VEREIT, Inc.
Q3 2015 Earnings Call Transcript

Published: 5 Nov 2015

[Operator:]

Good morning and welcome to the VEREIT Third Quarter 2015 Earnings Conference Call. [Operator Instructions] Please note this event is being recorded. I would now like to turn the conference over to Bonni Rosen, Director of Investor Relations. Please go ahead.

[Bonni Rosen:]

Thank you. Good morning, everyone. Thank you for joining us today for the VEREIT third quarter 2015 earnings call and business update. Joining me today are Glenn Rufrano, our Chief Executive Officer and Mike Bartolotta, our Chief Financial Officer. Today’s call is being webcast on our website at vereit.com in the Investor Relations section. There will be a replay of the call beginning at approximately 1 p.m. Eastern Time today. Dial-in for the replay is 1-877-344-7529, with a confirmation code of 10074392. Before I turn the call over to Glenn, I would like to remind everyone that certain statements in this earnings and business update call, which are not historical facts, will be forward-looking. VEREIT’s actual results may differ materially from these forward-looking statements and factors that could cause these differences are detailed in our SEC report, including the quarterly report filed today. In addition, as stated more fully in our SEC reports, VEREIT disclaims any intent or obligation to update these forward-looking statements, except as expressly required by law. Let me quickly review the format of today’s call. First, Glenn will begin by providing an update on the progress made towards our business plans and an overview of where we see the markets, followed by Mike presenting our third quarter financial results. Glenn will then conclude the call with some closing remarks and we will open the call for questions. Now, I would like to turn the call over to Glenn Rufrano. Glenn?

[Glenn Rufrano:]

