Bonni Rosen - Director of IR Glenn Rufrano - CEO Mike Bartolotta - CFO.

Michael Knott - Green Street Advisors Sheila McGrath - Evercore Mitch Germain - JMP Securities Chris Lucas - Capital One Securities Joshua Dennerlein - Bank of America Merrill Lynch Anthony Paolone - J.P. Morgan.

Good morning everyone and welcome to the VEREIT First Quarter 2017 Earnings Conference Call. All participants will be in listen-only mode. [Operator Instructions] After today’s presentation, there will be an opportunity to ask questions. [Operator Instructions] And please note that the event is being recorded.

I would now like to turn the conference over to Bonni Rosen, Director of Investor Relations. Please go ahead..

Thank you. Thank you for joining us today for the VEREIT 2017 first quarter earnings call. Joining me today are Glenn Rufrano, our Chief Executive Officer and Mike Bartolotta, our Chief Financial Officer. Today’s call is being webcast on our website at vereit.com in the Investor Relations section.

There will be a replay of the call beginning at approximately 3:00 PM Eastern Time today. Dial-in for the replay is 1-877-344-7529, with a confirmation code of 10104472.

Before I turn the call over to Glenn, I would like to remind everyone that certain statements in this earnings and business update call, which are not historical facts, will be forward-looking.

VEREIT’s actual results may differ materially from these forward-looking statements and factors that could cause these differences are detailed in our SEC filings, including the Annual Report filed today.

In addition, as stated more fully in our SEC reports, VEREIT disclaims any intent or obligation to update these forward-looking statements, except as expressly required by law. Let me quickly review the format of today’s call.

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

Glenn?.

Thanks Bonni, and thanks for all you are joining today. Let me begin with a summary of a few items. For the quarter, AFFO per diluted share was $0.19. Acquisitions to date totaled 116.1 million. We completed approximately 213.9 million of dispositions. Net debt to EBITDA decreased to 5.5 times.

Both Moody's and S&P recently upgraded the company to investment grade and we are reaffirming guidance provided in our last call of $0.70 to $0.73 of AFFO. Starting with operations, occupancy was 98.4%, up slightly from 98.3%.

Same store rent was down 0.3% for the quarter excluding the effects of the Ovation bankruptcy in last year's early renewal efforts, same store rents would have increased 0.3%. During the quarter, we entered into 61,000 square feet of new leases and 308,000 square feet of renewals of which 138,000 square feet were executed earlier.

Notable lease transactions included 32,000 square foot office to franchise food, six bank locations and 125,000 square feet of restaurants space. Since introducing our business plan portfolio diversification has been enhanced by culling, going forward acquisitions will contribute.

Year to date acquisitions are 116.1 million including 14.6 million subsequent to the quarter. The 21 transactions included retail properties in multiple categories; grosser, convenience, automotive service, and fitness; three leased fee interests and the distribution facility.

As mentioned last quarter, the industrial asset is leased to Best Buy, also our retail tenant. We find the cross property relationship for 20 of our tenants representing approximately 20% of our revenue. Year-to-date we have sold 55 assets spread across our strategic categories totaling 213.9 million including 14.7 million subsequent to the quarter.

Dispositions included Red Lobster restaurants reducing exposure to the end of Q1 to 7.4% from 8.2% as well as office non-core properties and flat leases. Turning to the balance sheet, net debt to EBITDA was 5.5 times providing ample room for leverage neutral acquisitions.

Also 99% of our debt is fixed, less than any near term impact from potential interest rate increases. The progress we've made during the past two years resulted in Moody’s upgrading VEREIT to Baa3, while S&P brought the company to BBB- matching the prior rating in our debt.

The company is now investment grade with all three major agencies including Fitch. During the quarter Cole Capital raised 66.7 million of new equity, an average of 22.2 million a month with a 25% monthly increase in March compared to February. Additionally, 18 new selling agreements were signed in Q1 representing more than 4,500 financial advisors.

