F Preferred Units	—	(17,937		)	—	(36		)	—		—			—	—			(17,973		)	—			(17,973		)	—	(17,940		)	—		(33		)	—		—			—	—			(17,973		)	—			(17,973		)
Net income (loss)	—	—			—	—			—		31,795			—	782			32,577			(40		)	32,537			—	—			—		—			—		69,304			—	1,695			70,999			(28		)	70,971
Other comprehensive loss	—	—			—	—			—		(715		)	—	(17		)	(732		)	—			(732		)	—	—			—		—			—		(10,922		)	—	(267		)	(11,189		)	—			(11,189		)
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
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

The accompanying notes are an integral part of these statements.

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VEREIT OPERATING PARTNERSHIP, L.P.

CONSOLIDATED STATEMENTS OF CASH FLOWS

(In thousands) (Unaudited)


	Three Months Ended March 31,						Three Months Ended March 31,
	2019			2018			2020			2019
Cash flows from operating activities:
Net income	$	70,971		$	32,537		$	86,863		$	70,971
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization	139,394			172,458			126,980			139,394
Gain on real estate assets, net	(10,831		)	(18,036		)	(25,508		)	(10,831		)
Impairments	11,988			6,036			8,380			11,988
Equity based compensation	2,872			2,927			2,855			2,872
Equity in income of unconsolidated entities	(500		)	(364		)	(246		)	(500		)
Distributions from unconsolidated entities	—			936			259			—
Loss (Gain) on investments	470			(5,638		)
Loss (Gain) on derivative instruments	34			(273		)
Loss on investments							541			470
Loss on derivative instruments							—			34
Non-cash restructuring expense	4,018			—			—			4,018
Loss on extinguishment and forgiveness of debt, net							1,280			—
Changes in assets and liabilities:
Investment in direct financing leases	409			538			364			409
Rent and tenant receivables, operating lease right-of-use and other assets, net	(7,160		)	(23,344		)	(4,462		)	(7,160		)
Assets held for sale classified as discontinued operations	—			(2,490		)
Accounts payable and accrued expenses	(2,415		)	(7,653		)	(2,749		)	(2,415		)
Deferred rent, operating lease and other liabilities	(15,216		)	6,158			(22,546		)	(15,216		)
Due to affiliates	—			(66		)
Liabilities related to discontinued operations	—			(13,861		)
Net cash provided by operating activities	194,034			149,865			172,011			194,034
Cash flows from investing activities:
Investments in real estate assets	(81,065		)	(139,882		)	(147,121		)	(81,065		)
Capital expenditures and leasing costs	(7,498		)	(4,993		)	(9,502		)	(7,498		)
Real estate developments	(3,232		)	(1,899		)	(3,231		)	(3,232		)
Principal repayments received on investment securities and mortgage notes receivable	62			4,615
Principal repayments received on mortgage notes receivable							—			62
Investments in unconsolidated entities							(2,669		)	—
Return of investment from unconsolidated entities	—			386			257			—
Proceeds from disposition of real estate and joint venture	60,496			122,526
Proceeds from disposition of discontinued operations	—			123,925
Proceeds from disposition of real estate							140,428			60,496
Investment in leasehold improvements and other assets	(177		)	(85		)	(87		)	(177		)
Deposits for real estate assets	(900		)	(4,000		)	(895		)	(900		)
Proceeds from sale of investments and other assets	8,199			1,351			—			8,199
Uses and refunds of deposits for real estate assets	1,240			5,120			3,130			1,240
Proceeds from the settlement of property-related insurance claims	32			269			38			32
Line of credit advances to Cole REITs	—			(2,200		)
Line of credit repayments from Cole REITs	—			3,800
Net cash (used in) provided by investing activities	(22,843		)	108,933
Net cash used in investing activities							(19,652		)	(22,843		)
Cash flows from financing activities:
Proceeds from mortgage notes payable	—			89			913			—
Payments on mortgage notes payable and other debt, including debt extinguishment costs	(2,426		)	(2,676		)	(123,574		)	(2,426		)
Proceeds from credit facility	899,000			380,000			831,313			899,000
Payments on credit facility	(207,000		)	(445,000		)	(110,000		)	(207,000		)
Payments on corporate bonds, including extinguishment costs	(750,000		)	—
Redemptions of corporate bonds, including extinguishment costs							(26		)	(750,000		)
Extinguishment costs related to the repurchases of convertible notes							(13		)	—
Payments of deferred financing costs	(172		)	—			(35		)	(172		)
Repurchases of Common Stock under the Share Repurchase Programs	—			(44,585		)
Repurchases of Common Stock to settle tax obligations	(1,595		)	(1,659		)	(2,378		)	(1,595		)
Proceeds from the issuance of common OP Units, net of underwriters’ discount	20,894			—
Proceeds from the issuance of Common Stock, net of underwriters’ discount and offering expenses							—			20,894
Series F Preferred Stock redemption expenses							(27		)	—
Contributions from non-controlling interest holders	64			—			—			64
Distributions paid	(152,314		)	(152,519		)	(162,747		)	(152,314		)
Net cash used in financing activities	(193,549		)	(266,350		)
Net cash provided by (used in) financing activities							433,426			(193,549		)
Net change in cash and cash equivalents and restricted cash	(22,358		)	(7,552		)	$	585,785		$	(22,358	)

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VEREIT OPERATING PARTNERSHIP, L.P.

CONSOLIDATED STATEMENTS OF CASH FLOWS – (Continued)

(In thousands) (Unaudited)


	Three Months Ended March 31,					Three Months Ended March 31,
	2019		2018			2020		2019
Cash and cash equivalents and restricted cash, beginning of period	$	53,663	$	64,036		$	33,880	$	53,663
Less: cash and cash equivalents of discontinued operations	—		(2,198		)
Cash and cash equivalents and restricted cash from continuing operations, beginning of period	53,663		61,838

Cash and cash equivalents and restricted cash from continuing operations, end of period	$	31,305	$	56,484
Cash and cash equivalents and restricted cash, end of period						$	619,665	$	31,305

Reconciliation of Cash and Cash Equivalents and Restricted Cash
Cash and cash equivalents at beginning of period	$	30,758	$	34,176		$	12,921	$	30,758
Restricted cash at beginning of period	22,905		27,662			20,959		22,905
Cash and cash equivalents and restricted cash at beginning of period	53,663		61,838			33,880		53,663

Cash and cash equivalents at end of period	12,788		28,435			600,945		12,788
Restricted cash at end of period	18,517		28,049			18,720		18,517
Cash and cash equivalents and restricted cash at end of period	$	31,305	$	56,484		$	619,665	$	31,305

The accompanying notes are an integral part of these statements.

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

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

March 31, ~~2019~~2020 (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 PFPRF,” 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%~~99.9% of the common equity interests in the OP as of March 31, 2019 with the remaining 2.4% of the common equity interests owned by unaffiliated investors and certain former directors, officers and employees of ARC Properties Advisors, LLC (the “Former Manager”).2020. 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, holders have the right to redeem the units for the cash value of a corresponding number of shares of Common Stock or Series F Preferred Stock, as applicable, or, at our option, a corresponding number of shares of Common 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 of Directors, the LPA requires the OP to issue to the General Partner equity instruments with substantially similar terms, to protect the integrity of the Company’s umbrella partnership REIT structure, pursuant to which each holder of interests in the OP has a proportionate economic interest in the OP reflecting its capital contributions thereto. OP Units and Series F Preferred Units issued to the General Partner are referred to as “General Partner OP 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 Partner OP 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 of Directors authorizes the issuance of any new class of equity securities.

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 months ended March 31, ~~2019~~2020 are not necessarily indicative of the results for the entire year or any subsequent interim period.

~~Table of Contents~~

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

~~NOTES TO CONSOLIDATED FINANCIAL STATEMENTS~~

~~March 31, 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, ~~2018~~2019 of the Company, which are included in the Company’s Annual Report on Form 10-K filed on February 21, 2019. There have been no significant changes to the Company’s significant accounting policies during the three months ended March 31, 2019, except any policies impacted by the adoption of the Leasing ASUs, as defined in the “Recent Accounting Pronouncements” section herein.26, 2020. 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.

Table of Contents

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

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

March 31, 2020 (Unaudited) – (Continued)

The novel coronavirus (“COVID-19”) pandemic has negatively affected the Company’s business, financial condition, results of operations and liquidity, has had repercussions across local, national and global economies and has resulted in stock market volatility. As of March 31, 2020, the impact of COVID-19 on the Company’s business had not been significant, but the Company is closely monitoring the pandemic and its effects and continues to review receivables related to rent, straight-line rent and property operating expense reimbursements for collectability and changes in circumstances that could indicate the carrying value of its real estate assets or goodwill may not be recoverable.

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. The portion of the consolidated joint venture not owned by the Company is presented as non-controlling 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,~~ 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, any difference~~Equity is reallocated between ~~the fair value of shares of Common Stock issued~~controlling and ~~the carrying value of~~noncontrolling interests in the OP ~~Units converted is recorded~~upon a change in ownership. At the end of each annual reporting period, noncontrolling interests in the OP are adjusted to reflect their ownership percentage in the OP through a reallocation between controlling and noncontrolling interests in the OP, as ~~a component of equity.~~applicable. As of each of March 31, ~~2019~~2020 and December 31, ~~2018,~~2019, there were approximately ~~23.7~~0.8 million Limited Partner OP Units issued and outstanding, and 49,766 Limited Partner Series F Preferred Units issued and outstanding.

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 consolidates entities that are not VIEs if it has a majority voting interest or other rights that result in effectively controlling 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 fees from managed partnerships earned from the ~~following items~~Company’s unconsolidated joint venture entities, previously ~~reported~~included in other income (loss), net have been ~~reclassified to conform with the current period’s presentation.~~

~~The operating expense reimbursements~~presented in its own line item has been combined into rental revenue for prior periods presented to be consistent with the current year presentation. The (loss) gain on derivative instruments, net line item has been combined into other (loss) income, net 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, 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.

~~Table of Contents~~

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

~~NOTES TO CONSOLIDATED FINANCIAL STATEMENTS~~

~~March 31, 2019 (Unaudited)~~ – ~~(Continued)~~

Revenue Recognition ~~- Real Estate~~

Rental Revenue

The Company continually reviews receivables related to rent, straight-line rent and ~~unbilled rent receivables~~property operating expense reimbursements 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 located. ~~Upon adoption~~The review includes a binary assessment of ~~Accounting Standards Codification (“ASC”) Topic 842, Leases (“ASC 842”), effective January 1, 2019,~~whether or not substantially all of the amounts due under a tenant’s lease agreement are probable of collection. For leases that are deemed probable of collection, revenue continues to be recorded on a straight-line basis over the lease term. For leases that are deemed not probable of collection, revenue is recorded as cash is received. The Company recognizes all changes in the collectability assessment for an operating lease as an adjustment to rental income and does not record an allowance for uncollectible accounts.

~~Insurance Recoveries, Net~~Table of Contents

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

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

March 31, 2020 (Unaudited) – (Continued)

Rental revenue also includes lease termination income collected from tenants to allow for the tenant to vacate their space prior to their scheduled termination dates, as well as amortization of above and below-market leases.

Fees from Managed Partnerships

The Company provides various services to our unconsolidated joint venture entities in exchange for fees. Total asset and property management and acquisition fees earned in connection with these entities was $0.6 million and less than $0.1 million for the three months ended March 31, 2020 and 2019, respectively.

Litigation and ~~Non-Routine Costs~~non-routine costs, net

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’s insurance carriers have paid certain defense costs subject to standard reservation of rights under the respective policies.

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


	Three Months Ended March 31,					Three Months Ended March 31,
	2019			2018		2020			2019
Insurance recoveries, net of litigation and non-routine costs:
Audit Committee Investigation and related matters ⁽¹⁾	$	14,691		$	21,728
Litigation and non-routine costs, net:
Audit Committee Investigation and related matters ^{(1) (2)}						$	(6,093	)	$	14,691
Legal fees and expenses ⁽²⁾	2			12		—			2
Litigation settlements ⁽³⁾	12,235			—		—			12,235
Total costs	26,928			21,740		(6,093		)	26,928
Insurance recoveries ⁽³⁾	(48,420		)	—		(2,471		)	(48,420		)
Total	$	(21,492	)	$	21,740	$	(8,564	)	$	(21,492	)

___________________________________

(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 of 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, net of accrual reversals.


(2)	Includes legal fees and expenses associated with litigation resulting from prior mergers and excludes amounts presented in income from discontinued operations, net of income taxes in the consolidated statements of operationsThe negative balance for the three months ended March 31, ~~2018.~~2020 is a result of estimated costs accrued in prior periods that exceeded actual expenses incurred.


~~(3)~~	~~Refer to Note 10 – Commitments and Contingencies for additional information.~~

~~Table of Contents~~

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

~~NOTES TO CONSOLIDATED FINANCIAL STATEMENTS~~

~~March 31, 2019 (Unaudited)~~ – ~~(Continued)~~

Equity-based Compensation

The Company has an equity-based incentive award plan (the “Equity Plan”) for 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 or when the requirements for exercise of the award have been met. As of March 31, ~~2019,~~2020, the General Partner had cumulatively awarded under its Equity Plan approximately ~~16.6~~17.9 million shares of Common Stock, which was comprised of 4.0 million restricted share awards (“Restricted ~~Shares,~~Shares”), net of the forfeiture of 3.7 million Restricted Shares through that date, ~~6.6~~7.9 million restricted stock units (“Restricted Stock ~~Units,~~Units”), net of the forfeiture/cancellation of ~~1.8~~2.0 million Restricted Stock Units through that date, ~~0.5~~0.7 million deferred stock units (“Deferred Stock ~~Units,~~Units”), and ~~5.5~~5.3 million stock options (“Stock Options”), net of forfeiture/cancellation of ~~0.1~~0.3 million ~~stock options~~Stock Options through that date. Accordingly, as of such date, approximately ~~82.9~~95.3 million additional shares were available for future ~~issuance.~~issuance, excluding the effect of the 5.3 million Stock Options. At March 31, ~~2019,~~2020, 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.

Table of Contents

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

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

March 31, 2020 (Unaudited) – (Continued)

The following is a summary of equity-based compensation expense for the three months ended March 31, ~~2019~~2020 and ~~2018~~2019 (in thousands):



	Three Months Ended March 31,
	2020		2019
Restricted Shares	$	—	$	77
Time-Based Restricted Stock Units ⁽¹⁾	1,386		1,249
Long-Term Incentive-Based Restricted Stock Units	1,098		1,229
Deferred Stock Units	72		72
Stock Options	299		245
Total	$	2,855	$	2,872

___________________________________

Three Months Ended March 31,
2019 2018
Restricted Shares $ 77
$ 160
Time-Based Restricted Stock Units⁽¹⁾
1,249
1,426
Long-Term Incentive-Based Restricted Stock Units 1,229
1,211
Deferred Stock Units 72
59
Stock Options 245
76
Total $ 2,872
$ 2,932


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

As of March 31, ~~2019,~~2020, total unrecognized compensation expense related to these awards was approximately ~~$23.3~~$24.9 million, with an aggregate weighted-average remaining term of ~~2.3~~2.6 years.

Restructuring

~~On February 1, 2018,~~During the ~~Company completed~~three months ended March 31, 2020, there were 0 restructuring expenses recorded. During the ~~sale~~three months ended March 31, 2019, the Company’s obligation to provide certain transition services for CCA Acquisition, LLC (the “Cole Purchaser”) terminated in accordance with the terms 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~~Cole Purchaser and ~~other services through March 31, 2019. See~~ ~~Note 13 —Discontinued Operations~~ ~~for further discussion. During the three months ended March 31, 2019, in connection with the cessation of services under the Services Agreement,~~ the Company recorded $9.1 million of restructuring expenses related to the reorganization of its business, of which $8.3 million related to office lease terminations and modifications and $1.1 million related to the cessation of 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 $1.8 million of restructuring expenses.business.

Recent Accounting Pronouncements

~~Adopted Accounting Standards~~Financial Instruments - Credit Losses

The Company adopted ASC 842, effective January 1, 2019. The adoption did not have a material impact on the Company’s consolidated statements of operations. The most significant impact was the recognition of operating lease right-of-use (“ROU”) assets and operating lease 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 Company’s Annual Report on Form 10-K for the year ended December 31, 2018. The lessor accounting model under ASC 842 is similar to existing guidance, however, it limits the capitalization of initial direct leasing costs, such as internally generated costs.

~~Table of Contents~~

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

~~NOTES TO CONSOLIDATED FINANCIAL STATEMENTS~~

~~March 31, 2019 (Unaudited)~~ – ~~(Continued)~~

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., capital leases under existing guidance) and an operating lease and account for its existing operating leases as operating leases under the new guidance, without reassessing (a) whether the contracts contain a lease under ASC 842, (b) whether classification of the operating leases would be different in accordance with ASC 842, or (c) whether the unamortized initial direct costs before transition adjustments would have met the definition of initial direct costs in ASC 842 at lease commencement. The Company does not have a cumulative effect adjustment to retained earnings upon adoption.

