Vereit Brings New Life To American Realty Capital Properties; Earnings Call Answers Lingering Questions

It is a difficult task to regain the trust of shareholders who have been misled in the past.

On Thursday, new CEO Glenn Rufrano hosted the inaugural Vereit Inc (NYSE: VER) earnings call for the quarter ended June 30, 2015.

Shareholders and investors who follow publicly traded REITs are familiar with the rise and fall of the fortunes of the former NASDAQ listed American Realty Capital Properties and its previous management led by founder and former chairman Nicholas Schorsch.

The name "Vereit" is a blend of "REIT" and "veritas," the Latin word for truth, signaling a fresh start.

Related Link: How Serial Issuers Of Debt And Equity Win

Tale Of The Tape: Past Year

Vereit officially began trading on the NYSE under the ticker VER on July 31, 2015; however, some information is still available for American Realty Capital Properties.

Vereit shares were essentially flat on the 2Q15 results and conference call, down 1.15 percent (10 cents) at $8.62 at 4:00 p.m. EST Friday.

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American Realty Capital Properties shares fell off of a cliff back in October 2014, after accounting irregularities and a cover-up were announced, which triggered an ongoing SEC investigation and a slew of civil litigation cases.

During the Q2 call, Rufrano estimated that Vereit will spend $50 to $55 million in legal fees during FY 2015.

During the past 52 weeks, American Realty Capital Properties/Vereit common shares have traded in a range of $7.38 to $13.44 per share.

The New Vereit Dividend

REITs are required by law to distribute at least 90 percent of taxable income to shareholders in the form of a dividend. This is a major reason why many investors own REIT shares.

The Realty Capital Properties regular dividend of $1.00 per share was suspended, and no dividend has been paid to shareholders during the first half of 2015. This allowed for Rufrano and his team to undertake a strategic review of the real estate portfolio, operations and the company balance sheet.

The company announced that Vereit will pay a quarterly dividend of $0.1375 per share for 3Q15 and 4Q15. The Vereit annualized dividend of $0.55 per year represents a 6.3 percent yield based upon the August 6 $8.73 closing price.

Related Link: American Realty Capital Properties To Transfer Listing To NYSE

Vereit's Business Plan Foundation

"The four key pillars of the business plan focus on enhancing the portfolio, supporting Cole Capital, achieving balance sheet investment-grade metrics and establishing a sustainable dividend," according to the company Q2 earnings release.

Vereit Conference Call: Q2 Progress

C-Suite: During Q2, Lauren Goldberg was named General Counsel and Will Miller was appointed CEO and president of Cole Capital.

CPA Firm: On June 1, the audit committee appointed Deloitte as the company's independent registered public accounts.

Governance: Rufrano announced that the company had opted out of Maryland Anti-Takeover Statutes and implemented additional shareholder rights initiatives, including majority voting and board nomination provisions.

Board Composition: In addition to Mark Ordan previously being added as a fourth independent director, Rufrano announced that Will Stanley and Tom Andruskevich have decided not to seek reelection, (further distancing Vereit from its American Realty Capital Properties roots).

Real Estate Portfolio: In general, the current mix of 62 percent retail, with the balance split between office and industrial assets, is not expected to change. Multi-tenant properties are now very small part of the mix, totaling just 1 million square feet. Overall occupancy remains strong at 98.4 percent, with an average remaining lease term of 11.5 years.

Portfolio Dispositions: Strategic sales are expected to total $1.8 to $2.2 billion by the end of 2016. Reduced industry and tenant concentration and increased diversity will be achieved by the sale of assets, which predominantly fall into four categories:

• Joint Ventures: Sale of interests where Vereit has limited operational control and upside.

• Flat Leases: Twenty (20) percent of NOI is currently generated from leases that are flat for five, 10 or even 25 years. In a rising rate environment, these properties will be a drag on both NAV and AFFO growth. Notably, these are high quality properties that are being sold at low cap rates.

• Restaurants: The portfolio is currently overweight with 19 percent casual dining (including Red Lobster concentration) and 9 percent quick service.

• Non-Core: This relates to location, physical characteristics, tenant credit profile and potential to re-lease at market rents.

Portfolio Acquisitions: Q1 totaled $245 million and Q2 $215 million. However, Rufrano made it clear that there is currently "no flexibility on the balance sheet," in order to undertake an acquisition strategy at this time.

Balance Sheet: Dispositions will help to deleverage the balance sheet. Rufrano is focused on "reducing net debt to EBITDA to six to seven times from the current 7.5 times. Maintaining a fixed rate coverage charge greater than 2.2, we currently exceed that at 2.7 times and preserving unencumbered assets greater than 60 percent, (currently at 64.1 percent). "

Cole Capital: In addition to reinvigorating the brand, Rufrano discussed how EBITDA over time "should be standardized." Management also intends to evaluate Cole's EBITDA margins relative to other service businesses "in order to "get a better handle on G&A," but Rufrano was unwilling to discuss any specifics.

Investor Takeaway

Clearly with the major changes implemented by Rufrano in just a short few months, the name change from American Realty Capital Properties to Vereit is far more than just a new logo and ticker symbol.

However, even with the dividend reinstated, Vereit is still very much a work in progress.

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