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•	enhancing investors’ understanding of the Company and the Operating Partnership by enabling investors to view the business as a whole in the same manner as management views and operates the business;

•	eliminating duplicative disclosure and providing a more streamlined and readable presentation since a substantial portion of the disclosure applies to both the Company and the Operating Partnership; and

•	creating time and cost efficiencies through the preparation of one combined report instead of two separate reports.

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

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

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(1)	Represents net loss attributable to a consolidated joint venture partner.

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(1)	Represents comprehensive loss attributable to a consolidated joint venture partner.

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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 June 30, 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.

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 and six months ended June 30, 2020 are not necessarily indicative of the results for the entire year or any subsequent interim period.

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, 2019 of the Company, which are included in the Company’s Annual Report on Form 10-K filed on February 26, 2020. 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.

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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 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 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 June 30, 2020 and December 31, 2019, there were approximately 0.8 million Limited Partner OP Units issued and outstanding, and 49,766 Limited Partner Series F Preferred Units issued and outstanding.

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 (loss), net have been presented in its own line item for prior periods presented to be consistent with the current year presentation.

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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 and six months ended June 30, 2020, rental revenue was reduced by $13.2 million and $18.5 million, respectively, which included (i) $2.1 million and $1.5 million, respectively, of an increase to the general allowance, (ii) $7.4 million and $9.4 million, respectively, for amounts not probable of collection, and (iii) $3.7 million and $7.6 million, respectively, for straight-line rent receivables. Of the $13.2 million reduction to rental revenue for the three months ended June 30, 2020, $8.4 million was related to the impact of the novel coronavirus (“COVID-19”) pandemic, of which $0.9 million represented an increase to the general allowance, $3.8 million represented amounts not probable of collection, and $3.7 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 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 three months ended June 30, 2020, the Company had $3.6 million of rental revenue related to deferral agreements executed through June 30, 2020 and $5.3 million related to deferral agreements executed from July 1, 2020 through July 27, 2020, which qualify for the COVID-19 Lease Concessions Relief. The Company did not record rental revenue for $11.2 million of second quarter rental revenue abated pursuant to lease amendments executed through June 30, 2020, which increased the weighted average lease term for the related properties.

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 $0.4 million and $0.1 million for the three months ended June 30, 2020 and 2019, respectively, and $1.0 million and $0.2 million for the six months ended June 30, 2020 and 2019, respectively.

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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), which are considered non-routine. The Company’s insurance carriers have paid certain defense costs subject to standard reservation of rights under the respective policies.

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

		Three Months Ended June 30,								Six Months Ended June 30,
		2020				2019				2020				2019
Litigation and non-routine costs, net:
Audit Committee Investigation and related matters (1) (2)		$	(118	)		$	22,767			$	(6,211	)		$	37,458
Legal fees and expenses		—				—				—				2
Litigation settlements		—				—				—				12,235
Total costs		(118		)		22,767				(6,211		)		49,695
Insurance recoveries		—				—				(2,471		)		(48,420		)
Other recoveries (3)		—				(26,536		)		—				(26,536		)
Total		$	(118	)		$	(3,769	)		$	(8,682	)		$	(25,261	)

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(1)

Includes all fees and costs associated with various 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”), including fees and costs incurred pursuant to the Company’s advancement obligations, litigation related thereto and in connection with related insurance recovery matters, net of accrual reversals.

(2)	The negative balance for the three and six months ended June 30, 2020 is a result of estimated costs accrued in prior periods that exceeded actual expenses incurred.

(3)	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.

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 June 30, 2020, the General Partner had cumulatively awarded under its Equity Plan approximately 18.0 million shares of Common Stock, which was comprised of 4.0 million restricted share awards (“Restricted Shares”), net of the forfeiture of 3.7 million Restricted Shares through that date, 7.9 million restricted stock units (“Restricted Stock Units”), net of the forfeiture/cancellation of 2.0 million Restricted Stock Units through that date, 0.8 million deferred stock units (“Deferred Stock Units”), and 5.3 million stock options (“Stock Options”), net of forfeiture/cancellation of 0.3 million Stock Options through that date. Accordingly, as of such date, approximately 95.1 million additional shares were available for future issuance, excluding the effect of the 5.3 million Stock Options. At June 30, 2020, a total of 45,000 shares were awarded under the non-executive director restricted share plan out of the 99,000 shares reserved for issuance.

The following is a summary of equity-based compensation expense for the three and six months ended June 30, 2020 and 2019 (in thousands):

		Three Months Ended June 30,								Six Months Ended June 30,
		2020				2019				2020				2019
Restricted Shares		$	—			$	—			$	—			$	77
Time-Based Restricted Stock Units (1)		1,397				1,234				2,782				2,484
Long-Term Incentive-Based Restricted Stock Units		1,401				1,383				2,500				2,612
Deferred Stock Units		947				947				1,019				1,018
Stock Options		326				319				625				564
Total		$	4,071			$	3,883			$	6,926			$	6,755

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

As of June 30, 2020, total unrecognized compensation expense related to these awards was approximately $21.9 million, with an aggregate weighted-average remaining term of 2.5 years.

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Restructuring

During the six months ended June 30, 2020, there were no restructuring expenses recorded. During the six months ended June 30, 2019, the Company’s obligation to provide certain transition services for CCA Acquisition, LLC (the “Cole Purchaser”) terminated in accordance with the terms of a services agreement (the “Services Agreement”) with the Cole Purchaser and the Company recorded $9.4 million of restructuring expenses related to the reorganization of its business.