Thanks, Bonni. Good morning and thank you to everyone for joining our call today. We have made both organizational and economic progress since our last quarterly call. I am pleased that we paid our quarterly dividend on October 15 reestablishing our regular distribution schedules. In August, we laid out our business plan for building a foundation for growth. To support that plan, we adopted best-in-class corporate governance and addressed forward reconstitution. To that end, stockholders elected all 7 directors up for election at our shareholder meeting on September 29, including David Henry and Gene Pinover. Our board now has the experience and attributes to help drive the business forward. Along with reconstituting the board, we also formalized a senior management team. On October 1, we announced the hiring of Michael Bartolotta as CFO and Treasurer. Mike brings 35 years of commercial real estate and financial industry knowledge and a wealth of experience in M&A. We worked closely together for four years at Cushman & Wakefield. Along with the addition of Mike, we announced the appointment of Paul McDowell as COO and Tom Roberts as CIO. Paul and Tom are previously serving as co-heads of real estate. These internal changes align our real estate focus to effectively build, manage and operate a high quality real estate portfolio. Paul is the Founder and CEO of CapLease and is responsible for the company’s asset management, property management, construction management, underwriting and leasing. Tom, a veteran of the real estate industry, was responsible for building the Cole real estate portfolio of approximately $11 billion as the key part of our holdings today. Tom oversees dispositions, acquisitions, sale leaseback transactions and build-to-suits. In May, Lauren Goldberg joined as our General Counsel. And in June, Bill Miller was named President and CEO of Cole Capital. Both bring tenure and experience to their respective positions. With a reconstituted board and a defined senior management team, we now have the leadership in place to successfully implement our business plan. Now, let me turn to an overview of the markets and an update on our disposition program. We have been active, acquiring $315 million of properties for our Cole funds this quarter, and including Red Lobster, closed nearly $830 million of dispositions on balance sheet since the beginning of Q3. The buying constituencies for our properties continue to seek investment opportunities. Offshore investors purchased our Apollo office building earlier in the year and the AT&T office property in the fourth quarter. Institutional investors coupled with operators purchased two of our shopping centers over the last two quarters. Also, there is no sign of slowdown in the 1031 and family office market. We sold our CVS portfolio and a number of individual properties to this sector. The debt market, CMBS had more volatility this quarter due to global events and a flood of issuance, but has come down recently. In all, we find the capital markets are still favorable for the execution of our portfolio culling. With the introduction of our business plan on August 5, we announced that sales completed and under hard contract totaled approximately $960 million. The assets under hard contract now closed. Subsequently, we closed $210 million of dispositions, including $204 million of Red Lobster properties. As of today, dispositions for the year totaled approximately $1.2 billion at an average cash cap rate of 6.7%, meeting the low end of our targeted range of $1.2 billion to $1.4 billion for the year and well within our cap rate range of 6.5% to 7.5%. The Red Lobster transaction, which I just mentioned has two components. We sold to Golden Gate Capital, owner of the Red Lobster brand, 51 properties for $204 million at an average cash cap rate of 7.78%, approximately 2% over the original purchase price. We have also executed a strategic partnership with Golden Gate Capital to sell approximately 400 million of individual Red Lobster properties. And upon sale, the restaurants will be released from the master lease. With this arrangement, VEREIT will receive 100% of net proceeds until we recoup our initial cost basis, followed by a split of additional proceeds. This structure allows us to take advantage of the positive cap rate arbitrage between bulk and individual sale, is accretive to both parties and provides optionality as we reduce our overall exposure to the restaurant segment. We expect the majority of these sales to take place in 2016. Now, let me give an update on Cole Capital. Our team is focused on expanding our broker-dealer network and re-signing our large broker-dealer partners. As a result of those efforts, 14 broker-dealers have signed new selling agreements across our offerings this year. Additionally, we have 36 broker-dealers reinstate Cole to-date, including 7 during the quarter. Capital raised for the quarter was $100.3 million, including $33.7 million from DRIP, resulting in a 14% increase in new capital in the prior quarter. During the same period, the non-traded REIT market declined 24%. In October, Cole’s new capital raised was $29 million, the highest month so far this year. Acquisitions on behalf of the managed funds for the quarter totaled $315.4 million and we expect approximately $200 million to $250 million of acquisitions during the fourth quarter. Related to litigation, there was a hearing on October 27, where the Court heard oral argument on the motions to dismiss the class action and Jet Capital complaints. The Court directed the class action claims to simplify and file a new complaint by December 11, 2015 to correct certain deficiencies. All additional details regarding pending litigations can be found in our 10-Q filed today. I will now turn the call over to our new CFO, Mike Bartolotta for a discussion on our third quarter financial results. Mike?

[Mike Bartolotta:]