In April, Advisory Group one of Cole’s historically large broker dealer partners approved CCPT5 and initiated sales efforts. So Tara began INEP earlier this year and launched the CCPT5 last month. New equity for April was 24.7 million. Before Mike reviews our financial results let we provide a brief update on litigation.

The plaintiffs in the class action have filed their motion for a class certification and defendants will file their responses by the end of this week. A conference is scheduled with the court on May 16. Additional details regarding pending litigations can be found in our 10-Q filed today. Let me now turn over the call to Mike..

Thanks Glenn and thank you all for joining us today. We had a good quarter achieving AFFO of $0.19 per diluted share, consolidated revenue was 348 million just below last quarter's revenue of 351.9 million, mostly due to our disposition program.

Before I discuss the rest of our current Q1 2017 results, let me highlight the effects of certain Q4 activity that otherwise skews our quarterly performance comparisons.

These items were all noted in Q4 and included 120.9 million non-cash goodwill impairment charge and 11.1 million program development right off and 5.2 million of compensated related charges, all partially offset by 5.7 million of the applicable tax effect on these items. Now let's review the main comparative operational changes for the quarter.

We reported Q1 2017 net income of 14.8 million versus a net loss of 118.2 million for Q4 2016. Without the items noted previously you would have seen a Q1 2017 increase in net income of 1.5 million.

The slight increase was mostly the result of lower depreciation and amortization primarily driven by the property dispositions and increase in the net gain on properties sold, all partially offset by slightly lower revenue, higher net litigation costs and tax expenses.

FFO per diluted share for the first quarter was $0.17 as compared to $0.05 for the fourth quarter. However, the FFO for Q4 2016 excluding charges noted earlier would have been $0.19 per share or Q1 2017 decrease of $0.02 per share.

This was mainly due to the lower revenue previously mentioned along with increased net litigation costs which were really driven by $10 million insurance proceeds received in Q4 and the net negative quarter to quarter tax provision.

AFFO was $0.19 per diluted share as compared to $0.17 for the fourth quarter, however again excluding the impact of the Q4 2016 charges, Q4 AFFO would have been $0.19 per share or flat when compared to Q1. G&A for the quarter was 29.1 million versus 44.4 million for the fourth quarter representing a decrease of 15.2 million.

However, G&A for Q4 2016 without the items noted would have been 28.1 million or Q1 2017 increase of 1 million. Real estate G&A was 12.6 million for the quarter, down 0.7 million from 13.3 million in the prior quarter, mostly due to the normal year-end activity in the fourth quarter.

Cole Capital G&A was 16.6 million in Q1, up 1.8 million from 14.8 million in Q4 excluding the charges previously noted. This was due primarily to an increase in program development costs which represented resulting from a decrease in the expected future recovery rate effective Q1 2017.

Legal costs related to the matters arising from the Audit Committee investigation which are included in litigation and other non-routine costs were approximately 12.7 million for this quarter. Turning to the first quarter real estate activity, the company purchased 16 properties for 81.8 million at an average cash cap rate of 7.1%.

In addition, we purchased the fee interest in three properties for 24 million which were already on the lease holds at an average cash cap rate of 5.5%. We were able to extend the leases on two of these properties and increased NAV. Subsequent to the quarter, the company purchased two properties for 14.6 million at an average cash cap rate of 6.7%.

During the quarter we sold 50 properties for 199.2 million at an average cash cap rate of 7.3% and a gain of 12.5 million. Subsequent to the quarter, the company disposed of five properties for an aggregate sales price of 14.7 million at an average cash cap rate of 7.1%.

Our balance sheet remains very safe and liquid, we continue to have full capacity under our credit facility of 2.3 billion at 286 million in cash and essentially no floating debt. During the quarter we had net repayments of 81.7 million of secured debt with only 301 million coming due the remainder of the year.

And any secured debt coming due is expected to eventually be termed out with unsecured debt. Cash flow provides ample coverage for our dividends. As Glenn mentioned we have now achieved investment grade on all three - from all three rating agencies, which is a true testament to what the team has accomplished.