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

Property Acquisitions

During the six months ended June 30, 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.

During the six months ended June 30, 2019, the Company acquired controlling financial interests in 33 commercial properties for an aggregate purchase price of $200.5 million (the “2019 Acquisitions”), which includes $1.0 million of external acquisition-related expenses that were capitalized.

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

		Six Months Ended June 30,
		2020				2019
Real estate investments, at cost:
Land		$	19,953			$	40,460
Buildings, fixtures and improvements		95,728				135,182
Total tangible assets		115,681				175,642
Acquired intangible assets:
In-place leases and other intangibles (1)		15,739				24,817
Above-market leases (2)		15,701				—
Total purchase price of assets acquired		$	147,121			$	200,459

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(1)	The weighted average amortization period for acquired in-place leases and other intangibles is 18.1 years and 15.8 years for 2020 Acquisitions and 2019 Acquisitions, respectively.

(2)	The weighted average amortization period for acquired above-market leases is 20.1 years for 2020 Acquisitions.

As of June 30, 2020, the Company invested $23.4 million, including $0.3 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 $21.4 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 six months ended June 30, 2020, the Company disposed of 47 properties, including the sale of two consolidated properties to the office partnership, for an aggregate gross sales price of $219.2 million, of which our share was $216.7 million after the profit participation payments related to the disposition of three Red Lobster properties. The dispositions resulted in proceeds of $204.1 million after closing costs, including proceeds from the contribution of properties to the office partnership. The Company recorded a gain of $34.2 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 six months ended June 30, 2019, the Company disposed of 75 properties, including the sale of six consolidated properties to the industrial partnership for an aggregate gross sales price of $809.2 million, of which our share was $796.4 million after the profit participation payment related to the disposition of 23 Red Lobster properties. The dispositions resulted in proceeds of $739.9 million after closing costs and contributions to the industrial partnership. The Company recorded a gain of $233.4 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.

As of June 30, 2020, there were eight properties classified as held for sale with a carrying value of $48.1 million, included in real estate assets held for sale, net, primarily comprised of land of $2.5 million and building, fixtures and improvements, net of $41.7 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 six months ended June 30, 2020, the Company recorded a loss of $0.2 million related to held for sale properties. During the six months ended June 30, 2019 the Company recorded a loss of $0.8 million related to held for sale properties.

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Intangible Lease Assets and Liabilities

Intangible lease assets and liabilities of the Company consisted of the following as of June 30, 2020 and December 31, 2019 (amounts in thousands, except weighted-average useful life):

		Weighted-Average Useful Life		June 30, 2020				December 31, 2019
Intangible lease assets:
In-place leases and other intangibles, net of accumulated amortization of $787,231 and $748,689, respectively		16.1		$	788,686			$	854,196
Leasing commissions, net of accumulated amortization of $6,409 and $6,027, respectively		7.5		18,790				17,808
Above-market lease assets and deferred lease incentives, net of accumulated amortization of $120,510 and $112,438, respectively		16.8		170,205				165,483
Total intangible lease assets, net				$	977,681			$	1,037,487
Intangible lease liabilities:
Below-market leases, net of accumulated amortization of $106,116 and $99,315, respectively		19.2		$	130,208			$	143,583

The aggregate amount of amortization of above‑ and below-market leases and deferred lease incentives included as a net decrease to rental revenue was $1.5 million and $1.3 million for the six months ended June 30, 2020 and 2019, respectively. The aggregate amount of in-place leases, leasing commissions and other lease intangibles amortized and included in depreciation and amortization expense was $73.3 million and $65.8 million for the six months ended June 30, 2020 and 2019, 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 June 30, 2020 (in thousands):

		Remainder of 2020				2021				2022				2023				2024				2025
In-place leases and other intangibles:
Total projected to be included in amortization expense		$	57,571			$	107,490			$	93,814			$	83,671			$	73,403			$	61,429
Leasing commissions:
Total projected to be included in amortization expense		1,317				2,461				2,360				2,085				1,867				1,599
Above-market lease assets and deferred lease incentives:
Total projected to be deducted from rental revenue		9,962				19,519				18,708				17,764				16,393				14,921
Below-market lease liabilities:
Total projected to be included in rental revenue		8,320				14,947				13,255				12,533				10,686				9,467

Consolidated Joint Venture

The Company had an interest in one consolidated joint venture that owned one property as of June 30, 2020 and December 31, 2019. As of June 30, 2020 and December 31, 2019, the consolidated joint venture had total assets of $33.6 million and $32.5 million, respectively, of which $30.0 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 $15.2 million and $14.3 million as of June 30, 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.

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Unconsolidated Joint Ventures

The following is a summary of the Company’s investments in unconsolidated joint ventures as of June 30, 2020 and December 31, 2019 and for the six months ended June 30, 2020 and 2019 (dollar amounts in thousands):

						Carrying Amount of Investment								Equity in Income
														Six Months Ended
Investment		Ownership % (1)		Number of Properties		June 30, 2020				December 31, 2019				June 30, 2020				June 30, 2019
Faison JV Bethlehem GA (2)		90%		1		$	41,076			$	40,416			$	1,197			$	1,035
Industrial Partnership (3)		20%		6		35,257				28,409				347				(30		)
Office Partnership (4)		20%		3		9,967				—				199				—

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(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)

The total carrying amount of the investment was greater than the underlying equity in net assets by $4.6 million and $4.7 million as of June 30, 2020 and December 31, 2019, respectively. This difference relates 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 is being amortized in accordance with the Company’s depreciation policy.