The Company, as lessor, identified three separate lease components as follows: 1) land lease component, 2) single property lease component comprised of building, land improvements and tenant improvements, and 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 determined the nonlease components are eligible to be combined under the practical expedient in ASU 2018-11, Leases (Topic 842) (“ASU 2018-11,” combined with ASC 842, “Leasing ASUs”) and the nonlease components will be included with the single property lease component as the predominant component. Therefore, the Company will account for the combined component as a lease component under ASC 842. Refer to ~~Note 11 - Leases~~ ~~for the related disclosures.~~

~~Accounting Standards Not Yet Adopted~~

~~In June 2016, the U.S. Financial Accounting Standards Board (“FASB”) issued~~ ASU 2016-13, Financial Instruments – Credit Losses ~~(Topic~~and subsequent amendments (collectively Topic 326) ~~(“ASU 2016-13”). ASU 2016-13~~, effective January 1, 2020. Topic 326 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~~Topic 326 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. ~~In November 2018,~~

The Company determined the following to be within the scope of Topic 326: (i) investments in direct financing leases, related to 19 leases as of March 31, 2020, of which the majority expire in 2022 and 2023, for credit worthy tenants, with no history of losses and (ii) other immaterial miscellaneous short term receivables. Due to the short term nature and collection history of the direct financing leases and management fee receivables and the creditworthiness of the direct financing lease tenants, the adoption of this guidance did not have a material impact on the Company’s consolidated financial statements.

Reference Rate Reform

During the first quarter of 2020, the Financial Accounting Standards Board (the “FASB”) issued ASU 2020-04, Reference Rate Reform (Topic 848). ASU 2020-04 contains practical expedients for reference rate reform related activities that impact debt, leases, derivatives and other contracts. The guidance in ASU 2020-04 is optional and may be elected over time as reference rate reform activities occur. During the three months ended March 31, 2020, the Company has elected to apply the hedge accounting expedients related to probability and the assessments of effectiveness for future London Inter-Bank Offer Rate (“LIBOR”)-indexed cash flows to assume that the index upon which future hedged transactions will be based matches the index on the corresponding derivatives. Application of these expedients preserves the presentation of derivatives consistent with past presentation. The Company continues to evaluate the impact of the guidance and may apply other elections as applicable as additional changes in the market occur.

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

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

March 31, 2020 (Unaudited) – (Continued)

Accounting for Lease Concessions Related to the Effects of the COVID-19 Pandemic

The FASB issued ~~ASU No. 2018-19,~~a question-and-answer document, Accounting for Lease Concessions Related to the Effects of the COVID-19 Pandemic, which, for concessions related to the effects of COVID-19, allows an entity to elect to not analyze each contract to determine whether enforceable rights and obligations for concessions exist in the contract and to elect to apply or not apply the lease modification guidance in Accounting Standards Codification ~~Improvements~~(“ASC”) Topic 842, Leases (“ASC 842”), to ~~Topic 326, Financial Instruments—Credit Losses (“ASU 2018-19”). ASU 2018-19 clarifies~~those contracts. For concessions that ~~receivables from operating leases~~provide a deferral of payments with no substantive changes to the consideration in the original contract, the Company can evaluate whether to (i) account for these concessions as if there were no changes made to the lease agreement and accordingly, increase the lease receivable and continue to recognize income or, (ii) account for the rent deferrals as variable lease payments. Concessions that substantively increase the consideration in the original contract are accounted for ~~using~~as a lease modification under ASC 842, which will require the Company to reevaluate the lease ~~guidance~~classification and ~~not as financial instruments. ASU 2016-13~~remeasure and ~~ASU 2018-19 are effective for fiscal years (including~~reallocate the ~~interim periods therein) beginning after December 15, 2019. Early adoption is permitted for fiscal years, and interim periods within, beginning after December 15, 2018.~~consideration over the remaining lease term. The Company is currently evaluating the impact ~~these amendments~~of this guidance and which elections, if any, it will ~~have on its consolidated financial statements.~~make for the quarter-ending June 30, 2020.

Note 3–3 – Real Estate Investments and Related Intangibles

Property Acquisitions

During the three months ended March 31, ~~2019,~~2020, the Company acquired controlling financial interests in ~~eight~~25 commercial properties for an aggregate purchase price of $147.1 million (the “2020 Acquisitions”), which includes 1 land parcel for build-to-suit development, further discussed below and $0.9 million of external acquisition-related expenses that were capitalized.

During the three months ended March 31, 2019, the Company acquired a controlling interest in 8 commercial properties for an aggregate purchase price of $81.1 million (the “2019 Acquisitions”), which includes $0.3 million of external acquisition-related expenses that were capitalized. During the three months ended March 31, 2018, the Company acquired a controlling interest in 12 commercial properties for an aggregate purchase price of $139.9 million (the “2018 Acquisitions”), which includes $0.7 million of external acquisition-related expenses that were capitalized.

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


	Three Months Ended March 31,				Three Months Ended March 31,
	2019		2018		2020		2019
Real estate investments, at cost:
Land	$	17,716	$	27,049	$	19,953	$	17,716
Buildings, fixtures and improvements	53,923		96,044		95,728		53,923
Total tangible assets	71,639		123,093		115,681		71,639
Acquired intangible assets:
In-place leases and other intangibles ⁽¹⁾	9,445		14,037		15,739		9,445
Above-market leases⁽²⁾	—		2,752		15,701		—
Total purchase price of assets acquired	$	81,084	$	139,882	$	147,121	$	81,084


(1)	The weighted average amortization period for acquired in-place leases and other intangibles is 18.1 years and 12.5 years ~~and 14.9 years~~ for ~~2019~~2020 Acquisitions and ~~2018~~2019 Acquisitions, respectively.

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

~~NOTES TO CONSOLIDATED FINANCIAL STATEMENTS~~

~~March 31, 2019 (Unaudited)~~ – ~~(Continued)~~


(2)	The weighted average amortization period for acquired above-market leases is ~~10.8~~20.1 years for ~~2018~~2020 Acquisitions.

As of March 31, ~~2019,~~2020, the Company invested ~~$8.0~~$19.3 million, including ~~$0.5~~$0.3 million of external acquisition-related expenses and interest that were capitalized, in ~~one~~1 build-to-suit development project. The Company’s estimated remaining committed investment is ~~$20.3~~$25.5 million, and the project is expected to be completed within the next 12 months.

Property Dispositions and Real Estate Assets Held for Sale

During the three months ended March 31, 2020, the Company disposed of 30 properties, including the sale of 2 consolidated properties to a newly-formed joint venture in which the Company owns a 20% equity interest (the “Office Partnership”), for an aggregate gross sales price of $152.2 million, of which our share was $150.5 million after the profit participation payments related to the disposition of 2 Red Lobster properties. The dispositions resulted in proceeds of $140.4 million after closing costs, including proceeds from the contribution of properties to the Office Partnership. The Company recorded a gain of $25.2 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.

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

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

March 31, 2020 (Unaudited) – (Continued)

During the three months ended March 31, 2019, the Company disposed of 22 properties, for an aggregate gross sales price of $66.0 million, of which our share was $62.1 million after the profit participation ~~payments~~payment related to the disposition of ~~six~~6 Red Lobster properties. The dispositions resulted in proceeds of $60.5 million after closing costs. The Company recorded a gain of $10.8 ~~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 three months ended March 31, 2018, the Company disposed of 40 properties, for an aggregate gross sales price of $120.8 million, of which our share was $119.2 million after the profit participation payment related to the disposition of three Red Lobster properties. The dispositions resulted in proceeds of $116.9 million after closing costs. The Company recorded a gain of $18.2 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 three months ended March 31, 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.

As of March 31, 2020 and December 31, 2019, there were 125 properties classified as held for sale. As of March 31, 2020, the 5 properties classified as held for sale ~~with~~had a carrying value of ~~$36.0~~$88.5 million, included in real estate assets held for sale, net, primarily comprised of land of $26.2 million and building, fixtures and improvements, net of $62.2 million, in the accompanying consolidated balance sheets, ~~which~~and are expected to be sold in the next 12 months as part of the Company’s portfolio management strategy. ~~As of December~~During the three months ended March 31, ~~2018, there were five properties classified as~~2020, the Company did not record any losses related to held for ~~sale.~~sale properties. During the three months ended March 31, 2019 the Company recorded a loss of less than $0.1 ~~million related to held for sale properties. During the three months ended March 31, 2018, the Company recorded a loss of $0.9~~ million related to held for sale properties.

Intangible Lease Assets and Liabilities

Intangible lease assets and liabilities of the Company consisted of the following as of March 31, ~~2019~~2020 and December 31, ~~2018~~2019 (amounts in thousands, except weighted-average useful life):

Weighted-Average Useful Life March 31, 2019 December 31, 2018
Intangible lease assets:
In-place leases and other intangibles, net of accumulated amortization of $730,221 and $703,909, respectively 15.5 $ 948,973
$ 980,971
Leasing commissions, net of accumulated amortization of $4,566 and $4,048, respectively 10.4 16,318
15,660
Above-market lease assets and deferred lease incentives, net of accumulated amortization of $110,100 and $105,936, respectively 16.4 193,647
201,875
Total intangible lease assets, net $ 1,158,938
$ 1,198,506

Intangible lease liabilities:
Below-market leases, net of accumulated amortization of $93,268 and $89,905, respectively 18.9 $ 166,708
$ 173,479



	Weighted-Average Useful Life	March 31, 2020		December 31, 2019
Intangible lease assets:
In-place leases and other intangibles, net of accumulated amortization of $765,649 and $748,689, respectively	16.0	$	818,815	$	854,196
Leasing commissions, net of accumulated amortization of $6,093 and $6,027, respectively	7.8	17,524		17,808
Above-market lease assets and deferred lease incentives, net of accumulated amortization of $116,628 and $112,438, respectively	16.7	175,191		165,483
Total intangible lease assets, net		$	1,011,530	$	1,037,487

Intangible lease liabilities:
Below-market leases, net of accumulated amortization of $101,968 and $99,315, respectively	18.3	$	134,410	$	143,583

The aggregate amount of amortization of above‑ and below-market leases and deferred lease incentives ~~amortized and~~ included as a net decrease to rental revenue was $0.7 million ~~and $1.5 million~~ for each of the three months ended March 31, ~~2019~~2020 and ~~2018, respectively.~~2019. The aggregate amount of in-place leases, leasing commissions and other lease intangibles amortized and included in depreciation and amortization expense was ~~$33.8~~$43.0 million and ~~$34.6~~$33.8 million for the three months ended March 31, 2020 and 2019, ~~and 2018,~~ respectively.

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

~~NOTES TO CONSOLIDATED FINANCIAL STATEMENTS~~

~~March 31, 2019 (Unaudited)~~ – ~~(Continued)~~

The following table provides the projected amortization expense and adjustments to rental revenue related to the intangible lease assets and liabilities for the next five years as of March 31, ~~2019~~2020 (amounts in thousands):


		Remainder of 2019		2020		2021		2022		2023			Remainder of 2020		2021		2022		2023		2024
In-place leases and other intangibles:
Total projected to be included in amortization expense		$	94,897	$	119,518	$	111,755	$	97,582	$	86,748		$	86,460	$	107,728	$	94,017	$	83,827	$	73,528
Leasing commissions:
Total projected to be included in amortization expense		1,607		2,018		1,857		1,780		1,584			1,896		2,341		2,239		1,964		1,747
Above-market lease assets and deferred lease incentives:	Above-market lease assets and deferred lease incentives:											Above-market lease assets and deferred lease incentives:
Total projected to be deducted from rental revenue		15,595		20,359		19,929		19,116		18,168			14,943		19,519		18,708		17,764		16,393
Below-market lease liabilities:
Total projected to be included in rental revenue		14,559		16,674		15,532		14,690		13,806			12,481		14,950		13,258		12,535		10,688

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

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

March 31, 2020 (Unaudited) – (Continued)

Consolidated Joint ~~Ventures~~Venture

The Company had an interest in ~~one~~1 consolidated joint venture that owned ~~one~~1 property as of March 31, ~~2019~~2020 and December 31, ~~2018.~~2019. As of March 31, ~~2019~~2020 and December 31, ~~2018,~~2019, the consolidated joint venture had total assets of ~~$32.9~~$33.7 million and $32.5 million, respectively, of which ~~$29.9~~$30.2 million and $29.6 million, respectively, were real estate investments, net of accumulated depreciation and amortization at each of the respective dates. The property is secured by a mortgage note payable, which is non-recourse to the Company and had a balance of ~~$13.9~~$15.2 million and ~~$14.0~~$14.3 million as of March 31, ~~2019~~2020 and December 31, ~~2018,~~2019, respectively. The Company has the ability to control operating and financing policies of the consolidated joint venture. There are restrictions on the use of these assets as the Company ~~would~~is 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.

Unconsolidated Joint Ventures

AsThe following is a summary of the Company’s investments in unconsolidated joint ventures as of March 31, ~~2019~~2020 and December 31, ~~2018, the Company held an investment in an unconsolidated joint venture that owned one property with a carrying value of $35.8 million~~2019 and ~~$35.3 million, respectively. During~~for the three months ended March 31, ~~2018, the Company disposed of one property owned by an~~2020 and 2019 (dollar amounts in thousands):



			Carrying Amount of Investment				Equity in Income
			Carrying Amount of Investment				Three Months Ended
Investment	Ownership % ⁽¹⁾	Number of Properties	March 31, 2020		December 31, 2019		March 31, 2020			March 31, 2019
Faison JV Bethlehem GA ⁽²⁾	90%	1	$	40,178	$	40,416	$	(7	)	$	500
Industrial Partnership	20%	6	28,365		28,409		180			—
Office Partnership ⁽³⁾	20%	3	10,175		—		73			—

(1)

The Company’s ownership interest reflects its legal ownership interest. Legal ownership may, at times, not equal the Company’s economic interest in the listed properties because of various provisions in certain joint venture agreements regarding capital contributions, 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 the properties could fluctuate from time to time and may not wholly align with its legal ownership interests.

(2)

The total carrying amount of the investments was greater than the underlying equity in net assets by $4.6 million and $4.7 million as of March 31, 2020 and December 31, 2019, 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.


(3)	During the three months ended March 31, 2020, the Office Partnership acquired 1 property from a third party for a purchase price of $33.1 million.

The unconsolidated joint ~~venture as previously discussed in the “Property Dispositions and Real Estate Assets Held for Sale” section herein.~~

~~The Company~~ventures had ~~a 90% legal ownership interest in the unconsolidated joint venture at March 31, 2019 and December 31, 2018 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 months ended March 31, 2019 and 2018 the Company recognized $0.5 million and $0.4 million, respectively, of net income from 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 $3.4 million and $4.7~~$341.8 million as of March 31, ~~2019 and~~2020, which is non-recourse to the Company, as discussed in Note 6 –Debt. There was $269.3 million of debt outstanding related to the unconsolidated joint ventures as of December 31, 2018, 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 a prior merger. 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. 2019.

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

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

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

March 31, ~~2019~~2020 (Unaudited) – (Continued)

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

Rent and tenant receivables and other assets, net consisted of the following as of March 31, ~~2019~~2020 and December 31, ~~2018~~2019 (in thousands):


	March 31, 2019		December 31, 2018		March 31, 2020		December 31, 2019
Straight-line rent receivable, net ⁽¹⁾	$	265,464	$	259,106
Accounts receivable, net⁽¹⁾	44,244		36,939
Straight-line rent receivable					$	262,799	$	266,195
Accounts receivable					39,562		41,556
Deferred costs, net ⁽²⁾⁽¹⁾	12,473		17,515		6,516		7,208
Investment in direct financing leases, net	10,735		13,254		8,951		9,341
Investment in Cole REITs ⁽²⁾					7,009		7,552
Prepaid expenses	8,418		5,022		8,477		3,453
Investment in Cole REITs ⁽³⁾	7,552		7,844
Leasehold improvements, property and equipment, net ⁽⁴⁾⁽³⁾	5,133		9,754		4,480		4,809
Other assets, net	7,622		16,658		7,309		8,281
Total	$	361,641	$	366,092	$	345,103	$	348,395

___________________________________

(1)

~~As of~~December 31, 2018, allowance for uncollectible accounts included in straight-line rent receivable, net and accounts receivable, net was $1.0 million and $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 ASC 842 will be recorded as an adjustment to rental revenue.

~~(2)~~

Amortization expense for deferred costs related to the revolving credit facilities totaled ~~$1.1~~$0.7 million and ~~$2.6~~$1.1 million for the three months ended March 31, ~~2019~~2020 and ~~2018,~~2019, respectively. Accumulated amortization for deferred costs related to the revolving credit facilities was ~~$48.7~~$50.5 million and ~~$47.6~~$49.8 million as of March 31, ~~2019~~2020 and December 31, ~~2018,~~2019, respectively.


(2)	The Company has interests in CCIT II, CCIT III and CCPT V (collectively, the “Cole REITs”) and carries these investments at fair value. During the three months ended March 31, 2020, the Company recognized a loss of $0.5 million related to the change in fair value, which is included in other income (loss), net in the accompanying consolidated statements of operations.