Thanks, Glenn and thank you all for joining us today. I am very happy to be participating in my first VEREIT earnings call. And with that, I will jump right in. Our third quarter 2015 consolidated revenue was $385 million, on par with last quarter’s results. FFO for the quarter was $0.21 per diluted share the same as in Q2 and AFFO for the quarter was also $0.21 per diluted share versus $0.22 in Q2. As you know, AFFO excludes certain items including non-routine gains and expenses, as well as the impact of a number of non-cash items. G&A for the quarter was $32.8 million, down from $34 million in the second quarter with $15.8 million in real estate and $17 million in Cole Capital. Litigation costs, which are included in merger and other non-routine transaction-related expenses, were $9 million for the quarter compared to approximately $10 million in Q1 and $14 million in Q2. Given these amounts, we expect to be at the lower end of our prior guidance of $50 million to $55 million for the year. Turning to the third quarter real estate activity, the company had no acquisitions and capitalized $6.2 million of development costs and placed $68.7 million of assets into service at an average cash cap rate of 7.4%. As Glenn already touched on, an important piece of our business plan is culling the portfolio to enhance diversification and improve our balance sheet metrics. During the third quarter, we sold 77 properties for $393.4 million of gross proceeds at an average cash cap rate of 6.3% and a pre-goodwill allocation gain of $18.9 million. As discussed previously, you will see on the financial statement that this gain was reduced to $187,000 because of the goodwill allocation that exists due to the company’s acquisition of Cole Real Estate Investments and CapLease. These assets were mix of non-controlled JV properties, flat leases, restaurants and non-core properties. These were all part of our dispositions segment outlined in our business plan. Subsequent to the quarter, we closed on the sale of a joint venture office property, which was previously noted as under hard contract for $226 million at a cash cap rate of 5.9%. This asset is one of the properties included in assets held for sale on the balance sheet, which totals $248 million at the end of the third quarter. In addition, we closed on the sale of a $204 million pool of Red Lobster properties. Turning to the balance sheet, at the end of the quarter we had $2.1 billion outstanding under our unsecured credit facility, which is comprised of our term loan and revolving line of credit. During the quarter, we paid down our line of credit with $190 million of cash on hand and cash from operations, bringing the total amount outstanding under the company’s revolving line of credit to $1.1 billion. This reduced our net debt to normalized EBITDA from 7.5 times to 7.3 times, also our floating rate debt was reduced from 14% to 12% and our fixed charge coverage ratio, including preferreds was 2.8 times for the quarter, up from 2.7 times for Q2. And lastly, our unencumbered asset ratio remained healthy at 64%. Subsequent to the quarter, we paid down our line of credit further, with proceeds from our recent dispositions including Red Lobster to bring the amount outstanding below the $1 billion mark to approximately $900 million. This provides us with a strong liquidity position, with approximately $1.4 billion available under our revolving line of credit. On the duration side, our weighted average duration of our debt as of September 30, decreased to 4 years from 4.7 years, mostly due to the sale of the CBS [ph] portfolio, which had approximately $277 million of 21-year secured debt. It does continue to be our goal to gradually increase the duration of our debt over time. Interest expense for the quarter was almost flat quarter-over-quarter, even though our debt was reduced from $9.4 billion to $8.9 billion. However, included in interest expense for the quarter ended September 30, is a one-time deferred financing cost of $3.7 million as a result of the reduction of the capacity of our revolving line of credit. Finally, let me close with a quick update on our remediation efforts. By the way of background, we had nine material weaknesses disclosed in the company’s annual report on Form 10-K, as amended for the fiscal year ended December 31, 2014. As of September 30, 2015, two have been fully remediated and we expect to report in our 2015 10-K that the remaining seven will be remediated. Further, management believes that remaining seven material witnesses had been addressed and rectified. However, they cannot be considered remediated as of September 30, because a sufficient period of time has not passed since the corrective actions have been taken to allow for adequate demonstration and testing of the operational effectiveness of the applicable control design changes and the remediation measures. And with that, I will turn the call back over to Glenn.

[Glenn Rufrano:]

Thanks Mike. Our portfolio performance this quarter was in line with our expectations, once again demonstrating predictability in quality. We have continued to execute our disposition strategy and with the Red Lobster transactions, have made a major stride in the culling of the restaurant segment. We are now well along in the execution of our business plan. Let me touch on guidance. Last quarter, we provided AFFO guidance of $0.80 to $0.83 for the year. We expect to be at the high end of that range. With that, operator, we would open up the call for questions.

[Operator:]

Thank you. We will now begin the question-and-answer session. [Operator Instructions] The first question comes from Andrew Rosivach of Goldman Sachs. Go ahead.

[Caitlin Burrows:]

Hi good morning. This is Caitlin Burrows. I was just wondering I know you mentioned the 10/31 market is still very strong, so for Red Lobster what do you think the pricing could be on the JV transactions versus the $204 million pool?

[Glenn Rufrano:]

I would say it’s certainly a major reason Caitlin, for having this additional $400 million in a strategic partnership because we see the arbitrage between the bulk sale and the retail market. We think that an individual sale of a Red Lobster and remember we are talking about a $3 million to $5 million property. Generally, on a good corner with a good long-term lease with 2% bump. Low 5s to low 6s is where we are seeing the retail market for that type of property today. That’s the level of difference between the bulk sale.

