UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

Form 10-Q

x

☒

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period endedSeptember 30, 2017

March 31, 2023

OR

o

☐

TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from to

Commission file number
Spirit Realty Capital, Inc.                                     001-36004
Spirit Realty, L.P.                                         333-216815-01

Commission file number

001-36004

SPIRIT REALTY CAPITAL, INC.

SPIRIT REALTY, L.P.

(Exact name of registrant as specified in its charter)

Spirit Realty Capital, Inc.

Maryland

Maryland

20-1676382

Spirit Realty, L.P.

Delaware20-1127940

(State or other jurisdiction of

incorporation or organization)

(I.R.S. Employer

Identification Number)

2727 North Harwood Street, Suite 300,

Dallas, Texas75201

(972)

(972) 476-1900

(Address of principal executive offices; zip code)

(Registrant’s telephone number, including area code)


(Former name, former address and former fiscal year, if changed since last report)

Securities registered pursuant to Section 12(b) of the Act:

Title of each class

Trading Symbol(s)

Name of each exchange on which registered

Common stock, par value $0.05 per share

SRC

New York Stock Exchange

6.000% Series A Cumulative Redeemable Preferred Stock, par value $0.01 per share

SRC-A

New York Stock Exchange

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.

Yes ☒ No ☐

Spirit Realty Capital, Inc.     Yes  x No   o

Spirit Realty, L.P.     Yes  o No   x

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).

Yes ☒ No ☐

Spirit Realty Capital, Inc.     Yes  x No   o

Spirit Realty, L.P.     Yes  x No   o



Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer”,filer,” “smaller reporting company” or an emerging growth company. See definitions of "large accelerated filer,", "smaller reporting company,"” and "emerging growth company" in Rule 12b-2 of the Exchange Act.

Spirit Realty Capital, Inc.

Large accelerated filerx

 ☒

Accelerated filer o

☐

Non-accelerated filer o

☐

Smaller reporting company o
Emerging growth company o
Spirit Realty, L.P.
 Large accelerated filer o
Accelerated filer o
Non-accelerated filer x

Smaller reporting company o

☐

Emerging growth company o

☐

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.

Spirit Realty Capital, Inc.            o
Spirit Realty, L.P.            o
☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).

Yes ☐ No ☒

Spirit Realty Capital, Inc.     Yes  o No  x

Spirit Realty, L.P.     Yes  o No  x

As of October 31, 2017,May 1, 2023, there were 455,897,075141,296,615 shares of common stock, par value $0.01,$0.05, of Spirit Realty Capital, Inc. outstanding.

INDEX


Explanatory Note
This report combines the quarterly reports on Form 10-Q for the three and nine months ended September 30, 2017 of Spirit Realty Capital, Inc., a Maryland corporation, and Spirit Realty, L.P., a Delaware limited partnership. Unless otherwise indicated or unless the context requires otherwise, all references in this report to “we,” “us,” “our,” or the “Company” refer to Spirit Realty Capital, Inc. together with its consolidated subsidiaries, including Spirit Realty, L.P. Unless otherwise indicated or unless the context requires otherwise, all references to the “Operating Partnership” refer to Spirit Realty, L.P. together with its consolidated subsidiaries.
Spirit General OP Holdings, LLC ("OP Holdings") is the sole general partner of the Operating Partnership. The Company is a real estate investment trust, or REIT, and the sole member of OP Holdings, as well as the special limited partner of the Operating Partnership. As sole member of the general partner of our Operating Partnership, our Company has the full, exclusive and complete responsibility for our Operating Partnership’s day-to-day management and control.
We believe combining the quarterly reports on Form 10-Q of our Company and Operating Partnership into a single report results in the following benefits:
enhancing investors’ understanding of our Company and Operating Partnership by enabling investors to view the business as a whole, reflective of how management views and operates the business;
eliminating duplicative disclosure and providing a streamlined presentation as a substantial portion of the disclosures apply to both our Company and Operating Partnership; and
creating time and cost efficiencies by preparing one combined report in lieu of two separate reports.
There are a few differences between our Company and Operating Partnership, which are reflected in the disclosures in this report. We believe it is important to understand these differences in the context of how we operate as an interrelated, consolidated company. Our Company is a REIT, the only material assets of which are the partnership interests in our Operating Partnership. As a result, our Company does not conduct business itself, other than acting as the sole member of the general partner of our Operating Partnership, issuing equity from time to time and guaranteeing certain debt of our Operating Partnership. Our Operating Partnership holds substantially all the assets of our Company. Our Company issued convertible notes and guarantees some of the debt of our Operating Partnership, see footnote 4 to the consolidated financial statements included herein for further discussion. Our Operating Partnership conducts the operations of the business and is structured as a partnership with no publicly traded equity. Except for net proceeds from the issuance of convertible notes and equity issuances by our Company, which are generally contributed to our Operating Partnership in exchange for partnership units of our Operating Partnership, our Operating Partnership generates the capital required by our Company’s business through our Operating Partnership’s operations or our Operating Partnership’s incurrence of indebtedness.
The presentation of stockholders’ equity and partners’ capital are the main areas of difference between the consolidated financial statements of our Company and those of our Operating Partnership. The partnership units in our Operating Partnership are accounted for as partners’ capital in our Operating Partnership’s consolidated financial statements. There are no non-controlling interests in the Company or the Operating Partnership.
To help investors understand the significant differences between our Company and our Operating Partnership, this report presents the consolidated financial statements separately for our Company and our Operating Partnership. All other sections of this report, including “Selected Financial Data,” “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and “Quantitative and Qualitative Disclosures About Market Risk,” are presented together for our Company and our Operating Partnership.
In order to establish that the Chief Executive Officer and the Chief Financial Officer of each entity have made the requisite certifications and that our Company and Operating Partnership are compliant with Rule 13a-15 or Rule 15d-15 of the Securities Exchange Act of 1934, or the Exchange Act, and 18 U.S.C. §1350, this report also includes separate “Item 4. Controls and Procedures” sections and separate Exhibit 31 and 32 certifications for each of our Company and our Operating Partnership.


SPIRIT REALTY CAPITAL, INC.
INDEX

Glossary

3

PART I — FINANCIAL INFORMATION

5

Item 1.

Financial Statements (Unaudited) (Unaudited)

5

Item 2.

Management’s Discussion and Analysis of Financial Condition and Results of Operations

36

25

Item 3.

Quantitative and Qualitative Disclosures About Market Risk

62

41

Item 4.

Controls and Procedures

62

42

PART II — OTHER INFORMATION

43

Item 1.

Legal Proceedings

63

43

Item 1A.

Risk Factors

63

43

Item 2.

Unregistered Sales of Equity Securities and Use of Proceeds

65

43

Item 3.

Defaults Upon Senior Securities

65

43

Item 4.

Mine Safety Disclosures

65

43

Item 5.

Other Information

65

43

Item 6. Exhibits

66Exhibits

44

Signatures

71Signatures

45



GLOSSARY

Definitions:

2019 Credit Facility

$800 million unsecured revolving credit facility, expanded to $1.2 billion in March 2022, pursuant to the 2019 Revolving Credit and Term Loan Agreement

1031 Exchange

2019 Revolving Credit and Term Loan Agreement

Tax-deferred like-kind exchange of properties held for business

Revolving credit and term loan agreement between the Operating Partnership and certain lenders dated January 14, 2019, as amended or investment purposes, pursuantotherwise modified from time to Section 1031 of the Codetime

2019 Notes$402.5 million convertible notes of the Corporation due in 2019
2021 Notes$345.0 million convertible notes of the Corporation due in 2021
AFFOAdjusted Funds From Operations
Amended Incentive Award PlanAmended and Restated Spirit Realty Capital, Inc. and Spirit Realty, L.P. 2012 Incentive Award Plan
AOCLAccumulated Other Comprehensive Loss
ASCAccounting Standards Codification
ASUAccounting Standards Update

2020 ATM Program

At the Market

At-the-market equity distribution program established in November 2020, which was terminated upon entry into the 2021 ATM Program

2021 ATM Program

At-the-market equity distribution program established in November 2021, pursuant to which the Corporation may offer and sell registered shares of common stock from time to time

CMBS

2022 Term Loans

Commercial Mortgage Backed Securities

$800.0 million senior unsecured term facility pursuant to the 2022 Term Loan Agreement

Code

2022 Term Loan Agreement

Internal Revenue Code of 1986, as amended
Cole IICole Credit Property Trust II, Inc.
Cole II MergerAcquisition on July 17, 2013 of Cole II by the Company, in which the Company merged with and into the Cole II legal entity
Collateral PoolsPools of collateral assets that are pledged to the indenture trustee for the benefit of the noteholders and secure obligations of issuers under the Spirit Master Funding Program
CompanyThe Corporation and its consolidated subsidiaries
Contractual Rent
Monthly contractual cash rent and earned income from direct financing leases, excluding percentage rents, from our properties owned fee-simple or ground leased, recognized during the final month of the reporting period, adjusted to exclude amounts received from properties sold during that period and adjusted to include a full month of contractual rent for properties acquired during that period.

Convertible NotesThe 2019 Notes and 2021 Notes, together
CorporationSpirit Realty Capital, Inc., a Maryland corporation
CPIConsumer Price Index
Credit AgreementRevolving credit facility

Term loan agreement between the Operating Partnership and certain lenders dated March 31, 2015,August 22, 2022, as amended or otherwise modified from time to time

EBITDA

2023 Term Loans

Earnings Before Interest, Taxes, Depreciation and Amortization

$500.0 million senior unsecured term facility pursuant to the 2023 Term Loan Agreement

2023 Term Loan Agreement

Term loan agreement between the Operating Partnership and certain lenders dated November 17, 2022, as amended or otherwise modified from time to time

2026 Senior Notes

$300.0 million principal amount senior notes issued in August 2016

2027 Senior Notes

$300.0 million principal amount senior notes issued in September 2019

2028 Senior Notes

$450.0 million principal amount senior notes issued in March 2021

2029 Senior Notes

$400.0 million principal amount senior notes issued in June 2019

2030 Senior Notes

$500.0 million principal amount senior notes issued in September 2019

2031 Senior Notes

$450.0 million principal amount senior notes issued in August 2020

2032 Senior Notes

$350.0 million principal amount senior notes issued in March 2021

Adjusted Debt

Adjusted Debt is a non-GAAP financial measure. See definition in Management's Discussion and Analysis of Financial Condition and Results of Operations

Adjusted EBITDAre

Adjusted EBITDAreis a non-GAAP financial measure. See definition in Management's Discussion and Analysis of Financial Condition and Results of Operations

AFFO

Adjusted Funds From Operations is a non-GAAP financial measure. See definition in Management's Discussion and Analysis of Financial Condition and Results of Operations

Amended Incentive Award Plan

Second Amended and Restated Spirit Realty Capital, Inc. and Spirit Realty, L.P. 2012 Incentive Award Plan, as amended

Annualized Base Rent (ABR)

Represents Base Rent plus earned income from direct financing leases and deferred revenue from development deals for the final month of the reporting period. It is adjusted to reflect acquisitions and dispositions for that month as if such acquisitions and dispositions had occurred as of the beginning of the month. The total is then multiplied by 12. ABR is used when calculating certain metrics to evaluate portfolio credit and diversification and to manage risk.

AOCIL

Accumulated Other Comprehensive Income / (Loss)

ASU

Accounting Standards Update

Base Cash Rent

Represents Base Rent adjusted for contractual rental income abated, deemed not probable of collection, or recovered from prior period reserves

Base Rent

Represents contractual rental income for the period, prior to deferral or abatement agreements, and excluding contingent rents.

