VEREIT, Inc. - FORM 8-K - EX-99.3

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8-K - 8-K - VEREIT, Inc.	d880894d8k.htm

Business Update

Monday, March 2, 2015 |

8:30 a.m. ET

Exhibit 99.3

Forward-Looking Statements

BUSINESS UPDATE

Information set forth herein (including information included or

incorporated by reference herein) contains “forward-looking statements”

(as defined in Section 21E of the Securities Exchange Act of 1934, as

amended), which reflect American Realty Capital Properties, Inc.’s

(“ARCP”, the “Company,”

“us,”

“our”

and “we”) expectations regarding

future events. The forward-looking statements involve a number of

assumptions, risks, uncertainties and other factors that could cause

actual results to differ materially from those contained in the forward-

looking statements. Generally, the words “expects,”

“anticipates,”

“targets,”

“goals,”

“projects,”

“intends,”

“plans,”

“believes,”

“seeks,”

“estimates,”

variations of such words and similar expressions identify

forward-looking statements, and any statements regarding ARCP’s future

financial condition, results of operations and business are also

forward-

looking statements. These forward-looking statements are subject to a

number of risks, uncertainties and assumptions, most of which are

difficult to predict and many of which are beyond ARCP’s control.

The following additional factors, among others, could cause actual results

to differ from those set forth in the forward-looking statements: ARCP’s

plans, market and other expectations, objectives, intentions and

other

statements that are not historical facts; the developments disclosed

herein; negative reactions from ARCP’s creditors, stockholders, or

business partners to the findings of the investigation by the Audit

Committee or the refiling of ARCP’s financial statements; the results of

the reevaluation of ARCP’s internal control over financial reporting and

disclosure controls and procedures and the timing and

expense

the

remediation of control deficiencies; the impact and outcome of litigation

and regulatory investigations related to the matters disclosed in ARCP’s

Current Report on Form 8-K that was filed on October 29, 2014; ARCP’s

ability to comply with the requirements of the NASDAQ Stock Market; the

impact of ARCP’s debt documents on ARCP’s overall borrowing

flexibility; ARCP’s inability to reestablish the financial network which

supports Cole Capital

; ARCP’s inability to regain the prior transaction

and capital raising volume of Cole Capital prior to the filing of ARCP’s

Current Report on Form 8-K that was filed on October 29, 2014; ARCP’s

inability to pay a dividend at the same rate and frequency as ARCP

previously had paid; ARCP’s inability to regain its investment-grade credit

rating; ARCP’s inability to file its Annual Report on Form 10-K for the

fiscal year ended December 31, 2014 timely in light of its obligations

under its debt documents; the unpredictability of the business plans of

ARCP’s tenants; the inability to retain or hire key personnel; and

continuation or deterioration of current market conditions. Additional

factors that may affect future results are contained in ARCP’s filings with

the SEC, which are available at the SEC’s website at www.sec.gov.

The forward-looking statements contained herein reflect ARCP’s beliefs,

assumptions and expectations regarding ARCP’s future performance,

taking into account all information currently available to it. These beliefs,

assumptions and expectations are subject to risks and uncertainties and

can change as a result of many possible events or factors, not all of

which are known to ARCP. If a change occurs, ARCP’s business,

financial condition, liquidity and results of operations may vary materially

from those expressed in its forward-looking statements. ARCP disclaims

any obligation to publicly update or revise any forward-looking

statements to reflect changes in underlying assumptions or factors, new

information, future events or other changes, except as required by law.

Contents

Business Update

Third Quarter 2014 Results

ARCP Overview

Summary

About the Data

BUSINESS UPDATE

BUSINESS UPDATE

Business Update

ARCP is dedicated to providing regular updates on the development of its

business

Expected Timetable of Key Events

BUSINESS UPDATE

ARCP Key Events

Expected Completion

Restated and filed amendments to its 2013 Annual Report on Form 10-K and first

and second quarter 2014 Quarterly Reports on Form 10-Q

Complete

Filed its third quarter 2014 Quarterly Report on Form 10-Q

Complete

Company to report fourth quarter and full-year 2014 results (Form 10-K) and host

investor webcast

On or before March 31, 2015

Anticipate announcing a new CEO and non-executive Chairman

In the near term

Company to report first quarter 2015 results (Form 10-Q) and host investor

webcast, returning the Company to a normal financial reporting schedule

May 2015

As soon as practicable after the appointment of the new CEO and the

development of a business plan, Company to host an Investor Day

at which it will

present its updated vision and strategy of the new CEO and management team

Later in 2015

Board and Management Actions

Since September 2014, when accounting concerns were first reported to the Audit Committee,

the Board and management have been actively engaged in the following activities:

BUSINESS UPDATE

1) Includes fully vested shares, restricted stock awards, and performance stock units.

The Audit Committee conducted a thorough and independent

investigation of accounting concerns and other matters with the

assistance of independent counsel and independent forensic

accountants (Weil, Gotshal & Manges LLP and Ernst & Young

LLP)

Conducted a comprehensive review and restatement of the

Company’s financial statements

Senior leadership team was changed as a result of the

resignations of the former Executive Chairman, CEO and

Director, President and COO, CFO and CAO; In connection with

such resignations they collectively forfeited approximately 3.0

million shares¹

and 12.7 million LTIP units granted under the

2014 OPP (representing all LTIP units issued thereunder).

Ended all direct relationships with the former Executive

Chairman and have taken significant steps to unwind

relationships with entities in which the former Executive

Chairman maintains an executive or director-level role or is a

significant stockholder

Realigned the Board’s committee chairmanships, committee

compositions and roles, and instituted a management transition

plan by naming Bill Stanley interim Chairman and CEO

Conducting the search for a new Chief Executive Officer and

non-executive Chairman of the Board

Retained Morgan Stanley & Co. LLC to provide advice regarding

capital and debt structure, business strategy, real estate assets

and capital allocation

Concluded a review of the Company’s real estate portfolio to

confirm ARCP’s property ownership status and that the

respective tenants occupying these properties are subject to

valid leases

Obtained consents and waivers from the lenders under the

Company’s credit facility and an agreement with an ad hoc

group of senior noteholders for extensions and an agreement

not to issue a notice of default related to delivery of required

financial statements and other financial deliverables

Completed an extensive investigation into the Company’s

business practices and policies

Evaluating and managing the legal landscape, including

government investigations and private civil actions

Reviewed and are taking steps to materially enhance the

Company’s corporate governance and financial controls as

outlined in Slide 11

Background on the investigation

Audit Committee Investigation

BUSINESS UPDATE

The investigation did not identify any material changes relating to ARCP’s real estate ownership,

rental revenue or fundamental business operations.

