REALTY INCOME CORP (Form: 8-K, Received: 06/04/2021 08:24:54)

United States

Securities and Exchange Commission

Washington, D.C. 20549

Form 8-K

Current Report

Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934

Date of report: June 4, 2021

(Date of Earliest Event Reported)

REALTY INCOME CORPORATION

(Exact name of registrant as specified in its charter)

Maryland	1-13374	33-0580106
(State or Other Jurisdiction of Incorporation or Organization)	(Commission File Number)	(IRS Employer Identification No.)

11995 El Camino Real, San Diego, California 92130

(Address of principal executive offices)

(858) 284-5000

(Registrant’s telephone number, including area code)

N/A

(former name or former address, if changed since last report)

Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions:

¨	Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425)

¨	Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12)

¨	Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b))

¨	Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c))

Indicate by check mark whether the registrant is an emerging growth company as defined in Rule 405 of the Securities Act of 1933 (17 CFR §230.405) or Rule 12b-2 of the Securities Exchange Act of 1934 (17 CFR §240.12b-2).

Emerging growth company o

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. o

Securities registered pursuant to Section 12(b) of the Act:

Title of each class	Trading symbol	Name of Each Exchange On Which Registered
Common Stock, $0.01 Par Value	O	New York Stock Exchange
1.625% Notes due 2030	O30	New York Stock Exchange

Item 8.01.

Other Events.

Financial Information of VEREIT and VEREIT OP

As previously disclosed, on April 29, 2021, Realty Income Corporation (the “Company” or “Realty Income”)) entered into an Agreement and Plan of Merger (the “Merger Agreement”) with VEREIT, Inc., a Maryland corporation (“VEREIT”), VEREIT Operating Partnership, L.P., a Delaware limited partnership (“VEREIT OP”), Rams MD Subsidiary I, Inc., a Maryland corporation and wholly owned subsidiary of Realty Income (“Merger Sub 1”), and Rams Acquisition Sub II, LLC, a Delaware limited liability company and wholly owned subsidiary of Realty Income (“Merger Sub 2”). The Merger Agreement provides for, subject to the terms and conditions thereof, the combination of the Company and VEREIT through (i) a merger of Merger Sub 2 with and into VEREIT OP, with VEREIT OP continuing as the surviving entity (the “Partnership Merger”) and (ii) immediately thereafter, a merger of VEREIT with and into Merger Sub 1, with Merger Sub 1 continuing as the surviving corporation (the “Merger” and together with the Partnership Merger, the “Mergers”).

The Company is filing this Current Report on Form 8-K to provide certain financial information with respect to the proposed Mergers. Specifically, this Current Report on Form 8-K provides: (1) the audited consolidated financial statements of VEREIT and VEREIT OP as of December 31, 2020 and 2019, and for each of the years in the three year period ended December 31, 2020, attached hereto as Exhibit 99.1 and incorporated herein by reference, (2) the unaudited consolidated financial statements of VEREIT and VEREIT OP as of March 31, 2021 and for the three month periods ended March 31, 2021 and 2020, attached hereto as Exhibit 99.2 and incorporated herein by reference, and (3) the Company’s unaudited pro forma condensed combined financial statements as of and for the three month period ended March 31, 2021 and for the year ended December 31, 2020, relating to the proposed Mergers, attached hereto as Exhibit 99.3 and incorporated herein by reference. Such unaudited pro forma condensed combined financial statements have been prepared on the basis of certain assumptions and estimates and are subject to other uncertainties and do not purport to reflect what the actual results of operations or financial condition of the combined company would have been had the Mergers been consummated on the dates assumed for purposes of such pro forma financial statements or to be indicative of the financial condition or results of operations of the combined company as of or for any future date or period. For further information, see Exhibit 99.3. The information in Exhibits 99.1 and 99.2 was provided by VEREIT and VEREIT OP.

Supplemental Risk Factors

The Company is also filing this Current Report on Form 8-K to provide certain supplemental risk factors (the “Supplemental Risk Factors”) that were originally reflected in the Registration Statement on Form S-4 filed with the SEC by the Company on June 4, 2021 (which Registration Statement is not incorporated by reference in or a part of this Current Report on Form 8-K). The Supplemental Risk Factors are attached hereto as Exhibit 99.4 and incorporated herein by reference.

Forward-Looking Statements

This Current Report on Form 8-K may include “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act. All statements other than statements of historical fact are “forward-looking statements” for purposes of federal and state securities laws. These forward-looking statements, which are based on current expectations, estimates and projections about the industry and markets in which Realty Income and VEREIT operate and beliefs of and assumptions made by Realty Income management and VEREIT management, involve uncertainties that could significantly affect the financial condition or operating results of Realty Income, VEREIT, the combined company that will be formed by the Mergers, if consummated, or any company spun-off by the combined company. Words such as “expects,” “anticipates,” “intends,” “plans,” “believes,” “seeks,” “estimates,” “will,” and variations of such words and similar expressions are intended to identify such forward-looking statements. Such forward-looking statements include, but are not limited to, statements about the benefits of the proposed transactions involving Realty Income and VEREIT, including future financial condition and operating results, plans, objectives, expectations and intentions. All statements that address operating performance, events or developments that we expect or anticipate will occur in the future — including statements relating to creating value for stockholders, benefits of the proposed transactions to clients, employees, stockholders and other constituents of the combined company, integrating our companies, cost savings and the expected timetable for completing the proposed transactions — are forward-looking statements. These statements are not guarantees of future performance and involve certain risks, uncertainties and assumptions that are difficult to predict. Although we believe the expectations reflected in any forward-looking statements are based on reasonable assumptions, we can give no assurance that our expectations will be attained and, therefore, actual outcomes and results may differ materially from what is expressed or forecasted in such forward-looking statements. For example, these forward-looking statements could be affected by factors including, without limitation, risks associated with the ability to consummate the proposed Mergers and the timing of the closing of the proposed Mergers; the ability to secure favorable interest rates on any borrowings incurred in connection with the proposed transactions; the impact of indebtedness incurred in connection with the proposed transactions; the ability to successfully integrate our operations and employees with those of VEREIT; the ability to realize anticipated benefits and synergies of the proposed transactions as rapidly or to the extent anticipated by financial analysts or investors; potential liability for a failure to meet regulatory or tax-related requirements, including the maintenance of REIT status; material changes in the dividend rates on securities or the ability to pay dividends on common shares or other securities; potential changes to tax legislation; changes in demand for developed properties; adverse changes in the financial condition of joint venture partner(s) or major tenants; risks associated with the acquisition, development, expansion, leasing and management of properties; risks associated with the ability to consummate the proposed spin-off of a planned company that is to hold the office property assets of the Company and VEREIT (“SpinCo”) and the terms thereof, and the timing of the closing of the proposed spin-off; risks associated with the ability to consummate any sales of office property assets of the Company and VEREIT and the impact of such sales on SpinCo or the combined company; failure to obtain debt financing to capitalize SpinCo; risks associated with the geographic concentration of the Company, VEREIT or SpinCo; risks associated with the industry concentration of tenants; the potential impact of announcement of the proposed transactions or consummation of the proposed transactions on business relationships, including with clients, employees, customers and competitors; unfavorable outcomes of any legal proceedings that have been or may be instituted against Realty Income, VEREIT or any company spun-off by the combined company; costs related to uninsured losses, condemnation, or environmental issues; the ability to retain key personnel; costs, fees, expenses and charges related to the proposed transactions and the actual terms of the financings that may be obtained in connection with the proposed transactions; changes in local, national and international financial markets, insurance rates and interest rates; general adverse economic and local real estate conditions; the inability of major tenants to continue paying their rent obligations due to bankruptcy, insolvency or a general downturn in their business; foreign currency exchange rates; increases in operating costs and real estate taxes; changes in dividend policy or ability to pay dividends for the Company's or VEREIT’s common stock or preferred stock; impairment charges; unanticipated changes in the Company's or VEREIT’s intention or ability to prepay certain debt prior to maturity and/or hold certain securities until maturity; pandemics or other health crises, such as coronavirus (COVID-19); and those additional risks and factors discussed in reports filed with the U.S. Securities and Exchange Commission (“SEC”) by Realty Income. Moreover, other risks and uncertainties of which Realty Income or VEREIT are not currently aware may also affect these forward-looking statements and may cause actual results and the timing of events to differ materially from those anticipated. The forward-looking statements made in this communication are made only as of the date hereof or as of the dates indicated in the forward-looking statements. The Company undertakes no obligation to update or supplement any forward-looking statements to reflect actual results, new information, future events, changes in its expectations or other circumstances that exist after the date as of which the forward-looking statements were made.

This communication does not constitute an offer to sell or the solicitation of an offer to buy any securities or a solicitation of any vote or approval. In connection with the proposed Mergers, Realty Income and VEREIT have filed with the SEC a registration statement on Form S-4 containing a joint proxy statement/prospectus and other documents regarding the proposed Mergers. The joint proxy statement/prospectus is not a part of or incorporated by reference in this Current Report on Form 8-K.

Item 9.01 Financial Statements and Exhibits.

(a)           Financial Statements of Businesses to be Acquired

The audited consolidated financial statements of VEREIT and VEREIT OP as of December 31, 2020 and 2019 and for each of the years in the three year period ended December 31, 2020 are filed herewith as Exhibit 99.1 and incorporated in this Item 9.01(a) by reference.

The unaudited consolidated financial statements of VEREIT and VEREIT OP as of March 31, 2021 and for the three month periods ended March 31, 2021 and 2020 are filed herewith as Exhibit 99.2 and incorporated in this Item 9.01(a) by reference.

(b)           Pro Forma Financial Information

The unaudited pro forma condensed combined financial statements of the Company as and for the three month period ended March 31, 2021 and for the year ended December 31, 2020, giving effect to the Mergers, are filed herewith as Exhibit 99.3 and incorporated in this Item 9.01(b) by reference.

(d)           Exhibits.

Exhibit No		Description
23.1		Consent of Deloitte & Touche LLP for VEREIT, Inc.
23.2		Consent of Deloitte & Touche LLP for VEREIT Operating Partnership, L.P.
99.1		Audited consolidated financial statements of VEREIT, Inc. and VEREIT Operating Partnership, L.P. as of December 31, 2020 and 2019, and for each of the years in the three year period ended December 31, 2020.
99.2		Unaudited consolidated financial statements of VEREIT, Inc. and VEREIT Operating Partnership, L.P. as of March 31, 2021 and for the three month periods ended March 31, 2021 and 2020.
99.3		Unaudited pro forma condensed combined financial statements of the Company as of and for the three month period ended March 31, 2021 and for the year ended December 31, 2020.
99.4		Supplemental Risk Factors.
104		Cover Page Interactive Data File (formatted as inline XBRL and contained in Exhibit 101).

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized.

		REALTY INCOME CORPORATION

Date:	June 4, 2021	By:	/s/ Michelle Bushore
			Michelle Bushore
			Executive Vice President, Chief Legal Officer, General Counsel and Secretary

Exhibit 23.1

CONSENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

We consent to the incorporation by reference in Registration Statement No. 333-228157 on Form S-3 and Registration Statement Nos. 333-181227 and 333-256254 on Form S-8 of Realty Income Corporation of our report dated February 23, 2021, relating to the financial statements of VEREIT, Inc. and subsidiaries and the effectiveness of VEREIT, Inc. and subsidiaries’ internal control over financial reporting, appearing in this Current Report of Realty Income Corporation on Form 8-K dated June 4, 2021.

/s/ DELOITTE & TOUCHE LLP

Phoenix, Arizona

June 4, 2021

Exhibit 23.2

CONSENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

We consent to the incorporation by reference in Registration Statement No. 333-228157 on Form S-3 and Registration Statement Nos. 333-181227 and 333-256254 on Form S-8 of Realty Income Corporation of our report dated February 23, 2021, relating to the financial statements of VEREIT Operating Partnership, L.P. and subsidiaries, appearing in this Current Report of Realty Income Corporation on Form 8-K dated June 4, 2021.

/s/ DELOITTE & TOUCHE LLP

Phoenix, Arizona

June 4, 2021

Exhibit 99.1

INDEX TO CONSOLIDATED FINANCIAL STATEMENTS

	Page
Financial Statements
Reports of Independent Registered Public Accounting Firm	F-2
Consolidated Balance Sheets of VEREIT, Inc. as of December 31, 2020 and December 31, 2019	F-6
Consolidated Statements of Operations of VEREIT, Inc. for the Years Ended December 31, 2020, 2019 and 2018	F-7
Consolidated Statements of Comprehensive Income (Loss) of VEREIT, Inc. for the Years Ended December 31, 2020, 2019 and 2018	F-8
Consolidated Statements of Changes in Equity of VEREIT, Inc. for the Years Ended December 31, 2020, 2019 and 2018	F-9
Consolidated Statements of Cash Flows of VEREIT, Inc. for the Years Ended December 31, 2020, 2019 and 2018	F-10
Consolidated Balance Sheets of VEREIT Operating Partnership, L.P. as of December 31, 2020 and December 31, 2019	F-12
Consolidated Statements of Operations of VEREIT Operating Partnership, L.P. for the Years Ended December 31, 2020, 2019 and 2018	F-14
Consolidated Statements of Comprehensive Income (Loss) of VEREIT Operating Partnership, L.P. for the Years Ended December 31, 2020, 2019 and 2018	F-15
Consolidated Statements of Changes in Equity of VEREIT Operating Partnership, L.P. for the Years Ended December 31, 2020, 2019 and 2018	F-16
Consolidated Statements of Cash Flows of VEREIT Operating Partnership, L.P. for the Years Ended December 31, 2020, 2019 and 2018	F-17
Notes to Consolidated Financial Statements	F-19
Schedule II – Valuation and Qualifying Accounts	F-56
Schedule III – Real Estate and Accumulated Depreciation	F-57
Schedule IV – Mortgage Loans Held For Investment	F-61

F-1

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To the stockholders and the Board of Directors of VEREIT, Inc.

Opinion on the Financial Statements

We have audited the accompanying consolidated balance sheets of VEREIT, Inc. and subsidiaries (the “Company”) as of December 31, 2020 and 2019, the related consolidated statements of operations, comprehensive income (loss), changes in equity and cash flows for each of the three years in the period ended December 31, 2020 and the related notes and the schedules listed in the Index at Item 15 (collectively referred to as the “financial statements”). In our opinion, the financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 2020 and 2019, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 2020, in conformity with accounting principles generally accepted in the United States of America.

We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the Company’s internal control over financial reporting as of December 31, 2020, based on criteria established in Internal Control – Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission and our report dated February 23, 2021 expressed an unqualified opinion on the Company’s internal control over financial reporting.

Basis for Opinion

These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on the Company’s financial statements based on our audits. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion.

Critical Audit Matter

The critical audit matter communicated below is a matter arising from the current-period audit of the financial statements that was communicated or required to be communicated to the audit committee and that (1) relates to accounts or disclosures that are material to the financial statements and (2) involved our especially challenging, subjective, or complex judgments. The communication of critical audit matters does not alter in any way our opinion on the financial statements, taken as a whole, and we are not, by communicating the critical audit matter below, providing a separate opinion on the critical audit matter or on the accounts or disclosures to which it relates.

F-2

Real Estate Investments - Impairments- Refer to Note 2 and Note 5 to the financial statements

Critical Audit Matter Description

The Company performs quarterly impairment review procedures, primarily through monitoring of events and changes in circumstances that could indicate the carrying value of its real estate assets may not be recoverable. The Company assesses the recoverability of real estate assets by determining whether the carrying value of the assets will be recovered from the undiscounted future cash flows expected from the use of the assets and their eventual disposition. Estimating future undiscounted cash flows requires management to make significant estimates and assumptions, including estimating the expected holding period of the assets when assessing recoverability.

In the event that such expected undiscounted future cash flows do not exceed the carrying value, the Company will adjust the carrying value of real estate assets to their respective fair values and recognize an impairment loss. Generally, fair value is determined using a discounted cash flow analysis and recent comparable sales transactions. During 2020, the Company recorded $61.7 million of impairment charges.

We identified the impairment of real estate assets as a critical audit matter because of the significant estimates and assumptions required to evaluate the recoverability of real estate assets, including the estimated holding period of the assets when assessing recoverability. Auditing the assumptions used by the Company in estimating future undiscounted cash flows required a high degree of auditor judgment and an increased extent of effort, including the need to involve our fair value specialists, when performing audit procedures to evaluate the reasonableness of the Company’s recoverability analysis.

How the Critical Audit Matter Was Addressed in the Audit

Our audit procedures to test the assumptions used by management to estimate forecasted cash flows, including management’s expected holding period of such real estate assets, consisted of the following, among others:

•

We tested the effectiveness of internal controls over the inputs of the forecasted cash flows used in the recoverability analysis.

•

With the assistance of our fair value specialists, we evaluated the undiscounted future cash flows analysis, including estimates of future occupancy levels, market rental revenue, and capitalization rates, in addition to the assessment of expected remaining holding period and changes in management’s intent with respect to the expected holding period for each real estate asset with possible impairment indicators by:

Making inquiries of accounting and operations management.

Comparing the source data and management’s assumptions to the Company’s historical results and external market sources.

Testing the mathematical accuracy of the undiscounted future cash flows analysis.

/s/ DELOITTE & TOUCHE LLP

Phoenix, Arizona

February 23, 2021

We have served as the Company’s auditor since 2015.

F-3

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To the partners of VEREIT Operating Partnership, L.P.

Opinion on the Financial Statements

We have audited the accompanying consolidated balance sheets of VEREIT Operating Partnership, L.P and subsidiaries (the "Operating Partnership") as of December 31, 2020 and 2019, the related consolidated statements of operations, comprehensive income (loss), changes in equity, and cash flows, for each of the three years in the period ended December 31, 2020, and the related notes and the schedules listed in the Index at Item 15 (collectively referred to as the "financial statements"). In our opinion, the financial statements present fairly, in all material respects, the financial position of the Operating Partnership as of December 31, 2020 and 2019, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 2020, in conformity with accounting principles generally accepted in the United States of America.

Basis for Opinion

These financial statements are the responsibility of the Operating Partnership's management. Our responsibility is to express an opinion on the Operating Partnership's financial statements based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (PCAOB) and are required to be independent with respect to the Operating Partnership in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. The Operating Partnership is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. As part of our audits, we are required to obtain an understanding of internal control over financial reporting but not for the purpose of expressing an opinion on the effectiveness of the Operating Partnership’s internal control over financial reporting. Accordingly, we express no such opinion.

Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion.

Critical Audit Matter

F-4

Real Estate Investments – Impairments – Refer to Note 2 and Note 5 to the financial statements

Critical Audit Matter Description

The Operating Partnership performs quarterly impairment review procedures, primarily through monitoring of events and changes in circumstances that could indicate the carrying value of its real estate assets may not be recoverable. The Operating Partnership assesses the recoverability of real estate assets by determining whether the carrying value of the assets will be recovered from the undiscounted future cash flows expected from the use of the assets and their eventual disposition. Estimating future undiscounted cash flows requires management to make significant estimates and assumptions, including estimating the expected holding period of the assets when assessing recoverability.

In the event that such expected undiscounted future cash flows do not exceed the carrying value, the Operating Partnership will adjust the carrying value of real estate assets to their respective fair values and recognize an impairment loss. Generally, fair value is determined using a discounted cash flow analysis and recent comparable sales transactions. During 2020, the Operating Partnership recorded $61.7 million of impairment charges.

We identified the impairment of real estate assets as a critical audit matter because of the significant estimates and assumptions required to evaluate the recoverability of real estate assets, including the estimated holding period of the assets when assessing recoverability. Auditing the assumptions used by the Operating Partnership in estimating future undiscounted cash flows required a high degree of auditor judgment and an increased extent of effort, including the need to involve our fair value specialists, when performing audit procedures to evaluate the reasonableness of the Operating Partnership’s recoverability analysis.

How the Critical Audit Matter Was Addressed in the Audit

•

We tested the effectiveness of internal controls over the inputs of the forecasted cash flows used in the recoverability analysis.

•

Making inquiries of accounting and operations management.

Comparing the source data and management’s assumptions to the Operating Partnership’s historical results and external market sources.

Testing the mathematical accuracy of the undiscounted future cash flows analysis.

/s/ DELOITTE & TOUCHE LLP

Phoenix, Arizona

February 23, 2021

We have served as the Operating Partnership’s auditor since 2015.

F-5

VEREIT, INC.

CONSOLIDATED BALANCE SHEETS

(In thousands, except for share and per share data)

	December 31, 2020			December 31, 2019
ASSETS
Real estate investments, at cost:
Land	$	2,699,110		$	2,738,679
Buildings, fixtures and improvements		10,032,055			10,200,550
Intangible lease assets		1,872,461			1,904,641
Total real estate investments, at cost		14,603,626			14,843,870
Less: accumulated depreciation and amortization		3,863,732			3,594,247
Total real estate investments, net		10,739,894			11,249,623
Operating lease right-of-use assets		195,518			215,227
Investment in unconsolidated entities		81,639			68,825
Cash and cash equivalents		523,539			12,921
Restricted cash		13,842			20,959
Rent and tenant receivables and other assets, net		366,620			348,395
Goodwill		1,337,773			1,337,773
Real estate assets held for sale, net		65,583			26,957
Total assets	$	13,324,408		$	13,280,680

LIABILITIES AND EQUITY
Mortgage notes payable, net	$	1,328,835		$	1,528,134
Corporate bonds, net		4,584,230			2,813,739
Convertible debt, net		—			318,183
Credit facility, net		—			1,045,669
Below-market lease liabilities, net		120,938			143,583
Accounts payable and accrued expenses		117,015			126,320
Derivative, deferred rent and other liabilities		63,204			90,349
Distributions payable		89,514			150,364
Operating lease liabilities		209,104			221,061
Total liabilities		6,512,840			6,437,402
Commitments and contingencies (Note 10)
Preferred stock, $0.01 par value, 100,000,000 shares authorized and 18,871,246 and 30,871,246 issued and outstanding as of December 31, 2020 and December 31, 2019, respectively		189			309
Common stock, $0.01 par value, 1,500,000,000 shares authorized and 228,881,547 and 215,369,197 issued and outstanding as of December 31, 2020 and December 31, 2019, respectively		2,289			2,153
Additional paid-in capital		13,449,412			13,260,577
Accumulated other comprehensive income (loss)		536			(27,670	)
Accumulated deficit		(6,648,028	)		(6,399,626	)
Total stockholders’ equity		6,804,398			6,835,743
Non-controlling interests		7,170			7,535
Total equity		6,811,568			6,843,278
Total liabilities and equity	$	13,324,408		$	13,280,680

The accompanying notes are an integral part of these statements.

F-6

VEREIT, INC.

CONSOLIDATED STATEMENTS OF OPERATIONS

(In thousands, except for per share data)

	Year Ended December 31,
	2020			2019			2018
Revenues:
Rental	$	1,158,285		$	1,237,234		$	1,257,867
Fees from managed partnerships		3,081			820			161
Total revenues		1,161,366			1,238,054			1,258,028
Operating expenses:
Acquisition-related		4,790			4,337			3,632
Litigation and non-routine costs, net		2,348			815,422			290,963
Property operating		122,967			129,769			126,461
General and administrative		61,349			62,711			63,933
Depreciation and amortization		452,008			481,995			640,618
Impairments		65,075			47,091			54,647
Restructuring		—			10,505			—
Total operating expenses		708,537			1,551,830			1,180,254
Other (expenses) income:
Interest expense		(265,660	)		(278,574	)		(280,887	)
(Loss) gain on extinguishment and forgiveness of debt, net		(1,486	)		(17,910	)		5,360
Other income, net		6,610			12,209			14,574
(Loss) gain on derivative instruments, net		(85,392	)		(58	)		355
Equity in income and gain on disposition of unconsolidated entities		3,539			2,618			1,869
Gain on disposition of real estate and real estate assets held for sale, net		95,292			292,647			94,331
Total other (expenses) income, net		(247,097	)		10,932			(164,398	)
Income (loss) before taxes		205,732			(302,844	)		(86,624	)
Provision for income taxes		(4,513	)		(4,262	)		(5,101	)
Income (loss) from continuing operations		201,219			(307,106	)		(91,725	)
Income from discontinued operations, net of income taxes		—			—			3,695
Net income (loss)		201,219			(307,106	)		(88,030	)
Net (income) loss attributable to non-controlling interests ⁽¹⁾		(91	)		6,753			2,256
Net income (loss) attributable to the General Partner	$	201,128		$	(300,353	)	$	(85,774	)

Basic and diluted net income (loss) per share from continuing operations attributable to common stockholders	$	0.72		$	(1.85	)	$	(0.83	)
Basic and diluted net income per share from discontinued operations attributable to common stockholders	$	—		$	—		$	0.02
Basic and diluted net income (loss) per share attributable to common stockholders	$	0.72		$	(1.85	)	$	(0.81	)

(1)

Represents net (income) loss attributable to limited partners and a consolidated joint venture partner.

The accompanying notes are an integral part of these statements.

F-7

VEREIT, INC.

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)

(In thousands)

	Year Ended December 31,
	2020			2019			2018
Net income (loss)	$	201,219		$	(307,106	)	$	(88,030	)
Total other comprehensive income (loss)
Unrealized (loss) gain on interest rate derivatives		(71,455	)		(29,894	)		—
Reclassification of previous unrealized loss on interest rate derivatives into net income (loss)		99,677			2,457			313
Unrealized gain (loss) on investment securities, net		—			—			(205	)
Reclassification of previous unrealized loss on investment securities into net income (loss)		—			—			2,237
Total other comprehensive income (loss)		28,222			(27,437	)		2,345

Total comprehensive income (loss)		229,441			(334,543	)		(85,685	)
Comprehensive (income) loss attributable to non-controlling interests ⁽¹⁾		(107	)		7,800			2,200
Total comprehensive income (loss) attributable to the General Partner	$	229,334		$	(326,743	)	$	(83,485	)

(1)

Represents comprehensive (income) loss attributable to limited partners and a consolidated joint venture partner.

The accompanying notes are an integral part of these statements.

F-8

VEREIT, INC.

CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY

(In thousands, except for share data)

	Preferred Stock						Common Stock
	Number of Shares			Par Value			Number of Shares			Par Value			Additional Paid-In Capital			Accumulated Other Comprehensive Income (Loss)			Accumulated Deficit			Total Stock- holders’ Equity			Non- Controlling Interests			Total Equity
Balance, January 1, 2018		42,834,138		$	428			194,841,717		$	1,948		$	12,662,052		$	(3,569	)	$	(4,776,581	)	$	7,884,278		$	158,598		$	8,042,876
Conversion of OP Units to Common Stock		—			—			6,488			—			241			—			—			241			(241	)		—
Repurchases of Common Stock under Share Repurchase Programs		—			—			(1,441,375	)		(14	)		(50,140	)		—			—			(50,154	)		—			(50,154	)
Repurchases of Common Stock to settle tax obligation		—			—			(64,901	)		(1	)		(2,325	)		—			—			(2,326	)		—			(2,326	)
Equity-based compensation, net		—			—			161,104			2			13,312			—			—			13,314			—			13,314
Contributions from non-controlling interest holders		—			—			—			—			—			—			—			—			120			120
Distributions declared on Common Stock — $2.75 per common share		—			—			—			—			—			—			(532,144	)		(532,144	)		—			(532,144	)
Distributions to non-controlling interest holders		—			—			—			—			—			—			—			—			(13,048	)		(13,048	)
Dividend equivalents on awards granted under the Equity Plan		—			—			—			—			72			—			(989	)		(917	)		—			(917	)
Distributions to preferred shareholders and unitholders		—			—			—			—			—			—			(71,748	)		(71,748	)		(144	)		(71,892	)
Net loss		—			—			—			—			—			—			(85,774	)		(85,774	)		(2,256	)		(88,030	)
Other comprehensive income		—			—			—			—			—			2,289			—			2,289			56			2,345
Balance, December 31, 2018		42,834,138		$	428			193,503,033		$	1,935		$	12,623,212		$	(1,280	)	$	(5,467,236	)	$	7,157,059		$	143,085		$	7,300,144
Issuance of Common Stock, net		—			—			21,682,014			216			1,013,999			—			—			1,014,215			—			1,014,215
Conversion of OP Units to Common Stock		—			—			26,058			—			1,167			—			—			1,167			(1,167	)		—
Conversion of Series F Preferred Units to Series F Preferred Stock		37,108			1			—			—			922			—			—			923			(923	)		—
Redemption of Series F Preferred Stock		(12,000,000	)		(120	)		—			—			(300,002	)		—			—			(300,122	)		—			(300,122	)
Repurchases of Common Stock to settle tax obligation		—			—			(40,066	)		—			(1,618	)		—			—			(1,618	)		—			(1,618	)
Equity-based compensation, net		—			—			198,158			2			13,099			—			—			13,101			—			13,101
Contributions from non-controlling interest holders		—			—			—			—			—			—			—			—			64			64
Distributions declared on Common Stock — $2.75 per common share		—			—			—			—			—			—			(562,195	)		(562,195	)		—			(562,195	)
Distributions to non-controlling interest holders		—			—			—			—			—			—			—			—			(9,494	)		(9,494	)
Dividend equivalents on awards granted under the Equity Plan		—			—			—			—			117			—			(1,445	)		(1,328	)		—			(1,328	)
Distributions to preferred shareholders and unitholders		—			—			—			—			—			—			(68,397	)		(68,397	)		(91	)		(68,488	)
Distributions payable relinquished		—			—			—			—			—			—			—			—			12,522			12,522
Surrender of Limited Partner OP Units		—			—			—			—			(91,920	)		—			—			(91,920	)		(126,590	)		(218,510	)
Repurchase of convertible notes		—		$	—			—		$	—		$	(470	)	$	—		$	—		$	(470	)	$	—		$	(470	)
Reallocation of equity		—			—			—			—			2,071			—			—			2,071			(2,071	)		—
Net loss		—			—			—			—			—			—			(300,353	)		(300,353	)		(6,753	)		(307,106	)
Other comprehensive loss		—			—			—			—			—			(26,390	)		—			(26,390	)		(1,047	)		(27,437	)
Balance, December 31, 2019		30,871,246		$	309			215,369,197		$	2,153		$	13,260,577		$	(27,670	)	$	(6,399,626	)	$	6,835,743		$	7,535		$	6,843,278
Issuance of Common Stock, net		—			—			13,297,721			133			478,439			—			—			478,572			—			478,572
Fractional common shares settled in reverse stock split		—			—			(5,270	)		—			(205	)		—			—			(205	)		—			(205	)
Conversion of OP Units to Common Stock		—			—			910			—			44			—			—			44			(44	)		—
Redemption of Limited Partners' Common OP Units		—			—			—			—			—			—			—			—			(149	)		(149	)
Redemption of Series F Preferred Stock		(12,000,000	)		(120	)		—			—			(300,032	)		—			—			(300,152	)		—			(300,152	)
Repurchases of Common Stock to settle tax obligation		—			—			(48,468	)		—			(2,392	)		—			—			(2,392	)		—			(2,392	)
Equity-based compensation, net		—			—			267,457			3			13,299			—			—			13,302			—			13,302
Distributions declared on Common Stock — $1.8425 per common share		—			—			—			—			—			—			(403,336	)		(403,336	)		—			(403,336	)
Distributions to non-controlling interest holders		—			—			—			—			—			—			—			—			(285	)		(285	)
Dividend equivalents on awards granted under the Equity Plan		—			—			—			—			—			—			(1,686	)		(1,686	)		—			(1,686	)
Distributions to preferred shareholders and unitholders		—			—			—			—			—			—			(44,508	)		(44,508	)		(82	)		(44,590	)
Repurchase of convertible notes		—			—			—			—			(230	)		—			—			(230	)		—			(230	)
Reallocation of equity		—			—			—			—			(88	)		—			—			(88	)		88			—
Net income (loss)		—			—			—			—			—			—			201,128			201,128			91			201,219
Other comprehensive income (loss)		—			—			—			—			—			28,206			—			28,206			16			28,222
Balance, December 31, 2020		18,871,246		$	189			228,881,547		$	2,289		$	13,449,412		$	536		$	(6,648,028	)	$	6,804,398		$	7,170		$	6,811,568

The accompanying notes are an integral part of these statements.

F-9

VEREIT, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS

(In thousands)

	Year Ended December 31,
	2020			2019			2018
Cash flows from operating activities:
Net income (loss)	$	201,219		$	(307,106	)	$	(88,030	)
Adjustments to reconcile net income (loss) to net cash provided by operating activities:
Depreciation and amortization		469,035			495,232			659,948
Gain on real estate assets, net		(95,551	)		(296,447	)		(96,068	)
Impairments		65,075			47,091			54,647
Equity-based compensation		13,302			13,101			13,314
Equity in income and gain on disposition of unconsolidated entities		(3,539	)		(2,618	)		(1,869	)
Distributions from unconsolidated entities		2,364			284			1,366
(Gain) loss on other investments		(3,510	)		492			(4,092	)
Loss (gain) on derivative instruments		85,392			58			(355	)
Non-cash restructuring expense		—			3,951			—
Loss (gain) on extinguishment and forgiveness of debt, net		1,486			17,910			(5,360	)
Surrender of Limited Partner OP Units		—			(26,536	)		—
Changes in assets and liabilities:
Investment in direct financing leases		1,495			1,622			2,078
Rent and tenant receivables, operating lease right-of-use and other assets, net		(27,260	)		(18,367	)		(34,096	)
Assets held for sale classified as discontinued operations		—			—			(2,492	)
Accounts payable and accrued expenses		(2,075	)		(16,719	)		1,688
Deferred rent, operating lease and other liabilities		(8,863	)		(19,551	)		7,162
Due to affiliates		—			—			(66	)
Liabilities related to discontinued operations		—			—			(13,861	)
Net cash provided by (used in) operating activities		698,570			(107,603	)		493,914
Cash flows from investing activities:
Investments in real estate assets		(303,306	)		(394,662	)		(500,625	)
Capital expenditures and leasing costs		(26,773	)		(37,957	)		(22,291	)
Real estate developments		(18,904	)		(28,125	)		(9,221	)
Principal repayments received on other investments		15,727			106			5,761
Investments in unconsolidated entities		(44,174	)		(2,767	)		(771	)
Return of investment from unconsolidated entities		4,557			1,138			48
Proceeds from disposition of real estate		407,994			1,067,532			502,289
Proceeds from disposition of discontinued operations		—			—			122,915
Investment in leasehold improvements and other assets		(722	)		(1,716	)		(841	)
Deposits for real estate assets		(4,451	)		(8,453	)		(13,412	)
Investments in mezzanine position		(9,959	)		—			—
Proceeds from sale of investments and other assets		3,804			9,837			46,966
Uses and refunds of deposits for real estate assets		6,611			6,328			17,267
Proceeds from the settlement of property-related insurance claims		685			1,957			1,434
Line of credit advances to Cole REITs		—			—			(2,200	)
Line of credit repayments from Cole REITs		—			—			3,800
Net cash provided by investing activities		31,089			613,218			151,119
Cash flows from financing activities:
Proceeds from mortgage notes payable		1,032			705			187
Payments on mortgage notes payable and other debt, including debt extinguishment costs		(198,284	)		(374,058	)		(137,887	)

F-10

VEREIT, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS – (Continued)

(In thousands)

	Year Ended December 31,
	2020			2019			2018
Proceeds from credit facility	$	902,000		$	1,386,000		$	1,934,000
Payments on credit facility, including swap termination payments		(2,037,391	)		(739,000	)		(1,716,000	)
Proceeds from corporate bonds		1,781,765			593,052			546,304
Redemptions of corporate bonds, including extinguishment costs		(26	)		(1,160,977	)		—
Repayments and repurchases of convertible notes, including extinguishment costs		(322,133	)		(82,254	)		(597,500	)
Payments of deferred financing costs		(18,047	)		(4,190	)		(25,471	)
Repurchases of Common Stock under Share Repurchase Programs		—			—			(50,154	)
Repurchases of Common Stock to settle tax obligations		(2,392	)		(1,618	)		(2,326	)
Proceeds from the issuance of Common Stock, net of underwriters’ discount and offering expenses		478,572			1,014,215			—
Redemption of Series F Preferred Stock		(300,152	)		(300,122	)		—
Redemption of Limited Partners’ Common OP Units		(149	)		—			—
Fractional common shares settled in reverse stock split		(205	)		—			—
Contributions from non-controlling interest holders		—			64			120
Distributions paid		(510,748	)		(665,241	)		(606,679	)
Payment related to the surrender of Limited Partner OP Units		—			(191,974	)		—
Net cash used in financing activities		(226,158	)		(525,398	)		(655,406	)
Net change in cash and cash equivalents and restricted cash		503,501			(19,783	)		(10,373	)

Cash and cash equivalents and restricted cash, beginning of period		33,880			53,663			64,036
Less: cash and cash equivalents of discontinued operations		—			—			(2,198	)
Cash and cash equivalents and restricted cash, beginning of period	$	33,880		$	53,663		$	61,838

Cash and cash equivalents and restricted cash, end of period	$	537,381		$	33,880		$	53,663

Reconciliation of Cash and Cash Equivalents and Restricted Cash
Cash and cash equivalents at beginning of period	$	12,921		$	30,758		$	34,176
Restricted cash at beginning of period		20,959			22,905			27,662
Cash and cash equivalents and restricted cash at beginning of period		33,880			53,663			61,838

Cash and cash equivalents at end of period		523,539			12,921			30,758
Restricted cash at end of period		13,842			20,959			22,905
Cash and cash equivalents and restricted cash at end of period	$	537,381		$	33,880		$	53,663

The accompanying notes are an integral part of these statements.

F-11

VEREIT OPERATING PARTNERSHIP, L.P.

CONSOLIDATED BALANCE SHEETS

(In thousands, except for unit data)

	December 31, 2020		December 31, 2019
ASSETS
Real estate investments, at cost:
Land	$	2,699,110	$	2,738,679
Buildings, fixtures and improvements		10,032,055		10,200,550
Intangible lease assets		1,872,461		1,904,641
Total real estate investments, at cost		14,603,626		14,843,870
Less: accumulated depreciation and amortization		3,863,732		3,594,247
Total real estate investments, net		10,739,894		11,249,623
Operating lease right-of-use assets		195,518		215,227
Investment in unconsolidated entities		81,639		68,825
Cash and cash equivalents		523,539		12,921
Restricted cash		13,842		20,959
Rent and tenant receivables and other assets, net		366,620		348,395
Goodwill		1,337,773		1,337,773
Real estate assets held for sale, net		65,583		26,957
Total assets	$	13,324,408	$	13,280,680

LIABILITIES AND EQUITY
Mortgage notes payable, net	$	1,328,835	$	1,528,134
Corporate bonds, net		4,584,230		2,813,739
Convertible debt, net		—		318,183
Credit facility, net		—		1,045,669
Below-market lease liabilities, net		120,938		143,583
Accounts payable and accrued expenses		117,015		126,320
Derivative, deferred rent and other liabilities		63,204		90,349
Distributions payable		89,514		150,364
Operating lease liabilities		209,104		221,061
Total liabilities		6,512,840		6,437,402
Commitments and contingencies (Note 10)
General Partner's preferred equity, 18,871,246 and 30,871,246 General Partner Series F Preferred Units issued and outstanding as of December 31, 2020 and December 31, 2019, respectively		254,294		460,504
General Partner's common equity, 228,881,547 and 215,369,197 General Partner OP Units issued and outstanding as of December 31, 2020 and December 31, 2019, respectively		6,550,104		6,375,239
Limited Partner's preferred equity, 49,766 Limited Partner Series F Preferred Units issued and outstanding as of each of December 31, 2020 and December 31, 2019, respectively		1,787		1,869
Limited Partner's common equity, 152,033 and 157,343 Limited Partner OP Units issued and outstanding as of December 31, 2020 and December 31, 2019, respectively		4,209		4,433
Total partners’ equity		6,810,394		6,842,045
Non-controlling interests		1,174		1,233
Total equity		6,811,568		6,843,278
Total liabilities and equity	$	13,324,408	$	13,280,680

The accompanying notes are an integral part of these statements.

F-12

VEREIT OPERATING PARTNERSHIP, L.P.

CONSOLIDATED STATEMENTS OF OPERATIONS

(In thousands, except for per unit data)

	Year Ended December 31,
	2020			2019			2018
Revenues:
Rental	$	1,158,285		$	1,237,234		$	1,257,867
Fees from managed partnerships		3,081			820			161
Total revenues		1,161,366			1,238,054			1,258,028
Operating expenses:
Acquisition-related		4,790			4,337			3,632
Litigation and non-routine costs, net		2,348			815,422			290,963
Property operating		122,967			129,769			126,461
General and administrative		61,349			62,711			63,933
Depreciation and amortization		452,008			481,995			640,618
Impairments		65,075			47,091			54,647
Restructuring		—			10,505			—
Total operating expenses		708,537			1,551,830			1,180,254
Other (expense) income:
Interest expense		(265,660	)		(278,574	)		(280,887	)
(Loss) gain on extinguishment and forgiveness of debt, net		(1,486	)		(17,910	)		5,360
Other income, net		6,610			12,209			14,574
(Loss) gain on derivative instruments, net		(85,392	)		(58	)		355
Equity in income and gain on disposition of unconsolidated entities		3,539			2,618			1,869
Gain on disposition of real estate and real estate assets held for sale, net		95,292			292,647			94,331
Total other (expense) income, net		(247,097	)		10,932			(164,398	)
Income (loss) before taxes		205,732			(302,844	)		(86,624	)
Provision for income taxes		(4,513	)		(4,262	)		(5,101	)
Income (loss) from continuing operations		201,219			(307,106	)		(91,725	)
Income from discontinued operations, net of income taxes		—			—			3,695
Net income (loss)		201,219			(307,106	)		(88,030	)
Net loss attributable to non-controlling interests ⁽¹⁾		59			102			154
Net income (loss) attributable to the OP	$	201,278		$	(307,004	)	$	(87,876	)

Basic and diluted net income (loss) per unit from continuing operations attributable to common unitholders	$	0.72		$	(1.85	)	$	(0.83	)
Basic and diluted net income per unit from discontinued operations attributable to common unitholders	$	—		$	—		$	0.02
Basic and diluted net income (loss) per unit attributable to common unitholders	$	0.72		$	(1.85	)	$	(0.81	)

(1)

Represents net loss attributable to a consolidated joint venture partner.

The accompanying notes are an integral part of these statements.

F-13

VEREIT OPERATING PARTNERSHIP, L.P.

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)

(In thousands)

	Year Ended December 31,
	2020			2019			2018
Net income (loss)	$	201,219		$	(307,106	)	$	(88,030	)
Total other comprehensive income (loss)
Unrealized (loss) gain on interest rate derivatives		(71,455	)		(29,894	)		—
Reclassification of previous unrealized loss on interest rate derivatives into net income (loss)		99,677			2,457			313
Unrealized gain (loss) on investment securities, net		—			—			(205	)
Reclassification of previous unrealized loss on investment securities into net income (loss)		—			—			2,237
Total other comprehensive income (loss)		28,222			(27,437	)		2,345

Total comprehensive income (loss)		229,441			(334,543	)		(85,685	)
Comprehensive loss attributable to non-controlling interests ⁽¹⁾		59			102			154
Total comprehensive income (loss) attributable to the OP	$	229,500		$	(334,441	)	$	(85,531	)

(1)

Represents comprehensive loss attributable to a consolidated joint venture partner.

The accompanying notes are an integral part of these statements.

F-14

VEREIT OPERATING PARTNERSHIP, L.P.

CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY

(In thousands, except for unit data)

	Preferred Units												Common Units
	General Partner						Limited Partner						General Partner						Limited Partner
	Number of Units			Capital			Number of Units			Capital			Number of Units			Capital			Number of Units		Capital			Total Partners' Capital			Non- Controlling Interests			Total Capital
Balance, January 1, 2018		42,834,138		$	782,073			86,874		$	3,027			194,841,717		$	7,102,205		4,749,669		$	154,266		$	8,041,571		$	1,305		$	8,042,876
Conversion of Limited Partners' Common OP Units to General Partner's Common OP Units		—			—			—			—			6,488			241		(6,488	)		(241	)		—			—			—
Repurchases of Common Stock under Share Repurchase Programs		—			—			—			—			(1,441,375	)		(50,154	)	—			—			(50,154	)		—			(50,154	)
Repurchases of common OP Units to settle tax obligation		—			—			—			—			(64,901	)		(2,326	)	—			—			(2,326	)		—			(2,326	)
Equity-based compensation, net		—			—			—			—			161,104			13,314		—			—			13,314			—			13,314
Contributions from non-controlling interest holders		—			—			—			—			—			—		—			—			—			120			120
Distributions to Common OP Units and non-controlling interests — $2.75 per common unit		—			—			—			—			—			(532,144	)	—			(13,048	)		(545,192	)		—			(545,192	)
Dividend equivalents on awards granted under the Equity Plan		—			—			—			—			—			(917	)	—			—			(917	)		—			(917	)
Distributions to preferred unitholders		—			(71,748	)		—			(144	)		—			—		—			—			(71,892	)		—			(71,892	)
Net loss		—			—			—			—			—			(85,774	)	—			(2,102	)		(87,876	)		(154	)		(88,030	)
Other comprehensive income		—			—			—			—			—			2,289		—			56			2,345			—			2,345
Balance, December 31, 2018		42,834,138		$	710,325			86,874		$	2,883			193,503,033		$	6,446,734		4,743,181		$	138,931		$	7,298,873		$	1,271		$	7,300,144
Issuance of common OP Units, net		—			—			—			—			21,682,014			1,014,215		—			—			1,014,215			—			1,014,215
Conversion of Limited Partners' Common OP Units to General Partner's Common OP Units		—			—			—			—			26,058			1,167		(26,058	)		(1,167	)		—			—			—
Conversion of Limited Partner Series F Preferred Units to Series F Preferred Stock		37,108			923			(37,108	)		(923	)		—			—		—			—			—			—			—
Redemption of Series F Preferred Stock		(12,000,000	)		(182,347	)		—			—			—			(117,775	)	—			—			(300,122	)		—			(300,122	)
Repurchases of common OP Units to settle tax obligation		—			—			—			—			(40,066	)		(1,618	)	—			—			(1,618	)		—			(1,618	)
Equity-based compensation, net		—			—			—			—			198,158			13,101		—			—			13,101			—			13,101
Contributions from non-controlling interest holders		—			—			—			—			—			—		—			—			—			64			64
Distributions to Common OP Units and non-controlling interests — $2.75 per common unit		—			—			—			—			—			(562,195	)	—			(9,494	)		(571,689	)		—			(571,689	)
Dividend equivalents on awards granted under the Equity Plan		—			—			—			—			—			(1,328	)	—			—			(1,328	)		—			(1,328	)
Distributions to preferred unitholders		—			(68,397	)		—			(91	)		—			—		—			—			(68,488	)		—			(68,488	)
Distributions payable relinquished		—			—			—			—			—			—		—			12,522			12,522			—			12,522
Surrender of Limited Partner OP Units		—			—			—			—			—			(91,920	)	(4,559,780	)		(126,590	)		(218,510	)		—			(218,510	)
Repurchase of convertible notes		—			—			—			—			—			(470	)	—			—			(470	)		—			(470	)
Reallocation of equity		—			—			—			—			—			2,071	*	—			(2,071	)		—			—			—
Net loss		—			—			—			—			—			(300,353	)	—			(6,651	)		(307,004	)		(102	)		(307,106	)
Other comprehensive loss		—			—			—			—			—			(26,390	)	—			(1,047	)		(27,437	)		—			(27,437	)

F-15

VEREIT OPERATING PARTNERSHIP, L.P.

CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY – (Continued)

(In thousands, except for unit data)

	Preferred Units											Common Units
	General Partner						Limited Partner					General Partner						Limited Partner
	Number of Units			Capital			Number of Units		Capital			Number of Units			Capital			Number of Units		Capital			Total Partners' Capital			Non- Controlling Interests			Total Capital
Balance, December 31, 2019		30,871,246		$	460,504			49,766	$	1,869			215,369,197		$	6,375,239		157,343		$	4,433		$	6,842,045		$	1,233		$	6,843,278
Issuance of common OP Units, net		—			—			—		—			13,297,721			478,572		—			—			478,572			—			478,572
Fractional common shares and OP Units settled in reverse stock split		—		$	—			—	$	—			(5,270	)	$	(205	)	—		$	—		$	(205	)	$	—		$	(205	)
Conversion of Limited Partners' Common OP Units to General Partner's Common OP Units		—			—			—		—			910			44		(910	)		(44	)		—			—			—
Redemption of Limited Partners' Common OP Units		—			—			—		—			—			—		(4,400	)		(149	)		(149	)		—			(149	)
Redemption of Series F Preferred Stock		(12,000,000	)		(161,702	)		—		—			—			(138,450	)	—			—			(300,152	)		—			(300,152	)
Repurchases of common OP Units to settle tax obligation		—			—			—		—			(48,468	)		(2,392	)	—			—			(2,392	)		—			(2,392	)
Equity-based compensation, net		—			—			—		—			267,457			13,302		—			—			13,302			—			13,302
Distributions to Common OP Units and non-controlling interests — $1.8425 per common unit		—			—			—		—			—			(403,336	)	—			(285	)		(403,621	)		—			(403,621	)
Dividend equivalents on awards granted under the Equity Plan		—			—			—		—			—			(1,686	)	—			—			(1,686	)		—			(1,686	)
Distributions to preferred unitholders		—			(44,508	)		—		(82	)		—			—		—			—			(44,590	)		—			(44,590	)
Repurchase of convertible notes		—			—			—		—			—			(230	)	—			—			(230	)		—			(230	)
Reallocation of equity		—			—			—		—			—			(88	)	—			88			—			—			—
Net income (loss)		—			—			—		—			—			201,128		—			150			201,278			(59	)		201,219
Other comprehensive income (loss)		—			—			—		—			—			28,206		—			16			28,222			—			28,222
Balance, December 31, 2020		18,871,246		$	254,294			49,766	$	1,787			228,881,547		$	6,550,104		152,033		$	4,209		$	6,810,394		$	1,174		$	6,811,568

The accompanying notes are an integral part of these statements.

F-16

VEREIT OPERATING PARTNERSHIP, L.P.

CONSOLIDATED STATEMENTS OF CASH FLOWS

(In thousands)

	Year Ended December 31,
	2020			2019			2018
Cash flows from operating activities:
Net income (loss)	$	201,219		$	(307,106	)	$	(88,030	)
Adjustments to reconcile net income (loss) to net cash provided by operating activities:
Depreciation and amortization		469,035			495,232			659,948
Gain on real estate assets, net		(95,551	)		(296,447	)		(96,068	)
Impairments		65,075			47,091			54,647
Equity-based compensation		13,302			13,101			13,314
Equity in income and gain on disposition of unconsolidated entities		(3,539	)		(2,618	)		(1,869	)
Distributions from unconsolidated entities		2,364			284			1,366
(Gain) loss on other investments		(3,510	)		492			(4,092	)
Loss (gain) on derivative instruments		85,392			58			(355	)
Non-cash restructuring expense		—			3,951			—
Loss (gain) on extinguishment and forgiveness of debt, net		1,486			17,910			(5,360	)
Surrender of Limited Partner OP Units		—			(26,536	)		—
Changes in assets and liabilities:
Investment in direct financing leases		1,495			1,622			2,078
Rent and tenant receivables, operating lease right-of-use and other assets, net		(27,260	)		(18,367	)		(34,096	)
Assets held for sale classified as discontinued operations		—			—			(2,492	)
Accounts payable and accrued expenses		(2,075	)		(16,719	)		1,688
Deferred rent, operating lease and other liabilities		(8,863	)		(19,551	)		7,162
Due to affiliates		—			—			(66	)
Liabilities related to discontinued operations		—			—			(13,861	)
Net cash provided by (used in) operating activities		698,570			(107,603	)		493,914
Cash flows from investing activities:
Investments in real estate assets		(303,306	)		(394,662	)		(500,625	)
Capital expenditures and leasing costs		(26,773	)		(37,957	)		(22,291	)
Real estate developments		(18,904	)		(28,125	)		(9,221	)
Principal repayments received on other investments		15,727			106			5,761
Investments in unconsolidated entities		(44,174	)		(2,767	)		(771	)
Return of investment from unconsolidated entities		4,557			1,138			48
Proceeds from disposition of real estate		407,994			1,067,532			502,289
Proceeds from disposition of discontinued operations		—			—			122,915
Investment in leasehold improvements and other assets		(722	)		(1,716	)		(841	)
Deposits for real estate assets		(4,451	)		(8,453	)		(13,412	)
Investments in mezzanine position		(9,959	)		—			—
Proceeds from sale of investments and other assets		3,804			9,837			46,966
Uses and refunds of deposits for real estate assets		6,611			6,328			17,267
Proceeds from the settlement of property-related insurance claims		685			1,957			1,434
Line of credit advances to Cole REITs		—			—			(2,200	)
Line of credit repayments from Cole REITs		—			—			3,800
Net cash provided by investing activities		31,089			613,218			151,119
Cash flows from financing activities:
Proceeds from mortgage notes payable		1,032			705			187
Payments on mortgage notes payable and other debt, including debt extinguishment costs		(198,284	)		(374,058	)		(137,887	)

F-17

VEREIT OPERATING PARTNERSHIP, L.P.

CONSOLIDATED STATEMENTS OF CASH FLOWS – (Continued)

(In thousands)

	Year Ended December 31,
	2020			2019			2018
Proceeds from credit facility	$	902,000		$	1,386,000		$	1,934,000
Payments on credit facility, including swap termination payments		(2,037,391	)		(739,000	)		(1,716,000	)
Proceeds from corporate bonds		1,781,765			593,052			546,304
Redemptions of corporate bonds, including extinguishment costs		(26	)		(1,160,977	)		—
Repayments and repurchases of convertible notes, including extinguishment costs		(322,133	)		(82,254	)		(597,500	)
Payments of deferred financing costs		(18,047	)		(4,190	)		(25,471	)
Repurchases of Common Stock under Share Repurchase Programs		—			—			(50,154	)
Repurchases of Common Stock to settle tax obligations		(2,392	)		(1,618	)		(2,326	)
Proceeds from the issuance of Common Stock, net of underwriters’ discount and offering expenses		478,572			1,014,215			—
Redemption of Series F Preferred Stock		(300,152	)		(300,122	)		—
Redemption of Limited Partners’ Common OP Units		(149	)		—			—
Fractional common shares settled in reverse stock split		(205	)		—			—
Contributions from non-controlling interest holders		—			64			120
Distributions paid		(510,748	)		(665,241	)		(606,679	)
Payment related to the surrender of Limited Partner OP Units		—			(191,974	)		—
Net cash used in financing activities		(226,158	)		(525,398	)		(655,406	)
Net change in cash and cash equivalents and restricted cash		503,501			(19,783	)		(10,373	)

Cash and cash equivalents and restricted cash, beginning of period	$	33,880		$	53,663		$	64,036
Less: cash and cash equivalents of discontinued operations		—			—			(2,198	)
Cash and cash equivalents and restricted cash, beginning of period		33,880			53,663			61,838

Cash and cash equivalents and restricted cash, end of period		537,381			33,880			53,663
Less: cash and cash equivalents of discontinued operations		—			—			—
Cash and cash equivalents and restricted cash, end of period	$	537,381		$	33,880		$	53,663

Reconciliation of Cash and Cash Equivalents and Restricted Cash
Cash and cash equivalents at beginning of period	$	12,921		$	30,758		$	34,176
Restricted cash at beginning of period		20,959			22,905			27,662
Cash and cash equivalents and restricted cash at beginning of period		33,880			53,663			61,838

Cash and cash equivalents at end of period		523,539			12,921			30,758
Restricted cash at end of period		13,842			20,959			22,905
Cash and cash equivalents and restricted cash at end of period	$	537,381		$	33,880		$	53,663

The accompanying notes are an integral part of these statements.

F-18

VEREIT, INC. and VEREIT OPERATING PARTNERSHIP, L.P.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

December 31, 2020

Note 1 – Organization

VEREIT is a Maryland corporation, incorporated on December 2, 2010, that qualified as a real estate investment trust (“REIT”) for U.S. federal income tax purposes beginning in the taxable year ended December 31, 2011. The OP is a Delaware limited partnership of which the General Partner is the sole general partner. VEREIT’s common stock, par value $0.01 per share (“Common Stock”), and its 6.70% Series F Cumulative Redeemable Preferred Stock, par value $0.01 per share (“Series F Preferred Stock”) trade on the New York Stock Exchange (“NYSE”) under the trading symbols, “VER” and “VER PRF,” respectively. As used herein, the terms the “Company,” “we,” “our” and “us” refer to VEREIT, together with its consolidated subsidiaries, including the OP.

VEREIT is a full-service real estate operating company which owns and manages one of the largest portfolios of single-tenant commercial properties in the U.S. VEREIT’s business model provides equity capital to creditworthy corporations in return for long-term leases on their properties. The Company actively manages its portfolio considering a number of metrics including property type, concentration and key economic factors for appropriate balance and diversity.

Substantially all of the Company’s operations are conducted through the OP. VEREIT is the sole general partner and holder of 99.9% of the common equity interests in the OP as of December 31, 2020. Under the limited partnership agreement of the OP, as amended (the “LPA”), after holding common units of limited partner interests in the OP (“OP Units”) or Series F Preferred Units of limited partnership interests in the OP (“Series F Preferred Units”), for a period of one year and meeting the other requirements in the LPA, unless we otherwise consent to an earlier redemption, holders have the right to redeem the units for the cash value of a corresponding number of shares of Common Stock or Series F Preferred Stock, as applicable, or, at our option, a corresponding number of shares of Common Stock or Series F Preferred Stock, as applicable, subject to adjustment pursuant to the terms of the LPA. The remaining rights of the holders of OP Units are limited, however, and do not include the ability to replace the General Partner or to approve the sale, purchase or refinancing of the OP’s assets.

The actions of the OP and its relationship with the General Partner are governed by the LPA. The General Partner does not have any significant assets other than its investment in the OP. Therefore, the assets and liabilities of the General Partner and the OP are the same. Additionally, pursuant to the LPA, all administrative expenses and expenses associated with the formation, continuity, existence and operation of the General Partner incurred by the General Partner on the OP’s behalf shall be treated as expenses of the OP. Further, when the General Partner issues any equity instrument that has been approved by the General Partner’s Board of Directors, the LPA requires the OP to issue to the General Partner equity instruments with substantially similar terms, to protect the integrity of the Company’s umbrella partnership REIT structure, pursuant to which each holder of interests in the OP has a proportionate economic interest in the OP reflecting its capital contributions thereto. OP Units and Series F Preferred Units issued to the General Partner are referred to as “General Partner OP Units” and “General Partner Series F Preferred Units,” respectively. OP Units and Series F Preferred Units issued to parties other than the General Partner are referred to as “Limited Partner OP Units” and “Limited Partner Series F Preferred Units,” respectively. The LPA also provides that the OP issue debt with terms and provisions consistent with debt issued by the General Partner. The LPA will be amended to provide for the issuance of any additional class of equivalent equity instruments to the extent the General Partner’s Board of Directors authorizes the issuance of any new class of equity securities.

Note 2 – Summary of Significant Accounting Policies

Basis of Accounting

F-19

VEREIT, INC. and VEREIT OPERATING PARTNERSHIP, L.P.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

December 31, 2020 – (Continued)

Principles of Consolidation and Basis of Presentation

The consolidated financial statements include the accounts of the Company and its consolidated subsidiaries and a consolidated joint venture. The portion of the consolidated joint venture not owned by the Company is presented as non-controlling interest in VEREIT’s and the OP’s consolidated balance sheets, statements of operations, statements of comprehensive income (loss) and statements of changes in equity. In addition, certain third parties have been issued OP Units and Series F Preferred Units. Holders of OP Units are considered to be non-controlling interest holders in the OP and their ownership interest in the limited partner’s share is presented as non-controlling interests in VEREIT’s consolidated balance sheets, statements of operations, statements of comprehensive income (loss) and statements of changes in equity. Further, a portion of the earnings and losses of the OP are allocated to non-controlling interest holders based on their respective ownership percentages. Equity is reallocated between controlling and noncontrolling interests in the OP upon a change in ownership. At the end of each annual reporting period, noncontrolling interests in the OP are adjusted to reflect their ownership percentage in the OP through a reallocation between controlling and noncontrolling interests in the OP, as applicable. As of each of December 31, 2020 and 2019, there were approximately 0.2 million Limited Partner OP Units issued and outstanding, respectively. As of each of December 31, 2020 and 2019, there were 49,766 Limited Partner Series F Preferred Units issued and outstanding, respectively.

For legal entities being evaluated for consolidation, the Company must first determine whether the interests that it holds and fees it receives qualify as variable interests in the entity. A variable interest is an investment or other interest that will absorb portions of an entity’s expected losses or receive portions of the entity’s expected residual returns. The Company’s evaluation includes consideration of fees paid to the Company where the Company acts as a decision maker or service provider to the entity being evaluated. If the Company determines that it holds a variable interest in an entity, it evaluates whether that entity is a variable interest entity (“VIE”). VIEs are entities where investors lack sufficient equity at risk for the entity to finance its activities without additional subordinated financial support or where equity investors, as a group, lack one of the following characteristics: (a) the power to direct the activities that most significantly impact the entity’s economic performance, (b) the obligation to absorb the expected losses of the entity, or (c) the right to receive the expected returns of the entity. The Company consolidates entities that are not VIEs if it has a majority voting interest or other rights that result in effectively controlling the entity.

The Company then qualitatively assesses whether it is (or is not) the primary beneficiary of a VIE, which is generally defined as the party who has a controlling financial interest in the VIE. Consideration of various factors include, but are not limited to, the Company’s ability to direct the activities that most significantly impact the entity’s economic performance and its obligation to absorb losses from or right to receive benefits of the VIE that could potentially be significant to the VIE. The Company consolidates any VIEs when the Company is determined to be the primary beneficiary of the VIE and the difference between consolidating the VIE and accounting for it using the equity method could be material to the Company’s consolidated financial statements. The Company continually evaluates the need to consolidate these VIEs based on standards set forth in U.S. GAAP.

Reclassification

The fees from managed partnerships, which are fees earned from the Company’s unconsolidated joint venture entities, previously included in other income, net have been presented in its own line item for prior periods presented to be consistent with the current year presentation.

The (loss) gain on derivative instruments, net line item, previously included in other income, net, has been presented in its own line item for prior periods presented to be consistent with the current year presentation.

The Company effected a one-for-five reverse stock split of Common Stock after markets closed on December 17, 2020, whereby every five shares of VEREIT's issued and outstanding shares of Common Stock, $0.01 par value per share, were converted into one share of Common Stock, $0.01 par value per share. A corresponding reverse split of the outstanding OP Units also took effect on December 17, 2020. Certain prior period amounts have been updated to reflect the reverse stock split including share and per share amounts, additional paid-in capital, common stock and dividends on the consolidated statement of operations, consolidated balance sheets, consolidated statements of equity and notes to the financial statements. The reverse stock split did not affect the Company’s total stockholder’s equity, the common stock par value per share or the Company’s authorized shares of common stock. No fractional shares of common stock were issued as fractional shares were settled in cash.

F-20

VEREIT, INC. and VEREIT OPERATING PARTNERSHIP, L.P.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

December 31, 2020 – (Continued)

Per Share Data

Income (loss) per basic share of Common Stock is calculated by dividing net income (loss) less dividends on unvested restricted shares of Common Stock (“Restricted Shares”) and dividends on preferred stock by the weighted-average number of shares of Common Stock issued and outstanding during such period. Diluted income (loss) per share of Common Stock considers the effect of potentially dilutive shares of Common Stock outstanding during the period. The earnings per share after the reverse stock split is presented retrospectively as if the reverse split had occurred on the first day of the periods presented.

Use of Estimates

The preparation of financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. Management makes significant estimates regarding goodwill and intangible asset impairments, real estate investment impairment, allocation of purchase price of real estate asset acquisitions and income taxes.

Leases

Lessor

At the inception of a new lease arrangement, including new leases that arise from amendments, the Company assesses the terms and conditions to determine the proper lease classification. When the terms of a lease effectively transfer control of the underlying asset, the lease is classified as a sales-type lease. When a lease does not effectively transfer control of the underlying asset to the lessee, but the Company obtains a guarantee for the value of the asset from a third party, the Company classifies the lease as a direct financing lease. All other leases are classified as operating leases.

The Company has certain properties that are subject to leases that qualified as direct financing leases. Investments in direct financing leases represent the fair value of the remaining lease payments on the leases and the estimated fair value of any expected residual property value at the end of the lease term. The fair value of the remaining lease payments is estimated using a discounted cash flow analysis based on interest rates that would represent the Company’s incremental borrowing rate for similar types of debt. The expected residual property value at the end of the lease term is estimated using market data and assessments of the remaining useful lives of the properties at the end of the lease terms, among other factors. Income from direct financing leases is calculated using the effective interest method over the remaining term of the lease.

For operating leases with minimum scheduled rent increases, the Company recognizes rental revenue on a straight-line basis, including the effect of any free rent periods, over the lease term when collectability of lease payments is probable. Variable lease payments are recognized as rental revenue in the period when the changes in facts and circumstances on which the variable lease payments are based occur. Variable lease payments, including contingent rent, which is paid by a tenant when the tenant's sales exceed an agreed upon minimum amount, are recognized once tenant sales exceed contractual tenant lease thresholds and is calculated by multiplying the sales in excess of the minimum amount by a percentage defined in the lease.

Lessee

To account for leases for which the Company is the lessee, contracts must be analyzed upon inception to determine if the arrangement is, or contains, a lease. A lease conveys the right to control the use of an identified asset for a period of time in exchange for consideration. Lease classification tests and measurement procedures are performed at the lease commencement date.

The lease liability is initially measured as the present value of the lease payments over the lease term, discounted using the interest rate implicit in the lease, if that rate is readily determinable; otherwise, the lessee’s incremental borrowing rate is used. The incremental borrowing rate is determined based on the estimated rate of interest that the lessee would pay to borrow on a collateralized basis over a similar term at an amount equal to the lease payments in a similar economic environment. The lease term is the noncancelable period of the lease and includes any renewal and termination options the Company is reasonably certain to exercise. The lease liability balance is amortized using the effective interest method. The lease liability is remeasured when the contract is modified, upon the resolution of a contingency such that variable payments become fixed or if the assessment of exercising an extension, termination or purchase option changes.

F-21

VEREIT, INC. and VEREIT OPERATING PARTNERSHIP, L.P.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

December 31, 2020 – (Continued)

The operating lease right-of-use (“ROU”) asset balance is initially measured as the lease liability amount, adjusted for any lease payments made prior to the commencement date, initial direct costs, estimated costs to dismantle, remove, or restore the underlying asset and incentives received.

Revenue Recognition

Rental Revenue

The Company continually reviews receivables related to rent, straight-line rent and property operating expense reimbursements and determines collectability by taking into consideration the tenant’s payment history, the financial condition of the tenant, business conditions in the industry in which the tenant operates and economic conditions in the area in which the property is located. The review includes a binary assessment of whether or not substantially all of the amounts due under a tenant’s lease agreement are probable of collection. For leases that are deemed probable of collection, revenue continues to be recorded on a straight-line basis over the lease term and the Company recognizes a general allowance on a portfolio-wide basis. For leases that are deemed not probable of collection, revenue is recorded as cash is received and the Company reduces rental revenue for any straight-line rent receivables. The Company recognizes all changes in the collectability assessment for an operating lease as an adjustment to rental revenue. During the year ended December 31, 2020, rental revenue was reduced by $37.0 million, which included (i) $10.2 million of an increase to the general allowance, (ii) $20.7 million for amounts not probable of collection, and (iii) $6.2 million for straight-line rent receivables. Of the $37.0 million reduction to rental revenue for the year ended December 31, 2020, $26.5 million was related to the impact of the novel coronavirus (“COVID-19”) pandemic, of which $9.6 million represented an increase to the general allowance, $13.4 million represented amounts not probable of collection, and $3.5 million was for straight-line rent receivables.

Rental revenue also includes lease termination income collected from tenants to allow for the tenant to vacate their space prior to their scheduled termination dates, as well as amortization of above and below-market leases.

Accounting for Lease Concessions Related to the Effects of the COVID-19 Pandemic

The FASB issued a question-and-answer document, Accounting for Lease Concessions Related to the Effects of the COVID-19 Pandemic for concessions related to the effects of COVID-19 that provide a deferral of payments with no substantive changes to the consideration of the original contract, which allows an entity to elect to not analyze each contract to determine whether enforceable rights and obligations for concessions exist in the contract and to elect to apply or not apply the lease modification guidance in Accounting Standards Codification (“ASC”) Topic 842, Leases (“ASC 842”), to those contracts (the “COVID-19 Lease Concessions Relief”). For eligible concessions, the Company has elected not to apply the lease modification guidance in ASC 842. As such, the Company accounts for eligible deferral concessions as if there were no changes made to the lease agreement and, accordingly, continues to recognize income and increases the lease receivable. Ineligible concessions are accounted for as a lease modification under ASC 842, which requires the Company to reevaluate the lease classification and remeasure and reallocate the consideration over the remaining lease term, and include any prepaid rent liabilities and accrued rent assets relating to the original lease as part of the lease payments for the modified lease.

During the year ended December 31, 2020, the Company had $17.9 million of rental revenue related to deferral agreements executed through February 16, 2021, which qualify for the COVID-19 Lease Concessions Relief. During the year ended December 31, 2020 the Company abated $18.3 million of rental revenue, pursuant to lease amendments executed through December 31, 2020, which increased the weighted average lease term for the related properties and were accounted for as lease modifications under ASC 842.

F-22

VEREIT, INC. and VEREIT OPERATING PARTNERSHIP, L.P.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

December 31, 2020 – (Continued)

Fees from Managed Partnerships

The Company provides various services to our unconsolidated joint venture entities in exchange for fees. Total asset and property management and acquisition fees earned in connection with these entities was $3.1 million, $0.8 million and $0.2 million for the years ended December 31, 2020, 2019 and 2018, respectively.

Real Estate Investments

The Company records acquired real estate at cost and makes assessments as to the useful lives of depreciable assets. The Company considers the period of future benefit of the asset to determine the appropriate useful lives. Depreciation is computed using a straight-line method over the estimated useful life of 40 years for buildings, five to 15 years for building fixtures and improvements and the remaining lease term for intangible lease assets.

Allocation of Purchase Price of Real Estate Assets

The Company allocates the purchase price of acquired properties to tangible and identifiable intangible assets and liabilities acquired based on their relative fair values. Tangible assets include land, buildings, fixtures and improvements on an as-if vacant basis. The Company utilizes various estimates, processes and information to determine the as-if vacant property value. Identifiable intangible assets and liabilities include amounts allocated to acquired leases for above-market and below-market lease rates and the value of in-place leases. In estimating fair values for purposes of allocating purchase price, the Company utilizes a number of sources, including independent appraisals that may be obtained in connection with the acquisition or financing of the respective property and other market data. The Company also considers information obtained about each property as a result of its pre-acquisition due diligence, as well as subsequent marketing and leasing activities, in estimating the fair value of the tangible and intangible assets acquired and intangible liabilities assumed.

The aggregate value of intangible assets related to in-place leases is primarily the difference between the property valued with existing in-place leases adjusted to market rental rates and the property valued as if vacant. Factors considered by the Company in its analysis of the in-place lease intangibles include an estimate of carrying costs during the expected lease-up period for each property, taking into account current market conditions and costs to execute similar leases. In estimating carrying costs, the Company includes real estate taxes, insurance and other operating expenses and estimates of lost rentals at market rates during the expected lease-up period, which typically ranges from six to 18 months. The Company also estimates costs to execute similar leases, including leasing commissions, legal and other related expenses. The value of in-place leases is amortized over the initial term of the respective leases. If a tenant terminates its lease, then the unamortized portion of the in-place lease value is charged to expense.

Above-market and below-market in-place lease values for owned properties are recorded based on the present value (using an interest rate which reflects the risks associated with the leases acquired) of the difference between the contractual amounts to be paid pursuant to the in-place leases and management’s estimate of fair market lease rates for the corresponding in-place leases, measured over a period equal to the remaining non-cancelable term of the lease, including any bargain renewal periods. Above-market leases are amortized as a reduction to rental revenue over the remaining terms of the respective leases. Below-market leases are amortized as an increase to rental revenue over the remaining terms of the respective leases, including any bargain renewal periods.

The determination of the fair values of the real estate assets and liabilities acquired requires the use of significant assumptions with regard to the current market rental rates, rental growth rates, capitalization and discount rates, interest rates and other variables. The use of alternative estimates may result in a different allocation of the Company’s purchase price, which could materially impact the Company’s results of operations.

During the years ended December 31, 2020, 2019 and 2018, all real estate acquisitions qualified as asset acquisitions, and external acquisition costs related to asset acquisitions were capitalized and allocated to tangible and intangible assets and liabilities as described above. Internal costs, such as employee salaries, related to activities necessary to complete, or affect, self-originating asset acquisitions or business combinations are classified as acquisition-related expenses in the accompanying consolidated statements of operations for all periods presented.

F-23

VEREIT, INC. and VEREIT OPERATING PARTNERSHIP, L.P.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

December 31, 2020 – (Continued)

Assets Held for Sale

Upon classifying a real estate investment as held for sale, the Company will no longer recognize depreciation expense related to the depreciable assets of the property. Assets held for sale are recorded at the lower of carrying value or estimated fair value, less the estimated cost to dispose of the assets. See Note 3 – Real Estate Investments and Related Intangibles for further discussion regarding properties held for sale.

If circumstances arise that the Company previously considered unlikely and, as a result, the Company decides not to sell a property previously classified as held for sale, the Company will reclassify the property as held and used. The Company measures and records a property that is reclassified as held and used at the lower of (i) its carrying value before the property was classified as held for sale, adjusted for any depreciation expense that would have been recognized had the property been continuously classified as held and used or (ii) the estimated fair value at the date of the subsequent decision not to sell.

Development Activities

Project costs, which include interest expense, associated with the development, construction and lease-up of a real estate project are capitalized as construction in progress. Once the development and construction of the building is substantially completed, the amounts capitalized to construction in progress are transferred to (i) land and (ii) buildings, fixtures and improvements and are depreciated over their respective useful lives.

Discontinued Operations

The Company reports discontinued operations when a component of an entity or group of components that has been disposed of or classified as held for sale represents a strategic shift that has or will have a major effect on an entity’s operations and financial results. The results of operations for assets meeting the definition of discontinued operations are reflected in the Company’s consolidated statements of operations as discontinued operations for all periods presented. See Note 14 — Discontinued Operations for further discussion regarding discontinued operations.

Investment in Unconsolidated Entities

The Company accounts for its investment in unconsolidated joint venture arrangements using the equity method of accounting as the Company has the ability to exercise significant influence, but not control, over operating and financing policies of these investments. The equity method of accounting requires the investment to be initially recorded at cost and subsequently adjusted for the Company’s share of equity in the joint ventures’ earnings and distributions. The Company records its proportionate share of net income (loss) from the unconsolidated joint ventures in equity in income and gain on disposition of unconsolidated entities in the consolidated statements of operations. See Note 3 – Real Estate Investments and Related Intangibles for further discussion on investments in unconsolidated joint ventures.

Leasehold Improvements and Property and Equipment

The Company leases its corporate office facilities under operating leases. Leasehold improvements related to these are recorded at cost less accumulated amortization. Leasehold improvements are amortized over the lesser of the estimated useful life or remaining lease term.

Property and equipment, which typically include computer hardware and software, furniture and fixtures, among other items, are stated at cost less accumulated depreciation. Property and equipment are depreciated on a straight-line method over the estimated useful lives of the assets, which range from three to seven years. The Company reassesses the useful lives of its property and equipment and adjusts the future monthly depreciation expense based on the new useful life, as applicable. If the Company disposes of an asset, the asset and related accumulated depreciation are written off upon disposal.

Goodwill

In the case of a business combination, after identifying all tangible and intangible assets and liabilities, the excess consideration paid over the fair value of the assets and liabilities acquired and assumed, respectively, represents goodwill. In connection with prior mergers, the Company recorded goodwill as a result of the merger consideration exceeding the net assets acquired.

F-24

VEREIT, INC. and VEREIT OPERATING PARTNERSHIP, L.P.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

December 31, 2020 – (Continued)

Impairments

Real Estate Assets

The Company performs quarterly impairment review procedures, primarily through continuous monitoring of events and changes in circumstances that could indicate the carrying value of its real estate assets may not be recoverable. Impairment indicators that the Company considers include, but are not limited to, decrease in net operating income, bankruptcy or other credit concerns of a property’s major tenant or tenants, such as history of late payments, rental concessions and other factors, as well as significant decreases in a property’s revenues due to lease terminations, vacancies, co-tenancy clauses or reduced lease rates. When impairment indicators are identified or if a property is considered to have a more likely than not probability of being disposed of within the next 12 to 24 months, the Company assesses the recoverability of the assets by determining whether the carrying value of the assets will be recovered through the undiscounted future cash flows expected from the use of the assets and their eventual disposition. U.S. GAAP requires us to utilize the Company’s expected holding period of our properties when assessing recoverability. In the event that such expected undiscounted future cash flows do not exceed the carrying value, the Company will adjust the real estate assets to their respective fair values and recognize an impairment loss. Generally, fair value is determined using a discounted cash flow analysis and recent comparable sales or leasing transactions. The assumptions and uncertainties utilized in the evaluation of the impairment of real estate assets are discussed in Note 5 – Fair Value Measures.

Goodwill

The Company evaluates goodwill for impairment annually or more frequently when an event occurs or circumstances change that indicate the carrying value may not be recoverable. To determine whether it is necessary to perform a quantitative goodwill impairment test, the Company first assesses qualitative factors, including, but not limited to macro-economic conditions such as deterioration in the entity's operating environment or industry or market considerations; entity-specific events such as increasing costs, declining financial performance, or loss of key personnel; or other events such as an expectation that a reporting unit will be sold or a sustained decrease in the stock price on either an absolute basis or relative to peers. If an entity believes, as a result of its qualitative assessment, that it is more-likely-than-not (i.e. greater than 50% chance) that the fair value of a reporting unit is less than its carrying amount, the quantitative impairment test is required. Otherwise, no quantitative testing is required. If it is determined, as a result of the qualitative assessment, that it is more-likely-than-not that the fair value is less than the carrying amount, the provisions of guidance require that the Company then compares the fair value to the carrying value. Goodwill is considered impaired if the carrying value exceeds the fair value. No impairments of goodwill were recorded during the years ended December 31, 2020, 2019 or 2018. See Note 5 – Fair Value Measures for further discussion.

Investment in Unconsolidated Joint Ventures

The Company is required to determine whether an event or change in circumstances has occurred that may have a significant adverse effect on the fair value of any of its investment in the unconsolidated joint ventures. If an event or change in circumstance has occurred, the Company is required to evaluate its investment in the unconsolidated joint venture for potential impairment and determine if the carrying value of its investment exceeds its fair value. An impairment charge is recorded when an impairment is deemed to be other-than-temporary. To determine whether an impairment is other-than-temporary, the Company considers whether it has the ability and intent to hold the investment until the carrying value is fully recovered. The evaluation of an investment in an unconsolidated joint venture for potential impairment requires the Company’s management to exercise significant judgment and to make certain assumptions. The use of different judgments and assumptions could result in different conclusions. No material impairments of unconsolidated joint ventures were identified during the years ended December 31, 2020, 2019 and 2018.

Leasehold Improvements and Property and Equipment

Leasehold improvements and property and equipment are reviewed for impairment when events or changes in circumstances indicate that the carrying value of such assets may not be recoverable. If this review indicates that the carrying value of the asset is not recoverable, the Company records an impairment loss, measured at fair value by estimated discounted cash flows or market appraisals. The evaluation of leasehold improvements and property and equipment for potential impairment requires the Company’s management to exercise significant judgment and to make certain assumptions. The use of different judgments and assumptions could result in different conclusions. No impairments of corporate leasehold improvements and property and equipment were identified during the years ended December 31, 2020, 2019 and 2018.

F-25

VEREIT, INC. and VEREIT OPERATING PARTNERSHIP, L.P.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

December 31, 2020 – (Continued)

Right of Use Assets

The Company’s impairment assessment for ROU assets is consistent with the impairment analysis for the Company's other long-lived assets and is reviewed quarterly. During the year ended December 31, 2020, the Company recorded $3.4 million in impairments related to the ROU assets associated with ground leases where the respective leases are expected to be terminated and properties surrendered to the ground owner. No impairments of ROU assets were identified during the year ended December 31, 2019. See Note 5 – Fair Value Measures for further discussion.

Cash and Cash Equivalents

Cash and cash equivalents include cash in bank accounts, as well as investments in highly-liquid money market funds with original maturities of three months or less. The Company deposits cash with several high quality financial institutions. These deposits are guaranteed by the Federal Deposit Insurance Corporation (“FDIC”) up to an insurance limit of $250,000. At times, the Company’s cash and cash equivalents may exceed federally insured levels. Although the Company bears risk on amounts in excess of those insured by the FDIC, it has not experienced and does not anticipate any losses due to the high quality of the institutions where the deposits are held.

Restricted Cash

The Company had $13.8 million and $21.0 million, respectively, in restricted cash as of December 31, 2020 and December 31, 2019. Restricted cash primarily consists of reserves related to lease expirations, as well as maintenance, structural and debt service reserves. In accordance with certain debt agreements, rent from certain of the Company’s tenants is deposited directly into a lockbox account, from which the monthly debt service payments are disbursed to the lender and the excess funds are then disbursed to the Company. Included in restricted cash at December 31, 2020 was $11.8 million in lender reserves and $2.0 million held in restricted lockbox accounts. Included in restricted cash at December 31, 2019 was $18.8 million in lender reserves and $2.2 million held in restricted lockbox accounts.

Deferred Financing Costs

Deferred financing costs represent commitment fees, legal fees and other costs associated with obtaining commitments for financing. Deferred financing costs, other than those associated with the Revolving Credit Facility (as defined in Note 6 – Debt), are presented on the consolidated balance sheets as a direct deduction from the carrying amount of the related debt liability rather than as an asset. Deferred financing costs related to the Revolving Credit Facility are included in rent and tenant receivables and other assets, net in the accompanying consolidated balance sheets. These costs are amortized to interest expense over the terms of the respective financing agreements using the effective interest method. Unamortized deferred financing costs are written off when the associated debt is refinanced or repaid before maturity. Costs incurred in connection with potential financial transactions that are not completed are expensed in the period in which it is determined the financing will not be completed.

Convertible Debt

In accordance with U.S GAAP, the 2020 Convertible Notes were accounted for as a liability with a separate equity component recorded for the conversion option. A liability was recorded for the 2020 Convertible Notes on the issuance date at fair value based on a discounted cash flow analysis using current market rates for debt instruments with similar terms. The difference between the initial proceeds from the 2020 Convertible Notes and the estimated fair value of the debt instruments resulted in a debt discount, with an offset recorded to additional paid-in capital representing the equity component. The debt discount was amortized to interest expense over the respective term of the 2020 Convertible Notes.

The Company had an outstanding balance of $321.8 million of its 2020 Convertible Notes (as defined in Note 6 – Debt ) as of December 31, 2019. During the year ended December 31, 2020, the outstanding balance was repaid in full.

F-26

VEREIT, INC. and VEREIT OPERATING PARTNERSHIP, L.P.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

December 31, 2020 – (Continued)

Derivative Instruments

The Company may use derivative financial instruments, including interest rate swaps, caps, collars, treasury locks, options and forwards to hedge all or a portion of the interest rate risk associated with its borrowings. The Company’s interest rate management objectives are intended to limit the impact of interest rate fluctuations on earnings and cash flows and to manage the Company’s overall borrowing costs. To accomplish this objective, the Company primarily uses interest rate swaps as part of its cash flow hedging strategy. Interest rate swaps designated as cash flow hedges are used to hedge forecasted issuances of fixed rate debt and the variable cash flows associated with floating rate debt. The Company does not intend to utilize derivatives for purposes other than interest rate risk management. The use of derivative financial instruments carries certain risks, including the risk that the counterparties to these contractual arrangements are not able to perform under the agreements. To mitigate this risk, the Company only enters into derivative financial instruments with counterparties with high credit ratings and with major financial institutions with which the Company may also have other financial relationships. The Company does not anticipate that any of the counterparties will fail to meet their obligations.

The Company records all derivatives on the consolidated balance sheets at fair value. The accounting for changes in the fair value of derivatives depends on the intended use of the derivative, whether the Company has elected to designate a derivative in a hedging relationship and apply hedge accounting and whether the hedging relationship has satisfied the criteria necessary to apply hedge accounting. Derivatives designated and qualifying as a hedge of the exposure to changes in the fair value of an asset, liability, or firm commitment attributable to a particular risk, such as interest rate risk, are considered fair value hedges. Derivatives designated and qualifying as a hedge of the exposure to variability in expected future cash flows, or other types of forecasted transactions, are considered cash flow hedges.

The accounting for subsequent changes in the fair value of these derivatives depends on whether each has been designated and qualifies for hedge accounting treatment. If the Company elects not to apply hedge accounting treatment, any changes in the fair value of these derivative instruments is recognized immediately in other income, net in the consolidated statements of operations and consolidated statements of comprehensive income (loss). If the derivative is designated and qualifies for hedge accounting treatment, the change in fair value of the derivative is recorded in other comprehensive income (loss). Unrealized gains and losses in other comprehensive income (loss) are reclassified to interest expense when the related hedged items impact earnings.

During the fourth quarter of 2020, the Company terminated interest rate swap agreements with an aggregate $900.0 million notional amount and terminated the forward starting interest rate swaps with a notional amount of $400.0 million in connection with the early repayment of borrowings under the Credit Facility Term Loan, as discussed in Note 6 – Debt.

Litigation and non-routine costs, net

The Company has incurred legal fees and other costs associated with litigations and investigations resulting from the Audit Committee Investigation (defined below) and other corporate matters which are considered non-routine.

Litigation and non-routine costs, net include the following costs and recoveries (in thousands):

	Year Ended December 31,
	2020			2019			2018
Litigation and non-routine costs, net:
Legal fees, costs and settlements ⁽¹⁾		4,819			890,378			293,531
Insurance recoveries		(2,471	)		(48,420	)		(2,568	)
Other recoveries ⁽²⁾		—			(26,536	)		—
Total	$	2,348		$	815,422		$	290,963

(1)

Includes all fees, costs and litigation settlements associated with various corporate matters and litigations and investigations prompted by the results of the 2014 investigation conducted by the audit committee (the “Audit Committee”) of the Company’s Board of Directors (the “Audit Committee Investigation”), net of accrual reversals.

(2)

Represents the surrender of 2.9 million Limited Partner OP Units in connection with an SEC settlement entered into by principals of the Company’s former external manager.

F-27

VEREIT, INC. and VEREIT OPERATING PARTNERSHIP, L.P.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

December 31, 2020 – (Continued)

Loss Contingencies

The Company records a liability in the consolidated financial statements for loss contingencies when a loss is known or considered probable and the amount is reasonably estimable. If the reasonable estimate of a known or probable loss is a range, and no amount within the range is a better estimate than any other, the minimum amount of the range is accrued. If a material loss is reasonably possible but not known or probable, and is reasonably estimable, the estimated loss or range of loss is disclosed.

Restructuring

During the year ended December 31, 2020, there were no restructuring expenses recorded. During the year ended December 31, 2019, the Company’s obligation to provide certain transition services for the Cole Purchaser terminated in accordance with the terms of a services agreement (the “Services Agreement”) with the Cole Purchaser and the Company recorded $10.5 million of restructuring expenses related to the reorganization of its business. No restructuring expenses were recorded prior to January 1, 2019.

Income Taxes

The General Partner elected to be taxed as a REIT for U.S. federal income tax purposes under Sections 856 through 860 of the Internal Revenue Code commencing with the taxable year ended December 31, 2011. We believe we are organized and operating in such a manner as to qualify to be taxed as a REIT for the taxable year ended December 31, 2020. As a REIT, the General Partner is generally not subject to federal income tax on taxable income that it distributes to its stockholders so long as it distributes at least 90% of its annual taxable income (computed without regard to the deduction for dividends paid and excluding net capital gains). However, the General Partner, its taxable REIT subsidiaries (“TRS”) entities, and the OP are still subject to certain state and local income, franchise and property taxes in the various jurisdictions in which they operate. The General Partner may also be subject to federal income taxes on certain income and excise taxes on its undistributed income.

The OP is classified as a partnership for U.S. federal income tax purposes. As a partnership, the OP is not a taxable entity for U.S. federal income tax purposes. Instead, each partner in the OP is required to include its allocable share of the OP’s income, gains, losses, deductions and credits for each taxable year. Under the LPA, the OP is to conduct business in such a manner as to permit the General Partner at all times to qualify as a REIT.

A TRS is a subsidiary of a REIT that is subject to federal, state and local income taxes, as applicable. The Company’s use of a TRS enables it to engage in certain business activities while complying with the REIT qualification requirements and to retain any income generated by these businesses for reinvestment without the requirement to distribute those earnings. The Company conducted substantially all of the Cole Capital business activities through a TRS until it sold the Cole Capital business on February 1, 2018.

During the year ended December 31, 2020, the Company conducted all of its business in the United States and Puerto Rico and filed income tax returns in the U.S. federal jurisdiction, Puerto Rico, and various state and local jurisdictions. With few exceptions, the Company is no longer subject to routine examinations by taxing authorities for years before 2016. Certain of the Company’s intercompany transactions that have been eliminated in consolidation for financial accounting purposes are also subject to taxation.

The Company provides for income taxes in accordance with current authoritative accounting and tax guidance. The tax provision or benefit related to significant or unusual items is recognized in the quarter in which those items occur. In addition, the effect of changes in enacted tax laws, rates or tax status is recognized in the quarter in which the change occurs. The accounting estimates used to compute the provision for or benefit from income taxes may change as new events occur, additional information is obtained or the tax environment changes.