CMBS

Commercial Mortgage-Backed Securities

Code

Internal Revenue Code of 1986, as amended

Company

The Corporation and its consolidated subsidiaries

Corporation

Spirit Realty Capital, Inc., a Maryland corporation

CPI

Consumer Price Index

EBITDAre

EBITDAreis a non-GAAP financial measure. See definition in Management's Discussion and Analysis of Financial Condition and Results of Operations

3

Exchange Act

Securities Exchange Act of 1934, as amended

FASB

FFO

Financial Accounting Standards Board
FFO

Funds From Operations is a non-GAAP financial measure. See definition in Management's Discussion and Analysis of Financial Condition and Results of Operations

Fitch

GAAP

Fitch Ratings, Inc.
GAAP

Generally Accepted Accounting Principles in the United States

LIBOR

London Interbank Offered Rate

Master Trust 2013

NAREIT

The net-lease mortgage securitization trust established in December 2013 under the Spirit Master Funding Program
Master Trust 2014The net-lease mortgage securitization trust established in 2005 and amended and restated in 2014 under the Spirit Master Funding Program
Master Trust NotesMaster Trust 2013 and Master Trust 2014 notes, together
Master Trust ReleaseProceeds from the sale of assets securing the Master Trust Notes held in restricted accounts until a qualifying substitution is made or until used for principal reduction
Moody'sMoody's Investor Services
NAREIT

National Association of Real Estate Investment Trusts

NYSE

New York Stock Exchange

OP Holdings

Spirit General OP Holdings, LLC

Operating Partnership

Spirit Realty, L.P., a Delaware limited partnership


REIT

Real estate investment trust

Definitions:

SEC

REITReal Estate Investment Trust
Revolving Credit Facility
$800.0 million unsecured credit facility pursuant to the Credit Agreement

S&PStandard & Poor's Rating Services
SEC

Securities and Exchange Commission

Securities Act

Securities Act of 1933, as amended

Senior Unsecured Notes

$300 million aggregate principal amount of senior notes issued in August 2016

2026 Senior Notes, 2027 Senior Notes, 2028 Senior Notes, 2029 Senior Notes, 2030 Senior Notes, 2031 Senior Notes, and 2032 Senior Notes, collectively

Series A Cumulative Redeemable Preferred Stock

6,900,000 shares of 6.000% Cumulative Redeemable Preferred Stock issued October 3, 2017, with a liquidation preference of $25.00 per share.share

Shopko

SOFR

Specialty Retail Shops Holding Corp. and certain of its affiliates

Secured Overnight Financing Rate

Spirit Master Funding Program

TSR

The Company's asset-backed securitization program that comprises Master Trust 2013 and Master Trust 2014
Term Loan$420.0 million senior unsecured term facility pursuant to the Term Loan Agreement
Term Loan AgreementTerm loan agreement between the Operating Partnership and certain lenders dated November 3, 2015, as amended or otherwise modified from time to time
TSR

Total Shareholder Return

U.S.United States


Unless otherwise indicated or unless the context requires otherwise, all references to the “registrant, the "Company," "Spirit Realty Capital," "we," "us" or "our" refer to the Corporation and its consolidated subsidiaries, including the Operating Partnership.


Unless otherwise indicated or unless the context requires otherwise, all references to the "Operating Partnership" refer to Spirit Realty, L.P. and its consolidated subsidiaries.

4

PART I — FINANCIAL INFORMATION

Item 1. Financial Statements

SPIRIT REALTY CAPITAL, INC.

Consolidated Balance Sheets

(In Thousands, Except Share and Per Share Data)

(Unaudited)

 September 30,
2017		 December 31,
2016
Assets


Investments:


Real estate investments:


Land and improvements$2,600,873

$2,704,010
Buildings and improvements4,702,828

4,775,221
Total real estate investments7,303,701

7,479,231
Less: accumulated depreciation(1,018,544)
(940,005)

6,285,157

6,539,226
Loans receivable, net76,821

66,578
Intangible lease assets, net429,857

470,276
Real estate assets under direct financing leases, net24,883

36,005
Real estate assets held for sale, net133,382

160,570
Net investments6,950,100

7,272,655
Cash and cash equivalents11,947

10,059
Deferred costs and other assets, net218,400

140,917
Goodwill254,340

254,340
Total assets$7,434,787

$7,677,971
Liabilities and stockholders’ equity


Liabilities:


Revolving Credit Facility$386,000

$86,000
Term Loan, net419,091
 418,471
Senior Unsecured Notes, net295,242
 295,112
Mortgages and notes payable, net2,050,302

2,162,403
Convertible Notes, net712,510

702,642
Total debt, net3,863,145
 3,664,628
Intangible lease liabilities, net162,619

182,320
Accounts payable, accrued expenses and other liabilities149,858

148,915
Total liabilities4,175,622

3,995,863
Commitments and contingencies (see Note 7)




Stockholders’ equity:


Common stock, $0.01 par value, 750,000,000 shares authorized: 455,900,032 and 483,624,120 shares issued and outstanding at September 30, 2017 and December 31, 2016, respectively4,559

4,836
Capital in excess of par value5,190,849

5,177,086
Accumulated deficit(1,936,243)
(1,499,814)
Accumulated other comprehensive income—

—
Total stockholders’ equity3,259,165
 3,682,108
Total liabilities and stockholders’ equity$7,434,787
 $7,677,971

 

 

March 31,
2023

 

 

December 31,
2022

 

Assets

 

 

 

 

 

 

Investments:

 

 

 

 

 

 

Real estate assets held for investment:

 

 

 

 

 

 

Land and improvements

 

$

2,722,218

 

 

$

2,740,250

 

Buildings and improvements

 

 

6,007,860

 

 

 

5,892,117

 

Less: accumulated depreciation

 

 

(1,258,302

)

 

 

(1,211,061

)

Total real estate assets held for investment, net

 

 

7,471,776

 

 

 

7,421,306

 

Intangible lease assets, net

 

 

407,141

 

 

 

423,870

 

Real estate assets under direct financing leases, net

 

 

7,420

 

 

 

7,427

 

Real estate assets held for sale, net

 

 

43,209

 

 

 

49,148

 

Loans receivable, net

 

 

56,270

 

 

 

23,023

 

Total investments, net

 

 

7,985,816

 

 

 

7,924,774

 

Cash and cash equivalents

 

 

4,871

 

 

 

8,770

 

Deferred costs and other assets, net

 

 

265,409

 

 

 

313,722

 

Goodwill

 

 

225,600

 

 

 

225,600

 

Total assets

 

$

8,481,696

 

 

$

8,472,866

 

 

 

 

 

 

 

Liabilities and stockholders’ equity

 

 

 

 

 

 

Liabilities:

 

 

 

 

 

 

Revolving credit facilities

 

$

98,000

 

 

$

55,500

 

Term loans, net

 

 

792,813

 

 

 

792,309

 

Senior Unsecured Notes, net

 

 

2,723,503

 

 

 

2,722,514

 

Mortgages payable, net

 

 

4,841

 

 

 

4,986

 

Total debt, net

 

 

3,619,157

 

 

 

3,575,309

 

Intangible lease liabilities, net

 

 

114,079

 

 

 

118,077

 

Accounts payable, accrued expenses and other liabilities

 

 

194,561

 

 

 

218,164

 

Total liabilities

 

 

3,927,797

 

 

 

3,911,550

 

Commitments and contingencies (see Note 6)

 

 

 

 

 

 

Stockholders’ equity:

 

 

 

 

 

 

Preferred stock and paid in capital, $0.01 par value, 20,000,000 shares authorized: 6,900,000 shares issued and outstanding at both March 31, 2023 and December 31, 2022

 

 

166,177

 

 

 

166,177

 

Common stock, $0.05 par value, 350,000,000 shares authorized: 141,299,922 and 141,231,219 shares issued and outstanding at March 31, 2023 and December 31, 2022, respectively

 

 

7,065

 

 

 

7,062

 

Capital in excess of common stock par value

 

 

7,290,854

 

 

 

7,285,629

 

Accumulated deficit

 

 

(2,933,699

)

 

 

(2,931,640

)

Accumulated other comprehensive income

 

 

23,502

 

 

 

34,088

 

Total stockholders’ equity

 

 

4,553,899

 

 

 

4,561,316

 

Total liabilities and stockholders’ equity

 

$

8,481,696

 

 

$

8,472,866

 

See accompanying notes.


5


SPIRIT REALTY CAPITAL, INC.

Consolidated Statements of Operations

(In Thousands, Except Share and Per Share Data)

(Unaudited)



 Three Months Ended 
 September 30,		 Nine Months Ended 
 September 30,
 2017 2016 2017 2016
Revenues:       
Rentals$159,799
 $161,765
 $479,506
 $484,090
Interest income on loans receivable1,003
 1,042
 2,769
 4,326
Earned income from direct financing leases483
 660
 1,613
 2,082
Tenant reimbursement income4,691
 3,469
 13,136
 10,493
Other income3,574
 5,572
 6,583
 11,600
Total revenues169,550
 172,508
 503,607
 512,591
Expenses:       
General and administrative13,712
 15,112
 49,992
 40,611
Restructuring charges—
 3,264
 —
 5,726
Transaction costs2,660
 —
 3,145
 —
Property costs8,080
 6,916
 26,763
 20,854
Real estate acquisition costs196
 1,056
 773
 2,092
Interest48,680
 47,653
 142,129
 149,842
Depreciation and amortization63,673
 65,300
 192,887
 194,227
Impairments37,737
 15,407
 88,109
 41,396
Total expenses174,738
 154,708
 503,798
 454,748
(Loss) income before other income/(expense) and income tax benefit (expense)(5,188) 17,800
 (191) 57,843
Other income (expense):       
Gain (loss) on debt extinguishment1,792
 (8,349) 1,770
 326
Total other income (expense)1,792
 (8,349) 1,770
 326
(Loss) income before income tax benefit (expense)(3,396) 9,451
 1,579
 58,169
Income tax benefit (expense)11
 (12) (419) (932)
(Loss) income before gain on disposition of assets(3,385) 9,439
 1,160
 57,237
Gain on disposition of assets8,707
 17,960
 40,197
 39,221
Net income attributable to common stockholders$5,322
 $27,399
 $41,357
 $96,458
        
Net income per share attributable to common stockholders—basic$0.01
 $0.06
 $0.09
 $0.21
        
Net income per share attributable to common stockholders—diluted$0.01
 $0.06
 $0.09
 $0.21
        
Weighted average shares of common stock outstanding:       
Basic456,671,617
 479,554,362
 472,698,692
 457,263,526
Diluted456,671,617
 480,598,610
 472,698,692
 457,301,623
        
Dividends declared per common share issued$0.1800
 $0.1750
 $0.5400
 $0.5250

 

 

Three Months Ended
March 31,

 

 

 

2023

 

 

2022

 

Revenues:

 

 

 

 

 

 

Rental income

 

$

187,294

 

 

$

167,075

 

Interest income on loans receivable

 

 

817

 

 

 

319

 

Earned income from direct financing leases

 

 

131

 

 

 

131

 

Other operating income

 

 

47

 

 

 

871

 

Total revenues

 

 

188,289

 

 

 

168,396

 

Expenses:

 

 

 

 

 

 

General and administrative

 

 

15,879

 

 

 

14,674

 

Property costs (including reimbursable)

 

 

7,613

 

 

 

8,255

 

Deal pursuit costs

 

 

573

 

 

 

365

 

Interest

 

 

33,547

 

 

 

26,023

 

Depreciation and amortization

 

 

78,213

 

 

 

69,108

 

Impairments

 

 

5,255

 

 

 

127

 

Total expenses

 

 

141,080

 

 

 

118,552

 

Other income:

 

 

 

 

 

 

Loss on debt extinguishment

 

 

—

 

 

 

(172

)

Gain on disposition of assets

 

 

49,187

 

 

 

877

 

Other income

 

 

—

 

 

 

5,679

 

Total other income

 

 

49,187

 

 

 

6,384

 

Income before income tax expense

 

 

96,396

 

 

 

56,228

 

Income tax expense

 

 

(223

)

 

 

(172

)

Net income

 

 

96,173

 

 

 

56,056

 

Dividends paid to preferred shareholders

 

 

(2,588

)

 

 

(2,588

)

Net income attributable to common stockholders

 

$

93,585

 

 

$

53,468

 

 

 

 

 

 

 

 

Net income per share attributable to common stockholders:

 

 

 

 

 

 

Basic

 

$

0.66

 

 

$

0.42

 

Diluted

 

$

0.66

 

 

$

0.42

 

 

 

 

 

 

 

 

Weighted average shares of common stock outstanding:

 

 

 

 

 

 

Basic

 

 

141,055,850

 

 

 

127,951,825

 

Diluted

 

 

141,055,850

 

 

 

128,360,431

 

 

 

 

 

 

 

 

Dividends declared per common share issued

 

$

0.6630

 

 

$

0.6380

 

See accompanying notes.


6

SPIRIT REALTY CAPITAL, INC.

Consolidated Statements of Comprehensive Income

(In Thousands)

(Unaudited)


 Three Months Ended 
 September 30,		 Nine Months Ended 
 September 30,
 2017 2016 2017 2016
Net income attributable to common stockholders$5,322
 $27,399
 $41,357
 $96,458
Other comprehensive income:       
Change in net unrealized losses on cash flow hedges—
 28
 —
 (1,145)
Net cash flow hedge losses reclassified to operations—
 —
 —
 2,165
Total comprehensive income$5,322
 $27,427
 $41,357
 $97,478

 

 

Three Months Ended
March 31,

 

 

 

2023

 

 

2022

 

Net income attributable to common stockholders

 

$

93,585

 

 

$

53,468

 

Other comprehensive (loss) income:

 

 

 

 

 

 

Net reclassification of amounts (to) from AOCIL

 

 

(10,586

)

 

 

702

 

Total comprehensive income

 

$

82,999

 

 

$

54,170

 

See accompanying notes.



7

SPIRIT REALTY CAPITAL, INC.