The investigation did not identify any changes to the financial statements or

operations of the Cole Capital® sponsored non-traded REITs.

On October 29, 2014, the Company filed a Current Report on Form 8-K reporting that the Audit

Committee had concluded that the Company’s previously issued financial statements included in its

Annual Report on Form 10-K for the year ended December 31, 2013 and its Quarterly Reports on Form

10-Q for the quarters ended March 31, 2014 and June 30, 2014, as well as the Company’s earnings

releases and other financial communications for these periods, could no longer be relied upon.

The Audit Committee, with assistance from independent counsel and independent forensic accountants,

has conducted a thorough and independent investigation into concerns regarding certain accounting

practices and other matters brought to its attention in September 2014. The Audit Committee expanded

the scope of the investigation beyond the initial concerns brought to its attention.

See restated and filed amendments to the Company’s 2013 Annual Report on Form 10-K and first and second quarter

2014 Quarterly Reports on Form 10-Q (collectively, “the Restated Financial Statements”) for additional information.

ACTION:

The

Company

considering

whether

has

right

seek

recovery

for

any

other such

payments and, if so, its alternatives for seeking recovery.

Financial

Statement

and

AFFO

Errors

–

Net

loss

was

understated

for

2013

(including

each

quarter

2013)

and

the

second

quarter

2014.

Net

loss

was

overstated

for the first

quarter of 2014. AFFO was overstated for 2011, 2012, 2013 (including each fiscal quarter of

2013) and the first two quarters of 2014. See Financial Adjustment Summary on Page 10 and the

Restated Financial Statements for additional information.

Summary of key findings

Audit Committee Investigation

BUSINESS UPDATE

Party

Transactions

–

The

Audit

Committee's

investigation

identified

certain

payments

made by the Company to ARC Properties Advisors, LLC and certain of its affiliates that were not

sufficiently documented or otherwise warrant scrutiny. The Company has recovered consideration

valued

approximately

$8.5

million

respect

certain

such

payments

that

the Company

concluded were inappropriate. See the Restated Financial Statements for additional information.

ACTION:

The

Company

has

restated

the

previously

issued

2012

and

2013

financial statements

contained

its

2013

Annual

Report

Form

10-K

and

the

financial

statements contained in its

first

and

second

quarter

2014

Quarterly

Reports

Form

10-Q,

and

filed

its Quarterly Report

Form

10-Q

for

the

third

quarter

2014

(which

includes

restated

third quarter 2013 financial

statements).

Additionally,

ARC

Properties

Operating

Partnership,

L.P. (the “Operating

Partnership”)

has

restated

its

previously

issued

financial

statements

and

filed

its

Quarterly

Report

Form

10-Q

for

the

third

quarter

2014.

ACTION:

The

Company

has

commenced

the

remediation

these

material

weaknesses under the

oversight of the Audit Committee.

Summary of key findings

Audit Committee Investigation (cont.)

BUSINESS UPDATE

Equity

Awards

Made

Former

Executives

–

The

investigation

found

that

equity

awards

made

two

former

executives

connection

with

the

Company’s

transition

self-management contained

provisions

that,

drafted,

were

favorable

such

executives

than

the Compensation

Committee

the

Company’s

Board

Directors

had

approved.

See

the

Restated

Financial

Statements

for

additional

information.

Internal

Control

Weaknesses

–

The

investigation

found

material

weaknesses

the

Company’s

internal

controls

over

financial

reporting

and

its

disclosure

controls

and

procedures.

See

the

Restated

Financial

Statements

for

additional

information.

ACTION:

One

former

executive

has

relinquished

all

his

equity

awards.

The

other

former

executive agreed with the Company that the terms of his awards should have been consistent with

the Compensation Committee’s approval. This former executive has relinquished all of his equity

awards other than 1,000,000 restricted shares, which were accelerated. These restricted shares

are subject to clawback by the Company if, in any proceeding, after all appeals, he is found to have

breached his fiduciary duty of loyalty or is found to have committed or admits fraud or

misconduct

connection

with

his

responsibilities as a director or officer of the Company.

Financial Adjustment Summary

1,2

BUSINESS UPDATE

The

selected

financial

statement

amounts

and

per

amounts

“As

Previously

Reported”

and

“As

Restated”

were

derived

from

the

Restated

Financial

Statements.

The

restatement

the

2012

financial

statements

reduced Net Income by $284,000, and the correction of AFFO amounts in 2011 and 2012 reduced AFFO by $164,000 and $1.3 million, respectively, and are included within the Company’s 2013 Annual Report. 3) The

amounts in this column reflect the recasting of the Company’s historical financial statements to present the effects of the Company’s acquisition of ARCT IV, an entity previously deemed to be under common control with

the

Company,

had

been

completed

the

beginning

the

period

presented,

previously

disclosed

the

Company’s

Current

Report

Form

8-K,

dated

May

20,

2014.

The

Company

calculated

its

AFFO

Net

Basis

2013

and

2014

and

Gross

Basis

2014.

such,

the

effects

the

restatements

are

shown

compared

the

original

method

used.