(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”).

~~(4)~~

Amortization expense for leasehold improvements totaled ~~$0.3~~$0.1 millionand$0.3 millionfor ~~each of~~ the three months ended March 31, 2020 and 2019, ~~and 2018,~~respectively, with no0 related write-offs. Accumulated amortization was ~~$2.7~~$3.0 million and ~~$5.9~~$2.8 million as of March 31, ~~2019~~2020 and December 31, ~~2018,~~2019, respectively. Depreciation expense for property and equipment totaled $0.3 million and $0.4 million for the three months ended March 31, 2020 and 2019, respectively, inclusive of write-offs of less than $0.1 million ~~and $0.5 million~~ for ~~the~~ three months ended March 31, ~~2018, with no related write-offs.~~2019. Accumulated depreciation was ~~$4.6~~$5.7 million and ~~$7.0~~$5.4 million as of March 31, ~~2019~~2020 and December 31, ~~2018,~~2019, respectively. The Company disposed of $4.1 million, net, of leasehold improvements, property and equipment, which is included in restructuring in the accompanying consolidated statements of operations for the three months ended March 31, 2019.

Note 5 – 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. The Company does not expect that changes in classifications between levels will be frequent.

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

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

March 31, ~~2019~~2020 (Unaudited) – (Continued)

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 March 31, ~~2019~~2020 and December 31, ~~2018,~~2019, 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 March 31, 2020
Assets:
Investment in Cole REITs											$	—	$	—		$	7,009	$	7,009
Liabilities:
Derivative liabilities											$	—	$	(104,530	)	$	—	$	(104,530	)

	Level 1		Level 2			Level 3		Balance as of March 31, 2019			Level 1		Level 2			Level 3		Balance as of December 31, 2019
Assets:
Derivative assets	$	—	$	360		$	—	$	360		$	—	$	250		$	—	$	250
Investment in Cole REITs	—		—			7,552		7,552			—		—			7,552		7,552
Total assets	$	—	$	360		$	7,552	$	7,912		$	—	$	250		$	7,552	$	7,802
Liabilities:
Derivative liabilities	$	—	$	(11,286	)	$	—	$	(11,286	)	$	—	$	(28,081	)	$	—	$	(28,081	)

	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

Derivative Assets and Liabilities – The Company’s derivative financial instruments relate to interest rate 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 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 March 31, ~~2019~~2020 and December 31, ~~2018,~~2019, the Company assessed the significance of the impact of the credit valuation adjustments on the overall valuation of its derivative positions and determined that the credit valuation adjustments are not significant to the overall valuation of the Company’s derivatives. As a result, the Company determined that its derivative valuations in their entirety are classified in Level 2 of the fair value hierarchy.

Investment in Cole REITs – The fair values of CCIT II, CCIT III and CCPT V were estimated using the net asset value per ~~share.~~share, as most recently disclosed by each applicable REIT. Each of the Cole REIT’s share redemption programs includes restrictions that limit the number of shares redeemed by the respective Cole REIT. CCIT II has estimated that it will commence a liquidity event over the next two to four years. CCPT V has estimated that it will commence a liquidity event over the next two to five 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. Effective December 31, 2018, CCIT III terminated its primary offering, however it will continue to issue shares pursuant to its distribution reinvestment plan.

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

~~NOTES TO CONSOLIDATED FINANCIAL STATEMENTS~~

~~March 31, 2019 (Unaudited)~~ – ~~(Continued)~~

The following are reconciliations of the changes in assets and liabilities with Level 3 inputs in the fair value hierarchy for the three months ended March 31, 2020 and 2019 (in thousands):

Investment in Cole REITs
Beginning balance, January 1, 2019 $ 7,844
Unrealized loss included in other income, net (292 )
Ending Balance, March 31, 2019 $ 7,552

~~The following are reconciliations of the changes in assets and liabilities with Level 3 inputs in the fair value hierarchy for the three months ended March 31, 2018 (in thousands):~~

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 (837 ) —
Realized loss included in other income, net (34 ) —
Unrealized gain included in other income, net —
5,102
Purchases, issuance, settlements
Return of principal received (4,402 ) —
Amortization included in net income, net 40
—
Sale of investments —
(522 )
Ending Balance, March 31, 2018 $ 35,741
$ 7,844


~~(1)~~	During the year ended December 31, 2018, the Company repaid or sold all of its 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.



	Investment in Cole REITs
Beginning balance, January 1, 2020	$	7,552
Unrealized loss included in other income, net	(543		)
Ending Balance, March 31, 2020	$	7,009

Beginning balance, January 1, 2019	$	7,844
Unrealized loss included in other income, net	(292		)
Ending Balance, March 31, 2019	$	7,552

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.

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

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

March 31, 2020 (Unaudited) – (Continued)

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 representing 2416 properties were deemed to be impaired ~~and their carrying values totaling $61.4 million were reduced to their estimated fair value of $49.4 million,~~ resulting in impairment charges of ~~$12.0~~$8.4 million during the three months ended March 31, ~~2019.~~2020. The impairment charges relate to certain retail and restaurant properties whose tenants filed for Chapter 11 bankruptcy during the first quarter of 2020, were identified by management for potential sale or were determined would not be re-leased by the tenant.

As a result of the COVID-19 pandemic, the Company considered whether there was any indication of impairment for properties that did not otherwise have potential impairment indicators and did not identify additional properties as of March 31, 2020. Based on the Company’s expected holding period for the properties and the economic conditions as of March 31, 2020, the Company believes that their carrying values are recoverable. However, the COVID-19 pandemic has negatively impacted the businesses of certain of our tenants so the Company continues to monitor for circumstances and events in future periods, which may result in impairment charges.

During the three months ended March 31, 2019, net real estate assets related to 24 properties, were deemed to be impaired resulting in impairment charges of $12.0 million. The impairment charges related to certain office, retail and restaurant properties that, during the first quarter of 2019, management identified for potential sale or determined, based on discussions with the current tenants, would not be ~~re-leased. During~~re-leased by the ~~three months ended March 31, 2018, net real estate assets related~~tenant and the Company believed the property would not be leased to 12 properties, with carrying values totaling $14.2 million, were deemed to be impaired and their carrying values were reduced to their estimated fair values of $8.2 million, resulting in impairment charges of $6.0 million.another tenant at a rental rate that supports the current book value.

The Company estimates fair values using Level 3 inputs and 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 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 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 three months ended March 31, ~~2019,~~2020, the Company used a discount rate of ~~8.0%~~7.9% and a capitalization rate of ~~7.5%~~7.4%.

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

~~NOTES TO CONSOLIDATED FINANCIAL STATEMENTS~~

~~March 31, 2019 (Unaudited)~~Goodwill – ~~(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 following table presents~~As a result of a decrease in the ~~impairments by asset class recorded~~Company’s stock price during the three months ended March 31, ~~2019~~2020, the Company assessed its goodwill for impairment as of March 31, 2020, which resulted in 0 impairments. The Company continues to monitor factors that may impact the fair value of goodwill including, but not limited to, market comparable company multiples, interest rates, and ~~2018 (dollar amounts in thousands):~~

Three Months Ended March 31,
2019 2018
Properties impaired 24
12

Asset classes impaired:
Investment in real estate assets, net $ 11,988
$ 6,043
Below-market lease liabilities, net —
(7 )
Total $ 11,988
$ 6,036

global economic conditions.

Fair Value of Financial Instruments

The fair value of short-term financial instruments such as cash and cash equivalents, restricted cash 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 March 31, 2019		Fair Value at March 31, 2019		Carrying Amount at December 31, 2018		Fair Value at December 31, 2018		Level	Carrying Amount at March 31, 2020		Fair Value at March 31, 2020		Carrying Amount at December 31, 2019		Fair Value at December 31, 2019
Liabilities⁽¹⁾:
Mortgage notes payable and other debt, net	2	$	1,928,777	$	1,932,747	$	1,933,209	$	1,961,496	2	$	1,412,894	$	1,459,616	$	1,535,918	$	1,590,915
Corporate bonds, net	2	2,646,079		2,708,761		3,395,885		3,368,928		2	2,839,865		2,717,813		2,839,581		3,022,087
Convertible debt, net	2	399,076		402,017		398,591		396,905		2	320,425		319,341		319,947		327,237
Credit facility	2	1,095,000		1,094,984		403,000		403,000		2	1,771,313		1,771,313		1,050,000		1,050,000
Total liabilities		$	6,068,932	$	6,138,509	$	6,130,685	$	6,130,329		$	6,344,497	$	6,268,083	$	5,745,446	$	5,990,239

_______________________________________________


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

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

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

March 31, 2020 (Unaudited) – (Continued)

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.

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

~~NOTES TO CONSOLIDATED FINANCIAL STATEMENTS~~

~~March 31, 2019 (Unaudited)~~ – ~~(Continued)~~

Note 6 – Debt

As of March 31, ~~2019,~~2020, the Company had ~~$6.0~~$6.3 billion of debt outstanding, including net premiums and net deferred financing costs, with a weighted-average years to maturity of ~~4.5~~4.4 years and a weighted-average interest rate of ~~4.4%~~3.96%. The following table summarizes the carrying value of debt as of March 31, ~~2019~~2020 and December 31, ~~2018,~~2019, and the debt activity for the three months ended March 31, ~~2019~~2020 (in thousands):


					Three Months Ended March 31, 2019																Three Months Ended March 31, 2020
		Balance as of December 31, 2018			Debt Issuances			Repayments, Extinguishment and Assumptions			Accretion and Amortization			Balance as of March 31, 2019				Balance as of December 31, 2019			Debt Issuances			Repayments, Extinguishment and Assumptions			Accretion and Amortization			Balance as of March 31, 2020
Mortgage notes payable:	Mortgage notes payable:																Mortgage notes payable:
	Outstanding balance	$	1,917,132		$	—		$	(2,426	)	$	—		$	1,914,706		Outstanding balance	$	1,529,057		$	913		$	(122,199	)	$	—		$	1,407,771
	Net premiums ⁽¹⁾	16,077			—			—			(2,006		)	14,071			Net premiums ⁽¹⁾	6,861			—			(202		)	(1,536		)	5,123
	Deferred costs	(10,552		)	—			—			601			(9,951		)	Deferred costs	(7,784		)	—			64			527			(7,193		)
Mortgages notes payable, net	Mortgages notes payable, net	1,922,657			—			(2,426		)	(1,405		)	1,918,826			Mortgages notes payable, net	1,528,134			913			(122,337		)	(1,009		)	1,405,701

Corporate bonds:	Corporate bonds:																Corporate bonds:
	Outstanding balance	3,400,000			—			(750,000		)	—			2,650,000			Outstanding balance	2,850,000			—			—			—			2,850,000
	Discount ⁽²⁾	(4,115		)	—			—			194			(3,921		)	Discount ⁽²⁾	(10,419		)	—			—			284			(10,135		)
	Deferred costs	(27,276		)	—			—			1,153			(26,123		)	Deferred costs	(25,842		)	(380		)	—			831			(25,391		)
Corporate bonds, net	Corporate bonds, net	3,368,609			—			(750,000		)	1,347			2,619,956			Corporate bonds, net	2,813,739			(380		)	—			1,115			2,814,474

Convertible debt:	Convertible debt:																Convertible debt:
	Outstanding balance	402,500			—			—			—			402,500			Outstanding balance	321,802			—			—			—			321,802
	Discount ⁽²⁾	(3,909		)	—			—			485			(3,424		)	Discount ⁽²⁾	(1,855		)	—			—			478			(1,377		)
	Deferred costs	(3,708		)	—			—			455			(3,253		)	Deferred costs	(1,764		)	—			—			459			(1,305		)
Convertible debt, net	Convertible debt, net	394,883			—			—			940			395,823			Convertible debt, net	318,183			—			—			937			319,120

Credit facility:	Credit facility:																Credit facility:
	Outstanding balance	403,000			899,000			(207,000		)	—			1,095,000			Outstanding balance	1,050,000			831,313			(110,000		)	—			1,771,313
	Deferred costs ⁽³⁾	(1,227		)	(4,268		)	—			220			(5,275		)	Deferred costs ⁽³⁾	(4,331		)	—			—			324			(4,007		)
Credit facility, net	Credit facility, net	401,773			894,732			(207,000		)	220			1,089,725			Credit facility, net	1,045,669			831,313			(110,000		)	324			1,767,306

Total debt	Total debt	$	6,087,922		$	894,732		$	(959,426	)	$	1,102		$	6,024,330		Total debt	$	5,705,725		$	831,846		$	(232,337	)	$	1,367		$	6,306,601


(1)	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.


(2)	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.


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

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

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

March 31, ~~2019~~2020 (Unaudited) – (Continued)

Mortgage Notes Payable

The Company’s mortgage notes payable consisted of the following as of March 31, ~~2019~~2020 (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⁾	Encumbered Properties	Net Carrying Value of Collateralized Properties ⁽¹⁾		Outstanding Balance		Weighted-Average Interest Rate ⁽²⁾			Weighted-Average Years to Maturity ⁽³⁾
Fixed-rate debt ⁽⁴⁾	458	$	3,755,089	$	1,900,757	4.92	%		3.2	316	$	1,918,151	$	1,392,555	5.02	%		2.7
Variable-rate debt	1	33,734		13,949		5.74	%	⁽⁵⁾	0.4	1	30,171		15,216		4.95	%	⁽⁴⁾	0.4
Total(5)	459	$	3,788,823	$	1,914,706	4.93	%		3.2	317	$	1,948,322	$	1,407,771	5.02	%		2.7


(1)	~~Gross~~Net 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 $50.5 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 March 31, ~~2019.~~2020.


(5)	The table above does not include mortgage notes associated with unconsolidated joint ventures of $341.8 million, which are non-recourse to the Company.

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 March 31, ~~2019,~~2020, 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.

The following table summarizes the scheduled aggregate principal repayments due on mortgage notes subsequent to March 31, ~~2019~~2020 (in thousands):


	Total		Total
April 1, 2019 - December 31, 2019	$	164,849
2020	265,189
April 1, 2020 - December 31, 2020			$	89,602
2021	352,768		299,015
2022	314,898		266,951
2023	144,843		124,217
2024			621,021
Thereafter	672,159		6,965
Total	$	1,914,706	$	1,407,771

Corporate Bonds

As of March 31, ~~2019,~~2020, the OP had ~~$2.65~~$2.85 billion aggregate principal amount of senior unsecured notes (the “Senior Notes”) outstanding comprised of the following (dollar amounts in thousands):


	Outstanding Balance March 31, 2019		Interest Rate		Maturity Date	Outstanding Balance March 31, 2020		Interest Rate		Maturity Date
2021 Senior Notes	400,000		4.125	%	June 1, 2021
2024 Senior Notes	500,000		4.600	%	February 6, 2024	$	500,000	4.600	%	February 6, 2024
2025 Senior Notes	550,000		4.625	%	November 1, 2025	550,000		4.625	%	November 1, 2025
2026 Senior Notes	600,000		4.875	%	June 1, 2026	600,000		4.875	%	June 1, 2026
2027 Senior Notes	600,000		3.950	%	August 15, 2027	600,000		3.950	%	August 15, 2027
2029 Senior Notes						600,000		3.100	%	December 15, 2029
Total balance and weighted-average interest rate	$	2,650,000	4.449	%		$	2,850,000	4.210	%

On February 6, 2019, $750.0 million of senior notes (the “2019 Senior Notes”) matured and the principal plus accrued and unpaid interest thereon, were repaid, utilizing borrowings under the Credit Facility.

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

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

March 31, ~~2019~~2020 (Unaudited) – (Continued)

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 2021 Senior Notes, is~~ 60 or fewer days prior to the 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, the 2027 Senior Notes and the ~~2027~~2029 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). As of March 31, ~~2019,~~2020, the Company believes that it was in compliance with the financial covenants of our Senior Notes based on the covenant limits and calculations in place at that time.

Convertible Debt

As of March 31, ~~2019,~~2020, the ~~Company~~Company’s 2020 Convertible Notes had ~~convertible senior notes due December 15, 2020 (the “2020 Convertible Notes”) with~~ a balance of ~~$402.5~~$321.8 million outstanding, which excludes the carrying value of the conversion options recorded within additional paid-in capital of ~~$12.8~~$12.3 million and the unamortized discount of ~~$3.4~~$1.4 million. The discount will be amortized over the remaining term of ~~1.7~~0.7 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 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 March 31, ~~2019,~~2020, the conversion rate was 66.7249 shares of the Company’s Common Stock per $1,000 principal amount of 2020 Convertible Notes, which reflects adjustments to the initial conversion rate pursuant to the terms of the applicable indenture as a result of cash dividend payments. There were no changes to the terms of the 2020 Convertible Notes during the three months ended March 31, ~~2019~~2020 and the Company believes that it was in compliance with the financial covenants pursuant to the indenture governing the 2020 Convertible Notes as of March 31, ~~2019.~~2020.