Consolidated StatementStatements of Stockholders’Stockholders' Equity

(In Thousands, Except Share Data)

(Unaudited)


 Common Stock    
 Shares Par 
Value		 
Capital in
Excess of
Par Value
 
Accumulated
Deficit
 
Total
Stockholders’
Equity
Balances, December 31, 2016483,624,120
 $4,836
 $5,177,086
 $(1,499,814) $3,682,108
Net income—
 —
 —
 41,357
 41,357
Dividends declared on common stock—
 —
 —
 (251,606) (251,606)
Tax withholdings related to net stock settlements(430,429) (4) —
 (3,454) (3,458)
Repurchase of common shares(28,819,865) (288)   (222,002) (222,290)
Stock-based compensation, net1,526,206
 15
 13,763
 (724) 13,054
Balances, September 30, 2017455,900,032
 $4,559
 $5,190,849
 $(1,936,243) $3,259,165

Three Months Ended March 31, 2023

 

Preferred Stock

 

 

Common Stock

 

 

 

 

 

 

 

 

 

 

 

 

Shares

 

 

Par Value and
Capital in Excess
of Par Value

 

 

Shares

 

 

Par
Value

 

 

Capital in
Excess of
Par Value

 

 

Accumulated
Deficit

 

 

AOCIL

 

 

Total
Stockholders’
Equity

 

Balances, December 31, 2022

 

 

6,900,000

 

 

$

166,177

 

 

 

141,231,219

 

 

$

7,062

 

 

$

7,285,629

 

 

$

(2,931,640

)

 

$

34,088

 

 

$

4,561,316

 

Net income

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

96,173

 

 

 

—

 

 

 

96,173

 

Dividends declared on preferred stock

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

(2,588

)

 

 

—

 

 

 

(2,588

)

Net income attributable to common stockholders

 

 

 

 

 

—

 

 

 

 

 

 

—

 

 

 

—

 

 

 

93,585

 

 

 

—

 

 

 

93,585

 

Other comprehensive loss

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

(10,586

)

 

 

(10,586

)

Dividends declared on common stock

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

(93,675

)

 

 

—

 

 

 

(93,675

)

Tax withholdings related to net stock settlements

 

 

—

 

 

 

—

 

 

 

(30,279

)

 

 

(2

)

 

 

—

 

 

 

(1,310

)

 

 

—

 

 

 

(1,312

)

Stock-based compensation, net

 

 

—

 

 

 

—

 

 

 

98,982

 

 

 

5

 

 

 

5,225

 

 

 

(659

)

 

 

—

 

 

 

4,571

 

Balances, March 31, 2023

 

 

6,900,000

 

 

$

166,177

 

 

 

141,299,922

 

 

$

7,065

 

 

$

7,290,854

 

 

$

(2,933,699

)

 

$

23,502

 

 

$

4,553,899

 

Three Months Ended March 31, 2022

 

Preferred Stock

 

 

Common Stock

 

 

 

 

 

 

 

 

 

 

 

 

Shares

 

 

Par Value and
Capital in Excess
of Par Value

 

 

Shares

 

 

Par
Value

 

 

Capital in
Excess of
Par Value

 

 

Accumulated
Deficit

 

 

AOCIL

 

 

Total
Stockholders’
Equity

 

Balances, December 31, 2021

 

 

6,900,000

 

 

$

166,177

 

 

 

127,699,235

 

 

$

6,385

 

 

$

6,673,440

 

 

$

(2,840,356

)

 

$

(5,847

)

 

$

3,999,799

 

Net income

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

56,056

 

 

 

—

 

 

 

56,056

 

Dividends declared on preferred stock

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

(2,588

)

 

 

—

 

 

 

(2,588

)

Net income attributable to common stockholders

 

 

 

 

 

—

 

 

 

 

 

 

—

 

 

 

—

 

 

 

53,468

 

 

 

—

 

 

 

53,468

 

Other comprehensive income

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

702

 

 

 

702

 

Dividends declared on common stock

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

(85,688

)

 

 

—

 

 

 

(85,688

)

Tax withholdings related to net stock settlements

 

 

—

 

 

 

—

 

 

 

(39,028

)

 

 

(2

)

 

 

—

 

 

 

(6,408

)

 

 

—

 

 

 

(6,410

)

Issuance of shares of common stock, net

 

 

—

 

 

 

—

 

 

 

6,559,406

 

 

 

328

 

 

 

299,440

 

 

 

—

 

 

 

—

 

 

 

299,768

 

Stock-based compensation, net

 

 

—

 

 

 

—

 

 

 

86,888

 

 

 

4

 

 

 

4,021

 

 

 

(496

)

 

 

—

 

 

 

3,529

 

Balances, March 31, 2022

 

 

6,900,000

 

 

$

166,177

 

 

 

134,306,501

 

 

$

6,715

 

 

$

6,976,901

 

 

$

(2,879,480

)

 

$

(5,145

)

 

$

4,265,168

 

See accompanying notes.


8

SPIRIT REALTY CAPITAL, INC.

Consolidated Statements of Cash Flows

(In Thousands)

(Unaudited)


 Nine Months Ended 
 September 30,
 2017 2016
Operating activities   
Net income attributable to common stockholders$41,357
 $96,458
Adjustments to reconcile net income to net cash provided by operating activities:   
Depreciation and amortization192,887
 194,227
Impairments88,109
 41,396
Amortization of deferred financing costs7,274
 6,706
Payment to terminate interest rate swaps—
 (1,724)
Derivative net settlements, amortization and terminations—
 1,809
Amortization of debt discounts9,663
 3,354
Stock-based compensation expense13,778
 7,190
Gain on debt extinguishment(1,770) (326)
Debt extinguishment costs—
 (25,344)
Gains on dispositions of real estate and other assets, net(40,197) (39,221)
Non-cash revenue(20,642) (16,155)
Other4,902
 (1,514)
Changes in operating assets and liabilities:   
Deferred costs and other assets, net(8,728) (8,911)
Accounts payable, accrued expenses and other liabilities5,726
 1,346
Net cash provided by operating activities292,359
 259,291
Investing activities   
Acquisitions of real estate(278,470) (424,468)
Capitalized real estate expenditures(34,939) (8,307)
Investments in corporate leasehold improvements—
 (2,839)
Investments in loans receivable(4,995) —
Collections of principal on loans receivable and real estate assets under direct financing leases7,817
 6,331
Proceeds from dispositions of real estate and other assets342,032
 245,921
Transfers of net sales proceeds from restricted accounts pursuant to 1031 Exchanges—
 58,194
Transfers of net sales proceeds to Master Trust Release(64,941) (3,953)
Net cash used in investing activities(33,496) (129,121)

 Nine Months Ended 
 September 30,
 2017 2016
Financing activities   
Borrowings under Revolving Credit Facility781,200
 828,000
Repayments under Revolving Credit Facility(481,200) (723,000)
Repayments under mortgages and notes payable(76,403) (790,224)
Borrowings under Term Loan—
 746,000
Repayments under Term Loan—
 (701,000)
Borrowings under Senior Unsecured Notes—
 298,134
Deferred financing costs(192) (4,017)
Proceeds from issuance of common stock, net of offering costs—
 446,613
Repurchase of shares of common stock(225,748) (739)
Dividends paid(257,112) (238,926)
Transfers (from) to reserve/escrow deposits with lenders2,480
 383
Net cash used in financing activities(256,975) (138,776)
Net increase (decrease) in cash and cash equivalents1,888
 (8,606)
Cash and cash equivalents, beginning of period10,059
 21,790
Cash and cash equivalents, end of period$11,947
 $13,184
    
Cash paid for interest$121,166
 $130,762
Cash paid for income taxes$872
 $763
See accompanying notes.


 

 

Three Months Ended
March 31,

 

 

 

2023

 

 

2022

 

Operating activities

 

 

 

 

 

 

Net income

 

$

96,173

 

 

$

56,056

 

Adjustments to reconcile net income to net cash provided by operating activities:

 

 

 

 

 

 

Depreciation and amortization

 

 

78,213

 

 

 

69,108

 

Impairments

 

 

5,255

 

 

 

127

 

Amortization of deferred financing costs

 

 

1,754

 

 

 

922

 

Amortization of debt discounts

 

 

324

 

 

 

313

 

Amortization of deferred losses on interest rate swaps

 

 

702

 

 

 

702

 

Stock-based compensation expense

 

 

5,230

 

 

 

4,025

 

Loss on debt extinguishment

 

 

—

 

 

 

172

 

Gain on dispositions of real estate and other assets

 

 

(49,187

)

 

 

(877

)

Non-cash revenue

 

 

(10,269

)

 

 

(9,222

)

Other

 

 

16

 

 

 

—

 

Changes in operating assets and liabilities:

 

 

 

 

 

 

Deferred costs and other assets, net

 

 

2,003

 

 

 

(92

)

Accounts payable, accrued expenses and other liabilities

 

 

(28,523

)

 

 

(42,963

)

Net cash provided by operating activities

 

 

101,691

 

 

 

78,271

 

Investing activities

 

 

 

 

 

 

Acquisitions of real estate

 

 

(184,659

)

 

 

(474,404

)

Capitalized real estate expenditures

 

 

(18,962

)

 

 

(23,387

)

Investments in loans receivable

 

 

(750

)

 

 

(12,700

)

Proceeds from dispositions of real estate

 

 

114,397

 

 

 

10,941

 

Net cash used in investing activities

 

 

(89,974

)

 

 

(499,550

)

Financing activities

 

 

 

 

 

 

Borrowings under revolving credit facilities

 

 

297,000

 

 

 

630,100

 

Repayments under revolving credit facilities

 

 

(254,500

)

 

 

(399,000

)

Repayments under mortgages payable

 

 

(136

)

 

 

(128

)

Deferred financing costs

 

 

—

 

 

 

(8,478

)

Proceeds from issuance of common stock, net of offering costs

 

 

—

 

 

 

299,755

 

Repurchase of shares of common stock, including tax withholdings related to net stock settlements

 

 

(1,312

)

 

 

(6,410

)

Common stock dividends paid

 

 

(93,636

)

 

 

(83,195

)

Preferred stock dividends paid

 

 

(2,588

)

 

 

(2,588

)

Net cash (used) provided by financing activities

 

 

(55,172

)

 

 

430,056

 

Net (decrease) increase in cash, cash equivalents and restricted cash

 

 

(43,455

)

 

 

8,777

 

Cash, cash equivalents and restricted cash, beginning of period

 

 

61,953

 

 

 

17,799

 

Cash, cash equivalents and restricted cash, end of period

 

$

18,498

 

 

$

26,576

 

 

 

 

 

 

 

 

Cash paid for interest, net of interest capitalized

 

$

56,682

 

 

$

46,895

 

Interest capitalized

 

 

460

 

 

 

126

 

Cash paid for income taxes

 

 

127

 

 

 

67

 

9

SPIRIT REALTY L.P.

Consolidated Balance Sheets
(In Thousands, Except Share and Per Share Data)
(Unaudited)
 September 30,
2017		 December 31,
2016
Assets   
Investments:   
Real estate investments:   
Land and improvements$2,600,873
 $2,704,010
Buildings and improvements4,702,828
 4,775,221
Total real estate investments7,303,701
 7,479,231
Less: accumulated depreciation(1,018,544) (940,005)

6,285,157
 6,539,226
Loans receivable, net76,821
 66,578
Intangible lease assets, net429,857
 470,276
Real estate assets under direct financing leases, net24,883
 36,005
Real estate assets held for sale, net133,382
 160,570
Net investments6,950,100
 7,272,655
Cash and cash equivalents11,947
 10,059
Deferred costs and other assets, net218,400
 140,917
Goodwill254,340
 254,340
Total assets$7,434,787
 $7,677,971
Liabilities and partners' capital   
Liabilities:   
Revolving Credit Facility$386,000
 $86,000
Term Loan, net419,091
 418,471
Senior Unsecured Notes, net295,242
 295,112
Mortgages and notes payable, net2,050,302
 2,162,403
Notes payable to Spirit Realty Capital, Inc., net712,510
 702,642
Total debt, net3,863,145
 3,664,628
Intangible lease liabilities, net162,619
 182,320
Accounts payable, accrued expenses and other liabilities149,858
 148,915
Total liabilities4,175,622
 3,995,863
Commitments and contingencies (see Note 7)

 

Partners' capital:   
Partnership units   
General partner's capital: 3,988,218 units issued and outstanding as of both September 30, 2017 and December 31, 201624,835
 26,586
Limited partners' capital: 451,911,814 and 479,635,902 units issued and outstanding as of September 30, 2017 and December 31, 2016, respectively3,234,330
 3,655,522
Total partners' capital3,259,165
 3,682,108
Total liabilities and partners' capital7,434,787
 7,677,971