As of 3/31, our net debt to normalized EBITDA was reduced to 5.5 times from 7.5 times. Our fixed charge coverage ratio remains healthy at 2.9 times and our net debt to gross asset ratios has been reduced to 39%. Our incumbent asset ratio was 67% and the weighted average duration of our debt stands at 4.2 years.

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

Thanks Mike. In late May, many of us will head to ICSC RECon the largest real estate conference in the world. As an ICSC trustee I have the opportunity to spend time with other retail landlords, developers and advisors as well as executive of many tenants.

RECon is an excellent opportunity to meet face to face with our retailers, learn more about their operations and discuss how we can leverage our partnership.

During the two and a half day conference, we’ll host nearly 90 face to face meetings with tenants like Home Depot, TJX, Michaels, PetSmart, LA Fitness, Dick's Sporting Goods and [indiscernible] amongst others and including restaurant.

Following RECon our real estate teams will travel to many of our tenants corporate headquarters for strategic alliance reviews to discuss existing lease structures and renewals as well as acquisition opportunities for their long-term housing needs.

Although I’m sure our discussions at RECon will revolve around the ever changing retail environment, all industries are prone to cyclical and secular disruptives. Cyclical change can be a product of overbuilding the rise and fall of brands or macroeconomic issues such as consumer confidence or changing interest rates.

Secular changes are long lasting and there are a number of these changes taking place as we speak; ecommerce and omni-channel relationships, plus office space per square foot per person, increased industrial ceiling height, just to name a few. Real estate investors approach these conditions in a number of ways.

If you are not in an opportunistic fund, you may attempt to market time and try to arbitrage the profit from the resulting changes. However REITs are long-term vehicles that must adopt the strategy to help minimize the negative impact of such trends.

For VEREIT, our long-term strategy of well positioned properties in a diversified portfolio made optimum by our size. Helps protect us from a variety of changes. Key portfolio metrics include 4,100 properties representing 42 industries and 663 tenant concepts. Properties dispersed across 49 states.

The top ten tenets comprising only 29.5% of the portfolio and property type diversification with retail, restaurants, office, and industrial helping mitigate risk. Focusing on our retail mix, we're dominated by off price and necessity shopping of which 50% is investment grade.

In many of our core categories we see reasonable expansion plans in 2017 and beyond. In more detailed analysis of our merchandise categories are deals discount comprised of 7.9%, pharmacy 7.2, grocer 5.1, home and garden 4.5 and convenience 2.5%.

Approximately 67% of our retail revenue is derived from tenants that are public companies providing increased transparency into their operations and finances. Our single tenant retail tends to have the following advantages. Credit tenants on long term leases with substantial capital investments.

Generally no use restrictions or [indiscernible] issues and the ability to target tenants and industries. As we mentioned last quarter, we have virtually no traditional department stores or material exposure to specialty apparel and within sporting goods and electronics are limited tendency is dominated by strong operators.

We're comfortable with our size, diversity and our single tenant focus. I’ll now open the lines to questions..

[Operator Instructions] And it looks like our first questioner today is going to Michael Knott with Green Street Advisors. Please go ahead with your question..

Just curious if you're seeing any weakness perhaps in the restaurant trade or just given the weakness that your peer mentioned yesterday when they reported their earnings?.

Have not Michael, I think what's important in our restaurants is the take a look at who we have and the diversification. We feel very good about Red Lobster as you know and also happy that they were recapitalized with Thai Union recently.

But once you go beyond Red Lobster, if you look at the rest, Applebee's is 1.7, Olive Garden 0.6, 0.5, Cracker Barrel 0.5, [indiscernible] about 0.7. So we have a good stable of restaurants and the diversification, it helps that add a lot, so we're very comfortable..

And then just couple other quick ones for me.

Can you talk about how you’re thinking about Cole Capital today and any decisions that you think you might reach on that business line maybe by the end of the year and just how you see it position today from a broad standpoint?.

