Good day, and welcome to the VEREIT Fourth Quarter 2018 Earnings Call. [Operator Instructions]. Please note, this event is being recorded. I would now like to turn the conference over to Ms. Bonni Rosen, Head of Investor Relations. Please go ahead.

Thank you, Andrew. Thank you for joining us today for the VEREIT 2018 Fourth Quarter and Year-End 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 11:30 a.m. Eastern Time today. Dial-in for the replay is 1-877-344-7529 with the confirmation code of 10127690. 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 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 and year-end financial results. Glenn will then discuss 2019 guidance, and we will conclude today's call by opening the line for questions. Glenn, let me turn the call over to you.

Thanks, Bonni, and thank you all for joining our call today. We are pleased with the results for the year as we met or exceeded the core components of our business plan and guidance. AFFO per diluted share was $0.72. We had another very active year of capital allocation with over $4.6 billion transacted. Acquisitions totaled $500 million, and we repurchased $50 million of stock at an average price of $6.94. Dispositions totaled $567 million. We entered into a new credit facility with a $2 billion revolver and $900 million 5-year loan at more favorable terms than our previous one and refinanced $598 million convertible debt with a $550 million 7-year unsecured bond issuance. Net debt to normalized EBITDA ended the year at 5.9x, which includes the effect of $217.5 million in settlement payments. We remain very liquid and have no unsecured maturities until December 2020. We also had a very active year of leasing with 6.6 million square feet of activity and occupancy ending at a healthy 98.8%. Same-store rent was up 1% for the quarter and 0.5% for the year. Excluding the effect of an early lease renewal, same-store rents would have been 1.3% for the quarter and 1% for the year. We had approximately 2 million square feet expiring in 2018. However, as I just mentioned, we leased 6.6 million square feet, of which 4.6 million square feet were early renewals. This year's leasing performance is a good illustration of our leasing team's focus on our forward expiration schedule. For example, over the last 2 years, we have reduced this year, 2019, expirations by 1.6% from 4.7% to 3.1%. Notable renewal transactions included 3.8 million square feet of industrial, 1.3 million square feet of retail, 628,000 square feet of office and 381,000 square feet of restaurants. For…

Thanks, Glenn, and thank you all for joining us today. We finished the year on plan achieving AFFO per share of $0.72. As usual, we will focus on earnings from continuing operations for this call. In the fourth quarter, rental revenue was flat compared to last quarter. In our 10-K, you will note that the operating expense reimbursement line has been combined in rental revenue for all periods presented in order to streamline our statement of operations. However, this detail can still be found in the definition section of the supplement. Net income increased $101.8 million to $27.9 million from a net loss of $73.9 million, primarily due to lower net litigation and settlement costs of $115.1 million, along with higher other income of $8.1 million from the gain on the sale of certain mortgage-related securities and an unexpected receipt from a fully reserved receivable, partially offset by a lower gain on the disposition of real estate of $19.4 million. FFO per diluted share increased $0.12 from $0.04 to $0.16, mostly due to lower net litigation and settlement costs to $115.1 million, along with higher other income of $8.1 million, partially offset by higher G&A of $2 million and interest expense of $2 million in the fourth quarter. AFFO per share decreased approximately $0.005 to $0.17 per share, mostly due to higher G&A and interest expense. The G&A increase was primarily due to normal Q4 year-end compensation and other accrual adjustments. Full year G&A was $63.9 million, slightly under our guidance range of $65 million to $68 million. As part of the Cole Capital transition services ending, we indicated there would be an increase in G&A. There has been a lag in the recognition of that increase into this year, and our guidance for 2019 is a similar range of…

