VEREIT Inc (VER) Q2 2019 Earnings Call Transcript

VER earnings call for the period ending June 30, 2019.

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VEREIT Inc (NYSE:VER)
Q2 2019 Earnings Call
Aug 7, 2019, 1:30 p.m. ET

Contents:

  • Prepared Remarks
  • Questions and Answers
  • Call Participants

Prepared Remarks:

Operator

Good day and welcome to the VEREIT Second Quarter 2019 Earnings Conference Call. [Operator Instructions]

I would now like to turn the conference over to Ms. Bonni Rosen, Head of Investor Relations. Please go ahead.

Bonni Rosen -- Senior Vice President, Investor Relations

Thank you for joining us today for the VEREIT 2019 second quarter earnings call. Joining me today are Glenn Rufrano, our Chief Executive Officer, and Mike Bartolotta, our Chief Financial Officer. Today's call is being webcast on our website at vereit.com in the Investor Relations section. There will be a replay of the call beginning at approximately 2:30 PM Eastern Time today. Dial-in for the replay is 1-877-344-7529 with the confirmation code of 10132920.

Before I turn the call over to Glenn, I would like to remind everyone that certain statements in this earnings call, which are not historical facts, will be forward-looking. VEREIT's actual results may differ materially from these forward-looking statements, and factors that could cause these differences are detailed in our SEC filings, including the 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 be begin by providing a business and operational update, followed by Mike presenting our quarterly financial results. Glenn will then wrap up with closing remarks. We will conclude today's call by opening the line for questions. Glenn, let me turn the call over to you.

Glenn Rufrano -- Chief Executive Officer

Thanks, Bonnie. And thanks for joining our call. We're pleased with our operational and capital allocation results for the quarter. AFFO per diluted share was $0.18 and we are reaffirming our AFFO guidance range of $0.68 to $0.70. Year-to-date acquisitions totaled $221 million. As described last quarter, we formed an industrial partnership including six VEREIT assets totaling $407.5 million, which closed on May 30, and contributed $326 million to dispositions.

Portfolio sales were $430 million, bringing total dispositions to $756 million, including our 80% share of the industrial partnership. And we reduced net debt to normalized EBITDA from 5.9 to 5.7 in the first quarter and further to 5.3 times in Q2.

Leasing for the quarter was very active with 357,000 square feet leased and occupancy ending at a healthy 99%. Same-store rent was up 1%. Year-to-date, we have leased 1.2 million square feet, of which 1.1 million square feet were renewals and 248,000 square feet early renewals. Leasing activity included 442,000 square feet of retail, 407,000 square feet of office, 269,000 square feet of restaurants, and 85,000 square feet of industrial. For renewal leases, we recaptured approximately 100% of prior rents and our remaining lease rollover exposure for the year is now 0.9%.

Commercial real estate transactions in the first quarter were down 9% due to economic uncertainties at the end of 2018. With the interest rate drop beginning earlier this year, the market has responded. And in Q2 and year-to-date, sales of $240 billion are on par with last year. We expect full-year sales to be comparable to the 2018 total of $578 billion. You can see we're taking advantage of a robust market in our asset allocation process.

Excluding the industrial partnership, we are increasing our portfolio disposition guidance from $350 million to $500 million to $500 million to $650 million and our acquisition range from between $250 million and $500 million to $400 million and $600 million. Year-to-date acquisitions totaled $221 million, comprised of approximately 90% retail and 10% industrial. Retail included our preferred merchandise categories -- convenience, hobby, home furnishings and discount retailers.

Dispositions continue to outpace acquisitions at $756 million, which includes the industrial partnership with KIS. This 80/20 partnership was seeded with six VEREIT assets with a weighted average lease term of 10.5 years and a cap rate just under 6%. The portfolio includes the following tenants -- Amazon, FedEx, TJX, Home Depot and Nestle -- and are located in Pennsylvania, Virginia, Tennessee, South Carolina and Wisconsin. We have adjusted all our portfolio and financial metrics to account for our 20% share throughout this supplemental, including our net debt to EBITDA and property type weightings.

As part of our transactions, we will receive asset management, property management and the opportunity for acquisition fees, as well as a disproportionate share of equity based upon an IRR hurdle.