The

Company

has

also

shown

the

Restated

AFFO

for

all

periods using the Gross Method in its Restated Financial Statements.

($ in thousands, except per share data)

Year Ended December 31, 2013

Three Months Ended March 31, 2014

(Unaudited)

Three Months Ended June 30, 2014

(Unaudited)

As Previously

Reported³

As Restated

Change

Fav/(Unfav)

% Change

As Previously

Reported³

As Restated

Change

Fav/(Unfav)

Change

As Previously

Reported

As Restated

Change

Fav/(Unfav)

% Change

Selected Balance Sheet Amounts

Total assets

$ 7,807,979

$7,809,083

$1,104

0.01%

$20,480,300

$20,488,095

$7,795

0.04%

$21,315,487

$21,310,496

$(4,991)

-0.02%

Total liabilities

5,285,446

5,310,556

(25,110)

-0.48%

10,950,414

10,974,377

(23,963)

-0.22%

10,451,698

10,485,022

(33,324)

-0.32%

Total equity

2,253,234

2,229,228

(24,006)

-1.07%

9,260,587

9,244,419

(16,168)

-0.17%

10,594,490

10,556,175

(38,315)

-0.36%

Selected Statement of Operations Amounts

Total revenues

329,878

329,323

(555)

-0.17%

320,614

321,154

540

0.17%

381,981

382,178

197

0.05%

Total operating expenses

640,704

665,228

(24,524)

-3.83%

512,851

482,128

30,723

5.99%

355,573

353,284

2,289

0.64%

Other expenses, net

(169,610)

(171,876)

(2,266)

-1.34%

(128,418)

(144,866)

(16,448)

-12.81%

(69,673)

(85,492)

(15,819)

-22.70%

Net loss attributable to the Company

(474,740)

(491,499)

(16,759)

-3.53%

(308,681)

(291,444)

17,237

5.58%

(40,328)

(54,720)

(14,392)

-35.69%

Net loss attributable to stockholders per share diluted

$(2.33)

$(2.41)

$(0.08)

-3.43%

$(0.61)

$(0.58)

$0.03

4.92%

$(0.08)

$(0.10)

$(0.02)

-25.00%

Selected Statement of Cash Flows Amounts

Net cash provided by (used in) operating activities

12,769

11,918

(851)

-6.66%

(106,126)

(122,828)

(16,702)

-15.74%

139,911

154,021

14,110

10.08%

Net cash used in investing activities

(4,542,759)

(4,541,718)

1,041

0.02%

(1,212,122)

(1,174,407)

37,715

3.11%

(734,300)

(777,649)

(43,349)

-5.90%

Net cash provided by financing activities

4,290,140

4,289,950

(190)

0.00%

1,348,590

1,327,726

(20,864)

-1.55%

705,012

735,941

30,929

4.39%

Net change in cash and cash equivalents

(239,850)

0.00%

30,342

30,491

149

0.49%

110,623

112,313

1,690

1.53%

Funds From Operations and

Adjusted Funds From Operations Amounts

Net Method

Gross Method

Funds from operations

(263,382)

(285,076)

(21,694)

-8.24%

(183,791)

(137,960)

45,831

24.94%

174,661

156,967

(17,694)

-10.13%

Adjusted funds from operations

236,374

192,416

(43,958)

-18.60%

147,389

108,892

(38,497)

-26.12%

205,278

185,934

(19,344)

-9.42%

AFFO per share

$1.07

$0.87

(0.20)

-18.69%

$0.26

$0.19

$(0.07)

-26.92%

$0.24

$0.21

$(0.03)

-12.50%

Committed

establishing

culture

compliance,

integrity

and

transparency

emphasizing

organizational structure with an inclusive management approach, a proper “tone at the top,”

checks

and

balances,

and

“speaking

up”

across

the

organization

Retained a premier international business advisory firm to work with management to improve

internal controls, practices and procedures

Adopted a related party transaction policy to guide the review and approval of related party

transactions,

administered

the

Nominating

and

Corporate

Governance

Committee

Establishing a chartered Disclosure Committee, composed of senior level attorneys, accounting

personnel and executives, along with heads of other pertinent firm-wide disciplines, which will be

required to approve periodic SEC filings, as applicable

Implementing new processes for authorization, documentation and accounting for equity-based

compensation

Documented and began standardizing all critical accounting policies; completed preliminary design

of and began documenting and standardizing the Company’s internal accounting close process

Enhancing information technology controls for access, authentication and the systems

environment

The Board is committed to enhancing ARCP’s

Corporate Governance and Compliance practices

Corporate Governance and Compliance Practices

BUSINESS UPDATE

Enhancing governance and compliance policies to meet best-in-class standards

Anticipate announcing a new CEO and non-executive Chairman in the near term

Under the leadership of interim Lead Independent Director Tom Andruskevich, the Board retained

Korn Ferry to identify highly respected CEO and non-executive Chairman candidates

advanced

discussions

with

candidates

who

collectively

possess

broad

range

real

estate,

finance and public company experience, as well as impressive track records of creating value for

shareholders

Bill Stanley will remain interim Chairman and CEO until the new CEO and non-executive Chairman

take office

Mr. Stanley is supported by ARCP’s capable and experienced senior management team

The Board of Directors retained Korn Ferry to conduct an extensive search to

identify both a highly respected CEO and an independent, non-executive

Chairman of the Board

CEO and Non-Executive Chairman Search Update

BUSINESS UPDATE

The Board of Directors will announce the Company’s new dividend policy later in 2015

Per the waivers and consents from the Company’s lenders, the Board cannot declare or pay a

dividend on the Company’s common stock until the Company has delivered its required quarterly

and annual financial statements and related officer’s and compliance certificates, all of which the