(3)	During the six months ended June 30, 2020, the Company made a capital contribution to the industrial partnership, in anticipation of the acquisition of a property.

(4)	During the six months ended June 30, 2020, the office partnership acquired one property from a third party for a purchase price of $33.1 million.

The unconsolidated joint ventures had total aggregate debt outstanding of $341.8 million as of June 30, 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, including the Company’s share of expansion project capital expenditures.

Rent and tenant receivables and other assets, net consisted of the following as of June 30, 2020 and December 31, 2019 (in thousands):

		June 30, 2020				December 31, 2019
Straight-line rent receivable		$	266,823			$	266,195
Accounts receivable		64,791				41,556
Mezzanine position		9,959				—
Deferred costs, net (1)		6,927				7,208
Investment in direct financing leases, net		8,579				9,341
Investment in Cole REITs (2)		6,867				7,552
Prepaid expenses		6,538				3,453
Leasehold improvements, property and equipment, net (3)		4,317				4,809
Other assets, net		7,608				8,281
Total		$	382,409			$	348,395

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(1)

Amortization expense for deferred costs related to the revolving credit facilities totaled $0.8 million and $0.9 million for the three months ended June 30, 2020 and 2019, respectively, and $1.5 million and $2.0 million for the six months ended June 30, 2020 and 2019, respectively. Accumulated amortization for deferred costs related to the revolving credit facilities was $51.2 million and $49.8 million as of June 30, 2020 and December 31, 2019, respectively.

(2)

The Company has 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”), (collectively, the “Cole REITs”) and carries these investments at fair value. During the six months ended June 30, 2020, the Company recognized a loss of $0.7 million related to the change in fair value, which is included in other income, net in the accompanying consolidated statements of operations.

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(3)

Amortization expense for leasehold improvements totaled $0.1 million for each of the three months ended June 30, 2020 and 2019, and $0.3 million and $0.4 million for the six months ended June 30, 2020 and 2019, respectively, with no related write-offs. Accumulated amortization was $3.1 million and $2.8 million as of June 30, 2020 and December 31, 2019, respectively. Depreciation expense for property and equipment totaled $0.3 million for each of the three months ended June 30, 2020 and 2019, with no related write-offs. Depreciation expense for property and equipment totaled $0.6 million and $0.7 million for the six months ended June 30, 2020 and 2019, respectively, inclusive of write-offs of less than $0.1 million for six months ended June 30, 2019. Accumulated depreciation was $6.0 million and $5.4 million as of June 30, 2020 and December 31, 2019, respectively.

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 June 30, 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 June 30, 2020
Assets:
Investment in Cole REITs		$	—			$	—			$	6,867			$	6,867
Liabilities:
Derivative liabilities		$	—			$	(106,520	)		$	—			$	(106,520	)
		Level 1				Level 2				Level 3				Balance as of December 31, 2019
Assets:
Derivative assets		$	—			$	250			$	—			$	250
Investment in Cole 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.

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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 June 30, 2020 and 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 Cole REITs – The fair values of CCIT II, CCIT III and CCPT V were estimated using the net asset value per share, as most recently disclosed by each applicable REIT. Each of the Cole REIT’s share redemption programs includes restrictions that limit the number of shares redeemed by the respective Cole REIT.

The following are reconciliations of the changes in assets and liabilities with Level 3 inputs in the fair value hierarchy for the six months ended June 30, 2020 and 2019 (in thousands):

		Investment in Cole REITs
Beginning balance, January 1, 2020		$	7,552
Unrealized loss included in other income, net		(685		)
Ending Balance, June 30, 2020		$	6,867
Beginning balance, January 1, 2019		$	7,844
Unrealized loss included in other income, net		(292		)
Ending Balance, June 30, 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 Investments – The Company performs quarterly impairment review procedures for real estate investments 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 38 properties were deemed to be impaired resulting in impairment charges of $20.5 million during the six months ended June 30, 2020. The impairment charges relate to certain retail and restaurant properties whose tenants filed for Chapter 11 bankruptcy during the six months ended June 30, 2020, were identified by management for potential sale or were determined would not be re-leased by the tenant.

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 did not identify additional properties as of June 30, 2020. Based on the Company’s expected holding period for the properties and the economic conditions as of June 30, 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.

During the six months ended June 30, 2019, net real estate assets related to 42 properties, were deemed to be impaired resulting in impairment charges of $20.3 million. The impairment charges related to certain office, retail and restaurant properties that, during the six months ended June 30, 2019, 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.

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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 six months ended June 30, 2020, the Company used a range of discount rates from 7.9% to 8.4% with a weighted-average rate of 8.2% and capitalization rates from 7.4% to 7.9% with a weighted-average rate of 7.7%.

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.

As a result of a decrease in the Company’s stock price during the six months ended June 30, 2020, the Company assessed its goodwill for impairment as of June 30, 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, interest rates, and global economic conditions.

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 June 30, 2020				Fair Value at June 30, 2020				Carrying Amount at December 31, 2019				Fair Value at December 31, 2019
Liabilities (1):
Mortgage notes payable and other debt, net		2		$	1,400,317			$	1,446,194			$	1,535,918			$	1,590,915
Corporate bonds, net		2		3,435,016				3,575,898				2,839,581				3,022,087
Convertible debt, net		2		270,872				269,512				319,947				327,237
Credit facility		2		900,000				900,000				1,050,000				1,050,000
Total liabilities				$	6,006,205			$	6,191,604			$	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.