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 as administrative agent and other lenders party thereto (the “Credit Agreement”). The Credit Agreement ~~provides~~provided for maximum borrowings of $2.9 billion, originally consisting of a $2.0 billion unsecured revolving credit facility (the “Revolving Credit Facility”) and a $900.0 million unsecured term loan facility (the “Credit Facility Term Loan,” together with the Revolving Credit Facility, the “Credit Facility”). Effective December 27, 2019, the Company reduced the amount available under its Revolving Credit Facility from $2.0 billion to $1.5 billion.

As of March 31, ~~2019, the~~2020, $871.3 million was outstanding ~~balance~~ under the Revolving Credit Facility ~~was $195.0 million. As of March 31, 2019,~~and the full $900.0 million ~~had been~~was drawn on the 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. As of March 31, ~~2019,~~2020, there were 0 letters of credit ~~outstanding were $3.9 million.~~outstanding.

~~As discussed in~~ ~~Note 7 –Derivatives and Hedging Activities~~, 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, to hedge interest rate volatility. The swap agreements effectively fixed the Credit Facility Term 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”)~~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 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. The Credit Facility Term Loan interest rate was 3.59% as of March 31, 2020, pursuant to the terms of the related swap agreements discussed in Note 7 –Derivatives and Hedging Activities.

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

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

~~NOTES TO CONSOLIDATED FINANCIAL STATEMENTS~~

~~March 31, 2019 (Unaudited)~~ – ~~(Continued)~~

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~~2 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~~The outstanding ~~under the~~ Credit Facility Term Loan ~~mature~~matures on

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

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

March 31, 2020 (Unaudited) – (Continued)

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. 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 March 31, ~~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 Credit Facility Term Loan, which 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 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.2020.

Note 7 – Derivatives and Hedging Activities

Cash Flow Hedges of Interest Rate Risk

The Company ~~may use~~has interest rate swap agreements with an aggregate $900.0 million notional amount, which were designated as cash flow hedges. The Company also has forward starting interest rate swaps with a total notional amount of $400.0 million, which were designated as cash flow hedges to hedge the risk of changes in the interest-related cash outflows associated with the anticipated issuance of long-term debt.

The table below presents the fair value of the Company’s 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 meetdesignated as cash flow hedges as well as their ~~obligations.~~

~~The Company records all derivatives on~~classification in the consolidated balance sheets ~~at fair value. The accounting~~as of March 31, 2020 and December 31, 2019 (in thousands):



Derivatives Designated as Hedging Instruments	Balance Sheet Location	March 31, 2020			December 31, 2019
Interest rate swaps	Rent and tenant receivables and other assets, net	$	—		$	250
Interest rate swaps	Derivative, deferred rent and other liabilities	$	(104,530	)	$	(28,081	)

During the three months ended March 31, 2020 and 2019, the Company recorded unrealized losses of $78.6 million and $11.3 million, respectively, 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.~~hedges in accumulated other comprehensive income.

The ~~accounting~~Company reclassified previous losses of $1.9 million and $0.1 million for ~~subsequent changes in~~ the ~~fair value of these derivatives depends on whether each has been designated~~three months ended March 31, 2020 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 loss on derivative instruments, 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 in2019, respectively, from accumulated other comprehensive income ~~(loss). Unrealized gains and losses in~~into interest expense as a result of the hedged transactions impacting earnings.

During the next twelve months, the Company estimates that an additional $21.3 million will be reclassified from other comprehensive income ~~(loss) are reclassified~~as an increase to interest ~~expense when~~expense.

Tabular Disclosure of Offsetting Derivatives

The table below details a gross presentation, the ~~related hedged items impact earnings.~~effects of offsetting and a net presentation of the Company’s derivatives as of March 31, 2020 and December 31, 2019 (in thousands). The net amounts of derivative assets or liabilities can be reconciled to the tabular disclosure of fair value.



	Offsetting of Derivative Assets and Liabilities
	Gross Amounts of Recognized Assets		Gross Amounts of Recognized Liabilities			Gross Amounts Offset in the Consolidated Balance Sheets		Net Amounts of Assets Presented in the Consolidated Balance Sheets		Net Amounts of Liabilities Presented in the Consolidated Balance Sheets			Financial Instruments		Cash Collateral Received		Net Amount
March 31, 2020	$	—	$	(104,530	)	$	—	$	—	$	(104,530	)	$	—	$	—	$	(104,530	)
December 31, 2019	$	250	$	(28,081	)	$	—	$	250	$	(28,081	)	$	—	$	—	$	(27,831	)

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

March 31, ~~2019~~2020 (Unaudited) – (Continued)

~~Cash Flow Hedges~~Credit Risk Related Contingent Features

The Company has agreements with each of ~~Interest Rate Risk~~

~~On January 24, 2019,~~its derivative counterparties that contain a provision specifying that if the Company ~~entered into interest rate swap agreements with an aggregate $900.0 million notional amount, effective~~either defaults or is capable of being declared in default on ~~February 6, 2019 and maturing~~any of its indebtedness, the Company could also be declared in default 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%. its derivative obligations.

As of March 31, ~~2019,~~2020, the Company has not posted any collateral related to these ~~interest rate swaps were~~agreements and was not in ~~a liability position with a fair value~~breach of ~~$11.3 million, which is included~~any provisions in ~~deferred rent and other liabilities in the accompanying consolidated balance sheets. As of December 31, 2018,~~these agreements. If the Company had ~~no interest rate derivatives that were designated as cash flow hedges~~breached any of ~~interest rate risk.~~

~~During each~~these agreements, it could have been required to settle its obligations under the agreements at their aggregate termination value of ~~the three months ended~~$105.6 million at March 31, 2019 and 2018, the Company reclassified previously unrealized losses of $0.1 million from accumulated other comprehensive income into interest expense as a result of the hedged transactions impacting earnings. During the three months ended March 31, 2019, the Company recorded unrealized losses of $11.3 million for changes in the fair value of the cash flow hedges in accumulated other comprehensive income.

~~During the next twelve months, the Company estimates that an additional $1.3 million will be reclassified from other comprehensive income as an increase to interest expense.~~

~~Derivatives Not Designated as Hedging Instruments~~

As of each of March 31, 2019 and December 31, 2018, the Company had one interest rate swap that was not designated as a qualifying hedging relationship with a $50.5 million and $50.7 million notional amount, respectively. As of March 31, 2019 and December 31, 2018, this interest rate swap was in an asset position with an estimated fair value of $0.4 million and $0.5 million, respectively, which is included in rent and tenant receivables and other assets, net in the accompanying consolidated balance sheets.

A loss of less than $0.1 million for the three months ended March 31, 2019 and a gain of $0.3 million for the three months ended March 31, 2018, related to the change in the fair value of derivatives not designated as hedging instruments were recorded in (loss) gain on derivative instruments, net in the accompanying consolidated statements of operations.2020.

Note 8 – Supplemental Cash Flow Disclosures

Supplemental cash flow information was as follows for the three months ended March 31, ~~2019~~2020 and ~~2018~~2019 (in thousands):


	Three Months Ended March 31,				Three Months Ended March 31,
	2019		2018		2020		2019
Supplemental disclosures:
Cash paid for interest	$	67,588	$	72,298	$	50,638	$	67,588
Cash paid for income taxes	$	384	$	843	$	1,404	$	384
Non-cash investing and financing activities:
Unsettled share issuances	$	6,650	$	—	$	—	$	6,650
Accrued capital expenditures, tenant improvements and real estate developments	$	10,903	$	1,716	$	14,856	$	10,903
Accrued deferred financing costs					$	345	$	—
Real estate contributions to Office Partnership					$	7,494	$	—
Distributions declared and unpaid	$	139,764	$	139,405	$	150,493	$	139,764
Real estate investments received from lease related transactions					$	259	$	—

Note 9 – Accounts Payable and Accrued Expenses

Accounts payable and accrued expenses consisted of the following as of March 31, ~~2019~~2020 and December 31, ~~2018~~2019 (in thousands):


	March 31, 2019		December 31, 2018		March 31, 2020		December 31, 2019
Accrued interest	$	45,620	$	43,916	$	44,164	$	31,925
Accrued legal fees	29,676		32,715
Accrued real estate taxes	26,332		25,208
Accrued other					37,166		41,725
Accrued real estate and other taxes					25,285		25,320
Accrued legal fees and litigation settlements					17,169		25,571
Accounts payable	1,481		2,673		1,574		1,779
Accrued other	38,017		41,099
Total	$	141,126	$	145,611	$	125,358	$	126,320

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

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

March 31, ~~2019~~2020 (Unaudited) – (Continued)

Note 10 – 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~~cooperated with these regulators inthroughout their investigations.

~~In connection with these investigations, on September 8, 2016, the United States~~ The U.S. 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. 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~~concluded that it ~~does~~did not intend to bring any criminal charges against the Company arising from its ~~investigation. In addition,~~investigation and the Company ~~has not been in contact~~believes that the investigation by the Secretary of the Commonwealth of Massachusetts is no longer pending.

On November 18, 2019, the Company announced it had reached agreement 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~~Enforcement Division of ~~potential civil charges~~ the SEC ~~may bring with respect~~on the material terms of a negotiated resolution relating to ~~certain~~the SEC's investigation of the matters ~~investigated by~~disclosed in the ~~staff stemming from the announcement made on~~Company's October 29 ~~2014.~~8-K. The ~~Company has been cooperating~~agreement with the SEC ~~staff’s investigation since its inception~~staff, which is subject to documentation and ~~is engaged in such discussions with~~approval by the ~~staff. The timing and substance~~SEC's Commissioners, includes payment of ~~the ultimate resolution of these discussions is unknown.~~$8.0 million as a civil penalty.

~~As discussed below, the~~The Company and certain of its former officers and directors ~~have been~~were 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 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~~Arizona, as ~~defendants in ten securities class action complaints filed~~disclosed 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 complaintCompany’s Annual Report 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. 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 in connection with various motions to dismiss. The third amended complaint wasForm 10-K, filed on September 30, 2016 and the defendants were not required to file new answers. 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. Fact depositions were concluded at the end of 2018. At a status conference in April 2019, the court

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

~~NOTES TO CONSOLIDATED FINANCIAL STATEMENTS~~

~~March 31, 2019 (Unaudited)~~ – ~~(Continued)~~

denied the summary judgment motions filed by the defendants. The court also set a schedule for expert discovery. Trial is scheduled for September 9, 2019 and a pre-trial conference is scheduled for August 19, 2019.

The Company, certain of its former officers and directors, and the OP, among others, were also 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 (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.February 26, 2020. 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 (the “Opt Out Settlement Agreements”) 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, for an aggregate payment of $127.5 million. 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 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 is the Jet Capital 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 for a payment of $90 million. The Settlement Agreement contains mutual releases by both Plaintiffs~~consolidated class action and the ~~Company, although~~consolidated derivative action, which were approved by the ~~Company retains~~court on January 21, 2020. Final judgments dismissing these actions were entered on January 22, 2020. All of the ~~right to pursue any and all claims against the other defendants~~remaining derivative actions which were not included 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% 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~~were dismissed 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 of 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 approximately $245.4 million. Of the $27.9 million in payments referenced above, $12.2 million is recorded in “Insurance Recoveries, Net of Litigation and Non-Routine Costs” in the accompanying consolidated statement of operations forprejudice during the three months ended March 31, ~~2019, and the balance was recorded in the Company’s consolidated financial statements for the year ended December 31, 2018.~~

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 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 behalf2020. All of the ~~Company for alleged breaches~~individual securities actions were settled prior to the end of ~~fiduciary duty, among other claims. Fact discovery and summary judgment briefing in~~2019.

Purchase Commitments

In the ~~Witchko Action was coordinated with the SDNY Consolidated Securities Class~~

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

~~NOTES TO CONSOLIDATED FINANCIAL STATEMENTS~~

~~March 31, 2019 (Unaudited)~~ – ~~(Continued)~~

Action. At the April 2019 status conference, the court denied the summary judgement motions in the SDNY Derivative Action as premature, with leave to refile at a later date. The court has not yet set a trial date in the SDNY Derivative Action.

~~On December 3, 2015,~~business, 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.

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.

There can be no assurance as to whether or how the 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 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, the applicable methodology for determining any damages for each of the differententers into various types of ~~claims, the extent~~commitments 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~~purchase real estate properties. These commitments 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 begenerally subject ~~to customary conditions, including confirmatory discovery and court approval following notice~~ to the Company’s ~~stockholders,~~customary due diligence process and, ~~provided that the defendants would not object to~~accordingly, a ~~payment~~number of ~~up to $625,000 for attorneys’ fees. If the parties enter into a stipulation of settlement, which has not occurred, a hearing will~~specific conditions must 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.

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

~~NOTES TO CONSOLIDATED FINANCIAL STATEMENTS~~

~~March 31, 2019 (Unaudited)~~ – ~~(Continued)~~

~~Purchase Commitments~~

~~The Company enters into purchase and sale agreements and deposits funds into escrow towards the purchase of real estate assets. As of March 31, 2019,~~met before the Company ~~was a party to three purchase and sale agreements with unaffiliated third-party sellers~~is obligated to purchase ~~a 100% interest in seven properties, subject to meeting certain criteria, for an aggregate purchase price of $80.6 million, exclusive of closing costs. As of March 31, 2019,~~ the Company had $0.8 million 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.properties.

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.

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

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

March 31, 2020 (Unaudited) – (Continued)

Note 11 -– Leases

Lessor

The Company is the lessor for its ~~3,980~~3,853 retail, restaurant, office and industrial ~~operating~~ properties. The Company’s operating and direct financing leases have non-cancelable lease terms of 0.02 years to ~~25.9~~24.8 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 March 31,						Three Months Ended March 31,
	2019			2018			2020			2019
Fixed:
Cash rent	$	282,575		$	280,888		$	269,583		$	282,575
Straight-line rent	7,412			10,965			2,055			7,412
Lease intangible amortization	(731		)	(1,487		)	(748		)	(731		)
Property operating cost reimbursements							1,428			1,464
Sub-lease ⁽¹⁾	5,489			3,929			5,263			5,489
Total fixed	$	294,745		$	294,295		277,581			296,209

Variable⁽²⁾	21,881			20,514			20,815			20,417
Income from direct financing leases	217			265			190			217
Total rental revenue	$	316,843		$	315,074		$	298,586		$	316,843

____________________________________


(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.

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

~~NOTES TO CONSOLIDATED FINANCIAL STATEMENTS~~

~~March 31, 2019 (Unaudited)~~ – ~~(Continued)~~

The following table presents future minimum operating lease payments due to the Company over the next five years and thereafter as of March 31, 2020 (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⁾		Future Minimum Operating Lease Payments		Future Minimum Direct Financing Lease Payments ⁽¹⁾
April 1, 2019 - December 31, 2019	$	826,040	$	1,821
2020	1,090,167		2,135
April 1, 2020 - December 31, 2020					$	795,563	$	1,601
2021	1,053,841		2,014		1,043,693		2,014
2022	984,204		1,925		974,602		1,925
2023	902,076		1,541		906,989		1,565
2024					829,484		510
Thereafter	5,415,482		707		4,900,832		824
Total	$	10,271,810	$	10,143	$	9,451,163	$	8,439


(1)	Related to 24 ~~properties~~19 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.

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

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

March 31, 2020 (Unaudited) – (Continued)

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 ~~0.2~~0.1 years to ~~80.4~~79.4 years, some of which include options to extend. The weighted average remaining lease term for the Company’s operating leases was ~~16.8~~16.2 years as of March 31, ~~2019.~~2020. 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 March 31, ~~2019.~~2020. 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.

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 months ended March 31, 2020 and 2019 (in thousands):



	Three Months Ended March 31,
	2020			2019
Operating lease cost ⁽¹⁾	$	7,575		$	6,978
Sublease income ⁽²⁾	$	(5,263	)	$	(5,489	)

Three Months Ended March 31, 2019
Operating lease cost ⁽¹⁾
$ 6,978
Sublease income ⁽²⁾
$ (5,489 )

___________________________________


(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 $3.4 million and operating lease liabilities by $3.6 million, for non-cash activity related to dispositions and lease ~~modifications.~~

~~Table of Contents~~

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

~~NOTES TO CONSOLIDATED FINANCIAL STATEMENTS~~

modifications during the three months ended March 31, ~~2019 (Unaudited)~~ – ~~(Continued)~~

2019. During the three months ended March 31, 2020, the Company reduced the right-of-use assets and operating lease liabilities each by $0.6 million.

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 March 31, ~~2019~~2020 (in thousands).

Future Minimum Lease Payments
March 31, 2019
April 1, 2019 - December 31, 2019 $ 16,572
2020 22,963
2021 22,534
2022 22,367
2023 21,106
Thereafter 244,171
Total 349,713
Less: imputed interest 121,593
Total $ 228,120

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		Future Minimum Lease Payments
	December 31, 2018
2019	$	18,479
2020	18,191
April 1, 2020 - December 31, 2020			$	16,568
2021	17,929		22,099
2022	18,118		21,938
2023	17,772		21,591
2024			21,037
Thereafter	196,670		225,460
Total	$	287,159	328,693
Less: imputed interest			111,126
Total			$	217,567

Note 12 – 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 March 31, ~~2019,~~2020, the General Partner had approximately ~~971.6 million~~1.1 billion shares of Common Stock issued and outstanding.