Company expects to deliver on or before March 31, 2015

The Board, working with the new CEO and management, will establish a common stock dividend,

which is expected to be in line with net lease peers

When the dividend is reinstated, it is expected to be paid on a quarterly basis

Dividend expected to resume at a payout ratio in line with net lease peers

Dividend Policy

BUSINESS UPDATE

Pending investigations and private civil actions

Investigations

commenced

the

SEC,

DOJ

and

the

Commonwealth

Massachusetts

The Company and the Audit Committee are cooperating fully with these investigations

1 consolidated securities class action currently pending in New York Federal Court, 1 securities

class action currently pending in Maryland Federal Court, and 2 securities actions on behalf of

individual investors currently pending in New York Federal Court

The Company intends to defend these actions vigorously

1 consolidated derivative action pending in New York Federal Court, 2 derivative actions pending

in Maryland State Court, and 1 derivative action pending in New York State Court

The Company intends to defend these actions vigorously

Managing and evaluating the legal landscape is an important priority for the

Company

Legal Landscape

BUSINESS UPDATE

Third Quarter 2014 Results

BUSINESS UPDATE

2014 Third Quarter Highlights

Operating Results

All prior year amounts are restated, and FFO and AFFO are shown using the gross method

Reported consolidated revenue of $457.1 million, an increase of $361.9 million over prior year

period, which includes $59.8 million of revenue from the Cole Capital segment

Reported

net

loss

$(280.4)

million,

which

includes

$256.9

million loss primarily due to the

multi-tenant portfolio held for sale at September 30, 2014, compared to a net loss of $(80.2) million

in the prior year period

Reported

consolidated

FFO

$0.21

per

diluted

and

AFFO

$0.26 per diluted share,

compared

FFO of $(0.07) per diluted share and AFFO of $0.28 per diluted share in the prior

year period

Acquired $2.3 billion of real estate in the quarter with a cash cap rate of 7.7%, including the $1.7

billion

Red

Lobster®

sale-leaseback transaction

With proceeds from the line of credit, repaid $199.1 million of debt, with an average maturity of 5.9

years

and

weighted

average

interest

rate

6.5%,

and

$316.1

million

Series

Preferred

Raised

$260.8

million

capital

behalf

the

Cole

Capital®

managed REITs, bringing the year-

to-date-total as of September 30, 2014, to approximately $1.3 billion

Invested $1.1 billion in 228 properties on behalf of the Cole Capital managed REITs

Q3 2014 HIGHLIGHTS

Data as of 9/30/14 unless otherwise noted. Data and comparisons reflect restated financials. 1) The overall sale-leaseback transaction consisted of 522 Red Lobster restaurants and 20 other branded restaurant

properties.

Key Subsequent Events

On October 17, 2014, the Company completed the previously announced sale of its multi-tenant portfolio for

approximately $1.9 billion to a Blackstone-DDR joint venture and entered into an LOI to sell five additional

properties for $52.8 million, for total sale proceeds of $2.0 billion, with approximately $1.2 billion of net

proceeds used to reduce leverage by paying down the Company’s line of credit

Acquired $27.4 million of real estate assets for ARCP from 10/1/14 through 12/31/14

Approximately $3.2 billion outstanding under the Company’s credit facility as of 12/31/14

On December 4, 2014, issued a press release announcing that the Company had entered into a settlement

agreement with RCS Capital Corporation (“RCS Capital”) that resolved the dispute over the sale of Cole

Capital to RCS Capital in which the Company received $60.0 million from RCS Capital to terminate the

Equity Purchase Agreement and all related agreements and documents

On January 29, 2015, the Company announced that Cole Corporate Income Trust, Inc. (“CCIT”) had

successfully closed its previously announced merger with and into a wholly-owned subsidiary of Select

Income REIT (“SIR”)

SUBSEQUENT EVENTS

Summary Financial Results

Q3 2014 FINANCIAL RESULTS

1) The Summary Financial Results amounts and per share amounts are derived from the Company’s Quarterly Report on Form 10-Q for the period ended 9/30/2014 and Quarterly Report on Form 10-Q/A for the period

ended 6/30/2014.

FFO,

AFFO,

EBITDA

and

Normalized

EBITDA

are

non-GAAP

financial

measures.

See

“About

the

Data”

for

description

our

non-GAAP

financial

measures

and

accompanying

Supplemental Financial Information for GAAP reconciliations.

2014 Financial Considerations

2014 FINANCIAL CONSIDERATIONS

The Company previously announced on October 29, 2014 that

all of its financial statements and all financial communications

for the year ended December 31, 2013 and quarters ended

March 31, 2014 and June 30, 2014 could no longer be relied

upon.

Financial statement users should consider the following items

related to 2014:

•

Subsequent to September 30, 2014, the Company sold its $1.9

billion multi-tenant portfolio and has experienced a significant

decrease in Cole Capital equity raise levels, acquired $27.4

million of real estate in Q4 2014 and will own the $2.3 billion of

properties acquired in Q3 2014 for the full Q4 2014.

•

Furthermore, as the Company completes its procedures related

to its financial statements for the year ended December 31, 2014,

it is evaluating the carrying value of its intangible assets related

to Cole Capital, the carrying value of certain real estate assets,

and potential legal reserves, which may result in impairment

charges or reserves. In accordance with the Company’s FFO

and AFFO calculation methodology (see About the Data on

Pages 32-33), any such charges would be deducted from FFO,

but may be added back for AFFO.

Key Information as of 12/31/2014 (unaudited):

Shares outstanding -

diluted

(in thousands)

929,282

$2.2 Billion

$4.0 Billion

Estimated Cole Capital

AUM

$8.6 Billion

Cash NOI (unaudited):

Q3 2014 real estate Cash

NOI

(in thousands)

$332,779

1) Cash NOI is a non-GAAP financial measure. See “About the

Data”

for additional information and a reconciliation of Cash NOI for

Q3 2014.