Thanks, Mike. I'll now turn to guidance for 2019. AFFO per share between $0.68 and $0.70. Normalized debt -- net debt to normalized EBITDA of approximately 6x. Real estate operations with average occupancy above 98% and same-store rental growth ranging from 0.3% to 1%. Dispositions totaling $350 million to $500 million at an average cap rate of 6.5% to 7.5%, targeting our continued diversification categories, restaurants, office, flat lease and noncore. Acquisition guidance of $250 million to $500 million at an average cap rate of 6.5% to 7.5%, primarily in discount retail and industrial distribution. Acquisitions and dispositions have been generally matched as we remain conscious of our debt levels. Our guidance does not assume resolution of any pending litigation. We are very pleased with capital market funding. Since we've initiated our business plan back in 2015, we've had a total capital activity of $11 billion; $1.4 billion in acquisitions, $3.7 billion in dispositions and $5.8 billion of debt and equity. This has allowed us to strengthen and diversify our portfolio, reduce debt and obtain investment-grade ratings, better allowed our maturity schedule and provided ample liquidity in the form of unencumbered assets and availability on our line of credit. We have navigated in an evolving market with our experienced management team and are well positioned for 2019. Looking beyond 2019, we will have a healthy portfolio, well-organized operating platform and a solid balance sheet. I'll now open up the line for questions.

[Operator Instructions]. The first question comes from Sheila McGrath of Evercore.

Glenn, your same-store rents were up 1%, much better than historical. Can you give us a little bit more detail what was driving that outperformance in the quarter?

Sure, Sheila. As we've discussed in the past, our leasing teams have been working on early renewals, and you can see this year, we had actually 2 million square feet that came due but we leased 6.6 million. That's really good in terms of our expirations and increasing NAV, but on a short-term basis, it has depressed some of our same store. What we found in the fourth quarter, some of that depression giving people some early rents when we have lower same-store came back to us. So we recognized some increases in that temporary amount of same store due to early renewals.

Okay, great. And then can you help us understand how many more opt-out opportunities there might be for VEREIT to settle prior to the September trial? And also if you could give us any insights if these settlements have prompted any additional discussions with the class ahead of the September trial?

Well, let me go back and go through some of the history, Sheila. I understand your question, and let's see if I can straighten some of that out, some concepts of opt out versus the last settlement that we just announced for $15.7 million. If we go back to last year, we had 14 opt outs and opt out, I'll define here, is a shareholder, who filed a lawsuit separate from the class. So we had 14 filed separately. We settled with 13 of those 14 last year and that total number was $217.5 million for 31%. That leaves 1 opt out left. Substantially, the rest of the litigation is the class, including that opt out. So that sets the stage for what an opt out is and the definition. We announced this year that we had a settlement with a group of shareholders, who decided not to participate as class members, they're in the class, they decided not to participate as class members. That group had their own outside counsel representing those shareholders, and they approached the company. We did have a settlement with them, they represented approximately 2.5% for $15.7 million. That's the total of $233.2 million for the 33.5%. Those are the facts of what have occurred. So there is 1 opt out left as defined as a shareholder, who filed a suit, the rest of the shareholders are in the class.

So there is no reason to believe that anybody else would leave the class to settle early, is that accurate?

I think the best way I can answer to that is that a group of shareholders in the class decided to bring outside counsel into the situation, representing them and approached us. That's the best way I can answer that.

Okay. And one last question. Can you explain in a little bit more detail that $48.4 million insurance settlement, what that was related to? And if you will be able to collect on any additional legal expenses from the insurance?

This is Mike, Sheila. That primarily were bills in the past that we had paid and had made claims for and it was simply in the process of being worked through and then with the settlement of the insurance litigation at the end of the year, that's when those amounts were eventually able to be paid in the first quarter. And that represents -- those payments that we talked about, the $10.9 million that went to the third party and the $48 million that went to us, that represents substantially all of the coverage.

And just, Sheila, to go back, we had received $20 million before that. So if you add all that up, it's about $80 million. And the reason, the last pieces were stuck, is that there was litigation with the insurer, which we settled up, and we're able to free up the remaining funds.

The next question comes from Anthony Paolone of JPMorgan.

I'll start with the litigation since we're on that. One is, when would you start any process to go after proceeds from codefendants on stuff that's been settled already?

There is no decision made on that, Anthony, at this time.