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As of June 30, 2020, the Company had $6.0 billion of debt outstanding, including net premiums and net deferred financing costs, with a weighted-average years to maturity of 4.8 years and a weighted-average interest rate of 4.20%. The following table summarizes the carrying value of debt as of June 30, 2020 and December 31, 2019, and the debt activity for the six months ended June 30, 2020 (in thousands):

							Six Months Ended June 30, 2020
			Balance as of December 31, 2019				Debt Issuances				Repayments, Extinguishment and Assumptions				Accretion and Amortization				Balance as of June 30, 2020
Mortgage notes payable:
	Outstanding balance		$	1,529,057			$	1,032			$	(133,657	)		$	—			$	1,396,432
	Net premiums (1)		6,861				—				(216		)		(2,760		)		3,885
	Deferred costs		(7,784		)		—				65				1,054				(6,665		)
Mortgages notes payable, net			1,528,134				1,032				(133,808		)		(1,706		)		1,393,652
Corporate bonds:
	Outstanding balance		2,850,000				600,000				—				—				3,450,000
	Discount (2)		(10,419		)		(5,136		)		—				571				(14,984		)
	Deferred costs		(25,842		)		(5,908		)		—				1,669				(30,081		)
Corporate bonds, net			2,813,739				588,956				—				2,240				3,404,935
Convertible debt:
	Outstanding balance		321,802				—				(50,169		)		—				271,633
	Discount (2)		(1,855		)		—				140				954				(761		)
	Deferred costs		(1,764		)		—				133				911				(720		)
Convertible debt, net			318,183				—				(49,896		)		1,865				270,152
Credit facility:
	Outstanding balance		1,050,000				902,000				(1,052,000		)		—				900,000
	Deferred costs (3)		(4,331		)		—				—				645				(3,686		)
Credit facility, net			1,045,669				902,000				(1,052,000		)		645				896,314
Total debt			$	5,705,725			$	1,491,988			$	(1,235,704	)		$	3,044			$	5,965,053

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(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.

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Mortgage Notes Payable

The Company’s mortgage notes payable consisted of the following as of June 30, 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		313			$	1,877,744			$	1,381,184			5.02	%		2.5
Variable-rate debt		1			30,018				15,248				3.50	%	(4)	0.1
Total (5)		314			$	1,907,762			$	1,396,432			5.00	%		2.5

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(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 June 30, 2020.

(5)	The table above does not include mortgage notes associated with unconsolidated joint ventures of $341.8 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 June 30, 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 June 30, 2020 (in thousands):

		Total
July 1, 2020 - December 31, 2020		$	78,261
2021		299,015
2022		266,951
2023		124,217
2024		621,021
2025		1,078
Thereafter		5,889
Total		$	1,396,432

Corporate Bonds

As of June 30, 2020, the OP had $3.45 billion aggregate principal amount of senior unsecured notes (the “Senior Notes”) outstanding comprised of the following (dollar amounts in thousands):

		Outstanding Balance June 30, 2020				Interest Rate			Maturity Date
2024 Senior Notes		$	500,000			4.600	%		February 6, 2024
2025 Senior Notes		550,000				4.625	%		November 1, 2025
2026 Senior Notes		600,000				4.875	%		June 1, 2026
2027 Senior Notes		600,000				3.950	%		August 15, 2027
2028 Senior Notes		600,000				3.400	%		January 15, 2028
2029 Senior Notes		600,000				3.100	%		December 15, 2029
Total balance and weighted-average interest rate		$	3,450,000			4.069	%

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 “2028 Senior Notes”).

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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. If the redemption date is 60 or fewer days prior to the maturity date with respect to the 2025 Senior Notes, 90 or fewer days prior to the maturity date with respect to the 2024 Senior Notes, the 2026 Senior Notes, the 2027 Senior Notes and the 2029 Senior Notes, or on or after November 15, 2027, with respect to the 2028 Senior Notes, the redemption price will equal 100% of the principal amount of the Senior Notes of the applicable series to be redeemed, plus accrued and unpaid interest on the amount being redeemed to, but excluding, the applicable redemption date. 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 June 30, 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

On June 25, 2020, the Company repurchased $50.2 million of its 3.75% Convertible Senior Notes due 2020. As of June 30, 2020, the Company’s 2020 Convertible Notes had a balance of $271.6 million outstanding, which excludes the carrying value of the conversion options recorded within additional paid-in capital of $12.1 million and the unamortized discount of $0.8 million. The discount will be amortized over the remaining term of 0.5 years. The 2020 Convertible Notes bear interest at an annual rate of 3.75%.

The 2020 Convertible Notes may be converted into cash, shares of the Company’s Common Stock or a combination thereof, in limited circumstances prior to June 15, 2020, and may be converted into such consideration at any time on or after June 15, 2020. As of June 30, 2020, the conversion rate was 66.7249 shares of the Company’s Common Stock per $1,000 principal amount of 2020 Convertible Notes, which reflects adjustments to the initial conversion rate pursuant to the terms of the applicable indenture as a result of cash dividend payments. There were no changes to the terms of the 2020 Convertible Notes during the six months ended June 30, 2020 and the Company believes that it was in compliance with the financial covenants pursuant to the indenture governing the 2020 Convertible Notes as of June 30, 2020.

