In some ways, real estate investment trust (REIT) VEREIT (NYSE:VER) has been a terrible investment for me. Yet as I watched the company navigate through headwinds that could have destroyed another company, I couldn't help but be impressed.

And now that the landlord has fixed the foundation of its business, I'm pretty sure I'm going to be sticking around for a very long time. Here's why.

What did I do?

I first bought VEREIT when it was called American Realty Capital Properties, a fast-growing net-lease real estate investment trust with a huge 10% yield. I had watched as management used a string of acquisitions to quickly turn the company into an industry giant, at the time rivaling the size of peers like industry bellwether Realty Income. I should have known better, but I let my investment demons run free.

The word Growth spelled out with blocks aligned on an upward sloping line

Image source: Getty Images

Literally just a few months after I bought shares the company's debt-fueled acquisition string started to crumble, with the REIT announcing an accounting issue. Although it was barely a rounding error, the stock tumbled, the dividend was eliminated, and pretty much the entire leadership team got tossed. I have a personal rule that I try not to act out of fear, so I stuck around believing that the large property portfolio still had material value. (I did sell my entire position at one point to capture tax losses, but I bought back in after I'd cleared the 30-day wash sale rule time period.)

At this point, I'm glad I've held on. It was a long and drawn-out process, but VEREIT is not the same company I bought all those years ago. It's much better. And I have industry veteran and VEREIT CEO Glenn Rufrano to thank for that because he is the man who helped steer VEREIT through the crucible.

The big story, however, is that VEREIT now has a transparent business model that I think will carry it for years to come. That's why I have no plans to go anywhere anytime soon.

Foundational change

When VEREIT's accounting scandal surfaced it was a hodgepodge of properties rapidly cobbled together for the sole purpose of getting big as fast as possible, with virtually no checks on management's ambitions. That's a terrible business model. (What the heck was I thinking when I bought it?) As soon as the board brought Rufrano in, however, he made sure to lay out his goals so that Wall Street could hold him accountable. In fact, the name VEREIT is a mixture of veritas, the Latin word for truth, and REIT. 

The main goals were to strengthen the balance sheet, reinstate the dividend, rationalize the portfolio, and work through the legal quagmire left behind by previous management. Rufrano and the team he assembled have completed each and every one of those tasks. The legal headwinds were the last to get solved, with it taking until 2020 to really put this issue in the rearview mirror. However, with an investment-grade balance sheet and a diversified portfolio spread across retail (45% of rents), restaurant (21%), office (18%), and industrial assets (17%), VEREIT entered 2020 with the foundation it needed to start growing again. 

And then COVID-19 hit, leading to a recession and, because of the economic shutdown used to slow the spread of the pandemic, rent collection issues. In the second quarter, VEREIT only collected 85.5% of its contractual rents. In fairness, that was pretty solid compared to some peers thanks to VEREIT's diversified portfolio. But the downturn led the REIT to take one more cleansing step -- it cut the dividend 45%. 

VEREIT Rent Collections by Month

April 2020 

May 2020

June 2020

July 2020

August 2020

86%

85%

86%

91%

94%

Data source: VEREIT 

I would be lying if I said I was pleased by that move, but I recognize that VEREIT has now fully transformed itself. Yes, the dividend cut allowed it to free up cash to deal with the temporary COVID-19 headwinds it was facing -- rent collections were up to a far-more-healthy 94% in August. But from a bigger-picture perspective, the pandemic gave management the cover it needed to ease the dividend burden so it could self-fund more of its own growth and, at the same time, reduce the cost of issuing new stock. That, in turn, will position VEREIT to start increasing the dividend again as it returns to expanding its portfolio. Only this time the growth will be thoughtful and grounded in a well-articulated business model. And when dividends finally begin to head higher, investors will likely start to see VEREIT as more than just a renamed American Realty Capital Properties. I believe, largely thanks to Glenn Rufrano's open leadership, that the foundation is now set for a long and successful future. 

It's about what happens from here

With a roughly-4.3% dividend yield, VEREIT isn't exactly the highest-yielding option in the net-lease space. Add in the dividend cut earlier this year and I can understand why investors might be a bit leery of the name. However, if you step back and look at the transition that has taken place here, that dividend cut isn't quite what it seems. What it was, in the end, was the final step of the turnaround. The reset button has been hit, and now VEREIT can start to show what it's really made of.

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium advisory service. We’re motley! Questioning an investing thesis -- even one of our own -- helps us all think critically about investing and make decisions that help us become smarter, happier, and richer.