We were happy to announce that advisory group came on, which was one of our larger broker dealers in the ’13 to ’14 era. And we did announce last quarter at the end of the year that Cetera came on. So the progress we've made with the larger advisors, larger broker dealers has been very helpful for us to establish the brand value of Cole.

We're getting there that progress means a lot to us. We will make a decision relative to the value of Cole and how the public market sees it. It may be later on this year, it may be the beginning of next year, but what we care about is establishing and maintaining that value..

And then last question from me would just be one of your peers recently had a nice credit upgrade from one of their C store tenants they got acquired by 711 and just curious if the reports are true about BJs wholesale perhaps being up for sale, would you put any stock in getting a credit upgrade there since I think that's a B- credit at present..

BJ is a Northeastern company that has really terrific locations, they're certainly not on par with Costco. If they got upgraded because someone acquired them that would be very nice. We're not going to bet on that. We’re happy with their credit right now and like the position we have there..

And our next questioner today is going to be Sheila McGrath with Evercore. Please go ahead with your question..

Yes. Good afternoon.

Glenn, could you give us an insight on your tenant watch list now and how it might compare to year-end? Has there been any meaningful changes to that watchlist?.

Sure, Sheila. At year-and, we’ve discussed a watchlist and we have a series of tenants with probability weighting of about 1.8%. We've had a very slight increase in that this quarter. We thought it was prudent to look at every tenant, which we have and we're now at about 2%.

So it is a very slight increase, but I will tell you it was a thorough review that we had here to get there..

Okay. And then on the acquisition side of things, the last two quarters, you have added assets, but you're still selling more than you're acquiring on balance sheet.

Just wondering if we look out through the balance of the year, should we assume on the balance sheet that you'll be a net seller of assets?.

Our guidance, which we reaffirmed on this call Sheila has us selling about 450 to 600 in assets and buying about 450 to 600 in assets. We believe those bids for now. We also mentioned when we gave guidance that we would have more dispositions in the beginning of the year and acquisitions at the end of the year and we're conforming to it.

And I would also mention that as you would expect, we are very cautious on acquiring anything at any point in time in the economy. Frankly, I mentioned on the call last time I never gave acquisition guidance before. But we thought it’s appropriate here. We're going to buy appropriate assets. We are very targeted in what we will buy.

We're pleased with what we've bought this quarter and if we can continue to finance it that fit the merchandise categories with the tenants we're looking for in retail and we can find the industrial properties that fit our locational requirements we believe we’ll be able to buy that enough assets for guidance and our disposition program has gone well with 200 million in the fourth quarter, 132 million of which were Red Lobsters, we feel we're well on our way to that $450 million to $600 million number..

And our next questioner today is going to be Mitch Germain with JMP Securities. Please go ahead with your question..

Good afternoon. Just, Glenn, you talked about the secular disruptors I think.

And so I'm curious how that's affecting the way that you think about your current portfolio and how you think about your sale and acquisition platform?.

Well, of all the disruptors that are on top of mind today Mitch, it’s certainly the disruptors related to retail. So, let me start there. Capitalism is a hard system. Retail has to be one of the most capitalist business there is. You either fail or win and that's been that way for many, many years.

Today, if we look at the disruptors, we have to think about omnichannel and the different method of merchandising. We have tenants that don't embrace omnichannel. We have tenants that can’t afford omnichannel and then we have tenants who can embrace and afford it. The first two, we're not interested in.

The third one, we really care about and how that disruptor affects our tenants. But the second very important part in retail and in disruptors is just true retail value. Put omnichannel aside, for a very long time, we've talked about a retailer having to provide value and that's merchandise, price and service.

What we care about here is we’ll be looking at categories and tenants that both can service omnichannel distribution, but as important, can provide value to the clientele.

When we look at our merchandise groups, we're comfortable with our merchandise groups that we're focused on and we have dominance in, discount, grocer, pharmacy, Home and Garden, convenience and within each one, we want the tenants that can afford to pay for omnichannel distribution and provide value.