F-28

VEREIT, INC. and VEREIT OPERATING PARTNERSHIP, L.P.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

December 31, 2020 – (Continued)

During the years ended December 31, 2020, 2019 and 2018, the Company recognized state and local income and franchise tax expense of $4.4 million, $4.3 million and $4.7 million, respectively, which are included in provision for income taxes in the accompanying consolidated statements of operations. In addition, the Company recorded a provision for federal income taxes of $0.4 million for the year ended December 31, 2018 related to a TRS entity, which is also included in provision for income taxes in the accompanying consolidated statements of operations. No provision for federal income taxes related to a TRS entity was recorded for the years ended December 31, 2020 or 2019. The provision for or benefit from income taxes attributable to the Cole Capital business, substantially all of which was conducted through a TRS entity, is included in discontinued operations for all periods presented, as discussed in Note 14 — Discontinued Operations.

The Company had no unrecognized tax benefits as of or during the years ended December 31, 2020, 2019 and 2018. Any interest and penalties related to unrecognized tax benefits would be recognized in provision for income taxes in the accompanying consolidated statements of operations.

As of December 31, 2020, the OP and the General Partner had no material uncertain income tax positions.

Recent Accounting Pronouncements

Financial Instruments - Credit Losses

The Company adopted ASU 2016-13, Financial Instruments – Credit Losses and subsequent amendments (collectively Topic 326), effective January 1, 2020. Topic 326 was intended to improve financial reporting by requiring more timely recognition of credit losses on loans and other financial instruments that are not accounted for at fair value through net income and required that financial assets measured at amortized cost be presented at the net amount expected to be collected, through an allowance for credit losses that was deducted from the amortized cost basis. The amendments in Topic 326 required the Company to measure all expected credit losses based upon historical experience, current conditions, and reasonable and supportable forecasts that affect the collectability of the financial assets and eliminated the “incurred loss” methodology under current U.S. GAAP.

Upon adoption, the Company determined the following to be within the scope of Topic 326: (i) investments in direct financing leases and (ii) other immaterial miscellaneous short term receivables. Due to the short term nature and collection history of the direct financing leases and management fee receivables and the creditworthiness of the direct financing lease tenants, the adoption of this guidance did not have a material impact on the Company’s consolidated financial statements.

Reference Rate Reform

During the first quarter of 2020, the Financial Accounting Standards Board (the “FASB”) issued ASU 2020-04, Reference Rate Reform (Topic 848). ASU 2020-04 contains practical expedients for reference rate reform related activities that impact debt, leases, derivatives and other contracts. The guidance in ASU 2020-04 is optional and may be elected over time as reference rate reform activities occur. During the first quarter of 2020, the Company elected to apply the hedge accounting expedients related to probability and the assessments of effectiveness for future London Inter-Bank Offer Rate (“LIBOR”)-indexed cash flows to assume that the index upon which future hedged transactions would be based matched the index on the corresponding derivatives. During the fourth quarter of 2020, the Company terminated its interest rate swap agreements with an aggregate $900.0 million notional amount and terminated its forward starting interest rate swaps with a total notional amount of $400.0 million, both of which were designated as cash flow hedges, in connection with the early repayment of borrowings under the Credit Facility Term Loan, as discussed in Note 7 – Derivatives and Hedging Activities. The Company continues to evaluate the impact of the guidance and may apply other elections as applicable as additional changes in the market occur.

F-29

VEREIT, INC. and VEREIT OPERATING PARTNERSHIP, L.P.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

December 31, 2020 – (Continued)

Note 3 – Real Estate Investments and Related Intangibles

Property Acquisitions

During the year ended December 31, 2020, the Company acquired controlling financial interests in 51 commercial properties for an aggregate purchase price of $342.5 million (the “2020 Acquisitions”), which includes the consolidation of one property previously owned by one of the Company’s unconsolidated joint ventures and two land parcels, including one for build-to-suit development, further discussed below, and $1.9 million of external acquisition-related expenses that were capitalized.

During the year ended December 31, 2019, the Company acquired controlling financial interests in 66 commercial properties for an aggregate purchase price of $403.6 million (the “2019 Acquisitions”), which includes $2.3 million of external acquisition-related expenses that were capitalized. Additionally, the Company placed in service one build-to-suit development project in which the Company invested $27.6 million, including $0.7 million of external acquisition-related expenses and interest that were capitalized and including the land parcel acquired during the year ended December 31, 2018.

During the year ended December 31, 2018, the Company acquired a controlling interest in 52 commercial properties for an aggregate purchase price of $502.7 million (the “2018 Acquisitions”), which includes one land parcel for build-to-suit development, $2.1 million related to an outstanding tenant improvement allowance and $2.6 million of external acquisition-related expenses that were capitalized.

The following table presents the allocation of the fair values of the assets acquired and liabilities assumed during the periods presented (in thousands):

	Year Ended December 31,
	2020			2019		2018
Real estate investments, at cost:
Land	$	55,618		$	83,476	$	86,285
Buildings, fixtures and improvements		219,875			268,470		350,942
Total tangible assets		275,493			351,946		437,227
Acquired intangible assets:
In-place leases and other intangibles ⁽¹⁾		37,919			51,627		62,791
Above-market leases ⁽²⁾		29,665			—		2,750
Assumed intangible liabilities:
Below-market leases ⁽³⁾		(583	)		—		(116	)
Total purchase price of assets acquired	$	342,494		$	403,573	$	502,652

(1)

The weighted average amortization period for acquired in-place leases and other intangibles is 16.0 years, 16.5 years and 16.3 years for 2020 Acquisitions, 2019 Acquisitions and 2018 Acquisitions, respectively.

(2)

The weighted average amortization period for acquired above-market leases is 19.5 years and 10.8 years for 2020 Acquisitions and 2018 Acquisitions, respectively.

(3)

The weighted average amortization period for assumed intangible lease liabilities is 14.0 years and 9.9 years for 2020 Acquisitions and 2018 Acquisitions, respectively.

As of December 31, 2020, the Company invested $28.0 million, including $0.4 million of external acquisition-related expenses and interest that were capitalized, in one build-to-suit development project. The Company’s estimated remaining committed investment is $17.0 million, and the project is expected to be completed within the next 12 months.

F-30

VEREIT, INC. and VEREIT OPERATING PARTNERSHIP, L.P.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

December 31, 2020 – (Continued)

Property Dispositions and Real Estate Assets Held for Sale

During the year ended December 31, 2020, the Company disposed of 77 properties, including the sale of three consolidated properties to the office partnership, for an aggregate gross sales price of $438.4 million, of which our share was $435.5 million after the profit participation payments related to the disposition of four Red Lobster properties. The dispositions resulted in proceeds of $408.0 million after closing costs, including proceeds from the contribution of properties to the office partnership. The Company recorded a gain of $96.2 million related to the dispositions, which is included in gain on disposition of real estate and real estate assets held for sale, net in the accompanying consolidated statements of operations.

During the year ended December 31, 2019, the Company disposed of 201 properties, including the sale of six consolidated properties to the industrial partnership, and one property sold through a foreclosure by the lender, for an aggregate gross sales price of $1.2 billion, of which our share was $1.1 billion after the profit participation payments related to the disposition of 36 Red Lobster properties. The dispositions resulted in proceeds of $1.1 billion after closing costs and contributions to the industrial partnership. The Company recorded a gain of $293.9 million related to the sales which is included in gain on disposition of real estate and real estate assets held for sale, net in the accompanying consolidated statements of operations.

During the year ended December 31, 2018, the Company disposed of 149 properties, including one property conveyed to a lender in a deed-in-lieu of foreclosure transaction, for an aggregate gross sales price of $526.4 million, of which our share was $504.3 million after the profit participation payments related to the disposition of 34 Red Lobster properties. The dispositions resulted in proceeds of $496.7 million after closing costs. The Company recorded a gain of $96.2 million related to the sales which is included in gain on disposition of real estate and real estate assets held for sale, net in the accompanying consolidated statements of operations.

During the year ended December 31, 2018, the Company also disposed of one property owned by an unconsolidated joint venture for a gross sales price of $34.1 million, of which our share was $17.1 million based on our ownership interest in the joint venture, resulting in proceeds of $5.6 million after debt repayments of $20.4 million and closing costs. The Company recorded a gain of $0.7 million related to the sale and liquidation of the joint venture, which is included in equity in income and gain on disposition of unconsolidated entities in the accompanying consolidated statements of operations.

As of December 31, 2020, there were nine properties classified as held for sale with a carrying value of $65.6 million, included in real estate assets held for sale, net, primarily comprised of land of $13.1 million and building, fixtures and improvements, net of $42.7 million, in the accompanying consolidated balance sheets, and are expected to be sold in the next 12 months as part of the Company’s portfolio management strategy. As of December 31, 2019, there were five properties classified as held for sale. During the years ended December 31, 2020, 2019 and 2018, the Company recorded losses of $0.9 million, $1.3 million, and $1.9 million related to held for sale properties.

Intangible Lease Assets and Liabilities

Intangible lease assets and liabilities of the Company consisted of the following as of December 31, 2020 and December 31, 2019 (amounts in thousands, except weighted-average useful life):

	Weighted-Average Useful Life		December 31, 2020		December 31, 2019
Intangible lease assets:
In-place leases and other intangibles, net of accumulated amortization of $810,597 and $748,689, respectively		16.4	$	745,026	$	854,196
Leasing commissions, net of accumulated amortization of $7,565 and $6,027, respectively		9.2		16,042		17,808
Above-market lease assets and deferred lease incentives, net of accumulated amortization of $125,455 and $112,438, respectively		17.1		167,776		165,483
Total intangible lease assets, net			$	928,844	$	1,037,487

Intangible lease liabilities:
Below-market leases, net of accumulated amortization of $106,504 and $99,315, respectively		19.7	$	120,938	$	143,583

F-31

VEREIT, INC. and VEREIT OPERATING PARTNERSHIP, L.P.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

December 31, 2020 – (Continued)

The aggregate amount of amortization of above-market and below-market leases and deferred lease incentives included as a net decrease to rental revenue was $3.4 million, $2.5 million, and $4.2 million for the years ended December 31, 2020, 2019 and 2018, respectively. The aggregate amount of in-place leases, leasing commissions and other lease intangibles amortized and included in depreciation and amortization expense was $131.9 million, $127.5 million, and $139.6 million for the years ended December 31, 2020, 2019 and 2018, respectively.

The following table provides the projected amortization expense and adjustments to rental revenue related to the intangible lease assets and liabilities for the next five years as of December 31, 2020 (in thousands):

	2021		2022		2023		2024		2025
In-place leases and other intangibles:
Total projected to be included in amortization expense	$	107,379	$	94,998	$	84,537	$	74,203	$	62,119
Leasing commissions:
Total projected to be included in amortization expense		2,758		2,590		2,298		2,093		1,831
Above-market lease assets and deferred lease incentives:
Total projected to be deducted from rental revenue		19,709		18,900		17,926		16,532		14,970
Below-market lease liabilities:
Total projected to be included in rental revenue		14,069		13,195		12,442		10,591		9,372

Consolidated Joint Venture

The Company had an interest in one consolidated joint venture that owned one property as of December 31, 2020 and 2019. As of December 31, 2020 and 2019, the consolidated joint venture had total assets of $33.0 million and $32.5 million, respectively, of which $29.1 million and $29.6 million, respectively, were real estate investments, net of accumulated depreciation and amortization at each of the respective dates. The property is secured by a mortgage note payable, which is non-recourse to the Company and had a balance of $14.8 million and $14.3 million as of December 31, 2020 and December 31, 2019, respectively. The Company has the ability to control operating and financing policies of the consolidated joint venture. There are restrictions on the use of these assets as the Company is generally required to obtain the approval of the joint venture partner in accordance with the joint venture agreement for any major transactions. The Company and the joint venture partner are subject to the provisions of the joint venture agreement, which includes provisions for when additional contributions may be required to fund certain cash shortfalls.

Investment in Unconsolidated Entities

The following is a summary of the Company’s investments in unconsolidated entities as of December 31, 2020 and 2019 and for the years ended December 31, 2020, 2019 and 2018 (dollar amounts in thousands):

	Ownership % ⁽¹⁾			Number of Properties	Carrying Amount of Investment				Equity in Income Year Ended

Investment	December 31, 2020				December 31, 2020		December 31, 2019		December 31, 2020		December 31, 2019		December 31, 2018
Industrial Partnership ⁽²⁾		20	%	7	$	45,378	$	28,409	$	838	$	254	$	—
Office Partnership ⁽³⁾		20	%	4		13,435		—		534		—		—
Faison JV Bethlehem GA ^(4) (5)		—	%	—		—		40,416		1,637		2,364		1,219
Total unconsolidated joint ventures					$	58,813	$	68,825	$	3,009	$	2,618	$	1,219
Preferred equity ⁽⁶⁾						22,826		—		—		—		—
Total investment in unconsolidated entities					$	81,639	$	68,825	$	3,009	$	2,618	$	1,219

(1)

The Company’s ownership interest reflects its legal ownership interest. Legal ownership may, at times, not equal the Company’s economic interest in the listed properties because of various provisions in certain joint venture agreements regarding capital contributions, distributions of cash flow based on capital account balances, allocations of profits and losses and payments of preferred returns. As a result, the Company’s actual economic interest (as distinct from its legal ownership interest) in certain of the properties could fluctuate from time to time and may not wholly align with its legal ownership interests.

(2)

During the year ended December 31, 2020, the industrial partnership acquired one property from a third party for a purchase price of $246.8 million.

(3)

During the year ended December 31, 2020, the office partnership acquired one property from a third party for a purchase price of $33.1 million.

(4)

As of December 31, 2019, the Company had a 90% ownership interest in one property. On October 30, 2020, the Company closed on the purchase of the joint venture partner’s 10% ownership interest and recorded a gain on the disposal of its investment in the joint venture of $0.5 million, which is included in equity in income and gain on disposition of unconsolidated entities for the year ended December 31, 2020, and the property is included in 2020 Acquisitions.

(5)

The total carrying amount of the investment was greater than the underlying equity in net assets by $4.7 million as of December 31, 2019. This difference related to a purchase price allocation of goodwill and a step up in fair value of the investment asset acquired in connection with mergers. The step up in fair value was allocated to the individual investment asset and was amortized in accordance with the Company’s depreciation policy prior to the consolidation of the property as discussed above.

(6)

During the year ended December 31, 2020, the Company acquired a preferred equity interest in the development of one distribution center in which the Company is entitled to receive a cumulative preferred return of 9% per year on its contributions of $22.8 million. The Company has no further obligation to make additional contributions.

F-32

VEREIT, INC. and VEREIT OPERATING PARTNERSHIP, L.P.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

December 31, 2020 – (Continued)

The aggregate debt outstanding of unconsolidated joint ventures and for the development of one distribution center in which the Company holds a preferred equity interest was $534.3 million and $16.2 million, respectively, as of December 31, 2020, which is non-recourse to the Company, as discussed in Note 6 – Debt. There was $269.3 million of debt outstanding related to the unconsolidated joint ventures as of December 31, 2019.

The Company and the respective unconsolidated joint venture partners are subject to the provisions of the applicable joint venture agreements, which include provisions for when additional contributions may be required to fund certain cash shortfalls.

Note 4 – Rent and Tenant Receivables and Other Assets, Net

Rent and tenant receivables and other assets, net consisted of the following as of December 31, 2020 and December 31, 2019 (in thousands):

	December 31, 2020		December 31, 2019
Straight-line rent receivable, net	$	278,831	$	266,195
Accounts receivable, net		53,051		41,556
Deferred costs, net ⁽¹⁾		5,185		7,208
Investment in direct financing leases, net		6,547		9,341
Investment in Retained REITs ⁽²⁾		7,255		7,552
Prepaid expenses		3,850		3,453
Leasehold improvements, property and equipment, net ⁽³⁾		3,991		4,809
Other assets, net		7,910		8,281
Total	$	366,620	$	348,395

(1)

Amortization expense for deferred costs related to the revolving credit facilities totaled $6.3 million, $2.1 million, and $7.3 million for the years ended December 31, 2020, 2019 and 2018, respectively, inclusive of write-offs of $3.2 million and $1.8 million for the years ended December 31, 2020 and 2019, respectively. There were no related write-offs for the year ended December 31, 2018. Accumulated amortization for deferred costs related to the revolving credit facilities was $52.9 million and $49.8 million as of December 31, 2020 and December 31, 2019, respectively.

(2)

On February 1, 2018, the Company sold certain of its equity investments to CCA Acquisition, LLC, an affiliate of CIM Group, LLC, retaining interests in Cole Office & Industrial REIT (CCIT II), Inc. (“CCIT II”), Cole Office & Industrial REIT (CCIT III), Inc. (“CCIT III”) and Cole Credit Property Trust V, Inc. (“CCPT V” and, collectively with CCIT II and CCIT III, the “Retained REITs”). On December 21, 2020, CIM Real Estate Finance Trust, Inc. (“CMFT”) acquired CCIT III and CCPT V. Subsequent to the sale of Cole Capital, the Company carries these investments at fair value, as the Company does not exert significant influence over the Retained REITs, and any changes in the fair value are recognized in other income, net in the accompanying consolidated statement of operations for the years ended December 31, 2020, 2019 and 2018. During the year ended December 31, 2020, the Company recognized a loss of $0.3 million related to the change in fair value.

(3)

Amortization expense for leasehold improvements totaled $0.5 million, $0.7 million, and $1.2 million for the years ended December 31, 2020, 2019 and 2018, respectively, with no related write-offs. Accumulated amortization was $3.4 million and $2.8 million as of December 31, 2020 and December 31, 2019, respectively. Depreciation expense for property and equipment totaled $1.1 million, $1.3 million, and $2.3 million for the years ended December 31, 2020, 2019 and 2018, respectively, inclusive of write-offs of less than $0.1 million and $0.8 million for the years ended December 31, 2019 and 2018. Accumulated depreciation was $6.5 million and $5.4 million as of December 31, 2020 and December 31, 2019, respectively.

F-33

VEREIT, INC. and VEREIT OPERATING PARTNERSHIP, L.P.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

December 31, 2020 – (Continued)

Note 5 – Fair Value Measures

The Company determines fair value based on quoted prices when available or through the use of alternative approaches, such as discounting the expected cash flows using market interest rates commensurate with the credit quality and duration of the investment. U.S. GAAP guidance defines three levels of inputs that may be used to measure fair value:

Level 1 – Quoted prices in active markets for identical assets and liabilities that the reporting entity has the ability to access at the measurement date.

Level 2 – Inputs other than quoted prices included within Level 1 that are observable for the asset and liability or can be corroborated with observable market data for substantially the entire contractual term of the asset or liability.

Level 3 – Unobservable inputs reflect the entity’s own assumptions about the assumptions that market participants would use in the pricing of the asset or liability and are consequently not based on market activity, but rather through particular valuation techniques.

The determination of where an asset or liability falls in the hierarchy requires significant judgment and considers factors specific to the asset or liability. In instances where the determination of the fair value measurement is based on inputs from different levels of the fair value hierarchy, the level in the fair value hierarchy within which the entire fair value measurement falls is based on the lowest level input that is significant to the fair value measurement in its entirety. The Company evaluates its hierarchy disclosures each quarter and depending on various factors, it is possible that an asset or liability may be classified differently from quarter to quarter. Changes in the type of inputs may result in a reclassification for certain assets. The Company does not expect that changes in classifications between levels will be frequent.

Items Measured at Fair Value on a Recurring Basis

The following tables present information about the Company’s assets and liabilities measured at fair value on a recurring basis as of December 31, 2020 and December 31, 2019, aggregated by the level in the fair value hierarchy within which those instruments fall (in thousands):

	Level 1		Level 2		Level 3		Balance as of December 31, 2020
Assets:
Investment in Retained REITs	$	—	$	—	$	7,255	$	7,255

	Level 1		Level 2			Level 3		Balance as of December 31, 2019
Assets:
Derivative assets	$	—	$	250		$	—	$	250
Investment in Retained REITs		—		—			7,552		7,552
Total assets	$	—	$	250		$	7,552	$	7,802
Liabilities:
Derivative liabilities	$	—	$	(28,081	)	$	—	$	(28,081	)

Derivative Assets and Liabilities – The Company’s derivative financial instruments relate to interest rate swaps. The valuation of derivative instruments is determined using a discounted cash flow analysis on the expected cash flows of each derivative. This analysis reflects the contractual terms of the derivatives, including the period to maturity, as well as observable market-based inputs, including interest rate curves and implied volatilities. In addition, credit valuation adjustments are incorporated into the fair values to account for the Company’s potential nonperformance risk and the performance risk of the counterparties.

F-34

VEREIT, INC. and VEREIT OPERATING PARTNERSHIP, L.P.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

December 31, 2020 – (Continued)

Although the Company determined that the majority of the inputs used to value its derivatives fall within Level 2 of the fair value hierarchy, the credit valuation adjustments associated with those derivatives utilize Level 3 inputs, such as estimates of current credit spreads to evaluate the likelihood of default by the Company and its counterparties. However, as of December 31, 2019, the Company assessed the significance of the impact of the credit valuation adjustments on the overall valuation of its derivative positions and determined that the credit valuation adjustments are not significant to the overall valuation of the Company’s derivatives. As a result, the Company determined that its derivative valuations in their entirety are classified in Level 2 of the fair value hierarchy.

Investment in Retained REITs – The fair values were estimated using the net asset value per share, as most recently disclosed by each applicable REIT. Each of the Retained REIT’s share redemption programs includes restrictions that limit the number of shares redeemed by the respective Retained REIT.

The following are reconciliations of the changes in assets and liabilities with Level 3 inputs in the fair value hierarchy for the year ended December 31, 2020 and 2019 (in thousands):

	Investment in Retained REITs
Beginning balance, January 1, 2020	$	7,552
Unrealized loss included in other income, net		(297	)
Ending Balance, December 31, 2020	$	7,255

Beginning balance, January 1, 2019		7,844
Unrealized loss included in other income, net		(292	)
Ending Balance, December 31, 2019	$	7,552

Items Measured at Fair Value on a Non-Recurring Basis

Certain financial and nonfinancial assets and liabilities are measured at fair value on a non-recurring basis and are subject to fair value adjustments in certain circumstances, such as when there is evidence of impairment.

Real Estate and Other Investments – The Company performs quarterly impairment review procedures for real estate investments, leasehold improvements and property and equipment, right of use assets and investments in unconsolidated entities, primarily through continuous monitoring of events and changes in circumstances that could indicate the carrying value of its real estate assets may not be recoverable.

As part of the Company’s quarterly impairment review procedures, net real estate assets representing 76 properties were deemed to be impaired resulting in impairment charges of $61.7 million during the year ended December 31, 2020 that relate to certain office, retail and restaurant properties whose tenants filed for Chapter 11 bankruptcy during the year ended December 31, 2020, were identified by management for potential sale or were determined would not be re-leased by the tenant. Additionally, $3.4 million was recorded in impairment charges related to right of use ground leases and certain leasehold improvements owned by the Company associated with ground leases where the respective leases are expected to be terminated and properties surrendered to the ground owner.

As a result of the COVID-19 pandemic, the Company considered whether there was any indication of impairment for properties that did not otherwise have potential impairment indicators and identified seven restaurant concepts to include on the Company’s impairment watch list as of December 31, 2020, however there were no additional impairment charges as a result of this assessment. Based on the Company’s expected holding period for the properties and the economic conditions as of December 31, 2020, the Company believes that their carrying values are recoverable. However, the COVID-19 pandemic has negatively impacted the businesses of certain of our tenants so the Company continues to monitor for circumstances and events in future periods, which may result in impairment charges.

F-35

VEREIT, INC. and VEREIT OPERATING PARTNERSHIP, L.P.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

December 31, 2020 – (Continued)

During the years ended December 31, 2019 and 2018, net real estate assets related to 77 and 70 properties, were deemed to be impaired resulting in impairment charges of $47.1 million and $54.6 million. The impairment charges related to certain office, retail and restaurant properties that, during the years ended December 31, 2019 and 2018, management identified for potential sale or determined, based on discussions with the current tenants, would not be re-leased by the tenant and the Company believed the property would not be leased to another tenant at a rental rate that supports the current book value.

The Company estimates fair values using Level 3 inputs and uses a combined income and market approach, specifically using discounted cash flow analysis and recent comparable sales transactions. The evaluation of real estate assets for potential impairment requires the Company’s management to exercise significant judgment and make certain key assumptions, including, but not limited to, the following: (1) capitalization rate; (2) discount rates; (3) number of years property will be held; (4) property operating expenses; and (5) re-leasing assumptions including number of months to re-lease, market rental revenue and required tenant improvements. There are inherent uncertainties in making these estimates such as market conditions and performance and sustainability of the Company’s tenants. For the Company’s impairment tests for the real estate assets during the year ended December 31, 2020, the Company used a range of discount rates from 7.9% to 8.9% with a weighted-average rate of 8.4% and capitalization rates from 7.4% to 8.4% with a weighted-average rate of 7.9%.

Goodwill – The Company evaluates goodwill for impairment annually or more frequently when an event occurs or circumstances change that indicate the carrying value may not be recoverable.

The Company performed the annual qualitative assessment for goodwill during the fourth quarter of 2020. As a result of the qualitative testing, the Company believes that it is more-likely-than-not that the fair value of the goodwill is greater than the carrying value. As such, no further testing was performed. The Company performed a qualitative analysis for the annual goodwill tests during the year ended December 31, 2019 and a quantitative analysis for the annual goodwill tests during the year ended December 31, 2018, which each resulted in no impairments. The Company continues to monitor factors that may impact the fair value of goodwill including, but not limited to, market comparable company multiples, stock price, interest rates, and global economic conditions including the COVID-19 pandemic.

Fair Value of Financial Instruments

The fair value of short-term financial instruments such as cash and cash equivalents, restricted cash and accounts payable approximate their carrying value in the accompanying consolidated balance sheets due to their short-term nature and are classified as Level 1 under the fair value hierarchy. The fair values of the Company’s financial instruments are reported below (dollar amounts in thousands):

	Level		Carrying Amount at December 31, 2020		Fair Value at December 31, 2020		Carrying Amount at December 31, 2019		Fair Value at December 31, 2019
Liabilities ⁽¹⁾:
Mortgage notes payable and other debt, net		2	$	1,334,689	$	1,384,490	$	1,535,918	$	1,590,915
Corporate bonds, net		2		4,622,951		5,123,588		2,839,581		3,022,087
Convertible debt, net		2		—		—		319,947		327,237
Credit facility		2		—		—		1,050,000		1,050,000
Total liabilities			$	5,957,640	$	6,508,078	$	5,745,446	$	5,990,239

(1)

Current and prior period liabilities’ carrying and fair values exclude net deferred financing costs.

Debt – The fair value is estimated by an independent third party using a discounted cash flow analysis, based on management’s estimates of observable market interest rates. Corporate bonds and convertible debt are valued using quoted market prices in active markets with limited trading volume when available.

F-36

VEREIT, INC. and VEREIT OPERATING PARTNERSHIP, L.P.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

December 31, 2020 – (Continued)

Note 6 – Debt

As of December 31, 2020, the Company had $5.9 billion of debt outstanding, including net premiums and net deferred financing costs, with a weighted-average years to maturity of 6.0 years and a weighted-average interest rate of 3.98%. The following table summarizes the carrying value of debt as of December 31, 2020 and December 31, 2019, and the debt activity for the year ended December 31, 2020 (in thousands):

				Year Ended December 31, 2020
	Balance as of December 31, 2019			Debt Issuances			Repayments, Extinguishment and Assumptions			Accretion and Amortization			Balance as of December 31, 2020
Mortgage note payable:
Outstanding balance	$	1,529,057		$	1,032		$	(196,894	)	$	—		$	1,333,195
Net premiums ⁽¹⁾		6,861			—			(415	)		(4,951	)		1,495
Deferred costs		(7,784	)		(326	)		65			2,190			(5,855	)
Mortgage notes payable, net		1,528,134			706			(197,244	)		(2,761	)		1,328,835

Corporate bonds:
Outstanding balance		2,850,000			1,800,000			—			—			4,650,000
Discount ⁽²⁾		(10,419	)		(18,235	)		—			1,605			(27,049	)
Deferred costs		(25,842	)		(16,704	)		—			3,825			(38,721	)
Corporate bonds, net		2,813,739			1,765,061			—			5,430			4,584,230

Convertible debt:
Outstanding balance		321,802			—			(321,802	)		—			—
Discount ⁽²⁾		(1,855	)		—			163			1,692			—
Deferred costs		(1,764	)		—			155			1,609			—
Convertible debt, net		318,183			—			(321,484	)		3,301			—

Credit facility:
Outstanding balance		1,050,000			902,000			(1,952,000	)		—			—
Deferred costs ⁽³⁾		(4,331	)		(5	)		3,160			1,176			—
Credit facility, net		1,045,669			901,995			(1,948,840	)		1,176			—

Total debt	$	5,705,725		$	2,667,762		$	(2,467,568	)	$	7,146		$	5,913,065

(1)

Net premiums on mortgage notes payable were recorded upon the assumption of the respective mortgage notes in relation to the various mergers and acquisitions. Amortization of these net premiums is recorded as a reduction to interest expense over the remaining term of the respective mortgage notes using the effective-interest method.

(2)

Discounts on the corporate bonds and convertible debt were recorded based upon the fair value of the respective debt instruments as of the respective issuance dates. Amortization of these discounts is recorded as an increase to interest expense over the remaining term of the respective debt instruments using the effective-interest method.

(3)

Deferred costs relate to the Credit Facility Term Loan, as defined in the “Credit Facility” section below.

F-37

VEREIT, INC. and VEREIT OPERATING PARTNERSHIP, L.P.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

December 31, 2020 – (Continued)

Mortgage Notes Payable

The Company’s mortgage notes payable consisted of the following as of December 31, 2020 (dollar amounts in thousands):

	Encumbered Properties		Net Carrying Value of Collateralized Properties ⁽¹⁾		Outstanding Balance		Weighted-Average Interest Rate ⁽²⁾			Weighted-Average Years to Maturity ⁽³⁾
Fixed-rate debt		278	$	1,682,514	$	1,318,126		5.01	%		2.1
Variable-rate debt		1		29,129		15,069		3.75	%⁽⁴⁾		0.6
Total ⁽⁵⁾		279	$	1,711,643	$	1,333,195		4.99	%		2.1

(1)

Net carrying value is real estate assets, including investment in direct financing leases, net of real estate liabilities.

(2)

Weighted average interest rate is computed using the interest rate in effect until the anticipated repayment date. Should the loan not be repaid at the anticipated repayment date, the applicable interest rate will increase as specified in the respective loan agreement until the extended maturity date.

(3)

Weighted average years remaining to maturity is computed using the anticipated repayment date as specified in each loan agreement, where applicable.

(4)

Weighted-average interest rate for variable-rate debt represents the interest rate in effect as of December 31, 2020.

(5)

The table above does not include mortgage notes associated with unconsolidated joint ventures and preferred equity investments of $550.5 million, which are non-recourse to the Company.

The Company’s mortgage loan agreements generally restrict corporate guarantees and require the maintenance of financial covenants, including maintenance of certain financial ratios (such as debt service coverage ratios and minimum net operating income). The mortgage loan agreements contain no dividend restrictions except in the event of default or when a distribution would drive liquidity below the applicable thresholds. At December 31, 2020, the Company believes that it was in compliance with the financial covenants under the mortgage loan agreements and had no restrictions on the payment of dividends.

The following table summarizes the scheduled aggregate principal repayments due on mortgage notes subsequent to December 31, 2020 (in thousands):

	Total
2021	$	314,042
2022		266,951
2023		124,217
2024		621,021
2025		1,078
Thereafter		5,886
Total	$	1,333,195

Corporate Bonds

As of December 31, 2020, the OP had $4.65 billion aggregate principal amount of senior unsecured notes (the “Senior Notes”) outstanding comprised of the following (dollar amounts in thousands):

	Outstanding Balance December 31, 2020		Interest Rate			Maturity Date
Senior Notes due 2024	$	500,000		4.600	%	February 6, 2024
Senior Notes due 2025		550,000		4.625	%	November 1, 2025
Senior Notes due 2026		600,000		4.875	%	June 1, 2026
Senior Notes due 2027		600,000		3.950	%	August 15, 2027
Senior Notes due January, 2028		600,000		3.400	%	January 15, 2028
Senior Notes due June, 2028		500,000		2.200	%	June 15, 2028
Senior Notes due 2029		600,000		3.100	%	December 15, 2029
Senior Notes due 2032		700,000		2.850	%	December 15, 2032
Total balance and weighted-average interest rate	$	4,650,000		3.685	%

On June 29, 2020, the Company closed a senior note offering, consisting of $600.0 million aggregate principal amount of the Operating Partnership’s 3.40% Senior Notes due 2028 (the “Senior Notes due January 2028”). On November 17, 2020, the Company closed a senior note offering, consisting of $500.0 million aggregate principal amount of the Operating Partnership’s 2.20% Senior Notes due 2028 (the “Senior Notes due June 2028”) and $700.0 million aggregate principal amount of the Operating Partnership’s 2.85% Senior Notes due 2032 (the “Senior Notes due 2032”).

F-38

VEREIT, INC. and VEREIT OPERATING PARTNERSHIP, L.P.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

December 31, 2020 – (Continued)

The Senior Notes are guaranteed by the General Partner. The OP may redeem all or a part of any series of the Senior Notes at any time, at its option, for the redemption prices set forth in the indenture governing the Senior Notes. Generally, 60 to 90 days prior to maturity, the redemption price will be equal to 100% of the principal amount of the Senior Notes. The Senior Notes are registered under the Securities Act of 1933, as amended (the “Securities Act”) and are freely transferable.

The indenture governing our Senior Notes requires us to maintain financial ratios which include maintaining (i) a maximum limitation on incurrence of total debt less than or equal to 65% of Total Assets (as defined in the indenture), (ii) maximum limitation on incurrence of secured debt less than or equal to 40% of Total Assets (as defined in the indenture), (iii) a minimum debt service coverage ratio of at least 1.5x and (iv) a minimum unencumbered asset value of at least 150% of the aggregate principal amount of all of the outstanding Unsecured Debt (as defined in the indenture). As of December 31, 2020, the Company believes that it was in compliance with the financial covenants of our Senior Notes based on the covenant limits and calculations in place at that time.

Convertible Debt

The Company had an outstanding balance of $321.8 million of its 3.75% convertible senior notes due December 15, 2020 (the “2020 Convertible Notes”) as of December 31, 2019. During the year ended December 31, 2020, the 2020 Convertible Notes were repaid in full in accordance with the indenture governing the 2020 Convertible Notes.

Credit Facility

On May 23, 2018, the General Partner, as guarantor, and the OP, as borrower, entered into a credit agreement with Wells Fargo Bank, National Association as administrative agent and other lenders party thereto (the “Credit Agreement”). The Credit Agreement provided for maximum borrowings of $2.9 billion, originally consisting of a $2.0 billion unsecured revolving credit facility (the “Revolving Credit Facility”) and a $900.0 million unsecured term loan facility (the “Credit Facility Term Loan,” together with the Revolving Credit Facility, the “Credit Facility”). Effective December 27, 2019, the Company reduced the amount available under its Revolving Credit Facility from $2.0 billion to $1.5 billion. On May 27, 2020, the Operating Partnership and the Company, entered into Amendment No. 1 to the Credit Agreement (the “Amendment”) which, among other things, modified the measurement period for certain financial covenants (and relevant associated definitions) from either the prior quarterly period annualized or the prior six month period to the four consecutive fiscal quarter period most recently ending.

As of December 31, 2020, no amounts were outstanding under the Revolving Credit Facility and the Company repaid the outstanding balance of $900.0 million on the Credit Facility Term Loan in connection with the termination of the related interest rate swap agreements discussed in Note 7 – Derivatives and Hedging Activities. The maximum aggregate dollar amount of letters of credit that may be outstanding at any one time under the Credit Facility is $50.0 million. As of December 31, 2020, there were $3.7 million of letters of credit outstanding.

The Revolving Credit Facility generally bears interest at an annual rate of LIBOR plus 0.775% to 1.55% or Base Rate plus 0.00% to 0.55% (based upon the General Partner’s then current credit rating). “Base Rate” is defined as the highest of the prime rate, the federal funds rate plus 0.50% or a floating rate based on one month LIBOR plus 1.0%, determined on a daily basis. The Credit Facility Term Loan generally bore interest at an annual rate of LIBOR plus 0.85% to 1.75%, or Base Rate plus 0.00% to 0.75% (based upon the General Partner’s then current credit rating). In addition, the Credit Agreement provides the flexibility for interest rate auctions, pursuant to which, at the Company’s election, the Company may request that lenders make competitive bids to provide revolving loans, which competitive bids may be at pricing levels that differ from the foregoing interest rates.

In the event of default, at the election of a majority of the lenders (or automatically upon a bankruptcy event of default with respect to the OP or the General Partner), the commitments of the lenders under the Credit Facility will terminate, and payment of any unpaid amounts in respect of the Credit Facility will be accelerated. The Revolving Credit Facility terminates on May 23, 2022, unless extended in accordance with the terms of the Credit Agreement. The Credit Agreement provides for two six-month extension options with respect to the Revolving Credit Facility, exercisable at the OP’s election and subject to certain customary conditions, as well as certain customary “amend and extend” provisions. At any time, upon timely notice by the OP and subject to any breakage fees, the OP may prepay borrowings under the Credit Facility (subject to certain limitations applicable to the prepayment of any loans obtained through an interest rate auction, as described above). The OP incurs a facility fee equal to 0.10% to 0.30% per annum (based upon the General Partner’s then current credit rating) multiplied by the commitments (whether or not utilized) in respect of the Revolving Credit Facility. The OP also incurs customary administrative agent, letter of credit issuance, letter of credit fronting, extension and other fees.

F-39

VEREIT, INC. and VEREIT OPERATING PARTNERSHIP, L.P.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

December 31, 2020 – (Continued)

The Credit Facility requires restrictions on corporate guarantees, as well as the maintenance of financial covenants, including the maintenance of certain financial ratios (such as specified debt to equity and debt service coverage ratios). The key financial covenants in the Credit Facility, as defined and calculated per the terms of the Credit Agreement, include maintaining (i) a maximum leverage ratio less than or equal to 60%, (ii) a minimum fixed charge coverage ratio of at least 1.5x, (iii) a secured leverage ratio less than or equal to 45%, (iv) a total unencumbered asset value ratio less than or equal to 60% and (v) a minimum unencumbered interest coverage ratio of at least 1.75x. The Company believes that it was in compliance with the financial covenants pursuant to the Credit Agreement and is not restricted from accessing any borrowing availability under the Credit Facility as of December 31, 2020.

Note 7 – Derivatives and Hedging Activities

Cash Flow Hedges of Interest Rate Risk

The Company had interest rate swap agreements with an aggregate $900.0 million notional amount, which were designated as cash flow hedges. The Company also had forward starting interest rate swaps with a total notional amount of $400.0 million, which were designated as cash flow hedges to hedge the risk of changes in the interest-related cash outflows associated with the anticipated issuance of long-term debt. During the fourth quarter of 2020, the Company terminated interest rate swap agreements with an aggregate $900.0 million notional amount and terminated the forward starting interest rate swaps with a notional amount of $400.0 million in connection with the early repayment of borrowings under the Credit Facility Term Loan, as discussed in Note 6 – Debt. In connection with the hedge terminations, the Company accelerated the reclassification of amounts in other comprehensive income to earnings as a result of the hedged forecasted transactions becoming probable not to occur, which was offset by a gain related to the derecognition of derivative liabilities. The Company paid $85.4 million of termination and other fees, which are included in (loss) gain on derivative instruments, net in the accompanying consolidated statements of operations.

The table below presents the fair value of the Company’s derivative financial instruments designated as cash flow hedges as well as their classification in the consolidated balance sheets as of December 31, 2020 and December 31, 2019 (in thousands):

Derivatives Designated as Hedging Instruments	Balance Sheet Location	December 31, 2020		December 31, 2019
Interest rate swaps	Rent and tenant receivables and other assets, net	$	—	$	250
Interest rate swaps	Derivative, deferred rent and other liabilities	$	—	$	(28,081	)

During the years ended December 31, 2020 and 2019, the Company recorded unrealized losses of $71.5 million and $29.9 million, respectively, for changes in the fair value of the cash flow hedges in accumulated other comprehensive income. There were no similar amounts recorded during the year ended December 31, 2018.

The Company reclassified previous losses of $99.7 million, $2.5 million, and $0.3 million for the years ended December 31, 2020, 2019 and 2018, respectively, from accumulated other comprehensive income (loss) into interest expense as a result of the hedged transactions impacting earnings.

During the next twelve months, the Company estimates that an additional $0.4 million will be reclassified from other comprehensive income (loss) as an increase to interest expense.

F-40

VEREIT, INC. and VEREIT OPERATING PARTNERSHIP, L.P.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

December 31, 2020 – (Continued)

Derivatives Not Designated as Hedging Instruments

As of December 31, 2020 and December 31, 2019, the Company had no interest rate swaps that were not designated as qualifying hedging relationships.

Tabular Disclosure of Offsetting Derivatives

The table below details a gross presentation, the effects of offsetting and a net presentation of the Company’s derivatives as of December 31, 2020 and December 31, 2019 (in thousands). The net amounts of derivative assets or liabilities can be reconciled to the tabular disclosure of fair value.

	Offsetting of Derivative Assets and Liabilities
	Gross Amounts of Recognized Assets		Gross Amounts of Recognized Liabilities			Gross Amounts Offset in the Consolidated Balance Sheets		Net Amounts of Assets Presented in the Consolidated Balance Sheets		Net Amounts of Liabilities Presented in the Consolidated Balance Sheets			Financial Instruments		Cash Collateral Received		Net Amount
December 31, 2020	$	—	$	—		$	—	$	—	$	—		$	—	$	—	$	—
December 31, 2019	$	250	$	(28,081	)	$	—	$	250	$	(28,081	)	$	—	$	—	$	(27,831	)

Note 8 – Supplemental Cash Flow Disclosures

Supplemental cash flow information was as follows for the years ended December 31, 2020, 2019 and 2018 (in thousands):

	Year Ended December 31,
	2020		2019		2018
Supplemental disclosures:
Cash paid for interest	$	240,075	$	281,490	$	267,400
Cash paid for income taxes	$	5,850	$	5,019	$	5,589
Non-cash investing and financing activities:
Accrued capital expenditures, tenant improvements and real estate developments	$	6,158	$	13,412	$	12,648
Accrued deferred financing costs	$	24	$	1,100	$	67
Real estate contributions to industrial partnership and office partnership	$	17,240	$	29,577	$	—
Distributions declared and unpaid	$	89,514	$	150,365	$	148,383
Distributions payable relinquished	$	—	$	12,522	$	—
Mortgage note payable relieved by foreclosure or a deed-in-lieu of foreclosure	$	—	$	19,525	$	16,200
Real estate investments received from lease related transactions	$	259	$	3,800	$	1,386
Real estate investments relinquished	$	862	$	—	$	—
Establishment of right-of-use assets and lease liabilities	$	—	$	236,286	$	—
Nonmonetary exchanges:
Exchange of real estate investments	$	—	$	8,900	$	—

Note 9 – Accounts Payable and Accrued Expenses

Accounts payable and accrued expenses consisted of the following as of December 31, 2020 and December 31, 2019 (in thousands):

	December 31, 2020		December 31, 2019
Accrued interest	$	44,164	$	31,925
Accrued real estate and other taxes		27,689		25,320
Accrued legal fees and litigation settlements		11,245		25,571
Accounts payable		1,895		1,779
Accrued other		32,022		41,725
Total	$	117,015	$	126,320

F-41

VEREIT, INC. and VEREIT OPERATING PARTNERSHIP, L.P.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

December 31, 2020 – (Continued)

Note 10 – Commitments and Contingencies

The Company is party to various legal proceedings which it believes are routine in nature and incidental to the operation of its business. The Company does not believe that any of these outstanding claims against it are expected to have a material adverse effect upon its consolidated financial position or results of operations.

Purchase Commitments

In the normal course of business, the Company enters into various types of commitments to purchase real estate properties. These commitments are generally subject to the Company’s customary due diligence process and, accordingly, a number of specific conditions must be met before the Company is obligated to purchase the properties.

Environmental Matters

In connection with the ownership and operation of real estate, the Company may potentially be liable for costs and damages related to environmental matters. The Company has not been notified by any governmental authority of any non-compliance, liability or other claim, and is not aware of any other environmental condition, in each case, that it believes will have a material adverse effect on the results of operations.

Note 11 – Leases

Lessor

The Company is the lessor for its 3,831 retail, restaurant, office and industrial properties. The Company’s operating and direct financing leases have non-cancelable lease terms of 0.01 years to 24.1 years. Certain leases with tenants include options to extend or terminate the lease agreements or to purchase the underlying asset. Lease agreements may also contain rent increases that are based on an index or rate (e.g., the consumer price index (“CPI”) or LIBOR). The Company believes the residual value risk is not a primary risk because of the long-lived nature of the assets.