As important, we're focused on our debt balances. We've reduced net debt to normalized EBITDA for the year from 5.9 to 5.3, which includes the total of $245 million in litigation settlements representing approximately 35.30% of VEREIT's outstanding shares of common stock held at the end of the period.

Before Mike reviews our financial results, let me provide a brief update on litigation. Expert discovery was completed at the end of July. As previously announced, the judge moved the trial date from September 9, 2019 to January 21, 2020. The September 9th date will now be used as a conference to address all pretrial motions.

On July 16, the SEC filed a complaint and entered into a settlement agreement with the company's former manager and certain of its principals. The court approved settlements on July 17. As part of the settlements, principals of the former manager have forfeited 2.9 million limited partner OP units along with $6.4 million in associated dividends that have not been paid on those units. Mike will discuss the accounting for this.

To be clear, VEREIT was not a party to this SEC settlement. In addition, nothing in the SEC settlement just discussed precludes us from asserting any claims against any of these parties in the future. Additional details regarding pending litigations can be found in our 10-Q filed today.

Let me now turn the call over to Mike.

Michael J. Bartolotta -- Executive Vice President and Chief Financial Officer

Thanks, Glenn. And thank you all for joining us today. We had a solid quarter, achieving AFFO of $0.18 per diluted share. And as usual, we will focus on earnings from continuing operations for this call.

For the quarter, rental revenue decreased $4.8 million or 1.5% to $312 million, mostly due to net dispositions year-to-date. Net income increased $221.3 million to $292.3 million, primarily due to a higher gain on the disposition of real estate of $210.9 million, along with lower depreciation and amortization of $18.5 million, lower restructuring costs of $8.8 million, lower settlement expense of $12.2 million and the $26.5 million of OP unit recoveries recorded in litigation expense in Q2. This was partially offset by $8 million of higher ongoing litigation expenses in Q2 and the prior recognition of $48.4 million of insurance recoveries received last quarter.

FFO per diluted share decreased $0.01, from $0.19 to $0.18, mostly due to lower rental revenue of $4.8 million and the higher litigation and non-routine costs net of $17.7 million discussed above, partially offset by a lower restructuring charge of $8.8 million and $3.6 million of higher other income mostly due to the unexpected receipt of a prior fully reserved receivable.

AFFO per share was essentially flat quarter-over-quarter at $0.18.

G&A increased $1.6 million quarter-over-quarter to $16.4 million, primarily due to certain equity compensation that is always recorded in the second quarter and the termination of the Cole transition services agreement at the end of Q1.

During the quarter, there were $22.8 million of litigation-related expenses. In addition, we recorded a credit of approximately $26.5 million, which represents the cancellation of the approximately 2.9 million OP units. This brings the litigation-related line item in the financials to a credit of $3.8 million in Q2.

We will also see a corresponding reduction in non-controlling interest for the 2.9 million OP units and an adjustment for the associated $6.4 million of unpaid dividends in distributions payable on the liability side of the balance sheet.

Year-to-date, litigation-related expenses had totaled $37.5 million. We still expect gross litigation expenses in 2019 will not be less than the 2018, which was approximately $70.7 million

Turning to our second quarter real estate activity, the company purchased 25 properties for $119 million at a weighted average cash cap rate of 7.3%. In addition, the company invested $8.3 million in one build-to-suit project with an investment to date of $15.8 million and an estimated remaining investment of $11.9 million. And then, subsequent to the quarter, the company acquired three properties for $21.8 million.

During the quarter, we disposed of 53 properties for $658 million. Of this amount, $493 million was used in the total weighted average cap rate calculation of 6.5%, including $53.5 million of net sales of Red Lobster.

The gain on the second quarter sales was approximately $223 million, primarily due to the El Segundo office sale and the industrial partnership. And then, subsequent to the quarter, the company disposed of 12 properties for $27.5 million.

We continue to strengthen and liquify our balance sheet. Including the industrial partnership proceeds, we took our line of credit balance to zero, paid down $172 million of secured debt and announced the partial redemption of $100 million of preferred stock, which was redeemed on July 5.