[Caitlin Burrows:]

Got it. And then so you are shooting for a debt to EBITDA range between six times and seven times. So if that joint venture does get all done, how close would you be to that target range?

[Glenn Rufrano:]

Well, if you – if we – we are a $1.2 billion. We expect that $400 million as we said a majority of that to be sold next year. But we also expect additional sales next year. The best answer I will give you, we will get to $1.8 billion to $2.2 billion and that $400 million is going to help us to get there. In that range, we are certainly in the middle of that 6 to 7.

[Caitlin Burrows:]

Got it. And then last question, given all this progress, when do you think you might be able to reengage with the agencies on your rating?

[Glenn Rufrano:]

We will start next week calling again, as a matter of fact next – and I am sorry, the week after is NAREIT in Las Vegas as you know we will be meeting them there. Our engagement with them is consistent and constant.

[Caitlin Burrows:]

Got it. Okay. Thank you.

[Glenn Rufrano:]

Thank you.

[Operator:]

The next question comes from Tony Paolone of JPMorgan. Go ahead sir.

[Tony Paolone:]

Thanks. Good morning. Can you go into some of the mechanics of this Red Lobster joint venture and just how that works again?

[Glenn Rufrano:]

Tony, I can give you the basics. As you would expect, we have a copy with our partner here, it’s a very good partner and Golden Gate. What we intend to do is we will start selling in the first quarter of next year and as they are on our balance sheet, we own those assets. As we sell those assets, we will get releases from the master lease and on each asset, we will get proceeds to our original purchase price and then we will split the proceeds after that, after certain hurdle rates.

[Tony Paolone:]

So just to kind of understand the idea and the thrust of this. So is the idea that they are going to watch you guys out of these master leases and in return for that, they get a piece of anything above the purchase price allocation, is that…?

[Mike Bartolotta:]

That’s absolutely right. And so it’s really the entire transaction, the $204 million, which we get at the higher I would say higher bulk sales basis. And then we are going to split with them, the difference between the retail cap rates and the higher bulk cap rate on the next $400 million.

[Tony Paolone:]

Okay. So like the $200 million, are these is Golden Gate buying these because they want them or they kind of just acting as an intermediary to kind of take them off bulk and then sell them retail, is that kind of what’s happening here?

[Mike Bartolotta:]

Well, they have closed, they bought them and they own them. They can actually do anything they want with them. They can sell them. They can keep them. They can change the leases. In the press release that we both put out, you will notice that they said that they may sell some because they may have some more profits. And if they do, that’s entirely up to them.

[Tony Paolone:]

Okay, I see. And then given the asset sales being going pretty well and you talked pretty positively about just depth of the market. To the extent you get into your range or to the high end of your range of targeted asset sales, would you consider just keep on going next year or do you think getting your leverage down to your target and hitting your disposition target is good enough?

[Glenn Rufrano:]

We are going to watch this pretty closely. The culling process of $1.8 billion to $2.2 billion, remember, originally starts with enhancing the portfolio. I mean that is the reason where we are moving in that direction and we would hold this portfolio to that extent, whether or not we were dealing with the balance sheet. So, it’s a strategic issue. Do we have more assets that we believe will enhance the portfolio if we continue to sell, especially in those four segments? The answer may be yesterday. As we move along next year, if we see an active market and we believe we can continue to enhance the portfolio and have attractive allocation of capital from the portfolio, which is the balance sheet, we certainly be open to it, but that’s a strategic decision. We don’t want to sell assets to hurt NAV or hurt our portfolio. So, we will be looking at both of those concepts as we move along here.

[Tony Paolone:]

Okay. And my last question just on the legal costs at least relative to what we were thinking, they were little bit lower. Any guidepost on just what those costs are going to run the next few quarters or what the run-rate legal is looking like?