The components of rental revenue from the Company’s operating and direct financing leases were as follows (in thousands):

	Year Ended December 31,
	2020			2019			2018
Fixed:
Cash rent ⁽¹⁾	$	1,036,422		$	1,102,538		$	1,121,482
Straight-line rent ⁽²⁾		25,161			28,032			39,772
Lease intangible amortization		(3,357	)		(2,538	)		(4,178	)
Property operating cost reimbursements		5,866			5,559			5,375
Sub-lease ⁽³⁾		20,141			21,496			16,178
Total fixed		1,084,233			1,155,087			1,178,629

Variable ⁽⁴⁾		73,404			81,310			78,179
Income from direct financing leases		648			837			1,059
Total rental revenue	$	1,158,285		$	1,237,234		$	1,257,867

F-42

VEREIT, INC. and VEREIT OPERATING PARTNERSHIP, L.P.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

December 31, 2020 – (Continued)

(1)	For the year ended December 31, 2020, the Company had $17.9 million of rental revenue related to deferral agreements executed through February 16, 2021, which qualify for the COVID-19 Lease Concessions Relief. For the year ended December 31, 2020, cash rent was negatively impacted by (i) $18.3 million of abated rental revenue pursuant to lease amendments executed through December 31, 2020, which increased the weighted average lease term for the related properties and (ii) a reduction to rental revenue of $23.0 million that was related to the impact of the COVID-19 pandemic, of which $9.6 million represented an increase to the general allowance for rental revenue and $13.4 million represented amounts not probable of collection at December 31, 2020 and rental revenue will be recognized as cash is received.

(2)	For the year ended December 31, 2020, straight-line rent was reduced by $3.5 million that was related to the impact of the COVID-19 pandemic, for straight-line rent receivables that were deemed not probable of collection.

(3)	The Company’s tenants are generally sub-tenants under certain ground leases and are responsible for paying the rent under these leases.

(4)	Includes costs reimbursed related to property operating expenses, common area maintenance and percentage rent, including these costs reimbursed by ground lease sub-tenants.

The following table presents future minimum operating lease payments due to the Company over the next five years and thereafter as of December 31, 2020 (in thousands). These amounts exclude contingent rent payments, as applicable, that may be collected from certain tenants based on provisions related to sales thresholds and increases in annual rent based on exceeding certain economic indexes.

	Future Minimum Operating Lease Payments		Future Minimum Direct Financing Lease Payments⁽¹⁾
2021	$	1,043,236	$	2,000
2022		992,411		1,925
2023		927,738		1,565
2024		856,646		510
2025		752,049		169
Thereafter		4,728,485		655
Total	$	9,300,565	$	6,824

(1)

Related to 18 properties which are subject to direct financing leases and, therefore, revenue is recognized as rental income on the discounted cash flows of the lease payments. Amounts reflect undiscounted cash flows to be received by the Company under the lease agreements on these respective properties.

Lessee

The Company is the lessee under ground lease arrangements and corporate office leases. All leases for which the Company is the lessee meet the criteria of an operating lease. The Company’s leases have remaining lease terms of 0.2 years to 78.6 years, some of which include options to extend. The weighted average remaining lease term for the Company’s operating leases was 15.9 years as of December 31, 2020. Under certain ground lease arrangements, the Company pays variable costs, including property operating expenses and common area maintenance, which are generally reimbursed by the ground lease sub-tenants. The weighted average discount rate for the Company’s operating leases was 4.91% as of December 31, 2020. As the Company’s leases do not provide an implicit rate, the Company used an estimated incremental borrowing rate based on the information available at the adoption date in determining the present value of lease payments.

The Company incorporated renewal periods in the calculation of the majority of ground lease right-of-use assets and lease liabilities. Pursuant to certain leases, the Company is required to execute renewal options available under the ground lease through the building lease term. No renewals were incorporated in the calculation of the corporate lease right-of-use assets and liabilities, as it is not reasonably certain that the Company will exercise the options. The Company’s lease agreements do not contain any material residual value guarantees or material restrictive covenants.

F-43

VEREIT, INC. and VEREIT OPERATING PARTNERSHIP, L.P.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

December 31, 2020 – (Continued)

The following table presents the lease expense components for the years ended December 31, 2020 and 2019 (in thousands):

	Year Ended December 31,
	2020			2019
Operating lease cost ⁽¹⁾	$	24,259		$	24,392
Sublease income ⁽²⁾	$	(20,141	)	$	(21,496	)

	(1)	No cash paid for operating lease liabilities was capitalized.

	(2)	The Company’s tenants are generally sub-tenants under certain ground leases and are responsible for paying the rent under these leases.

Subsequent to initial measurement of $233.3 million and $236.3 million, respectively, the Company reduced the right-of-use assets by $2.1 million and operating lease liabilities by $2.6 million, for non-cash activity related to dispositions and lease modifications during the year ended December 31, 2019. During the year ended December 31, 2020, the Company reduced the right-of-use assets and operating lease liabilities by $1.2 million and $1.3 million, respectively.

The following table reflects the future minimum lease payments due from the Company over the next five years and thereafter for ground lease obligations, which are substantially reimbursable by our tenants, and office lease obligations as of December 31, 2020 (in thousands).

	Future Minimum Lease Payments
2021	$	22,420
2022		21,709
2023		21,300
2024		20,656
2025		20,213
Thereafter		206,752
Total		313,050
Less: imputed interest		103,946
Total	$	209,104

The following table reflects the future minimum lease payments due from the Company over the five years subsequent to December 31, 2019 (in thousands).

	Future Minimum Lease Payments
2020	$	22,287
2021		22,284
2022		22,122
2023		21,695
2024		21,132
Thereafter		225,457
Total	$	334,977
Less: imputed interest		113,916
Total	$	221,061

F-44

VEREIT, INC. and VEREIT OPERATING PARTNERSHIP, L.P.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

December 31, 2020 – (Continued)

Note 12 – Equity

Reverse Stock Split

The Company’s one-for-five reverse stock split of its Common Stock took effect after markets closed on December 17, 2020 following the filing of amendments to its charter with the Maryland State Department of Assessments and Taxation whereby every five shares of VEREIT's issued and outstanding shares of Common Stock, $0.01 par value per share, were converted into one share of Common Stock, $0.01 par value per share. VEREIT’s Common Stock began trading on the NYSE on a split-adjusted basis beginning December 18, 2020. Fractional shares resulting from the reverse stock split were paid in cash based on the trailing average closing price of VEREIT’s Common Stock on the New York Stock Exchange for a period of three days prior to the effective date. The reverse stock split affected all record holders of VEREIT’s Common Stock uniformly and did not affect any record holder’s percentage ownership interest, except for de minimus changes as a result of the elimination of fractional shares. Trading in the Common Stock continued on the NYSE under the symbol “VER” but the Common Stock was assigned a new CUSIP number. The reverse stock split reduced the number of shares of Common Stock outstanding but did not affect the number of VEREIT’s authorized shares of Common Stock. A corresponding reverse split of the outstanding OP Units also took effect on December 17, 2020.

Common Stock and General Partner OP Units

The General Partner is authorized to issue up to 1.5 billion shares of Common Stock. As of December 31, 2020, the General Partner had approximately 228.9 million shares of Common Stock issued and outstanding. Additionally, the Operating Partnership had approximately 228.9 million General Partner OP Units issued and outstanding as of December 31, 2020, corresponding to the General Partner’s outstanding shares of Common Stock.

Common Stock Continuous Offering Program

The Company initiated its continuous equity offering program in 2019, pursuant to which the Company could sell shares of common stock in “at-the-market” offerings or certain other transactions (the “ATM Program”). The proceeds from any sale of shares under the ATM Program have been and will be used for general corporate purposes, which may include funding potential acquisitions and repurchasing or repaying outstanding indebtedness.

During the year ended December 31, 2019, the Company issued an aggregate of 1.81 million shares under the ATM Program, at a weighted average price per share of $48.00, for gross proceeds of $86.7 million. The weighted average price per share, net of commissions, was $47.28, for net proceeds of $85.4 million.

During the year ended December 31, 2020, the Company issued an aggregate of 13.3 million shares under the ATM Program, at a weighted average price per share of $36.41, for gross proceeds of $484.1 million. The weighted average price per share, net of commissions, was $36.00, for net proceeds of $478.7 million. The Company incurred $0.1 million of other offering expenses. As of December 31, 2020, the Company sold an aggregate of $572.2 million under the ATM Program, which had an initial capacity of $750.0 million.

Series F Preferred Stock and Series F Preferred OP Units

The Series F Preferred Stock pays cumulative cash dividends at the rate of 6.70% per annum on their liquidation preference of $25.00 per share (equivalent to $1.675 per share on an annual basis). The General Partner may, at its option, redeem shares of the Series F Preferred Stock, in whole or from time to time in part, at a redemption price of $25.00 per share plus, subject to exceptions, any accrued and unpaid dividends thereon to the date fixed for redemption. The shares of Series F Preferred Stock have no stated maturity, are not subject to any sinking fund or mandatory redemption and will remain outstanding indefinitely unless the General Partner redeems or otherwise repurchases them or they become convertible and are converted into Common Stock (or, if applicable, alternative consideration). The Series F Preferred Units contain the same terms as the Series F Preferred Stock.

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VEREIT, INC. and VEREIT OPERATING PARTNERSHIP, L.P.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

December 31, 2020 – (Continued)

During the year ended December 31, 2019, the Company redeemed a total of 12.0 million shares of Series F Preferred Stock, representing approximately 28.02% of the issued and outstanding preferred shares as of the beginning of 2019. The shares of Series F Preferred Stock were redeemed at a redemption price of $25.00 per share plus all accrued and unpaid dividends.

During the year ended December 31, 2020, the Company redeemed a total of 12.0 million shares of Series F Preferred Stock, representing approximately 38.87% of the issued and outstanding shares of Series F Preferred Stock as of the beginning of 2020. The shares of Series F Preferred Stock were redeemed at a redemption price of $25.00 per share plus accrued and unpaid dividends. As of December 31, 2020, there were approximately 18.9 million shares of Series F Preferred Stock, approximately 18.9 million corresponding General Partner Series F Preferred Units and 49,766 Limited Partner Series F Preferred Units issued and outstanding.

For federal income tax purposes, distributions to stockholders are characterized as ordinary dividends, capital gain distributions, or nondividend distributions. Nondividend distributions will reduce U.S stockholders’ basis (but not below zero) in their shares. The following table shows the character of the Series F Preferred Stock distributions paid on a percentage basis for the years ended December 31, 2020, 2019 and 2018:

	Year Ended December 31,
	2020			2019			2018
Ordinary dividends		—	%		71.7	%		100.0	%
Nondividend distributions		100.0	%		—	%		—	%
Capital gain distributions		—	%		28.3	%		—	%
Total		100.0	%		100.0	%		100.0	%

Limited Partner OP Units

As of December 31, 2020 the Operating Partnership had approximately 0.2 million Limited Partner OP Units outstanding.

Common Stock Dividends

On November 4, 2020, the Company’s Board of Directors declared a quarterly cash dividend for the fourth quarter of 2020 of $0.077 per share of Common Stock consistent with the prior quarter’s dividend. The dividend was paid on January 15, 2021 to Common Stock stockholders of record as of December 31, 2020 and was equivalent to $0.385 per share after accounting for the one-for-five reverse stock split. An equivalent distribution by the Operating Partnership is applicable per OP Unit.

For federal income tax purposes, distributions to stockholders are characterized as ordinary dividends, capital gain distributions, or nondividend distributions. Nondividend distributions will reduce U.S stockholders’ basis (but not below zero) in their shares. The following table shows the character of the Common Stock distributions paid on a percentage basis for the years ended December 31, 2020, 2019 or 2018:

	Year Ended December 31,
	2020			2019			2018
Ordinary dividends		—	%		45.0	%		13.8	%
Nondividend distributions		100.0	%		37.2	%		86.2	%
Capital gain distributions		—	%		17.8	%		—	%
Total		100.0	%		100.0	%		100.0	%

Share Repurchase Program

The Company has a share repurchase program (the “2019 Share Repurchase Program”), together with its prior share repurchase program from 2018 which was terminated on May 3, 2018, (the “Share Repurchase Programs”) that permits the Company to repurchase up to $200.0 million of its outstanding Common Stock through May 6, 2022. Under the 2019 Share Repurchase Program, repurchases can be made through open market purchases, privately negotiated transactions, structured or derivative transactions, including accelerated stock repurchase transactions, or other methods of acquiring shares in accordance with applicable securities laws and other legal requirements. The 2019 Share Repurchase Program does not obligate the Company to make any repurchases at a specific time or in a specific situation and repurchases are influenced by prevailing market conditions, the trading price of the Common Stock, the Company’s financial performance and other conditions. Shares of Common Stock repurchased by the Company under the 2019 Share Repurchase Program, if any, will be returned to the status of authorized but unissued shares of Common Stock.

F-46

VEREIT, INC. and VEREIT OPERATING PARTNERSHIP, L.P.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

December 31, 2020 – (Continued)

There were no share repurchases under the 2019 Share Repurchase Program during the years ended December 31, 2020 or 2019. As of December 31, 2020, the Company had $200.0 million available for share repurchases under the 2019 Share Repurchase Program.

Note 13– Equity-based Compensation

Equity-based Compensation

The Company has an equity-based incentive award plan (the “Equity Plan”) for non-executive directors, officers, other employees and advisors or consultants who provide services to the Company, as applicable, and a non-executive director restricted share plan, which are accounted for under U.S. GAAP for share-based payments. The expense for such awards is recognized over the vesting period or when the requirements for exercise of the award have been met. Restricted Shares are considered issued and outstanding and provide for rights identical to those of Common Stock. Restricted Stock Units do not provide for any rights of a common stockholder prior to the vesting of such Restricted Stock Units. As is the case when fully vested shares of Common Stock are issued from the Equity Plan, for each Restricted Share awarded under the Equity Plan, the Operating Partnership issues a General Partner OP Unit to the General Partner with identical terms. Upon vesting or settlement of Restricted Stock Units or Deferred Stock Units, respectively, the Operating Partnership issues a General Partner OP Unit to the General Partner for each share of Common Stock issued as a result of such vesting. The General Partner has authorized and reserved a total number of shares equal to 10.0% of the total number of issued and outstanding shares of Common Stock (on a fully diluted basis assuming the redemption of all OP Units for shares of Common Stock) to be issued at any time under the Equity Plan for equity incentive awards.

As of December 31, 2020, the General Partner had cumulatively awarded under its Equity Plan approximately 3.6 million shares of Common Stock, which was comprised of 0.8 million Restricted Shares, net of the forfeiture of 0.7 million Restricted Shares through that date, 1.5 million restricted stock units (“Restricted Stock Units”), net of the forfeiture/cancellation of 0.4 million Restricted Stock Units through that date, 0.2 million deferred stock units (“Deferred Stock Units”), and 1.1 million stock options (“Stock Options”), net of forfeiture/cancellation of 0.1 million Stock Options through that date. Accordingly, as of such date, approximately 20.4 million additional shares were available for future issuance, excluding the effect of the 1.1 million Stock Options. As of December 31, 2020, a total of 9,000 shares were awarded under the non-executive director restricted share plan out of the 19,800 shares reserved for issuance.

F-47

VEREIT, INC. and VEREIT OPERATING PARTNERSHIP, L.P.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

December 31, 2020 – (Continued)

Restricted Shares

The Company issued Restricted Shares to certain employees and non-executive directors beginning in 2011. In addition, the Company issued Restricted Shares to employees of affiliates of the Former Manager prior to 2015. The fair value of the Restricted Shares granted to employees under the Equity Plan is generally determined using the closing stock price on the grant date and is expensed over the requisite service period on a straight-line basis. The fair value of Restricted Shares granted to non-executive directors and employees of affiliates of the Former Manager under the Equity Plan was measured based upon the fair value of goods or services received or the equity instruments granted, whichever was more reliably determinable, and was expensed in full at the date of grant.

During the years ended December 31, 2019 and 2018, the Company recorded $0.1 million and $0.6 million, respectively, of compensation expense related to the Restricted Shares. During the year ended December 31, 2019, all Restricted Shares vested. As such, there was no further unrecognized compensation expense or activity related to the Restricted Shares.

Time-Based Restricted Stock Units

Under the Equity Plan, the Company may award Restricted Stock Units to employees that will vest if the recipient maintains employment over the requisite service period (the “Time-Based Restricted Stock Units”). The fair value of the Time-Based Restricted Stock Units granted to employees under the Equity Plan is generally determined using the closing stock price on the grant date and is expensed over the requisite service period on a straight-line basis, which is generally three years. During the year ended December 31, 2020, the Company recorded $5.6 million of compensation expense related to Time-Based Restricted Stock Units. During each of the years ended December 31, 2019 and 2018, the Company recorded $5.1 million of such expenses. During the year ended December 31, 2019, this includes compensation expense attributable to awards for which the requisite service period begins prior to the assumed future grant date. As of December 31, 2020, there was $7.5 million of unrecognized compensation expense related to the Time-Based Restricted Stock Units with a weighted-average remaining term of 2.2 years.

The following table details the activity of the Time-Based Restricted Stock Units during the year ended December 31, 2020.

	Time-Based Restricted Stock Units			Weighted-Average Grant Date Fair Value
Unvested units, December 31, 2019		250,320		$	38.66
Granted		155,622			48.20
Vested		(119,107	)		39.10
Forfeited		(2,938	)		43.92
Unvested units, December 31, 2020		283,897		$	43.65

Deferred Stock Units

The Company may award Deferred Stock Units to non-executive directors under the Equity Plan. Each Deferred Stock Unit represents the right to receive one share of Common Stock. The Deferred Stock Units provide for immediate vesting on the grant date and will be settled with Common Stock either on the earlier of the date on which the respective director separates from the Company, dies or the third anniversary of the grant date, or if granted pursuant to the director’s voluntary election to participate in the director’s deferred compensation program, on the date the director separates from the Company (or upon a change of control or death). The fair value of the Deferred Stock Units is determined using the closing stock price on the grant date and is expensed over the requisite service period or on the grant date for awards with no requisite service period. During the year ended December 31, 2020, the Company recorded $1.1 million of expense related to Deferred Stock Units. During each of the years ended December 31, 2019 and 2018, the Company recorded approximately $1.2 million of such expenses. As of December 31, 2020, there is no unrecognized compensation expense related to the Deferred Stock Units.

F-48

VEREIT, INC. and VEREIT OPERATING PARTNERSHIP, L.P.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

December 31, 2020 – (Continued)

The following table details the activity of the Deferred Stock Units during the year ended December 31, 2020.

	Deferred Stock Units			Weighted-Average Grant Date Fair Value
Unvested units, December 31, 2019		—		$	—
Granted		44,729			27.92
Vested		(44,729	)		27.92
Forfeited		—			—
Unvested units, December 31, 2020		—		$	—

Long-Term Incentive Awards

The General Partner may award long-term incentive-based Restricted Stock Units (the “LTI Target Awards”) to employees under the Equity Plan. Vesting of the LTI Target Awards is based upon the General Partner’s level of achievement of total stockholder return (“TSR”), including both share price appreciation and Common Stock dividends, as measured equally against a market index and against a peer group generally over a three year period.

The fair value and derived service period of the LTI Target Awards as of their grant date is determined using a Monte Carlo simulation which takes into account multiple input variables that determine the probability of satisfying the required TSR, as outlined in the award agreements. This method requires the input of assumptions, including the future dividend yield, the expected volatility of the Common Stock and the expected volatility of the market index constituents and the peer group. Compensation expense is recognized on a straight-line basis over the requisite service period regardless of whether the necessary TSR is attained, provided that the requisite service condition has been achieved. During the years ended December 31, 2020, 2019 and 2018, the Company recorded $5.3 million, $5.5 million and $5.8 million, respectively, of expense related to the LTI Target Awards. As of December 31, 2020, there was $7.4 million of unrecognized compensation expense related to the LTI Target Awards with a weighted-average remaining term of 2.3 years.

The following table details the activity of the LTI Target Awards during the year ended December 31, 2020.

	LTI Target Awards			Weighted-Average Grant Date Fair Value
Unvested units, December 31, 2019		322,819		$	35.98
Granted		133,644			47.89
Vested		(132,361	)		32.20
Forfeited		(45,177	)		32.53
Unvested units, December 31, 2020		278,925		$	44.03

Stock Options

The General Partner may award Stock Options to employees that will vest if the recipient maintains constant employment through the end of the requisite service period.

The fair value of the Stock Options as of their grant date is determined using the Black-Scholes option pricing model, which requires the input of assumptions including expected terms, expected volatility, dividend yield and risk free rate. Expected term was calculated using the midpoint between the three year cliff vesting period and the 10-year contractual term. Expected volatilities were based on both historical and implied volatilities. The risk-free interest rate was based on zero-coupon yields derived from the U.S. Treasury Constant Maturity yield curve in effect as of the grant date.

The following inputs and assumptions were used to calculate the weighted-average fair values of the options granted at the date of grant as follows:

	February 20, 2019			February 21, 2018
Expected term (in years)		6.5			6.5
Volatility		24.21	%		27.39	%
Dividend yield		7.09	%		7.21	%
Risk-free rate		2.52	%		2.75	%
Grant date fair value	$	3.70		$	3.80

Compensation expense is recognized on a straight-line basis over the service period above. During the years ended December 31, 2020, 2019 and 2018, the Company recorded $1.3 million and $1.2 million and $0.6 million, respectively, of expense related to Stock Options. As of December 31, 2020, there was $0.9 million of unrecognized compensation expense related to Stock Options with a weighted-average remaining term of 1.0 year.

F-49

VEREIT, INC. and VEREIT OPERATING PARTNERSHIP, L.P.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

December 31, 2020 – (Continued)

The following table details the activity of the Stock Options during the year ended December 31, 2020.

	Stock Options			Weighted-Average Exercise Price		Weighted-Average Remaining Contractual Term (Years)		Aggregate Intrinsic Value
Unvested options, December 31, 2019		1,072,406		$	37.85		8.66	$	8,954,271
Granted		—			—		—		—
Exercised		—			—		—		—
Forfeited		(16,020	)		37.80		—		—
Unvested options, December 31, 2020		1,056,386		$	37.85		7.65	$	1,842,198

Note 14 — Discontinued Operations

On November 13, 2017, the Company entered into a purchase and sale agreement (as amended by that certain First Amendment to the Purchase and Sale Agreement, dated as of February 1, 2018, the “Cole Capital Purchase and Sale Agreement”). On February 1, 2018, the Company completed the sale of its investment management segment, Cole Capital, under the terms of the Cole Capital Purchase and Sale Agreement. Substantially all of the Cole Capital segment operations were conducted through Cole Capital Advisors, Inc. (“CCA”), an Arizona corporation and a wholly owned subsidiary of the OP. The OP sold all of the issued and outstanding shares of common stock of CCA and certain of CCA’s subsidiaries to the Cole Purchaser, an affiliate of CIM Group, LLC for approximately $120.0 million paid in cash at closing. The Company could also earn up to an aggregate of $80.0 million of Net Revenue Payments in each calendar year through December 31, 2023 if future revenues of Cole Capital exceed a specified dollar threshold in a calendar year. There were no Net Revenue Payments received or earned since the sale. Substantially all of the Cole Capital segment financial results are reflected in the financial statements as discontinued operations. There were no discontinued operations or cash flows for the years ended December 31, 2020 or 2019. There were also no assets and liabilities related to discontinued operations as of December 31, 2020, 2019 or 2018.

The following is a summary of the financial information for discontinued operations for the year ended December 31, 2018 (in thousands):

	2018
Revenues:
Offering-related fees and reimbursements	$	1,027
Transaction service fees and reimbursements		334
Management fees and reimbursements		6,452
Total revenues		7,813
Operating expenses:
Cole Capital reallowed fees and commissions		602
Transaction costs ⁽¹⁾		(654	)
General and administrative		4,450
Total operating expenses		4,398
Loss on disposition and assets held for sale		(1,815	)
Income before taxes		1,600
Benefit from income taxes		2,095
Income from discontinued operations, net of income taxes	$	3,695

(1)

The negative balance for the year ended December 31, 2018 is a result of estimated costs accrued in prior periods that exceeded actual expenses incurred.

F-50

VEREIT, INC. and VEREIT OPERATING PARTNERSHIP, L.P.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

December 31, 2020 – (Continued)

The following is a summary of cash flows related to discontinued operations for the year ended December 31, 2018 (in thousands):

	2018
Cash flows related to discontinued operations:
Cash flows used in operating activities	$	(10,468	)
Cash flows from investing activities	$	122,915

Income Taxes

Cole Capital’s business, substantially all of which was conducted through a TRS, recognized a tax benefit of $2.1 million for the year ended December 31, 2018. There were no related benefits or provisions for the years ended December 31, 2020 or 2019.

The following table presents the reconciliation of the (benefit from) provision for income taxes with the amount computed by applying the statutory federal income tax rate to income (loss) before income taxes for the year ended December 31, 2018 (in thousands):

	2018
Income before taxes	$	1,600
Less: Income from non-taxable entities		(685	)
Income attributable to taxable subsidiaries before income taxes	$	915

Federal benefit from income taxes at statutory rate		192
Nondeductible portion of transaction costs and loss recognized on classification as held for sale		(719	)
Impact of valuation allowance		(1,158	)
State income taxes and other		(410	)
Total benefit from income taxes - Cole Capital	$	(2,095	)

The following table presents the components of the benefit from income taxes for the year ended December 31, 2018 (in thousands):

	2018
Current
Federal	$	(74	)
State		(166	)
Total current benefit from income taxes		(240	)
Deferred
Federal		(1,756	)
State		(99	)
Total deferred benefit from income taxes		(1,855	)
Total benefit from income taxes - Cole Capital	$	(2,095	)

F-51

VEREIT, INC. and VEREIT OPERATING PARTNERSHIP, L.P.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

December 31, 2020 – (Continued)

Note 15 – Related Party Transactions and Arrangements

Cole Capital

Through February 1, 2018, the Company was contractually responsible for managing the CCIT II, CCIT III, CCPT V, CIM Real Estate Finance Trust, Inc. (formerly known as Cole Credit Property Trust IV, Inc.) (“CCPT IV” and, collectively with CCIT III and CCPT V, the “CMFT REITs”) and CIM Income NAV, Inc. (formerly known as Cole Real Estate Income Strategy (Daily NAV), Inc.) (“INAV” and, collectively with the CMFT REITs and CCIT II, the “Cole REITs”) affairs on a day-to-day basis, identifying and making acquisitions and investments on the Cole REITs’ behalf, and recommending to the respective board of directors of each of the Cole REITs an approach for providing investors with liquidity. In addition, the Company was responsible for raising capital for certain Cole REITs, advised them regarding offerings, managed relationships with participating broker-dealers and financial advisors, and provided assistance in connection with compliance matters relating to the offerings. The Company received compensation and reimbursement for services relating to the Cole REITs’ offerings and the investment, management and disposition of their respective assets, as applicable. As discussed in Note 14 —Discontinued Operations, on February 1, 2018, the Company completed the sale of Cole Capital. The Cole Capital financial results are reflected in the consolidated statements of operations as discontinued operations for all periods presented. As a result of the sale of Cole Capital, the Cole REITs are no longer affiliated with the Company.

During the year ended December 31, 2018, the Company earned $8.0 million, respectively of offering-related, transaction services and management fees and reimbursements from the Cole REITs. No such fees were earned during the years ended December 31, 2020 and 2019.

Investment in the Retained REITs

On February 1, 2018, the Company sold certain of its equity investments, recognizing a gain of $0.6 million, which is included in other income, net in the accompanying consolidated statement of operations for the year ended December 31, 2018, to the Cole Purchaser. As of December 31, 2020 and December 31, 2019, the Company owned aggregate equity investments of $7.3 million and $7.6 million, respectively, in CCIT II and CMFT. During each of the years ended December 31, 2020 and 2019, the Company recognized a loss of $0.3 million related to the change in fair value, which is included in other income, net in the accompanying consolidated statements of operations. During the year ended December 31, 2018, the Company recognized a $5.1 million gain from measuring its equity investments at fair value after the investments were no longer accounted for using the equity method, which is included in other income, net in the accompanying consolidated statements of operations.

Note 16 – Net Income (Loss) Per Share/Unit

Net Income (Loss) Per Share

With respect to the years ended December 31, 2019 and 2018, the General Partner’s unvested Restricted Shares contained non-forfeitable rights to dividends and were considered to be participating securities in accordance with U.S. GAAP and, therefore, were included in the computation of earnings per share under the two-class computation method. With respect to the year ended December 31, 2020, there were no unvested restricted shares. Under the two-class computation method, net losses are not allocated to participating securities unless the holder of the security has a contractual obligation to share in the losses. The unvested Restricted Shares were not allocated losses as the awards did not have a contractual obligation to share in losses of the General Partner. The two-class computation method is an earnings allocation formula that determines earnings per share for each class of shares of Common Stock and participating securities according to dividends declared (or accumulated) and participation rights in undistributed earnings.

F-52

VEREIT, INC. and VEREIT OPERATING PARTNERSHIP, L.P.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

December 31, 2020 – (Continued)

The following is a summary of the basic and diluted net income (loss) per share computation for the General Partner for the years ended December 31, 2020, 2019 and 2018 (dollar amounts in thousands):

	Year Ended December 31,
	2020			2019			2018
Income (loss) from continuing operations	$	201,219		$	(307,106	)	$	(91,725	)
(Income) loss from continuing operations attributable to non-controlling interests		(91	)		6,753			2,344
Net income (loss) attributable to the General Partner		201,128			(300,353	)		(89,381	)
Dividends to preferred shares and units		(44,590	)		(68,488	)		(71,892	)
Net income (loss) from continuing operations available to the General Partner		156,538			(368,841	)		(161,273	)
Earnings allocated to participating securities		—			—			(42	)
Income from discontinued operations, net of income taxes		—			—			3,695
Income from discontinued operations attributable to limited partners		—			—			(88	)
Net income (loss) available to common stockholders used in basic net income per share		156,538			(368,841	)		(157,708	)
Income attributable to limited partners		150			—			—
Net income (loss) used in diluted net income per share	$	156,688		$	(368,841	)	$	(157,708	)

Weighted average number of Common Stock outstanding - basic		217,548,175			199,627,994			193,818,454
Effect of Limited Partner OP Units and dilutive securities		313,830			—			—
Weighted average number of common shares - diluted		217,862,005			199,627,994			193,818,454

Basic and diluted net income (loss) per share from continuing operations attributable to common stockholders	$	0.72		$	(1.85	)	$	(0.83	)
Basic and diluted net income per share from discontinued operations attributable to common stockholders	$	—		$	—		$	0.02
Basic and diluted net income (loss) per share attributable to common stockholders	$	0.72		$	(1.85	)	$	(0.81	)

The following were excluded from diluted net income (loss) per share attributable to common stockholders, as the effect would have been antidilutive:

	Year Ended December 31,
	2020		2019		2018
Weighted average unvested Restricted Shares and Restricted Stock Units⁽¹⁾		—		318,810		84,074
Weighted average stock options ⁽¹⁾		—		104,052		—
Weighted average Limited Partner OP Units		—		3,596,102		4,745,101

(1)

Net of assumed repurchases in accordance with the treasury stock method.

Net Income (Loss) Per Unit

The following is a summary of the basic and diluted net income (loss) per unit attributable to common unitholders, which includes all common General Partner unitholders and limited partner unitholders, for the years ended December 31, 2020, 2019 and 2018 (dollar amounts in thousands):

	Year Ended December 31,
	2020			2019			2018
Income (loss) from continuing operations	$	201,219		$	(307,106	)	$	(91,725	)
Loss from continuing operations attributable to non-controlling interests		59			102			154
Net income (loss) attributable to the Operating Partnership		201,278			(307,004	)	$	(91,571	)
Dividends to preferred units		(44,590	)		(68,488	)		(71,892	)
Net income (loss) from continuing operations available to the Operating Partnership		156,688			(375,492	)		(163,463	)
Earnings allocated to participating units		—			—			(42	)
Income from discontinued operations, net of income taxes		—			—			3,695
Net income (loss) used in basic and diluted net income per unit	$	156,688		$	(375,492	)	$	(159,810	)

Weighted average number of common units outstanding - basic		217,703,031			203,224,097			198,563,555
Effect of dilutive securities		158,974			—			—
Weighted average number of common units - diluted		217,862,005			203,224,097			198,563,555

Basic and diluted net income (loss) per unit from continuing operations attributable to common unitholders	$	0.72		$	(1.85	)	$	(0.83	)
Basic and diluted net income per unit from discontinued operations attributable to common unitholders	$	—		$	—		$	0.02
Basic and diluted net income (loss) per unit attributable to common unitholders	$	0.72		$	(1.85	)	$	(0.81	)

F-53

VEREIT, INC. and VEREIT OPERATING PARTNERSHIP, L.P.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

December 31, 2020 – (Continued)

The following were excluded from diluted net income (loss) per unit attributable to common unitholders, as the effect would have been antidilutive:

	Year Ended December 31,
	2020		2019		2018
Weighted average unvested Restricted Shares and Restricted Stock Units⁽¹⁾		—		318,810		84,074
Weighted average stock options ⁽¹⁾		—		104,052		—

(1)

Net of assumed repurchases in accordance with the treasury stock method.

Note 17 – Quarterly Results (Unaudited)

Presented below is a summary of the unaudited quarterly financial information for the year ended December 31, 2020 for the General Partner (in thousands, except share and per share amounts):

	Quarters Ended
	March 31, 2020		June 30, 2020		September 30, 2020		December 31, 2020
Total revenues	$	299,182	$	278,997	$	295,278	$	287,909
Net income (loss)		86,863		54,239		97,983		(37,866	)
Net income (loss) attributable to the General Partner		86,808		54,208		97,932		(37,820	)
Basic and dilutive net income (loss) per share attributable to common stockholders ⁽¹⁾	$	0.34	$	0.19	$	0.40	$	(0.21	)

(1)

The sum of the quarterly net income (loss) per share amounts may not agree to the full year net income (loss) per share amounts. The Company calculates net income (loss) per share based on the weighted-average number of outstanding shares of Common Stock during the reporting period. The average number of shares fluctuates throughout the year and can therefore produce a full year result that does not agree to the sum of the individual quarters.

Presented below is a summary of the unaudited quarterly financial information for the year ended December 31, 2020 for the OP (in thousands, except share and per share amounts):

	Quarters Ended
	March 31, 2020		June 30, 2020		September 30, 2020		December 31, 2020
Total revenues	$	299,182	$	278,997	$	295,278	$	287,909
Net income (loss)		86,863		54,239		97,983		(37,866	)
Net income (loss) attributable to the OP		86,870		54,247		97,997		(37,836	)
Basic and dilutive net income (loss) per unit attributable to common unitholders ⁽¹⁾	$	0.34	$	0.19	$	0.40	$	(0.21	)

(1)

The sum of the quarterly net income (loss) per unit amounts may not agree to the full year net income (loss) per unit amounts. The Company calculates net income (loss) per unit based on the weighted-average number of outstanding units during the reporting period. The average number of units fluctuates throughout the year and can therefore produce a full year result that does not agree to the sum of the individual quarters.

F-54

VEREIT, INC. and VEREIT OPERATING PARTNERSHIP, L.P.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

December 31, 2020 – (Continued)

Presented below is a summary of the unaudited quarterly financial information for the year ended December 31, 2019 for the General Partner (in thousands, except share and per share amounts):

	Quarters Ended
	March 31, 2019		June 30, 2019		September 30, 2019			December 31, 2019
Total revenues ⁽¹⁾	$	316,880	$	312,188	$	303,301		$	305,685
Net income (loss)		70,971		292,284		(741,529	)		71,168
Net income (loss) attributable to the General Partner		69,304		285,658		(726,440	)		71,125
Basic and dilutive net income (loss) per share attributable to common stockholders ⁽²⁾	$	0.27	$	1.37	$	(3.79	)	$	0.26

(1)

Includes the fees from managed partnerships to be consistent with the current year presentation.

(2)

Presented below is a summary of the unaudited quarterly financial information for the year ended December 31, 2019 for the OP (in thousands, except share and per share amounts):

	Quarters Ended
	March 31, 2019		June 30, 2019		September 30, 2019			December 31, 2019
Total revenues ⁽¹⁾	$	316,880	$	312,188	$	303,301		$	305,685
Net income (loss)		70,971		292,284		(741,529	)		71,168
Net income (loss) attributable to the OP		70,999		292,314		(741,504	)		71,187
Basic and dilutive net income (loss) per unit attributable to common unitholders ⁽²⁾	$	0.27	$	1.37	$	(3.79	)	$	0.26

(1)

Includes the fees from managed partnerships to be consistent with the current year presentation.

(2)

Note 18 – Subsequent Events

Common Stock Dividend

On February 23, 2021, the Company’s Board of Directors declared a quarterly cash dividend of $0.462 per share of Common Stock (equaling an annualized dividend rate of $1.848 per share) for the first quarter of 2021 to stockholders of record as of March 31, 2021, which will be paid on April 15, 2021. An equivalent distribution by the Operating Partnership is applicable per OP Unit.

Preferred Stock Dividend

On February 23, 2021, the Company’s Board of Directors declared a monthly cash dividend to holders of the Series F Preferred Stock for April 2021 through June 2021 with respect to the periods included in the table below. The corresponding record and payment dates for each month's Series F Preferred Stock dividend are also shown in the table below. The dividend for the Series F Preferred Stock accrues daily on a 360-day annual basis equal to an annualized dividend rate of $1.675 per share, or $0.1395833 per 30-day month.

Period	Record Date	Payment Date
March 15, 2021 - April 14, 2021	April 1, 2021	April 15, 2021
April 15, 2021 - May 14, 2021	May 1, 2021	May 17, 2021
May 15, 2021 - June 14, 2021	June 1, 2021	June 15, 2021

F-55

VEREIT, INC. AND VEREIT OPERATING PARTNERSHIP, L.P.

SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS

December 31, 2020 – (in thousands)

Schedule II – Valuation and Qualifying Accounts

The following is the analysis of Valuation and Qualifying Accounts for the years ended years ended December 31, 2019 and 2018. There were no similar amounts for the year ended December 31, 2020.

Description	Balance at Beginning of Year			Additions			Deductions			Balance at End of Year
Year Ended December 31, 2019
Allowance for doubtful accounts	$	6,309		$	—		$	(6,309	)⁽¹⁾	$	—
Total	$	6,309		$	—		$	(6,309	)	$	—
Year Ended December 31, 2018
Reserve for program development costs ⁽²⁾	$	7,632		$	651	⁽³⁾	$	(8,283	)	$	—
Allowance for doubtful accounts and other reserves		12,683	⁽⁴⁾		2,531			(8,905	)		6,309
Unsecured note reserve		15,300			—			(15,300	)		—
Total	$	35,615		$	3,182		$	(32,488	)	$	6,309

(1)

Upon adoption of ASC 842, the Company recognizes all changes in the collectability assessment for an operating lease as an adjustment to rental revenue and does not record an allowance for uncollectable accounts.

(2)

Classified as discontinued operations.

(3)

Represents additions to the reserve during the period from January 1, 2018 through January 31, 2018, prior to the sale of Cole Capital.

(4)

Includes $1.0 million classified as discontinued operations.

F-56

VEREIT, INC. AND VEREIT OPERATING PARTNERSHIP, L.P.

SCHEDULE III - REAL ESTATE AND ACCUMULATED DEPRECIATION

December 31, 2020 – (in thousands)

Schedule III – Real Estate and Accumulated Depreciation

Initial Costs ⁽²⁾

Industry Number of
Properties
Encumbrances at

December 31
, 2020 ⁽¹⁾
Land Buildings,
Fixtures and
Improvements Costs Capitalized
Subsequent to
Acquisition ⁽³⁾
Gross Amount

Carried at

December 31, 2020
^(4) (5)
Accumulated
Depreciation ^(4) (6) Date Acquired Date of
Construction

Administration & Support Services 3 $ — $ 6,537 $ 35,797 $ (4,501 ) $ 37,833 $ (7,967 ) 9/28/2012 - 7/2/2014 1954 - 1986

Agricultural 2 — 1,727 13,422 — 15,149 (4,280 ) 11/5/2013 - 2/7/2014 2005 - 2009

Education 3 — 3,170 22,706 (3,435 ) 22,441 (4,739 ) 11/5/2013 - 2/7/2014 1997 - 2000

Entertainment & Recreation 38 4,749 100,708 356,032 2,048 458,788 (63,432 ) 9/24/2013 - 2/3/2020 1979 - 2019

Finance 149 128,114 88,122 360,180 (10,518 ) 437,784 (112,279 ) 8/1/2010 - 2/7/2014 1880 - 2009

Government & Public Services 7 2,600 4,587 38,090 (2,244 ) 40,433 (12,387 ) 12/13/2011 - 6/12/2014 1988 - 2011

Healthcare 6 17,751 15,368 107,840 3,072 126,280 (46,970 ) 11/21/2012 - 9/30/2014 1980 - 2014

Information & Communication 4 10,367 5,652 56,729 4,076 66,457 (18,827 ) 6/27/2013 - 9/24/2014 1986 - 2002

Insurance 7 58,798 29,184 236,424 3,772 269,380 (64,530 ) 11/5/2013 - 2/7/2014 2007 - 2012

Logistics 44 26,100 50,877 299,486 29,358 379,721 (123,707 ) 9/27/2011 - 5/8/2015 1986 - 2013

Manufacturing 48 150,748 92,446 946,216 (18,831 ) 1,019,831 (255,355 ) 4/25/2012 - 11/24/2020 1950 - 2020

Mining & Natural Resources 4 — 1,727 14,644 (2,858 ) 13,513 (3,013 ) 6/12/2014 - 9/25/2014 2012 - 2014

Other Services 2 — 2,937 30,794 (987 ) 32,744 (6,645 ) 11/5/2013 - 10/9/2018 2014 - 2018

Professional Services 33 97,217 47,520 358,603 8,713 414,836 (122,043 ) 11/16/2012 - 6/30/2014 1951 - 2014

Rental 56 — 25,044 77,794 (626 ) 102,212 (19,145 ) 2/7/2014 - 12/30/2020 1960 - 2009

Restaurants - Casual Dining 545 30,860 406,606 936,599 (18,142 ) 1,325,063 (291,230 ) 11/13/2012 - 6/26/2017 1965 - 2012

Restaurants - Quick Service 891 — 412,840 803,854 (37,032 ) 1,179,662 (277,662 ) 7/27/2012 - 5/16/2014 1926 - 2013

Retail - Apparel & Jewelry 11 45,872 20,420 161,347 — 181,767 (51,647 ) 5/17/2013 - 11/10/2020 1980 - 2020

Retail - Department Stores 12 7,705 28,136 77,084 304 105,524 (22,311 ) 3/28/2013 - 7/16/2014 1982 - 2011

Retail - Discount 810 81,232 201,144 711,594 49,993 962,731 (240,707 ) 10/31/2011 - 12/21/2018 1940 - 2019

Retail - Electronics & Appliances 12 — 26,192 93,769 5,029 124,990 (20,429 ) 2/7/2014 - 12/18/2019 1991 - 2012

Retail - Gas & Convenience 175 — 107,424 258,729 (852 ) 365,301 (76,670 ) 5/4/2012 - 10/15/2020 1922 - 2016

Retail - Grocery & Supermarket 65 69,243 109,371 437,514 551 547,436 (128,939 ) 9/27/2012 - 7/17/2019 1965 - 2018

Retail - Hobby, Books & Music 11 — 24,569 113,995 505 139,069 (14,534 ) 2/7/2014 - 6/20/2019 1986 - 2014

F-57


Industry	Number of Properties		Encumbrances at December 31, 2020 ⁽¹⁾		Land		Buildings, Fixtures and Improvements		Costs Capitalized Subsequent to Acquisition ⁽³⁾			Gross Amount Carried at December 31, 2020 ^{(4) (5)}		Accumulated Depreciation ^(4) (6)		Date Acquired	Date of Construction
Retail - Home & Garden	105		76,815		187,171		508,529		3,545			699,245		(132,185	)	11/9/2009 - 12/23/2020	1960 - 2018
Retail - Home Furnishings	51		1,194		78,530		225,249		(4,828	)		298,951		(25,843	)	9/26/2012 - 12/23/2020	1964 - 2020
Retail - Internet	1		40,800		1,995		54,332		—			56,327		(15,984	)	2/7/2014	2011
Retail - Medical Services	58		6,615		16,817		103,492		(2,846	)		117,463		(30,681	)	8/1/2010 - 9/30/2014	1955 - 2013
Retail - Motor Vehicle	228		21,630		107,294		483,183		3,360			593,837		(155,326	)	9/30/2011 - 3/13/2020	1961 - 2018
Retail - Office Supply	2		—		2,698		5,806		—			8,504		(1,664	)	2/7/2014	2010 - 2012
Retail - Pet Supply	16		51,250		30,025		166,076		751			196,852		(42,694	)	2/7/2014 - 1/5/2018	1996 - 2017
Retail - Pharmacy	196		196,141		202,670		671,059		(22,469	)		851,260		(223,869	)	10/5/2011 - 6/24/2014	1980 - 2013
Retail - Specialty (Other)	8		1,454		8,390		38,788		797			47,975		(13,383	)	4/19/2013 - 6/26/2014	2010 - 2014
Retail - Sporting Goods	27		12,255		62,693		241,454		55			304,202		(47,748	)	7/31/2012 - 12/23/2020	1988 - 2020
Retail - Warehouse Clubs	15		74,897		64,195		232,949		407			297,551		(65,057	)	2/20/2013 - 2/7/2014	1989 - 2006
Other ⁽⁷⁾	150		91,038		168,741		779,435		(58,123	)		890,053		(176,252	)	8/1/2010 - 12/10/2020	1818 - 2017
	3,795	$	1,305,445	$	2,743,527	$	10,059,594	$	(71,956	)	$	12,731,165	$	(2,920,134	)

(1)

Excludes a $27.8 million mortgage loan secured by a property classified as held for sale, which will not be transferred to the buyer in the sale transaction .