Given the current interest rate environment, we thought it was prudent to lock in a rate to partially reduce risk on future debt, of which the earliest expected significant maturity date isn't until December 2020. Subsequent to the quarter, the company entered into forward-starting interest rate swaps, with a total notional amount of $400 million and an average effective treasury rate of approximately 2.1%. The swaps are structured to hedge the interest rate risk associated with the potential issuance of 10-year public debt between May 1, 2020 and December 31, 2021.

Our net debt to normalized EBITDA ended at 5.3 times. We are updating our net debt to normalized EBITDA target from a range of 5.7 to 6 times to 5.5 to 5.7 times. Our fixed charge coverage ratio remains healthy at 3 times and our net debt-to-gross real estate investment ratio was 37%.

Our unencumbered asset ratio was 76%. The weighted average duration of our debt was 4.4 years. And we are 99.8% fixed.

And with that, I'll turn the call back to Glenn

Glenn Rufrano -- Chief Executive Officer

Thanks, Mike. We continue to focus on three objectives -- lowering our debt levels, refreshing and diversifying our portfolio through reinvestment, and maintaining an experienced execution team. The first two objectives result from our careful review of current and future asset allocation. Our process considers accretion and dilution, balance sheet goals and portfolio quality.

Reduced debt levels with minimum dilution has been achieved by seeding the industrial partnership with internal assets, prudent use of our ATM, and execution of an interest rate hedge, with accretion provided by the partial redemption of our preferred stock.

Our acquisition ambition centered around the desired portfolio construct to protect against future disruptors. An experienced execution is found within VEREIT's senior real estate team, seasoned with company tenure of over eight years, more than double the length of time we've had our new name.

KIS, our new institutional partner, has also recognized the value of our underlying management in their commitment to a long-term relationship.

With that, I'd now like to open up the line for questions.


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Questions and Answers:

Operator

Thank you.[Operator Instructions]. Our first question comes from Sheila McGrath with other Evercore ISI. Please go ahead.

Sheila McGrath -- Evercore ISI -- Analyst

Yes, good afternoon. Your leverage metrics improved to levels not seen in years largely from that industrial sale. I know you updated the near-term leverage targets. But I just wanted to understand how we should think about this going into 2020. Should we consider that VEREIT continues to be a net seller to raise proceeds to pay down the preferred stock?

Glenn Rufrano -- Chief Executive Officer

Sheila, if you -- the answer for 1990 is in a large part of our presentation. Even though we have updated both our disposition and acquisition activity, we're still a net seller this year. And the net selling position is exactly as you've stated, to keep our leverage low. That is one of the three objectives. As you notice, that's one of the big ones. So we will be a net seller this year. Yes.

Sheila McGrath -- Evercore ISI -- Analyst

Okay. And then, Glenn, following up on that, you did execute well on that industrial portfolio sale. Are there any other opportunities to kind of cobble together a portfolio that you might do better than individual asset sales?

Glenn Rufrano -- Chief Executive Officer

We are working with KIS, our partner, to find some other assets that will fit in that portfolio. We have nothing to announce right now. We have had conversation with others on partnerships in the office sector. So, there may be ways that we can provide for what we would call high return on capital partnerships where we seed with our current assets, reduce the assets we want -- like to have out of our portfolio, either because it's a very low cap rate or because, in the case of office, we're reducing office and, at the same time, being able to provide a growth vehicle

Sheila McGrath -- Evercore ISI -- Analyst

Okay. And last question. Glenn, I was hoping you could give some high level views on the retail environment right now and your tenant watch list?

Glenn Rufrano -- Chief Executive Officer

We've had 7,000 or 8000 closures this year so far, which isn't good. For us, though, I'm going to knock on every piece of wood here. We remain at 99% because we have not really been hit very hard with those closures. As you know, most of those closures have been in the mall sector and very apparel related, which we have very little.

I have some confidence that there is some stabilizing occurring with tenants who are absolutely finding ways to use omnichannel as a way to provide profitability. So, in my view, especially coming out of ICSC, our tenants, no one understand online is here to stay. They are dealing with it. And the ones who have the resources to compete online and provide that service will be here for a long time.

So, we are watching very closely. And as we've talked about before, we care about tenants who not only understand that online is important, but have the resources to implement it because it is very expensive without much margin. And that was the first part of your question.

Sheila McGrath -- Evercore ISI -- Analyst

And I just said watch list. Tenant watchlist.