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, modifies 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 June 30, 2020, no amounts were outstanding under the Revolving Credit Facility and the full $900.0 million was drawn on the Credit Facility Term Loan. 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 June 30, 2020, there were no 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 bears 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. The Credit Facility Term Loan interest rate was 3.59% as of June 30, 2020, pursuant to the terms of the related swap agreements discussed in Note 7 – Derivatives and Hedging Activities.

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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. The outstanding Credit Facility Term Loan matures on May 23, 2023. 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.

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 June 30, 2020.

Cash Flow Hedges of Interest Rate Risk

The Company has interest rate swap agreements with an aggregate $900.0 million notional amount, which were designated as cash flow hedges. The Company also has 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.

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 June 30, 2020 and December 31, 2019 (in thousands):

Derivatives Designated as Hedging Instruments		Balance Sheet Location		June 30, 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		$	(106,520	)		$	(28,081	)

During the three and six months ended June 30, 2020, the Company recorded unrealized losses of $6.5 million and $85.0 million, respectively, and losses of $16.3 million and $27.6 million, respectively, for the three and six months ended June 30, 2019 for changes in the fair value of the cash flow hedges in accumulated other comprehensive income.

The Company reclassified previous losses of $4.6 million and $6.6 million for the three and six months ended June 30, 2020, respectively, and losses of $0.1 million and $0.2 million for the three and six months ended June 30, 2019, respectively, from accumulated other comprehensive income into interest expense as a result of the hedged transactions impacting earnings.

During the next twelve months, the Company estimates that an additional $24.4 million will be reclassified from other comprehensive income as an increase to interest expense.

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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 June 30, 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
June 30, 2020		$	—			$	(106,520	)		$	—			$	—			$	(106,520	)		$	—			$	—			$	(106,520	)
December 31, 2019		$	250			$	(28,081	)		$	—			$	250			$	(28,081	)		$	—			$	—			$	(27,831	)

Credit Risk Related Contingent Features

The Company has agreements with each of its derivative counterparties that contain a provision specifying that if the Company either defaults or is capable of being declared in default on any of its indebtedness, the Company could also be declared in default on its derivative obligations.

As of June 30, 2020, the Company has not posted any collateral related to these agreements and was not in breach of any provisions in these agreements. If the Company had breached any of these agreements, it could have been required to settle its obligations under the agreements at their aggregate termination value of $107.3 million at June 30, 2020.

Supplemental cash flow information was as follows for the six months ended June 30, 2020 and 2019 (in thousands):

		Six Months Ended June 30,
		2020				2019
Supplemental disclosures:
Cash paid for interest		$	126,173			$	147,317
Cash paid for income taxes		$	3,885			$	3,962
Non-cash investing and financing activities:
Accrued capital expenditures, tenant improvements and real estate developments		$	13,513			$	8,551
Real estate contributions to industrial partnership and office partnership		$	7,494			$	29,577
Distributions declared and unpaid		$	85,231			$	143,306
Distributions payable relinquished		$	—			$	6,429
Real estate investments received from lease related transactions		$	259			$	—
Exchange of real estate investments		$	—			$	8,900

Accounts payable and accrued expenses consisted of the following as of June 30, 2020 and December 31, 2019 (in thousands):

		June 30, 2020				December 31, 2019
Accrued interest		$	31,695			$	31,925
Accrued real estate and other taxes		28,174				25,320
Accrued legal fees and litigation settlements		8,586				25,571
Accounts payable		5,697				1,779
Accrued other		38,399				41,725
Total		$	112,551			$	126,320

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Litigation

The Company is involved in various routine legal proceedings and claims incidental to the ordinary course of its business. There are no material legal proceedings pending against the Company, except as follows:

Government Investigations and Litigation Relating to the Audit Committee Investigation

As previously reported, on October 29, 2014, the Company filed a Current Report on Form 8-K (the “October 29 8-K”) reporting the Audit Committee’s conclusion, based on the preliminary findings of its investigation, that certain previously issued consolidated financial statements of the Company, including those included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2013 and Quarterly Reports on Form 10-Q for the quarters ended March 31, 2014 and June 30, 2014, and related financial information should no longer be relied upon. The Company also reported that the Audit Committee had based its conclusion on the preliminary findings of its investigation into concerns regarding accounting practices and other matters that were first reported to the Audit Committee in early September 2014 and that the Audit Committee believed that an error in the calculation of adjusted funds from operations for the first quarter of 2014 had been identified but intentionally not corrected when the Company reported its financial results for the three and six months ended June 30, 2014. Prior to the filing of the October 29 8-K, the Audit Committee previewed for the SEC the information contained in the filing. Subsequent to that filing, the SEC provided notice that it had commenced a formal investigation and issued subpoenas calling for the production of various documents. In addition, the United States Attorney’s Office for the Southern District of New York contacted counsel for the Audit Committee and counsel for the Company with respect to this matter, and the Secretary of the Commonwealth of Massachusetts issued a subpoena calling for the production of various documents. The Company cooperated with these regulators throughout their investigations. The U.S. Attorney’s Office concluded that it did not intend to bring any criminal charges against the Company arising from its investigation and the Company believes that the investigation by the Secretary of the Commonwealth of Massachusetts is no longer pending.

On November 18, 2019, the Company announced it had reached agreement with the staff of the Enforcement Division of the SEC on the material terms of a negotiated resolution relating to the SEC's investigation of the matters disclosed in the Company's October 29 8-K. The agreement with the SEC staff, which was approved by the SEC's Commissioners on June 23, 2020, required payment of $8.0 million as a civil penalty, which payment was made by the Company subsequent to quarter end.