2) Excluding Cole Real Estate Investments merger.

Revolving line of credit

balance

2014 acquisitions on

balance sheet

ARCP is a Strong, Well-Capitalized

Leader in the Net Lease Industry

BUSINESS UPDATE

ARCP Is a Strong, Well-Capitalized Net Lease REIT

ARCP is a leading net lease REIT:

Total enterprise value of $20.1 billion

Established hybrid business model with Cole Capital®

Stable, predictable real estate cash flows

Experienced real estate professionals and leadership team

4,714 properties, with 1,222 tenants in 42 industries located

across 49 states

44.8% of the tenants are investment-grade rated

Weighted average remaining lease term of 11.5 years

Weighted average debt maturity of 5.1 years, with a weighted

average interest rate of 3.2%

COMPANY OVERVIEW

All data as of 9/30/14, inclusive of multi-tenant portfolio, unless otherwise noted for the ARCP balance sheet. 1) Pro forma for the multi-tenant portfolio sold to a Blackstone-DDR JV on 10/17/2014. See Page 26 for a

calculation of total enterprise value. 2) The Company’s properties are also located in the District of Columbia, Puerto Rico and Canada. 3) Tenants are considered investment-grade rated based on ratings of the major

credit

ratings

agencies

and

may

reflect

the

credit

rating

the

parent

company

guarantor.

Established Hybrid Business Model

COMPANY OVERVIEW

$20.1 B

Enterprise Value

Income NAV

CCPT V

CCIT II

Open Funds

TICs and DSTs

CCPT IV

Closed Funds

$7.7B in Assets

Single-Tenant Retail

2,080 Properties

31,950,429 SF

49 States

Office & Industrial

330 Properties

57,103,292 SF

43 States

Restaurants

2,181 Properties

11,106,650 SF

47 States

Multi-Tenant Retail

85 Properties

12,925,924 SF

26 States

CCIT

All data as of 9/30/14, inclusive of multi-tenant

portfolio, unless otherwise noted.

1) Pro forma for the multi-tenant portfolio sold to a

Blackstone-DDR JV on 10/17/2014. See Page 26 for a

calculation of total enterprise value. 2) Based on the

aggregate gross book value of real estate assets owned

within each of the Cole Capital sponsored non-traded REITs

and programs as of 9/30/2014, excluding unconsolidated

joint ventures. 3) Sold to Select Income REIT on 1/29/2015

and owned $2.6B of assets (net of amortization and

depreciation) as of 9/30/2014. 4) Additional properties in the

District of Columbia, Puerto Rico and Canada. 5) Sold 73

properties on 10/17/14 to Blackstone-DDR joint venture.

Market-leading net lease REIT

ARCP-Owned Real Estate Portfolio

PORTFOLIO OVERVIEW

As of 09/30/2014

Pro Forma Excluding

Multi-Tenant

Portfolio¹

Properties

4,714

4,641

Total Square Feet

113.8 million

102.5 million

Annualized Base Rent

$1.52 billion

$1.37 billion

Occupancy

99.2%

99.5%

Average Remaining Lease Term (by

Rent)

11.5 years

12 years

Investment Grade (by Rent)

45%

46%

Number of Tenants

1,222

799

Number of Industries

Number of States

Top 10 Tenant Concentration (by Rent)

30%

33%

Amounts

are

9/30/2014

adjusted

remove

the

effect

the

multi-tenant

portfolio

sold

Blackstone-DDR

10/17/2014.

Annualized

base

rent

represents

the

average

annual

base

rental

income

over the respective lease term, including adjustments for rent concessions or abatements, if any. 3) Occupancy is based on square feet. 4) Tenants are considered investment-grade rated based on ratings of the

major credit ratings agencies and may reflect the credit rating of the parent company or a guarantor. 5) The Company’s properties are also located in the District of Columbia, Puerto Rico and Canada.

Highly diversified by property type, industry, credit and tenant

Portfolio Diversification

PORTFOLIO OVERVIEW

Tenant

% SLR

S&P

Rating

Red Lobster

10.5%

B-

CVS pharmacy

3.5%

BBB+

Walgreens

3.0%

BBB

Dollar General

2.3%

BBB-

Family Dollar

2.2%

BBB-

FedEx

2.1%

BBB

Albertson’s

1.6%

PetSmart

1.6%

BB+

AT&T

1.6%

A-

GSA

1.6%

AA+

Top 10

Tenants

30.0%

65.3%

Retail and

Restaurants

13.7%

Industrial/

Distribution

21%

Office

Industry

% SLR

Casual Dining Restaurants

17.3%

Quick Service Restaurants

8.5%

Manufacturing

8.4%

Pharmacy

7.4%

Discount Retail

7.1%

Grocery/Supermarket

4.7%

Banking/Finance

4.6%

Home & Garden Retail

4.1%

Professional Services

3.9%

Insurance

2.7%

Top 10 Industries

68.7%

Data as of 09/30/2014 (inclusive of multi-tenant portfolio). 1) Based on straight line rent (SLR)

Property Type

Lease Expirations and Portfolio Occupancy

Lease

Expirations

PORTFOLIO OVERVIEW

Consistent

Occupancy

Levels

11.5

Years

Current W.A.L.T.

99.2%

Current Occupancy

Data as of 9/30/14, inclusive of multi-tenant portfolio. 1) Based on straight-line rent (SLR). 2) Based on occupied square feet.

Key Balance Sheet Metrics and Capital Structure

CAPITALIZATION TABLE

1) Pro forma for the sale of the multi-tenant portfolio to Blackstone-DDR venture on October 17, 2014. 2) Based on a

stock price of $9.81 as of February 27, 2015. Reflects common shares outstanding as of September 30, 2014. 3)

Normalized EBITDA represents annualized third quarter 2014 normalized EBITDA as reported in a Form 8-K filed with

the

SEC

March

2015.