Glenn Rufrano -- Chief Executive Officer

That's right. We've had a tenant watch list of around 2% or sometimes a little higher over the last two or three years. And I would tell you now, we're at the low end of that watch list. We are feeling pretty good about the credits that we have right now and are happy to have a lower watch list percentage.

Sheila McGrath -- Evercore ISI -- Analyst

Okay, thank you.

Glenn Rufrano -- Chief Executive Officer

Thank you, Sheila.

Operator

Our next question comes from Mitch Germain with JMP Securities. Please go ahead.

Mitchell Germain -- JMP Securities -- Analyst

Thank you. Glenn, I'm looking at your top tenants. I'm curious, A, are we done with reducing your exposures to Red Lobster? And maybe, B, what your thoughts are for Family Dollar? Obviously, there's been some headlines out of Dollar General? I guess both of them.

Glenn Rufrano -- Chief Executive Officer

No, no, no. Yeah, Mitch, on Red Lobster, we are down to 5.1% and our goal was always to get below 5%. We've sold $53 million in the quarter. But we actually have $98 million year-to-date. I feel very confident, by year-end, we're going to be below our 5%. And once once we get below 5%, that 5%, we'll how far it will go down.

I would tell you that we're pleased with Red Lobster. In 2015, Golden Gate took over, the sales went up very nicely, actually, on the portfolio. And then, there were some down years in the 2016-2017. But in the last three to four quarters, our portfolio has really done well with positive sales. So, we are pleased with the portfolio and pleased with their balance sheet as they've strengthen it, with Thai Union coming in as a partner. So, we'll get down below 5% and then we'll evaluate how much more we think we should take that down.

On the Dollar Stores, Family Dollar and Dollar Tree at about 3.5% and Dollar General is 3.1%. It's really Family Dollar that we've had some of the question marks about. We're watching them closely. The Vault , Dollar Tree and Family Dollar is 8 years. And it's close to 8 years on Dollar General as well. So, we have plenty of term there. There were some closures we announced last time and we've had a few more since then. But, in total, the total closures for the Family Dollar stores is about 0.2%. So, it's very small in our portfolio. But it's clearly a good business, a business that's growing, in fact. All those companies are still growing, but they are evaluating certain locations and we keep an eye on them.

Mitchell Germain -- JMP Securities -- Analyst

Got you. That's very helpful. With regards to the industrial joint venture, I guess, if there is an asset that fits the criteria, how does that work? Do they get right of first refusal? Or is it a one in -- one to them, one to you, how should we consider that over time?

Glenn Rufrano -- Chief Executive Officer

Well, the industrial joint venture with KIS has no exclusivity at all, Mitch. So, in fact, if -- as we know, these are all investment grade assets. If an investment grade industrial property came to us today, we do not even have to show it to them. Now, we would because the partnership will be built on that basis and those assets are very expensive, but we don't have any exclusivity with regard to new assets coming in and we have no exclusivity with regard to selling assets from our existing portfolio.

We didn't want to encumber this business with a joint venture that would have any level of exclusivity. But if we had, and we do -- as you know, we had 153 industrial properties before the six went into the venture, over 50%, just over 50% investment grade. If we wanted to sell another investment grade asset into the venture, we could approach KIS and they would certainly like to see us do that.

Mitchell Germain -- JMP Securities -- Analyst

Got you, OK. Last one from me. Mike, I must apologize, I might have missed some of your comments, but what is the plan for the convert?

Michael J. Bartolotta -- Executive Vice President and Chief Financial Officer

Basically -- we just put the swap in place which, hopefully, mitigates any of the potential interest rate risk of just letting it float, but we can wait till that becomes due which is in December of 2020.

Mitchell Germain -- JMP Securities -- Analyst

Great. So, you have some time. And if I could sneak one more in, Glenn, obviously, there was an SEC ruling on some of the old AR Capital executives, has there been any progress on the SEC investigation of VEREIT? Or is that now kind of -- I believe that they were separate, correct? Is my understanding correct?

Glenn Rufrano -- Chief Executive Officer

Yeah. Mitch, they are absolutely separate. What just occurred with the former manager and the principals was with them, not with us. We continue to work closely with the SEC and have conversation with them, but there has been -- there is no resolution that we'd be able to speak about.

