Good afternoon, and welcome to the VEREIT First Quarter 2018 Earnings 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] Please note, this event is being recorded. I would now like to turn the conference over to Bonni Rosen. Please go ahead.

Thank you for joining us today for the VEREIT 2018 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 2:00 PM Eastern Time today. Dial-in for the replay is 1 (877) 344-7529, with the confirmation code of 10118856. Before I turn the call over to Glenn, I would like to remind everyone that certain statements in this earnings call, which are not historical facts will be forward looking. VEREIT's actual results may differ materially from these forward-looking statements. And factors that could cause these differences are detailed in our SEC filings, including the Quarterly Report filed today. In addition, as stated more fully in our SEC reports, VEREIT disclaims any intent or obligation to update these forward-looking statements, except as expressly required by law. Let me quickly review the format of today's call. First, Glenn will begin by providing a business and operational update, followed by Mike presenting our quarterly financial results. Glenn will then wrap with the closing remarks. We will conclude today's call by opening the line for questions. Glenn, let me turn the call to you.

Thanks, Bonni, and thanks for joining our call. We're pleased with the results for the quarter. AFFO per diluted share was $0.185, with $0.182 from continuing operations. Acquisitions totaled $144.4 million and we completed $161 million of dispositions year-to-date. We also repurchased 44.6 million of common shares as part of our buyback plan. Net debt to normalized EBITDA was 5.7 times. We closed on the sale of Cole, simplifying our business model and we are reaffirming our $0.70 to $0.72 AFFO guidance range. Occupancy for the quarter ended at 98.7%, same-store rent was up 0.2%. Excluding the effects of an early lease renewal executed in the fourth quarter, same-store rents would have been 0.8%. During the quarter we had 513,000 square feet of leasing activity, of which 201,000 square-feet were early renewals. Notable transactions included 229,000 square feet of industrial properties. Of the early renewals, we recaptured 97% of the prior rents. These leases have built-in increases and we have extended the weighted average lease maturity to 10.6 years. For the 2018 renewals, we would capture approximately 100% of prior rent with additional rent increases over the lease term. These recapture rates exclude three restaurant tenants that were making irregular payments and are now paying full contract rent under the new leases. Our portfolio diversification was further enhanced through our targeted acquisition and disposition strategy. At year-end property type diversification was 42% retail, 22% restaurant, 17% industrial, and 19% office. Office continues to fall below the 20% target threshold. Our top 10 tenants represent 28.6% which is among the lowest concentration in the industry. We also had an increase in the percentage of investment-grade tenants, due to the upgrade of one of our largest tenants, Family Dollar, as well as 21 of our Rite Aid leases being assumed by Walgreens.…

Thanks, Glenn, and thank you all for joining us today. We had a good quarter, achieving $0.185 per diluted share which included $0.03 from the partial quarter contribution from the Cole Capital, which is reflected in discontinued operations. The sale of Cole was completed on February 1. We will focus on earnings from continuing operations for this call. In the first quarter, revenue was essentially flat compared to the fourth quarter of 2017. Net income was $29 million versus a net loss of $2.5 million last quarter. The $31.5 million increase in net income was mostly a result of higher, other income and a larger gain on the disposition of real estate in Q1 2018, representing a difference of $15.7 million, along with lower G&A, property operating, depreciation and amortization, and impairment expenses totaling $27.7 million. These were partially offset by $10.6 million of higher litigation expenses during the quarter. FFO per diluted share was roughly flat for the quarter at $0.165. AFFO per share increased 0.6 to 18.2 primarily due to lower G&A this quarter, which I will discuss next and lower property operating expenses of $830,000. G&A decreased $3.1 million to $15.2 million versus $18.3 million for the fourth quarter, mostly due to higher year-end compensation-related items that have been recorded in Q4. Legal costs related to the matters arising from the Audit Committee investigation, which are included in litigation and other non-routine costs were approximately $21.7 million for the quarter. Q1 contained higher expenses due to the start of depositions as well as approximately $3.5 million in additional prior period costs recognized in connection with claims by third parties for advancement of fees and expenses by the company. We are leaving our estimate for 2018 gross legal costs at $55 million to $65 million, excluding any insurance…

Thanks Mike. It's that time of the year again when we prepare for ICSC RECon, the largest real estate conference in the world. We'll be speaking to our retailers, of which over 60% are public companies and over 50% investment grade. We also meet with real estate brokers, owners, developers and banks to learn more about their businesses. During the 3-day event, our team will host more than 250 face-to-face retailer meetings with tenants such as Walgreens, CVS, PetSmart, Mattress Firm, Albertsons and each of the dollar stores. Additionally, we'll hold our annual leasing symposium where we meet with over 100 real estate brokers who represent us in local markets as well as hear from new and expanding retailers. Following RECon, our leasing team will coordinate strategic alliance reviews visiting our tenants at the corporate locations to learn more about their operations and discuss how we can leverage our partnership to benefit landlord and tenant. Our team will also be meeting with the restaurants tenants such as Red Lobster, Applebee's, Wendy's, Burger King and Yum Brands, which owns Taco Bell, Pizza Hut and KFC as well as new and expanding concepts. The tenant discussions at high levels will provide a better understanding of the ever-changing retail environment. Let me comment on what’s taking place on the public side. Our share price and growth potential are influenced by the volatile interest rate market, and our last legacy issue litigation. But first, we have prepared for, and we are well equipped to operate through with a liquid balance sheet, healthy tenants and eventual stabilizing of rates. We currently manage litigation and we'll do so with our stakeholders’ welfare in the forefront. I'll now open the line for questions.