Pro

forma

Normalized

EBITDA

includes

reduction

approximately

$137M

EBITDA

the

sale

the

multi-tenant

portfolio.

Fixed

Charge

Coverage

represents

normalized

EBITDA

divided

interest expense, scheduled mortgage principal amortization and preferred stock dividends for Series F perpetual

preferred stock. 5) Liquidity as of September 30, 2014 represents LOC capacity of $4,650M less outstanding balance

of $4,259M plus cash and cash equivalents of $144M. Effective December 23, 2014 and per the Current Report on

Form 8-K filed December 30, 2014, permanent combined capacity is reduced to $3,600M. As of 12/31/14 the related

outstanding balance was $3,184M.

44%

Common

Equity

Pro

Forma

Capitalization

Secured Debt

36%

Senior

Unsecured Notes

24%

Revolving Credit Facility

20%

Unsecured

Term Loan

10%

Convertible

Notes

10%

Leverage Metrics ($ millions)

09/2014

Pro Forma

Net Debt/Enterprise Value

54%

51%

Net

Debt/Normalized EBITDA

8.1x

7.7x

Weighted Avg. Interest Rate

3.2%

3.3%

Fixed Charge

Coverage

3.0x

Liquidity

$536

$616

Capitalization ($ millions)

09/2014

Pro Forma

Equity Capitalization

$8,854

Series F Preferred

$1,071

Secured Debt

$4,285

$3,743

Unsecured Term Loan

1,000

Unsecured Credit Facility

3,259

2,129

Unsecured Notes

2,550

Convertible Debt

1,000

Total Unsecured Debt

$7,809

$6,679

Total Debt

$12,094

$10,422

Cash and Equivalents

145

Net Debt

$11,949

$10,277

Enterprise Value

$21,874

$20,202

Total Capitalization

$22,019

$20,346

Manageable debt maturity profile with minimal near-term maturities

Pro

Forma

Debt

Maturity

Profile

–

Pro

Forma

DEBT MATURITY

1) Pro

forma

for

the

sale

the

multi-tenant

portfolio

Blackstone-DDR

venture

October

17,

2014;

for

the

9/30/14

Debt

Maturity

Profile,

see

the

2014

Supplemental

Information.

Represents

$48M

secured

term loan.

Figures shown in millions

Pro Forma weighted average debt term is 5.2 years

0.5%

1.4%

2.2%

16.6%

38.1%

9.8%

6.7%

3.9%

3.1%

3.7%

11.2%

2.9%

0.0%

20.0%

40.0%

2014

2015

2016

2017

2018

2019

2020

2021

2022

2023

2024

Thereafter

$54

$143

$229

$436

$203

$271

$296

$409

$320

$366

$669

$299

$1,300

$750

$500

$3,129

$598

$403

$500

$1,000

$1,500

$2,000

$2,500

$3,000

$3,500

$4,000

$4,500

2014

2015

2016

2017

2018

2019

2020

2021

2022

2023

2024

Thereafter

Convertible Notes

Senior Credit Facility

Unsecured Notes

Mortgages

Other (2)

Commitment to Cole Capital®:

Our Premier Sponsor of Non-Traded REITs

COLE CAPITAL

Annual Capital Raise

($ in millions)

1) Source:

Robert

Stanger

Co.,

Inc.;

Does

not

include

DRIP;

Cumulative

capital

raise

for

all

Cole

Capital

offerings.

Cumulative

capital

for

three

active

offerings

12/31/14.

$1,029

$969

$1,443

$1,324

$1,267

$3,568

$1,315

1,000

2,000

3,000

4,000

2008

2009

2010

2011

2012

2013

2014

Strong business with a long, successful track

record

Founded in 1979, Cole Capital has raised over $12.9

billion in equity and invested over $18.9 billion in real

estate assets in 8 non-traded REITs during the past

10 years

Per Robert Stanger, Cole Capital is the only sponsor

that has ranked in the Top 4 in capital raising each of

the past 7 years

with a total market share of 14%

during that period

No association with former ARCP or RCS Capital

management

Maintains a strong team of tenured industry leaders

Consistent record of raising capital and delivering

value to its investors

ARCP is committed to returning Cole Capital to

prior levels of success and earnings power to

generate value for shareholders

With the filing of ARCP’s financial statements, Cole

Capital is immediately turning its attention to

normalizing relationships with broker-dealers and

clearing firms

Emphasizing original operating model

Cole Capital has three active non-traded REITs

currently raising equity, with $555.8 million raised and

$9.4 billion available to be raised

Cole Capital delivered $0.07 of AFFO per share

during the nine months ended September 30, 2014

BUSINESS UPDATE

Summary

The Audit Committee conducted a thorough and independent investigation of accounting concerns

The Company restated certain previously issued financial statements contained in its 2013 Annual

Report on Form 10-K and its first and second quarter 2014 Quarterly Reports on Form 10-Q, and filed

its Quarterly Report on Form 10-Q for the third quarter of 2014

Put in place new senior leadership team following the resignations of former members of

management and ended all direct relationships with former Executive Chairman

Anticipates completing the search for a new Chief Executive Officer and non-executive Chairman of

the Board of Directors in the near term

Will

satisfy

the

consent

and

waiver

from

lenders

under

its

credit

agreement

Expects to regain compliance with NASDAQ listing standards

Positioning Cole Capital to rebuild transaction volumes and capital raising, and resume normalized

activities

Taking steps to materially enhance ARCP’s corporate governance and financial controls

The Board and the Company’s new senior leadership team have demonstrated an ongoing

commitment to establishing a culture of compliance, integrity and transparency

The Board of Directors acted swiftly and decisively in response to the

accounting

concerns

reported

the

Audit

Committee

September

2014

Key Takeaways

KEY TAKEAWAYS

1) Based on other conditions being satisfied as outlined in press release issued on 12/24/14.