So that would be the number one disruptor that we talked about and that concept is extremely important in both dispositions in what we're selling, we want to dispose, the tenants cannot provide the services and we want to acquire the tenants that can provide those services.

In terms of other property types, clearly office and industrial, we will be very careful. We’re not buying office, as you know, but we have been selling office and we want to make sure our office tenants who don't -- our office properties that don't conform to the disruptors not enough parking.

Not functional space, we're going to sell those and we're going to be very careful in acquiring any industrial property to make sure it's functional relative to the new age of physical plant..

Great. That's helpful.

The improvement in the Red Lobster brand and sales, does that change your thinking about how you think about capping the revenues from that -- for the rents from that customers?.

We like what's going on at Red Lobster in that right now and need to tell you, but we are going to be committed to diversification. We don't really want tenants over 5% and so we will bring it down. We will bring it down, we'd like to get it down to 6% by the end of the year. We sold 132 million. Our goal this year was 200 to 250.

So you can see we're well on our way. We've sold $805 million dollars of Red Lobsters of the 1.6 billion. We will have by the end of this year gotten close to $1 billion in sales.

Once we get to that 5% plus or minus, then we'll hold Red Lobster and we'll watch it every day, but we'll hold it, but we're not -- we're going to conform to our general concepts of diversification just because we're not smart enough to know who's good and who's bad five years from now..

Great. Last one from me.

Guidance, you started the year at $0.19, just, it seems like if I’m thinking about this the right way, you’re at the higher end, if not even above it, what could go wrong to get you below 73?.

Well, let's just, it was a good quarter and we're happy with that. One of the 19, we’d love the 19, but we have projected more dispositions in the beginning of the year and acquisitions tail ended and that will reduce that number.

So the capital allocation alone will cause that to drop a bit and then we would hope obviously it picks up again once those acquisitions kick in, assuming we find the properties we want. What could affect it is credit.

Do we have some tenants that then go bankrupt other than we have minor issues now as you know one, Gander Mountain [indiscernible], none of which are major components of revenue, all of which we're working on. We don't see other tenants. We don't see other credit issues right now. That would be the cause of it. But we just don't see it right now..

And our next questioner is going to be Chris Lucas with Capital One Securities. Please go ahead with your question..

Glenn, just kind of following up on a little bit on the last question, but really on your comment about the probability weighted risk going from 180 basis points to 200 basis points.

Is that a function of an add to the list of concerns or just an increase in the probability of concerns?.

We had two small adds that we're not sure that -- which do not have high probabilities, but we just thought prudent to add..

Okay. And then as it relates to Cetera, I know they’ve been on since January.

I guess I'm curious as to whether or not you're getting any traction at this point with the sales team and whether or not their share of sales has picked up at all since January?.

The first product they took Chris was INEP. And they're just starting to pick -- we are just starting to get sales in over the last two months. CCPT5, they have just picked up, have not -- we have not had any sales, but we do expect sales over the second, third and fourth quarter. So it is just beginning for Cetera..

Okay. And then last question for me is just related to the transactional market, your peer announced that they had walked away from their pipeline recently.

Just curious as to whether or not that had any impact on deals you were working on, either on the disposition or acquisition side?.

I'm not sure of the exact transactions and I really don't know the answers to that Chris. We're looking at our own pipeline and our own acquisition activity and as you can see, it’s 100 million, a little less than what some of our peers that I've seen have done, but that’s had no concern to me at all. We're only going to buy if we like it.

So I don't really have an answer in terms of whether or not someone walking away affected the market..

And our next questioner today is Joshua Dennerlein with Bank of America Merrill Lynch. Please go ahead with your questions..

Curious to know, so it sounds like at the end of this year, you’re going to just call market and buy -- for the internal value of it.

How would you think about the value of the firm and potentially selling that? I mean when I look at it, cost of equity is compared and then on the debt side, you’re going to have to turn out the debt and going to be rolling up on interest rates.

So just wondering how you would think about potentially selling the company and walking away?.

Selling the company meaning Cole, just --.

No. Like VEREIT in general..