Okay. And then, if we get through 2019 and suppose that the class and/or opt outs get settled along the same lines that what's been settled thus far, has been done at, how would you change the way you're running the business or what you're doing, if at all, at this point?

The first thing I’d say is that in terms of your question, I just want to make clear that we have no accrual in our balance sheet for any remaining pending litigation and Mike, why don't you explain why?

And we don't believe that any accrual at this point can be made under GAAP, because we don't believe it could be reasonably estimated.

I just want to make that clear. Then to answer the heart of your question, Tony, what do we look like when we grow up? We have worked really hard in the last 3.5 years to make sure that this company has the best portfolio, the best management team and a best and liquid balance sheet. As I said on -- in my statement, we look forward to beyond 2019 with those 3 elements, and with those 3 elements, we can compete with anybody in the business. We have to prove ourselves, we have to grow AFFO, but we have the tools to do it, and we'll continue to have the tools to do it, so that we can compete with and what we think is a very good business, a business that provides equity to corporate America, in return getting back their housing long-term and providing a long and stable balance sheet with the ability to grow it with accretive acquisitions.

Okay. And then, if I look at the portfolio today, I think the weighted average remaining lease term is 8.9 years. And if we look at your 2019 guidance, not a huge amount of net activity. So you kind of move along another year, if you will. How do you think about that number over time? And any concern over it getting shorter in terms of the remaining duration before you can kind of return to growth and kind of add longer-duration assets to it? Like, how do you think about that?

Well, we were at 9.5 years about three years ago. And we're now at 8.9. That's pretty good for a company that has been mainly selling and not buying. We've been able to maintain that differential in three ways. We have been selling some shorter-term assets, and if we think it's right and then primarily noncore, we'll sell them, which could help that. What we have bought has generally been well over 15 years. And the third element I point to is what I talked about early on. Our leasing team is doing an awful lot of early renewals. And as we're doing early renewals, we're extending leases. So the combination of portfolio management in those three areas, acquisition, disposition and expansions, has allowed us to minimize the dilution involved over the last three years. We will continue to do that. We're conscious of it, we like to keep it as high as -- as reasonably high as possible and maintain a quality portfolio.

Okay. And then just last question. I think, Mike, you mentioned $11 million of restructuring charges. Is that in the AFFO number? Or is that an add back?

No, it's not included in AFFO. The restructuring is outside of it.

And Tony, as we mentioned, a large part of that is on space in Phoenix and here. Just to be clear, Phoenix is our headquarters, and it will remain our headquarters, but we're going to be reducing space as Cole moves out, and we'll stay in that same building, but we'll be going from basically 4 floors to 1.5. And in New York, we're actually going to move out of the building we're sitting in right now and reduce our space in half and move a couple of blocks away.

The next question comes from Spenser Allaway of Green Street Advisors.

Looking at your external growth guidance for '19, how much of the $375 million in acquisitions do you expect to come from deals with existing tenants versus those that would be new to your portfolio?

Well, it's -- the way I think about that, Spenser, is where on the transaction it's coming from. As you noticed, we have 42% of our transactions in sale leasebacks this year and about 20% in build to suits. Many of those are clients of ours coming back to us. Sometimes they will come through a broker, but they're primarily people we've done business with in sale leasebacks and build to suits. If we can maintain that form of ratio, I would hope that -- I expect at least 50% of what we do will come through brokers. And maybe we can do another 50% direct, if we can maintain those relationships.

Okay. And then on the disposition front, you guys noted you're going to continue to reduce your exposure to restaurants, noncore, et cetera. But could you maybe comment on your exposure to double-net leases. I believe it's about 35% of your annualized rental income. Is there any intention to reduce this exposure?

We have no direct relationship between sales and double net. We feel fully qualified to manage these properties. We have a full team that does that. And if there is a little more risk there, we have the infrastructure to take that risk. So there is no -- any reason at all for us to discount or sell because they're double net or triple net. We look at them, price the risk and feel very comfortable with it.

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

Thanks, everybody, for joining us. We feel very good about our year and very good about what's to come. Thank you.

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