[Operator Instructions] Our first question comes from Mitch Germain with JMP Securities. Please go ahead.

Hi, good afternoon.

Hi, Mitch.

Glenn, a couple of questions that I received this morning from investors with regards to the – what's like the blueprint for the discussions with the SEC? I mean, how should we think about how we move forward from here?

Mitch, let me kind of give you a broader discussion and also mention the SEC. In the Q that came out this morning, we mentioned the U.S. Attorney’s Office in the Southern District of New York. And let me first define that, that's also called the Department of Justice, DOJ. Now I'm going to use normal man's language here. I’m not a lawyer. So let's keep it simple as the DOJ. Then we have the SEC Securities and Exchange Commission. And then the third discussion that we have had on each call, since I’ve got here is the civil litigation, which is a class-action suit and 13 opt out suits. So we have three levels here that we’ve talked about either on the calls or in the Q. With the Department of Justice, we have noticed that they have indicated that it does not intend to bring criminal charges against the company, that's the first part. The SEC, which is what your direct question is about have contacted us just this last quarter to discuss a resolution of potential civil charges that it may bring with respect to certain matters. We are going to have those discussions, we have cooperated with the SEC all along and we will continue to cooperate with them. We don’t know how long that will take. And then the third level here that we’ve discussed once again on the call, will be the civil litigation, and there we are in depositions. So that's the complete outlay for you, and hopefully, I've been able to answer your question in the middle there.

Yes, absolutely. Thank you for that. Mike, I appreciate the commentary on the convertible notes that are coming due, its good to have that sort of flexibility on the re-fi side. But obviously no rest for the weary, you’ve got another set of corporate bonds due in the early part of next year. Maybe just kind of talk about your strategy with that?

Sure. We are looking at them all the time, Mitch. I can tell you right now as of today, it would cost me about 33.5 million to take care of any of the make whole, , and I have a negative arbitrage today between that and a 10-year note, if I issued it a little over $10 million. So I’d have $13 million sitting in my P&L between now and when they come due if I were to take care of them today. And that’s something that we look at all the time. At some point, obviously those numbers get smaller as we get closer, and depending on what we wind up doing with – if assuming we put a deferred draw loan in place as part of the recast that we're considering, we could either use that for the convert that's coming up or we could keep it and use it for that other note that comes due in the end. It gives us optionality, and it allows us review the markets between now and then for both of those exposures.

And just to kind of understand the way that you're looking at your maturity profile, it seems like you've got a little in the near-term and then you've got 6 years, 8 years, 9 years. So what kind of – were you kind of talking about 10-year paper, like 7-year paper what do you think is ideal?

We'll always evaluate it, it happens to be that a 10 year slot happens to be an empty hole, if you take a look at our – if you take a look at it, but 5-year isn't bad either and it really is going to depend on when we execute and what the markets are.

Gotcha. Last for me Glenn. Outside of Toys “R Us, it does seem to be a bit of a stabilizing from the retail front. Some of the earnings, I only track a couple, but have seemed to be a bit surprising to the upside. I mean, obviously, a lot will be determined based on your conversations at ICSC, but how are you feeling about just the limited interactions you have had with your customer base?

I'll start off with the big picture, we have a pretty good economy. And Mitch everything stems from how we're doing in the economy and how's GDP, and are we spending money in general, and those trends seem pretty good, and they’re going to flow down to our retailers. The tax law change, another significant part of what’s going on our retailers, as you know, would be in the higher percentage bracket because they have very little depreciation, so that the change in the rate is clearly going to help our retailers. So we have some pluses coming our way for the retailers today. But even after I say that, as we look at the retailer community, we still look for retailers that provide value and price, merchandize, and service. And that third component service today includes online distribution. So we will keenly review, what we believe are the long-term retailers who can afford distribution costs and provide value. Looks better today, but the game is going to take some time before it plays out.

Great. And then I think last question for me. I'm just trying to understand in terms of when you kind of established guidance and thought about your selling versus matching, what you're buying and kind of how you thought the year will play out. Is it just me? It seems like the asset sales might have started out a little bit slower than expectations, or is everything kind of operating somewhat in line with what you thought?

I would say they're in line with what we thought, Mitch, but the whole capital allocation question here with our team starts with three very important factors; accretion, maintaining a quality portfolio, and making sure that we maintain our balance sheet metrics. So everything we do is based upon those three factors. The guidance as you know was $200 million to $300 million of acquisition above dispositions, and the funding, the match funding for that was going to be the dispositions, cash flow and the Cole, $120 million we received. So we are match funding across the quarters to achieve accretion, quality portfolio, and maintaining the balance sheet.