Mitchell Germain -- JMP Securities -- Analyst

Thank you much.

Glenn Rufrano -- Chief Executive Officer

Thank you.

Operator

Our next question comes from Caitlin Burrows with Goldman Sachs. Please go ahead.

Caitlin Burrows -- Goldman Sachs -- Analyst

Hi, everyone. Maybe just sticking on the topic of the trial, I guess, looking into 2020, the trial is now expected to start in late January. I think you'd previously mentioned it could take like four to six weeks. And I think a reasonable thought is that, at the end of that time, you would be expected to pay something out and that would be by the end of about 1Q. So, I guess, I'm just wondering, when we think about timing, what do you think could delay the process beyond this time frame any further?

Glenn Rufrano -- Chief Executive Officer

I'm going to first admit I'm not a lawyer, Caitlin. And so, whenever I say, it can't be held against me. But I'll tell you and repeat what I've been told. A trial can always be changed. It's been changed once. And as you know, it wasn't changed for reasons related to the case necessarily. The judge had a personal reason to change that date. Could it be changed again? It could. I would hope not. So, let's assume the date holds in January because I hope so.

After that, in terms of payment, I'm not sure I can give you the exact data on that in 2020. Your timeframe is one that we've talked about before. Four to eight weeks, I think is the range that I've been giving. And then, it's a question of how the parties -- what comes out of that, what the damage award is, if any, and whether or not there is any appeal. So, I don't think I can give you the timeframe in 2020, but our objective would hope that it would be as soon as possible.

Caitlin Burrows -- Goldman Sachs -- Analyst

And I guess, just to the extent you have something that you could share on the topic of potential appeal, is that just you potentially find out an amount and then decide if you want to pay it or if you want to push back on that or how does that process work?

Glenn Rufrano -- Chief Executive Officer

I can't give you the specifics, but it's my understanding either party can appeal.

Caitlin Burrows -- Goldman Sachs -- Analyst

Got it. And then, I guess, just thinking about leverage, you guys did bring it down nicely in the quarter. So, going forward, over the next, call it, 6 to 12 months, to the extent that it does get higher, I guess, how would you plan to address that going forward? And to the extent it does get higher early in 2020, how quickly do you think it could come down later in 2020 or going forward?

Glenn Rufrano -- Chief Executive Officer

No, I have to give you a preface to the answer here. The preface is how we have thought about leverage relative to our litigation. And if I go back, I know we've had a conversation, people have asked, how are you going to pay for the litigation. And what we have said is we've looked at it in two ways, short-term and long-term. Short-term, we wanted to make sure we had liquidity for whatever this is. And as you could see today, we have a $2 billion revolver totally undrawn. So, we feel as if our liquidity is in very good shape for whatever happens.

And what we also expected was that we didn't want to have a gun to our head, so that if we had the settlement and/or adjudication in trial, we pay it. And then, over some period of time, at our choosing, we put permanent financing in place. But that permanent financing would always get us down to ratios which we thought would be BBB. So, that has always -- that's been our goal. That's been our objective.

What we have done, though, is we have prepaid, in our view, some of that settlement by reducing debt. And so, our goals are going to be the same. Whatever happens with this litigation, we will bring our ratios back down to BBB ratings. We've got a head start because we found ways to reduce debt which we thought had minimal dilution compared to other ways. And we'll continue to look at it that way. We've given you, in essence, this year 5.5 to 5.7. And when we give guidance next year, it will give you a good indication of where we think leverage will go.

Caitlin Burrows -- Goldman Sachs -- Analyst

Got it, OK. Thank you.

Glenn Rufrano -- Chief Executive Officer

Thank you.

Operator

Our next question comes from Spenser Allaway with Green Street Advisors. Please go ahead.

Spenser Allaway -- Green Street Advisors -- Analyst

Thank you. Maybe just going back to the retail environment for a minute? Have negotiations, specifically as it relates to just like releasing properties, have they become more difficult and/or have you seen changes in the terms that tenants are asking for, so whether that's lease term or rent bumps?

Glenn Rufrano -- Chief Executive Officer

I'd say yes, Spenser, to give you a one-word answer. That answer has changed over time. There is sometimes when the landlord has a bit more power and sometimes when the tenant has a bit more power, and that's a general statement. And then, within that general statement, there may be a location or a tenant where the power is in -- negotiating power is in either direction.