ARCP continues to be a strong, well-capitalized leader in the net lease REIT industry.

About the Data

BUSINESS UPDATE

About the Data

ABOUT THE DATA

Description of Funds From Operations and Adjusted Funds From

Operations –

apparent from net income. However, FFO and Adjusted Funds From Operations

(“AFFO”), as described below, should not be construed to be more relevant or

accurate than the current U.S. GAAP methodology in calculating net income or in its

applicability in evaluating our operating performance. The method utilized to evaluate

the value and performance of real estate under U.S. GAAP should be construed as a

more relevant measure of operational performance and considered more

prominently than the non-GAAP FFO and AFFO measures and the adjustments to

U.S. GAAP in calculating FFO and AFFO.

We consider FFO and AFFO useful indicators of the performance of a REIT.

Because FFO calculations exclude such factors as depreciation and amortization of

real estate assets and gains or losses from sales of operating real estate assets

(which can vary among owners of identical assets in similar conditions based on

historical cost accounting and useful-life estimates), they facilitate comparisons of

operating performance between periods and between other REITs in our peer group.

Accounting for real estate assets in accordance with U.S. GAAP implicitly assumes

that the value of real estate assets diminishes predictably over time. Since real

estate values have historically risen or fallen with market conditions, many industry

investors and analysts have considered the presentation of operating results for real

estate companies that use historical cost accounting to be insufficient by themselves.

Changes in the accounting and reporting promulgations under GAAP (for acquisition

fees and expenses from a capitalization/depreciation model to an expensed-as-

incurred model) that were put into effect in 2009 and other changes to GAAP

accounting for real estate subsequent to the establishment of NAREIT's definition of

FFO have prompted an increase in cash-settled expenses, specifically acquisition

fees and expenses for all industries as items that are expensed under GAAP, that

are typically accounted for as operating expenses. Management believes these fees

and expenses do not affect our overall long-term operating performance. While

certain companies may experience significant acquisition activity, other companies

may not have significant acquisition activity and management believes that excluding

costs such as merger and transaction costs and acquisition related costs from

property operating results provides useful information to investors and provides

information that improves the comparability of operating results with other companies

who do not have significant merger or acquisition activities. AFFO is not equivalent

to our net income or loss as determined under GAAP, and AFFO may not be a

useful measure of the impact of long-term operating performance if we continue to

have such activities in the future.

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

measure known as funds from operations ("FFO"), which we believe to be an

appropriate supplemental measure to reflect the operating performance of a

REIT. The use of FFO is recommended by the REIT industry as a supplemental

performance measure. FFO is not equivalent to our net income or loss as

determined under generally accepted accounting principles in the United States

("U.S. GAAP").

We define FFO, a non-GAAP measure, consistent with the standards

established by the White Paper on FFO approved by the Board of Governors of

NAREIT, as revised in February 2004 (the "White Paper"). The White Paper

defines FFO as net income or loss computed in accordance with U.S. GAAP,

excluding gains or losses from sales of property but including asset impairment

write downs, plus depreciation and amortization, after adjustments for

unconsolidated partnerships and joint ventures. Adjustments for unconsolidated

partnerships and joint ventures are calculated to reflect FFO. Our FFO

calculation complies with NAREIT's policy described above.

The historical accounting convention used for real estate assets requires

straight-line depreciation of buildings and improvements, which implies that the

value of real estate assets diminishes predictably over time, especially if such

assets are not adequately maintained or repaired and renovated as required by

relevant circumstances and/or is requested or required by lessees for

operational purposes in order to maintain the value disclosed. We believe that,

since real estate values historically rise and fall with market conditions, including

inflation, interest rates, the business cycle, unemployment and consumer

spending, presentations of operating results for a REIT using historical

accounting for depreciation may be less informative. Historical accounting for

real estate involves the use of U.S. GAAP. Any other method of accounting for

real estate such as the fair value method cannot be construed to be any more

accurate or relevant than the comparable methodologies of real estate valuation

found in U.S. GAAP. Nevertheless, we believe that the use of FFO, which

excludes the impact of real estate related depreciation and amortization,

provides a more complete understanding of our performance to investors and to

management, and when compared year over year, reflects the impact on our

operations from trends in occupancy rates, rental rates, operating costs, general

and administrative expenses, and interest costs, which may not be immediately

About the Data

ABOUT THE DATA

We exclude certain income or expense items from AFFO, that we consider more

reflective of investing activities, other non-cash income and expense items and

the income and expense effects of other activities that are not a fundamental

attribute of our business plan. These items include unrealized gains and losses,

which may not ultimately be realized, such as gains or losses on derivative

instruments, gains or losses on contingent valuation rights, gains and losses on

investments and early extinguishment of debt. In addition, by excluding non-cash

income and expense items such as amortization of above and below market

leases, amortization of deferred financing costs, straight-line rent and non-cash

equity compensation from AFFO we believe we provide useful information

regarding income and expense items which have no cash impact and do not

provide liquidity to the company or require capital resources of the company. By

providing AFFO, we believe we are presenting useful information that assists

investors and analysts to better assess the sustainability of our ongoing

operating performance without the impacts of transactions that are not related to

the ongoing profitability of our portfolio of properties. We also believe that AFFO

is a recognized measure of sustainable operating performance by the REIT

industry. Further, we believe AFFO is useful in comparing the sustainability of our

operating performance with the sustainability of the operating performance of

other real estate companies that are not as involved activities which are excluded

from our calculation. Investors are cautioned that AFFO should only be used to

assess the sustainability of our operating performance excluding these activities,

as it excludes certain costs that have a negative effect on our operating

performance during the periods in which these costs are incurred.