Additionally, the Operating Partnership had approximately ~~971.6 million~~1.1 billion General Partner OP Units issued and outstanding as of March 31, ~~2019,~~2020, corresponding to the General Partner’s outstanding shares of Common Stock.

~~Common Stock Continuous Offering Program~~

On September 19, 2016, the Company registered a continuous equity offering program (“the Prior Program”) pursuant to which the Company could offer and sell, from time to time, 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 and during the three months ended March 31, 2019, the Company issued 3.3 million shares of Common Stock pursuant to the Prior Program at a weighted average price per share of $8.46, for gross proceeds of $28.0 million. The weighted average price per share, net of offering costs, was $8.33, for net proceeds of $27.5 million. Aggregate shares issued under the Prior Program, including those issued subsequent to the three months ended March 31, 2019, totaled 5.0 million, 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.

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

March 31, ~~2019~~2020 (Unaudited) – (Continued)

~~On April 15, 2019, the~~Common Stock Continuous Offering Program

The Company ~~established~~has 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 ~~(collectively, the “Offering”~~(the “ATM Program”). The proceeds from any sale of shares inunder the ~~Offering~~ATM Program have been or will be used for general corporate purposes, which may include funding potential acquisitions and repurchasing or repaying outstanding indebtedness. ~~The Offering replaced~~

There were 0 issuances under the ~~Prior~~ATM Program during the three months ended March 31, 2020. As of March 31, 2020, the Company had $663.3 million available to be sold under the ATM Program.

Series F Preferred Stock and Series F Preferred OP Units

As of March 31, 2019, there were approximately 42.9 million shares of Series F Preferred Stock (and approximately 42.9 million corresponding General Partner Series F Preferred Units) and 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 was 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 PF.PRF. The Series F Preferred Units contain the same terms as the Series F Preferred Stock.

As of March 31, 2020, there were approximately 30.9 million shares of Series F Preferred Stock, approximately 30.9 million corresponding General Partner Series F Preferred Units and 49,766 Limited Partner Series F Preferred Units issued and outstanding.

Limited Partner OP Units

As of March 31, ~~2019~~2020 the Operating Partnership had approximately ~~23.7~~0.8 million Limited Partner OP Units outstanding.

As of March 31, 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.

Common Stock Dividends

On February ~~20, 2019,~~25, 2020, the Company’s Board of Directors declared a quarterly cash dividend of $0.1375 per share of Common Stock (equaling an annualized dividend rate of $0.55 per share) for the first quarter of ~~2019~~2020 to stockholders of record as of March ~~29, 2019,~~31, 2020, which was paid on April 15, ~~2019.~~2020. An equivalent distribution by the Operating Partnership is applicable per OP Unit.

Share Repurchase Program

~~On May 3, 2018, the Company’s Board of Directors terminated its prior~~The Company has a share repurchase program ~~and authorized a new program~~ (the ~~“2018~~“2019 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. On May 6, 2019, the Company’s Board of Directors authorized a new 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,~~2019 Share Repurchase Program, 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 do~~2019 Share Repurchase Program program does not obligate the Company to make any repurchases at a specific time or in a specific situation and repurchases are ~~subject to~~influenced by prevailing market conditions, the trading price of the Common Stock, the Company’s financial performance and other conditions. Shares of Common Stock repurchased by the Company under the ~~share repurchase programs,~~2019 Share Repurchase Program program, if any, will be returned to the status of authorized but unissued shares of Common Stock.

There were 0 share repurchases under the 2019 Share Repurchase Program during the three months ended March 31, 2020. As of March 31, 2020, the Company had $200.0 million available for share repurchases under the 2019 Share Repurchase Program.

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

March 31, ~~2019~~2020 (Unaudited) – (Continued)

There were no share repurchases under the 2018 Share Repurchase Program during the first quarter of 2019. As of March 31, 2019, the Company had $194.4 million available for share repurchases under the 2018 Share Repurchase Program and had 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.

~~Common Stock Repurchases to Settle Tax Obligations~~

Under the General Partner’s Equity Plan, participants have the option to have the General Partner repurchase shares vesting from awards made under the Equity Plan in order to satisfy the minimum federal and state tax withholding obligations. During the three months ended March 31, 2019, the General Partner repurchased approximately 0.2 million shares to satisfy the federal and state tax withholding obligations on behalf of employees that made this election.

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 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 next six 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 for the three months ended March 31, 2019. Substantially all of the Cole Capital segment financial results are reflected in the financial statements as discontinued operations. There were no discontinued operations or cash flows for the three months ended March 31, 2019.

~~The following is a summary of the financial information for discontinued operations for the three months ended March 31, 2018 (in thousands):~~

Three Months Ended March 31, 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 (loss)
3,415
Loss on disposition and assets held for sale (2,009 )
Income before taxes
1,406
Benefit from income taxes 2,095
Income from discontinued operations, net of income taxes
$ 3,501

~~Table of Contents~~

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

~~NOTES TO CONSOLIDATED FINANCIAL STATEMENTS~~

~~March 31, 2019 (Unaudited)~~ – ~~(Continued)~~

~~The following is a summary of cash flows related to discontinued operations for the three months ended March 31, 2018 (in thousands):~~

Three Months Ended March 31,
2018
Cash flows related to discontinued operations:
Net cash used in operating activities $ (10,662 )
Cash flows from investing activities $ 123,925

~~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”) 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 13 —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.

During the three months ended March 31, 2018, the Company earned $7.9 million of offering-related, transaction services and management fees and reimbursements from the Cole REITs. No such fees were earned during the three months ended March 31, 2019.

~~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 three months ended March 31, 2018, to the Cole Purchaser, retaining interests in the Cole REITs. As of March 31, 2019 and December 31, 2018, the Company owned aggregate equity investments of $7.6 million and $7.8 million, respectively, in the Cole REITs. During the three months ended March 31, 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 (loss) income, net in the accompanying consolidated statement of operations. During the three months ended March 31, 2019, the Company recognized a loss of $0.3 million related to the change in fair value from the carrying value at December 31, 2018, which is included in other (loss) income, net in the accompanying consolidated statement of operations.

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

The General Partner’s unvested 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 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.

~~Table of Contents~~

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

~~NOTES TO CONSOLIDATED FINANCIAL STATEMENTS~~

~~March 31, 2019 (Unaudited)~~ – ~~(Continued)~~

Net Income (Loss) Per Share

The following is a summary of the basic and diluted net income per share computation for the General Partner for the three months ended March 31, ~~2019~~2020 and ~~2018~~2019 (dollar amounts in thousands):

Three Months Ended March 31,
2019 2018
Income from continuing operations $ 70,971
$ 29,036
Noncontrolling interests’ share in continuing operations (1,667 ) (658 )
Net income from continuing operations attributable to the General Partner 69,304

28,378
Dividends to preferred shares and units (17,973 ) (17,973 )
Net income from continuing operations available to the General Partner 51,331
10,405
Earnings allocated to participating securities —
(11 )
Income from discontinued operations, net of income taxes —
3,501
Income from discontinued operations attributable to limited partners —
(84 )
Net income available to common stockholders used in basic net income per share 51,331

13,811
Income attributable to limited partners 1,695
782
Net income available to common stockholders used in basic and diluted net income per share $ 53,026

$ 14,593

Weighted average number of Common Stock outstanding - basic 968,460,296
972,663,193
Effect of Limited Partner OP Units and dilutive securities 24,838,018
24,044,144
Weighted average number of common shares - diluted 993,298,314

996,707,337

Basic and diluted net income per share from continuing operations attributable to common stockholders $ 0.05
$ 0.01
Basic and diluted net income per share from discontinued operations attributable to common stockholders $ —
$ 0.00
Basic and diluted net income per share attributable to common stockholders $ 0.05
$ 0.01



	Three Months Ended March 31,
	2020			2019
Net income	$	86,863		$	70,971
Net income attributable to non-controlling interests	(55		)	(1,667		)
Net income attributable to the General Partner	86,808			69,304
Dividends to preferred shares and units	(12,948		)	(17,973		)
Net income available to common stockholders used in basic net income per share	73,860			51,331
Income attributable to limited partners	62			1,695
Net income used in diluted net income per share	$	73,922		$	53,026

Weighted average number of Common Stock outstanding - basic	1,077,937,799			968,460,296
Effect of Limited Partner OP Units and dilutive securities	1,813,441			24,838,018
Weighted average number of common shares - diluted	1,079,751,240			993,298,314

Basic and diluted net income per share attributable to common stockholders	$	0.07		$	0.05

~~The following were excluded from diluted net income per share attributable to common stockholders, as the effect would have been antidilutive:~~

Three Months Ended March 31,
2019 2018
Weighted average unvested Restricted Shares —
66,106

~~Table of Contents~~

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

~~NOTES TO CONSOLIDATED FINANCIAL STATEMENTS~~

~~March 31, 2019 (Unaudited)~~ – ~~(Continued)~~

Net Income (Loss) Per Unit

The following is a summary of the basic and diluted net income per unit attributable to common unitholders, which includes all common General Partner unitholders and limited partner unitholders, for the three months ended March 31, ~~2019~~2020 and ~~2018~~2019 (dollar amounts in thousands):

Three Months Ended March 31,

2019 2018
Income from continuing operations $ 70,971
$ 29,036
Noncontrolling interests’ share in continuing operations 28
40
Net income from continuing operations attributable to the Operating Partnership $ 70,999
$ 29,076
Dividends to preferred units (17,973 ) (17,973 )
Net income from continuing operations available to the Operating Partnership 53,026

11,103
Earnings allocated to participating units —
(11 )
Income from discontinued operations, net of income taxes —
3,501
Net income available to common unitholders used in basic and diluted net income per unit $ 53,026
$ 14,593

Weighted average number of common units outstanding - basic 992,176,204
996,411,540
Effect of dilutive securities 1,122,110
295,797
Weighted average number of common units - diluted 993,298,314
996,707,337

Basic and diluted net income per unit from continuing operations attributable to common unitholders $ 0.05
$ 0.01
Basic and diluted net income per unit from discontinued operations attributable to common unitholders $ —
$ 0.00
Basic and diluted net income per unit attributable to common unitholders $ 0.05

$ 0.01

~~The following were excluded from diluted net income per unit attributable to common unitholders, as the effect would have been antidilutive:~~

Three Months Ended March 31,
2019 2018
Weighted average unvested Restricted Shares —
66,106



	Three Months Ended March 31,
	2020			2019
Net income	$	86,863		$	70,971
Net loss attributable to non-controlling interests	7			28
Net income attributable to the Operating Partnership	86,870			70,999
Dividends to preferred units	(12,948		)	(17,973		)
Net income used in basic and diluted net income per unit	$	73,922		$	53,026

Weighted average number of common units outstanding - basic	1,078,721,119			992,176,204
Effect of dilutive securities	1,030,122			1,122,110
Weighted average number of common units - diluted	1,079,751,241			993,298,314

Basic and diluted net income per unit attributable to common unitholders	$	0.07		$	0.05

Note 1614 – Subsequent Events

Impact of the COVID-19 Pandemic

The ~~following events occurred~~Company continues to monitor the COVID-19 pandemic subsequent to the quarter ended March 31, ~~2019:~~

~~Real Estate Investment Activity~~

~~From April 1, 2019 through May 1, 2019~~2020. Thus far, COVID-19 has impacted all states where our tenants operate their businesses or where our properties are located and measures taken to prevent or remediate the spread and impact of COVID-19, including “shelter-in-place” or “stay-at-home” orders or other quarantine mandates issued by local, state or federal authorities, have had an adverse effect on our business and the businesses of certain of our tenants. The Company ~~disposed of 14 properties~~continues to review receivables related to rent, straight-line rent and property operating expense reimbursements for ~~an aggregate gross sales price of $175.8 million, of which nine were held for sale with an aggregate~~collectability and changes in circumstances that could indicate the carrying value of $22.4 million as of March 31, 2019. The Company’s share of the aggregate sales price was $173.0 million with an estimated gain of $69.3 million. In addition, the Company acquired three properties for an aggregate purchase price of $44.2 million, excluding capitalized external acquisition-related expenses.

~~Common Stock Dividend~~

On May 6, 2019, the Company’s Board of Directors declared a quarterly cash dividend of $0.1375 per share of Common Stock (equaling an annualized dividend rate of $0.55 per share) for the second quarter of 2019 to stockholders of record as of June 28, 2019, which willits real estate assets or goodwill may not be ~~paid on July 15, 2019. An equivalent distribution by the Operating Partnership is applicable per OP Unit.~~recoverable.

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

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

March 31, ~~2019~~2020 (Unaudited) – (Continued)

Real Estate Investment Activity

From April 1, 2020 through May 7, 2020 the Company disposed of 6 properties, for an aggregate gross sales price of $55.3 million, of which 2 properties were held for sale with an aggregate carrying value of $43.0 million as of March 31, 2020. The Company’s share of the aggregate sales price was $54.5 million with an estimated gain of $6.5 million.

There were 0 acquisitions from April 1, 2020 through May 7, 2020.

Common Stock Dividend

On May 18, 2020, the Company’s Board of Directors declared a quarterly cash dividend of $0.077 per share of Common Stock for the second quarter of 2020 to stockholders of record as of June 30, 2020, which will be paid on July 15, 2020. An equivalent distribution by the Operating Partnership is applicable per OP Unit.

Preferred Stock Dividend

On May ~~6, 2019,~~18, 2020, the Company’s Board of Directors declared a monthly cash dividend to holders of the Series F Preferred Stock for July ~~2019~~2020 through September ~~2019~~2020 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
June 15, ~~2019~~2020 - July 14, ~~2019~~2020	July 1, ~~2019~~2020	July 15, ~~2019~~2020
July 15, ~~2019~~2020 - August 14, ~~2019~~2020	August 1, ~~2019~~2020	August ~~15, 2019~~17, 2020
August 15, ~~2019~~2020 - September 14, ~~2019~~2020	September 1, ~~2019~~2020	September ~~16, 2019~~15, 2020

~~Continuous Equity Offering Program~~

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 (collectively, the “Offering”). The proceeds from any sale of shares in the Offering will be used for general corporate purposes, which may include funding potential acquisitions and repurchasing or repaying outstanding indebtedness. The Offering replaced the Prior Program. Aggregate shares issued under the Prior Program, including those issued subsequent to the three months ended March 31, 2019, totaled 5.0 million, 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.

~~Share Repurchase Program~~

On May 6, 2019, the Company’s Board of Directors authorized a new share repurchase program that permits the company to repurchase up to $200.0 million of its outstanding Common Stock through May 6, 2022. This new program has similar terms to the 2018 Share Repurchase Program.

~~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 "Risk Factors" in Part I, Item 1A. of the Company’s Annual Report on Form 10-K for the year ended December 31, ~~2018.~~2019, as supplemented in Part II, Item 1A. of this Quarterly Report on Form 10-Q. 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~~which reflect our expectations and projections ~~about~~regarding future events and plans, future financial condition, results of operations, liquidity and business, including acquisitions, rent receipts, rent relief requests, debt levels, the payment of future dividends and the impact of COVID-19 on our ~~future results, performance, prospects and opportunities. We have attempted to identify these forward-looking statements by~~business. Generally, the ~~use of~~ words ~~such as~~“anticipates,” “assumes,” “believes,” “continues,” “could,” “estimates,” “expects,” “goals,” “intends,” “may,” “plans,” “projects,” “seeks,” “should,” “targets,” “will,” ~~“seek,” “expects,” “anticipates,” “believes,” “targets,” “intends,” “should,” “estimates,” “could,” “continue,” “assume,” “projects,” “plans” or~~variations of such words and similar ~~expressions.~~expressions identify forward-looking statements. These forward-looking statements are based on information currently available ~~to us~~ and ~~are subject to~~involve a number of known and unknown assumptions and risks, uncertainties and other factors, which may be difficult to predict and beyond the Company’s control, that ~~may~~could cause actual events and plans or could cause our ~~actual~~business, financial condition, liquidity and results ~~performance or achievements~~of operations to bediffer materially ~~different~~ from ~~any future results, performance or achievements~~those expressed or implied ~~by these~~in the 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.~~applicable. We ~~do not undertake~~disclaim any obligation to publicly to update or revise any forward-looking statements, whether as a result of changes in underlying assumptions or factors, new information, future events or otherwise, except as may be required ~~to satisfy our obligations under federal securities~~by 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:

The duration and extent of the impact of the coronavirus (COVID-19) on our business and the businesses of our tenants (including their ability to timely make rental payments) and the economy generally.

Federal or state legislation or regulation that could impact the timely payment of rent by tenants in light of COVID-19.

Our plans, market and other expectations, objectives, intentions and other statements that are not historical facts.

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.

We may be subject to risks accompanying the management of our industrial and office partnerships.

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

We could be subject to unexpected costs or 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~~including that we may be unable to acquire, dispose of, or lease properties on advantageous ~~terms.~~terms or at all.

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.~~

Wetenants, which are ~~subject to risks associated with pending government investigations relating to the findings~~heightened as a result of the ~~Audit Committee Investigation and related litigation, including the expense of such investigations and litigation and any additional potential payments upon resolution.~~coronavirus (COVID-19) pandemic.