(2)

Initial costs exclude subsequent impairment charges.

(3)

Consists of capital expenditures and real estate development costs, net of condemnations, easements and impairment charges.

(4)

Gross intangible lease assets of $1.9 billion and the associated accumulated amortization of $943.6 million are not reflected in the table above.

(5)

The aggregate cost for Federal income tax purposes of land, buildings, fixtures and improvements as of December 31, 2020 was $13.4 billion.

(6)

Depreciation is computed using the straight-line method over the estimated useful lives of up to 40 years for buildings and five to 15 years for building fixtures and improvements.

(7)

Includes eight anchored shopping centers and 20 properties with tenants in multiple industries.

F-58

The following is a reconciliation of the gross real estate activity for the years ended December 31, 2020, 2019 and 2018 (in thousands):

	Year Ended December 31,
	2020			2019			2018
Balance, beginning of year	$	12,939,229		$	13,592,440		$	13,577,700
Additions:
Acquisitions		275,581			351,135			437,227
Improvements		31,314			56,446			31,898
Deductions/Other:
Dispositions		(340,290	)		(947,403	)		(368,808	)
Impairments		(102,941	)		(81,078	)		(84,278	)
Reclassified to assets held for sale		(71,481	)		(33,724	)		(2,997	)
Other		(247	)		1,413			1,698
Balance, end of year	$	12,731,165		$	12,939,229		$	13,592,440

F-59

The following is a reconciliation of the accumulated depreciation for the years ended December 31, 2020, 2019 and 2018 (in thousands):

	Year Ended December 31,
	2020			2019			2018
Balance, beginning of year	$	2,727,099		$	2,622,879		$	2,217,108
Additions:
Depreciation expense		318,535			352,531			497,511
Deductions/Other:
Dispositions		(65,930	)		(201,319	)		(57,346	)
Impairments		(42,346	)		(34,847	)		(32,147	)
Reclassified to assets held for sale		(15,652	)		(7,602	)		(400	)
Other		(1,572	)		(4,543	)		(1,847	)
Balance, end of year	$	2,920,134		$	2,727,099		$	2,622,879

F-60

VEREIT, INC. AND VEREIT OPERATING PARTNERSHIP, L.P.

SCHEDULE IV - MORTGAGE LOANS ON REAL ESTATE

December 31, 2020 – (in thousands)

Schedule IV – Mortgage Loans on Real Estate

	Year Ended December 31,
	2020			2019			2018
Beginning Balance	$	—		$	10,164		$	20,294
Additions during the year:
Investment in Mezzanine position ⁽¹⁾		9,959			—			—
Deductions during the year:
Sale of loan investments		—			(9,946	)		(8,256	)
Principal payments received on loan investments		(9,959	)		(106	)		(897	)
Amortization of unearned discounts and premiums		—			(19	)		15
Valuation allowance		—			(93	)		(992	)
Ending Balance	$	—		$	—		$	10,164

(1)

During the year ended December 31, 2020, the Company entered into a Mezzanine position for two last-mile distribution facilities for $10.0 million, which was subsequently repaid in full.

F-61

Exhibit 99.2

VEREIT, INC.

CONSOLIDATED BALANCE SHEETS

(In thousands, except for share and per share data) (Unaudited)

PART I — FINANCIAL INFORMATION

Item 1. Unaudited Financial Statements

	March 31, 2021			December 31, 2020
ASSETS
Real estate investments, at cost:
Land	$	2,698,232		$	2,699,110
Buildings, fixtures and improvements		9,941,903			10,032,055
Intangible lease assets		1,883,826			1,872,461
Total real estate investments, at cost		14,523,961			14,603,626
Less: accumulated depreciation and amortization		3,861,411			3,833,084
Total real estate investments, net		10,662,550			10,770,542
Operating lease right-of-use assets		191,443			195,518
Investment in unconsolidated entities		80,513			81,639
Cash and cash equivalents		318,561			523,539
Restricted cash		12,704			13,842
Rent and tenant receivables and other assets, net		368,926			366,620
Goodwill		1,337,773			1,337,773
Real estate assets held for sale, net		4,888			65,583
Total assets	$	12,977,358		$	13,355,056

LIABILITIES AND EQUITY
Mortgage notes payable, net	$	1,035,328		$	1,328,835
Corporate bonds, net		4,586,252			4,584,230
Below-market lease liabilities, net		117,121			120,938
Accounts payable and accrued expenses		116,486			117,015
Deferred rent and other liabilities		62,944			63,204
Distributions payable		106,989			89,514
Operating lease liabilities		202,024			209,104
Total liabilities		6,227,144			6,512,840
Commitments and contingencies (Note 10)
Preferred stock, $0.01 par value, 100,000,000 shares authorized and 14,871,246 and 18,871,246 issued and outstanding as of March 31, 2021 and December 31, 2020, respectively		149			189
Common stock, $0.01 par value, 1,500,000,000 shares authorized and 229,129,954 and 228,881,547 issued and outstanding as of March 31, 2021 and December 31, 2020, respectively		2,291			2,289
Additional paid-in capital		13,350,661			13,449,412
Accumulated other comprehensive income		634			536
Accumulated deficit		(6,610,678	)		(6,617,380	)
Total stockholders’ equity		6,743,057			6,835,046
Non-controlling interests		7,157			7,170
Total equity		6,750,214			6,842,216
Total liabilities and equity	$	12,977,358		$	13,355,056

The accompanying notes are an integral part of these statements.

VEREIT, INC.

CONSOLIDATED STATEMENTS OF OPERATIONS

(In thousands, except for per share data) (Unaudited)

	Three Months Ended March 31,
	2021			2020
Revenues:
Rental	$	290,309		$	298,586
Fees from managed partnerships		500			596
Total revenues		290,809			299,182
Operating expenses:
Acquisition-related		1,354			1,523
Litigation and non-routine costs, net		68			(8,564	)
Property operating		30,605			30,490
General and administrative		14,526			15,056
Depreciation and amortization		108,075			124,080
Impairments		31,849			8,380
Total operating expenses		186,477			170,965
Other income (expenses):
Interest expense		(60,736	)		(64,696	)
Loss on extinguishment and forgiveness of debt, net		(2,132	)		(1,280	)
Other income, net		3,666			175
Equity in income of unconsolidated entities		447			246
Gain on disposition of real estate and real estate assets held for sale, net		76,074			25,249
Total other income (expenses), net		17,319			(40,306	)
Income before taxes		121,651			87,911
Provision for income taxes		(928	)		(1,048	)
Net income		120,723			86,863
Net income attributable to non-controlling interests ⁽¹⁾		(76	)		(55	)
Net income attributable to the General Partner	$	120,647		$	86,808

Basic and diluted net income per share attributable to common stockholders	$	0.50		$	0.34

(1)

Represents net income attributable to limited partners and a consolidated joint venture partner.

The accompanying notes are an integral part of these statements.

VEREIT, INC.

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)

(In thousands) (Unaudited)

	Three Months Ended March 31,
		2021			2020
Net income	$	120,723		$	86,863
Total other comprehensive income (loss)
Unrealized gain (loss) on interest rate derivatives		—			(78,550	)
Reclassification of previous unrealized loss on interest rate derivatives into net income		98			1,948
Total other comprehensive income (loss)		98			(76,602	)

Total comprehensive income		120,821			10,261
Comprehensive (income) loss attributable to non-controlling interests ⁽¹⁾		(76	)		—
Total comprehensive income attributable to the General Partner	$	120,745		$	10,261

(1)

Represents comprehensive (income) loss attributable to limited partners and a consolidated joint venture partner.

The accompanying notes are an integral part of these statements.

VEREIT, INC.

CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY

(In thousands, except for share data) (Unaudited)

	Preferred Stock					Common Stock
	Number of Shares			Par Value		Number of Shares			Par Value		Additional Paid-In Capital			Accumulated Other Comprehensive Income		Accumulated Deficit			Total Stock- holders’ Equity			Non- Controlling Interests			Total Equity
Balance, January 1, 2021	18,871,246		$	189		228,881,547		$	2,289	$	13,449,412		$	536	$	(6,617,380	)	$	6,835,046		$	7,170		$	6,842,216
Issuance of Common Stock, net	—			—		35,710			—		—			—		—			—			—			—
Redemption of Series F Preferred Stock	(4,000,000	)		(40	)	—			—		(99,960	)		—		—			(100,000	)		—			(100,000	)
Repurchases of Common Stock to settle tax obligation	—			—		(49,237	)		—		(1,681	)		—		—			(1,681	)		—			(1,681	)
Equity-based compensation, net	—			—		261,934			2		2,890			—		—			2,892			—			2,892
Distributions declared on Common Stock — $0.4620 per common share	—			—		—			—		—			—		(105,858	)		(105,858	)		—			(105,858	)
Distributions to non-controlling interest holders	—			—		—			—		—			—		—			—			(70	)		(70	)
Dividend equivalents on awards granted under the Equity Plan	—			—		—			—		—			—		(1,581	)		(1,581	)		—			(1,581	)
Distributions to preferred shareholders and unitholders	—			—		—			—		—			—		(6,506	)		(6,506	)		(19	)		(6,525	)
Net income	—			—		—			—		—			—		120,647			120,647			76			120,723
Other comprehensive income	—			—		—			—		—			98		—			98			—			98
Balance, March 31, 2021	14,871,246		$	149		229,129,954		$	2,291	$	13,350,661		$	634	$	(6,610,678	)	$	6,743,057		$	7,157		$	6,750,214

	Preferred Stock			Common Stock
	Number of Shares		Par Value	Number of Shares			Par Value		Additional Paid-In Capital			Accumulated Other Comprehensive Income			Accumulated Deficit			Total Stock- holders’ Equity			Non- Controlling Interests			Total Equity
Balance, January 1, 2020	30,871,246	$	309	215,369,197		$	2,153	$	13,260,577		$	(27,670	)	$	(6,372,711	)	$	6,862,658		$	7,535		$	6,870,193
Conversion of OP Units to Common Stock	—		—	910			—		45			—			—			45			(45	)		—
Redemption of Series F Preferred Stock	—		—	—			—		(27	)		—			—			(27	)		—			(27	)
Repurchases of Common Stock to settle tax obligation	—		—	(48,218	)		—		(2,378	)		—			—			(2,378	)		—			(2,378	)
Equity-based compensation, net	—		—	234,408			2		2,853			—			—			2,855			—			2,855
Distributions declared on Common Stock — $0.6875 per common share	—		—	—			—		—			—			(148,194	)		(148,194	)		—			(148,194	)
Distributions to non-controlling interest holders	—		—	—			—		—			—			—			—			(105	)		(105	)
Dividend equivalents on awards granted under the Equity Plan	—		—	—			—		—			—			(1,628	)		(1,628	)		—			(1,628	)
Distributions to preferred shareholders and unitholders	—		—	—			—		—			—			(12,928	)		(12,928	)		(19	)		(12,947	)
Net income	—		—	—			—		—			—			86,808			86,808			55			86,863
Other comprehensive loss	—		—	—			—		—			(76,547	)		—			(76,547	)		(55	)		(76,602	)
Balance, March 31, 2020	30,871,246	$	309	215,556,297		$	2,155	$	13,261,070		$	(104,217	)	$	(6,448,653	)	$	6,710,664		$	7,366		$	6,718,030

The accompanying notes are an integral part of these statements.

VEREIT, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS

(In thousands) (Unaudited)

	Three Months Ended March 31,
	2021			2020
Cash flows from operating activities:
Net income	$	120,723		$	86,863
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization		112,265			126,980
Gain on real estate assets, net		(78,177	)		(25,508	)
Impairments		31,849			8,380
Equity-based compensation		2,892			2,855
Equity in income of unconsolidated entities		(447	)		(246	)
Distributions from unconsolidated entities		447			259
(Gain) loss on other investments		(695	)		541
Loss on extinguishment and forgiveness of debt, net		2,132			1,280
Changes in assets and liabilities:
Investment in direct financing leases		366			364
Rent and tenant receivables, operating lease right-of-use and other assets, net		(2,000	)		(4,462	)
Accounts payable and accrued expenses		(7,019	)		(2,749	)
Deferred rent, operating lease and other liabilities		(2,245	)		(22,546	)
Net cash provided by operating activities		180,091			172,011
Cash flows from investing activities:
Investments in real estate assets		(139,964	)		(147,121	)
Capital expenditures and leasing costs		(4,500	)		(9,502	)
Real estate developments		(3,553	)		(3,231	)
Investments in unconsolidated entities		—			(2,669	)
Return of investment from unconsolidated entities		1,124			257
Proceeds from disposition of real estate		253,503			140,428
Investment in leasehold improvements and other assets		36			(87	)
Deposits for real estate assets		(3,171	)		(895	)
Uses and refunds of deposits for real estate assets		2,454			3,130
Proceeds from the settlement of property-related insurance claims		713			38
Net cash provided by (used in) investing activities		106,642			(19,652	)
Cash flows from financing activities:
Proceeds from mortgage notes payable		—			913
Payments on mortgage notes payable and other debt, including debt extinguishment costs		(295,869	)		(123,574	)
Proceeds from credit facility		—			831,313
Payments on credit facility, including swap termination payments		—			(110,000	)
Extinguishment costs related to the redemption of corporate bonds		—			(26	)
Extinguishment costs related to the repurchases of convertible notes		—			(13	)
Payments of deferred financing costs		(356	)		(35	)
Refunds of deferred financing costs		280			—
Repurchases of Common Stock to settle tax obligations		(1,681	)		(2,378	)
Proceeds from the issuance of Common Stock, net of underwriters’ discount and offering expenses		1,336			—
Redemption of Series F Preferred Stock		(100,000	)		(27	)
Distributions paid		(96,559	)		(162,747	)
Net cash (used in) provided by financing activities		(492,849	)		433,426
Net change in cash and cash equivalents and restricted cash	$	(206,116	)	$	585,785

Cash and cash equivalents and restricted cash, beginning of period	$	537,381		$	33,880

Cash and cash equivalents and restricted cash, end of period	$	331,265		$	619,665

Reconciliation of Cash and Cash Equivalents and Restricted Cash
Cash and cash equivalents at beginning of period	$	523,539		$	12,921
Restricted cash at beginning of period		13,842			20,959
Cash and cash equivalents and restricted cash at beginning of period		537,381			33,880

Cash and cash equivalents at end of period		318,561			600,945
Restricted cash at end of period		12,704			18,720
Cash and cash equivalents and restricted cash at end of period	$	331,265		$	619,665

The accompanying notes are an integral part of these statements.

VEREIT OPERATING PARTNERSHIP, L.P.

CONSOLIDATED BALANCE SHEETS

(In thousands, except for unit data) (Unaudited)

	March 31, 2021		December 31, 2020
ASSETS
Real estate investments, at cost:
Land	$	2,698,232	$	2,699,110
Buildings, fixtures and improvements		9,941,903		10,032,055
Intangible lease assets		1,883,826		1,872,461
Total real estate investments, at cost		14,523,961		14,603,626
Less: accumulated depreciation and amortization		3,861,411		3,833,084
Total real estate investments, net		10,662,550		10,770,542
Operating lease right-of-use assets		191,443		195,518
Investment in unconsolidated entities		80,513		81,639
Cash and cash equivalents		318,561		523,539
Restricted cash		12,704		13,842
Rent and tenant receivables and other assets, net		368,926		366,620
Goodwill		1,337,773		1,337,773
Real estate assets held for sale, net		4,888		65,583
Total assets	$	12,977,358	$	13,355,056

LIABILITIES AND EQUITY
Mortgage notes payable, net	$	1,035,328	$	1,328,835
Corporate bonds, net		4,586,252		4,584,230
Below-market lease liabilities, net		117,121		120,938
Accounts payable and accrued expenses		116,486		117,015
Deferred rent and other liabilities		62,944		63,204
Distributions payable		106,989		89,514
Operating lease liabilities		202,024		209,104
Total liabilities		6,227,144		6,512,840
Commitments and contingencies (Note 10)
General Partner's preferred equity, 14,871,246 and 18,871,246 General Partner Series F Preferred Units issued and outstanding as of March 31, 2021 and December 31, 2020, respectively		147,788		254,294
General Partner's common equity, 229,129,954 and 228,881,547 General Partner OP Units issued and outstanding as of March 31, 2021 and December 31, 2020, respectively		6,595,269		6,580,752
Limited Partner's preferred equity, 49,766 Limited Partner Series F Preferred Units issued and outstanding as of each of March 31, 2021 and December 31, 2020, respectively		1,768		1,787
Limited Partner's common equity, 152,033 Limited Partner OP Units issued and outstanding as of each of March 31, 2021 and December 31, 2020, respectively		4,218		4,209
Total partners’ equity		6,749,043		6,841,042
Non-controlling interests		1,171		1,174
Total equity		6,750,214		6,842,216
Total liabilities and equity	$	12,977,358	$	13,355,056

The accompanying notes are an integral part of these statements.

VEREIT OPERATING PARTNERSHIP, L.P.

CONSOLIDATED STATEMENTS OF OPERATIONS

(In thousands, except for per unit data) (Unaudited)

	Three Months Ended March 31,
	2021		2020
Revenues:
Rental	$	290,309	$	298,586
Fees from managed partnerships	500		596
Total revenues	290,809		299,182
Operating expenses:
Acquisition-related	1,354		1,523
Litigation and non-routine costs, net	68		(8,564)
Property operating	30,605		30,490
General and administrative	14,526		15,056
Depreciation and amortization	108,075		124,080
Impairments	31,849		8,380
Total operating expenses	186,477		170,965
Other income (expense):
Interest expense	(60,736)		(64,696)
Loss on extinguishment and forgiveness of debt, net	(2,132)		(1,280)
Other income, net	3,666		175
Equity in income of unconsolidated entities	447		246
Gain on disposition of real estate and real estate assets held for sale, net	76,074		25,249
Total other income (expense), net	17,319		(40,306)
Income before taxes	121,651		87,911
Provision for income taxes	(928)		(1,048)
Net income	120,723		86,863
Net loss attributable to non-controlling interests ⁽¹⁾	3		7
Net income attributable to the OP	$	120,726	$	86,870

Basic and diluted net income per unit attributable to common unitholders	$	0.50	$	0.34

(1)

Represents net loss attributable to a consolidated joint venture partner.

The accompanying notes are an integral part of these statements.

VEREIT OPERATING PARTNERSHIP, L.P.

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)

(In thousands) (Unaudited)

	Three Months Ended March 31,
	2021		2020
Net income	$	120,723	$	86,863
Total other comprehensive income (loss)
Unrealized gain (loss) on interest rate derivatives	—		(78,550)
Reclassification of previous unrealized loss on interest rate derivatives into net income	98		1,948
Total other comprehensive income (loss)	98		(76,602)

Total comprehensive income	120,821		10,261
Comprehensive loss attributable to non-controlling interests ⁽¹⁾	3		7
Total comprehensive income attributable to the OP	$	120,824	$	10,268

(1)

Represents comprehensive loss attributable to a consolidated joint venture partner.

The accompanying notes are an integral part of these statements.

VEREIT OPERATING PARTNERSHIP, L.P.

CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY

(In thousands, except for unit data) (Unaudited)

	Preferred Units						Common Units
	General Partner			Limited Partner			General Partner			Limited Partner
	Number of Units	Capital		Number of Units	Capital		Number of Units	Capital		Number of Units	Capital		Total Partners' Capital		Non-Controlling Interests		Total Capital
Balance, January 1, 2021	18,871,246	$	254,294	49,766	$	1,787	228,881,547	$	6,580,752	152,033	$	4,209	$	6,841,042	$	1,174	$	6,842,216
Issuance of common OP Units, net	—	—		—	—		35,710	—		—	—		—		—		—
Redemption of Series F Preferred Stock	(4,000,000)	(100,000)		—	—		—	—		—	—		(100,000)		—		(100,000)
Repurchases of common OP Units to settle tax obligation	—	—		—	—		(49,237)	(1,681)		—	—		(1,681)		—		(1,681)
Equity-based compensation, net	—	—		—	—		261,934	2,892		—	—		2,892		—		2,892
Distributions to Common OP Units and non-controlling interests —$0.4620 per common unit	—	—		—	—		—	(105,858)		—	(70)		(105,928)		—		(105,928)
Dividend equivalents on awards granted under the Equity Plan	—	—		—	—		—	(1,581)		—	—		(1,581)		—		(1,581)
Distributions to Series F Preferred Units	—	(6,506)		—	(19)		—	—		—	—		(6,525)		—		(6,525)
Net income (loss)	—	—		—	—		—	120,647		—	79		120,726		(3)		120,723
Other comprehensive income	—	—		—	—		—	98		—	—		98		—		98
Balance, March 31, 2021	14,871,246	$	147,788	49,766	$	1,768	229,129,954	$	6,595,269	152,033	$	4,218	$	6,749,043	$	1,171	$	6,750,214

	Preferred Units						Common Units
	General Partner			Limited Partner			General Partner			Limited Partner
	Number of Units	Capital		Number of Units	Capital		Number of Units	Capital		Number of Units	Capital		Total Partners' Capital		Non-Controlling Interests		Total Capital
Balance, January 1, 2020	30,871,246	$	460,504	49,766	$	1,869	215,369,197	$	6,402,154	157,343	$	4,433	$	6,868,960	$	1,233	$	6,870,193
Conversion of Limited Partners' Common OP Units to General Partner's Common OP Units	—	—		—	—		910	45		(910)	(45)		—		—		—
Redemption of Series F Preferred Stock	—	(27)		—	—		—	—		—	—		(27)		—		(27)
Repurchases of common OP Units to settle tax obligation	—	—		—	—		(48,218)	(2,378)		—	—		(2,378)		—		(2,378)
Equity-based compensation, net	—	—		—	—		234,408	2,855		—	—		2,855		—		2,855
Distributions to Common OP Units and non-controlling interests —$0.6875 per common unit	—	—		—	—		—	(148,194)		—	(105)		(148,299)		—		(148,299)
Dividend equivalents on awards granted under the Equity Plan	—	—		—	—		—	(1,628)		—	—		(1,628)		—		(1,628)
Distributions to Series F Preferred Units	—	(12,928)		—	(19)		—	—		—	—		(12,947)		—		(12,947)
Net income (loss)	—	—		—	—		—	86,808		—	62		86,870		(7)		86,863
Other comprehensive loss	—	—		—	—		—	(76,547)		—	(55)		(76,602)		—		(76,602)
Balance, March 31, 2020	30,871,246	$	447,549	49,766	$	1,850	215,556,297	$	6,263,115	156,433	$	4,290	$	6,716,804	$	1,226	$	6,718,030

The accompanying notes are an integral part of these statements.

VEREIT OPERATING PARTNERSHIP, L.P.

CONSOLIDATED STATEMENTS OF CASH FLOWS

(In thousands) (Unaudited)

	Three Months Ended March 31,
	2021		2020
Cash flows from operating activities:
Net income	$	120,723	$	86,863
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization	112,265		126,980
Gain on real estate assets, net	(78,177)		(25,508)
Impairments	31,849		8,380
Equity-based compensation	2,892		2,855
Equity in income of unconsolidated entities	(447)		(246)
Distributions from unconsolidated entities	447		259
(Gain) loss on other investments	(695)		541
Loss on extinguishment and forgiveness of debt, net	2,132		1,280
Changes in assets and liabilities:
Investment in direct financing leases	366		364
Rent and tenant receivables, operating lease right-of-use and other assets, net	(2,000)		(4,462)
Accounts payable and accrued expenses	(7,019)		(2,749)
Deferred rent, operating lease and other liabilities	(2,245)		(22,546)
Net cash provided by operating activities	180,091		172,011
Cash flows from investing activities:
Investments in real estate assets	(139,964)		(147,121)
Capital expenditures and leasing costs	(4,500)		(9,502)
Real estate developments	(3,553)		(3,231)
Investments in unconsolidated entities	—		(2,669)
Return of investment from unconsolidated entities	1,124		257
Proceeds from disposition of real estate	253,503		140,428
Investment in leasehold improvements and other assets	36		(87)
Deposits for real estate assets	(3,171)		(895)
Uses and refunds of deposits for real estate assets	2,454		3,130
Proceeds from the settlement of property-related insurance claims	713		38
Net cash provided by (used in) investing activities	106,642		(19,652)
Cash flows from financing activities:
Proceeds from mortgage notes payable	—		913
Payments on mortgage notes payable and other debt, including debt extinguishment costs	(295,869)		(123,574)
Proceeds from credit facility	—		831,313
Payments on credit facility, including swap termination payments	—		(110,000)
Extinguishment costs related to the redemption of corporate bonds	—		(26)
Extinguishment costs related to the repurchases of convertible notes	—		(13)
Payments of deferred financing costs	(356)		(35)
Refunds of deferred financing costs	280		—
Repurchases of Common Stock to settle tax obligations	(1,681)		(2,378)
Proceeds from the issuance of Common Stock, net of underwriters’ discount and offering expenses	1,336		—
Redemption of Series F Preferred Stock	(100,000)		(27)
Distributions paid	(96,559)		(162,747)
Net cash (used in) provided by financing activities	(492,849)		433,426
Net change in cash and cash equivalents and restricted cash	$	(206,116)	$	585,785

Cash and cash equivalents and restricted cash, beginning of period	$	537,381	$	33,880

Cash and cash equivalents and restricted cash, end of period	$	331,265	$	619,665

Reconciliation of Cash and Cash Equivalents and Restricted Cash
Cash and cash equivalents at beginning of period	$	523,539	$	12,921
Restricted cash at beginning of period	13,842		20,959
Cash and cash equivalents and restricted cash at beginning of period	537,381		33,880

Cash and cash equivalents at end of period	318,561		600,945
Restricted cash at end of period	12,704		18,720
Cash and cash equivalents and restricted cash at end of period	$	331,265	$	619,665

The accompanying notes are an integral part of these statements.

VEREIT, INC. and VEREIT OPERATING PARTNERSHIP, L.P.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

March 31, 2021 (Unaudited)

Note 1 – Organization

Substantially all of the Company’s operations are conducted through the OP. VEREIT is the sole general partner and holder of 99.9% of the common equity interests in the OP as of March 31, 2021. Under the limited partnership agreement of the OP, as amended (the “LPA”), after holding common units of limited partner interests in the OP (“OP Units”) or Series F Preferred Units of limited partnership interests in the OP (“Series F Preferred Units”), for a period of one year and meeting the other requirements in the LPA, unless we otherwise consent to an earlier redemption, holders have the right to redeem the units for the cash value of a corresponding number of shares of Common Stock or Series F Preferred Stock, as applicable, or, at our option, a corresponding number of shares of Common Stock or Series F Preferred Stock, as applicable, subject to adjustment pursuant to the terms of the LPA. The remaining rights of the holders of OP Units are limited, however, and do not include the ability to replace the General Partner or to approve the sale, purchase or refinancing of the OP’s assets.

Note 2 – Summary of Significant Accounting Policies

Basis of Accounting

The consolidated financial statements of the Company presented herein include the accounts of the General Partner and its consolidated subsidiaries, including the OP. All intercompany transactions have been eliminated upon consolidation. The financial statements are prepared on the accrual basis of accounting in accordance with generally accepted accounting principles in the United States (“U.S. GAAP”). The information furnished includes all adjustments and accruals of a normal recurring nature, which, in the opinion of management, are necessary for a fair presentation of results for the interim periods. The results of operations for the three months ended March 31, 2021 are not necessarily indicative of the results for the entire year or any subsequent interim period.

VEREIT, INC. and VEREIT OPERATING PARTNERSHIP, L.P.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

March 31, 2021 (Unaudited) – (Continued)

These consolidated financial statements should be read in conjunction with the audited consolidated financial statements and notes thereto as of and for the year ended December 31, 2020 of the Company, which are included in the Company’s Annual Report on Form 10-K filed on February 24, 2021. Information and footnote disclosures normally included in financial statements have been condensed or omitted pursuant to the rules and regulations of the U.S. Securities and Exchange Commission (the “SEC”) and U.S. GAAP.

Principles of Consolidation and Basis of Presentation

The consolidated financial statements include the accounts of the Company and its consolidated subsidiaries and a consolidated joint venture. The portion of the consolidated joint venture not owned by the Company is presented as non-controlling interest in VEREIT’s and the OP’s consolidated balance sheets, statements of operations, statements of comprehensive income (loss) and statements of changes in equity. In addition, certain third parties have been issued OP Units and Series F Preferred Units. Holders of OP Units are considered to be non-controlling interest holders in the OP and their ownership interest in the limited partner’s share is presented as non-controlling interests in VEREIT’s consolidated balance sheets, statements of operations, statements of comprehensive income (loss) and statements of changes in equity. Further, a portion of the earnings and losses of the OP are allocated to non-controlling interest holders based on their respective ownership percentages. Equity is reallocated between controlling and noncontrolling interests in the OP upon a change in ownership. At the end of each annual reporting period, noncontrolling interests in the OP are adjusted to reflect their ownership percentage in the OP through a reallocation between controlling and noncontrolling interests in the OP, as applicable. As of each of March 31, 2021 and December 31, 2020, there were approximately 0.2 million Limited Partner OP Units issued and outstanding, respectively. As of each of March 31, 2021 and December 31, 2020, there were 49,766 Limited Partner Series F Preferred Units issued and outstanding, respectively.

Reverse Stock Split - Impact to Prior Period

The Company effected a one-for-five reverse stock split of Common Stock after markets closed on December 17, 2020, whereby every five shares of VEREIT's issued and outstanding shares of Common Stock, $0.01 par value per share, were converted into one share of Common Stock, $0.01 par value per share. A corresponding reverse split of the outstanding OP Units also took effect on December 17, 2020. Certain prior period amounts have been updated to reflect the reverse stock split including stock/unit and per share/unit amounts, additional paid-in capital, common stock and dividends on the consolidated statements of operations, consolidated balance sheets, consolidated statements of equity and notes to the financial statements. The reverse stock split did not affect the Company’s total stockholder’s equity, the common stock par value per share or the Company’s authorized shares of common stock. No fractional shares of common stock were issued as fractional shares were settled in cash.

VEREIT, INC. and VEREIT OPERATING PARTNERSHIP, L.P.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

March 31, 2021 (Unaudited) – (Continued)

Prior Period Correction

Subsequent to the issuance of the Company’s consolidated financial statements for the year ended December 31, 2020, the Company identified an overstatement in amounts recorded to depreciation expense. As a result, the Company revised the accompanying consolidated balance sheets as of December 31, 2020 to reduce accumulated depreciation and amortization and accumulated deficit and increase the General Partner's common equity by $30.6 million. The Company also revised the accompanying consolidated statements of changes in equity to reduce the accumulated deficit balances and increase the General Partner’s common equity at January 1, 2021 and 2020 by $30.6 million and $26.9 million, respectively. The impact was inconsequential to the consolidated statements of operations for the three months ended March 31, 2020. The Company determined that the correction is not material to the previously issued consolidated financial statements.

Revenue Recognition

Rental Revenue

The Company continually reviews receivables related to rent, straight-line rent and property operating expense reimbursements and determines collectability by taking into consideration the tenant’s payment history, the financial condition of the tenant, business conditions in the industry in which the tenant operates and economic conditions in the area in which the property is located. The review includes a binary assessment of whether or not substantially all of the amounts due under a tenant’s lease agreement are probable of collection. For leases that are deemed probable of collection, revenue continues to be recorded on a straight-line basis over the lease term and the Company recognizes a general allowance on a portfolio-wide basis. For leases that are deemed not probable of collection, revenue is recorded as cash is received and the Company reduces rental revenue for any straight-line rent receivables. The Company recognizes all changes in the collectability assessment for an operating lease as an adjustment to rental revenue. During the three months ended March 31, 2021 and 2020, rental revenue was reduced by $1.8 million and $5.3 million, respectively, based on the collectability assessment.

Litigation and non-routine costs, net

Litigation and non-routine costs, net include the following costs and recoveries (in thousands):

	Three Months Ended March 31,
	2021		2020
Litigation and non-routine costs, net:
Legal fees, costs and settlements ^(1) (2)	$	68	$	(6,093)
Insurance recoveries	—		(2,471)
Total	$	68	$	(8,564)

(1)

(2)

The negative balance for the three months ended March 31, 2020 is a result of estimated costs accrued in prior periods that exceeded actual expenses incurred.

VEREIT, INC. and VEREIT OPERATING PARTNERSHIP, L.P.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

March 31, 2021 (Unaudited) – (Continued)

Equity-based Compensation

The Company has an equity-based incentive award plan (the “Equity Plan”) for non-executive directors, officers, other employees and advisors or consultants who provide services to the Company, as applicable, and a non-executive director restricted share plan, which are accounted for under U.S. GAAP for share-based payments. The expense for such awards is recognized over the vesting period or when the requirements for exercise of the award have been met. As of March 31, 2021, the General Partner had cumulatively awarded under its Equity Plan approximately 4.0 million shares of Common Stock, which was comprised of 0.8 million restricted share awards (“Restricted Shares”), net of the forfeiture of 0.7 million Restricted Shares through that date, 1.9 million restricted stock units (“Restricted Stock Units”), net of the forfeiture/cancellation of 0.4 million Restricted Stock Units through that date, 0.2 million deferred stock units (“Deferred Stock Units”), and 1.1 million stock options (“Stock Options”), net of forfeiture/cancellation of 0.1 million Stock Options through that date. Accordingly, as of such date, approximately 20.0 million additional shares were available for future issuance, excluding the effect of the 1.1 million Stock Options. As of March 31, 2021, a total of 9,000 shares were awarded under the non-executive director restricted share plan out of the 19,800 shares reserved for issuance.

The following is a summary of equity-based compensation expense for the three months ended March 31, 2021 (in thousands):

	Three Months Ended March 31,
	2021		2020
Time-Based Restricted Stock Units ⁽¹⁾	$	1,438	$	1,386
Long-Term Incentive-Based Restricted Stock Units	1,115		1,098
Deferred Stock Units	85		72
Stock Options	254		299
Total	$	2,892	$	2,855

(1)

Includes stock compensation expense attributable to awards for which the requisite service period begins prior to the assumed future grant date.

As of March 31, 2021, total unrecognized compensation expense related to these awards was approximately $27.3 million, with an aggregate weighted-average remaining term of 2.7 years.

Recent Accounting Pronouncements

Reference Rate Reform

During the first quarter of 2020, the FASB issued ASU 2020-04, Reference Rate Reform (Topic 848). ASU 2020-04 contains practical expedients for reference rate reform related activities that impact debt, leases, derivatives and other contracts. The guidance in ASU 2020-04 is optional and may be elected over time as reference rate reform activities occur. During the first quarter of 2020, the Company elected to apply the hedge accounting expedients related to probability and the assessments of effectiveness for future London Inter-Bank Offer Rate (“LIBOR”)-indexed cash flows to assume that the index applicable to future hedged transactions matched the index on the corresponding derivatives. During the fourth quarter of 2020, the Company terminated its interest rate swap agreements with an aggregate $900.0 million notional amount and terminated its forward starting interest rate swaps with a total notional amount of $400.0 million, both of which were designated as cash flow hedges, in connection with the early repayment of borrowings under the Credit Facility Term Loan (as defined in Note 6 – Debt), as discussed in Note 7 – Derivatives and Hedging Activities. The Company continues to evaluate the impact of the guidance and may apply other elections as applicable as additional changes in the market occur.

VEREIT, INC. and VEREIT OPERATING PARTNERSHIP, L.P.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

March 31, 2021 (Unaudited) – (Continued)

Note 3 – Real Estate Investments and Related Intangibles

Property Acquisitions

During the three months ended March 31, 2021, the Company acquired controlling financial interests in 54 commercial properties for an aggregate purchase price of $140.1 million (the “2021 Acquisitions”), which includes $1.6 million of external acquisition-related expenses that were capitalized.

During the three months ended March 31, 2020, the Company acquired controlling financial interests in 25 commercial properties for an aggregate purchase price of $147.1 million (the “2020 Acquisitions”), which includes one land parcel for build-to-suit development, further discussed below and $0.9 million of external acquisition-related expenses that were capitalized.

The following table presents the allocation of the fair values of the assets acquired and liabilities assumed during the periods presented (in thousands):

	Three Months Ended March 31,
	2021		2020
Real estate investments, at cost:
Land	$	19,729	$	19,953
Buildings, fixtures and improvements		79,257		95,728
Total tangible assets		98,986		115,681
Acquired intangible assets:
In-place leases and other intangibles ⁽¹⁾		12,090		15,739
Above-market leases ⁽²⁾		29,008		15,701
Total purchase price of assets acquired	$	140,084	$	147,121

	(1)	The weighted average amortization period for acquired in-place leases and other intangibles is 16.2 years and 18.1 years for 2021 Acquisitions and 2020 Acquisitions, respectively.
	(2)	The weighted average amortization period for acquired above-market leases is 19.0 years and 20.1 years for 2021 Acquisitions and 2020 Acquisitions, respectively.

As of March 31, 2021, the Company invested $37.3 million, including $0.7 million of external acquisition-related expenses and interest that were capitalized, in one build-to-suit development project. The Company’s estimated remaining committed investment is $7.9 million, and the project is expected to be completed within the next 12 months.

Property Dispositions and Real Estate Assets Held for Sale

During the three months ended March 31, 2021, the Company disposed of 30 properties, for an aggregate gross sales price of $261.0 million. The dispositions resulted in proceeds of $253.5 million after closing costs. The Company recorded a gain of $76.1 million related to the dispositions, which is included in gain on disposition of real estate and real estate assets held for sale, net in the accompanying consolidated statements of operations.

During the three months ended March 31, 2020, the Company disposed of 30 properties, including the sale of two consolidated properties to the office partnership, for an aggregate gross sales price of $152.2 million, of which our share was $150.5 million after the profit participation payments related to the disposition of two Red Lobster properties. The dispositions resulted in proceeds of $140.4 million after closing costs, including proceeds from the contribution of properties to the office partnership. The Company recorded a gain of $25.2 million related to the sales which is included in gain on disposition of real estate and real estate assets held for sale, net in the accompanying consolidated statements of operations.

VEREIT, INC. and VEREIT OPERATING PARTNERSHIP, L.P.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

March 31, 2021 (Unaudited) – (Continued)

As of March 31, 2021, there were four properties classified as held for sale with a carrying value of $4.9 million, included in real estate assets held for sale, net, primarily comprised of land of $1.8 million and building, fixtures and improvements, net of $3.0 million, in the accompanying consolidated balance sheets, and are expected to be sold in the next 12 months as part of the Company’s portfolio management strategy. During the three months ended March 31, 2021, the Company recorded a loss of $0.1 million related to held for sale properties. During the three months ended March 31, 2020, the Company did not record any losses related to held for sale properties.

Intangible Lease Assets and Liabilities

Intangible lease assets and liabilities of the Company consisted of the following as of March 31, 2021 and December 31, 2020 (amounts in thousands, except weighted-average useful life):

	Weighted-Average Useful Life		March 31, 2021		December 31, 2020
Intangible lease assets:
In-place leases and other intangibles, net of accumulated amortization of $815,131 and $810,597, respectively		17.0	$	723,695	$	745,026
Leasing commissions, net of accumulated amortization of $8,013 and $7,565, respectively		9.2		16,536		16,042
Above-market lease assets and deferred lease incentives, net of accumulated amortization of $128,850 and $125,455, respectively		23.6		191,601		167,776
Total intangible lease assets, net			$	931,832	$	928,844

Intangible lease liabilities:
Below-market leases, net of accumulated amortization of $108,537 and $106,504, respectively		19.8	$	117,121	$	120,938

The aggregate amount of amortization of above-market and below-market leases and deferred lease incentives included as a net decrease to rental revenue was $1.5 million and $0.7 million for the three months ended March 31, 2021 and 2020, respectively. The aggregate amount of in-place leases, leasing commissions and other lease intangibles amortized and included in depreciation and amortization expense was $29.2 million and $43.0 million for the three months ended March 31, 2021 and 2020, respectively.

	Remainder of 2021		2022		2023		2024		2025		2026
In-place leases and other intangibles:
Total projected to be included in amortization expense	$	79,608	$	93,873	$	84,023	$	74,892	$	62,809	$	56,470
Leasing commissions:
Total projected to be included in amortization expense		2,015		2,485		2,194		1,979		1,721		1,498
Above-market lease assets and deferred lease incentives:
Total projected to be deducted from rental revenue		15,679		20,388		19,449		18,055		16,488		14,413
Below-market lease liabilities:
Total projected to be included in rental revenue		10,480		13,108		12,388		10,591		9,372		8,848

VEREIT, INC. and VEREIT OPERATING PARTNERSHIP, L.P.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

March 31, 2021 (Unaudited) – (Continued)

Consolidated Joint Venture

The Company had an interest in one consolidated joint venture that owned one property as of March 31, 2021 and December 31, 2020. As of March 31, 2021 and December 31, 2020, the consolidated joint venture had total assets of $32.6 million and $33.0 million, respectively, of which $28.7 million and $29.1 million, respectively, were real estate investments, net of accumulated depreciation and amortization at each of the respective dates. The property is secured by a mortgage note payable, which is non-recourse to the Company and had a balance of $15.0 million and $14.8 million as of March 31, 2021 and December 31, 2020, respectively. The Company has the ability to control operating and financing policies of the consolidated joint venture. There are restrictions on the use of these assets as the Company is generally required to obtain the approval of the joint venture partner in accordance with the joint venture agreement for any major transactions. The Company and the joint venture partner are subject to the provisions of the joint venture agreement, which includes provisions for when additional contributions may be required to fund certain cash shortfalls.

Investment in Unconsolidated Entities

The following is a summary of the Company’s investments in unconsolidated entities as of March 31, 2021 and December 31, 2020 and for the three months ended March 31, 2021 and 2020 (dollar amounts in thousands):

	Ownership % ⁽¹⁾			Number of Properties		Carrying Amount of Investment				Equity in Income Three Months Ended
Investment	March 31, 2021					March 31, 2021		December 31, 2020		March 31, 2021		March 31, 2020
Industrial Partnership		20	%		7	$	44,570	$	45,378	$	245		180
Office Partnership		20	%		4		13,117		13,435		202		73
Faison JV Bethlehem GA ⁽²⁾		—	%		—		—		—		—		(7	)
Total unconsolidated joint ventures						$	57,687	$	58,813	$	447	$	246
Preferred equity ⁽³⁾							22,826		22,826		—		—
Total investment in unconsolidated entities						$	80,513	$	81,639	$	447	$	246

	(1)	The Company’s ownership interest reflects its legal ownership interest. Legal ownership may, at times, not equal the Company’s economic interest in the listed properties because of various provisions in certain joint venture agreements regarding capital contributions, distributions of cash flow based on capital account balances, allocations of profits and losses and payments of preferred returns. As a result, the Company’s actual economic interest (as distinct from its legal ownership interest) in certain of the properties could fluctuate from time to time and may not wholly align with its legal ownership interests.
	(2)	During the three months ended March 31, 2020, the Company had a 90% ownership interest in one property. On October 30, 2020, the Company closed on the purchase of the joint venture partner’s 10% ownership interest.
	(3)	Represents a preferred equity interest in the development of one distribution center in which the Company is entitled to receive a cumulative preferred return of 9% per year on its contributions of $22.8 million. The Company has no further obligation to make additional contributions.

The aggregate debt outstanding of unconsolidated joint ventures and for the development of one distribution center in which the Company holds a preferred equity interest was $591.0 million and $550.5 million as of March 31, 2021 and December 31, 2020, respectively, which is non-recourse to the Company, as discussed in Note 6 – Debt.