So no, that’s fine.

I mean the first thing I’d say is we will always care about the value of the company and if someone were to come along and want to buy the company at a price that we thought was a very good price, there's no social issues around that and it’s a board decision, it's not my decision, but I'm sure our board would look favorably upon real good value for this company if it could be achieved.

In terms of acquiring an enterprise like this relative to the debt, it would be just the normal covenants and restrictions that any company would go through. We wouldn't have anything here that’s any different or special..

Okay.

Is there anything you would want to clean up beforehand, so to maximize the value of VEREIT outside of Cole?.

Well, anything that we want to clean up, we clean up regardless of buyer. That’s just what we have to do on an everyday basis. So we've given a business plan as you know. We've accomplished a good part of that. We've provided guidance for the year, which we think is very reasonable. We want to make that guidance, we want to do it in the right way.

Those are our tours. That's what we'll do..

Okay. And one last question.

Would you, I mean -- would you go around shopping yourself or would it have to be someone coming to you?.

Let's just say that, I was around when we sold new plants in April of 2007. It’s a $6 billion company. Let's just say I know enough and that we have enough experience people to know if there was something to be done, how to do it..

And the next question today will come from Anthony Paolone with J.P. Morgan. Please go ahead with your question..

Thank you. So the stock market is pretty negative on retail related stuff.

And I'm wondering as you look in the private markets for small asset, net lease properties, which has historically attracted a lot of individual investors and small groups because of its small ticket price, has any of that narrative seeped into that market, are you seeing anything there that's causing any buyer groups to come step back?.

I would tell you, as we look at the acquisitions we’re seeing today, I’ve not seen a lot of pricing differential. Really, so the answer in the private market as of now, it's not reacted anywhere close to what we're seeing the public market doing there as we speak.

It's clear larger deals could have a little more discount than smaller deals, but other than that, not on lot.

Now, maybe it will happen, what -- and I'm going to talk about us, what I like about our business as compared to and as we talk about retailers as compared to being in the shopping center of the business, the mall business and those businesses are -- not being negative on those businesses, if you buy a shopping center, you buy a mall, you buy everything in it.

What I like about the single tenant market is we buy a single tenant, we buy a single category. We don't have to take what comes along with it. So we can make sure that whatever we're buying and whatever we're paying makes sense relatives to the portfolio..

Okay. And then you reiterated your plans on the acquisition disposition side for this year.

Is there a point at which the stock price affects your thoughts on what you're doing there?.

We're still funding this year. We’re at 5.5 as Mike and I indicated on our net debt to EBITDA on target of 5.7 to 6. So we’re a bit below that. So we have plenty of firepower to stay within our leverage neutral concept and internally fund acquisitions. So we're not concerned with that right now.

Our job this year is to dispose of assets that will create more diversification for us and buy assets to fortify the portfolio..

Okay.

And then what does it take to get on the watchlist for you all?.

I think not a lot. I think we're going to be very cautious these days. We have a function as you would expect, a credit function that’s following all our credit. If it's a public company, as I mentioned, we have a lot of public companies in retail. We're following them every quarter. We're reading anything we can in the newspapers about them.

On our private companies, we do get financials. We're reviewing them every quarter or quicker, so that any time that we hear or see of an issue relative to debt covenants, a purchase an M&A transaction, we will look at all those factors and taken them into consideration..

Okay.

And then just last question for a non-warrior, what are the potential outcomes of the May 16 conference decided?.

Well, the conference on May 16 centers around class certification and the judge can’t rule in the case or not. The judge can ask for more discovery relative to class certification or not. We'll have to wait and see..

When you say rule on the case, you mean actually --.

Rule that the class has been accepted or not..

There look to be no further questions. So this will conclude our question-and-answer session. I would like to turn the conference back over to Glenn Rufrano for any closing remarks..

I thank everybody for joining us today. We look forward to going ICSC and meeting with people in NAREIT and talking about what we found. Thank you very much..

The conference has now concluded. Thank you all for attending today’s presentation. You may now disconnect..