VEREIT Inc.'s corporate credit rating and access to capital should improve now that it has settled major class action litigation, and the company may start to grow its portfolio again through acquisitions, CEO Glenn Rufrano said on a conference call after market close Sept. 9.
"Without a doubt, it will be positive," Rufrano said of the likely impact of the settlements on the company's BBB- credit rating. "We have made [rating agencies] aware that, at some point, this settlement would occur and our debt would go up. We would, though, present a plan to them to bring it back down. I'm comfortable that they'll accept that review."
Rufrano said the focus of the company's portfolio strategy may now shift from diversification to growth. He noted the company has sold "well over" $3.5 billion of assets during his tenure.
"We're in a pretty good position now with our portfolio," he said. "We look forward to putting this behind us, so that we can have a more adequate cost of capital. ... But on a neutral basis, we hope and expect to be positive in terms of acquisitions."
Analysts deemed the outcome of the litigation expensive — the $765.5 million liability pushes the total litigation costs related to erroneous financial reporting in 2014 and 2015, factoring in prior settlements, to over $1 billion — but worth it. The settlements remove the "uncertainty overhang" on the stock and reopen the capital markets for the company, according to Stifel's Simon Yarmak.
"We believe it is important to note that the settlement agreement, despite the cost, removes an overhang of uncertainty from the name," Yarmak said in a Sept. 9 research note. "The outcome could have come at a higher cost."
The costs incurred by the company were $300 million more than Evercore ISI analyst Sheila McGrath expected, but she similarly deemed the event a net positive for the company. She noted it has traded at an "excessive" discount among its peers as a result of the litigation overhang.
"While settlement costs were higher than our expectations, we believe de-risking VER for the future when the cost of debt and equity capital for net lease REITs is attractive was the right move for VER shareholders," McGrath said in a Sept. 10 research note.
VEREIT shares were down about 2.4% in midday trading Sept. 10.