Right now, there is certainly some pressure on retail rents across the board. And we're finding it difficult to get our tenants to renew long-term, in some cases. In other cases, we've made some good long-term deals, especially on blend and extend. But that fight between us and our partner, which is always a good fight and a reasonable fight, will continue over years and we feel confident that, with the positions we have, we are doing fine. Our 99% lease gives you an indication of that.

But, ultimately, what I would tell you that will protect us, in my view anyway, would be diversification. What we don't want is to be in a position where any tenant could put a gun on our head to any great extent or geography could put a gun to our head in any great extent. So, we are looking at tenants. It's not an easy environment. We'll get through it and, ultimately, our diversification will be our protection.

Spenser Allaway -- Green Street Advisors -- Analyst

Okay. And then, maybe just in regards to retail pricing, are there any industries specifically of note where you've seen cap rates move one way or the other in any material fashion?

Glenn Rufrano -- Chief Executive Officer

I think it's been pretty stable this year so far. As I mentioned in the beginning remarks, as we came out of the fourth quarter of last year, the 10-year was up 20 bps, 30 bps, and so we had a little rough first quarter, but that roughness didn't necessarily convert into different different cap rates, I think it converted into less transaction activity, people just waiting. The 10-year went down before this latest drop 110, 120 basis points in the first quarter. And all of a sudden, in the second quarter, there was a dramatic change in at least our view in terms of product in the market and closure, meeting of the minds between buyers and sellers. But, again, not a lot of change in cap rates in my view. So, the timing is important, but people have been waiting out the interest rate movement and it's now back in favor, frankly, for cap rates being stable or, in some cases, maybe even dropping.

Spenser Allaway -- Green Street Advisors -- Analyst

Okay. And then, last one, if I may. Obviously, you guys have been active in the capital markets. But just as we kind of move in the back half of the year, and given your improved cost of equity, is there any reason why we wouldn't see you guys get a little bit more aggressive in utilizing our ATM?

Glenn Rufrano -- Chief Executive Officer

The ATM, we did not use it this quarter, as you've noted. And the best I could say about that, there are going be times when matters relating to various legal proceedings may influence our ability or willingness to be part of open market transactions. We'll continue to consider when we can have transactions in the marketplace. And if it's appropriate, we would certainly act as we did in the first quarter.

Spenser Allaway -- Green Street Advisors -- Analyst

Okay, thank you.

Glenn Rufrano -- Chief Executive Officer

Thank you .

Operator

Our next question comes from Chris Lucas with Capital One Securities. Please go ahead.

Chris Lucas -- Capital One Securities, -- Analyst

Good afternoon, Glenn. Just maybe following up in that vein, I guess, you guys redeemed some preferred this quarter. I guess, bigger picture, how do you guys think about preferred in the capital stack? And given where the capital markets are today, rather than buying down that preferred, is there an opportunity to refinance a big slug of that with a new issuance and how would you guys think about that?

Glenn Rufrano -- Chief Executive Officer

I'm going to let Mike start that and then I'll chime in.

Michael J. Bartolotta -- Executive Vice President and Chief Financial Officer

Yeah. Chris, as you know, we took $100 million down and it has some pretty positive effect going forward. At the same time, though, it has a negative effect on our net debt to EBITDA. So, that $100 million affects net debt to EBITDA negative by 0.01. So, it's always a concern because the rating agencies have a different temperament depending on which agency. But they don't consider the preferred as debt completely.

We have looked at potentially swapping it out with another set of preferred and we'll continue to look at that. Up till now, when you look at the cost of doing that compared to the savings, it hasn't been [Indecipherable] really something we would want to do yet, but we'll certainly monitor it.

Chris Lucas -- Capital One Securities, -- Analyst

And then, I guess, Mike, while I have you, just looking at your sort of mortgage schedule. most of the rates in the next X period are sort of mid-5s. And, I guess, the question I would have is, how aggressive would you look to prepay or de-fees those mortgages, given the current environment and how far out would you want to go?

Michael J. Bartolotta -- Executive Vice President and Chief Financial Officer

Chris, I'm smiling because we look at them every -- all the time. We took roughly $74 million, $75 million of them out earlier this quarter. But we always compare the prepayment cost or the make-whole cost that almost all of them have, and so we always make sure that there's a positive arbitrage in doing that.