VEREIT, INC. and VEREIT OPERATING PARTNERSHIP, L.P.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

March 31, 2021 (Unaudited) – (Continued)

Note 4 – Rent and Tenant Receivables and Other Assets, Net

Rent and tenant receivables and other assets, net consisted of the following as of March 31, 2021 and December 31, 2020 (in thousands):

	March 31, 2021		December 31, 2020
Straight-line rent receivable, net	$	278,871	$	278,831
Accounts receivable, net		52,000		53,051
Deferred costs, net ⁽¹⁾		4,339		5,185
Investment in direct financing leases, net		6,181		6,547
Investment in Retained REITs ⁽²⁾		7,951		7,255
Prepaid expenses		7,633		3,850
Leasehold improvements, property and equipment, net ⁽³⁾		3,740		3,991
Other assets, net		8,211		7,910
Total	$	368,926	$	366,620

	(1)	Amortization expense for deferred costs related to the revolving credit facilities totaled $0.8 million and $0.7 million for the three months ended March 31, 2021 and 2020, respectively. Accumulated amortization for deferred costs related to the revolving credit facilities was $53.7 million and $52.9 million as of March 31, 2021 and December 31, 2020, respectively.
	(2)	On February 1, 2018, the Company sold certain of its equity investments to CCA Acquisition, LLC, an affiliate of CIM Group, LLC, retaining interests in Cole Office & Industrial REIT (CCIT II), Inc. (“CCIT II”), Cole Office & Industrial REIT (CCIT III), Inc. (“CCIT III”) and Cole Credit Property Trust V, Inc. (“CCPT V” and, collectively with CCIT II and CCIT III, the “Retained REITs”). On December 21, 2020, CIM Real Estate Finance Trust, Inc. acquired CCIT III and CCPT V. On March 1, 2021, Griffin Capital Essential Asset REIT, Inc. acquired CCIT II. Subsequent to the Company’s sale of Cole Capital, it carries these investments at fair value, as it does not exert significant influence over the Retained REITs, and any changes in the fair value are recognized in other income, net in the accompanying consolidated statement of operations for the three months ended March 31, 2021 and 2020. During the three months ended March 31, 2021 and 2020, the Company recognized a gain of $0.7 million and a loss of $0.5 million, respectively, related to the change in fair value.
	(3)	Amortization expense for leasehold improvements totaled $0.1 million for each of the three months ended March 31, 2021 and 2020, with no related write-offs. Accumulated amortization was $3.5 million and $3.4 million as of March 31, 2021 and December 31, 2020, respectively. Depreciation expense for property and equipment totaled $0.2 million and $0.3 million for the three months ended March 31, 2021 and 2020, respectively. Accumulated depreciation was $6.7 million and $6.5 million as of March 31, 2021 and December 31, 2020, respectively.

Note 5 – Fair Value Measures

Level 1 – Quoted prices in active markets for identical assets and liabilities that the reporting entity has the ability to access at the measurement date.

VEREIT, INC. and VEREIT OPERATING PARTNERSHIP, L.P.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

March 31, 2021 (Unaudited) – (Continued)

Items Measured at Fair Value on a Recurring Basis

The fair value of the Investment in Retained REITs was $8.0 million and $7.3 million as of March 31, 2021 and December 31, 2020, respectively. The fair values were estimated using the net asset value per share, as most recently disclosed by each applicable REIT. Each of the Retained REIT’s share redemption programs includes restrictions that limit the number of shares redeemed by the respective Retained REIT.

The following are reconciliations of the changes in assets and liabilities with Level 3 inputs in the fair value hierarchy for the three months ended March 31, 2021 and 2020 (in thousands):

	Investment in Retained REITs
Beginning balance, January 1, 2021	$	7,255
Unrealized gain included in other income (loss), net		696
Ending Balance, March 31, 2021	$	7,951

Beginning balance, January 1, 2020	$	7,552
Unrealized loss included in other income (loss), net		(543	)
Ending Balance, March 31, 2020	$	7,009

Items Measured at Fair Value on a Non-Recurring Basis

As part of the Company’s quarterly impairment review procedures, net real estate assets representing 19 properties were deemed to be impaired resulting in impairment charges of $31.8 million during the three months ended March 31, 2021 that relate to certain office, retail and restaurant properties which, during the three months ended March 31, 2021, were identified by management for potential sale or were determined would not be re-leased by the tenant. There were no impairment charges directly attributable to the COVID-19 pandemic during the three months ended March 31, 2021.

During the three months ended March 31, 2020, net real estate assets related to 16 properties, were deemed to be impaired resulting in impairment charges of $8.4 million. The impairment charges relate to certain retail and restaurant properties whose tenants filed for Chapter 11 bankruptcy during the first quarter of 2020, were identified by management for potential sale or were determined would not be re-leased by the tenant.

The Company estimates fair values using Level 3 inputs and uses a combined income and market approach, specifically using discounted cash flow analysis and recent comparable sales transactions. The evaluation of real estate assets for potential impairment requires the Company’s management to exercise significant judgment and make certain key assumptions, including, but not limited to, the following: (1) capitalization rate; (2) discount rates; (3) number of years property will be held; (4) property operating expenses; and (5) re-leasing assumptions including number of months to re-lease, market rental revenue and required tenant improvements. There are inherent uncertainties in making these estimates such as market conditions and performance and sustainability of the Company’s tenants. For the Company’s impairment tests for the real estate assets during the three months ended March 31, 2021, the Company used a range of discount rates from 7.9% to 8.6% with a weighted-average rate of 8.5% and capitalization rates from 7.4% to 8.1% with a weighted-average rate of 8.0%.

VEREIT, INC. and VEREIT OPERATING PARTNERSHIP, L.P.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

March 31, 2021 (Unaudited) – (Continued)

Goodwill – The Company evaluates goodwill for impairment annually or more frequently when an event occurs or circumstances change that indicate the carrying value may not be recoverable. The Company performed the annual qualitative assessment for goodwill during the fourth quarter of 2020, which resulted in no impairments. The Company continues to monitor factors that may impact the fair value of goodwill including, but not limited to, market comparable company multiples, stock price, interest rates, and global economic conditions including the COVID-19 pandemic.

Fair Value of Financial Instruments

	Level		Carrying Amount at March 31, 2021		Fair Value at March 31, 2021		Carrying Amount at December 31, 2020		Fair Value at December 31, 2020
Liabilities ⁽¹⁾:
Mortgage notes payable and other debt, net		2	$	1,040,386	$	1,096,403	$	1,334,689	$	1,384,490
Corporate bonds, net		2		4,623,698		4,925,246		4,622,951		5,123,588
Total liabilities			$	5,664,084	$	6,021,649	$	5,957,640	$	6,508,078

(1)

Current and prior period liabilities’ carrying and fair values exclude net deferred financing costs.

Debt – The fair value is estimated by an independent third party using a discounted cash flow analysis, based on management’s estimates of observable market interest rates. Corporate bonds are valued using quoted market prices in active markets with limited trading volume when available.

Note 6 – Debt

As of March 31, 2021, the Company had $5.6 billion of debt outstanding, including net premiums (discounts) and net deferred financing costs, with a weighted-average years to maturity of 6.0 years and a weighted-average interest rate of 3.90%. The following table summarizes the carrying value of debt as of March 31, 2021 and December 31, 2020, and the debt activity for the three months ended March 31, 2021 (in thousands):

				Three Months Ended March 31, 2021
	Balance as of December 31, 2020				Debt Issuances		Repayments, Extinguishment and Assumptions			Accretion and Amortization			Balance as of March 31, 2021
Mortgage notes payable:
Outstanding balance	$	1,333,195			$	—	$	(292,806	)	$	—		$	1,040,389
Net premiums (discounts) ⁽¹⁾		1,495				—		(1,005	)		(493	)		(3	)
Deferred costs		(5,855	)			—		353			444			(5,058	)
Mortgage notes payable, net		1,328,835				—		(293,458	)		(49	)		1,035,328

Corporate bonds:
Outstanding balance		4,650,000				—		—			—			4,650,000
Discount ⁽²⁾		(27,049	)			—		—			747			(26,302	)
Deferred costs		(38,721	)			—		—			1,275			(37,446	)
Corporate bonds, net		4,584,230				—		—			2,022			4,586,252

Total debt	$	5,913,065			$	—	$	(293,458	)	$	1,973		$	5,621,580

(1)

Net premiums (discounts) on mortgage notes payable were recorded upon the assumption of the respective mortgage notes in relation to the various mergers and acquisitions. Amortization of these net premiums is recorded as a reduction to interest expense over the remaining term of the respective mortgage notes using the effective-interest method.

(2)

Discounts on the corporate bonds were recorded based upon the fair value of the respective debt instruments as of the respective issuance dates. Amortization of these discounts is recorded as an increase to interest expense over the remaining term of the respective debt instruments using the effective-interest method.

VEREIT, INC. and VEREIT OPERATING PARTNERSHIP, L.P.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

March 31, 2021 (Unaudited) – (Continued)

Mortgage Notes Payable

The Company’s mortgage notes payable consisted of the following as of March 31, 2021 (dollar amounts in thousands):

	Encumbered Properties		Net Carrying Value of Collateralized Properties ⁽¹⁾		Outstanding Balance		Weighted-Average Interest Rate ⁽²⁾			Weighted-Average Years to Maturity ⁽³⁾
Fixed-rate debt		218	$	1,239,657	$	1,025,413		4.89	%		2.3
Variable-rate debt		1		28,698		14,976		3.75	% ⁽⁴⁾		0.4
Total ⁽⁵⁾		219	$	1,268,355	$	1,040,389		4.87	%		2.3

	(1)	Net carrying value is real estate assets, including investment in direct financing leases, net of real estate liabilities.
	(2)	Weighted average interest rate is computed using the interest rate in effect until the anticipated repayment date. Should the loan not be repaid at the anticipated repayment date, the applicable interest rate will increase as specified in the respective loan agreement until the extended maturity date.
	(3)	Weighted average years remaining to maturity is computed using the anticipated repayment date as specified in each loan agreement, where applicable.
	(4)	Weighted-average interest rate for variable-rate debt represents the interest rate in effect as of March 31, 2021.
	(5)	The table above does not include mortgage notes associated with unconsolidated joint ventures and preferred equity investments of $591.0 million, which are non-recourse to the Company.

The Company’s mortgage loan agreements generally restrict corporate guarantees and require the maintenance of financial covenants, including maintenance of certain financial ratios (such as debt service coverage ratios and minimum net operating income). The mortgage loan agreements contain no dividend restrictions except in the event of default or when a distribution would drive liquidity below the applicable thresholds. At March 31, 2021, the Company believes that it was in compliance with the financial covenants under the mortgage loan agreements and had no restrictions on the payment of dividends.

The following table summarizes the scheduled aggregate principal repayments due on mortgage notes subsequent to March 31, 2021 (in thousands):

	Total
April 1, 2021 - December 31, 2021	$	48,985
2022		239,201
2023		124,217
2024		621,021
2025		1,078
2026		1,138
Thereafter		4,749
Total	$	1,040,389

VEREIT, INC. and VEREIT OPERATING PARTNERSHIP, L.P.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

March 31, 2021 (Unaudited) – (Continued)

Corporate Bonds

As of March 31, 2021, the OP had $4.65 billion aggregate principal amount of senior unsecured notes (the “Senior Notes”) outstanding comprised of the following (dollar amounts in thousands):

	Outstanding Balance March 31, 2021		Interest Rate			Maturity Date
Senior Notes due 2024	$	500,000		4.600	%	February 6, 2024
Senior Notes due 2025		550,000		4.625	%	November 1, 2025
Senior Notes due 2026		600,000		4.875	%	June 1, 2026
Senior Notes due 2027		600,000		3.950	%	August 15, 2027
Senior Notes due January, 2028		600,000		3.400	%	January 15, 2028
Senior Notes due June, 2028		500,000		2.200	%	June 15, 2028
Senior Notes due 2029		600,000		3.100	%	December 15, 2029
Senior Notes due 2032		700,000		2.850	%	December 15, 2032
Total balance and weighted-average interest rate	$	4,650,000		3.685	%

The indenture governing our Senior Notes requires us to maintain financial ratios which include maintaining (i) a maximum limitation on incurrence of total debt less than or equal to 65% of Total Assets (as defined in the indenture), (ii) maximum limitation on incurrence of secured debt less than or equal to 40% of Total Assets (as defined in the indenture), (iii) a minimum debt service coverage ratio of at least 1.5x and (iv) a minimum unencumbered asset value of at least 150% of the aggregate principal amount of all of the outstanding Unsecured Debt (as defined in the indenture). As of March 31, 2021, the Company believes that it was in compliance with the financial covenants of our Senior Notes based on the covenant limits and calculations in place at that time.

Credit Facility

As of March 31, 2021, no amounts were outstanding under the Revolving Credit Facility. The maximum aggregate dollar amount of letters of credit that may be outstanding at any one time under the Credit Facility is $50.0 million. As of March 31, 2021, there were $2.6 million of letters of credit outstanding.

VEREIT, INC. and VEREIT OPERATING PARTNERSHIP, L.P.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

March 31, 2021 (Unaudited) – (Continued)

Note 7 – Derivatives and Hedging Activities

Cash Flow Hedges of Interest Rate Risk

During the three months ended March 31, 2020, the Company recorded unrealized losses of $78.6 million for changes in the fair value of the cash flow hedges in accumulated other comprehensive income. There were no such gains or losses recorded during the three months ended March 31, 2021.

The Company reclassified previous losses of $0.1 million and $1.9 million for the three months ended March 31, 2021 and 2020, respectively, from accumulated other comprehensive income (loss) into interest expense as a result of the hedged transactions impacting earnings.

During the next twelve months, the Company estimates that an additional $0.4 million will be reclassified from other comprehensive income (loss) as an increase to interest expense.

Note 8 – Supplemental Cash Flow Disclosures

Supplemental cash flow information was as follows for the three months ended March 31, 2021 and 2020 (in thousands):

	Three Months Ended March 31,
	2021		2020
Supplemental disclosures:
Cash paid for interest	$	51,169	$	50,638
Cash paid for income taxes	$	456	$	1,404
Non-cash investing and financing activities:
Accrued capital expenditures, tenant improvements and real estate developments	$	7,030	$	14,856
Accrued deferred financing costs	$	—	$	345
Real estate contributions to industrial partnership and office partnership	$	—	$	7,494
Distributions declared and unpaid	$	106,989	$	150,493
Real estate investments received from lease related transactions	$	2,103	$	259
Note receivable for disposal of real estate investments	$	4,500	$	—

VEREIT, INC. and VEREIT OPERATING PARTNERSHIP, L.P.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

March 31, 2021 (Unaudited) – (Continued)

Note 9 – Accounts Payable and Accrued Expenses

Accounts payable and accrued expenses consisted of the following as of March 31, 2021 and December 31, 2020 (in thousands):

	March 31, 2021		December 31, 2020
Accrued interest	$	51,813	$	44,164
Accrued real estate and other taxes		25,914		27,689
Accrued legal fees and litigation settlements		5,604		11,245
Accounts payable		1,454		1,895
Accrued other		31,701		32,022
Total	$	116,486	$	117,015

Note 10 – Commitments and Contingencies

Purchase Commitments

Environmental Matters

Note 11 – Leases

Lessor

The Company is the lessor for its 3,855 retail, restaurant, office and industrial properties. The Company’s operating and direct financing leases have non-cancelable lease terms of 0.03 years to 25.0 years. Certain leases with tenants include options to extend or terminate the lease agreements or to purchase the underlying asset. Lease agreements may also contain rent increases that are based on an index or rate (e.g., the consumer price index (“CPI”) or LIBOR). The Company believes the residual value risk is not a primary risk because of the long-lived nature of the assets.

VEREIT, INC. and VEREIT OPERATING PARTNERSHIP, L.P.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

March 31, 2021 (Unaudited) – (Continued)

The components of rental revenue from the Company’s operating and direct financing leases were as follows (in thousands):

	Three Months Ended March 31,
	2021			2020
Fixed:
Cash rent	$	263,342		$	269,583
Straight-line rent		4,219			2,055
Lease intangible amortization		(1,547	)		(748	)
Property operating cost reimbursements		1,387			1,428
Sub-lease ⁽¹⁾		4,969			5,263
Total fixed		272,370			277,581

Variable ⁽²⁾		17,806			20,815
Income from direct financing leases		133			190
Total rental revenue	$	290,309		$	298,586

(1)

The Company’s tenants are generally sub-tenants under certain ground leases and are responsible for paying the rent under these leases.

(2)

Includes costs reimbursed related to property operating expenses, common area maintenance and percentage rent, including these costs reimbursed by ground lease sub-tenants.

The following table presents future minimum operating lease payments due to the Company over the next five years and thereafter as of March 31, 2021 (in thousands). These amounts exclude contingent rent payments, as applicable, that may be collected from certain tenants based on provisions related to sales thresholds and increases in annual rent based on exceeding certain economic indexes.

	Future Minimum Operating Lease Payments		Future Minimum Direct Financing Lease Payments⁽¹⁾
April 1, 2021 - December 31, 2021	$	772,883	$	1,501
2022		990,905		1,925
2023		929,394		1,565
2024		860,798		510
2025		756,324		169
2026		694,793		171
Thereafter		4,177,260		484
Total	$	9,182,357	$	6,325

(1)

Lessee

The Company is the lessee under ground lease arrangements and corporate office leases. All leases for which the Company is the lessee meet the criteria of an operating lease. The Company’s leases have remaining lease terms of 0.4 years to 78.4 years, some of which include options to extend. The weighted average remaining lease term for the Company’s operating leases was 15.9 years as of March 31, 2021. Under certain ground lease arrangements, the Company pays variable costs, including property operating expenses and common area maintenance, which are generally reimbursed by the ground lease sub-tenants. The weighted average discount rate for the Company’s operating leases was 4.92% as of March 31, 2021. As the Company’s leases do not provide an implicit rate, the Company used an estimated incremental borrowing rate based on the information available at the adoption date in determining the present value of lease payments.

VEREIT, INC. and VEREIT OPERATING PARTNERSHIP, L.P.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

March 31, 2021 (Unaudited) – (Continued)

The following table presents the lease expense components for the three months ended March 31, 2021 and 2020 (in thousands):

	Three Months Ended March 31,
	2021			2020
Operating lease cost ⁽¹⁾	$	5,750		$	7,575
Sublease income ⁽²⁾	$	(4,969	)	$	(5,263	)

	(1)	No cash paid for operating lease liabilities was capitalized.
	(2)	The Company’s tenants are generally sub-tenants under certain ground leases and are responsible for paying the rent under these leases.

During the three months ended March 31, 2021, the Company reduced the right-of-use assets and operating lease liabilities by $0.9 million and $4.4 million, respectively. The Company reduced the right-of-use assets and operating lease liabilities each by $0.6 million, for non-cash activity related to dispositions and lease modifications during the three months ended March 31, 2020.

	Future Minimum Lease Payments
April 1, 2021 - December 31, 2021	$	16,140
2022		21,016
2023		20,601
2024		19,973
2025		19,659
2026		18,229
Thereafter		187,189
Total		302,807
Less: imputed interest		100,783
Total	$	202,024

Note 12 – Equity

Reverse Stock Split

The Company’s one-for-five reverse stock split of its Common Stock took effect after markets closed on December 17, 2020, following the filing of amendments to its charter with the Maryland State Department of Assessments and Taxation whereby every five shares of VEREIT's issued and outstanding shares of Common Stock, $0.01 par value per share, were converted into one share of Common Stock, $0.01 par value per share. VEREIT’s Common Stock began trading on the NYSE on a split-adjusted basis beginning December 18, 2020. Fractional shares resulting from the reverse stock split were paid in cash based on the trailing average closing price of VEREIT’s Common Stock on the NYSE for a period of three days prior to the effective date. The reverse stock split affected all record holders of VEREIT’s Common Stock uniformly and did not affect any record holder’s percentage ownership interest, except for de minimus changes as a result of the elimination of fractional shares. Trading in the Common Stock continued on the NYSE under the symbol “VER” but the Common Stock was assigned a new CUSIP number. The reverse stock split reduced the number of shares of Common Stock outstanding but did not affect the number of VEREIT’s authorized shares of Common Stock. A corresponding reverse split of the outstanding OP Units also took effect on December 17, 2020.

Common Stock and General Partner OP Units

The General Partner is authorized to issue up to 1.5 billion shares of Common Stock.

VEREIT, INC. and VEREIT OPERATING PARTNERSHIP, L.P.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

March 31, 2021 (Unaudited) – (Continued)

As of March 31, 2021, the General Partner had approximately 229.1 million shares of Common Stock issued and outstanding. Additionally, the Operating Partnership had approximately 229.1 million General Partner OP Units issued and outstanding as of March 31, 2021, corresponding to the General Partner’s outstanding shares of Common Stock.

Common Stock Continuous Offering Program

On February 25, 2021, the Company established a new continuous equity offering program pursuant to which the Company can sell shares of Common Stock having an aggregate offering price of up to $1.5 billion in “at-the-market” offerings or certain other transactions (the “New ATM Program”). Under the New ATM Program, the Company may also enter into one or more forward transactions under separate master forward sale confirmations and related supplemental confirmations for the sale of shares of its common stock on a forward basis.

The New ATM Program replaced the Company’s prior continuous equity offering program, which was effective April 15, 2019 (the “Prior ATM Program” and collectively with the New ATM Program, the “ATM Program”). The proceeds from any sale of shares under the ATM Program have been and will be used for general corporate purposes, which may include funding potential acquisitions and repurchasing or repaying outstanding indebtedness.

During the three months ended March 31, 2021, the Company issued an aggregate of 35,710 shares under the Prior ATM Program, at a weighted average price per share of $37.90, for gross proceeds of $1.4 million. The weighted average price per share, net of commissions, was $37.42, for net proceeds of $1.3 million. As of March 31, 2021, the Company sold an aggregate of $572.2 million under the Prior ATM Program, which had an initial capacity of $750.0 million. No shares have been issued under the New ATM Program as of March 31, 2021.

Series F Preferred Stock and Series F Preferred OP Units

During the three months ended March 31, 2021, the Company redeemed a total of 4.0 million shares of Series F Preferred Stock, representing approximately 21.20% of the issued and outstanding shares of Series F Preferred Stock as of the beginning of 2021. The shares of Series F Preferred Stock were redeemed at a redemption price of $25.00 per share. As of March 31, 2021, there were approximately 14.9 million shares of Series F Preferred Stock, approximately 14.9 million corresponding General Partner Series F Preferred Units and 49,766 Limited Partner Series F Preferred Units issued and outstanding.

Common Stock Dividends

On February 23, 2021, the Company’s Board of Directors declared a quarterly cash dividend for the first quarter of 2021 of $0.462 per share of Common Stock. The dividend was paid on April 15, 2021 to Common Stock stockholders of record as of March 31, 2021. An equivalent distribution by the Operating Partnership is applicable per OP Unit.

Share Repurchase Program

The Company has a share repurchase program (the “Share Repurchase Program”), that permits the Company to repurchase up to $200.0 million of its outstanding Common Stock through May 6, 2022. Under the Share Repurchase Program, repurchases can be made through open market purchases, privately negotiated transactions, structured or derivative transactions, including accelerated stock repurchase transactions, or other methods of acquiring shares in accordance with applicable securities laws and other legal requirements. The Share Repurchase Program does not obligate the Company to make any repurchases at a specific time or in a specific situation and repurchases are influenced by prevailing market conditions, the trading price of the Common Stock, the Company’s financial performance and other conditions. Shares of Common Stock repurchased by the Company under the Share Repurchase Program, if any, will be returned to the status of authorized but unissued shares of Common Stock. As of March 31, 2021, there were no share repurchases under the Share Repurchase Program.

VEREIT, INC. and VEREIT OPERATING PARTNERSHIP, L.P.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

March 31, 2021 (Unaudited) – (Continued)

Note 13 – Net Income (Loss) Per Share/Unit

Net Income (Loss) Per Share

The following is a summary of the basic and diluted net income (loss) per share computation for the General Partner for the three months ended March 31, 2021 and 2020 (dollar amounts in thousands):

	Three Months Ended March 31,
	2021			2020
Net income	$	120,723		$	86,863
Net income attributable to non-controlling interests		(76	)		(55	)
Net income attributable to the General Partner		120,647			86,808
Dividends to preferred shares and units		(6,525	)		(12,948	)
Net income available to common stockholders used in basic net income per share		114,122			73,860
Income attributable to limited partners		79			62
Net income used in diluted net income per share	$	114,201		$	73,922

Weighted average number of Common Stock outstanding - basic		229,159,472			215,587,560
Effect of Limited Partner OP Units and dilutive securities		270,395			362,688
Weighted average number of common shares - diluted		229,429,867			215,950,248

Basic and diluted net income per share attributable to common stockholders	$	0.50		$	0.34

Net Income (Loss) Per Unit

The following is a summary of the basic and diluted net income (loss) per unit attributable to common unitholders, which includes all common General Partner unitholders and limited partner unitholders, for the three months ended March 31, 2021 and 2020 (dollar amounts in thousands):

	Three Months Ended March 31,
	2021			2020
Net income	$	120,723		$	86,863
Net loss attributable to non-controlling interests		3			7
Net income attributable to the Operating Partnership		120,726			86,870
Dividends to preferred units		(6,525	)		(12,948	)
Net income used in basic and diluted net income per unit	$	114,201		$	73,922

Weighted average number of common units outstanding - basic		229,311,506			215,744,224
Effect of dilutive securities		118,361			206,024
Weighted average number of common units - diluted		229,429,867			215,950,248

Basic and diluted net income per unit attributable to common unitholders	$	0.50		$	0.34

VEREIT, INC. and VEREIT OPERATING PARTNERSHIP, L.P.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

March 31, 2021 (Unaudited) – (Continued)

Note 14 – Subsequent Events

Merger with Realty Income Corporation

On April 29, 2021, the Company and the OP entered into an Agreement and Plan of Merger (the “Merger Agreement”) with Realty Income Corporation (“Realty Income”), Rams MD Subsidiary I, Inc., a wholly owned subsidiary of Realty Income (“Merger Sub 1”), and Rams Acquisition Sub II, LLC, a wholly owned subsidiary of Realty Income (“Merger Sub 2”) whereby Merger Sub 2 will be merged with and into the OP, with the OP continuing as the surviving entity and, immediately thereafter, VEREIT will be merged with and into Merger Sub 1, with Merger Sub 1 continuing as the surviving corporation (collectively, the “Merger”).

Pursuant to the terms and subject to the conditions of the Merger Agreement, each share of Common Stock will be converted into 0.705 of a newly issued share of common stock, par value $0.01 per share, of Realty Income (the “Realty Income Common Stock”). Immediately prior to the Merger, the Company will issue a notice of redemption with respect to all of the outstanding shares of the Series F Preferred Stock with a redemption date as set forth therein, and Realty Income will cause funds to be deposited in escrow to pay the redemption price of $25.00 plus all accrued and unpaid dividends up to and including the redemption date set forth in the notice.

Pursuant to the terms and subject to the conditions of the Merger Agreement, (i) each outstanding General Partner OP Unit will remain outstanding as a common unit of partnership interest in the surviving entity, (ii) each outstanding Limited Partner OP Unit will be converted into 0.705 of a newly issued share of Realty Income Common Stock, subject to adjustment, (iii) each outstanding Limited Partner Series F Preferred Unit will be converted into the right to receive $25.00 plus all accumulated and unpaid distributions to and including the day that is set forth in the redemption notice issued with respect to the Series F Preferred Stock, and (iv) each outstanding General Partner Series F Preferred Unit will remain outstanding as one Series F Preferred Unit in the surviving entity. Holders of the Limited Partner OP Units will receive cash in lieu of fractional shares.

In connection with the Merger, the Company and Realty Income intend to contribute some or all of our office real properties to a newly formed, wholly owned subsidiary ("OfficeCo"), and, following the Merger, Realty Income intends to distribute the outstanding voting shares of common stock in OfficeCo to the shareholders of the combined company on a pro rata basis (the "Spin-Off"). Following the consummation of the Spin-Off, the Company and Realty Income intend for OfficeCo to operate as a separate, publicly-traded REIT. Subject to the terms and conditions of the Merger Agreement, the Company and Realty Income may also seek to sell some or all of the OfficeCo business in connection with the closing of the Merger.

The Merger Agreement contains customary representations, warranties and covenants by each party. The Merger is subject to certain conditions which are set forth in the Merger Agreement, including the approval of both companies’ shareholders. The boards of directors of the Company and Realty Income have unanimously approved the Merger Agreement. The Merger is expected to close during the fourth quarter of 2021.

Common Stock Dividend

On May 4, 2021, the Company’s Board of Directors declared a quarterly cash dividend of $0.462 per share of Common Stock (equaling an annualized dividend rate of $1.848 per share) for the second quarter of 2021 to stockholders of record as of June 30, 2021, which will be paid on July 15, 2021. An equivalent distribution by the Operating Partnership is applicable per OP Unit.

Preferred Stock Dividend

On May 4, 2021, the Company’s Board of Directors declared a monthly cash dividend to holders of the Series F Preferred Stock for July 2021 through September 2021 with respect to the periods included in the table below. The corresponding record and payment dates for each month's Series F Preferred Stock dividend are also shown in the table below. The dividend for the Series F Preferred Stock accrues daily on a 360-day annual basis equal to an annualized dividend rate of $1.675 per share, or $0.1395833 per 30-day month.

Period	Record Date	Payment Date
June 15, 2021 - July 14, 2021	July 1, 2021	July 15, 2021
July 15, 2021 - August 14, 2021	August 1, 2021	August 16, 2021
August 15, 2021 - September 14, 2021	September 1, 2021	September 15, 2021

Exhibit 99.3

UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL STATEMENTS — REALTY INCOME

The following unaudited pro forma condensed combined financial statements and notes thereto present the unaudited pro forma condensed combined balance sheet as of March 31, 2021 and the unaudited pro forma condensed combined statements of operations for the three months ended March 31, 2021 and the year ended December 31, 2020. The unaudited pro forma condensed combined financial information was prepared in accordance with Article 11 of Regulation S-X as amended by the final rule, Release No. 33-10786 “Amendments to Financial Disclosures about Acquired and Disposed Businesses”, in order to give effect to the Mergers and the assumptions and adjustments described in the accompanying notes to the unaudited pro forma condensed combined financial statements.

Unless otherwise stated in the following unaudited pro forma condensed combined financial information or the context otherwise requires, references in the following unaudited pro forma condensed combined financial information to:

“clients” means the tenants of Realty Income;

“combined company” means Realty Income and its subsidiaries, after giving effect to the consummation of the proposed Mergers;

“Merger” means the merger pursuant to the terms of the Merger Agreement, immediately following the consummation of the Partnership Merger, of VEREIT with and into Merger Sub 1, with Merger Sub 1 continuing as the surviving corporation;

“Mergers” means, together, the Partnership Merger and the Merger;

“Merger Agreement” means that certain Agreement and Plan of Merger, dated as of April 29, 2021, by and among VEREIT, VEREIT OP, Realty Income, Merger Sub 1 and Merger Sub 2, as the same may be amended or supplemented from time to time;

“Merger Effective Time” means the effective time of the Mergers;

“Merger Sub 1” means Rams MD Subsidiary I, Inc., a Maryland corporation and wholly owned subsidiary of Realty Income;

“Merger Sub 2” means Rams Acquisition Sub II, LLC, a Delaware limited liability company and wholly owned subsidiary of Realty Income;

“Partnership Merger” means the merger pursuant to the terms of the Merger Agreement of Merger Sub 2 with and into VEREIT OP, with VEREIT OP continuing as the surviving entity;

“Realty Income” means Realty Income Corporation, a Maryland corporation and, unless otherwise expressly stated or the context otherwise requires, its consolidated subsidiaries;

“Realty Income common stock” means the common stock of Realty Income, par value $0.01 per share;

“VEREIT” means VEREIT, Inc., a Maryland corporation;

“VEREIT common stock” means the common stock of VEREIT, par value $0.01 per share;

“VEREIT OP” means VEREIT Operating Partnership, L.P., a Delaware limited partnership; and

“VEREIT OP common units” means the common partnership unit of VEREIT OP owned by a partner of VEREIT OP.

On April 29, 2021, Realty Income and VEREIT each entered into the Merger Agreement, by and among VEREIT, VEREIT OP, Realty Income, Merger Sub 1, and Merger Sub 2, pursuant to which the combination of Realty Income and VEREIT will be accomplished through (i) a merger of Merger Sub 2 with and into VEREIT OP, with VEREIT OP continuing as the surviving entity, and (ii) immediately thereafter, a merger of VEREIT with and into Merger Sub 1, with Merger Sub 1 continuing as the surviving corporation. In connection with the Merger, each VEREIT common stockholder will have the right to receive 0.705 newly issued shares of Realty Income common stock, par value $0.01 per share, for each share of VEREIT common stock, par value $0.01 per share, that they own immediately prior to the effective time of the Merger. In addition, pursuant to the terms and subject to the conditions of the Merger Agreement, at the date and time the Partnership Merger becomes effective, (i) each outstanding VEREIT OP common unit owned by a partner of VEREIT OP other than VEREIT that is issued and outstanding immediately prior to the Partnership Merger Effective Time, subject to the terms and conditions set forth in the Merger Agreement, will be converted into the number of newly issued shares of Realty Income common stock equal to the Exchange Ratio, (ii) each outstanding VEREIT OP Series F Preferred Unit that is issued and outstanding immediately prior to the Partnership Merger Effective Time (other than VEREIT OP Series F Preferred Units owned by VEREIT), subject to the terms and conditions of the Merger Agreement, will be converted into the right to receive $25.00 plus all accumulated and unpaid distributions to and including the day that is set forth in the Series F Preferred Stock Redemption Notice (as defined below), and (iii) each VEREIT OP Series F Preferred Unit and VEREIT OP common unit owned by VEREIT that is issued and outstanding immediately prior to the Partnership Merger Effective Time, subject to the terms and conditions of the Merger Agreement, will remain outstanding as partnership interests in the surviving entity. Holders of shares of VEREIT common stock and VEREIT OP common units will receive cash in lieu of fractional shares. Further, immediately prior to the Mergers, VEREIT will also issue a notice of redemption (the “Series F Preferred Stock Redemption Notice”) with respect to all of the outstanding shares of VEREIT's 6.70% Series F Cumulative Redeemable Preferred Stock (the “VEREIT Series F Preferred Stock”) with a redemption date as set forth in the Series F Preferred Stock Redemption Notice, and Realty Income will cause funds to be deposited in escrow to pay the redemption price for each share of VEREIT Series F Preferred Stock at the liquidation preference of $25.00 plus all accrued and unpaid dividends up to and including the redemption date set forth in the Series F Preferred Stock Redemption Notice..

The following unaudited pro forma condensed combined financial statements have been prepared by applying the acquisition method of accounting with Realty Income treated as the acquiror. The unaudited pro forma condensed combined financial statements are based on the historical consolidated financial statements of Realty Income and historical consolidated financial statements of VEREIT as adjusted to give effect to the Mergers. The unaudited pro forma condensed combined balance sheet as of March 31, 2021 gives effect to the Mergers as if they had occurred on March 31, 2021. The unaudited pro forma condensed combined statements of operations for the three months ended March 31, 2021 and the year ended December 31, 2020 give effect to the Mergers as if they had occurred on January 1, 2020.

These unaudited pro forma condensed combined financial statements are prepared for informational purposes only and are based on assumptions and estimates considered appropriate by Realty Income’s management. The unaudited pro forma adjustments represent Realty Income’s management’s estimates based on information available as of the date of the unaudited pro forma condensed combined financial statements and are subject to change as additional information becomes available and additional analyses are performed. However, Realty Income’s management believes that the assumptions provide a reasonable basis for presenting the significant effects that are directly attributable to the Mergers as contemplated, and that the pro forma adjustments give appropriate effect to those assumptions and are properly applied in the unaudited pro forma condensed combined financial statements. The unaudited pro forma condensed combined financial statements do not purport to be indicative of what Realty Income’s financial condition or results of operations actually would have been if the Mergers had been consummated as of the dates indicated, nor do they purport to represent Realty Income's financial position or results of operations for future periods.

Additionally, these unaudited pro forma condensed combined financial statements do not include any adjustments not otherwise described herein, including such adjustments associated with: (1) Realty Income or VEREIT real estate acquisitions that have closed or may close after March 31, 2021 or the related financing of those acquisitions, (2) Realty Income or VEREIT consumer price index rental rate increases, (3) potential synergies that may be achieved following the Mergers, including potential overall savings in general and administrative expense, or any strategies that Realty Income’s management may consider in order to continue to efficiently manage Realty Income’s operations, (4) any integration costs that may be incurred following the consummation of the Mergers, and (5) any one-time integration and other costs (including acceleration of share-based compensation awards and cash severance payments) which may be necessary to achieve the potential synergies, since the extent of such costs is not reasonably certain. The unaudited pro forma condensed combined financial statements do not give effect to the contemplated contribution, after the Mergers, by Realty Income and VEREIT of certain of their office real properties (the “OfficeCo Properties”) to a newly formed wholly owned subsidiary of Realty Income (“OfficeCo”), and the contemplated distribution by Realty Income of all of the outstanding voting shares of common stock in OfficeCo to Realty Income’s common stockholders (which, at that time, would also include the VEREIT stockholders who, as a result of the Mergers, received shares of Realty Income common stock and who continued to hold those shares as of the close of business on the record date for such distribution) on a pro rata basis (the “Spin-Off”), or a sale of some or all of the OfficeCo Properties, because, pursuant to the terms of the Merger Agreement, Realty Income and VEREIT have broad discretion to amend the scope and terms of the Spin-Off, including, among other things, the properties to be included as part of the OfficeCo Properties (including adding or removing properties), Realty Income and VEREIT may alternatively seek to sell some or all of the OfficeCo Properties, and Realty Income may elect not to pursue the Spin-Off at all. Please refer to Note 6 of the unaudited pro forma condensed combined financial statements for information related to the OfficeCo Properties and the potential Spin-Off or sale of some or all of the OfficeCo Properties.

UNAUDITED PRO FORMA CONDENSED COMBINED BALANCE SHEET
March 31, 2021
(in thousands)

	Realty Income Historical, As Reclassified (Note 3)			VEREIT Historical, As Reclassified (Note 3)			Merger Adjustments (Note 5)			Item in Note 5	Pro Forma Combined
ASSETS
Real estate held for investment, at cost:
Land	$	6,672,885		$	2,698,232		$	593,773		[1]	$	9,964,890
Buildings and improvements		15,171,070			9,941,903			783,350		[1]		25,896,323
Total real estate held for investment, at cost		21,843,955			12,640,135			1,377,123				35,861,213
Less accumulated depreciation and amortization		(3,668,269	)		(2,909,417	)		2,909,417		[2]		(3,668,269	)
Real estate held for investment, net		18,175,686			9,730,718			4,286,540				32,192,944
Real estate and lease intangibles held for sale, net		22,500			4,888			6,412		[3]		33,800
Cash and cash equivalents		183,984			318,561			(374,066	)	[8] [12]		128,479
Accounts receivable, net		307,017			330,871			(278,871	)	[4]		359,017
Lease intangible assets, net		1,820,146			931,832			1,779,006		[5]		4,530,984
Goodwill		14,114			1,337,773			(120,500	)	[6]		1,231,387
Other assets, net		456,123			322,715			24,466		[7]		803,304
Total assets	$	20,979,570		$	12,977,358		$	5,322,987			$	39,279,915
LIABILITIES AND EQUITY
Distributions payable	$	88,662		$	106,989		$	(1,041	)	[8]	$	194,610
Accounts payable and accrued expenses		200,168			116,486			76,000		[9]		392,654
Lease intangible liabilities, net		313,907			117,121			382,580		[10]		813,608
Other liabilities		277,325			264,968			—				542,293
Line of credit payable and commercial paper		675,000			—			—				675,000
Term loan, net		249,407			—			—				249,407
Mortgages payable, net		282,037			1,035,328			61,075		[11]		1,378,440
Notes payable, net		7,326,051			4,586,252			338,994		[11]		12,251,297
Total liabilities		9,412,557			6,227,144			857,608				16,497,309
Stockholders’ equity:
Preferred stock and paid-in capital		—			371,781			(371,781	)	[12]		—
Common stock and paid-in capital		15,371,016			12,981,320			(1,737,692	)	[12]		26,614,644
Distributions in excess of net income		(3,827,660	)		(6,610,678	)		6,581,472		[12]		(3,856,866	)
Accumulated other comprehensive (loss) income		(8,484	)		634			(634	)	[12]		(8,484	)
Total stockholders’ equity		11,534,872			6,743,057			4,471,365				22,749,294
Noncontrolling interests		32,141			7,157			(5,986	)	[13]		33,312
Total equity		11,567,013			6,750,214			4,465,379				22,782,606
Total liabilities and equity	$	20,979,570		$	12,977,358		$	5,322,987			$	39,279,915

UNAUDITED PRO FORMA CONDENSED COMBINED STATEMENT OF OPERATIONS
For the three months ended March 31, 2021
(in thousands, except share and per share data)

	Realty Income Historical			VEREIT Historical, As Reclassified (Note 3)			Merger Adjustments (Note 5)			Item in Note 5	Pro Forma Combined			Item in Note 5
REVENUE
Rental (including reimbursable)	$	439,365		$	290,309		$	18,460		[14]	$	748,134
Other		3,439			4,166			—				7,605
Total revenue		442,804			294,475			18,460				755,739
EXPENSES
Depreciation and amortization		177,985			108,075			95,789		[15]		381,849
Interest		73,075			60,736			(15,191	)	[16]		118,620
Property (including reimbursable)		28,499			30,605			1,436		[17]		60,540
General and administrative		20,796			15,948			3,448		[18]		40,192
Income taxes		6,225			928			—				7,153
Provisions for impairment		2,720			31,849			—				34,569
Total expenses		309,300			248,141			85,482				642,923
Gain on sales of real estate		8,401			76,074			—				84,475
Foreign currency and derivative gains, net		804			—			—				804
Equity in income of unconsolidated entities		—			447			—				447
Loss on extinguishment of debt		(46,473	)		(2,132	)		—				(48,605	)
Income from continuing operations		96,236			120,723			(67,022	)			149,937
Income attributable to noncontrolling interests		(296	)		(76	)		—				(372	)
Income from continuing operations available to common stockholders	$	95,940		$	120,647		$	(67,022	)		$	149,565
Income from continuing operations available to common stockholders per common share:
Basic and diluted	$	0.26		$	0.50						$	0.28		[20]
Weighted average common shares outstanding:
Basic		371,522,607			229,159,472			(67,435,394	)			533,246,685		[20]
Diluted		371,601,901			229,429,867			(67,188,665	)			533,843,103		[20]

UNAUDITED PRO FORMA CONDENSED COMBINED STATEMENT OF OPERATIONS
For the year ended December 31, 2020
(in thousands, except share and per share data)

	Realty Income Historical			VEREIT Historical, As Reclassified (Note 3)			Merger Adjustments (Note 5)			Item in Note 5	Pro Forma Combined			Item in Note 5
REVENUE
Rental (including reimbursable)	$	1,639,533		$	1,158,285		$	58,161		[14]	$	2,855,979
Other		12,092			9,691			—				21,783
Total revenue		1,651,625			1,167,976			58,161				2,877,762
EXPENSES
Depreciation and amortization		677,038			452,008			375,298		[15]		1,504,344
Interest		309,336			265,660			(63,016	)	[16]		511,980
Property (including reimbursable)		104,603			122,967			5,744		[17]		233,314
General and administrative		73,215			68,487			15,509		[18]		157,211
Income taxes		14,693			4,513			—				19,206
Provisions for impairment		147,232			65,075			—				212,307
Merger-related costs		—			—			76,000		[19]		76,000
Total expenses		1,326,117			978,710			409,535				2,714,362
Gain on sales of real estate		76,232			95,292			—				171,524
Foreign currency and derivative gains (losses), net		4,585			(85,392	)		—				(80,807	)
Equity in income and gain on disposition of unconsolidated entities		—			3,539			—				3,539
Loss on extinguishment of debt		(9,819	)		(1,486	)		—				(11,305	)
Income from continuing operations		396,506			201,219			(351,374	)			246,351
Income attributable to noncontrolling interests		(1,020	)		(91	)		—				(1,111	)
Income from continuing operations available to common stockholders	$	395,486		$	201,128		$	(351,374	)		$	245,240
Income from continuing operations available to common stockholders per common share:
Basic	$	1.15		$	0.72						$	0.48		[20]
Diluted	$	1.14		$	0.72						$	0.48		[20]
Weighted average common shares outstanding:
Basic		345,280,126			217,548,175			(55,824,097	)			507,004,204		[20]
Diluted		345,415,258			217,862,005			(55,548,984	)			507,728,279		[20]

NOTES TO UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL STATEMENTS

Note 1 — Basis of Presentation

The Realty Income and VEREIT historical financial information has been derived from, in the case of Realty Income, its consolidated financial statements in its Quarterly Report on Form 10-Q for the quarter ended March 31, 2021, and Annual Report on Form 10-K for the year ended December 31, 2020, and, in the case of VEREIT, its consolidated financial statements included as Exhibits 99.1 and 99.2 to Realty Income's Current Report on Form 8-K filed with the Securities and Exchange Commission on June 4, 2021 (the "Form 8-K"), of which this Exhibit 99.3 is a part. Certain of VEREIT’s historical amounts have been reclassified to conform to Realty Income’s financial statement presentation, as discussed further in Note 3. The unaudited pro forma condensed combined financial statements should be read in conjunction with Realty Income’s and VEREIT’s historical consolidated financial statements and the notes thereto. The unaudited pro forma condensed combined balance sheet gives effect to the Mergers as if they had been completed on March 31, 2021. The unaudited pro forma condensed combined statements of operations give effect to the Mergers as if they had been completed on January 1, 2020.