Fantastic. Thank you.

Our next question comes from Michael Knott with Green Street Advisors. Please go ahead.

Hey, Glenn. Just sort of along those lines on the dispositions, just curious if you're still targeting Red Lobster to be 5% or under, I think you're still in the mid-6s today, and just any comment otherwise on how Red Lobster sales are – operating performance is trending?

We like to get everything down to 5%, Michael. It's been a good investment for us, so it's going to be gradual. We're at 6.5 now, but we – in the first quarter, we sold $9.5 million, but in the subsequent – sales subsequent to the quarter, we did have additional sales, so that to date we have about $27 million. So we're on board, we thought we'd sell $100 million to $200 million of Red Lobster for the year and we still feel pretty good about that disposition. In terms of Red Lobster itself, there are two points, the balance sheet, and we've talked about this, the balance sheet really got stronger as Thai Union bought in last year. So we feel good about the balance sheet and debt. On the Red Lobster sales, we have the information, we can't give it all in detail, but I think it's generally known, their sales have been down for the last few quarters, but they were comping against very good quarters last year, and we still feel very good about their health.

Okay. That's helpful. Thanks. And then maybe just on the industrial side for just a moment. I think when you compare lease expirations schedules to your peers, I think you guys have a bit more – two, three, four years from now not anything imminent, but – and I think a lot of that's on the industrial side, obviously, that's a property type that's done really well. Just curious if you have any sense as to how you're in place rents in that portfolio, particularly maybe those expirations coming here, stack up against market?

We've looked at that in our five-year projections, Michael. We believe we're close to market. Could we get a little lucky later out and have a spread? I mean, that maybe a possibility, but right now, we think we're pretty close to market. We've been getting some pretty good bumps on those leases.

And in general, do you feel like that portfolio has less retending risk than the office portfolio?

That maybe right. We care a lot about all our tenants and retenanting, that's why as you noticed, we have a very big push, Paul McDowell and his group really looked for early renewals to make sure we're dealing with our tenant on a reasonable basis. I would agree that it’s probably better, yes.

Okay and then last one for me. I think we had seen something that you guys have acquired, a fairly sizable office building, I think, in New Jersey and I'm guessing that's the subsequent acquisition that you noted. So just curious if that's the case, and then in general, that is a pretty tough office market and just curious how you thought about that deal, if that was in fact, something that you acquired?

Was not us. We have not acquired an office building since I've been here, nor do we see that in the near term. We're taking that ratio down. It’s 19%. If you remember, it was 25% were down 19% and we’ll continue to take that down. That was not us, Michael.

Okay. Thank you.

Our next question comes from Chris Lucas with Capital One. Please go ahead.

Good afternoon everybody. Just couple of follow-ups Glenn, I guess or Mike. Maybe for this one, on the G&A rate for the first quarter, is that a good run rate for the rest of the year?

It’s a little bit less than what – we gave you guidance of 65% to 68% we're not changing that guidance. The run rate will be more like 61% and so at this point, I think we would still stay with where we were on a full-year basis.

Okay and then maybe sticking with you, just as it relates to sort of the near-term maturity. Have you done anything to hedge your rate risk at all, in terms of forward swaps or anything along those lines to sort of limit your risk on rates?

We have not.

Okay. And then – that might actually do it for me. I think you covered everything else for me. I guess Glenn, just maybe more just generally, as it relates to some of the success that you've had as it relates to the various diversification goals that you laid out several years ago and how you proceeded on them, is there anything right now that's front and center to that you feel like you really need to focus on to get things where you want them to be? Or you're feeling comfortable with the progress you made.

I feel very comfortable with the progress we made. We still have had some room to go Chris. When we created those guidelines, and we did that so the market would know and understand what we look like long term, there was some push to get there. We've sold $3.3 billion of assets to get where we are and the outliers are we still want to bring Red Lobster in as we talked about. We brought the office in, but we'll continue to take that down, so that we're pretty close. The last one, I'd mention is flat leases. We’d like to have a goal of 15% to 20% flat leases. We’re now at 21%. So we'll sell some of those flat leases. They're mostly credit and so what we're finding, if we can sell flat leases with Walgreens, CVS, Walmart, we can sell them at 6% plus or minus and that maybe a very good way for us to recast our allocation policy.

Okay. And one more for you real quick, on the stock buyback, I am assuming that you think of that as an investment, similar to acquisition as it relates to the net-net positive spread that you talked about in terms of guidance?

Absolutely, we call it interchangeable acquisition where we're buying an asset or the stock.

Okay, thank you. Appreciate it.

Thank you. End of Q&A

This concludes our question-and-answer session. I would like to turn the conference back over to Glenn Rufrano for any closing remarks.

Well, thanks everybody for joining us. We’re actually making the call from Phoenix today. It's going to get hot soon. So the next call will be from New York. Thanks everybody.

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