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.

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Lessor

The Company is the lessor for its 3,836 retail, restaurant, office and industrial properties. The Company’s operating and direct financing leases have non-cancelable lease terms of 0.03 years to 24.6 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):

		Three Months Ended June 30,								Six Months Ended June 30,
		2020				2019				2020				2019
Fixed:
Cash rent (1)		$	253,117			$	277,324			$	522,702			$	559,899
Straight-line rent (2)		3,404				8,043				5,458				15,455
Lease intangible amortization		(788		)		(611		)		(1,536		)		(1,342		)
Property operating cost reimbursements		1,363				1,422				2,791				2,886
Sub-lease (3)		5,279				5,282				10,543				10,771
Total fixed		262,375				291,460				539,958				587,669
Variable (4)		16,039				20,372				36,852				40,789
Income from direct financing leases		162				211				352				428
Total rental revenue		$	278,576			$	312,043			$	577,162			$	628,886

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(1)

For the three months ended June 30, 2020, includes rental revenue that represents deferred rent of $3.6 million related to deferral agreements executed through June 30, 2020, and $5.3 million related to deferral agreements executed from July 1, 2020 through July 27, 2020, which qualify for the COVID-19 Lease Concessions Relief. For the three months ended June 30, 2020, cash rent was negatively impacted by (i) $11.2 million of abated rental revenue pursuant to lease amendments executed through June 30, 2020, which increased the weighted average lease term for the related properties and (ii) a reduction to rental revenue of $4.7 million that was related to the impact of the COVID-19 pandemic, of which $0.9 million represented an increase to the general allowance for rental revenue that the Company believes it may abate as a result of lease amendments and $3.8 million represented amounts not probable of collection at June 30, 2020 and rental revenue will be recognized as cash is received.

(2)	For the three months ended June 30, 2020, was negatively impacted by a reduction to rental revenue that was related to the impact of the COVID-19 pandemic of $3.7 million of straight-line rent receivables.

(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.

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The following table presents future minimum operating lease payments due to the Company over the next five years and thereafter as of June 30, 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)
July 1, 2020 - December 31, 2020		$	509,142			$	1,068
2021		1,046,102				2,014
2022		984,711				1,925
2023		920,421				1,565
2024		848,833				510
2025		743,217				169
Thereafter		4,556,368				655
Total		$	9,608,794			$	7,906

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(1)	Related to 19 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 0.1 years to 79.1 years, some of which include options to extend. The weighted average remaining lease term for the Company’s operating leases was 16.1 years as of June 30, 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 4.99% as of June 30, 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.

The following table presents the lease expense components for the three and six months ended June 30, 2020 and 2019 (in thousands):

		Three Months Ended June 30,								Six Months Ended June 30,
		2020				2019				2020				2019
Operating lease cost (1)		$	6,135			$	5,418			$	13,710			$	12,396
Sublease income (2)		$	(5,279	)		$	(5,282	)		$	(10,543	)		$	(10,771	)

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(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 $2.8 million and operating lease liabilities by $3.1 million, for non-cash activity related to dispositions and lease modifications during the six months ended June 30, 2019. During the six months ended June 30, 2020, the Company increased the right-of-use assets and operating lease liabilities each by less than $0.1 million.

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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 June 30, 2020 (in thousands).

		Future Minimum Lease Payments
July 1, 2020 - December 31, 2020		$	10,751
2021		22,092
2022		21,936
2023		21,590
2024		21,048
2025		20,569
Thereafter		206,547
Total		324,533
Less: imputed interest		109,211
Total		$	215,322

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 June 30, 2020, the General Partner had approximately 1.1 billion shares of Common Stock issued and outstanding. Additionally, the Operating Partnership had approximately 1.1 billion General Partner OP Units issued and outstanding as of June 30, 2020, corresponding to the General Partner’s outstanding shares of Common Stock.

Common Stock Continuous Offering Program

The Company has a continuous equity offering program pursuant to which the Company may sell shares of Common Stock having an aggregate offering price of up to $750.0 million from time to time through April 15, 2022 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 or will be used for general corporate purposes, which may include funding potential acquisitions and repurchasing or repaying outstanding indebtedness.

There were no issuances under the ATM Program during the six months ended June 30, 2020. As of June 30, 2020, the Company had $663.3 million available to be sold under the ATM Program.

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 Stock trades on the NYSE under the symbol VER PRF. The Series F Preferred Units contain the same terms as the Series F Preferred Stock.

As of June 30, 2020, there were approximately 30.9 million shares of Series F Preferred Stock, approximately 30.9 million corresponding General Partner Series F Preferred Units and 49,766 Limited Partner Series F Preferred Units issued and outstanding. On June 22, 2020, the Company issued notice that it would redeem $150.0 million of Series F Preferred Stock, plus accrued and unpaid dividends thereon.

Limited Partner OP Units

As of June 30, 2020 the Operating Partnership had approximately 0.8 million Limited Partner OP Units outstanding.

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Common Stock Dividends

On May 18, 2020, the Company’s Board of Directors declared a quarterly cash dividend of $0.077 per share of Common Stock for the second quarter of 2020 to stockholders of record as of June 30, 2020, which was paid on July 15, 2020. An equivalent distribution by the Operating Partnership is applicable per OP Unit.

Share Repurchase Program

The Company has a share repurchase program (the “2019 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 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.

There were no share repurchases under the 2019 Share Repurchase Program during the six months ended June 30, 2020. As of June 30, 2020, the Company had $200.0 million available for share repurchases under the 2019 Share Repurchase Program.