See accompanying notes.
 Three Months Ended 
 September 30,		 Nine Months Ended 
 September 30,
 2017 2016 2017 2016
Revenues:       
Rentals$159,799
 $161,765
 $479,506
 $484,090
Interest income on loans receivable1,003
 1,042
 2,769
 4,326
Earned income from direct financing leases483
 660
 1,613
 2,082
Tenant reimbursement income4,691
 3,469
 13,136
 10,493
Other income3,574
 5,572
 6,583
 11,600
Total revenues169,550
 172,508
 503,607
 512,591
Expenses:       
General and administrative13,712
 15,112
 49,992
 40,611
Restructuring charges—
 3,264
 —
 5,726
Transaction costs2,660
 —
 3,145
 —
Property costs8,080
 6,916
 26,763
 20,854
Real estate acquisition costs196
 1,056
 773
 2,092
Interest48,680
 47,653
 142,129
 149,842
Depreciation and amortization63,673
 65,300
 192,887
 194,227
Impairments37,737
 15,407
 88,109
 41,396
Total expenses174,738
 154,708
 503,798
 454,748
(Loss) income before other income/(expense) and income tax benefit (expense)(5,188) 17,800
 (191) 57,843
Other income (expense):       
Gain (loss) on debt extinguishment1,792
 (8,349) 1,770
 326
Total other income (expense)1,792
 (8,349) 1,770
 326
(Loss) income before income tax benefit (expense)(3,396) 9,451
 1,579
 58,169
Income tax benefit (expense)11
 (12) (419) (932)
(Loss) income before gain on disposition of assets(3,385) 9,439
 1,160
 57,237
Gain on disposition of assets8,707
 17,960
 40,197
 39,221
Net income$5,322
 $27,399
 $41,357
 $96,458
Net income attributable to the general partner$44
 $232
 344
 817
Net income attributable to the limited partners$5,278
 $27,167
 $41,013
 $95,641
        
Net income per partnership unit - basic$0.01
 $0.06
 $0.09
 $0.21
        
Net income per partnership unit - diluted$0.01
 $0.06
 $0.09
 $0.21
        
Weighted average partnership units outstanding:
 
 
 
Basic456,671,617
 479,554,362
 472,698,692
 457,263,526
Diluted456,671,617
 480,598,610
 472,698,692
 457,301,623
        
Distributions declared per partnership unit issued$0.1800
 $0.1750
 $0.5400
 $0.5250

See accompanying notes.


SPIRIT REALTY, L.P.
Consolidated Statements of Comprehensive Income
(In Thousands)
(Unaudited)

 Three Months Ended 
 September 30,		 Nine Months Ended 
 September 30,
 2017 2016 2017 2016
Net income$5,322
 $27,399
 $41,357
 $96,458
Other comprehensive income:       
Change in net unrealized losses on cash flow hedges—
 28
 —
 (1,145)
Net cash flow hedge losses reclassified to operations—
 —
 —
 2,165
Total comprehensive income$5,322
 $27,427
 $41,357
 $97,478
See accompanying notes.



SPIRIT REALTY, L.P.
Consolidated Statements of Partners' Capital
(In Thousands, Except Unit Data)
(Unaudited)
  
General Partner's Capital (1)
  
Limited Partners' Capital (2)
  Total Partnership Capital
    
  Units Amount Units Amount 
Balances, December 31, 2016 3,988,218
 $26,586
 479,635,902
 $3,655,522
 $3,682,108
Net income —
 344
 —
 41,013
 41,357
Partnership distributions declared —
 (2,095) —
 (249,511) (251,606)
Tax withholdings related to net partnership unit settlements —
 —
 (430,429) (3,458) (3,458)
Repurchase of partnership units —
 —
 (28,819,865) (222,290) (222,290)
Stock-based compensation —
 —
 1,526,206
 13,054
 13,054
Balances, September 30, 2017 3,988,218
 $24,835
 451,911,814
 $3,234,330
 $3,259,165
(1) Consists of general partnership interests held by OP Holdings.
(2) Consists of limited partnership interests held by the Corporation and Spirit Notes Partner, LLC.

See accompanying notes.



SPIRIT REALTY, L.P.
CAPITAL, INC.

Consolidated Statements of Cash Flows

(In Thousands)

(Unaudited)


 Nine Months Ended 
 September 30,
 2017 2016
Operating activities   
Net income attributable to partners$41,357
 $96,458
Adjustments to reconcile net income to net cash provided by operating activities:   
Depreciation and amortization192,887
 194,227
Impairments88,109
 41,396
Amortization of deferred financing costs7,274
 6,706
Payment to terminate interest rate swaps—
 (1,724)
Derivative net settlements, amortization and terminations—
 1,809
Amortization of debt discounts9,663
 3,354
Stock-based compensation expense13,778
 7,190
Gain on debt extinguishment(1,770) (326)
Debt extinguishment costs—
 (25,344)
Gains on dispositions of real estate and other assets, net(40,197) (39,221)
Non-cash revenue(20,642) (16,155)
Other4,902
 (1,514)
Changes in operating assets and liabilities:   
Deferred costs and other assets, net(8,728) (8,911)
Accounts payable, accrued expenses and other liabilities5,726
 1,346
Net cash provided by operating activities292,359
 259,291
Investing activities   
Acquisitions of real estate(278,470) (424,468)
Capitalized real estate expenditures(34,939) (8,307)
Investments in corporate leasehold improvements—
 (2,839)
Investments in loans receivable(4,995) —
Collections of principal on loans receivable and real estate assets under direct financing leases7,817
 6,331
Proceeds from dispositions of real estate and other assets342,032
 245,921
Transfers of net sales proceeds from restricted accounts pursuant to 1031 Exchanges—
 58,194
Transfers of net sales proceeds to Master Trust Release(64,941) (3,953)
Net cash used in investing activities(33,496) (129,121)


 Nine Months Ended 
 September 30,
 2017 2016
Financing activities   
Borrowings under Revolving Credit Facility781,200
 828,000
Repayments under Revolving Credit Facility(481,200) (723,000)
Repayments under mortgages and notes payable(76,403) (790,224)
Borrowings under Term Loan—
 746,000
Repayments under Term Loan—
 (701,000)
Borrowings under Senior Unsecured Notes—
 298,134
Deferred financing costs(192) (4,017)
Proceeds from issuance of partnership units, net of offering costs—
 446,613
Repurchase of partnership units(225,748) (739)
Dividends paid(257,112) (238,926)
Transfers (from) to reserve/escrow deposits with lenders2,480
 383
Net cash used in financing activities(256,975) (138,776)
Net increase (decrease) in cash and cash equivalents1,888
 (8,606)
Cash and cash equivalents, beginning of period10,059
 21,790
Cash and cash equivalents, end of period$11,947
 $13,184
    
Cash paid for interest$121,166
 $130,762
Cash paid for income taxes$872
 $763

Supplemental Disclosures of Non-Cash Activities:

 

Three Months Ended
March 31,

 

 

 

2023

 

 

2022

 

Dividends declared and unpaid

 

$

93,675

 

 

$

85,688

 

Accrued capitalized costs

 

 

31,392

 

 

 

8,590

 

Accrued market-based award dividend rights

 

 

659

 

 

 

496

 

Derivative changes in fair value

 

 

11,288

 

 

 

—

 

Financing provided in connection with disposition of assets

 

 

33,000

 

 

 

—

 

Accrued deferred financing costs

 

 

—

 

 

 

165

 

See accompanying notes.



15

10


SPIRIT REALTY CAPITAL, INC. and SPIRIT REALTY, L.P.

Notes to Consolidated Financial Statements

March 31, 2023

(Unaudited)

September 30, 2017
(Unaudited)



Note

NOTE 1. Organization

Company ORGANIZATION

Organization and Operations

Spirit Realty Capital, Inc. (the "Corporation" or "Spirit" or, with its consolidated subsidiaries, the "Company") operates as a self-administered and self-managed REIT that seeks to generate and deliver sustainable and attractive returns for stockholders by primarily investing primarily in and managing a portfolio of single-tenant, operationally essential real estate throughout the U.S. United Statesthat is generally leased on a long-term, triple-net basis to tenants operating within predominantly retail, but also officeindustrial and industrialother property types. Single tenant,Single-tenant, operationally essential real estate generally refers to free-standing, commercial real estate facilities where tenants conduct activities that are essential to the generation of their sales and profits.The Company began operations through a predecessor legal entity in 2003.

profits.

The Company’s operations are generally carried out through Spirit Realty, L.P. (the "Operating Partnership") and its subsidiaries. Spirit General OP Holdings, LLC, ("OP Holdings"), one of the Corporation'sCorporation’s wholly-owned subsidiaries, is the sole general partner and owns approximately 1.0% 1%of theOperating Partnership. The Corporation and a wholly-owned subsidiary ("Spirit(Spirit Notes Partner, LLC")LLC) are the only limited partners and, together, own the remaining 99.0% 99%of theOperating Partnership.Partnership.

On August 3, 2017, the Company announced a proposed spin-off of almost all of the properties leased to Shopko, the assets that collateralize Master Trust 2014 and potentially additional assets into an independent, publicly traded REIT. Transaction costs associated with the spin off for the three and nine months ended September 30, 2017 totaled $2.7 million and $3.1 million, respectively, and are included within transaction costs on the accompanying consolidated statements of operations.
Note

NOTE 2. Summary of Significant Accounting Policies

SUMMARY OF SIGNIFICANT ACOUNTING POLICIES

Basis of Accounting and Principles of Consolidation

The accompanying consolidated financial statements of the Company and the Operating Partnership have been prepared pursuant toon the rules and regulationsaccrual basis of the SEC.accounting, in accordance with GAAP. In the opinion of management, the consolidated financial statements include the normal, recurring adjustments necessary for a fair statement of the information required to be set forth therein. The results for interim periods are not necessarily indicative of the results for the entire year. Certain information and note disclosures, normally included in financial statements prepared in accordance with GAAP, have been condensed or omitted from these statements pursuant to SEC rules and regulations and, accordingly, these financial statements should be read in conjunction with the Company’s audited consolidated financial statements as filed with the SEC in its Annual Report on Form 10-K for the year ended December 31, 2016.2022.

Principles of Consolidation

The consolidated financial statements of the Company include the accounts of the Corporation and its wholly owned subsidiaries. The consolidated financial statements ofwholly-owned subsidiaries, including the Operating Partnership include the accounts of the Operating Partnership and its wholly-owned subsidiaries.Partnership. All significant inter-companyintercompany balances and transactions have been eliminated in consolidation.

All expenses incurred by the Company have been allocated to the Operating Partnership in accordance with the Operating Partnership's first amended and restated agreement of limited partnership, which management determined to be a reasonable method of allocation. Therefore, expenses incurred would not be materially different if the Operating Partnership had operated as an unaffiliated entity.

The Company has formed numerousconsolidated financial statements include certain special purpose entities that were formed to acquire and hold real estate encumbered by indebtedness (see Note 4). Each special purpose entity is a separate legal entity and is the sole owner of its assets and responsible for its liabilities. The assets of these special purpose entities are not available to pay, or otherwise satisfy obligations to, the creditors of any affiliate or owner of another entity unless the special purpose entities have expressly agreed and are permitted to do so under their governing documents. At September 30, 2017As of March 31, 2023 and December 31, 2016,2022, net assets totaling $2.73 billion$11.5 million and $2.95 billion,$11.7 million, respectively, were held, and net liabilities totaling $2.15 billion$4.8 million and $2.26 billion,$4.9 million, respectively, were owed by these encumbered special purpose entities and are included in the accompanying consolidated balance sheets.


16

SPIRIT REALTY CAPITAL, INC. and SPIRIT REALTY, L.P.
Notes to Consolidated Financial Statements - (continued)
September 30, 2017
(Unaudited)

Use of Estimates

The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Although management believes its estimates are reasonable, actual results could differ from those estimates.

Segment Reporting

The Company views its operations as one reportable segment, which consists of net leasing operations.

11

Revenue Recognition

Rental Income: Cash and Straight-line Rent

The Company primarily leases real estate to its tenants under long-term, triple-net leases that are classified as operating leases. To evaluate lease classification, the Company assesses the terms and conditions of the lease to determine the appropriate lease term. Options to extend, terminate or purchase are not included in the evaluation for lease classification or for recognition of rental income unless the Company is reasonably certain the tenant will exercise the option. Evaluation of lease classification also requires an estimate of the real estate's residual value at the end of the lease term. For acquisitions, the Company uses the tangible value of the property at the date of acquisition. For lease modifications, the Company generally uses sales comparables or a direct capitalization approach to estimate residual value.

The Company’s leases generally provide for rent escalations throughout the term of the lease. For leases with fixed escalators, rental income is recognized on a straight-line basis to produce a constant periodic rent over the term of the lease. Accordingly, the difference between rental income recognized on a straight-line basis and billed rents is recorded as rent receivables, which the Company will receive only if the tenant makes all rent payments required through the initial term of their lease. For leases with variable rent escalators, rental income typically increases at a multiple of any increase in the CPI over a specified period. Because of the volatility and uncertainty regarding future changes in the CPI and the Company’s inability to determine the extent to which any specific future change in the CPI is probable, increases from variable rent escalators are recognized when the changes in the rental rates have occurred.