Chris Lucas -- Capital One Securities, -- Analyst

And so, I guess, just going back to the preferred for a second, if you guys did a refinancing or reissue to swap out the existing with a newer issue, is that something that might be impacted by the issues that Glenn described as it related to the use of the ATM?

Glenn Rufrano -- Chief Executive Officer

it would be. It's a security. And the issue we would have, Chris, would affect any new security.

Chris Lucas -- Capital One Securities, -- Analyst

Okay, thank you. That's all I have. Appreciate it.

Glenn Rufrano -- Chief Executive Officer

Thank you.

Operator

Our next question comes from Sheila McGrath with Evercore ISI. Please go ahead.

Sheila McGrath -- Evercore ISI -- Analyst

Yes. You mentioned $6.4 million removed from the dividend payable liability. I just wanted to clarify that there are other OP units that you're currently not paying dividends on that could be a source of capital in any settlement? I think it was over 13 million. I just want to confirm that.

I just want to confirm that?

Michael J. Bartolotta -- Executive Vice President and Chief Financial Officer

Sheila , you're right. If you were to look at our Q last quarter, it would have had 13.1 million. And when you look at it this quarter, it has 13.1 million. And so, we have not changed that even though that 2.9 million came out.

Sheila McGrath -- Evercore ISI -- Analyst

Okay, good. And then, just curious, I'm not sure if you can comment on this, Glenn, but in the settlement with the former managers, there was a statement that they were obliged to pay a fee to the SEC. And I'm just wondering, wouldn't it be more appropriate that very shareholders benefit from that payment rather than the government agency because VEREIT shareholders are the ones that are bearing the burden of the litigation fees? Just your thoughts there.

Glenn Rufrano -- Chief Executive Officer

Yes. How about that? But let me go into a bit of an explanation. I want to break that down. Besides the 2.9 million operating units and the $6.4 million in the dividends, which Mike just described how it ran through the balance sheet, your question, which I understand is, there were two other components to the SEC settlement with the former manager and the principals, one was called disgorgement, $12.3 million, and the other was a civil penalty of $22 million approximately.

Of the two, the $12.3 million, this is -- the general objective of that, as I understand it, will be to provide funds for uncompensated injured parties. So, that's the money set aside for those circumstances. The $22 million, as my understanding is, is a civil penalty and it would be wonderful if we could have some or all of that for our current shareholders. But it's not there right now.

Sheila McGrath -- Evercore ISI -- Analyst

Okay, got it. And one last one, in your Q, you mentioned the date for the trial being January 21, 2020. And then, there were two other dates mentioned, one in September and one in November. Are those just like procedural routine meetings or could some new information come out for investors to focus in on at those meetings ?

Glenn Rufrano -- Chief Executive Officer

The one in September is for pretrial motions, including motions regarding each side's expert. So, as I understand that, that's a normal procedure and process before a court case.

And then, in November, you're now very close to January. If there is anything else to address in pretrial matters, it will be addressed then. But, again, my understanding is that the primary one will be here in September.

Sheila McGrath -- Evercore ISI -- Analyst

Okay, thank you.

Glenn Rufrano -- Chief Executive Officer

Thank you.

Operator

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

Glenn Rufrano -- Chief Executive Officer

I thank everybody for joining us today. We're actually holding this call in New York. Sometimes [Indecipherable], But for everybody, it is the last time we'll be in this office. We are moving to 9 West 44th Street between 5th and 6th. So, if anybody wants to visit us after this week, you can visit us there. Thank you for participating in the call. Have a good summer.

Operator

[Operator Closing Remarks].

Duration: 38 minutes

Call participants:

Bonni Rosen -- Senior Vice President, Investor Relations

Glenn Rufrano -- Chief Executive Officer

Michael J. Bartolotta -- Executive Vice President and Chief Financial Officer

Sheila McGrath -- Evercore ISI -- Analyst

Mitchell Germain -- JMP Securities -- Analyst

Caitlin Burrows -- Goldman Sachs -- Analyst

Spenser Allaway -- Green Street Advisors -- Analyst

Chris Lucas -- Capital One Securities, -- Analyst

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