Net Income (Loss) Per Share

The following is a summary of the basic and diluted net income per share computation for the General Partner for the three and six months ended June 30, 2020 and 2019 (dollar amounts in thousands):

		Three Months Ended June 30,								Six Months Ended June 30,
		2020				2019				2020				2019
Net income		$	54,239			$	292,284			$	141,102			$	363,255
Net income attributable to non-controlling interests		(31		)		(6,626		)		(86		)		(8,293		)
Net income attributable to the General Partner		54,208				285,658				141,016				354,962
Dividends to preferred shares and units		(12,948		)		(17,973		)		(25,896		)		(35,946		)
Net income available to common stockholders used in basic net income per share		41,260				267,685				115,120				319,016
Income attributable to limited partners		39				6,656				101				8,351
Net income used in diluted net income per share		$	41,299			$	274,341			$	115,221			$	327,367
Weighted average number of Common Stock outstanding - basic		1,078,366,566				973,723,139				1,078,152,183				971,106,256
Effect of Limited Partner OP Units and dilutive securities		1,186,500				26,054,596				1,370,957				25,636,664
Weighted average number of common shares - diluted		1,079,553,066				999,777,735				1,079,523,140				996,742,920
Basic and diluted net income per share attributable to common stockholders		$	0.04			$	0.27			$	0.11			$	0.33

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Net Income (Loss) Per Unit

The following is a summary of the basic and diluted net income per unit attributable to common unitholders, which includes all common General Partner unitholders and limited partner unitholders, for the three and six months ended June 30, 2020 and 2019 (dollar amounts in thousands):

		Three Months Ended June 30,								Six Months Ended June 30,
		2020				2019				2020				2019
Net income		$	54,239			$	292,284			$	141,102			$	363,255
Net loss attributable to non-controlling interests		8				30				15				58
Net income attributable to the Operating Partnership		54,247				292,314				141,117				363,313
Dividends to preferred units		(12,948		)		(17,973		)		(25,896		)		(35,946		)
Net income used in basic and diluted net income per unit		$	41,299			$	274,341			$	115,221			$	327,367
Weighted average number of common units outstanding - basic		1,079,148,736				997,406,933				1,078,934,928				994,806,018
Effect of dilutive securities		404,330				2,370,802				588,212				1,936,902
Weighted average number of common units - diluted		1,079,553,066				999,777,735				1,079,523,140				996,742,920
Basic and diluted net income per unit attributable to common unitholders		$	0.04			$	0.27			$	0.11			$	0.33

Real Estate Investment Activity

From July 1, 2020 through July 22, 2020 the Company disposed of three properties, for an aggregate gross sales price of $1.1 million, of which two properties were held for sale with an aggregate carrying value of $1.1 million as of June 30, 2020, and an estimated loss of $0.4 million.

There were no acquisitions from July 1, 2020 through July 22, 2020.

Series F Preferred Stock Redemption

On July 22, 2020, the Company redeemed 6.0 million shares of Series F Preferred Stock, representing approximately 19.44% of the issued and outstanding shares of Series F Preferred Stock. The shares of Series F Preferred Stock were redeemed at a redemption price of $25.00 per share plus accrued and unpaid dividends.

Common Stock Dividend

On August 5, 2020, the Company’s Board of Directors declared a quarterly cash dividend of $0.077 per share of Common Stock for the third quarter of 2020 to stockholders of record as of September 30, 2020, which will be paid on October 15, 2020. An equivalent distribution by the Operating Partnership is applicable per OP Unit.

Preferred Stock Dividend

On August 5, 2020, the Company’s Board of Directors declared a monthly cash dividend to holders of the Series F Preferred Stock for October 2020 through December 2020 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
September 15, 2020 - October 14, 2020		October 1, 2020		October 15, 2020
October 15, 2020 - November 14, 2020		November 1, 2020		November 16, 2020
November 15, 2020 - December 14, 2020		December 1, 2020		December 15, 2020

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•	The uncertain duration and extent of the impact of COVID-19 on our business and the businesses of our tenants (including their ability to timely make rental payments) and the economy generally.

•	Federal, state or local legislation or regulation that could impact the timely payment of rent by tenants in light of COVID-19.

•	We may be unable to renew leases, lease vacant space or re-lease space as leases expire on favorable terms or at all.

•	We are subject to risks associated with tenant, geographic and industry concentrations with respect to our properties.

•	We may be subject to risks accompanying the management of our industrial and office partnerships.

•	Our properties may be subject to impairment charges.

•	We could be subject to unexpected costs or liabilities that may arise from potential dispositions, including related to limited partnership, tenant-in-common and Delaware statutory trust real estate programs (“1031 real estate programs”) and our management of such programs.

•	We are subject to competition in the acquisition and disposition of properties and in the leasing of our properties including that we may be unable to acquire, dispose of, or lease properties on advantageous terms or at all.

•	We are subject to risks associated with bankruptcies or insolvencies of tenants, from tenant defaults generally or from the unpredictability of the business plans and financial condition of our tenants, which are heightened as a result of the COVID-19 pandemic.

•	We have substantial indebtedness, which may affect our ability to pay dividends, and expose us to interest rate fluctuation risk and the risk of default under our debt obligations.

•	We may be subject to increases in our borrowing costs as a result of changes in interest rates and other factors, including the potential phasing out of London Inter-Bank Offer Rate (“LIBOR”) after 2021.