[Glenn Rufrano:]

No. I think at this point, Tony, the only thing I can tell you is that if you look at that, it’s bounced around a little bit between 9 and 10 and 14. We anticipate that we will complete this year at the low end, somewhere around the low end of the range we have given you a 50 and we haven’t given any guidance going forward.

[Tony Paolone:]

Okay, thank you.

[Glenn Rufrano:]

Thank you.

[Operator:]

The next question comes from Juan Sanabria of Bank of America, Merrill Lynch. Go ahead.

[Unidentified Analyst:]

Hey, guys. It’s actually Josh down the line with Juan here. First question, is there the possibility that you will have to pay a special dividend given all the significant dispositions you have done from this year or even next year?

[Glenn Rufrano:]

The answer is no, we don’t intend to – we don’t believe we have to have a special dividend this year. We have planned for some of these acquisitions as we have looked at the dividend we put in place.

[Unidentified Analyst:]

Okay, great. And when do you expect to be in a position to provide 2016 guidance?

[Glenn Rufrano:]

We will do that in our fourth quarter call.

[Unidentified Analyst:]

Okay, great. And what are you guys seeing – have you seen any movement in cap rate given the capital market volatility and rising debt cost?

[Glenn Rufrano:]

If I look at the market, there is a couple of segments here that when I think capital, I think fundamentals, so you will have to forgive me. And I think they are in the different things right now. As we look at the fundamentals, the demand for space, the template supply for most property types is a very good fundamentals market, which is driving a lot of the capital to continue to move into real estate, especially in the United States. And if I were going to use a baseball analogy or maybe I shouldn’t with what just happened to the Mets in New York, but if I were, it will look to me like we are in the sixth and seventh innings in fundamentals. But if we now move to the capital market and now I am going to talk more about cap rate compression, it’s clear that in the 1031 and family office market, there is still some cap rate compression. When we start looking at the institutional market, especially with interest rates, we are not seeing as much. It is clearly slowing. And so if I were going to get back to baseball, it’s eight or ninth inning, so I think those are the differences we see. And it’s very important, because to understand at least for us to understand those differences, because fundamentals drive a lot of the capital.

[Unidentified Analyst:]

Got it. Appreciate that. I will yield the floor. Thank you.

[Glenn Rufrano:]

Thank you.

[Operator:]

The next question comes from Tyler Grant of Green Street Advisors. Please go ahead.

[Tyler Grant:]

Hi, guys. Glenn, so you are currently in the process of selling assets in order to change the portfolio mix and to improve your balance sheet. As you march towards these established goals, what size do you think is the right size to operate in order to maximize shareholder value?

[Glenn Rufrano:]

Well, if I looked at some basic math, Tyler, we were close to $19 billion to $20 billion. And if we sell a couple of billion of assets, we are down to two. So, it will be $17 billion or $18 billion and would have right-sized our balance sheet. I think that’s a pretty good size. With the diversification that size provides and the safety that provides with 4,000 plus assets and 100 million square feet in 49 states, it’s that diversification and size that allows us to be risk-adjusted here. So, I think that’s on a reasonable size from a risk standpoint and it’s also not an unreasonable size when we start to grow, because it gives us the capability to look at different sourcing opportunities and sizing of sourcing opportunities. We can look at a smaller transaction or a bit larger transaction on a balance sheet that’s as diversified as that one will be.

[Tyler Grant:]

Okay. And then moving on in the non-traded REIT industry liquidation events tends to create slower capital back into the sponsor. At what point do you think it becomes attractive to start looking at the liquidation of CCPT IV to potentially restart the Cole engine?

[Glenn Rufrano:]

Well, we look at it a little different. This industry – this meaning the non-traded REIT industry is clearly becoming institutionalized and will become more institutionalized. We have already started that. At the four funds we have, three closed end funds and one open end fund, we have put Chairman in place, who are independent and we have independent boards and no board member can be on any more than one board. We think that’s very important. For CCPT IV, we have board meeting next week and a new independent Chairman will be put in place there as well. Is it the independent directors that will determine what is best for the investors of those funds, not the sponsor? And that is the way we will run this business for the benefit of the investors and the funds, not for the benefit of the sponsor. And I believe we are a leader there and that’s the way this business will go.