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 London Inter-Bank Offer Rate (“LIBOR”) after 2021.

Our overall borrowing and operating flexibility may be adversely affected by the terms and restrictions within the indenture governing the ~~Senior Notes,~~senior unsecured notes (the “Senior Notes”), and the Credit Agreement governing the terms of the Credit ~~Facility.~~Facility (as both terms are defined in Liquidity and Capital Resources), and compliance with such covenants may be more difficult as a result of the impact of COVID-19.

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 ~~REIT~~real estate investment trust (“REIT”) for U.S. federal income tax purposes.

We are subject to risks associated with our joint ventures including their management.

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

We may be unable to retain or hire key personnel.

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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, ~~2018.~~2019, as supplemented in Part II, Item 1A. of this Quarterly Report on Form 10-Q.

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 our pro rata share of such revenues from properties owned by unconsolidated joint ventures. Annualized rental income excludes any ~~bad debt allowances and any~~adjustments to rental income due to changes in the collectability assessment, contingent rent, such as percentage ~~rent.~~rent, and operating expense reimbursements. 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, ~~and beginning in 2017,~~ omitting ~~Excluded Properties.~~properties (the “Excluded Properties” ~~are defined as 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. At and during the three months ended March 31, 2020 and 2019, there were no Excluded Properties.

Effective April 1, 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 March 31, ~~2019,~~2020, our portfolio was comprised of ~~3,980~~3,853 retail, restaurant, office and industrial real estate properties with an aggregate ~~of 94.7~~88.4 million square feet, of which ~~98.9%~~99.0% was leased, with a weighted-average remaining lease term of ~~8.7~~8.3 years. AsOmitting 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 an aggregate of 89.5 million square feet, of which 99.1% was leased, with a weighted-average remaining lease term of 8.3 years as of March 31, ~~2019, there were no Excluded Properties. As of March 31, 2018, one vacant industrial property was considered an Excluded Property.~~2020.

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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 ~~3,980~~3,853 retail, restaurant, office and industrial operating properties with an aggregate ~~94.7~~89.5 million rentable square feet, ~~and economic occupancy rate~~ of ~~98.9%~~which 99.1% was leased as of March 31, ~~2019,~~2020, with a weighted-average remaining lease term of ~~8.7~~8.3 years.

Operating Highlights and Key Performance Indicators

~~2019~~ Activity through March 31, 2020

Operations

Acquired controlling financial interests in ~~eight~~25 commercial properties for an aggregate purchase price of ~~$81.1~~$147.1 million, which includes ~~$0.3~~one land parcel for build-to-suit development and $0.9 million of external acquisition-related expenses that were capitalized.

Disposed of 2230 properties, including the sale of two consolidated properties to a newly-formed joint venture (the “Office Partnership”), for an aggregate gross sales price of ~~$66.0~~$152.2 million, of which ~~the Company’s~~our share was ~~$62.1~~$150.5 million, resulting in proceeds of ~~$60.5~~$140.4 million after closing ~~costs.~~costs and contributions to the Office Partnership. The Company recorded a gain of ~~$10.8~~$25.2 million related to the sales.

~~The Company’s 2019 Senior Notes matured and the principal outstanding~~Debt

Initiated an additional draw, in excess of ~~$750.0~~normal operating requirements, of $600.0 million ~~plus accrued and unpaid interest thereon, was repaid utilizing borrowings under the~~on our Revolving Credit ~~Facility.~~Facility to enhance cash position.


•	Total secured debt decreased by$121.3 million, from $1.5 billion to $1.4 billion.

Equity

Declared a quarterly dividend of $0.1375 per share of Common Stock for the first quarter of ~~2019,~~2020, representing an annualized dividend rate of $0.55 per share.

Issued 3.3 million shares of Common Stock pursuant to the continuous equity offering program at a weighted average price per share of $8.46, for gross proceeds of $28.0 million. The weighted average price per share, net of offering costs, was $8.33, for net proceeds of $27.5 million. Aggregate shares issued under the continuous equity offering program, including shares issued subsequent to March 31, 2019, totaled 5.0 million 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.

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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 March 31, ~~2019,~~2020, based on annualized rental income of ~~$1.2~~$1.1 billion.


(1)	Includes redevelopment property, billboards, construction in progress, land and parking lots.

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Our financial performance is influenced by the timing of acquisitions and dispositions and the operating performance of our ~~real estate~~operating properties. The following table shows the property statistics of our operating properties ~~excluding properties owned through our unconsolidated joint ventures~~ as of March 31, ~~2019~~2020 and ~~2018:~~2019:


	March 31, 2019	March 31, 2018	March 31, 2020	March 31, 2019
Portfolio Metrics
Operating properties	3,980	4,063	3,853	3,980
Rentable square feet (in millions)⁽¹⁾	94.7	94.7	89.5	94.7
Economic occupancy rate ⁽¹⁾⁽²⁾	98.9%	98.7%	99.1%	98.9%
Investment-grade tenants⁽³⁾	41.3%	42.9%
Investment-grade tenants⁽¹⁾⁽³⁾			36.7%	41.3%

(1)

As of March 31, 2020, rentable square feet, economic occupancy rate and annualized rental income include the Company’s pro rata share of square feet and annualized rental income from the Company’s unconsolidated joint ventures. As of March 31, 2020, rentable square feet and economic occupancy rate exclude one redevelopment property. As of March 31, 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 rentable square feet.

(3)

Based on annualized rental income of our real estate portfolio as of March 31, 2020 and 2019, respectively. 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 March 31, ~~2019~~2020 and ~~2018:~~2019:


	March 31, 2019	March 31, 2018	March 31, 2020	March 31, 2019
Economic Metrics
Weighted-average lease term (in years) ⁽¹⁾	8.7	9.3	8.3	8.7
Lease rollover: ⁽²⁾⁽¹⁾
Annual average	5.7%	5.1%	6.6%	5.7%
Maximum for a single year	7.7%	7.5%	10.9%	7.7%


(1)	~~Based on annualized rental income of our real estate portfolio as of March 31, 2019.~~


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

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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 March 31,
2019 2018
Financial Metrics
Revenues⁽¹⁾
$ 316,843
$ 315,074
Income from continuing operations $ 70,971
$ 29,036
Income from discontinued operations, net of income taxes $ —
$ 3,501

Income from continuing operations attributable to common stockholders per diluted share⁽²⁾
$ 0.05
$ 0.01
Income from discontinued operations attributable to common stockholders per diluted share⁽²⁾
—
0.00
Net income attributable to common stockholders per diluted share⁽²⁾
$ 0.05
$ 0.01

FFO attributable to common stockholders and limited partners from continuing operations⁽³⁾
$ 190,304
$ 164,691
FFO attributable to common stockholders and limited partners from discontinued operations⁽³⁾
—
3,501
FFO attributable to common stockholders and limited partners⁽³⁾
$ 190,304
$ 168,192

AFFO attributable to common stockholders and limited partners from continuing operations⁽³⁾
$ 178,403
$ 180,854
AFFO attributable to common stockholders and limited partners from discontinued operations⁽³⁾
—
3,202
AFFO attributable to common stockholders and limited partners⁽³⁾
$ 178,403
$ 184,056

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



	Three Months Ended March 31,
	2020		2019
Financial Metrics
Total revenues	$	299,182	$	316,880

Net income	$	86,863	$	70,971
Basic and diluted net income per share attributable to common stockholders	$	0.07	$	0.05

FFO attributable to common stockholders and limited partners ⁽¹⁾	$	181,822	$	190,304
AFFO attributable to common stockholders and limited partners ⁽¹⁾	$	180,974	$	178,403
AFFO attributable to common stockholders and limited partners per diluted share⁽¹⁾	$	0.17	$	0.18


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


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


~~(3)~~	See the “Non-GAAP Measures” section below for descriptions of our non-GAAP measures and reconciliations to the most comparable measure in accordance with generally accepted accounting principles in the United States (“U.S. ~~GAAP measure.~~GAAP”).

Results of Operations

~~On February 1, 2018,~~The coronavirus (“COVID-19”) has impacted all states where our tenants operate their businesses or where our properties are located, and measures taken to prevent or remediate COVID-19, including “shelter-in-place” or “stay-at-home” orders or other quarantine mandates issued by local, state or federal authorities, have had an adverse effect on our business and the businesses of our tenants. While we did not incur significant disruptions to our business during the three months ended March 31, 2020 from the COVID-19 pandemic, the full extent of the impact on our business, financial condition, liquidity and results of operations is uncertain.

Our dedicated property type asset management teams have been in discussion with tenants to understand the impact of COVID-19 on their businesses. As of May 15, 2020, the Company ~~sold substantially all~~received certain rent relief requests, most often in the form of ~~Cole Capital,~~rent deferral requests, from tenants representing approximately 34% of rental income on an annualized basis, including some tenants that paid April and May rent. These rent relief requests vary in timeframes, but are concentrated within the two to four month range. We evaluate each tenant request on a case-by-case basis, including by analyzing metrics such as industry segment, corporate financial health, rent coverage, and the tenant's liquidity. As of May 15, 2020, we had received approximately 81% and 78% of April and May rent, respectively, which ~~is presented~~included contractual rent and recoveries paid by tenants to cover estimated tax, insurance and common area maintenance expenses, including the Company's pro rata share of such amounts related to properties owned by unconsolidated joint ventures, and approximately 2% of May rent to be paid in arrears by a Government agency tenant. However, information regarding historical rent collections should not serve as ~~discontinued operations for all periods presented. The Company’s continuing operations represent primarily those~~an indication of ~~the real estate investment segment. The~~expected future rent collections. We continue to review receivables related to rent, straight-line rent and property operating expense reimbursements ~~line item has been combined into rental revenue~~ for ~~prior periods presented~~collectability and changes in circumstances that could indicate the carrying value of our real estate assets or goodwill may not be recoverable. Additionally, given the economic uncertainty and rapidly-evolving circumstances related to ~~be consistent~~COVID-19, we are not currently able to predict the level of acquisition and/or disposition activity for the remainder of 2020.

The Financial Accounting Standards Board (the “FASB”) issued a question-and-answer document, Accounting for Lease Concessions Related to the Effects of the COVID-19 Pandemic, which, for concessions related to the effects of COVID-19, allows an entity to elect to not analyze each contract to determine whether enforceable rights and obligations for concessions exist in the contract and to elect to apply or not apply the lease modification guidance in Accounting Standards Codification (“ASC”) Topic 842, Leases (“ASC 842”), to those contracts. For concessions that provide a deferral of payments with no substantive changes to the ~~current year presentation.~~consideration in the original contract, we can evaluate whether to (i) account for these concessions as if there were no changes made to the lease agreement and accordingly, increase the lease receivable and continue to recognize income or, (ii) account for the rent deferrals as variable lease payments. Concessions that substantively increase the consideration in the original contract are accounted for as a lease modification under ASC 842, which will require us to reevaluate the lease classification and remeasure and reallocate the consideration over the remaining lease term. We are currently evaluating the impact of this guidance and which elections, if any, we will make for the quarter-ending June 30, 2020.

~~Rental Revenue~~Revenues

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

Three Months Ended March 31,
2019 2018 2019 vs 2018
Increase/(Decrease)
Rental revenue $ 316,843
$ 315,074
$ 1,769

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	Three Months Ended March 31,
	2020		2019		2020 vs 2019 Increase/(Decrease)
Revenues:
Rental	$	298,586	$	316,843	$	(18,257	)
Fees from managed partnerships	596		37		559
Total revenues	$	299,182	$	316,880	$	(17,698	)

Rental

The decrease in rental revenue ~~remained relatively constant, increasing less than 1.0%,~~of $18.3 million during the three months ended March 31, ~~2019~~2020 as compared to the same period in ~~2018. The increase in rental revenue related~~2019 was primarily due to real estate ~~acquisitions was substantially~~dispositions, partially offset by ~~the decrease in rental revenue related to~~ real estate ~~dispositions.~~acquisitions. Subsequent to January 1, 2019, the Company acquired 91 occupied properties for an aggregate purchase price of $550.7 million and disposed of 231 consolidated properties for an aggregate sales price of $1.3 billion.

Fees from Managed Partnerships

Fees from managed partnerships consist of fees earned for providing various services to the Company’s unconsolidated joint venture entities. The increase of $0.6 million during the three months ended March 31, 2020 as compared to the same period in 2019 was due to fees earned from the Industrial Partnership and Office Partnership, which were formed subsequent to March 31, 2019.

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~~(in thousands):


	Three Months Ended March 31,								Three Months Ended March 31,
	2019			2018		2019 vs 2018 Increase/(Decrease)			2020			2019			2020 vs 2019 Increase/(Decrease)
Acquisition-related	$	985		$	777	$	208		$	1,523		$	985		$	538
Insurance recoveries, net of litigation and non-routine costs	(21,492		)	21,740		(43,232		)
Litigation and non-routine costs, net									(8,564		)	(21,492		)	12,928
Property operating	32,378			30,565		1,813			30,490			32,378			(1,888		)
General and administrative	14,846			15,240		(394		)	15,056			14,846			210
Depreciation and amortization	136,555			166,152		(29,597		)	124,080			136,555			(12,475		)
Impairments	11,988			6,036		5,952			8,380			11,988			(3,608		)
Restructuring	9,076			—		9,076			—			9,076			(9,076		)
Total operating expenses	$	184,336		$	240,510	$	(56,174	)	$	170,965		$	184,336		$	(13,371	)

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, increased $0.2 million during~~deals.

Litigation and non-routine costs, net

During the three months ended March 31, 2020, the Company reversed $6.7 million of prior period estimated costs recorded in 2019 ~~as compared to the same period in 2018.~~

~~Insurance Recoveries, Net~~which exceeded actual expenses incurred and recorded $2.5 million of ~~Litigation~~insurance recoveries and ~~Non-Routine Costs~~

$0.6 million of litigation costs. During the three months ended March 31, 2019, the Company recorded $21.5 million of net insurance recoveries, as compared to $21.7 million of net litigation and non-routine costs during the same period in 2018. During the three months ended March 31, 2019, the Company signed a settlement and release agreement with certain insurance carriers and received $48.4 million of insurance recoveries, offset by $12.2 million of litigation settlements ~~both related to litigation filed as a result~~and $14.7 million of ~~the findings of the Audit Committee Investigation. Related~~ litigation costs, ~~decreased $7.0~~offset by $48.4 million ~~for the three months ended March 31, 2019 as compared to the same period in 2018.~~of insurance recoveries.

Property Operating Expenses

Property operating expenses such as taxes, insurance, ground rent and maintenance include both reimbursable and non-reimbursable property expenses. The ~~increase~~decrease in property operating expenses of ~~$1.8~~$1.9 million during the three months ended March 31, ~~2019~~2020 as compared to the same period in ~~2018~~2019 was primarily due to ~~additional reimbursable ground rent recorded in conjunction with~~ the ~~adoption~~impact of ~~ASC 842 on January 1, 2019.~~property dispositions.

General and Administrative Expenses

General and administrative expenses remained relatively constant during the three months ended March 31, 2020 as compared to the same period in 2019.

Depreciation and Amortization Expenses

The decrease in depreciation and amortization expenses of ~~$0.4~~$12.5 million during the three months ended March 31, ~~2019~~2020 as compared to the same period in ~~2018 was primarily due to lower professional and bank fees.~~

~~Depreciation and Amortization Expenses~~

~~The decrease of $29.6 million during the three months ended March 31,~~ 2019 ~~as compared to the same period in 2018~~ was primarily due to furniture and fixtures that were fully depreciated during ~~2018,~~2019, as they had reached the end of their useful ~~lives.~~lives, and real estate dispositions, partially offset by real estate acquisitions.

Impairments

~~The increase in impairments~~Impairments of ~~$6.0~~$8.4 million and $12.0 million were recorded during the three months ended March 31, 2020 and 2019, ~~as compared to~~respectively. During the ~~same period in 2018 was primarily due to~~three months ended March 31, 2020, certain retail and restaurant properties whose tenants filed for Chapter 11 bankruptcy were identified by management for potential sale or were determined would not be re-leased by the ~~increase in the number of properties impaired. The Company impaired 24 properties~~tenant.

Restructuring Expenses

There were no restructuring expenses recorded during the three months ended March 31, ~~2019 as compared to 12 properties during the three months ended March 31, 2018.~~

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~~Restructuring Expenses~~

2020. During the three months ended March 31, 2019, the Company recorded $9.1 million of restructuring expenses related to the reorganization of the business ~~after the sale~~and cessation of ~~its investment management segment and~~ services performed pursuant to the ~~Services Agreement.~~terms of a services agreement (the “Services Agreement”) with CCA Acquisition, LLC (the “Cole Purchaser”).