The historical financial statements of Realty Income and VEREIT have been adjusted in the unaudited pro forma condensed combined financial statements to give pro forma effect to the accounting for the Mergers under U.S. GAAP (“Merger Adjustments”). The unaudited pro forma condensed combined financial statements and related notes were prepared using the acquisition method of accounting in accordance with ASC 805, Business Combinations, with Realty Income as the acquiror of VEREIT. ASC 805 requires, among other things, that the assets acquired and liabilities assumed in a business combination be recognized at their fair values as of the acquisition date. For purposes of the unaudited pro forma condensed combined balance sheet, the estimated purchase consideration has been allocated to the assets acquired and liabilities assumed of VEREIT based upon Realty Income management’s preliminary estimate of their fair values as of March 31, 2021. The allocations of the purchase price reflected in these unaudited pro forma condensed combined financial statements have not been finalized and are based upon the best available information at the current time. A final determination of the fair values of the assets and liabilities, which cannot be made prior to the completion of the Mergers and which is anticipated to occur during the fourth quarter of 2021, will be based on the actual valuations of the tangible and intangible assets and liabilities that exist as of the date of completion of the Mergers. The completion of the final valuations, the allocations of the purchase price, the impact of ongoing integration activities, the timing of the completion of the Mergers and other changes in tangible and intangible assets and liabilities that occur prior to the completion of the Mergers could cause material differences in the information presented.

The unaudited pro forma condensed combined financial statements and related notes herein present unaudited pro forma condensed combined financial condition and results of operations of Realty Income, after giving pro forma effect to the Mergers, which include the issuance of Realty Income common stock to VEREIT stockholders, the assumption of VEREIT’s outstanding debt, the redemption of all of the outstanding shares of VEREIT Series F Preferred Stock, and the conversion of each outstanding VEREIT OP common unit owned by a partner of VEREIT OP other than VEREIT that is issued and outstanding into newly issued shares of Realty Income common stock equal to the Exchange Ratio.

The Mergers and the related adjustments are described in these accompanying notes to the unaudited pro forma condensed combined financial statements. The unaudited pro forma condensed combined financial statements do not give effect to the Spin-Off or any sales of all or a portion of the OfficeCo Properties. In the opinion of Realty Income’s management, all material adjustments have been made that are necessary to present fairly, in accordance with Article 11 of Regulation S-X of the SEC, the unaudited pro forma condensed combined financial statements. The unaudited pro forma condensed combined financial statements do not purport to be indicative of the overall financial position or results of operations of the combined company that would have occurred if the Mergers had been completed on the dates indicated, nor are they indicative of the overall financial position or results of operations that may be expected for any future period or date. In addition, future results may vary significantly from those reflected in the unaudited pro forma condensed combined financial statements due to factors discussed in the “Supplemental Risk Factors” in Exhibit 99.4 to the Form 8-K.

Note 2 — Significant Accounting Policies

The accounting policies used in the preparation of these unaudited pro forma condensed combined financial statements are those set out in Realty Income’s audited consolidated financial statements as of and for the year ended December 31, 2020 and Realty Income’s unaudited consolidated financial statements as of and for the three months ended March 31, 2021. Realty Income’s management has determined that there were no significant accounting policy differences between Realty Income and VEREIT and, therefore, no adjustments are necessary to conform VEREIT’s financial statements to the accounting policies used by Realty Income in the preparation of the unaudited pro forma condensed combined financial statements. This conclusion is subject to change as further assessment is performed and finalized for purchase accounting.

As part of the application of ASC 805, Realty Income will conduct a more detailed review of VEREIT’s accounting policies in an effort to determine if differences in accounting policies require further reclassification or adjustment of VEREIT’s results of operations or reclassification or adjustment of assets or liabilities to conform to Realty Income’s accounting policies and classifications. Therefore, Realty Income may identify additional differences between the accounting policies of the two companies that, when conformed, could have a material impact on the unaudited pro forma condensed combined financial information. In certain cases, the information necessary to evaluate the differences in accounting policies and the impacts thereof may not be available until after the Mergers are completed.

Note 3 — Reclassification Adjustments

The VEREIT and Realty Income historical financial statement line items include the reclassification of certain historical balances to conform to the post-merger Realty Income presentation of these unaudited pro forma condensed combined financial statements, as described below. These reclassifications have no effect on previously reported total assets, total liabilities, stockholders’ equity or income from continuing operations of Realty Income or VEREIT.

Balance Sheet

	•	The carrying amount of Realty Income’s goodwill of $14.1 million, previously classified as a component of Other assets, net, was reclassified into a new caption, Goodwill, on Realty Income’s consolidated balance sheet.

	•	VEREIT’s balances for Operating lease right-of-use assets, Investment in unconsolidated entities, Restricted cash, and Rent and tenant receivables and other assets, net (excluding straight-line rent receivable, net and accounts receivable, net), previously disclosed as separate components of VEREIT’s consolidated balance sheet, have been reclassified to Other assets, net as follows (in thousands):

	March 31, 2021
Rent and tenant receivables and other assets, net	$	368,926
Less: Straight-line rent receivable, net		(278,871	)
Less: Accounts receivable, net		(52,000	)
Operating lease right-of-use assets		191,443
Investments in unconsolidated entities		80,513
Restricted cash		12,704
Other assets, net, as presented	$	322,715

•

VEREIT’s balances for Straight-line rent receivable, net and Accounts receivable, net, previously disclosed as a component of Rent and tenant receivables and other assets, net, on VEREIT’s consolidated balance sheet have been reclassified to Accounts receivable, net as follows (in thousands):

	March 31, 2021
Straight-line rent receivable, net	$	278,871
Accounts receivable, net		52,000
Accounts receivable, net, as presented	$	330,871

·	VEREIT’s balances for intangible lease assets and the related accumulated amortization, which were previously reported on a gross basis as components of the Total real estate investments, net subtotal on VEREIT’s consolidated balance sheet, have been reclassified outside of Total real estate investments, net to Lease intangible assets, net, as follows (in thousands):

	March 31, 2021
Intangible lease assets	$	1,883,826
Less: Accumulated amortization		(951,994	)
Lease intangible assets, net, as presented	$	931,832


·	VEREIT’s balances for Deferred rent and other liabilities and Operating lease liabilities previously disclosed as separate components of VEREIT’s consolidated balance sheet have been reclassified to Other liabilities, as follows (in thousands):

March 31, 2021

Deferred rent and other liabilities $ 62,944

Operating lease liabilities 202,024

Other liabilities, as presented $ 264,968


·	VEREIT’s balance for Corporate bonds, net, of $4.6 billion previously disclosed as a separate component of VEREIT’s consolidated balance sheet, has been reclassified to Notes payable, net.

·	VEREIT’s balance for Preferred stock, previously disclosed as a separate component of VEREIT’s consolidated balance sheet, and the associated amount of additional paid-in capital, previously disclosed as a component of Additional paid-in capital on VEREIT’s consolidated balance sheet, have been reclassified to Preferred stock and paid-in capital, as follows (in thousands):

	March 31, 2021
Preferred stock	$	149
Additional paid-in capital		371,632
Preferred stock and paid-in capital, as presented	$	371,781


·	VEREIT’s balances for Common stock and Additional paid-in capital, previously disclosed as separate components of VEREIT’s consolidated balance sheet, have been reclassified to Common stock and paid-in capital, as follows (in thousands):

	March 31, 2021
Common stock	$	2,291
Additional paid-in capital		13,350,661
Less: Additional paid-in capital related to preferred stock		(371,632	)
Common stock and paid-in capital, as presented	$	12,981,320

Statements of Operations:

VEREIT’s Fees from managed partnerships of $0.5 million and $3.1 million for the three months ended March 31, 2021 and year ended December 31, 2020, respectively, previously disclosed as a separate component of Total revenue on VEREIT’s consolidated statements of operations, were reclassified under Revenue as Other.

VEREIT’s Other income, net, of $3.7 million and $6.6 million for the three months ended March 31, 2021 and year ended December 31, 2020, respectively, previously disclosed as a separate component of Other income (expenses) on VEREIT’s consolidated statements of operations, was reclassified under Revenue as Other. Total reclassifications within Other under Revenue are as follows (in thousands):

	For the three months ended March 31, 2021		For the year ended December 31, 2020
Fees from managed partnerships	$	500	$	3,081
Other income, net		3,666		6,610
Other, as presented	$	4,166	$	9,691

·	VEREIT’s Acquisition-related and Litigation and non-routine costs, net, previously disclosed as separate components of operating expenses on VEREIT’s consolidated statements of operations, were combined with General and administrative expense in a single line item, as follows (in thousands):

	For the three months ended March 31, 2021		For the year ended December 31, 2020
Acquisition-related	$	1,354	$	4,790
Litigation and non-routine costs, net		68		2,348
General and administrative		14,526		61,349
General and administrative, as presented	$	15,948	$	68,487

Note 4 — Preliminary Purchase Price Allocation

Estimated Preliminary Purchase Price

The unaudited pro forma condensed combined financial statements reflect the preliminary allocation of the purchase consideration to VEREIT’s identifiable net assets acquired. The preliminary allocation of purchase consideration in these unaudited pro forma condensed combined financial statements is based upon an estimated preliminary purchase price of approximately $17.6 billion. The calculation of the estimated preliminary purchase price related to the Mergers is as follows (in thousands, except share and per share data):

	Amount
Estimated shares of VEREIT common stock and VEREIT OP common units to be exchanged ^(a)		229,281,987
Exchange Ratio		0.705
Estimated shares of Realty Income common stock to be issued		161,643,801
Closing price of Realty Income common stock on June 1, 2021^(b)	$	69.35
Estimated fair value of Realty Income common stock to be issued to former holders of VEREIT common stock and VEREIT OP common units^(b)	$	11,209,998
Redemption of VEREIT Series F Preferred Stock and VEREIT OP Series F Preferred OP Units^(c)		374,066
Estimated fair value of VEREIT’s equity-based compensation awards attributable to pre-combination services^(d)		33,630
Consideration to be transferred	$	11,617,694
Preliminary fair value of VEREIT mortgages payable and notes payable assumed by Realty Income		6,021,649
Total estimated preliminary purchase price	$	17,639,343

	(a)	Includes 229,129,954 shares of VEREIT common stock outstanding as of March 31, 2021 and 152,033 VEREIT OP common units outstanding as of March 31, 2021. Under the Merger Agreement, these shares and units are to be converted to Realty Income common stock at an Exchange Ratio of 0.705 per share of VEREIT common stock or VEREIT OP common unit, as applicable.

	(b)	The estimated fair value of Realty Income common stock to be issued to former holders of VEREIT common stock and VEREIT OP common units is based upon the per share closing price of Realty Income’s common stock on June 1, 2021 which was $69.35, multiplied by the estimated shares of Realty Income common stock to be issued.

	(c)	Immediately prior to and conditional upon the consummation of the Mergers, VEREIT will issue a notice of redemption with respect to all of the outstanding shares of the VEREIT Series F Preferred Stock, and Realty Income will cause funds to be deposited in escrow to pay the redemption price for each share of the VEREIT Series F Preferred Stock at the liquidation preference of $25.00 plus all accrued and unpaid dividends up to and including the redemption date. The estimated preliminary purchase price presented in these unaudited pro forma condensed combined financial statements is based upon 14,921,012 shares of the VEREIT Series F Preferred Stock (including 49,766 shares of the VEREIT OP Series F Preferred Units included within Noncontrolling interests) outstanding as of March 31, 2021 and the accrued and unpaid dividends on such VEREIT Series F Preferred Stock of $1.0 million.

	(d)	Represents the estimated fair value of fully vested VEREIT DSU Awards which will be converted into Realty Income common stock upon the Mergers, as well as the fair value of the Realty Income replacement employee and executive stock options, restricted stock units, and performance restricted stock units that will be granted at the closing date of the Mergers and which are attributable to pre-combination services.

The actual value of the Realty Income common stock to be issued in the Mergers will depend on the market price of shares of Realty Income common stock at the closing date of the Mergers, and therefore, the actual purchase price will fluctuate with the market price of Realty Income common stock until the Mergers are consummated. As a result, the final purchase price could differ significantly from the current estimate, which could materially impact the unaudited pro forma condensed combined financial statements. A 10% difference in Realty Income’s stock price would change the purchase price by approximately $1.1 billion, which would be recorded as an adjustment to the fair value of the net assets acquired, including goodwill as applicable.

The outstanding number of shares of VEREIT common stock, the outstanding number of VEREIT OP common units, and the outstanding shares of the VEREIT Series F Preferred Stock and the VEREIT OP Series F Preferred Units may change prior to the closing of the Mergers due to transactions in the ordinary course of business, including unknown changes in vesting of outstanding VEREIT equity-based awards and any grants of new VEREIT equity-based awards. These changes are not expected to have a material impact on the unaudited pro forma condensed combined financial statements.

Preliminary Purchase Price Allocation

The preliminary purchase price allocation to assets acquired and liabilities assumed is provided throughout these notes to the unaudited pro forma condensed combined financial statements. The following table provides a summary of the preliminary purchase price allocation by major categories of assets acquired and liabilities assumed based on Realty Income management’s preliminary estimate of their respective fair values as of March 31, 2021 (in thousands):

	Amount
Total estimated preliminary purchase price	$	17,639,343
Assets:
Real estate held for investment	$	14,017,258
Real estate and lease intangibles held for sale		11,300
Lease intangible assets		2,710,838
Cash and cash equivalents		318,561
Accounts receivable		52,000
Other assets		347,181
Total assets acquired	$	17,457,138

	Amount
Liabilities:
Distributions payable	$	105,948
Accounts payable and accrued expenses ^(a)		163,280
Lease intangible liabilities		499,701
Other liabilities		264,968
Mortgages payable		1,096,403
Notes payable		4,925,246
Total liabilities assumed	$	7,055,546
Estimated preliminary fair value of net assets acquired	$	10,401,592
Add: Estimated preliminary fair value of noncontrolling interests acquired		1,171
Goodwill	$	1,217,273

(a)

This balance includes $46.8 million of estimated transaction costs to be incurred by VEREIT as a result of the Mergers. These costs are expected to be recognized as an expense in VEREIT's pre-combination statement of operations and therefore they are reflected as a liability assumed by Realty Income, with no impact on pro forma combined distributions in excess of net income.

The preliminary fair values of identifiable assets acquired and liabilities assumed are based on a valuation as of the assumed consummation date of the Mergers that is prepared by Realty Income with assistance of a third-party valuation advisor. For the preliminary estimate of fair values of assets acquired and liabilities assumed of VEREIT, Realty Income used publicly available benchmarking information as well as a variety of other assumptions, including market participant assumptions. The allocation is dependent upon certain valuation and other studies that have not yet been finalized. Accordingly, the pro forma purchase price allocation is subject to further adjustment as additional information becomes available and as additional analyses and final valuations are completed, and such differences could be material. In particular, the fair values of the assets and liabilities were estimated, in part, based upon the allocation of real estate and intangible lease assets and liabilities, and adjusted to reflect reasonable estimations for above-market and below-market leases, in-place lease values, and avoided lease origination costs, and to incorporate estimates for the mark-to-market adjustments (i.e., premiums) of mortgages payable and notes payable to be assumed in the Mergers, all of which are based on Realty Income’s historical experience with similar assets and liabilities. In determining the estimated fair value of VEREIT’s tangible assets, Realty Income utilized customary methods, including the income, market, and cost approaches. Amounts allocated to land, buildings and improvements, and tenant improvements, and lease intangible assets and liabilities were based on an analysis performed by third parties based on Realty Income’s, VEREIT’s and other portfolios with similar property characteristics.

The purchase price allocation presented above has not been finalized. The final determination of the allocation of the purchase price will be based on the fair value of such assets and liabilities as of the actual consummation date of the Mergers and will be completed after the Mergers are consummated. These final fair values will be determined based on Realty Income’s management’s judgment, which is based on various factors, including (1) market conditions, (2) the industry in which the client operates, (3) the characteristics of the real estate (i.e., location, size, demographics, value and comparative rental rates), (4) the client credit profile, (5) store profitability metrics and the importance of the location of the real estate to the operations of the client’s business, and/or (6) real estate valuations. The final determination of these estimated fair values, the assets’ useful lives and the depreciation and amortization methods are dependent upon certain valuations and other analyses that have not yet been completed, and as previously stated could differ materially from the amounts presented in the unaudited pro forma condensed combined financial statements. The final determination will be completed as soon as practicable but no later than one year after the consummation of the Mergers. Any increase or decrease in the fair value of the net assets acquired, as compared to the information shown herein, could change the portion of the purchase consideration allocable to goodwill and could impact the operating results of the combined company following the Mergers due to differences in the allocation of the purchase consideration, as well as changes in the depreciation and amortization related to some of the acquired assets.

Note 5 — Merger Adjustments

Balance Sheet

The pro forma adjustments reflect the effect of the Mergers on Realty Income’s and VEREIT’s historical consolidated balance sheets as if the Mergers occurred on March 31, 2021.

Assets

The pro forma adjustments for Land and Buildings and improvements reflect: (i) the elimination of VEREIT’s historical carrying values of $2.7 billion for Land and $9.9 billion for Buildings and improvements, and (ii) the recognition of the fair value of these assets of $3.3 billion for Land and $10.7 billion for Buildings and improvements, based upon the preliminary valuation of the tangible real estate assets to be acquired. For information regarding the valuation methodology applied to the tangible real estate assets, refer to Note 4. The pro forma adjustments are presented as follows (in thousands):

	Estimated fair value		Less: Elimination of historical carrying value			Total pro forma adjustment
Land	$	3,292,005	$	(2,698,232	)	$	593,773
Buildings and improvements		10,725,253		(9,941,903	)		783,350

2)	Accumulated depreciation and amortization were adjusted to eliminate VEREIT’s historical accumulated depreciation and amortization balances of $2.9 billion.

3)	VEREIT’s Real estate and lease intangibles held for sale, net were adjusted by $6.4 million to reflect the contract sale price, less selling expenses, on those assets, totaling $11.3 million.

4)	Accounts receivable, net were adjusted to eliminate VEREIT’s historical straight-line rent receivable, net, of $278.9 million, which is not treated as a separately recognized asset on the combined company’s balance sheet.

5)	The pro forma adjustments for Lease intangible assets, net reflect: (i) the elimination of VEREIT’s historical carrying values for these assets, net of the associated accumulated amortization, of $931.8 million and (ii) the recognition of the fair value of these assets of $2.7 billion, based upon the preliminary valuation of the intangible real estate assets to be acquired. For information regarding the valuation methodology applied to the lease intangible assets, refer to Note 4. The following table summarizes the major classes of lease intangible assets acquired and the total pro forma adjustment to Lease intangible assets, net (in thousands):

	Amount
Preliminary allocation of fair value:
In-place leases	$	2,063,904
Leasing commissions and marketing costs		290,457
Above-market lease assets		356,477
Less: Elimination of historical carrying value of lease intangible assets, net		(931,832	)
Total pro forma adjustment	$	1,779,006

The pro forma adjustments for Goodwill reflect: (i) the elimination of VEREIT’s historical goodwill balance of $1.3 billion, and (ii) the recognition of the preliminary goodwill balance associated with the Mergers of $1.2 billion based on the preliminary purchase price allocation. For additional information, refer to Note 4.

Other assets, net were adjusted to (i) eliminate deferred costs, net, of $4.3 million, which consist primarily of unamortized deferred financing costs for VEREIT’s revolving credit facility, and (ii) recognize the fair value of acquired below-market ground leases of $28.8 million, based upon the preliminary valuation of these contracts.

Liabilities

8)	The pro forma adjustment for Distributions payable represents $1.0 million of dividends on the VEREIT Series F Preferred Stock accrued through March 31, 2021, which will be paid by Realty Income immediately prior to and in conjunction with the Mergers, as the consummation of the Mergers is contingent upon the settlement of the VEREIT Series F Preferred Stock, including the unpaid accrued dividends on the VEREIT Series F Preferred Stock.

9)	The pro forma adjustment for Accounts payable and accrued expenses represents $29.2 million and $46.8 million of estimated transaction costs to be incurred by Realty Income and VEREIT, respectively, as a result of the Mergers.

10)	The pro forma adjustments for Lease intangible liabilities, net reflect: (i) the elimination of VEREIT’s historical carrying values for these liabilities, net of the associated accumulated amortization, of $117.1 million, and (ii) the recognition of the fair value of these intangible liabilities of $499.7 million, based upon the preliminary valuation of the intangible lease liabilities to be assumed. For information regarding the valuation methodology applied to the lease intangible liabilities, refer to Note 4.

11)	The pro forma adjustments for Mortgages payable, net and Notes payable, net reflect: (i) the elimination of VEREIT’s historical carrying values of these liabilities, including the associated unamortized deferred financing costs and net discounts, of $1.0 billion for mortgages payable and $4.6 billion for notes payable, and (ii) the recognition of the fair value of $1.1 billion for mortgages payable and $4.9 billion for notes payable, based upon the preliminary valuation of these liabilities. The preliminary fair value of mortgages payable has been estimated by an independent third party using a discounted cash flow analysis, based on estimates of observable market interest rates. The preliminary fair value of notes payable has been estimated using quoted market prices in active markets with limited trading volume, when available. The following table summarizes the pro forma adjustments to Mortgages payable, net and Notes payable, net (in thousands):

	Mortgages payable			Notes payable
Estimated fair value	$	1,096,403		$	4,925,246
Less: Elimination of historical carrying value, including unamortized deferred financing costs and net discounts		(1,035,328	)		(4,586,252	)
Total pro forma adjustment	$	61,075		$	338,994

Equity

12)	The following table summarizes pro forma adjustments for stockholders’ equity (in thousands):

	Preferred stock and paid-in capital			Common stock and paid-in capital			Distributions in excess of net income			Accumulated other comprehensive (loss) income
Redemption of the VEREIT Series F Preferred Stock^(a)	$	(371,781	)	$	—		$	—		$	—
Issuance of Realty Income common stock ^(b)		—			11,209,998			—			—
Settlement and exchange of VEREIT equity-based awards^(c)		—			33,630			—			—
Elimination of VEREIT’s historical equity balances		—			(12,981,320	)		6,610,678			(634	)
Realty Income merger related costs^(d)		—			—			(29,206	)		—
Total pro forma adjustment	$	(371,781	)		1,737,692		$	6,581,472		$	(634	)

	(a)	The pro forma adjustment reflects the redemption of the VEREIT Series F Preferred Stock at the liquidation preference of $25.00 per share, plus accrued and unpaid dividends, as described in Note 4. The total pro forma adjustment to cash and cash equivalents represents the amounts to be paid by Realty Income to redeem the VEREIT Series F Preferred Stock of $371.8 million, the VEREIT OP Series F Preferred Units of $1.2 million, and the accrued and unpaid dividends of $1.0 million.

	(b)	The pro forma adjustment represents the issuance of Realty Income common stock as consideration for the Mergers, as described in Note 4. The fair value of Realty Income common stock to be issued to former holders of VEREIT common stock and VEREIT OP common units is based on the per share closing price of Realty Income common stock of $69.35 on June 1, 2021.

	(c)	Represents the estimated fair value of fully vested VEREIT DSU Awards which will be converted into Realty Income common stock upon the Mergers, as well as the fair value of the Realty Income replacement employee and executive stock options, restricted stock units, and performance restricted stock units that will be granted at the closing date of the Mergers and which are attributable to pre-combination services.

	(d)	The pro forma adjustment to distributions in excess of net income excludes $46.8 million of estimated transaction costs to be incurred by VEREIT as a result of the Mergers. These costs are expected to be recognized as an expense in VEREIT's pre-merger statement of operations and therefore they are reflected as a liability assumed by Realty Income, with no impact on pro forma combined distributions in excess of net income.

13)

The pro forma adjustment reflects the removal of noncontrolling interests related to shares of the VEREIT OP Series F Preferred Units held by VEREIT OP’s minority partners, totaling $1.8 million, and the VEREIT OP common units, totaling $4.2 million, which will be exchanged into Realty Income common stock upon consummation of the Mergers.

Statements of Operations

The pro forma adjustments reflect the effect of the Mergers on Realty Income’s and VEREIT’s historical consolidated statements of operations and shares used in computing income from continuing operations available to common stockholders per common share as if the Mergers occurred on January 1, 2020.

Revenue

14)	Rental (including reimbursable)

The historical rental revenues for Realty Income and VEREIT represent contractual and straight-line rents and amortization of above-market and below-market lease intangibles associated with the leases in effect during the periods presented. The adjustments included in the unaudited pro forma condensed combined statements of operations are presented to: (i) eliminate the historical straight-line rents and amortization of above-market and below-market lease intangibles for the real estate properties of VEREIT acquired as part of the Mergers, and (ii) adjust contractual rental property revenue for such properties to a straight-line basis and amortize above-market and below-market lease intangibles recognized as a result of the Merger.

The pro forma adjustment for the amortization of above-market and below-market lease intangibles recognized as a result of the Mergers was estimated based on a straight-line methodology and the estimated remaining weighted average contractual, in-place lease term of 8.4 years. The lease intangible asset and liability fair values and estimated amortization expense may differ materially from the preliminary determination within these unaudited pro forma condensed combined financial statements. The pro forma adjustments to rental revenues do not purport to be indicative of the expected change in rental revenues of the combined company in any future periods.

The following table summarizes the adjustments made to rental revenues for the real estate properties of VEREIT to be acquired as part of the Mergers for the three months ended March 31, 2021 and year ended December 31, 2020 (in thousands):

	Elimination of historical amounts^(a)			Recognition of post-merger amounts			Total pro forma adjustment
For the three months ended March 31, 2021
Straight-line rents	$	(4,470	)	$	16,737		$	12,267
Amortization of above-market and below-market lease intangibles		1,537			4,656			6,193
Total pro forma adjustment	$	(2,933	)	$	21,393		$	18,460
For the year ended December 31, 2020
Straight-line rents	$	(23,149	)	$	59,908		$	36,759
Amortization of above-market and below-market lease intangibles		2,777			(18,625	)		21,402
Total pro forma adjustment	$	(20,372	)	$	78,533		$	58,161

(a)

Elimination of historical amounts excludes amounts related to VEREIT properties that were sold between January 1, 2020 and March 31, 2021, because such properties are not part of the net assets acquired in the Mergers.

Expense

15)

The adjustments included in the unaudited pro forma condensed combined statements of operations are presented to: (i) eliminate the historical depreciation and amortization of real estate properties of VEREIT acquired as part of the Mergers, and (ii) to recognize additional depreciation and amortization expense associated with the fair value of acquired real estate tangible and intangible assets. Refer to Note 4 for additional information.

The pro forma adjustment for the depreciation and amortization of acquired assets is calculated using a straight-line methodology and is based on estimated useful lives for building and site improvements, the remaining contractual, in-place lease term for intangible lease assets, and the lesser of the estimated useful life and the remaining contractual, in-place lease term for tenant improvements. The useful life of a particular building depends upon a number of factors including the condition of the building upon acquisition. For purposes of the unaudited pro forma condensed combined statements of operations, the weighted average useful life for buildings and site improvements is 29.3 years; the weighted average useful life for tenant improvements is 8.3 years; and the weighted average remaining contractual, in-place lease term is 8.4 years. The fair value of acquired real estate tangible and intangible assets, estimated useful lives of such assets, and estimated depreciation and amortization expense may differ materially from the preliminary determination within these unaudited pro forma condensed combined financial statements. The pro forma adjustments to depreciation and amortization expense are not necessarily indicative of the expected change in depreciation and amortization expense of the combined company in any future periods.

The following table summarizes adjustments made to depreciation and amortization expense by asset category for the real estate properties of VEREIT to be acquired as part of the Mergers for the three months ended March 31, 2021 and year ended December 31, 2020 (in thousands):

	For the three months ended March 31, 2021			For the year ended December 31, 2020
Buildings and improvements	$	99,405		$	397,618
Tenant improvements		31,095			124,379
In-place leases and leasing commissions and marketing costs		72,167			288,667
Less: Elimination of historical depreciation and amortization^(a)		(106,878	)		(435,366	)
Total pro forma adjustment	$	95,789		$	375,298

(a)

16)

The following table summarizes the pro forma adjustments to interest expense for the three months ended March 31, 2021 and year ended December 31, 2020, which reflect the impact to the amounts recognized in VEREIT’s historical consolidated statements of operations for the periods presented from: (i) the elimination of historical deferred financing cost amortization, (ii) the elimination of historical amortization on net premiums/discounts, and (iii) the amortization of the fair value adjustment on VEREIT’s mortgages and notes payable assumed in the Mergers (in thousands):

	For the three months ended March 31, 2021				For the year ended December 31, 2020
Elimination of historical deferred financing costs amortization	$	(2,555	)	$	(15,114	)
Elimination of historical amortization of net (discounts)/premiums		(248	)		(1,650	)
Amortization of the fair value adjustment on mortgages and notes payable		(12,388	)		(49,552	)
Total pro forma adjustment	$	(15,191	)	$	(63,016	)

The pro forma adjustments for the amortization of the fair value adjustment on VEREIT’s mortgages and notes payable assumed in the Mergers were estimated based on a straight-line approach and the weighted average remaining contractual term of 3.6 years for mortgages payable and 8.2 years for notes payable. The fair value adjustment on VEREIT’s mortgages and notes payable and estimated amortization expense may differ materially from the preliminary determination within these unaudited pro forma condensed combined financial statements. The pro forma adjustments to interest expense do not purport to be indicative of the expected change in interest expense of the combined company in any future periods.

17)

Represents an adjustment to increase ground leases rent expense by $1.4 million for the three months ended March 31, 2021 and $5.7 million for the year ended December 31, 2020 as a result of the revaluation of operating lease right-of-use assets and recognition of below-market ground lease intangible assets. The adjustment is computed based on a straight-line approach and a weighted average remaining lease term of 11.8 years. The fair value adjustment on VEREIT’s ground leases may differ materially from the preliminary determination within these unaudited pro forma condensed combined financial statements. The pro forma adjustments to property (including reimbursable) expense do not purport to be indicative of the expected change in ground rent expense of the combined company in any future periods.

18)

Represents an adjustment to recognize additional post-combination compensation expense of $3.4 million for the three months ended March 31, 2021 and $15.5 million for the year ended December 31, 2020 associated with the fair value of Realty Income replacement awards issued to the holders of VEREIT restricted stock units, performance restricted stock units and stock options. The adjustment is based upon a straight-line vesting approach. The fair value of Realty Income’s replacement awards may differ materially from the preliminary determination within these unaudited pro forma condensed combined financial statements. The pro forma adjustments to general and administrative expense do not purport to be indicative of the expected change in compensation expense of the combined company in any future periods.

19)

Represents the adjustment for Merger-related costs of $76.0 million for the year ended December 31, 2020 resulting from estimated transaction-related costs that are not currently reflected in the historical consolidated financial statements of Realty Income and VEREIT; these estimated transaction costs consist primarily of advisor fees, legal fees, change in control payments, and accounting fees. It is assumed that these costs will not affect the combined statements of operations beyond twelve months after the closing date of the Mergers.

Income from continuing operations available to common stockholders per common share:

20)	The following table summarizes the unaudited pro forma net income from continuing operations per common share for the three months ended March 31, 2021 and the year ended December 31, 2020 as if the Mergers occurred on January 1, 2020 (in thousands, except share and per share data):

		For the three months ended March 31, 2021		For the year ended December 31, 2020
Numerator
Pro forma income from continuing operations available to common stockholders	$	149,565	$	245,240
Denominator
Realty Income historical weighted average common shares outstanding		371,522,607		345,280,126
VEREIT common stock and VEREIT OP common units converted into Realty Income common stock (229,281,987 shares and units outstanding, multiplied by the Exchange Ratio of 0.705)		161,643,801		161,643,801
VEREIT DSU Awards converted into Realty Income common stock (113,868 units, multiplied by the Exchange Ratio of 0.705)		80,277		80,277
Pro forma weighted average common shares outstanding – basic		533,246,685		507,004,204
Realty Income historical weighted average dilutive shares		79,294		135,132
Unvested VEREIT equity-based awards exchanged into Realty Income equity-based awards		517,124		588,943
Pro forma weighted average common shares outstanding – diluted		533,843,103		507,728,279
Pro forma income from continuing operations available to common stockholders per common share:
Basic and diluted	$	0.28	$	0.48

Note 6 — The Spin-Off and OfficeCo Properties

As noted above, the unaudited pro forma condensed combined financial statements do not give effect to the Spin-Off, or a sale of some or all of the OfficeCo Properties, because, pursuant to the terms of the Merger Agreement, Realty Income and VEREIT have broad discretion to amend the scope and terms of the Spin-Off, including, among other things, the properties to be included as part of the OfficeCo Properties (including adding or removing properties). Realty Income and VEREIT may alternatively seek to sell some or all of the OfficeCo Properties, and Realty Income may elect not to consummate the Spin-Off at all.

As of the date of the Form 8-K, following the consummation of the Mergers, VEREIT and Realty Income intend to contribute to OfficeCo in connection with the Spin-Off and/or sell up to 93 total OfficeCo Properties, of which up to 53 properties would be office properties owned by VEREIT (the “VEREIT OfficeCo Properties”), and up to 40 properties would be office properties owned by Realty Income (the “Realty Income OfficeCo Properties”).

As of March 31, 2021, the VEREIT OfficeCo Properties represented total leasable square feet of 7.6 million, of which 94.5% were occupied. The carrying value of the total assets of the VEREIT OfficeCo Properties, net of the associated accumulated depreciation, as of March 31, 2021 was $1.3 billion on a historical U.S. GAAP basis, and was subject to $177.9 million in total mortgage debt principal. In April 2021, $19.1 million in mortgage principal for a VEREIT OfficeCo Property was repaid in full. Total revenues generated by the VEREIT OfficeCo Properties were $40.3 million and $168.3 million for the three months ended March 31, 2021 and the year ended December 31, 2020, respectively, also on a historical U.S. GAAP basis.

As of March 31, 2021, the Realty Income OfficeCo Properties represented total leasable square feet of 3.0 million, of which 95.3% were occupied. The carrying value of the total assets of the Realty Income OfficeCo Properties, net of the associated accumulated depreciation, as of March 31, 2021 was $536.4 million on a historical U.S. GAAP basis, and was subject to $36.9 million in total mortgage debt principal. In April 2021, $14.0 million in mortgage principal for a Realty Income OfficeCo Property was repaid in full. Total revenues generated by the Realty Income OfficeCo Properties were $13.0 million and $53.5 million for the three months ended March 31, 2021 and the year ended December 31, 2020, respectively, also on a historical U.S. GAAP basis.

After giving effect to the Merger Adjustments for the VEREIT OfficeCo Properties, which include the adjustment of land, buildings and other tangible real estate assets to fair value and the recognition of lease intangible assets and liabilities, as if the Mergers had been completed on March 31, 2021, and the impact of straight-line rent and amortization of above-market and below-market lease intangibles as if the Mergers had been completed on January 1, 2020, the OfficeCo Properties, in total, would have represented approximately 6% of the combined company total assets as of March 31, 2021 and approximately 7% and approximately 8% of total revenues for the three months ended March 31, 2021 and the year ended December 31, 2020, respectively. If the Spin-Off of the OfficeCo Properties is effectuated, Realty Income’s management estimates transfer taxes of $40.0 million will be incurred.

Subject to the terms and conditions of the Merger Agreement, Realty Income may, after consultation with and good faith consideration of any comments from VEREIT, determine, or in certain cases, amend, the scope and terms of the Spin-Off, including, among other things, the properties to be included as part of the OfficeCo Properties (including adding or removing properties), the scope and nature of the reorganization plan, the terms of the separation and distribution agreement, and the scope of transition services to be provided by Realty Income following the Spin-Off, if any. In addition, subject to the terms and conditions of the Merger Agreement, Realty Income may, after consultation with and good faith consideration of any comments from VEREIT, alternatively seek to sell some or all of the OfficeCo Properties to third parties in connection with the closing of the Merger, and the parties may otherwise sell certain properties that would have otherwise been included in the OfficeCo Properties during the pendency of the Mergers. Similarly, Realty Income may, in its sole discretion, elect to waive the Spin-Off Condition, and consummate the Mergers without effectuating the Spin-Off. Accordingly, actual or prospective holders of Realty Income's common stock, preferred stock (if any) and debt securities should not place undue reliance on the consummation of the Spin-Off as described above in determining whether or not to hold, purchase or sell securities of Realty Income.

Exhibit 99.4

SUPPLEMENTAL RISK FACTORS

The business and operations of Realty Income (as defined below) are subject to numerous risks and other uncertainties and you should carefully consider the following supplemental risk factors, the risks described under the captions “Forward-Looking Statements” in Item 8.01 of the Current Report on Form 8-K filed by Realty Income on June 4, 2021 to which these supplemental risk factors are filed as Exhibit 99.4 (the “Form 8-K”) and under the captions “Forward-Looking Statements” and “Risk Factors” in Realty Income’s most recent Annual Report on Form 10-K and, if applicable, its subsequent Quarterly Reports on Form 10-Q, and any amendments thereto filed with the Securities and Exchange Commission (the “SEC”), all of which are available on the SEC’s website (in each case excluding any portion thereof, information therein or exhibit thereto that is deemed to be “furnished” to, rather than “filed” with, the SEC). As used under this caption “Supplemental Risk Factors” in this Exhibit and under the captions “Risk Factors” in Realty Income’s most recent Annual Report on Form 10-K and, if applicable, its subsequent Quarterly Reports on Form 10-Q, and any amendments thereto filed with the SEC, references to Realty Income’s capital stock include both its common stock and any class or series of its preferred stock that it may issue, and references to Realty Income’s debt or indebtedness include its debt securities and other indebtedness, and references to Realty Income’s “clients” means its tenants, in each case unless otherwise expressly stated or the context otherwise requires.

Unless otherwise stated in these supplemental risk factors or the context otherwise requires, references in these supplemental risk factors to:

“Code” means the Internal Revenue Code of 1986, as amended;

“combined company” means Realty Income and its subsidiaries, after giving effect to the consummation of the proposed Mergers;

“Mergers” means, together, the Partnership Merger and the Merger;

“Merger Effective Time” means the effective time of the Merger;

“Merger Sub 1” means Rams MD Subsidiary I, Inc., a Maryland corporation and wholly owned subsidiary of Realty Income;

“Merger Sub 2” means Rams Acquisition Sub II, LLC, a Delaware limited liability company and wholly owned subsidiary of Realty Income;

“non-U.S. holder” means any beneficial owner of VEREIT common stock or Realty Income common stock (including a beneficial owner of VEREIT common stock that receives Realty Income common stock in the Merger) that is neither a U.S. holder nor an entity treated as a partnership for U.S. federal income tax purposes;

“NYSE” means the New York Stock Exchange;

“OfficeCo” means a direct or indirect wholly owned subsidiary of Realty Income that is expected to be formed for the purposes of the Spin-Off;

“OfficeCo Distribution” means the proposed distribution, after the Mergers, of all of OfficeCo’s outstanding voting shares of common stock to the holders of Realty Income’s common stock on a pro rata basis in connection with the Spin-Off;

“OfficeCo Properties” means the office real properties owned by Realty Income and VEREIT contemplated to be contributed to OfficeCo in connection with the Spin-Off or potentially sold in connection with the Mergers in accordance with the Merger Agreement;

“Partnership Merger” means the merger pursuant to the terms of the Merger Agreement of Merger Sub 2 with and into VEREIT OP, with VEREIT OP continuing as the surviving entity;

“Realty Income” means Realty Income Corporation, a Maryland corporation;

“Realty Income common stock” means the common stock of Realty Income, par value $0.01 per share;

“Spin-Off” means the proposed contribution, after the Mergers, of the OfficeCo Properties to OfficeCo and the proposed distribution, after the Mergers, of all outstanding voting shares of common stock in OfficeCo to the holders of Realty Income’s common stock on a pro rata basis, in each case, in accordance with the terms and subject to the conditions of the Merger Agreement;

“U.S. holder” means a beneficial owner of VEREIT common stock or Realty Income common stock (including a beneficial owner of VEREIT common stock that receives Realty Income common stock in the Merger) that, for U.S. federal income tax purposes, is or is treated as (i) an individual who is a citizen or resident of the United States, (ii) a corporation created or organized under the laws of the United States, any state thereof, or the District of Columbia, (iii) an estate, the income of which is subject to U.S. federal income tax regardless of its source, or (iv) a trust that (a) is subject to the primary supervision of a U.S. court and one or more “United States persons” (within the meaning of Section 7701(a)(30) of the Code) have the authority to control all substantial decisions of the trust or (b) has a valid election in effect to be treated as a United States person for U.S. federal income tax purposes;

“VEREIT” means VEREIT, Inc., a Maryland corporation;

“VEREIT common stock” means the common stock of VEREIT, par value $0.01 per share;

“VEREIT OP” means VEREIT Operating Partnership, L.P., a Delaware limited partnership; and

“VEREIT OP common units” means the common partnership unit of VEREIT OP.

Risks Relating to the Mergers

The Mergers may not be completed on the terms or timeline currently contemplated, or at all. Completion of the Mergers is subject to many conditions and if these conditions are not satisfied or waived, the Mergers will not be completed, which could adversely affect the businesses of Realty Income, and, in certain circumstances, result in the requirement that Realty Income pays a certain termination fee.

The completion of the Mergers is subject to certain conditions, including: (1) approval by Realty Income’s common stockholders and VEREIT’s common stockholders; (2) approval for listing on the NYSE of Realty Income common stock to be issued in the Mergers or reserved for issuance in connection therewith; (3) no injunction or law prohibiting the Mergers; (4) accuracy of each party’s representations, subject in most cases to materiality or material adverse effect qualifications; (5) material compliance with each party’s covenants; (6) receipt by each of Realty Income and VEREIT of an opinion to the effect that the Merger will qualify as a “reorganization” within the meaning of Section 368(a) of the Code; (7) receipt by VEREIT of an opinion that Realty Income qualifies as a real estate investment trust ("REIT") under the Code and receipt by Realty Income of an opinion that VEREIT qualifies as a REIT under the Code; and (8) effectiveness of the registration statement filed with the SEC to register the shares of Realty Income common stock issuable in the Merger.

In addition, Realty Income will not be obligated to consummate the Mergers before January 29, 2022 unless the Spin-Off is ready, in all respects, to be consummated contemporaneously with the closing of the Merger. If this condition is not satisfied or waived by Realty Income by January 29, 2022, and all other conditions to closing have been satisfied, the parties will be obligated to close the Mergers, regardless of whether the Spin-Off is ready to be consummated. In addition, Realty Income or VEREIT may terminate the Merger Agreement under certain circumstances, including, among other reasons, if the Mergers are not completed by April 29, 2022.

Realty Income cannot provide assurance that these conditions to completing the Mergers will be satisfied or waived, and accordingly, that the Mergers will be completed on the terms or timeline that the parties anticipate or at all.

Failure to consummate the Mergers may adversely affect Realty Income’s results of operations, financial condition and business prospects for many reasons, including, among others: (i) Realty Income will have incurred substantial costs relating to the Mergers, such as legal, accounting, financial advisor, filing, printing and mailing fees and integration costs that have already been incurred or will continue to be incurred until the closing of the Mergers, which could adversely affect its financial conditions, results of operations and ability to make distributions to its stockholders and to pay the principal of and interest on its debt securities and other indebtedness; (ii) the Mergers, whether or not they close, will divert the attention of the management of Realty Income instead of enabling it to more fully pursue other opportunities that could be beneficial to Realty Income, without realizing any of the benefits of having completed the Mergers or the other transactions contemplated by the Merger Agreement; and (iii) any reputational harm due to the adverse perception of any failure to successfully complete the Mergers. In addition, if the Merger Agreement is terminated under certain circumstances specified therein, Realty Income may be required to pay VEREIT a termination fee of $838.0 million and/or an expense reimbursement fee of $25.0 million.

The Exchange Ratio is fixed and will not be adjusted in the event of any change in the stock prices of either Realty Income or VEREIT.

At the effective time of the Merger, each share of VEREIT common stock issued and outstanding will be converted into the right to receive 0.705 newly issued shares (the "Exchange Ratio") of Realty Income common stock, with cash paid in lieu of fractional shares. The Exchange Ratio is fixed in the Merger Agreement and, while it will be adjusted in certain limited circumstances, including a recapitalization, stock or unit split, stock or unit dividend or distribution, reclassification, combination or exchange offer of shares or other similar transaction involving Realty Income or VEREIT, the Exchange Ratio will not be adjusted for changes in the market price of either Realty Income common stock or VEREIT common stock. Changes in the price of Realty Income common stock prior to the Merger will affect the market value of the Merger consideration that VEREIT stockholders will receive at the closing of the Merger. Stock price changes may result from a variety of factors (many of which are beyond the control of Realty Income and VEREIT), including the following factors:

changes in the respective businesses, operations, assets, liabilities and prospects of either company;

changes in market assessments of the business, operations, financial position and prospects of either company;

market assessments of the likelihood that the Mergers will be completed;

interest rates, general market and economic conditions and other factors generally affecting the price of Realty Income common stock and VEREIT common stock;

federal, state and local legislation, governmental regulation and legal developments in the businesses in which Realty Income and VEREIT operate; and

other factors beyond the control of Realty Income or VEREIT, including those described under this heading “Supplemental Risk Factors.”