[Tyler Grant:]

Okay, that’s very helpful. And then final question for me, can you comment on the size of your leasing team at the start of the year relative to now?

[Glenn Rufrano:]

They are the same. We have roughly 10 people altogether. And look, we are a revenue generating business. You don’t mess around with leasing in our business. And that’s a good team, they are in place. We would not want to change that.

[Tyler Grant:]

Perfect. That’s all for me. Thank you.

[Glenn Rufrano:]

Thank you.

[Operator:]

The next question comes from Chris Lucas of Capital One Securities. Please go ahead.

[Chris Lucas:]

Yes, good morning, everyone. Glenn, just kind of following up on the Cole business for a second, can you remind us what the plans are as it relates to closing the fundraising for both CCPT V and CCIT II?

[Glenn Rufrano:]

There, first of all, has not been a decision and I will go back to the independent directors who will be making that decision. There has been a discussion at CCPT II – CCIT II that there is the potential strategically to think about the fourth quarter or first quarter of next year, but no decision has been made. There will be board meetings next week for all of our funds and the independent directors will have those discussions.

[Chris Lucas:]

Have there been any thoughts at this point to thinking through new fund creation for new product?

[Glenn Rufrano:]

From our standpoint, first, this is on the concept of new product, VEREIT and Cole, in terms of product will always have the product that it manufactures and controls. So, it will always be the form of real estate that we have the infrastructure probably now to buy, sell and lease. We are not going to have a product other than what we know and understand. And then in terms of I think the second part of your question is given that the product will be our product, are there other funds fall through? We are considering and thinking about that as we speak right now, but it will be a function of what the independent directors want to do on the existing funds. We will be prepared for new funds if and when we believe they are appropriate.

[Chris Lucas:]

Okay. And then on the Red Lobster portfolio, can you describe sort of the quality mix in terms of what you have agreed to sell and what is being contributed into the partnership relative to what’s left?

[Glenn Rufrano:]

Yes. I will start Chris with to go back to the transaction, there are 522 properties in Red Lobster and we had 502 of those in 11 master pool agreements. Of those 11, 6 were homogenous. By homogenous, they were spread around the country about the same quality. It’s really in those six that we are dealing right now. And so there is not much difference in quality levels relative to what was sold to Golden Gate and the next $400 million that we will sell in participation with them.

[Chris Lucas:]

Okay. And then maybe this – can you sort of give us more color on sort of the thought process on what you did in terms of going to market and how important the master lease structures were in terms of your flexibility to find buyers and how you came up with the pricing as it related to what you ended up doing with Golden Gate cap?

[Glenn Rufrano:]

What we did find, which I think is which we expected is that a pull of $200 million was going to have a higher cap rate than an individual asset. And that was clear and we found that out in the market. So as we thought about those concepts, we said we would love to have a way to perhaps sell it all I mean we are – at $204 million, which is over our original purchase price, that’s okay with us and it’s okay with us because it minimizes this concentration, which is the major reason to do this. But if we can have our cake and eat it too, we said can we not only sell bulk, but can we take advantage of the arbitrage on an individual basis. And that’s the way this concept was created with our partner, Golden Gate is a great partner. We think they are doing a very good job at Red Lobster. And by the way, in their press release with us, I think you would have noticed that Red Lobsters have increased in comp sales for the last four quarters. And they have actually put another 15 Red Lobsters into their portfolio from scratch. So the business is doing well, we like doing business with them, it was a way for us to have both, a bulk sale cap rate and a retail cap rate and that’s the reason why we have moved in this direction. I would say, we think its smart, we think it’s a smart way for us to sell what we believe are good assets over a reasonable period of time.

[Chris Lucas:]

Okay, great. Thank you.

[Glenn Rufrano:]

Thank you.