In addition, we exclude certain interest expenses related to securities that are

convertible to common stock as the shares are assumed to have converted to

common stock in our calculation of weighted average common shares-fully

diluted. As the Company's convertible notes have a cash or stock settlement

option and the Company has the ability and intent to settle its convertible notes in

cash, the interest expense related to our convertible notes have not been

excluded from AFFO, and accordingly, the shares are not assumed to have

converted to common stock in our calculation of weighted average common

shares-fully diluted.

In calculating AFFO, we exclude expenses, which under GAAP are characterized

as operating expenses in determining operating net income. These expenses are

paid in cash by us, and therefore such funds will not be available to distribute to

investors. All paid and accrued merger and acquisition fees and certain other

expenses negatively impact our operating performance during the period in

which expenses are incurred or properties are acquired and will have negative

effects on returns to investors, the potential for future distributions, and cash

flows generated by us, unless earnings from operations or net sales proceeds

from the disposition of other properties are generated to cover the purchase price

of the property and certain other expenses. Therefore, AFFO may not be an

accurate indicator of our operating performance, especially during periods in

which mergers are being consummated or properties are being acquired or

certain other expense are being incurred. AFFO that excludes such costs and

expenses would only be comparable to companies that did not have such

activities. Further, under GAAP, certain contemplated non-cash fair value and

other non-cash adjustments are considered operating non-cash adjustments to

net income in determining cash flow from operating activities. In addition, we

view fair value adjustments as items which are unrealized and may not ultimately

be realized. We view both gains and losses from fair value adjustments as items

which are not reflective of ongoing operations and are therefore typically adjusted

for when assessing operating performance. Excluding income and expense items

detailed above from our calculation of AFFO provides information consistent with

management's analysis of the operating performance of the properties.

Additionally, fair value adjustments, which are based on the impact of current

market fluctuations and underlying assessments of general market conditions,

but can also result from operational factors such as rental and occupancy rates,

may not be directly related or attributable to our current operating performance.

By excluding such changes that may reflect anticipated and unrealized gains or

losses, we believe AFFO provides useful supplemental information.

As a result, we believe that the use of FFO and AFFO, together with the required

U.S. GAAP presentations, provide a more complete understanding of our

performance relative to our peers and a more informed and appropriate basis on

which to make decisions involving operating, financing and investing activities.

FFO and AFFO are non-GAAP financial measures and do not represent net

income as defined by U.S. GAAP. FFO and AFFO do not represent cash flows

from operations as defined by U.S. GAAP, are not indicative of cash available to

fund all cash flow needs and liquidity, including our ability to pay distributions,

and should not be considered as alternatives to net income, as determined in

accordance with U.S. GAAP, for purposes of evaluating our operating

performance. Other REITs may not define FFO in accordance with the current

NAREIT definition (as we do) or may interpret the current NAREIT definition

differently than we do and/or calculate AFFO differently than we do.

Consequently, our presentation of FFO and AFFO may not be comparable to

other similarly titled measures presented by other REITs.

Description of Funds From Operations and Adjusted Funds From

Operations –

Continued

About the Data

EBITDA and Normalized EBITDA

Normalized EBITDA as disclosed represents EBITDA, or earnings before interest,

taxes, depreciation and amortization, modified to include other adjustments to GAAP

net income for merger expenses which are considered non-recurring and gains/losses

in real estate and derivatives which are not considered fundamental attributes of the

Company’s business plans and do not affect the Company’s overall long-term

operating performance. The Company excludes these items from Normalized EBITDA

as they are not the primary drivers in the Company’s decision making process. In

addition, the Company’s assessment of the Company’s operations is focused on long-

term sustainability and not on such non-cash items, which may cause short term

fluctuations

net

income

but

have

impact

cash

flows.

The

Company

believes

that Normalized EBITDA is a useful supplemental measure to investors and analysts

for assessing the performance of the Company’s business segments, although it does

not represent net income that is computed in accordance with GAAP. Therefore,

Normalized EBITDA should not be considered as an alternative to net income or as an

indicator of the Company’s financial performance. The Company uses Normalized

EBITDA as one measure of its operating performance when formulating corporate

goals and evaluating the effectiveness of the Company’s strategies. Normalized

EBITDA may not be comparable to similarly titled measures of other companies.

GAAP Reconciliations

Reconciliations

net

income

FFO,

AFFO

and

Normalized

EBITDA

are

provided

the

Supplemental

Financial

Information

for

the

third

quarter

2014

furnished

the

SEC on Form 8-K.

ABOUT THE DATA

NOI and Adjusted NOI

Net Operating Income (“NOI”) is a non-GAAP performance measure used to

evaluate the operating performance of a real estate company. NOI represents

rental and other property income and tenant reimbursement income less

property operating expenses. NOI excludes income from discontinued

operations, interest expense, depreciation and amortization, general and

administrative expenses, merger related compensation and merger and

acquisition related expenses. Adjusted NOI excludes the impact of certain

GAAP adjustments to rental revenue, such as straight-line rent adjustments,

amortization of above market intangible lease assets or the amortization of

below market lease intangible liabilities. It is management’s view that NOI and

Adjusted NOI provide investors relevant and useful information because it

reflects only income and operating expense items that are incurred at the

property level and presents them on an unleveraged basis. NOI and Adjusted

NOI should not be considered as an alternative to net income. Further, NOI

and Adjusted NOI may not be comparable to similarly titled measures of other

companies. Please see below for a reconciliation of net income to NOI and

Adjusted NOI.

NOI

GAAP

Reconciliation

For

Reporting

In $000's

3 Months Ended

September 30, 2014

Rental

Income

Reported

365,713

Operating

Expense

Reimbursements

Reported

30,983

Property

Operating

Reported

(40,977)

GAAP NOI

355,719

Adjustments:

Straight Line Rent

(24,871)

Above / Below Market Rent

1,931

Cash NOI

332,779

VEREIT, Inc. - FORM 8-K - EX-99.3 - March 2, 2015

Attached files

VEREIT, Inc. Reports