•

Our overall borrowing and operating flexibility may be adversely affected by the terms and restrictions within the indenture governing the senior unsecured notes (the “Senior Notes”), and the Credit Agreement governing the terms of the Credit Facility (as both terms are defined in Liquidity and Capital Resources), and compliance with such covenants may be more difficult as a result of the impact of COVID-19.

•	Our access to capital and terms of future financings may be affected by adverse changes to our credit rating.

•	We may be affected by the incurrence of additional secured or unsecured debt.

•	We may not be able to achieve and maintain profitability.

•	We may not generate cash flows sufficient to pay our dividends to stockholders or meet our debt service obligations.

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•	We may be affected by risks resulting from losses in excess of insured limits.

•	We may fail to remain qualified as a real estate investment trust (“REIT”) for U.S. federal income tax purposes.

•	Compliance with the REIT annual distribution requirements may limit our operating flexibility.

•	We may be unable to retain or hire key personnel.

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•

Acquired controlling financial interests in 25 commercial properties for an aggregate purchase price of $147.1 million, which includes one land parcel for build-to-suit development and $0.9 million of external acquisition-related expenses that were capitalized. During the three months ended June 30, 2020, the Company acquired a mezzanine position in two last-mile distribution facilities for $10.0 million.

•	Disposed of 47 properties, including the sale of two consolidated properties to the office partnership, for an aggregate gross sales price of $219.2 million, of which our share was $216.7 million, resulting in proceeds of $204.1 million after closing costs and contributions to the office partnership. The Company recorded a gain of $34.2 million related to the sales.

•	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 “2028 Senior Notes”).

•	Repurchased $50.2 million of the Company’s 3.75% Convertible Senior Notes due 2020.

•	Repaid $871.3 million on our Revolving Credit Facility. As of June 30, 2020, no amounts were outstanding under the Revolving Credit Facility.

•	Total secured debt decreased by $132.6 million, from $1.5 billion to $1.4 billion.

•	Issued notice that we would redeem $150.0 million of Series F Preferred Stock on July 22, 2020, plus accrued and unpaid dividends thereon.

•	Declared a quarterly dividend of $0.077 per share of Common Stock for the second quarter of 2020.

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(1)	Includes redevelopment property, billboards, construction in progress, land and parking lots.

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(1)	As of June 30, 2020, rentable square feet, economic occupancy rate and annualized rental income include the Company’s pro rata share of square feet and annualized rental income from the Company’s unconsolidated joint ventures. As of June 30, 2019, rentable square feet and economic occupancy rate exclude one redevelopment property.

(2)	Economic occupancy rate equals the sum of square feet leased (including space subject to month-to-month agreements) divided by rentable square feet.

(3)

Based on annualized rental income of our real estate portfolio as of June 30, 2020 and 2019, respectively. Investment-grade tenants are those with a credit rating of BBB- or higher by Standard & Poor’s Financial Services LLC or a credit rating of Baa3 or higher by Moody’s Investor Service, Inc. The ratings may reflect those assigned by Standard & Poor’s Financial Services LLC or Moody’s Investor Service, Inc. to the lease guarantor or the parent company, as applicable.

(1)	Through the end of the next five years as of the respective reporting date.

(1)	See the Non-GAAP Measures section below for descriptions of our non-GAAP measures and reconciliations to the most comparable measure in accordance with generally accepted accounting principles in the United States (“U.S. GAAP”).

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(1)	Includes approximately 2% to be paid in arrears by a Government agency tenant.

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(1)	AFFO for the three months ended June 30, 2020, includes rental revenue that represents deferred rent of $3.6 million related to deferral agreements executed through June 30, 2020, and $5.3 million related to deferral agreements executed from July 1, 2020 through July 27, 2020, which qualify for the COVID-19 Lease Concessions Relief.

(2)	Dilutive securities include unvested restricted share awards (“Restricted Shares”), unvested restricted stock units (“Restricted Stock Units”) and stock options (“Stock Options”). During the first quarter of 2019, all Restricted Shares vested.

(3)	Weighted-average shares for all periods presented exclude the effect of the convertible debt as the Company would expect to settle the debt with cash and any shares underlying Restricted Stock Units that are not issuable based on the Company’s level of achievement of certain performance targets through the respective reporting period.

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•	fund normal operating expenses;

•	fund potential capital expenditures, tenant improvements and leasing costs;

•	meet debt service and principal repayment obligations, including balloon payments on maturing debt;

•	pay dividends; and

•	fund property acquisitions.

•	cash flow from operations;

•	proceeds from real estate dispositions;

•	utilization of the existing Revolving Credit Facility;

•	cash and cash equivalents balance; and

•	issuance of VEREIT debt and equity securities.

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(1)	Interest payments due in future periods on the $15.2 million of variable rate debt were calculated using a forward LIBOR curve.

(2)	As of June 30, 2020, we had $900.0 million of variable rate debt on the Credit Facility Term Loan effectively fixed through the use of interest rate swap agreements. We used the interest rates effectively fixed under our swap agreements to calculate the debt payment obligations in future periods.

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*	Filed herewith

**

In accordance with Item 601(b)(32) of Regulation S-K, this Exhibit is not deemed “filed” for purposes of Section 18 of the Exchange Act or otherwise subject to the liabilities of that section. Such certifications will not be deemed incorporated by reference into any filing under the federal securities laws, Section 27A of the Securities Act of 1933, as amended (the “Securities Act”) or the Exchange Act, except to the extent that the registrant specifically incorporates it by reference.

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