[Operator:]

The next question comes from Mitch Germain of JMP Securities. Please go ahead.

[Mitch Germain:]

How – Glenn, how should we think about the next tranche of sales, I mean we had some investment grade, low cap rate assets we have got now a pool of Red Lobster, we have got an office building and a couple of other things, how should we think about what’s being targeted for disposition?

[Glenn Rufrano:]

Well, Mitch I will take those assets you have mentioned. Each of them fit into the segments that we outlined non-controlled JV, flat leases, restaurants and non-core. I would continue to think of them in that way, that’s the way we think about them. As we are looking at dispositions, every disposition is categorized in one of those four. And it’s only a question of and put on the market all at the same time. It’s a question, of which ones we believe we can get the right pricing for. So I would continue to think about those four concepts. And those concepts, as we talked about in our business plan revolve around two very important elements, risk-adjusted return, anything that’s flat we have a better use for that capital up to certain parameters and concentration diversification. We want to diversify especially in restaurants. Those two concepts drive into the four segments are a result of those two concepts that’s what you will see come to the market.

[Mitch Germain:]

Great, that’s helpful. Within Cole, I know CCPT for it has a bit of a lower leverage level than the two active funds have, is that typical given where we are in the lifecycle of the two CCIT and CCPT V or was there anything as to why it’s running at a significantly higher leverage level than what we have seen historically?

[Glenn Rufrano:]

No, it’s exactly what you said, once closed. And so it’s pretty close to the debt level that we signaled to the investors we would have and the other two are still open and raising capital. And that’s the reason for that divergence. Over time, they will all come back to that 45%, 50% ratio.

[Mitch Germain:]

Great. A quick one for Michael and by the way, welcome, I just want to make sure I understand that the 3.7 was a one-time expense this quarter that disappears next quarter, correct?

[Mike Bartolotta:]

Correct, it is. It was associated with the capitalized financing costs of the original and when you do the amendments and reduces the size of the line, you have to take a proportionate piece of it away.

[Mitch Germain:]

Great. And then last for me Glenn, about six months in to your tenure, I would just love to get some thoughts about what you have seen, what you have accomplished and what you are hoping to accomplish?

[Glenn Rufrano:]

Well, Mitch I have met with you and all our analysts the second day here and as we talked about life and times. There were some chores that had to be dealt with. And the chores we talked about were corporate governance and a business plan. And I am happy to say that we have got those chores completed, we have a terrific Board, senior management team in place and a business plan we are executing on. So that was number. And I am happy to report as I have in this quarter that where they are in terms of putting this foundation for growth in place. What I was able to find next was something, a concept we talked about a lot in our Investor Day. The company grew from $2 billion in the summer of 2013 to $20 billion in the summer ‘14, two days in, I couldn’t have understand that – understood that. But I understand what happened now. Of that difference and this is what we talked about on Investor Day, $11 billion was Cole, $3 billion CapLease and $2 billion was the DD restaurant portfolio of $16 billion, those three portfolios. While those three portfolio people are very good properties and more importantly, what came along with those portfolios, all three was really good management. So what I can report now is that growth, which sounded crazy, frankly isn’t so crazy because they came along with three operating companies. And we have actually been able to take out of those operating companies some of this major – senior management team, Paul and Tom are terrific. Paul and Tom know those portfolios, Cole and CapLease as well as anybody. So we are able to reach in and get a pretty good management group with pretty good properties, which you could not two days in, but you can see six months in.

[Mitch Germain:]

Thank you.

[Glenn Rufrano:]

Thank you.

[Operator:]

The next question comes from Andrew Rosivach of Goldman Sachs. Please go ahead.

[Andrew Rosivach:]

Sorry, this time, it’s really me. Just a few quickies, you have mentioned what the legal costs have been, do you have any update on the D&O insurance that you had in place and your ability to recoup prior expenses?