The price of Realty Income common stock at the closing of the Merger may vary from its price on the date the Merger Agreement was executed. As a result, the market value of the Merger consideration represented by the Exchange Ratio will also vary.

Because the Exchange Ratio is fixed:

if the price of Realty Income common stock increases between the date the Merger Agreement was signed and the closing of the Merger, VEREIT stockholders will receive shares of Realty Income common stock that have a market value upon completion of the Merger that is greater than the market value of such shares calculated pursuant to the Exchange Ratio on the date the Merger Agreement was signed; and

if the price of Realty Income common stock declines between the date the Merger Agreement was signed and the closing of the Merger, including for any of the reasons described above, VEREIT stockholders will receive shares of Realty Income common stock that have a market value upon completion of the Merger that is less than the market value of such shares calculated pursuant to the Exchange Ratio on the date the Merger Agreement was signed.

Therefore, while the number of shares of Realty Income common stock to be issued per share of VEREIT common stock is fixed, the aggregate market value of the shares as of the date the Merger is consummated may be different from their aggregate market value as of the date the Merger Agreement was signed.

Realty Income common stockholders will be significantly diluted by the Mergers.

The Mergers will significantly dilute the ownership position of Realty Income common stockholders. Upon completion of the Mergers, based on the shares of Realty Income common stock and VEREIT common stock outstanding as of April 29, 2021, Realty Income estimates that legacy Realty Income common stockholders will own approximately 70% of the issued and outstanding shares of Realty Income common stock, and legacy VEREIT stockholders will own approximately 30% of the issued and outstanding shares of Realty Income common stock. Additionally, because Realty Income is issuing shares of Realty Income common stock to certain holders of VEREIT OP common units in the Partnership Merger, each outstanding share of Realty Income common stock after the completion of the Mergers will represent a smaller percentage of the voting power of Realty Income than if such shares of common stock had not been issued in the Partnership Merger. Realty Income may also issue additional shares of common stock or preferred stock in the future, which would create further dilution. Consequently, Realty Income common stockholders, as a general matter, will have less influence over the management and policies of Realty Income after the effective time of the Merger than they currently exercise over the management and policies of Realty Income.

The Merger Agreement contains provisions that could discourage a potential acquiror of Realty Income or could result in any proposal being at a lower price than it might otherwise be.

The Merger Agreement contains provisions that, subject to limited exceptions, restrict the ability of each of Realty Income and VEREIT to initiate, solicit, knowingly encourage or facilitate competing third-party proposals to effect, among other things, a merger, reorganization, share sale, share exchange, asset sale, consolidation, business combination, recapitalization, liquidation, dissolution or similar transaction involving any purchase or sale of 20% or more of the consolidated assets of Realty Income. In addition, VEREIT generally has an opportunity to offer to modify the terms of the Merger Agreement in response to any competing “acquisition proposal” that may be made to Realty Income before the board of directors of Realty Income may withdraw or modify its recommendation in response to such competing acquisition proposal or may terminate the Merger Agreement to enter into such a competing acquisition proposal. In some circumstances, on termination of the Merger Agreement, one of the parties may be required to pay a substantial termination fee and/or expense reimbursement fee to the other party. For more information, see the first risk factor under “– Risks Relating to the Mergers” above.

These provisions could discourage a potential acquiror that might have an interest in acquiring all or a significant part of Realty Income from considering or proposing such an acquisition, or might result in a potential acquiror proposing to pay a lower price than it might otherwise have proposed to pay because of the added expense of the termination fee and/or expense reimbursement fee that may become payable in certain circumstances under the Merger Agreement.

The pendency of the Mergers could adversely affect the business and operations of Realty Income and VEREIT.

In connection with the pending Mergers, some clients of each of Realty Income and VEREIT may delay or defer decisions, which could adversely affect the revenues, earnings, funds from operations, cash flows and expenses of Realty Income and VEREIT, regardless of whether the Mergers are completed, and of combined company, if the Mergers are completed. Similarly, current and prospective employees of Realty Income and VEREIT may experience uncertainty about their future roles with Realty Income following the Mergers, which may materially adversely affect the ability of each of Realty Income and VEREIT to attract and retain key personnel during the pendency of the Mergers. In addition, due to operating covenants in the Merger Agreement, each of Realty Income and VEREIT may be unable (without the other party’s prior written consent), during the pendency of the Mergers, to pursue strategic transactions, undertake significant capital projects, undertake certain significant financing transactions and otherwise pursue other actions, even if such actions would prove beneficial.

If the Mergers are not consummated by April 29, 2022 (unless extended under certain circumstances), either Realty Income or VEREIT may terminate the Merger Agreement.

Either Realty Income or VEREIT may terminate the Merger Agreement if the Mergers have not been consummated by April 29, 2022. However, this termination right will not be available to a party if that party failed to comply with any provision under the Merger Agreement and that failure was the primary cause of, or resulted in, the failure to consummate the Mergers. Any termination of the Merger Agreement may adversely affect Realty Income's results of operations, financial condition and business for many reasons, including those discussed elsewhere under this caption "Supplemental Risk Factors."

If the Merger does not qualify as a reorganization, there may be adverse tax consequences.

The Merger is intended to qualify as a reorganization within the meaning of Section 368(a) of the Code. The closing of the Merger is conditioned on the receipt by each of Realty Income and VEREIT of an opinion of its respective counsel to the effect that the Merger will qualify as a reorganization within the meaning of Section 368(a) of the Code. However, such opinions are not binding on the Internal Revenue Service. If the Merger were to fail to qualify as a reorganization, then each VEREIT stockholder generally would recognize gain or loss, as applicable, equal to the difference between (i) the sum of the fair market value of the shares of Realty Income common stock and cash in lieu of any fractional share of Realty Income common stock received by the VEREIT stockholder in the Merger; and (ii) the VEREIT stockholder’s adjusted tax basis in its VEREIT common stock. In addition, failure of the Merger to qualify as a reorganization may damage Realty Income's reputation and have other adverse impacts on Realty Income.

The Merger and related transactions are subject to approval by stockholders of both Realty Income and VEREIT.

In order for the Merger to be completed, VEREIT common stockholders must approve certain related proposals, which requires the affirmative vote of the holders of at least a majority of the outstanding shares of VEREIT common stock entitled to vote on such proposal. In addition, Realty Income common stockholders must approve the issuance of Realty Income common stock in the Merger by an affirmative vote of the holders of at least a majority of the votes cast by the holders of Realty Income common stock, in person or by proxy, at the Realty Income special meeting. This approval is required under applicable NYSE rules in order for Realty Income to be authorized to issue the shares of Realty Income common stock to VEREIT stockholders as part of the merger consideration.

An adverse outcome in any litigation or other legal proceedings relating to the Merger Agreement, or the transactions contemplated thereby, could have a material adverse impact on the businesses of Realty Income and VEREIT and their ability to consummate the transactions contemplated by the Merger Agreement.

Transactions like the Mergers are frequently the subject of litigation or other legal proceedings, including actions alleging that either parties’ board of directors breached their respective duties to their stockholders or other equity holders by entering into the Merger Agreement, by failing to obtain a greater value in the transaction for their stockholders or other equity holders or otherwise, or any other actions or claims (contractual or otherwise) arising out of the Mergers, Spin-Off, the potential sale of OfficeCo Properties, or the transactions related thereto. If litigation or other legal proceedings are brought against Realty Income, VEREIT or their respective boards of directors or subsidiaries in connection with the Merger Agreement, or the transactions contemplated thereby, the respective parties to the proceeding intend to defend against it but they might not be successful in doing so. An adverse outcome in such matters, as well as the costs and efforts of a defense even if successful, could have a material adverse effect on Realty Income’s or VEREIT’s ability to consummate the Mergers or their respective business, results of operation or financial position, including through the possible diversion of either company’s resources or distraction of key personnel.

Risks Relating to Realty Income after Completion of the Mergers and the Transactions Contemplated by the Merger Agreement

Realty Income expects to incur substantial expenses related to the Mergers and the transactions contemplated by the Merger Agreement.

Realty Income expects to incur substantial expenses in completing the Mergers and integrating the business, operations, networks, systems, technologies, policies and procedures of Realty Income and VEREIT, as well as in the Spin-Off and the potential sale of some or all of the OfficeCo Properties . There are a large number of systems that must be integrated or separated in connection with the Mergers , the Spin-Off or sale of OfficeCo Properties, and the other transactions contemplated by the Merger Agreement, including leasing, billing, management information, purchasing, accounting and finance, sales, payroll and benefits, fixed asset, lease administration and regulatory compliance. While Realty Income has assumed that a certain level of transaction and integration expenses would be incurred, there are a number of factors beyond its control that could affect the total amount or the timing of their integration expenses. Many of the expenses that will be incurred, by their nature, are difficult to estimate accurately at the present time. The expenses in connection with the Mergers and the transactions contemplated by the Merger Agreement are expected to be significant, although the aggregate amount and timing of such charges are uncertain at present.

Following the Mergers, Realty Income may be unable to integrate the business of VEREIT successfully, consummate the Spin-Off, or sell the OfficeCo Properties successfully or realize the anticipated synergies and related benefits of the Mergers and the transactions contemplated by the Merger Agreement or do so within the anticipated time frame.

The Mergers involve the combination of two companies which currently operate as independent public companies. The Spin-Off or the potential sale of some or all of the OfficeCo Properties would involve the separation, reorganization and distribution of combined assets of two companies that currently operate as independent public companies. Realty Income will be required to devote significant management attention and resources to integrating the business practices and operations of VEREIT, and each of Realty Income and VEREIT will be required to devote significant management attention and resources to the Spin-Off and/or the potential sale of OfficeCo Properties. Potential difficulties Realty Income, VEREIT and OfficeCo may encounter in the integration process or in the Spin-Off or sale of OfficeCo Properties include the following:

the inability to successfully combine the businesses of Realty Income and VEREIT and separate the OfficeCo Properties in a manner that permits the combined company to achieve the cost savings anticipated to result from the Mergers, which would result in some anticipated benefits of the Mergers not being realized in the time frame currently anticipated or at all;

lost sales and clients as a result of certain clients of either of Realty Income or VEREIT deciding not to do business with the combined company;

the complexities associated with managing the combined company out of multiple locations and integrating personnel from the two companies, as well as the potential complexities associated with the separation of personnel at OfficeCo and integrating personnel from Realty Income and VEREIT in OfficeCo;

the additional complexities of combining two companies with different histories, regulatory restrictions, markets and customer bases;

the failure to retain key employees of either of the two companies;

potential unknown liabilities and unforeseen increased expenses, delays or regulatory conditions associated with the Mergers and the transactions contemplated by the Merger Agreement; and

performance shortfalls at one or both of the two companies as a result of the diversion of management’s attention caused by completing the Mergers and integrating Realty Income’s and VEREIT’s operations.

For all these reasons, you should be aware that it is possible that the integration process or the Spin-Off or sales of OfficeCo Properties could result in the distraction of Realty Income’s, VEREIT’s or OfficeCo’s management, the disruption of the combined company’s or OfficeCo’s ongoing business or inconsistencies in the combined company’s or OfficeCo’s services, standards, controls, procedures and policies, any of which could adversely affect the ability of the combined company or OfficeCo to maintain relationships with clients, customers, vendors, joint venture partners and employees or to achieve the anticipated benefits of the Mergers, or could otherwise adversely affect the business and financial results of the combined company or OfficeCo.

Following the Mergers and the transactions contemplated by the Merger Agreement, Realty Income or OfficeCo may be unable to retain key employees.

The success of Realty Income after the Mergers will depend in part upon its ability to retain key Realty Income and VEREIT employees. The success of OfficeCo after the Spin-Off will depend in part upon its ability to retain key Realty Income and VEREIT employees. Key employees may depart either before or after the Mergers or Spin-Off because of issues relating to the uncertainty and difficulty of integration or separation or a desire not to remain with Realty Income or OfficeCo following the Mergers or Spin-Off. Accordingly, no assurance can be given that Realty Income, VEREIT or, following the Mergers and the transactions contemplated by the Merger Agreement, Realty Income or OfficeCo will be able to retain key employees to the same extent as in the past.

Realty Income depends on key personnel for its future success, and the loss of key personnel or inability to attract and retain personnel could harm Realty Income’s business.

The members of the Realty Income board of directors and Realty Income’s executive officers will continue as the members of the board of directors and executive management of Realty Income. The future success of Realty Income depends in large part on its ability to hire and retain a sufficient number of qualified personnel. The future success of Realty Income also depends upon the service of Realty Income’s executive officers, who have extensive market knowledge and relationships and will exercise substantial influence over Realty Income’s operational, financing, acquisition and disposition activity. Among the reasons that they are important to Realty Income’s success is that each has a national or regional industry reputation that is expected to attract business and investment opportunities and assist Realty Income in negotiations with lenders, existing and potential clients and industry personnel.

Many of Realty Income’s other key executive personnel, particularly its senior managers, also have extensive experience and strong reputations in the industry. In particular, the extent and nature of the relationships that these individuals have developed with financial institutions and existing and prospective customers are critically important to the success of Realty Income’s business. The loss of services of one or more members of Realty Income’s senior management team, or Realty Income’s inability to attract and retain highly qualified personnel, could adversely affect Realty Income’s business, diminish Realty Income’s investment opportunities and weaken its relationships with lenders, business partners, existing and prospective customers and industry personnel, which could materially and adversely affect Realty Income.

The future results of Realty Income will suffer if Realty Income does not effectively manage its operations following the Mergers and the transactions contemplated by the Merger Agreement.

Following the Mergers, Realty Income may continue to expand its operations through additional acquisitions, development opportunities and other strategic transactions, some of which involve complex challenges. The future success of Realty Income will depend, in part, upon the ability of Realty Income to manage its expansion opportunities, which poses substantial challenges for Realty Income to integrate new operations into its existing business in an efficient and timely manner, to successfully monitor its operations, costs, regulatory compliance and service quality and to maintain other necessary internal controls. Realty Income cannot assure you that its expansion or acquisition opportunities will be successful, or that it will realize its expected operating efficiencies, cost savings, revenue enhancements, synergies or other benefits.

The trading prices of shares of the Realty Income common stock and OfficeCo common stock following the Mergers and the Spin-Off may be affected by factors different from those affecting the price of shares of Realty Income common stock or VEREIT common stock before the Mergers and the Spin-Off.

If the Mergers are completed, based on the shares of Realty Income common stock and VEREIT common stock outstanding as of the April 29, 2021, legacy Realty Income common stockholders will become holders of approximately 70% of the outstanding shares of Realty Income common stock and legacy VEREIT stockholders will become holders of approximately 30% of the outstanding shares of Realty Income common stock immediately after the Mergers. Based on the respective numbers of shares of common stock of Realty Income and VEREIT outstanding as of that date, and assuming that the Spin-Off is completed on the first business day following the closing of the Merger, legacy Realty Income common stockholders would become holders of approximately 70% of the outstanding shares of the common stock of OfficeCo, and legacy VEREIT stockholders that receive Realty Income common stock in the Merger would become holders of approximately 30% of the outstanding shares of common stock of OfficeCo. It is anticipated that the Spin-Off will occur, if at all, promptly after the Mergers are consummated, but we may encounter unexpected delays that may delay or prevent the Spin-Off from occurring at that time. The results of operations of Realty Income and OfficeCo, as well as the trading price of Realty Income common stock and OfficeCo common stock, after the Mergers and the Spin-Off may be affected by factors different from those currently affecting Realty Income’s or VEREIT’s results of operations or the trading prices of Realty Income common stock and VEREIT common stock. These different factors include:

with respect to Realty Income, a greater number of shares of Realty Income common stock outstanding, as compared to the number of shares of Realty Income common stock currently outstanding;

different stockholders in both Realty Income and OfficeCo; and

Realty Income and OfficeCo owning different assets and maintaining different capitalizations.

Accordingly, the historical trading prices and financial results of Realty Income and VEREIT may not be indicative of these matters for Realty Income and OfficeCo after the Mergers and the Spin-Off.

Counterparties to certain significant agreements with Realty Income or VEREIT may exercise contractual rights under such agreements in connection with the Mergers, the Spin-Off or the sale of some or all of the OfficeCo Properties.

Realty Income and VEREIT are each party to certain agreements that give the counterparty certain rights following a change of control or similar event, including in some cases the right to terminate the agreement. Under some such agreements, the Mergers, the Spin-Off or the sale of some or all of the OfficeCo Properties will constitute a change of control or cause certain other triggering events and therefore the counterparty may exercise certain rights under the agreement upon the closing of the Mergers, the Spin-Off or such sales. Certain Realty Income and VEREIT funds, joint ventures, management and servicing contracts, leases and debt obligations have agreements subject to such provisions. Any such counterparty may request modifications of its agreement as a condition to granting a waiver or consent under its agreement or it may terminate or seek to terminate its agreement with Realty Income or VEREIT, as the case may be, as a result of such change of control (if permitted to do so by the applicable agreement). In addition, certain indebtedness of Realty Income or VEREIT may give the holders of that indebtedness the right to demand immediate repayment upon a change of control or similar event. There is no assurance that such counterparties will not exercise their rights under the agreements, including termination rights where available, that the exercise of any such rights will not result in a material adverse effect or that any modifications of such agreements will not result in a material adverse effect.

Realty Income’s anticipated level of indebtedness will increase upon completion of the Mergers and may increase the related risks Realty Income now faces.

Upon completion of the Mergers, Realty Income intends to assume and/or refinance certain indebtedness of VEREIT and VEREIT OP and, assuming that occurs, Realty Income's consolidated indebtedness will increase substantially and it will be subject to increased risks associated with debt financing, including an increased risk that Realty Income’s cash flow could be insufficient to meet required payments on its debt securities or other indebtedness or to pay dividends on its common stock or any preferred stock it may issue. On March 31, 2021, Realty Income had indebtedness of approximately $8.6 billion, excluding unamortized deferred financing costs and net premiums. Taking into account Realty Income’s existing indebtedness and the assumption of VEREIT’s consolidated indebtedness in the Mergers, the total principal indebtedness of the combined company, including joint venture indebtedness, as of March 31, 2021 would have been approximately $14.4 billion. For information on how the pro forma amount of Realty Income’s consolidated indebtedness is calculated, see the pro forma condensed combined financial statements included in Exhibit 99.3 to the Form 8-K.

Realty Income’s increased indebtedness could have important consequences to holders of its common stock, any preferred stock it may issue and its debt securities including:

increasing Realty Income’s vulnerability to general adverse economic and industry conditions;

limiting Realty Income’s ability to obtain additional financing to fund future working capital, capital expenditures and other general corporate requirements;

requiring the use of a substantial portion of Realty Income’s cash flow from operations for the payment of principal and interest on its indebtedness, thereby reducing its ability to use its cash flow to fund working capital, acquisitions, capital expenditures and general corporate requirements;

limiting Realty Income’s flexibility in planning for, or reacting to, changes in its business and its industry; and

putting Realty Income at a disadvantage compared to its competitors with less indebtedness.

If Realty Income defaults under a debt instrument, it will automatically be in default under any other debt instrument that has cross-default provisions, the holders of all such indebtedness may be entitled to demand its immediate repayment and, in the case of secured indebtedness, Realty Income may lose any property securing that indebtedness.

Risks Relating to the Spin-Off

There can be no assurance that the Spin-Off of OfficeCo will occur in the form currently contemplated, on the anticipated terms or timing, or at all.

While Realty Income intends to cause the Spin-Off to be completed the business day following the closing of the Merger, during the process of effectuating the steps necessary to consummate the Spin-Off, certain issues may arise that may adversely impact the feasibility or desireability of the Spin-Off on the anticipated terms or timeline, or at all, or adversely impact the anticipated benefits of the Spin-Off to the combined company and its stockholders, including significant unanticipated costs or expenses (including consent fees), failure to obtain required consents or approvals, adverse tax implications, or other adverse impacts, all of which could significantly delay or prevent the Spin-Off.

In addition, pursuant to the terms of the Merger Agreement, the parties have broad discretion to amend the scope and terms of the Spin-Off, including, among other things, the properties to be included as part of the OfficeCo Properties (including adding or removing properties), the scope and nature of the reorganization plan, the terms of the separation and distribution agreement, and the scope of transition services, if any, to be provided to OfficeCo by Realty Income following the Spin-Off, if any. Realty Income also may, after consultation with and good faith consideration of any comments from VEREIT, alternatively seek to sell some or all of the OfficeCo Properties to third parties in connection with the closing of the Merger, and the parties may otherwise sell certain properties that would have otherwise been included in the OfficeCo Properties during the pendency of the Mergers. These changes may adversely impact the timing of the Spin-Off, the viability of OfficeCo as a stand-alone business or benefits of the Spin-Off. In addition, there can be no assurance that Realty Income would be able to sell any such OfficeCo Properties should it elect to do so on terms Realty Income considers acceptable, or at all.

In addition, while Realty Income will not be obligated to consummate the Mergers until January 29, 2022 unless the Spin-Off is in all respects, ready to be consummated contemporaneously with the closing of the Merger, Realty Income may decide, in its sole discretion, to abandon the Spin-Off and waive that condition, and proceed with consummating the Mergers without completing the Spin-Off at all.

Accordingly, there can be no assurance that the Spin-Off will occur on the anticipated terms or within the anticipated time frame, or at all, and actual and prospective owners of Realty Income common stock, preferred stock (if any) and debt securities should not place undue reliance on the consummation of the Spin-Off in evaluating Realty Income or an investment in its securities.

There may be significant costs and expenses in effectuating the Spin-Off or the sales of OfficeCo Properties.

Realty Income and VEREIT expect to incur significant costs and expenses in connection with the Spin-Off, including third-party consent costs, refinancing costs, transfer costs, expenses related to the Form 10 that must be filed with the SEC in order to complete the Spin-Off and the preparation of separate financial information related thereto, negotiations and creation of OfficeCo’s business and operational relationships, and diversion of management resources, many of which may become payable whether or not the Spin-Off is consummated, and which may adversely impact the business, results of operation or financial position of Realty Income and/or VEREIT. In addition, the pursuit of any sales of some or all of the OfficeCo Properties may result in similar costs and expenses, and/or increase such costs or expenses, both with respect to the unique costs or expenses related to those sales, such as the marketing, negotiations and finalization of the operative agreements, additional tax or consent costs, and any indemnification obligations between the parties required pursuant to the Merger Agreement, as well as the costs of any additional changes those sales may have on the Spin-Off.

The Spin-Off or the sales of some or all of the OfficeCo Properties, if completed, may not deliver its intended results.

There are risks and uncertainties related to the Spin-Off and the potential sales of OfficeCo Properties, including but not limited to:

whether Realty Income will be able to effect the Spin-Off or potential sales of OfficeCo Properties within an acceptable time frame and on acceptable terms, if at all, which may be impacted by many factors, including consent rights, legal restrictions, tax impacts, and financing costs, among others;

whether OfficeCo will qualify as a REIT following the Spin-Off, which involves the application of highly technical and complex provisions of the Code, as well as various factual determinations not entirely within the control of the parties;

whether changes in legislation, treasury regulations or Internal Revenue Service, or IRS, interpretations may adversely affect Realty Income’s ability to engage in the Spin-Off or sales of OfficeCo Properties, or whether stockholders of OfficeCo will benefit from OfficeCo qualifying as a REIT;

whether OfficeCo is able to complete financings and/or refinancing related to the Spin-Off within an acceptable time frame and on acceptable terms, if at all;

whether the parties elect to change the nature or scope of the OfficeCo Properties prior to the consummation of the Spin-Off (including the properties to be contributed thereto);

whether the parties elect to sell certain properties that would have otherwise been contributed to the OfficeCo Properties, and when those elections are made;

whether any potential purchasers of OfficeCo Properties with whom the parties enter into purchase agreements (if any) terminate their agreements after signing, which could adversely impact the timing for the Spin-Off, or the ability to consummate the Spin-Off or the sale of OfficeCo Properties shortly following the closing of the Mergers, or at all,

whether OfficeCo may be able to conduct and expand its business following the Spin-Off;

whether there could be legal or other challenges to the Spin-Off, including changes in legal, regulatory, market and other circumstances that could lead to the Spin-Off not being pursued; and

whether OfficeCo and/or its clients experience financial difficulties from interest rates, general market and economic conditions and other factors.

Any one or more of these risks and uncertainties, or any other complexity or aspect of the Spin-Off, the sale of some or all of the OfficeCo Properties, or the respective implementation thereof, may prevent the Spin-Off or sales of some or all of the OfficeCo Properties from being completed on acceptable terms, or at all or adversely effect OfficeCo following the Spin-Off.

If the OfficeCo Distribution is consummated, the distribution of shares of OfficeCo common stock in the OfficeCo Distribution is expected to be treated as a taxable distribution to Realty Income common stockholders for U.S. federal income tax purposes. Accordingly, an amount equal to the fair market value of the shares of OfficeCo common stock received by a U.S. holder of Realty Income common stock in the OfficeCo Distribution is expected to generally be treated as a taxable dividend to the extent of the U.S. holder’s ratable share of any current or accumulated earnings and profits of Realty Income allocable to the OfficeCo Distribution, with the excess treated first as a non-taxable return of capital to the extent of the U.S. holder’s tax basis in Realty Income common stock and any remaining excess treated as capital gain. A U.S. holder’s tax basis in shares of Realty Income common stock held at the time of the OfficeCo Distribution is expected to be reduced (but not below zero) to the extent the fair market value of shares of OfficeCo common stock distributed by Realty Income to such holder in the OfficeCo Distribution exceeds such holder’s ratable share of Realty Income’s current and accumulated earnings and profits allocable to the OfficeCo Distribution. The U.S. holder’s holding period for such Realty Income shares for U.S. federal income tax purposes will not be affected by the distribution. Realty Income will not be able to advise you of the amount of earnings and profits of Realty Income until after the end of the calendar year in which the Spin-Off occurs. Realty Income or other applicable withholding agents may be required or permitted to withhold at the applicable rate on all or a portion of the distribution payable to non-U.S. holders of Realty Income common stock, and any such withholding would be satisfied by Realty Income or such agent by withholding and selling a portion of the shares of OfficeCo common stock that otherwise would be distributable to non-U.S. holders or by withholding from other property held in the non-U.S. holder’s account with the withholding agent.

Although Realty Income will be ascribing a value to the shares of OfficeCo common stock in the OfficeCo Distribution for tax purposes, this valuation is not binding on the IRS or any other tax authority. These taxing authorities could ascribe a higher valuation to those shares, particularly if shares of OfficeCo common stock trade at prices significantly above the value ascribed to those shares by Realty Income in the period following the OfficeCo Distribution. Such a higher valuation may cause a larger reduction in the tax basis of Realty Income common stock held by its common stockholders or may cause such stockholders to recognize additional dividend or capital gain income. Realty Income stockholders should consult their tax advisors as to the particular tax consequences of the OfficeCo Distribution to them.

Following or in connection with the Spin-Off, OfficeCo may need to incur substantial indebtedness and/or raise substantial capital.

If the Spin-Off is consummated, OfficeCo may need to incur a substantial amount of indebtedness to execute its business strategy. If incurred, the amount of such indebtedness could have material adverse consequences for OfficeCo, including:

increasing OfficeCo’s vulnerability to general adverse economic and industry conditions;

limiting OfficeCo’s ability to obtain additional financing to fund future working capital, capital expenditures and other general corporate requirements;

requiring the use of a substantial portion of OfficeCo’s cash flow from operations for the payment of principal and interest on its indebtedness, thereby reducing its ability to use its cash flow to fund working capital, acquisitions, capital expenditures and general corporate requirements;

limiting OfficeCo’s flexibility in planning for, or reacting to, changes in its business and its industry; and

putting OfficeCo at a disadvantage compared to its competitors with less indebtedness.

Moreover, to respond to competitive challenges, OfficeCo may be required to raise substantial additional capital to execute its business strategy, and there can be no assurance that it will be able to do so on terms it considers acceptable, or at all. OfficeCo’s ability to arrange financing will depend on, among other factors, its financial position and performance, as well as prevailing market conditions and other factors beyond its control. If OfficeCo incurs additional indebtedness, its credit ratings could be adversely affected, which could raise borrowing costs and limit future access to capital and its ability to satisfy its obligations under any credit facilities or other debt instruments into which it may enter.

Risks Relating to the Status of Realty Income and VEREIT as REITs

Realty Income may incur adverse tax consequences if Realty Income or VEREIT has failed or fails to qualify as a REIT for U.S. federal income tax purposes.

Realty Income believes that it and VEREIT have each operated in a manner that has allowed it to qualify as a REIT for U.S. federal income tax purposes under the Code and intends to continue to do so through the time of the Merger. Realty Income intends to continue operating in such a manner following the Merger. Neither Realty Income nor VEREIT has requested or plans to request a ruling from the IRS that it qualifies as a REIT. Qualification as a REIT involves the application of highly technical and complex Code provisions for which there are only limited judicial and administrative interpretations. The determination of various factual matters and circumstances not entirely within the control of Realty Income or VEREIT may affect each company’s ability to qualify as a REIT. In order to qualify as a REIT, each of Realty Income and VEREIT must satisfy a number of requirements, including requirements regarding the ownership of its stock and the composition of its gross income and assets. Also, a REIT must make distributions to stockholders aggregating annually at least 90% of its net taxable income, excluding any net capital gains.

The closing of the Merger is conditioned on receipt by Realty Income of an opinion from Goodwin Procter LLP to the effect that, for all taxable years commencing with VEREIT’s taxable year ended December 31, 2011 and through the Merger Effective Time, VEREIT has been organized and has operated in conformity with the requirements for qualification and taxation as a REIT under the Code, and receipt by VEREIT of an opinion from Latham & Watkins LLP to the effect that, for all taxable years commencing with Realty Income’s taxable year ended December 31, 1994, Realty Income has been organized and has operated in conformity with the requirements for qualification and taxation as a REIT under the Code, and its proposed method of operation will enable it to continue to meet the requirements for qualification and taxation as a REIT under the Code for its taxable year that includes the Merger Effective Time and future taxable years. The foregoing REIT opinions, however, will be based on the factual representations provided by Realty Income and VEREIT to counsel and limited by the assumptions set forth therein, and are not a guarantee that Realty Income or VEREIT, in fact, has qualified, or, in the case of Realty Income, will continue to qualify as a REIT, nor are such opinions binding on the IRS. Moreover, as noted above, neither Realty Income nor VEREIT has requested or plans to request a ruling from the IRS that it qualifies as a REIT.

If Realty Income loses its REIT status, or is determined to have lost its REIT status in a prior year, it will face serious tax consequences that would substantially reduce its cash available for distribution, including cash available to pay dividends to its stockholders and to pay the principal of and interest on its debt securities or other indebtedness, because:

it would be subject to U.S. federal income tax on its net income at regular corporate rates for the years it did not qualify for taxation as a REIT (and, for such years, would not be allowed a deduction for dividends paid to stockholders in computing its taxable income);

it could be subject to increased state and local taxes for such periods;

unless it is entitled to relief under applicable statutory provisions, neither it nor any “successor” company could elect to be taxed as a REIT until the fifth taxable year following the year during which it was disqualified; and

for five years following re-election of REIT status, upon a taxable disposition of an asset owned as of such re-election, it could be subject to corporate level tax with respect to any built-in gain inherent in such asset at the time of re-election.

Even if Realty Income retains its REIT status, if VEREIT is determined to have lost its REIT status for a taxable year ending on or before the Merger, VEREIT would be subject to adverse tax consequences similar to those described above. This could substantially reduce Realty Income’s cash available for distribution, including cash available to pay dividends to its stockholders and to pay the principal of and interest on its debt securities or other indebtedness, because, assuming that Realty Income otherwise maintains its REIT qualification:

Realty Income generally would be subject to corporate level tax with respect to the built-in gain on each asset of VEREIT existing at the time of the Merger if Realty Income were to dispose of the VEREIT asset during the five-year period following the Merger;

Realty Income would succeed to any earnings and profits accumulated by VEREIT for taxable periods that it did not qualify as a REIT, and Realty Income would have to pay a special dividend and/or employ applicable deficiency dividend procedures (including interest payments to the IRS) to eliminate such earnings and profits (or if Realty Income does not timely distribute those earnings and profits, Realty Income could fail to qualify as a REIT); and

if VEREIT incurred any unpaid tax liabilities prior to the Merger, those tax liabilities would be transferred to Realty Income as a result of the Merger.

If there is an adjustment to VEREIT’s taxable income or dividends paid deductions, Realty Income could elect to use the deficiency dividend procedure in order to maintain VEREIT’s REIT status. That deficiency dividend procedure could require Realty Income to make significant distributions to its stockholders and to pay significant interest to the IRS.

As a result of all these factors, Realty Income’s or VEREIT’s failure to qualify as a REIT could impair Realty Income’s ability to expand its business and raise capital, and would materially adversely affect the market value of its common stock, any preferred stock it may issue and its debt securities. In addition, for years in which Realty Income does not qualify as a REIT, it would not otherwise be required to make distributions to stockholders.

Risks Relating to an Investment in Realty Income Capital Stock or Debt Securities

The market price of Realty Income capital stock and debt securities may decline as a result of the Mergers and the transactions contemplated by the Merger Agreement.

The market price of Realty Income common stock, any preferred stock it may issue and its debt securities may decline as a result of the Merger and the transactions contemplated by the Merger Agreement if, among other things, Realty Income does not achieve the perceived benefits of the Mergers and the transactions contemplated by the Merger Agreement or the effect of the Mergers and the transactions contemplated by the Merger Agreement on Realty Income’s results of operations or financial condition is not consistent with the expectations of financial or industry analysts. The market value of Realty Income's common stock, any preferred stock it may issue and its debt securities may also be adversely affected by the increase in its indebtedness that is expected to occur if the Mergers are consummated on the terms currently contemplated and, as described above, the market value of Realty Income’s common stock may be adversely affected by the large number of shares of common stock it expects to issue in the Mergers.

In addition, upon consummation of the Mergers and the transactions contemplated by the Merger Agreement, Realty Income will operate an expanded business with a different mix of properties, risks and liabilities. Holders of Realty Income's common stock, preferred stock (if any) and debt securities may not wish to continue to invest in Realty Income, or may wish to dispose of some or all of the Realty Income securities they own. If large amounts of Realty Income common stock, preferred stock (if any) or debt securities are sold, the market price of such Realty Income securities could decline, perhaps substantially.

Following the Mergers and the transactions contemplated by the Merger Agreement, Realty Income may not continue to pay dividends at or above the rate currently paid by Realty Income.

Following the Mergers and the transactions contemplated by the Merger Agreement, the dividends payable per share on Realty Income’s common stock may be lower than the dividends per share that were paid prior to the Mergers for various reasons, including those discussed elsewhere under this caption “Supplemental Risk Factors” and the following:

Realty Income may not have enough cash to pay such dividends due to changes in Realty Income’s cash requirements, capital spending plans, cash flow or financial position and the increase in the number of outstanding shares of its common stock that will be issued if the Mergers are consummated;

decisions on whether, when and in what amounts to pay any future dividends will remain at all times entirely at the discretion of the Realty Income board of directors, which reserves the right to change Realty Income’s dividend practices at any time and for any reason; and

the amount of dividends that Realty Income’s subsidiaries may distribute to Realty Income may be subject to restrictions imposed by state law and restrictions imposed by the terms of any current or future indebtedness that these subsidiaries may incur.

Stockholders of Realty Income will have no contractual or other legal right to dividends that have not been declared by the Realty Income board of directors.

Other Risks

The unaudited pro forma condensed combined financial statements of Realty Income do not purport to be indicative of Realty Income’s results after the Mergers and the transactions contemplated by the Merger Agreement, and accordingly, you have limited financial information on which to evaluate the impact of the Mergers on Realty Income.

The unaudited pro forma condensed combined financial statements included in Exhibit 99.3 to the Form 8-K have been presented for informational purposes only and do not purport to be indicative of the financial position or results of operations that actually would have occurred had the Mergers and the transactions contemplated by the Merger Agreement been completed as of the dates indicated, nor do they purport to be indicative of the future operating results or financial position of Realty Income after the Mergers and the transactions contemplated by the Merger Agreement. The unaudited pro forma condensed combined financial statements are subject to numerous estimates and assumptions and other uncertainties. Among other things, they reflect adjustments, which are based upon preliminary estimates, to allocate the purchase price to VEREIT’s assets and liabilities. The unaudited pro forma condensed combined financial statements do not give effect to the proposed Spin-Off of the OfficeCo Properties owned by Realty Income and VEREIT, or to the possible sale of some or all of such properties, because, pursuant to the terms of the Merger Agreement, Realty Income and VEREIT have broad discretion to amend the scope and terms of the Spin-Off, including, among other things, the office properties to be contributed to OfficeCo and the fact that they may instead seek to sell some or all of such office properties, and also because Realty Income may elect not to pursue the Spin-Off or sale of office properties at all. For further information concerning the Spin-Off, please see Note 6 to the unaudited pro forma condensed combined financial statements included in Exhibit 99.3 to the Form 8-K.

In addition, the unaudited pro forma condensed combined financial statements do not reflect other future events that may occur after the Mergers and the transactions contemplated by the Merger Agreement, including the costs related to the planned integration of the two companies and any future nonrecurring charges resulting from the Mergers and the transactions contemplated by the Merger Agreement, and do not consider potential impacts of current market conditions on revenues or expenses. The unaudited pro forma condensed combined financial statements are based in part on certain estimates and assumptions regarding the Mergers and the transactions contemplated by the Merger Agreement and Realty Income cannot assure you that the estimates and assumptions will prove to be accurate.

The market price and trading volume of Realty Income's capital stock and debt securities may be volatile.

The United States stock markets, including the NYSE, on which the Realty Income common stock is listed under the symbol “O,” and the markets for preferred stock and debt securities have experienced significant price and volume fluctuations. As a result, the market price of Realty Income's common stock, preferred stock (if any) and debt securities are likely to be similarly volatile, and investors in Realty Income common stock, preferred stock (if any) and debt securities may experience a decrease in the value of their investment, including decreases unrelated to Realty Income’s operating performance or prospects. Realty Income cannot assure you that the market price of its common stock, preferred stock (if any) or debt securities will not fluctuate or decline significantly in the future.

In addition to the other risks listed under this caption “Supplemental Risk Factors,” a number of factors could negatively affect the market value of Realty Income’s common stock, preferred stock (if any) and debt securities or result in fluctuations, which could be substantial, in the market price or trading volume of those securities, including:

the annual yield from distributions on Realty Income common stock as compared to yields on other financial instruments;

equity issuances by Realty Income (including issuances of Realty Income common stock in the Mergers), or future sales of substantial amounts of Realty Income common stock by its existing or future stockholders, or the perception that such issuances or future sales may occur;

increases in market interest rates or a decrease in Realty Income’s distributions to stockholders that lead purchasers of Realty Income common stock to demand a higher yield;

changes in market valuations of similar companies;

fluctuations in stock market prices and volumes on U.S. or foreign markets;

additions or departures of key management personnel;

Realty Income’s operating performance and the performance of other similar companies;

actual or anticipated differences in Realty Income’s quarterly operating results;

changes in expectations of future financial performance or changes in estimates of securities analysts;

publication of research reports about Realty Income or its industry by securities analysts;

failure to qualify as a REIT for federal income tax purposes;

adverse market reaction to any indebtedness Realty Income incurs in the future, including indebtedness to be assumed or incurred in connection with the Mergers;

strategic decisions by Realty Income or its competitors, such as acquisitions, divestments, spin-offs, joint ventures, strategic investments or changes in business strategy;

the passage of legislation or other regulatory developments that adversely affect Realty Income or its industry or any failure by Realty Income to comply with regulatory requirements;

the expiration or loss of local tax abatements, tax credit programs, or other governmental incentives;

the imposition of a penalty tax as a result of certain property transfers that may generate prohibited transaction income;

the inability of Realty Income to sell properties if and when it would be appropriate to do so;

risks and liabilities in connection with Realty Income’s co-investment ventures and investment in new or existing co-investment ventures, including that Realty Income’s property ownership through joint ventures may limit its ability to act exclusively in its interests and may depend on the financial performance of its co-venturers;

speculation in the press or investment community;

changes in Realty Income’s results of operations, financial condition or prospects;

failure to satisfy the listing requirements of the NYSE;

failure to comply with the requirements of the Sarbanes-Oxley Act;

actions by institutional stockholders of Realty Income;

changes in accounting principles;

changes in environmental conditions or the potential impact of climate change;

terrorist attacks or other acts of violence or war in areas in which Realty Income’s properties are located or markets on which Realty Income’s securities are traded; and

general economic and/or market conditions, including factors unrelated to Realty Income’s performance.

In the past, securities class action litigation has often been instituted against companies following periods of volatility in the price of their common stock. This type of litigation could result in substantial costs and divert Realty Income’s management’s attention and resources, which could have a material adverse effect on Realty Income’s cash flows, its ability to execute its business strategy and Realty Income’s ability to make distributions to its stockholders and to pay the principal of and interest on its debt securities and other indebtedness.

Realty Income, VEREIT and OfficeCo face other risks.

The risks listed above are not exhaustive, and you should be aware that, prior to and following the Mergers and the transactions contemplated by the Merger Agreement, Realty Income will face various other risks, and that, following the Spin-Off, if consummated, OfficeCo will face various other risks.

					Initial Costs ⁽²⁾
Industry	Number of Properties		Encumbrances at December 31 , 2020 ⁽¹⁾		Land		Buildings, Fixtures and Improvements		Costs Capitalized Subsequent to Acquisition ⁽³⁾			Gross Amount Carried at December 31, 2020 ^(4) (5)		Accumulated Depreciation ^(4) (6)			Date Acquired	Date of Construction
Administration & Support Services		3	$	—	$	6,537	$	35,797	$	(4,501	)	$	37,833	$	(7,967	)	9/28/2012 - 7/2/2014	1954 - 1986
Agricultural		2		—		1,727		13,422		—			15,149		(4,280	)	11/5/2013 - 2/7/2014	2005 - 2009
Education		3		—		3,170		22,706		(3,435	)		22,441		(4,739	)	11/5/2013 - 2/7/2014	1997 - 2000
Entertainment & Recreation		38		4,749		100,708		356,032		2,048			458,788		(63,432	)	9/24/2013 - 2/3/2020	1979 - 2019
Finance		149		128,114		88,122		360,180		(10,518	)		437,784		(112,279	)	8/1/2010 - 2/7/2014	1880 - 2009
Government & Public Services		7		2,600		4,587		38,090		(2,244	)		40,433		(12,387	)	12/13/2011 - 6/12/2014	1988 - 2011
Healthcare		6		17,751		15,368		107,840		3,072			126,280		(46,970	)	11/21/2012 - 9/30/2014	1980 - 2014
Information & Communication		4		10,367		5,652		56,729		4,076			66,457		(18,827	)	6/27/2013 - 9/24/2014	1986 - 2002
Insurance		7		58,798		29,184		236,424		3,772			269,380		(64,530	)	11/5/2013 - 2/7/2014	2007 - 2012
Logistics		44		26,100		50,877		299,486		29,358			379,721		(123,707	)	9/27/2011 - 5/8/2015	1986 - 2013
Manufacturing		48		150,748		92,446		946,216		(18,831	)		1,019,831		(255,355	)	4/25/2012 - 11/24/2020	1950 - 2020
Mining & Natural Resources		4		—		1,727		14,644		(2,858	)		13,513		(3,013	)	6/12/2014 - 9/25/2014	2012 - 2014
Other Services		2		—		2,937		30,794		(987	)		32,744		(6,645	)	11/5/2013 - 10/9/2018	2014 - 2018
Professional Services		33		97,217		47,520		358,603		8,713			414,836		(122,043	)	11/16/2012 - 6/30/2014	1951 - 2014
Rental		56		—		25,044		77,794		(626	)		102,212		(19,145	)	2/7/2014 - 12/30/2020	1960 - 2009
Restaurants - Casual Dining		545		30,860		406,606		936,599		(18,142	)		1,325,063		(291,230	)	11/13/2012 - 6/26/2017	1965 - 2012
Restaurants - Quick Service		891		—		412,840		803,854		(37,032	)		1,179,662		(277,662	)	7/27/2012 - 5/16/2014	1926 - 2013
Retail - Apparel & Jewelry		11		45,872		20,420		161,347		—			181,767		(51,647	)	5/17/2013 - 11/10/2020	1980 - 2020
Retail - Department Stores		12		7,705		28,136		77,084		304			105,524		(22,311	)	3/28/2013 - 7/16/2014	1982 - 2011
Retail - Discount		810		81,232		201,144		711,594		49,993			962,731		(240,707	)	10/31/2011 - 12/21/2018	1940 - 2019
Retail - Electronics & Appliances		12		—		26,192		93,769		5,029			124,990		(20,429	)	2/7/2014 - 12/18/2019	1991 - 2012
Retail - Gas & Convenience		175		—		107,424		258,729		(852	)		365,301		(76,670	)	5/4/2012 - 10/15/2020	1922 - 2016
Retail - Grocery & Supermarket		65		69,243		109,371		437,514		551			547,436		(128,939	)	9/27/2012 - 7/17/2019	1965 - 2018
Retail - Hobby, Books & Music		11		—		24,569		113,995		505			139,069		(14,534	)	2/7/2014 - 6/20/2019	1986 - 2014