Other (Expense) Income and Provision for Income Taxes ~~and Income (Loss) 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~~(in thousands):


	Three Months Ended March 31,									Three Months Ended March 31,
	2019			2018			2019 vs 2018 Increase/(Decrease)			2020			2019			2020 vs 2019 Increase/(Decrease)
Interest expense	$	(71,254	)	$	(70,425	)	$	829		$	(64,696	)	$	(71,254	)	$	(6,558	)
Other income, net	(402		)	7,709			(8,111		)
Equity in income and gain on disposition of unconsolidated entities	500			1,065			(565		)
Loss on extinguishment and forgiveness of debt, net										$	(1,280	)	$	—		$	1,280
Other income (loss), net										$	175		$	(439	)	$	614
Equity in income of unconsolidated entities										$	246		$	500		$	(254	)
Gain on disposition of real estate and real estate assets held for sale, net	10,831			17,335			(6,504		)	$	25,249		$	10,831		$	14,418
Provision for income taxes	(1,211		)	(1,212		)	(1		)	$	(1,048	)	$	(1,211	)	$	(163	)
Income from discontinued operations, net of income taxes	—			3,501			(3,501		)

Interest Expense

~~Interest expense remained relatively constant during the three months ended March 31, 2019 as compared to the same period in 2018.~~

~~Other Income, Net~~

The decrease in interest expense of ~~$8.1~~$6.6 million during the three months ended March 31, ~~2019~~2020 as compared to the same period in ~~2018~~2019 was primarily due to ~~a $5.1 million gain~~decreases in ~~2018 from measuring~~average debt outstanding and weighted average interest rates. At March 31, 2020, the ~~Company’s investments in the Cole REITs~~weighted average interest rate was 3.96%, as compared to 4.44% at ~~fair value after the investments were no longer accounted for using the equity method with no comparable gain in the same period in~~March 31, 2019. ~~Additionally, there was a decrease in interest income from CMBS~~

Loss on Extinguishment and ~~mortgage notes receivable during~~Forgiveness of Debt, Net

During the three months ended March 31, ~~2019~~2020, the Company recorded a $1.3 million net loss on the extinguishment and forgiveness of debt, as compared to no amounts recorded for the same period in ~~2018.~~2019. During the three months ended March 31, 2020, the Company recognized losses on extinguishment of debt related to the prepayments of mortgage notes payable.

Other Income (Loss), Net

Other income (loss), net was comprised of individually immaterial items.

Equity in Income ~~and Gain on Disposition~~ of Unconsolidated Entities

The decrease in equity in income and gain on disposition of ~~$0.6~~unconsolidated entities of $0.3 million during the three months ended March 31, ~~2019~~2020 as compared to the same period in ~~2018~~2019, was primarily due to increased expenses related to the ~~result of a gain of $0.7 million recognized on the disposition and liquidation of one unconsolidated~~Faison JV Bethlehem GA joint venture, ~~owning one property during~~partially offset by equity in income from the ~~three months ended March 31, 2018, with no comparable gains recognized in the same period in 2019.~~Industrial Partnership and Office Partnership.

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

The ~~decrease~~increase in gain on disposition of real estate and real estate assets held for sale, net of ~~$6.5~~$14.4 million during the three months ended March 31, ~~2019~~2020 as compared to the same period in ~~2018,~~2019, was due to the Company’s disposition of 30 properties for an aggregate sales price of $152.2 million which resulted in a gain of $25.2 million during the three months ended March 31, 2020, as compared to the disposition of 22 properties for an aggregate sales price of $66.0 million during the same period in 2019, which resulted in a gain of $10.8 ~~million during~~million. During the three months ended March 31, ~~2019, as compared~~2020, the Company did not record any losses related to ~~the disposition of 40 properties~~held for ~~an aggregate sales price of $120.8 million during the same period in 2018 for a gain of $18.2 million.~~sale properties. During the three months ended March 31, 2019, the Company ~~also recognized~~recorded a loss of less than $0.1 million related to ~~assets classified as~~ held for sale ~~as compared to a loss of $0.9 million during the same period in 2018.~~properties.

Provision for Income Taxes

The provision for income taxes ~~remained constant during the three months ended March 31, 2019 as compared to the same period in 2018.~~

~~Income from Discontinued Operations, Net~~consists of ~~Income Taxes~~

~~The decrease in~~certain state and local income ~~from discontinued operations, net of income taxes of $3.5 million during the three months ended March 31, 2019 was primarily due to the completion of the sale of Cole Capital on February 1, 2018.~~and franchise taxes.

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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, impairment write-downs on real estate, and our pro rata share of FFO adjustments ~~for~~related to unconsolidated partnerships and joint ventures. We 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, ~~insurance recoveries, net of~~ litigation and non-routine costs, ~~loss on disposition of discontinued operations,~~net, net revenue or expense earned or incurred that is related to the ~~Services Agreement,~~ services agreement associated with a discontinued operation, gains or losses on sale of investment securities or mortgage notes receivable, ~~legal settlements and insurance recoveries not in the ordinary course of business,~~ payments on fully reserved loan receivables and 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,~~U.S. Securities and Exchange Commission (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 months ended March 31, ~~2019~~2020 and ~~2018~~2019 (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 March 31,						Three Months Ended March 31,
	2019			2018			2020			2019
Net income	$	70,971		$	32,537		$	86,863		$	70,971
Dividends on non-convertible preferred stock	(17,973		)	(17,973		)	(12,948		)	(17,973		)
Gain on disposition of real estate assets and interests in unconsolidated joint ventures, net	(10,831		)	(18,036		)	(25,249		)	(10,831		)
Depreciation and amortization of real estate assets	135,861			165,182			123,645			135,861
Impairment of real estate	11,988			6,036			8,380			11,988
Proportionate share of adjustments for unconsolidated entities	288			446			1,131			288
FFO attributable to common stockholders and limited partners	190,304			168,192			181,822			190,304
Acquisition-related expenses	985			777			1,523			985
(Insurance recoveries), net of litigation and non-routine costs	(21,492		)	21,086
Loss on disposition of discontinued operations	—			2,009
Loss (gain) on investment securities and mortgage notes receivable	470			(5,638		)
Loss (gain) on derivative instruments, net	34			(273		)
Litigation and non-routine costs, net							(8,564		)	(21,492		)
Loss on investments							541			470
Loss on derivative instruments, net							—			34
Amortization of premiums and discounts on debt and investments, net	(1,264		)	(606		)	(689		)	(1,264		)
Amortization of above-market lease assets and deferred lease incentives, net of amortization of below-market lease liabilities	731			1,487			748			731
Net direct financing lease adjustments	409			539			365			409
Amortization and write-off of deferred financing costs	3,494			5,875			2,841			3,494
Deferred and other tax expense (benefit) ⁽¹⁾	—			(1,855		)
Straight-line rent, net of bad debt expense related to straight-line rent	(7,412		)	(11,260		)
Loss on extinguishment and forgiveness of debt, net							1,280			—
Straight-line rent							(2,054		)	(7,412		)
Equity-based compensation	2,687			2,774			2,602			2,687
Restructuring expenses	9,076			—			—			9,076
Other amortization and non-cash charges, net	569			514
Other adjustments, net							228			569
Proportionate share of adjustments for unconsolidated entities	(188		)	12			331			(188		)
Adjustments for Excluded Properties	—			423
AFFO attributable to common stockholders and limited partners	178,403			184,056			$	180,974		$	178,403

Weighted-average shares of Common Stock outstanding - basic	968,460,296			972,663,193			1,077,937,799			968,460,296
Effect of Limited Partner OP Units and dilutive securities⁽²⁾	24,838,018			24,110,249
Weighted-average shares of Common Stock outstanding - diluted⁽³⁾	993,298,314			996,773,442
Effect of weighted-average Limited Partner OP Units and dilutive securities ⁽¹⁾							1,813,441			24,838,018
Weighted-average shares of Common Stock outstanding - diluted ⁽²⁾							1,079,751,240			993,298,314

AFFO attributable to common stockholders and limited partners per diluted share	$	0.18		$	0.18		$	0.17		$	0.18

(1)

~~This adjustment represents~~Dilutive securities include unvested restricted share awards (“Restricted Shares”), unvested restricted stock units (“Restricted Stock Units”) and stock options (“Stock Options”). During 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.~~ three months ended March 31, 2019, all Restricted Shares vested.


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


~~(3)~~	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 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 potential capital expenditures, tenant improvements and leasing ~~costs~~costs;

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

pay dividends;

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

fund property 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 the existing Revolving Credit Facility;

cash and cash equivalents balance; and

issuance of VEREIT debt and equity securities.

~~Continuous Equity Offering Program~~COVID-19

~~On September 19, 2016,~~As previously discussed in the ~~Company registered the Prior Program pursuant~~accompanying consolidated financial statements and related notes thereto and Management’s Discussion and Analysis of Financial Condition and Results of Operations, we did not incur significant disruptions to which the Company could offer and sell, from time to time, 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 andour business during the three months ended March 31, ~~2019,~~2020 from the COVID-19 pandemic. However, the financial impact of COVID-19 could have a material and adverse effect on our results of operations, liquidity and cash flows subsequent to March 31, 2020, in particular due to the potential (i) inability of our tenants to satisfy their rent obligations, (ii) inability of the Company ~~issued 3.3 million shares of Common Stock pursuant~~ to renew leases, lease vacant space or re-let space as leases expire on favorable terms, or at all, and (iii) difficulty for the ~~Prior Program~~Company accessing debt and equity capital on attractive terms, or at a weighted average price per share of $8.46, for gross proceeds of $28.0 million. The weighted average price per share, net of offering costs, was $8.33, for net proceeds of $27.5 million. Aggregate shares issued under the Prior Program, including those issued subsequent toall. During the three months ended March 31, ~~2019, totaled 5.0~~2020, we initiated an additional draw, in excess of normal operating requirements, of $600.0 million aton our Revolving Credit Facility to enhance our cash position. The effect of COVID-19 may also negatively impact our future compliance with financial covenants in our Credit Facility, indentures governing our Senior Notes and other debt agreements and result in a ~~weighted average price per share~~default and acceleration of ~~$8.42, for gross proceeds~~indebtedness which could negatively impact our ability to make additional borrowings under our Credit Facility. The financial impact of ~~$42.5 million.~~ COVID-19 could also negatively affect our ability to pay dividends or fund acquisitions.

Common Stock Continuous Offering Program

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.

~~On April 15, 2019, the~~ Company ~~established~~has 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 ~~(collectively, the “Offering”~~(the “ATM Program”). The proceeds from any sale of shares inunder the ~~Offering~~ATM Program have been or will be used for general corporate purposes, which may include funding potential acquisitions and repurchasing or repaying outstanding indebtedness. ~~The Offering replaced~~

There were no issuances under the ~~Company’s Prior~~ATM Program during the three months ended March 31, 2020. As of March 31, 2020, the Company had $663.3 million available to be sold under the ATM Program.

Share Repurchase Program

~~On May 3, 2018, the Company’s Board of Directors terminated its prior~~The Company has a share repurchase program ~~and authorized the 2018~~(the “2019 Share Repurchase Program, which permits the Company to repurchase up to $200.0 million of its outstanding Common Stock through May 3, 2019, as market conditions warrant. On May 6, 2019, the Company’s Board of Directors authorized a new share repurchase programProgram”) that permits the Company to repurchase up to $200.0 million of its outstanding Common Stock through May 6, 2022.

~~There were no share repurchases under~~ Under the ~~2018~~2019 Share Repurchase Program, ~~during the three months ended March 31, 2019. As~~repurchases can be made through open market purchases, privately negotiated transactions, structured or derivative transactions, including accelerated stock repurchase transactions, or other methods of ~~March 31,~~acquiring shares in accordance with applicable securities laws and other legal requirements. The 2019 ~~the Company had $194.4 million available for share repurchases under the 2018~~ Share Repurchase Program ~~through~~program does not obligate the ~~program’s expiration date~~Company to make any repurchases at a specific time or in a specific situation and repurchases are influenced by prevailing market conditions, the trading price of ~~May 3, 2019.~~the Common Stock, the Company’s financial performance and other conditions. Shares of Common Stock repurchased by the Company under the 2019 Share Repurchase Program program, if any, will be returned to the status of authorized but unissued shares of Common Stock.

There were no share repurchases under the 2019 Share Repurchase Program during the three months ended March 31, 2020. As of March 31, 2020, the Company had $200.0 million available for share repurchases under the 2019 Share Repurchase Program.

Series F Preferred Stock and Series F Preferred OP Units

Disposition Activity

As part of our effort to optimize our real estate portfolio by focusing on holding core assets, during the three months ended March 31, ~~2019,~~2020, the Company disposed of 2230 properties, including the sale of two consolidated properties to the Office Partnership, for an aggregate gross sales price of ~~$66.0~~$152.2 million, of which ~~the Company’s~~our share was ~~$62.1~~$150.5 million, resulting in ~~consolidated~~ proceeds of ~~$60.5~~$140.4 million after closing ~~costs.~~costs and contributions to the Office Partnership. We expect to continue to explore opportunities to sell additional properties to provide us further financial flexibility, ~~and fund property acquisitions.~~

~~Table~~however, due to current economic circumstances, we may not be able to dispose of ~~Contents~~

properties on advantageous terms or at all.

Credit Facility

Summary and Obligations

On May 23, 2018, the ~~Company,~~General Partner, as guarantor, and the ~~Operating Partnership,~~OP, as borrower, entered into a ~~Credit Agreement~~credit agreement with Wells Fargo Bank, National Association as administrative agent and ~~the~~ other lenders party thereto ~~that allows~~(the “Credit Agreement”). The Credit Agreement provided for maximum borrowings of $2.9 billion, originally consisting of a $2.0 billion unsecured revolving credit facility (the “Revolving Credit Facility”) and a $900.0 million unsecured term loan facility (the “Credit Facility Term Loan,” together with the Revolving Credit Facility, the “Credit Facility”). Effective December 27, 2019, the Company reduced the amount available under its Revolving Credit Facility from $2.0 billion to $1.5 billion.

As of March 31, 2020, $871.3 million was outstanding under the Revolving Credit Facility and athe full $900.0 million ~~Credit Facility Term Loan. As of March 31, 2019, the Revolving Credit Facility had an outstanding balance of $195.0 million and $900.0 million had been~~was drawn on the 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. As of March 31, ~~2019,~~2020, there were no letters of credit ~~outstanding were $3.9 million.~~

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, to hedge interest rate volatility. The swap agreements effectively fixed the Credit Facility Term Loan interest rate, including the spread which can vary based on our credit rating, at approximately 3.84%.outstanding.

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~~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 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~~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.

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 March 31, ~~2019.~~2020.

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 March 31, ~~2019,~~2020, the OPOperating Partnership had ~~$2.65~~$2.85 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%

As of March 31, ~~2019,~~2020, the Company believes that it was in compliance with these financial covenants based on the covenant limits and calculations in place at that time.

~~Table of Contents~~

Convertible Debt

Summary and Obligations

As of March 31, ~~2019,~~2020, the Company had ~~$402.5~~$321.8 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 three months ended March 31, ~~2019~~2020 and the Company believes that it was in compliance with the financial covenants pursuant to the indenture governing the 2020 Convertible Notes as of March 31, ~~2019.~~2020.

Mortgage Notes Payable

Summary and Obligations

As of March 31, ~~2019,~~2020, the Company had non-recourse mortgage indebtedness of ~~$1.9~~$1.4 billion, which was collateralized by ~~459~~317 properties, reflecting a decrease from December 31, ~~2018~~2019 of ~~$2.4~~$121.3 million ~~derived primarily from our disposition activity~~ during the three months ended March 31, ~~2019.~~2020, primarily related to prepayments of mortgage notes payable. Our mortgage indebtedness bore interest at the weighted-average rate of ~~4.93%~~5.02% per annum and had a weighted-average maturity of ~~3.2~~2.7 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 and had no restrictions on the payment of dividends.~~properties.

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 and had no restrictions on the payment of dividends as of March 31, ~~2019.~~

~~Litigation~~

The Company entered into settlement agreements with certain plaintiffs for payments totaling approximately $12.2 million which was accrued and included in insurance recoveries, net of litigation and non-routine costs for the period ending March 31, 2019. During the three months ended December 31, 2018, the Company accrued $15.7 million related to settlement agreements with certain plaintiffs, which was paid during the three months ended March 31, 2019.2020.

Dividends

Our Series F Preferred Stock, as discussed in Note 12 – 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 March 31, 2019, there were approximately 42.9 million shares of Series F Preferred Stock (and approximately 42.9 million corresponding Series F Preferred Units that were issued to the General Partner) and 49,766 Limited Partner Series F Preferred Units that were issued and outstanding.