Some of the Company’s leases also provide for contingent rent based on a percentage of the tenant’s gross sales, which is recognized as rental income when the factor on which the contingent lease payment is based has occurred.

Rental income is subject to an evaluation for collectability, which includes management’s estimates of amounts that will not be realized based on an assessment of the risks inherent in the portfolio, considering historical experience, as well as the tenant's payment history and financial condition. The Company does not recognize rental income for amounts that are not probable of collection.

Rental Income: Tenant Reimbursement Revenue

Under a triple-net lease, the tenant is typically responsible for all improvements and is contractually obligated to pay all property operating expenses, such as real estate taxes, insurance premiums and repair and maintenance costs. Certain leases contain additional amounts recoverable from tenants for common area maintenance and certain other expenses, which are non-lease components. The Company elected to combine all its non-lease components, which were determined to have the same pattern of transfer as the related operating lease component, into a single combined lease component. Tenant reimbursement revenue is variable and is recognized in the period in which the related expenses are incurred, with the related expenses included in property costs (including reimbursable) on the consolidated statements of operations. Tenant reimbursements are recorded on a gross basis in instances when our tenants reimburse us for property costs which we incur. Tenant receivables are reduced for amounts that are not probable of collection.

Rental Income: Intangible Amortization

Amortization of above- and below-market lease intangibles are included as a decrease and increase, respectively, to rental revenue and amortization of in-place lease intangibles is included in depreciation and amortization expense in the consolidated statements of operations. All lease intangibles are amortized on a straight-line basis over the term of the lease, which includes any renewal options the Company is reasonably certain the tenant will exercise. If the Company subsequently determines it is reasonably certain that the tenant will not exercise the renewal options, the unamortized portion of any related lease intangible is accelerated over the remaining initial term of the lease. If the Company believes a lease intangible balance is no longer recoverable, the unamortized portion is immediately recognized in impairments in the consolidated statements of operations.

Loans Receivable

Interest on loans receivable is recognized using the effective interest rate method. A loan is placed on non-accrual status when the loan has become 60 days past due, or earlier if management determines that full recovery of the contractually specified payments of principal and interest is doubtful. While on non-accrual status, interest income is recognized only when received. Delinquent loans receivable are written off against the allowance when all possible means of collection have been exhausted.

12

The Company evaluates its loans receivable balance, including accrued interest, for potential credit losses by analyzing the credit of the borrower, the remaining time to maturity of the loan, collateral value and quality (if any), and other reportable segments.

relevant factors. Allowance for Doubtful Accountscredit losses are recorded in impairments on the consolidated statement of operations.

Cash, Cash Equivalents and Restricted Cash

Cash and cash equivalents include cash and highly liquid investment securities with maturities at acquisition of three months or less. The Company invests cash primarily in money market funds of major financial institutions with fund investments consisting of highly-rated money market instruments and other short-term instruments. Restricted cash is classified within deferred costs and other assets, net in the consolidated balance sheets. Cash, cash equivalents and restricted cash consisted of the following (in thousands):

 

 

March 31,
2023

 

 

December 31,
2022

 

 

March 31,
2022

 

Cash and cash equivalents

 

$

4,871

 

 

$

8,770

 

 

$

24,229

 

Restricted cash:

 

 

 

 

 

 

 

 

 

1031 Exchange proceeds

 

 

12,983

 

 

 

53,183

 

 

 

—

 

Tenant security deposits

 

 

644

 

 

 

—

 

 

 

—

 

Funds held in escrow(1)

 

 

—

 

 

 

—

 

 

 

2,347

 

Total cash, cash equivalents and restricted cash

 

$

18,498

 

 

$

61,953

 

 

$

26,576

 

(1) Deposits related to acquisitions held in third-party escrow accounts.

Tenant Receivables

The Company reviews its rent and other tenant receivables for collectability on a regular basis, taking into considerationconsidering changes in factors such as the tenant’s payment history, the tenant’s financial condition, of the tenant, businessindustry conditions in the industry in which the tenant operates and economic conditions in the geographic area in which the tenant operates. In the event that the collectability ofIf a receivable with respect to any tenant is in doubt, a provision for uncollectible amounts will be established ornot probable of collection, a direct write-off of the specific receivable will be made. The Company provided for reserves for uncollectible amounts totaling $8.3 million and $6.4 million at September 30, 2017 and December 31, 2016, respectively, againsthad accounts receivable balances of $22.4$16.6 million and $25.3$18.2 million respectively. Receivablesat March 31, 2023 and December 31, 2022, respectively, after the impact of $1.3 million and $3.2 million of receivables, respectively, that were deemed not probable of collection. These receivables are recorded within deferred costscost and other assets, net in the accompanying consolidated balance sheets. Receivables are written off against the reserves for uncollectible amounts when all possible means of collection have been exhausted.

For deferred rental revenuesreceivable balances related to the straight-line method of reportingrecognizing rental revenue,income, the collectability review includes management’s estimatesis generally assessed in conjunction with the evaluation of amounts that will not be realized and an assessment of the risks inherent in the portfolio, giving consideration to historical experience and industry default rates for long-term receivables.rental income as described above. The Company established a reserve for losseshad straight-line rent receivables of $2.4$171.7 million and $167.1 million at September 30, 2017March 31, 2023 and $7.7 million at December 31, 2016, against deferred rental revenue receivables2022, respectively, after the impact of $77.3$1.2 million and $71.1$1.3 million respectively. Deferred rental revenueof receivables, respectively, that were deemed not probable of collection. These receivables are recorded within deferred costs and other assets, net in the accompanying consolidated balance sheets.

Restricted Cash and Escrow Deposits
Restricted cash and deposits in escrow, classified within deferred costs and other assets, net in the accompanying consolidated balance sheets consisted of the following (in thousands):
 September 30,
2017		 December 31,
2016
Collateral deposits (1)
$1,229
 $1,374
Tenant improvements, repairs, and leasing commissions (2)
7,988
 9,739
Master Trust Release (3)
79,353
 14,412
Loan impounds (4)
330
 670
Other (5)
7,444
 644
 $96,344
 $26,839
(1) Funds held in reserve by lenders which can be applied at their discretion to the repayment of debt (any funds remaining on deposit after the debt is paid in full are released to the borrower). Balance changes are reflected in financing activities within the Statement of Cash Flows.
(2) Deposits held as additional collateral support by lenders to fund tenant improvements, repairs and leasing commissions incurred to secure a new tenant. Balance changes are reflected in financing activities within the Statement of Cash Flows.
(3) Proceeds from the sale of assets pledged as collateral under the Spirit Master Funding Program, which are held on deposit until a qualifying substitution is made or the funds are applied as prepayment of principal. Balance changes are reflected in investing activities within the Statement of Cash Flows.
(4) Funds held in lender controlled accounts generally used to meet future debt service or certain property operating expenses. Balance changes are reflected in financing activities within the Statement of Cash Flows.
(5) Primarily funds held in lender controlled accounts released after scheduled debt service requirements are met. Balance changes are reflected in operating activities within the Statement of Cash Flows.

17

SPIRIT REALTY CAPITAL, INC. and SPIRIT REALTY, L.P.
Notes to Consolidated Financial Statements - (continued)
September 30, 2017
(Unaudited)

Goodwill

Goodwill arises from business combinations and representsas the excess of the cost of an acquired entity over the net fair value amounts that were assigned to the identifiable assets acquired and the liabilities assumed. Goodwill is tested for impairment at the reporting unit level on an annual basis andannually or between annual tests if an event occurs or circumstances change that would more likely than not reduce the fair value of the reporting unit below its carrying value. The Company performs a qualitative assessment to determine if the quantitative impairment test is necessary. The quantitative impairment test, if deemed necessary, compares the fair value of each reporting unit with its carrying amount and impairment is recognized as the amount by which the carrying amount exceeds the reporting unit’s fair value. No impairment was recorded for the periods presented.

Income Taxes

The CompanyCorporation has elected to be taxed as a REIT under the Code. As a REIT, the CompanyCorporation generally will not be subject to federal income tax provided it continues to satisfy certain tests concerning the Company’s sources of income, the nature of itsthe Company’s assets, the amounts distributed to itsthe Corporation’s stockholders and the ownership of CompanyCorporation stock. Management believes the CompanyCorporation has qualified and will continue to qualify as a REIT and, therefore, no provision has been made for federal income taxes in the accompanying consolidated financial statements. Even if the CompanyCorporation qualifies for taxation as a REIT, it may be subject to state and local income and franchise taxes, and to federal income tax and excise tax on its undistributed income.

Franchise taxes are included in general

Taxable income earned by any of the Company's taxable REIT subsidiaries, including from non-REIT activities, is subject to federal, state and administrative expenses on the accompanying consolidated statements of operations.local taxes. Taxable income from non-REIT activities managed through any of the Company’sCompany's taxable REIT subsidiaries areis subject to federal, state and local taxes, which are not material.

13

New Accounting Pronouncements
From time

Earnings Per Share

The Company’s unvested restricted common stock, which contains non-forfeitable rights to time, new accounting pronouncementsreceive dividends, are issuedconsidered participating securities requiring the two-class method of computing earnings per share. Under the two-class method, earnings per common share are computed by dividing the sum of distributed earnings to common stockholders and undistributed earnings allocated to common stockholders by the FASBweighted average number of common shares outstanding for the period. In applying the two-class method, undistributed earnings are allocated to both common shares and participating securities based on their respective weighted average shares outstanding during the period.

Under the terms of the Amended Incentive Award Plan, restricted stock awards are not allocated losses, including undistributed losses as a result of dividends declared exceeding net income. The Company uses net income attributable to common shareholders to determine whether potential common shares are dilutive or anti-dilutive and undistributed net income (loss) to determine whether undistributed earnings are allocable to participating securities.

Forward Equity Sale Agreements

The Corporation may enter into forward sale agreements for the SECsale and issuance of shares of our common stock, either through an underwritten public offering or through the 2021 ATM Program. These agreements may be physically settled in stock, settled in cash, or net share settled at the Company’s election. The Company evaluated the forward sale agreements and concluded they meet the conditions to be classified within stockholders’ equity. Prior to settlement, a forward sale agreement will be reflected in the diluted earnings per share calculations using the treasury stock method. Under this method, the number of shares of the Corporation’s common stock used in diluted earnings per share is deemed to be increased by the excess, if any, of the number of shares of the Corporation’s common stock that are adoptedwould be issued upon full physical settlement of such forward sale agreement over the number of shares of the Corporation’s common stock that could be purchased by the Company asin the market (based on the average market price during the period) using the proceeds receivable upon full physical settlement (based on the adjusted forward sale price at the end of the specified effective date. These new accounting pronouncements entail technical correctionsreporting period). Consequently, prior to existing guidance or affect guidance related to specialized industries or entities. There aresettlement of a forward sale agreement, there will be no updates to our prior disclosures regarding adoption of pronouncements that are not yet effective. Additionally, we have evaluated new accounting pronouncements issued subsequent to our most recent Annual Report on Form 10-K and have concluded that they are either not applicable or will not have a material impactdilutive effect on the Company's financial position or results of operations.

Changes in Accounting Principle
In March 2016,Company’s earnings per share except during periods when the FASB issued ASU 2016-09, Improvements to Employee Share-Based Payment Accounting, which simplifies many aspects of accounting for share-based payment transactions under ASC Topic 718, Compensation - Stock Compensation, including income tax consequences, classification of awards as either equity or liability, forfeiture rate calculations and classification on the statement of cash flows. The Company adopted this new guidance effective January 1, 2017 and made an accounting policy election to recognize stock-based compensation forfeitures as they occur, whereas previously stock-based compensation forfeitures were estimated and recognized based on historical forfeiture rates. This change in accounting principle has been applied prospectively and the change in accounting principle had no material impact on the financial statementsaverage market price of the Company.
In January 2017,Corporation’s common stock is above the FASB issued ASU 2017-01, Business Combinations (Topic 805): Clarifying the Definitionadjusted forward sale price. However, upon settlement of a Business, which narrowsforward sales agreement, if the definitionCorporation elects to physically settle or net share settle such forward sale agreement, delivery of a business. The Company early adopted the guidance effective January 1, 2017 and application is on a prospective basis. UnderCorporation’s shares will result in dilution to the new guidance, the acquisition of a property with an in-place lease generally is no longer accounted for as an acquisition of a business, but instead as an asset acquisition, meaning the transaction costs of such an acquisition are now capitalized instead of expensed. Further, dispositions of properties generally no longer qualify as a disposition of a business and therefore do not generate allocated goodwill when determining gain or loss on sale.