[Glenn Rufrano:]

Andy, I will answer that. We have application in to the D&O for reimbursement of expenses at this point – and we expect some. At this point, we don’t know the exact number and we want to be accurate with that, we will have a better update on our fourth quarter call on that number.

[Andrew Rosivach:]

Well, I guess just if I look at your financials now, it can only be upside, right. There is no receivable…?

[Glenn Rufrano:]

That’s right. That’s exactly right, that 50 to 100 Mike mentioned will be at the lower end of that range expected this year. There is no adjustment for the potential proceeds and we will have…

[Andrew Rosivach:]

Got it. And then on a prior question of kind of how the Golden Gate transaction would work, say for example, you are able to sell the portfolio at a 6 cap at the property level, what would be rough numbers, the cap rate of what could actually come to VEREIT?

[Glenn Rufrano:]

Well, I will give you the concept. Up to a certain – first of all we get our capital back and then the certain cap rates, there is a split between VEREIT and Golden Gate. And other cap rate, there is another split, so it’s different. So it’s kind of the typical waterfall. If we look through the total waterfall Andy, we have indicated that 6.5% to 7.5% cap rate is what we think our assets will average. It’s well within that range of what we will get for that $400 million.

[Andrew Rosivach:]

Got it, okay. And then last quick one, you mentioned that you got more brokers on to Cole, were any of them some of the major ones like for example, have you gotten LPLA over the line?

[Glenn Rufrano:]

Of the top 10, I can tell you we have four of the top 10. We haven’t got all the big names that we want and we are reluctant Andy just to name names, because we have relationships with broker dealers. But I can tell you that some of the larger ones where they are still out there, we like to get. We are in front of them. They are working with us. We are in due diligence with them right now as we speak.

[Andrew Rosivach:]

Have they responded to your effort, like when you answered the question of are you basically going to close the funds to get a spike and that’s an independent board member decision. Have you kind of shared that with them and have they responded to the higher level of corporate governance that you are putting in place?

[Glenn Rufrano:]

We have, Andy. We spent a good amount of time and I have met personally with a number of the CEOs from our major brokerage firms talking about the business, not just talking about them and us, but the business long-term, the NTR business. They very much want to see it institutionalize. It’s very important for them to represent their investors with a platform program that they believe in and they respond very positively to having independent directors, independent Chairman no more than – no director on any one than – more than one board, very positive.

[Andrew Rosivach:]

Great. Thanks, guys. I don’t care what the stock is doing. It was a great quarter.

[Glenn Rufrano:]

Thank you very much, Andy.

[Operator:]

And the final question comes from Chris Lucas of Capital One Securities. Go ahead.

[Chris Lucas:]

Yes. Glenn, I just maybe wanted to go back to the last question on the $400 million portfolio, maybe ask it a little differently, which is maybe you can give some context is what the breakeven spread between the portfolio sale and the sort of retail sale of that $400 million would need to be for you guys to sort of breakeven on the two different approaches?

[Glenn Rufrano:]

Well, it would be the 7.78 cap rate.

[Chris Lucas:]

No, no. I guess, what I am trying to figure out is that obviously when you went through this process, there were two sort of ways you could go. You could sell the $400 million at a bulk sale at whatever and then sell – or sell them one-off and you are splitting, you are not capturing all of the difference there. Right, you are capturing a portion. So, there is got to be a cap rate spread that sort of defines what breakeven was between the two different approaches?

[Glenn Rufrano:]

Right. The way I think the best way to answer it if we were to sell in both, let’s assume we could have sold it at the same 7.78 cap rate, we sold the original $200 million. And if we sell retail, on an individual basis, it’s in the low 5s and low 6s versus the 7, 7.8, certainly somewhere in between the two is where we expect.

[Chris Lucas:]

Okay, great. Thank you.

[Glenn Rufrano:]

Thank you.

[Operator:]

This concludes our question-and-answer session and the conference has now concluded. Thank you for attending today’s presentation. You may now disconnect.