~~Table of Contents~~

Contractual Obligations

The following is a summary of our contractual obligations as of March 31, ~~2019~~2020 (in thousands):


													Payments due by period
	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	$	1,914,706	$	164,849	$	617,957	$	459,741	$	672,159	$	1,407,771	$	89,602	$	565,966	$	745,238	$	6,965
Interest payments - mortgage notes ^{(1) (2)}	298,302		70,098		144,935		80,830		2,439
Interest payments - mortgage notes ⁽¹⁾											187,836		53,010		100,545		33,154		1,127
Principal payments - Credit Facility	1,095,000		—		—		1,095,000		—		1,771,313		—		871,313		900,000		—
Interest payments - Credit Facility^{(1) (2)}	166,083		31,828		83,719		50,536		—		120,496		33,519		80,357		6,620		—
Principal payments - corporate bonds	2,650,000		—		400,000		—		2,250,000		2,850,000		—		—		500,000		2,350,000
Interest payments - corporate bonds	722,816		88,416		226,151		202,776		205,473		766,201		89,991		239,976		219,212		217,022
Principal payments - convertible debt	402,500		—		402,500		—		—		321,802		321,802		—		—		—
Interest payments - convertible debt	25,743		11,320		14,423		—		—		8,514		8,514		—		—		—
Operating and ground lease commitments	349,713		16,572		45,497		43,473		244,171		328,693		16,568		44,037		42,628		225,460
Build-to-suit and other commitments⁽³⁾	27,539		27,539		—		—		—		25,543		25,543		—		—		—
Total	$	7,652,402	$	410,622	$	1,935,182	$	1,932,356	$	3,374,242	$	7,788,169	$	638,549	$	1,902,194	$	2,446,852	$	2,800,574

____________________________________


(1)	Interest payments due in future periods on the $886.5 million of variable rate debt were calculated using a forward LIBOR curve.


(2)	As of March 31, ~~2019,~~2020, we had ~~$50.5 million of variable rate mortgage notes and~~ $900.0 million of variable rate debt on the Credit Facility Term Loan effectively fixed through the use of interest rate swap agreements. We used the ~~effective~~ interest rates effectively fixed under our swap agreements to calculate the debt payment obligations in future periods.


~~(2)~~	~~Interest payments due in future periods on the $13.9 million of variable rate debt were calculated using a forward LIBOR curve.~~


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

Cash Flow Analysis for the three months ended March 31, ~~2019~~2020

Operating Activities – During the three months ended March 31, ~~2019,~~2020, net cash provided by operating activities ~~increased $44.1~~decreased $22.0 million to ~~$194.0~~$172.0 million from ~~$149.9~~$194.0 million during the same period in ~~2018.~~2019. The ~~increase~~decrease was primarily due to ~~the receipt~~a decrease in cash insurance recoveries received of ~~an insurance~~$45.9 million and a decrease in cash rental payments received of $13.0 million, offset by a decrease in cash interest payments of $17.0 million, a decrease in litigation settlement payments of ~~$48.4~~$15.7 million and a decrease in restructuring expenses paid of $5.1 million during the three months ended March 31, ~~2019.~~2020.

Investing Activities – Net cash used in investing activities for the three months ended March 31, ~~2019 changed $131.7~~2020 decreased $3.2 million to ~~$22.8~~$19.7 million from ~~net cash provided by investing activities of $108.9~~$22.8 million during the same period in ~~2018.~~2019. The ~~change~~decrease was primarily related to ~~net~~an increase in cash proceeds from ~~disposition~~dispositions of ~~discontinued operations~~real estate and joint ventures of ~~$123.9~~$79.9 million, ~~during~~offset by an increase in investments in real estate assets of $66.1 million and a decrease in proceeds from the ~~three months ended March 31, 2018.~~sale of mortgage notes receivables of $8.2 million.

Financing Activities – Net cash ~~used in~~provided by financing activities of ~~$193.5~~$433.4 million ~~decreased $72.9~~increased $626.9 million during the three months ended March 31, ~~2019~~2020 from ~~$266.4~~$193.5 million net cash used in financing activities during the same period in ~~2018.~~2019. The ~~decrease~~change was primarily ~~related~~due to no share repurchases in 2019, as compared to $44.6 million of repurchases in the same period in 2018 and proceeds from the issuance of Common Stock under the continuous equity offering program of $20.9 million in 2019 with no comparable issuances during the same period in 2018. The Company had an ~~increase in net borrowings~~additional draw on ~~the~~our Revolving Credit Facility in excess of ~~$757.0 million, from $65.0 million of net repayments~~normal operating requirements to enhance our cash position that was initiated during the three months ended March 31, ~~2018 to $692.0~~2020 of $600.0 million, of ~~net borrowings during the three months ended~~which we received $559.3 million as of March 31, ~~2019, which was offset by the repayment of the 2019 Senior Notes, of $750.0 million.~~2020.

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, ~~2019.~~2020.

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.

~~Table of Contents~~

Under the ~~LPA,~~limited partnership agreement of the OP, as amended (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 13 —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 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, as a result, it files income tax returns in the U.S. federal jurisdiction, Puerto Rico, 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.~~

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, ~~2018:~~

•~~Loss Contingencies;~~2019:

•Goodwill Impairment;

•Real Estate Investment Impairment; and

•Allocation of Purchase Price of Real Estate Assets

~~Table of Contents~~

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, caps, collars, treasury locks, options and ~~treasury lock agreements~~forwards 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 March 31, ~~2019,~~2020, 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 ~~$5.9 billion.~~$5.4 billion and $5.5 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 March 31, ~~2019~~2020 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 ~~$248.7~~$115.6 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 ~~$164.0~~$271.6 million.

As of March 31, ~~2019,~~2020, our debt included variable-rate debt with a fair value ~~of $209.0 million~~ and a carrying value of ~~$208.9~~$886.6 million and $886.5 million, respectively. The sensitivity analysis related to our variable-rate debt assumes an immediate 100 basis point move in interest rates from their March 31, ~~2019~~2020 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 ~~$2.1~~$8.9 million annually. See Note 6 – Debt to our consolidated financial statements.

As of March 31, ~~2019,~~2020, our interest rate ~~swap~~swaps had a fair value that resulted in ~~assets~~liabilities of ~~$0.4~~$104.5 million. See Note 7 – 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 March 31, ~~2019,~~2020, 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.

In July 2017, the Financial Conduct Authority (“FCA”) announced it intends to stop compelling banks to submit rates for the calculation of LIBOR after 2021. The Company is not able to predict when LIBOR will cease to be available or when there will be sufficient liquidity in the Secured Overnight Financing Rate (“SOFR”) markets. The Company has contracts that are indexed to LIBOR and is monitoring and evaluating the related risks, which include interest amounts on our variable rate debt as discussed in Note 6 –Debt and the swap rate for our interest rate swaps, as discussed in Note 7 –Derivatives and Hedging Activities. See Item 1A. Risk Factors included in the Company’s Annual Report on Form 10-K for further discussion on risks related to changes in LIBOR reporting practices, the method in which LIBOR is determined, or the use of alternative reference rates.

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. However, we continue to monitor this in light of the effects of the COVID-19 pandemic.

~~Table of Contents~~

Item 4. Controls and Procedures.

I. Discussion of Controls and Procedures of 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 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 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 March 31, ~~2019~~2020 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 March 31, ~~2019~~2020 that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting. We implemented internal controls to ensure we adequately evaluated our contracts and properly assessed the impact of the new accounting standard related to leases on our financial statements to facilitate its adoption beginning January 1, 2019. There were no significant changes to our internal control over financial reporting due to the adoption of the new standard.

II. Discussion of Controls and Procedures of the Operating Partnership

Evaluation of Disclosure Controls and Procedures

Changes in Internal Control Over Financial Reporting

~~Table of Contents~~

PART II — OTHER INFORMATION

Item 1. Legal Proceedings.

The information contained under the heading “Litigation” in Note 10 – Commitments and Contingencies to our consolidated financial statements contained herein is incorporated by reference into this Part II, Item 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.~~Factors.

~~There have been no material changes from~~The Company is supplementing the risk factors ~~set forth~~previously disclosed in Part I, Item 1A. “Risk Factors” of the Company’s Annual Report on Form 10-K for the year ended December 31, ~~2018.~~ 2019 with the following risk factor, which should be read in conjunction with the other risk factors presented in the Annual Report on Form 10-K:

The current pandemic of the novel coronavirus (COVID-19) has negatively affected and will likely continue to negatively affect our business, financial condition, liquidity and results of operations and those of our tenants.

The current COVID-19 pandemic has had, and likely will continue to have, repercussions across local, national and global economies and financial markets. COVID-19 has impacted all states where our tenants operate their businesses or where our properties are located and measures taken to prevent or remediate COVID-19, including “shelter-in-place” or “stay-at-home” orders or other quarantine mandates issued by local, state or federal authorities, have had an adverse effect on our business and the businesses of our tenants. The full extent of the adverse impact on our results of operations, liquidity (including our ability to access capital markets), and our ability to acquire, dispose or lease properties for our portfolio, our joint venture partners’ portfolios and/or for the tenant-in-common and Delaware statutory trust real estate programs’ properties that we manage is unknown and will depend on future developments, which are highly uncertain and cannot be predicted. Our results of operations, liquidity and cash flows could be materially affected.

Many of our tenants operate in industries that depend on in-person interactions with their customers to be profitable and to fund their obligations under lease agreements with us. Measures taken to prevent or remediate COVID-19, including “shelter-in-place” or “stay-at-home” orders or other quarantine mandates have, with respect to some portion of our tenants, (i) decreased or prevented our tenants’ customers’ willingness or ability to frequent their businesses, and/or (ii) impacted supply chains from local, national and international suppliers or otherwise delayed the delivery of inventory or other materials necessary for our tenants’ operations, which has adversely affected, and is likely to continue to adversely affect, their ability to maintain profitability and make rental payments to us under their leases. Tenants may also, as a result of such public health crisis, orders or mandates and any resulting economic downturn, request rent deferrals, rent abatement or early termination of their leases as well as may be forced to temporarily or permanently close or declare bankruptcy which could reduce our cash flows and negatively affect our ability to pay dividends at current levels or at all. Specifically, as a result of COVID-19 and various governmental orders currently in place, a number of our tenants have either closed their businesses or are operating with limited operations and/or have submitted requests for rent relief or failed to pay rent. In addition, state, local or industry-initiated efforts, such as tenant rent freezes or suspension of a landlord’s ability to enforce evictions, may also affect our ability to collect rent or enforce remedies for the failure to pay rent. We believe our tenants do not have a clear contractual right to cease paying rent due to government-mandated closures and we intend to enforce our rights under the lease agreements. However, COVID-19 and the related governmental orders present fairly novel situations for which the ultimate legal outcome cannot be assured and it is possible future governmental action could impact our rights under the lease agreements. The extent of tenant requests and actions and the impact to the Company’s results of operations and cash flows is uncertain and cannot be predicted.

The spread of COVID-19 has caused significant financial market volatility and an economic downturn (including a potential global recession), and the length and extent of such volatility and downturn are currently unknown. The financial impact of COVID-19 could have a material and adverse effect on our results of operations, liquidity and cash flows, in particular due to the potential (i) inability of our tenants to satisfy their rent obligations, (ii) inability of the Company to renew leases, lease vacant space or re-let space as leases expire on favorable terms, or at all, and (iii) difficulty for the Company accessing debt and equity capital on attractive terms, or at all. The effect of COVID-19 may also negatively impact our future compliance with financial covenants in our credit facility, indentures governing our senior notes and other debt agreements and result in a default and acceleration of indebtedness which could negatively impact our ability to make additional borrowings under our credit facility. The financial impact of COVID-19 could also negatively affect our ability to pay dividends or fund acquisitions.

As a result of COVID-19, the Company implemented a work-from-home policy to protect its employees. The COVID-19 pandemic and other epidemics, pandemics or other public health crises in the future may also impact the continued service and availability of our personnel, including our executive officers, and our ability to recruit, attract and retain skilled personnel. Operationally, although we have implemented a work-from-home policy, if significant portions of our workforce, including key personnel, are unable to work effectively because of illness, government actions or other restrictions implemented in connection with COVID-19, the impact on our business could be exacerbated.

The full extent of the adverse impact of COVID-19 on our business, financial condition, liquidity and results of operations cannot be predicted and may be material. The magnitude will depend on factors beyond our control including actions taken by local, state, national and international governments, non-governmental organizations, the medical community, our tenants, and others. Moreover, risk factors set forth in our Annual Report on Form 10-K for the year ended December 31, 2019 and filed with the SEC on February 26, 2020 could be heightened as a result of the impact of the COVID-19 or any other public health crisis.

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

~~Recent Sales of Unregistered Securities~~

During the three months ended March 31, 2019, the Operating Partnership redeemed an aggregate of 37,108 Series F Preferred Units for 37,108 shares of Series F Preferred Stock. These shares of Series F Preferred Stock were issued in reliance on an exemption from registration under Section 4(a)(2) of the Securities Act, based upon factual representations received from the limited partners who received the shares of Series F Preferred Stock.

Repurchases of Equity Securities

Period
Total Number of Shares/ Units Purchased ⁽¹⁾

Average Price Paid Per Share/Unit ⁽²⁾
January 1, 2019 - January 31, 2019 —
$ —
February 1, 2019 - February 28, 2019 12,071
8.27
March 1, 2019 - March 31, 2019 11,410
$ 8.23
Total 23,481
$ 8.25

~~(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 first quarter of 2019, 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 upon the vesting of employee Restricted Shares.


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

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 first quarter of 2020, there were no repurchased shares of Common Stock or corresponding OP Units made in order to satisfy the minimum tax withholding obligation for state and federal payroll taxes. There were also no share repurchases under the ~~2018~~2019 Share Repurchase ~~Program during the first quarter of 2019.~~Program. See Note 12 – Equity for further ~~discussion of the 2018 Share Repurchase Program.~~discussion.

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 following exhibits are included, or incorporated by reference, in this Quarterly Report on Form 10-Q for the quarter ended March 31, ~~2019~~2020 (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		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).
4.7		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).
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~~



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).
4.10		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).
4.11		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).
4.12		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).
4.13		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).
4.14		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).
4.15		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).
4.16		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).
4.17		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).
~~10.1†~~4.18		Officer’s Certificate, dated as of December 4, 2019 (Incorporated by reference to the Company’s Current Report on Form 8-K (File No. 001-35263), filed with the SEC on December 4, 2019).
4.19		Form of ~~Equity Plan Time-Based Restricted Stock Unit Award Agreement (CEO)~~3.10% Senior Notes due 2029 (Incorporated by reference to the Company’s ~~Annual~~Current Report on Form ~~10-K~~8-K (File No. 001-35263), ~~for the year ended December 31, 2018~~ filed with the SEC on ~~February 21, 2019).~~
~~10.2†~~		Form of Equity Plan Time-Based Restricted Stock Unit Award Agreement (Executive Officers) (Incorporated by reference to the Company’s Annual Report on Form 10-K (File No. 001-35263), for the year ended December ~~31, 2018 filed with the SEC on February 21, 2019).~~
~~10.3†~~		Form of Equity Plan Time-Based Restricted Stock Unit Award Agreement (Employees) (Incorporated by reference to the Company’s Annual Report on Form 10-K (File No. 001-35263), for the year ended December 31, 2018 filed with the SEC on February 21, 2019).
~~10.4†~~		Form of Equity Plan Performance-Based Restricted Stock Unit Award Agreement (Executive Officers and CEO) (Incorporated by reference to the Company’s Annual Report on Form 10-K (File No. 001-35263), for the year ended December 31, 2018 filed with the SEC on February 21, 2019).
~~10.5†~~		Form of Equity Plan Performance-Based Restricted Stock Unit Award Agreement (Employees) (Incorporated by reference to the Company’s Annual Report on Form 10-K (File No. 001-35263), for the year ended December 31, 2018 filed with the SEC on February 21, 2019).
~~10.6†~~		Form of Equity Plan Non-Qualified Stock Option Award Agreement (Executive Officers and CEO) (Incorporated by reference to the Company’s Annual Report on Form 10-K (File No. 001-35263), for the year ended December 31, 2018 filed with the SEC on February 21, 2019).
~~10.7†~~		Form of Equity Plan Non-Qualified Stock Option Award Agreement (Employees) (Incorporated by reference to the Company’s Annual Report on Form 10-K (File No. 001-35263), for the year ended December 31, 2018 filed with the SEC on February 21,4, 2019).
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.

~~Table of Contents~~



~~Exhibit No.~~		~~Description~~
101.INS*		~~XBRL Instance Document~~ - ~~the instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL 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.

~~† Management contract or compensatory plan or arrangement.~~

~~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: May ~~7, 2019~~19, 2020

6560



	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	(837		)	—
Realized loss included in other income, net	(34		)	—
Unrealized gain included in other income, net	—			5,102
Purchases, issuance, settlements
Return of principal received	(4,402		)	—
Amortization included in net income, net	40			—
Sale of investments	—			(522		)
Ending Balance, March 31, 2018	$	35,741		$	7,844



	Three Months Ended March 31, 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 (loss)	3,415
Loss on disposition and assets held for sale	(2,009		)
Income before taxes	1,406
Benefit from income taxes	2,095
Income from discontinued operations, net of income taxes	$	3,501



	Three Months Ended March 31,
	2018
Cash flows related to discontinued operations:
Net cash used in operating activities	$	(10,662	)
Cash flows from investing activities	$	123,925



Period	Total Number of Shares/ Units Purchased ⁽¹⁾	Average Price Paid Per Share/Unit ⁽²⁾
January 1, 2019 - January 31, 2019	—	$	—
February 1, 2019 - February 28, 2019	12,071	8.27
March 1, 2019 - March 31, 2019	11,410	$	8.23
Total	23,481	$	8.25