18

SPIRIT REALTY CAPITAL, INC. and SPIRIT REALTY, L.P.
Notes to Consolidated Financial Statements - (continued)
September 30, 2017
(Unaudited)Company’s earnings per share.


Note

NOTE 3. Investments

Real Estate Investments

INVESTMENTS

Owned Properties

As of September 30, 2017,March 31, 2023, the Company's gross investment in owned real estate properties and loans totaled approximately $8.0 billion, representing investments in 2,511 properties, including 88 properties or other related assets securing mortgage loans.$9.3 billion. The gross investment, as adjusted for any impairment, is comprised of land, buildings, lease intangible assets, and lease intangible liabilities, as adjusted for any impairment, and the carrying amount of loans receivable, real estate assets held under direct financing leases and real estate assets held for sale. The portfolio is geographically dispersed throughout 49 states with Texas, at 15.0%, as the only one state Texas, with a real estategross investment of 12.2%, accounting for moregreater than 10%10.0% of the total dollar amountgross investment of the Company’s real estate investmentCompany's entire portfolio.

14

During the ninethree months ended September 30, 2017,March 31, 2023, the Company had the following real estate and loan activity net of accumulated depreciation and amortization:

 Number of Properties Dollar Amount of Investments
 Owned Financed Total Owned Financed Total
       (In Thousands)
Gross balance, December 31, 20162,541
 74
 2,615
 $8,181,076
 $66,578
 $8,247,654
Acquisitions/improvements (1)
43
 15
 58
 314,141
 19,190
 333,331
Dispositions of real estate (2)
(161) —
 (161) (392,504) —
 (392,504)
Principal payments and payoffs—
 (1) (1) —
 (7,817) (7,817)
Impairments—
 —
 —
 (88,109) —
 (88,109)
Write-off of gross lease intangibles—
 —
 —
 (64,766) —
 (64,766)
Loan premium amortization and other—
 —
 —
 (4,847) (1,130) (5,977)
Gross balance, September 30, 20172,423
 88
 2,511
 7,944,991
 76,821
 8,021,812
Accumulated depreciation and amortization      (1,234,978) —
 (1,234,978)
Other      647
 —
 647
Net balance, September 30, 2017      $6,710,660
 $76,821
 $6,787,481
(dollars in thousands):

 

 

Number of Properties

 

 

Dollar Amount of Investments

 

 

 

Held in Use

 

 

Held for Sale

 

 

Total

 

 

Held in Use

 

 

Held for Sale

 

 

Total

 

Gross balance, December 31, 2022

 

 

2,098

 

 

 

17

 

 

 

2,115

 

 

$

9,122,163

 

 

$

61,581

 

 

$

9,183,744

 

Acquisitions/improvements (1)

 

 

7

 

 

 

—

 

 

 

7

 

 

 

206,143

 

 

 

—

 

 

 

206,143

 

Dispositions of real estate (2)

 

 

(27

)

 

 

(12

)

 

 

(39

)

 

 

(68,239

)

 

 

(46,865

)

 

 

(115,104

)

Transfers to Held for Sale

 

 

(21

)

 

 

21

 

 

 

—

 

 

 

(42,416

)

 

 

42,416

 

 

 

—

 

Transfers from Held for Sale

 

 

2

 

 

 

(2

)

 

 

—

 

 

 

3,675

 

 

 

(3,675

)

 

 

—

 

Impairments (3)

 

 

—

 

 

 

—

 

 

 

—

 

 

 

(2,684

)

 

 

(2,068

)

 

 

(4,752

)

Reset of gross balances (4)

 

 

—

 

 

 

—

 

 

 

—

 

 

 

(6,381

)

 

 

(1,216

)

 

 

(7,597

)

Gross balance, March 31, 2023

 

 

2,059

 

 

 

24

 

 

 

2,083

 

 

 

9,212,261

 

 

 

50,173

 

 

 

9,262,434

 

Accumulated depreciation and amortization

 

 

 

 

 

 

 

 

 

 

 

(1,440,003

)

 

 

(6,964

)

 

 

(1,446,967

)

Net balance, March 31, 2023 (5)

 

 

 

 

 

 

 

 

 

 

$

7,772,258

 

 

$

43,209

 

 

$

7,815,467

 

(1) Includes investments of $33.8$21.3 million in revenue producing capitalized expenditures as well as $1.2and $0.5 million of non-revenue producing capitalized expenditures asduring the three months ended March 31, 2023.

(2) For the three months ended March 31, 2023, the net gains on disposal of September 30, 2017.

(2) The totalproperties held in use and held for sale were $39.9 million and $9.3 million, respectively.

(3) Impairments on owned real estate is comprised of real estate and intangible asset impairment.

(4) Represents write-off of gross investment balances against the related accumulated depreciation and amortization associated with dispositionsbalances as a result of real estate was $42.0 millionbasis reset due to impairment or intangibles and tenant improvements which have been fully amortized.

(5) Reconciliation of total owned investments to the accompanying consolidated balance sheet at March 31, 2023 is as follows:

Real estate assets held for investment, net

 

$

7,471,776

 

Intangible lease assets, net

 

 

 

 

407,141

 

Real estate assets under direct financing leases, net

 

 

 

 

7,420

 

Real estate assets held for sale, net

 

 

 

 

43,209

 

Intangible lease liabilities, net

 

 

 

 

(114,079

)

Net balance

 

 

 

$

7,815,467

 

Operating Leases

As of September 30, 2017.

Scheduled minimum future contractual rent to be receivedMarch 31, 2023 and 2022, the Company held 2,077 and 2,033 properties under the remaining non-cancelable term of the operating leases, (including realized rent increases occurring after October 1, 2017) at September 30, 2017respectively. The following table summarizes the components of rental income recognized on these operating leases in the consolidated statements of operations (in thousands):

 

 

Three Months Ended
March 31,

 

 

 

2023

 

 

2022

 

Base Cash Rent (1)

 

$

171,230

 

 

$

150,635

 

Variable cash rent (including reimbursables)

 

 

5,795

 

 

 

7,218

 

Straight-line rent, net of uncollectible reserve

 

 

9,920

 

 

 

8,575

 

Amortization of above- and below- market lease intangibles, net (2)

 

 

349

 

 

 

647

 

Total rental income

 

$

187,294

 

 

$

167,075

 

(1) Includes net impact of amounts recovered of $0.2 million and $0.1 million for the three months ended March 31, 2023 and 2022, respectively.

(2) Excludes amortization of in-place leases of $11.1 million and $10.4 million for the three months ended March 31, 2023 and 2022, respectively, which is included in depreciation and amortization expense in the consolidated statements of operations.

 September 30,
2017
Remainder of 2017$151,042
2018597,808
2019583,233
2020566,864
2021538,273
Thereafter4,084,670
Total future minimum rentals$6,521,890
Because lease

Lease renewal periods are exercisable at the lessees’ option and, as such, minimum future rent only includes the remaining initial non-cancellable term of the lessee, the preceding table presents future minimum lease payments due during the initial lease term only.our operating leases. In addition, theminimum future minimum rentals dorent includes fixed rent escalations occurring on or after April 1, 2023, but does not include any contingent rentalsvariable rent escalations, such as those based on a percentage of the lessees' gross sales or lease escalations based on future changes in the CPI, or other stipulated reference rate.


19

SPIRIT REALTY CAPITAL, INC. and SPIRIT REALTY, L.P.
Notes to Consolidated Financial Statements - (continued)
September 30, 2017
(Unaudited)


Loans Receivable
The following table details loans receivable, net of premium and allowance for loan lossescontingent rents. Minimum future rent at March 31, 2023 is as follows (in thousands):

 

 

March 31, 2023

 

Remainder of 2023

 

$

510,812

 

2024

 

 

675,070

 

2025

 

 

664,060

 

2026

 

 

637,600

 

2027

 

 

596,095

 

Thereafter

 

 

4,945,342

 

Total future minimum rentals

 

$

8,028,979

 

15

 September 30,
2017		 December 31,
2016
Mortgage loans - principal$62,833
 $55,410
Mortgage loans - premium, net of amortization5,568
 7,194
Mortgages loans, net68,401
 62,604
Other note receivables - principal8,420
 4,474
Allowance for loan losses—
 (500)
Other note receivables, net8,420
 3,974
Total loans receivable, net$76,821
 $66,578
The mortgage loans are secured by single-tenant commercial properties and generally have fixed interest rates over the term of the loans. There are four other notes receivable included within loans receivable, of which two notes totaling $6.5 million are secured by tenant assets and stock and the remaining two notes are unsecured.
Lease Intangibles, Net

The following table details lease intangible assets and liabilities, net of accumulated amortization (in thousands):

 

 

March 31,
2023

 

 

December 31,
2022

 

In-place leases

 

$

552,277

 

 

$

559,962

 

Above-market leases

 

 

99,041

 

 

 

101,594

 

Less: accumulated amortization

 

 

(244,177

)

 

 

(237,686

)

Intangible lease assets, net

 

$

407,141

 

 

$

423,870

 

 

 

 

 

 

 

 

Below-market leases

 

$

176,555

 

 

$

179,187

 

Less: accumulated amortization

 

 

(62,476

)

 

 

(61,110

)

Intangible lease liabilities, net

 

$

114,079

 

 

$

118,077

 

 September 30,
2017		 December 31,
2016
In-place leases$599,905
 $624,723
Above-market leases91,274
 88,873
Less: accumulated amortization(261,322) (243,320)
Intangible lease assets, net$429,857
 $470,276
    
Below-market leases$222,078
 $236,008
Less: accumulated amortization(59,459) (53,688)
Intangible lease liabilities, net$162,619
 $182,320
The amounts amortized

Direct Financing Leases

As of March 31, 2023, the Company held one property under a direct financing lease, which was held in use. As of March 31, 2023, this property had $2.4 million in scheduled minimum future payments to be received under its remaining non-cancellable lease term. As of March 31, 2023, the Company had a reserve of $0.1 million against the investment balance of $7.5 million, which was initially recorded in 2020 as a net increase to rental revenueresult of the initial term of the direct financing lease extending until 2027.

Loans Receivable

During the first quarter of 2023, the Company provided fixed-rate seller financing in conjunction with the sale of four single-tenant properties for capitalized above- and below-market leases were $4.9 million and $4.7$33.0 million, for which the nine months ended September 30, 2017properties serve as collateral. The Company evaluated the collectability of the amount receivable and 2016, respectively and $1.5 million and $1.8recorded an allowance for loan losses of $0.5 million for the three months ended September 30, 2017March 31, 2023 due to the borrower's financials and 2016, respectively. performance metrics.

The valueCompany also provided additional funding for an existing construction loan, which increased the principal amount of in-place leases amortizedthe loan by $0.8 million. Based on the borrower's financials and included in depreciation and amortization expense was $33.0 million and $35.1 millionperformance metrics, the Company recorded an additional allowance for the nine months ended September 30, 2017 and 2016, respectively, and $10.8 million and $11.6 millionloan losses of $7.5 thousand for the three months ended September 30, 2017March 31, 2023 due to the borrower's financials and 2016, respectively.

performance metrics.

Real Estate Assets Under Direct Financing Leases
The components of real estate investments held under direct financing leases were as follows (in thousands):
 September 30,
2017		 December 31,
2016
Minimum lease payments receivable$7,809
 $9,456
Estimated residual value of leased assets24,552
 35,640
Unearned income(7,478) (9,091)
Real estate assets under direct financing leases, net$24,883
 $36,005

20

SPIRIT REALTY CAPITAL, INC. and SPIRIT REALTY, L.P.
Notes to Consolidated Financial Statements - (continued)
September 30, 2017
(Unaudited)

Real Estate Assets Held for Sale

The following table shows thedetails our loans receivable activity in real estate assets held(in thousands):

 

 

Principal Balance

 

 

Allowance for Credit Loss

 

 

Total

 

December 31, 2022

 

$

23,700

 

 

$

(677

)

 

$

23,023

 

Loans issued

 

 

33,750

 

 

 

(503

)

 

 

33,247

 

Loan payments received

 

 

—

 

 

 

—

 

 

 

—

 

March 31, 2023

 

$

57,450

 

 

$

(1,180

)

 

$

56,270

 

Impairments and Allowance for sale for the nine months ended September 30, 2017 (dollars in thousands):

Credit Losses

 Number of Properties 
Carrying
Value
Balance, December 31, 201644
 $160,570
Transfers from real estate investments held and used80
 212,726
Sales(78) (157,156)
Transfers to real estate investments held and used(8) (63,597)
Impairments  (19,161)
Balance, September 30, 201738
 $133,382
Impairments

The following table summarizes total impairmentimpairments and allowance for credit losses recognized onin the accompanying consolidated statements of operations (in thousands):

 

 

Three Months Ended
March 31,

 

 

 

2023

 

 

2022

 

Real estate asset impairment

 

$

4,716

 

 

$

—

 

Intangible asset impairment

 

 

36

 

 

 

—

 

Allowance for credit losses on loans receivable

 

 

503

 

 

 

127

 

Total impairment loss

 

$

5,255

 

 

$

127

 

16

 Three Months Ended September 30, Nine Months Ended 
 September 30,
 2017 2016 2017 2016
Real estate and intangible asset impairment$32,676
 $13,894
 $82,553
 $35,236
Write-off of lease intangibles, net5,061
 1,491
 5,556
 6,463
Loans receivable recovery—
 —
 —
 (324)
Total impairments from real estate investment net assets37,737
 15,385
 88,109
 41,375
Other impairment—
 22
 —
 21
Total impairment loss$37,737
 $15,407
 $88,109
 $41,396

Impairments for the nine months ended September 30, 2017 were comprised of $22.6 million on properties classified as held for sale and $65.5 million on properties classified as held and used. Impairments for the nine months ended September 30, 2016 were comprised of $15.3 million on properties classified as held for sale and $26.1 million on properties classified as held and used.

21

SPIRIT REALTY CAPITAL, INC. and SPIRIT REALTY, L.P.
Notes to Consolidated Financial Statements - (continued)
September 30, 2017
(Unaudited)

Note

NOTE 4. Debt

DEBT

The debt of the Company and the Operating Partnership are the same, except for the presentation of the Convertible Notes. The Convertible Notes were issued by the Company. Subsequently, an intercompany note between the Company and the Operating Partnership was executed with terms identical to those of the Convertible Notes. Therefore, in the consolidated balance sheet of the Operating Partnership, the amounts related to the Convertible Notes are reflected as notes payable to Spirit Realty Capital, Inc., net.

The Company's debt is summarized below:

 
Weighted Average Effective
Interest Rates (1)
 
Weighted Average
Stated
Rates (2)
 
Weighted Average Maturity (3)
 September 30,
2017		 December 31,
2016
     (in Years) (In Thousands)
Revolving Credit Facility3.43% 2.49% 1.5 $386,000
 $86,000
Term Loan2.83% 2.59% 1.1 420,000
 420,000
Senior Unsecured Notes4.59% 4.45% 9.0 300,000
 300,000
Master Trust Notes5.58% 5.03% 5.5 1,657,402
 1,672,706
CMBS fixed-rate5.85% 5.89% 3.9 426,583
 528,427
Convertible Notes5.32% 3.28% 2.5 747,500
 747,500
Total debt4.97% 4.24% 4.2 3,937,485
 3,754,633
Debt discount, net      (43,327) (52,894)
Deferred financing costs, net (4)
      (31,013) (37,111)
Total debt, net      $3,863,145
 $3,664,628
below (dollars in thousands):

 

 

Weighted Average Effective Interest Rates (1)

 

Weighted Average Stated Interest Rates (2)

 

Weighted Average Remaining Years to Maturity (3)

 

 

March 31,
2023

 

 

December 31,
2022

 

Debt:

 

 

 

 

 

 

 

 

 

 

 

 

 

Revolving credit facilities

 

11.91%

 

5.42%

 

 

3.0

 

 

$

98,000

 

 

$

55,500

 

Term loans

 

3.79%

 

3.50%

 

 

3.6

 

 

 

800,000

 

 

 

800,000

 

Senior Unsecured Notes

 

3.42%

 

3.25%

 

 

6.2

 

 

 

2,750,000

 

 

 

2,750,000

 

Mortgages payable

 

4.88%

 

5.82%

 

 

7.8

 

 

 

4,689

 

 

 

4,825

 

Total debt

 

3.68%

 

3.36%

 

 

5.5

 

 

 

3,652,689

 

 

 

3,610,325

 

Debt discount, net

 

 

 

 

 

 

 

 

 

(9,231

)

 

 

(9,556

)

Deferred financing costs, net (4)

 

 

 

 

 

 

 

 

 

(24,301

)

 

 

(25,460

)

Total debt, net

 

 

 

 

 

 

 

 

$

3,619,157

 

 

$

3,575,309

 

(1)The effective interest rates include Includes amortization of debt discount/premium, amortization of deferred financing costs, and credit facility fees, non-utilization fees and impact of cash flow hedges, where applicable, calculated for the three months ended September 30, 2017 andMarch 31, 2023 based on the average principal balance outstanding during the period.

(2) Represents the weighted average stated interest rate based Based on the outstanding principal balance as of September 30, 2017.

(3) RepresentsMarch 31, 2023. Term loans include the weighted average maturity basedimpact of cash flow hedges. Excluding the impact of cash flow hedges, the stated interest rate for the term loans was 5.78% as of March 31, 2023.

(3) Based on the outstanding principal balance as of September 30, 2017.

March 31, 2023.

(4) The Company records Excludes deferred financing costs for its Revolving Credit Facilitythe revolving credit facilities.

Deferred financing costs and offering discount/premium incurred in connection with entering into debt agreements are amortized to interest expense over the initial term of the respective agreement. Both deferred financing costs and offering discount/premium are recorded net against the principal debt balance on the consolidated balance sheets, except for deferred costs related to revolving credit facilities, which are recorded in deferred costs and other assets, net on its consolidated balance sheets.

net.

Revolving Credit Facility

Facilities

On March 31, 2015,January 14, 2019, the CompanyOperating Partnership entered into the 2019 Revolving Credit and Term Loan Agreement, amongwhich included the 2019 Credit Facility with a borrowing capacity of $800.0 million. On March 30, 2022, the Operating Partnership as borroweramended and restated the Company as guarantor, that established a new $600.0 million unsecured credit facility. The2019 Revolving Credit and Term Loan Agreement, increasing the borrowing capacity of the 2019 Credit Facility matures on March 31, 2019 (extendable at the Operating Partnership's option to March 31, 2020, subject$1.2 billion. The borrowing capacity can be further increased to satisfaction$1.7 billion through exercise of certain requirements) and includes an accordion feature, to increase the committed facility size up to $1.0 billion, subject to satisfying certain requirements and obtaining additional lender commitments. On April 27, 2016, the Company expanded the borrowing capacity under the Revolvingrequirements. The 2019 Credit Facility from $600.0 million to $800.0 million by partially exercising the accordion feature under the termshas a maturity date of the Credit Agreement. The Revolving Credit Facility alsoMarch 31, 2026 and includes a $50.0 million sub-limit for swing-line loans and up to $60.0 million available for issuances of letters of credit. Swing-line loans and letters of credit reduce availability under the Revolving Credit Facility on a dollar-for-dollar basis. On November 3, 2015, the Company entered into a first amendment to the Credit Agreement. The amendment conforms certain of the terms and covenants to those in the Term Loan Agreement, including limiting the requirement of subsidiary guarantees to material subsidiaries (as defined in the Credit Agreement) meeting certain conditions. At September 30, 2017, there were no subsidiaries meeting this requirement.

Borrowings bear interest at either a specified base rate or LIBOR plus an applicable margin,twosix-month extensions that can be exercised at the Operating Partnership'sCompany’s option. The Revolving Credit Facility bears interest at a rate equal to LIBOR plus 0.875% to 1.55% per annum or a specified base rate plus 0.00% to 0.55% and requires a facility fee in an amount equal to the aggregate revolving credit commitments (whether or not utilized) multiplied by a rate equal to 0.125% to 0.30% per annum, in each case depending on the Corporation's credit rating. As of September 30, 2017, the Revolving Credit Facility bore interest at LIBOR plus 1.25% based on the Company's credit rating and incurred a facility fee of 0.25% per annum.

22

SPIRIT REALTY CAPITAL, INC. and SPIRIT REALTY, L.P.
Notes to Consolidated Financial Statements - (continued)
September 30, 2017
(Unaudited)

The Operating PartnershipBorrowings may voluntarily prepay the Revolving Credit Facility,be repaid, in whole or in part, at any time, without premium or penalty, but subject to applicable LIBOR breakage fees, if any. Payment

As of March 31, 2023, outstanding loans under the Revolving2019 Credit Facility is unconditionally guaranteed bybore interest at a 1-month adjusted SOFR rate plus an applicable margin of 0.775% per annum and the Corporationaggregate revolving commitments incurred a facility fee of 0.150% per annum, in each case, based on the Operating Partnership’s credit rating and material subsidiaries that meet certain conditionsleverage ratio (as defined in the Credit Agreement)agreement). The RevolvingPrior to March 30, 2022, outstanding loans under the 2019 Credit Facility is full recourse to the Operating Partnershipbore interest at 1-month LIBOR plus an applicable margin of 0.90% per annum and the aforementioned guarantors.

Asaggregate revolving commitments incurred a resultfacility fee of entering into0.20% per annum.

In connection with the Revolvingamendment and restatement of the 2019 Credit Facility, and expanding the borrowing capacity, the Company incurred costs of $4.8 million. Thesewrote off $0.2 million in deferred financing costs are being amortized to interest expense over the remaining initial termand incurred deferred financing costs of the Revolving Credit Facility.$8.6 million. The unamortized deferred financing costs relating to the Revolving Credit Facility were $2.0 million and $2.9$7.2 million as of September 30, 2017 andMarch 31, 2023, compared to $7.8 million as of December 31, 2016, respectively, and recorded in deferred costs and other assets, net on the accompanying consolidated balance sheets.

2022.

As of September 30, 2017, $386.0 million was outstanding, no letters of credit were issued and $414.0 millionMarch 31, 2023, $1.1 billion of borrowing capacity was available under the Revolving2019 Credit Facility.Facility and there were no outstanding letters of credit. TheOperating Partnership's ability to borrow under the Revolving2019 Credit Facility is subject to ongoing compliance with a number of customary financial covenants and other customary affirmative and negative covenants. Ascovenants, all of September 30, 2017,which the CorporationCompany and the Operating Partnership were in compliance with these financial covenants.

as of March 31, 2023.

17

Term Loan

Loans

On November 3, 2015,August 22, 2022, the CompanyOperating Partnership entered into athe 2022 Term Loan Agreement, among the Operating Partnership, as borrower, the Company as guarantorwhich provides for borrowings in an aggregate amount of $800.0 million, comprised of a $300.0 million tranche which matures August 22, 2025 and the lenders that are parties thereto.a $500.0 million tranche which matures August 20, 2027. The Term Loan Agreement provides for a $325.0 million senior unsecured term facility that has an initial maturity date of November 2, 2018, which may be extended at the Company's option pursuant to two one-year extension options, subject to the satisfaction of certain conditions and payment of an extension fee. In addition,also includes an accordion feature allowsto increase the facility to be increased up to $600.0available term loans by $200.0 million, subject to obtaining additional lender commitments. Duringsatisfying certain requirements. As of March 31, 2023, the fourth quarter2022 Term Loans bore interest at a 1-month adjusted SOFR rate plus an applicable margin of 2015 and 2016,0.850% per annum, based on the Operating Partnership’s credit rating. The Company exercisedincurred $8.4 million in deferred financing costs in connection with entering into the accordion feature under the Credit Agreement and increased the term facility borrowing capacity from $325.0 million to $370.0 million and $420.0 million, respectively.

The2022 Term Loan Agreement, provides that borrowings bear interest at either LIBOR plus 1.35% to 1.80% per annum or a specified base rate plus 0.35% to 0.80% per annum, at the Operating Partnership's option. The borrowings bear interest at either LIBOR plus 0.90% to 1.75% per annum or a specified base rate plus 0.00% to 0.75% per annum, in each case depending on the Corporation’s credit ratings. As of September 30, 2017, the Term Loan bore interest at LIBOR plus 1.35% based on the Company's credit rating.
The Operating Partnership may voluntarily prepay the Term Loan, in whole or in part, at any time, without premium or penalty, but subject to applicable LIBOR breakage fees. Borrowings may be repaid without premium or penalty, and may be re-borrowed within 30 days up to the then available loan commitment and subject to occurrence limitations within any twelve-month period. Payment of the Term Loan is unconditionally guaranteed by the Corporation and, under certain circumstances, by one or more material subsidiaries (as defined in the Term Loan Agreement) of the Corporation. The obligations of the Corporation and any guarantor under the Term Loan are full recourse to the Corporation and each guarantor.
As a result of entering into the Term Loan, the Company incurred origination costs of $2.4 million. These deferred financing costs are being amortized to interest expense over the remaining initial term of the Term Loan. As of September 30, 2017 and December 31, 2016, the unamortized deferred financing costs relatingwere $7.2 million as of March 31, 2023, compared to $7.7 million as of December 31, 2022.

On November 17, 2022, the Operating Partnership entered into the 2023 Term Loan were $0.9Agreement, which provides for $500.0 million of unsecured term loans with a maturity date of June 16, 2025and $1.5 million, respectively, and recorded net against the principal balance of theallows funds to be drawn up to July 2, 2023. The 2023 Term Loan Agreement also includes an accordion feature to increase the available term loans by $100.0 million, subject to satisfying certain requirements. The 2023 Term Loans will bear interest at a 1-month adjusted SOFR rate plus an applicable margin of 0.950% per annum, based on the accompanying consolidated balance sheets.

AsOperating Partnership's credit rating as of September 30, 2017,March 31, 2023. The full $500.0 million of borrowing capacity was available under the 2023 Term Loan was fully drawn. The Operating Partnership's ability to borrow underAgreements as of March 31, 2023.

In conjunction with the Company's term loans, the Company entered into interest rate swaps as cash flow hedges (see Note 7).

In connection with the 2022 Term Loan isAgreement and the 2023 Term Loan Agreement, the Company and Operating Partnership are subject to ongoing compliance with a number of customary financial covenants and other customary affirmative and negative covenants. The Corporation has unconditionally guaranteedcovenants, all obligations of which the Operating Partnership under the Term Loan Agreement. As of September 30, 2017, the CorporationCompany and the Operating Partnership were in compliance with these financial covenants.



23

SPIRIT REALTY CAPITAL, INC. and SPIRIT REALTY, L.P.
Notes to Consolidated Financial Statements - (continued)
September 30, 2017
(Unaudited)

as of March 31, 2023.

Senior Unsecured Notes

On August 18, 2016, the Operating Partnership completed a private placement of $300.0 million aggregate principal amount of senior notes, which are guaranteed by the Corporation.

The Senior Unsecured Notes were issued at 99.378%by the Operating Partnership and are guaranteed by the Company. The following is a summary of their principal amount, resulting in net proceeds of $296.2 million, after deducting transaction fees and expenses. Thethe Senior Unsecured Notes accrue interest at a rate of 4.45% per year, payable on March 15 and September 15 of each year, until the maturity date of September 15, 2026. The Company filed a registration statement with the SEC to exchange the private Senior Unsecured Notes for registered Senior Unsecured Notes with substantially identical terms, which became effective April 14, 2017. All $300.0 million aggregate principal amount of private Senior Unsecured Notes were tenderedoutstanding (dollars in the exchange for registered Senior Unsecured Notes.thousands):

 

Maturity Date

 

Interest Payment Dates

 

Stated Interest Rate

 

March 31,
2023

 

 

December 31,
2022

 

2026 Senior Notes

 

September 15, 2026

 

March 15 and September 15

 

4.45%

 

$

300,000

 

 

$

300,000

 

2027 Senior Notes

 

January 15, 2027

 

January 15 and July 15

 

3.20%

 

 

300,000

 

 

 

300,000

 

2028 Senior Notes

 

March 15, 2028

 

March 15 and September 15

 

2.10%

 

 

450,000

 

 

 

450,000

 

2029 Senior Notes

 

July 15, 2029

 

January 15 and July 15

 

4.00%

 

 

400,000

 

 

 

400,000

 

2030 Senior Notes

 

January 15, 2030

 

January 15 and July 15

 

3.40%

 

 

500,000

 

 

 

500,000

 

2031 Senior Notes

 

February 15, 2031

 

February 15 and August 15

 

3.20%

 

 

450,000

 

 

 

450,000

 

2032 Senior Notes

 

February 15, 2032

 

February 15 and August 15

 

2.70%

 

 

350,000

 

 

 

350,000

 

Total Senior Unsecured Notes

 

 

 

3.25%

 

$

2,750,000

 

 

$

2,750,000

 

The Senior Unsecured Notes are redeemable in whole at any time or in part from time to time, at the Operating Partnership’s option, at a redemption price equal to the sum of: an amount equal to 100%of 100% of the principal amount of the respective Senior Unsecured Notes to be redeemed plus accrued and unpaid interest and liquidated damages, if any, up to, but not including, the redemption date; and a make-whole premium calculated in accordance with the indenture. Notwithstanding the foregoing, ifpremium. If any of the Senior Unsecured Notes are redeemed onthree months or after June 15, 2026 (threeless (or two months or less in the case of the 2027 Senior Notes and 2028 Senior Notes) prior to thetheir respective maturity date of the Senior Unsecured Notes),dates, the redemption price will not include a make-whole premium.

In connection with the offering, the Operating Partnership incurred $3.4 million in deferred financing costs. This amount is being amortized to interest expense over the life of the Senior Unsecured Notes.

As of both September 30, 2017March 31, 2023 and December 31, 2016,2022, the unamortized deferred financing costs relating to the Senior Unsecured Notes were $3.1$17.1 million and recorded net against$17.8 million, respectively, and the Senior Unsecured Notes principal balance on the accompanying consolidated balance sheets.

unamortized discount was $9.4 million and $9.7 million, respectively.In connection with the issuance of the Senior Unsecured Notes, the CorporationCompany and Operating Partnership are subject to ongoing compliance with a number of customary financial covenants and other customary affirmative and negative covenants. Ascovenants, all of September 30, 2017,which the CorporationCompany and the Operating Partnership were in compliance with these financial covenants.
Master Trust Notes
The Company has access to an asset-backed securitization platform, the Spirit Master Funding Program, to raise capital through the issuance of non-recourse net-lease mortgage notes collateralized by commercial real estate, net-leases and mortgage loans. The Spirit Master Funding Program consists of two separate securitization trusts, Master Trust 2013 and Master Trust 2014, each of which have one or multiple bankruptcy-remote, special purpose entities as issuers or co-issuers of the notes. Each issuer is an indirect wholly-owned special purpose entity of the Corporation.

24

SPIRIT REALTY CAPITAL, INC. and SPIRIT REALTY, L.P.
Notes to Consolidated Financial Statements - (continued)
September 30, 2017
(Unaudited)

The Master Trust Notes are summarized below:
  
Stated
Rates (1)
 Maturity September 30,
2017		 December 31,
2016
    (in Years) (in Thousands)
Series 2014-1 Class A1 5.1% 2.7 $45,141
 $53,919
Series 2014-1 Class A2 5.4% 2.8 253,300
 253,300
Series 2014-2 5.8% 3.5 223,604
 226,283
Series 2014-3 5.7% 4.5 311,459
 311,820
Series 2014-4 Class A1 3.5% 2.3 150,000
 150,000
Series 2014-4 Class A2 4.6% 12.3 360,000
 360,000
Total Master Trust 2014 notes 5.1% 5.8 1,343,504
 1,355,322
Series 2013-1 Class A 3.9% 1.2 125,000
 125,000
Series 2013-2 Class A 5.3% 6.2 188,898
 192,384
Total Master Trust 2013 notes 4.7% 4.2 313,898
 317,384
Total Master Trust notes     1,657,402
 1,672,706
Debt discount, net     (15,613) (18,787)
Deferred financing costs, net     (14,050) (16,376)
Total Master Trust Notes, net     $1,627,739
 $1,637,543
(1) Represents the individual series stated interest rate as of September 30, 2017 and the weighted average stated rate of the total Master Trust Notes, based on the collective series outstanding principal balances as of September 30, 2017.
As of September 30, 2017, the Master Trust 2014 notes were secured by 815 owned and financed properties issued by five indirect wholly-owned subsidiaries of the Corporation. The notes issued under Master Trust 2014 are cross-collateralized by the assets of all issuers within this trust. As of September 30, 2017, the Master Trust 2013 notes were secured by 295 owned and financed properties issued by a single indirect wholly-owned subsidiary of the Corporation.
CMBS
As of September 30, 2017, indirectMarch 31, 2023.

18

Mortgages Payable

Indirect wholly-owned special purpose entity subsidiaries of the Corporation wereCompany are borrowers under 10two fixed-rate non-recourse loans, excluding six loans in default, which have been securitized into CMBS and are secured by the borrowers'borrowers’ respective leased properties and related assets. The stated interest rates of the loans as of September 30, 2017, excludingMarch 31, 2023 for the defaulted loans, ranged from 3.90% to 6.52% with a weighted average stated interest rate of 5.32%. As of September 30, 2017, these fixed-ratenon-defaulted loans were 5.80% and 6.00%, respectively. Each loan was secured by 113 properties. As of September 30, 2017 and December 31, 2016, theone property. There were no unamortized deferred financing costs associated with these fixed-rate loans were $4.2 million and $4.7 million, respectively, and recorded net against the principal balanceas of the mortgages and notes payable on the accompanying consolidated balance sheets. The deferred financing costs are being amortized to interest expense over the term of the respective loans.

As of September 30, 2017, certain borrowers were in default under the loan agreements relating to six separate CMBS fixed-rate loans, where eight properties securing the respective loans were no longer generating sufficient revenue to pay the scheduled debt service. The default interest rate on these loans was between 7.53% and 10.62%. Each defaulted borrower is a bankruptcy remote special purpose entity and the sole owner of the collateral securing the loan obligations. As of September 30, 2017, the aggregate principal balance under the defaulted loans was $62.9 million, which includes $11.8 million of interest capitalized to the principal balance.

25

SPIRIT REALTY CAPITAL, INC. and SPIRIT REALTY, L.P.
Notes to Consolidated Financial Statements - (continued)
September 30, 2017
(Unaudited)

Convertible Notes
In May 2014, the Corporation issued $402.5 million aggregate principal amount of 2.875% convertible notes due in 2019 and $345.0 million aggregate principal amount of 3.75% convertible notes due in 2021. Interest on the Convertible Notes is payable semiannually in arrears on May 15 and November 15 of each year. The 2019 Notes will mature on May 15, 2019 and the 2021 Notes will mature on May 15, 2021.
The Convertible Notes are convertible only during certain periods and, subject to certain circumstances, into cash, shares of the Corporation's common stock, or a combination thereof. The initial conversion rate applicable to each series is 76.3636 per $1,000 principal note (equivalent to an initial conversion price of $13.10 per share of common stock, representing a 22.5% premium above the public offering price of the common stock offered concurrently at the time the Convertible Notes were issued). The conversion rate is subject to adjustment for certain anti-dilution events, including special distributions and regular quarterly cash dividends exceeding $0.16625 per share. As of September 30, 2017, the conversion rate was 77.1889 per $1,000 principal note. Earlier conversion may be triggered if shares of the Corporation's common stock trades higher than the established thresholds, if the Convertible Notes trade below established thresholds, or certain corporate events occur.
In connection with the issuance of the Convertible Notes, the Company recorded a discount of $56.7 million, which represents the estimated value of the embedded conversion feature for each of the Convertible Notes. The discount is being amortized to interest expense using the effective interest method over the term of each of the 2019 Notes and 2021 Notes. As of September 30, 2017either March 31, 2023 and December 31, 2016,2022, and the unamortized discount was $26.2 million and $33.5 million, respectively. The discount is shown net against the aggregate outstanding principal balancepremium as of the Convertible Notes on the accompanying consolidated balance sheets. The equity component of the conversion feature is recorded in capital in excess of par value in the accompanying consolidated balance sheets, net of financing transaction costs.
In connection with the offering, the Company also incurred $19.6 million in deferred financing costs. This amount has been allocated on a pro-rata basis to each of the Convertible Notes and is being amortized to interest expense over the term of each note. As of September 30, 2017both March 31, 2023 and December 31, 2016,2022 was $0.2 million.

Debt Extinguishment

The Company did not extinguish any debt during the unamortized deferred financing costs relating to the Convertible Notes were $8.8 million and $11.4 million, respectively, and recorded net against the Convertible Notes principal balance on the accompanying consolidated balance sheets.

Debt Extinguishment
three months ended March 31, 2023. During the ninethree months ended September 30, 2017, the Company extinguished a total of $101.0 million aggregate principal amount of senior mortgage indebtedness with a weighted average contractual interest rate of 5.84%. As a result of these transactions,March 31, 2022, the Company recognized a net gainloss on debt extinguishment of approximately $1.8 million. Payment of any premium is included in debt extinguishment costs within operating activities in the consolidated statement of cash flows.
During the nine months ended September 30, 2016, the Company extinguished a total of $817.3$0.2 million aggregate principal amount of senior mortgage indebtedness with a weighted average contractual interest rate of 6.02%. Asas a result of these transactions, the Company recognized a net gain on debt extinguishmentamendment and restatement of approximately $0.3 million.

26

SPIRIT REALTY CAPITAL, INC.the 2019 Revolving Credit and SPIRIT REALTY, L.P.
Notes to Consolidated Financial Statements - (continued)
September 30, 2017
(Unaudited)

Term Loan Agreement.

Debt Maturities

As of September 30, 2017,March 31, 2023, scheduled debt maturities, of the Company’s Revolving Credit Facility, Term Loan, Senior Unsecured Notes, Master Trust Notes, CMBS and Convertible Notes, including balloon payments, arewere as follows (in thousands):

 

 

Scheduled
Principal

 

 

Balloon
Payment

 

 

Total

 

Remainder of 2023

 

$

420

 

 

$

—

 

 

$

420

 

2024

 

 

590

 

 

 

—

 

 

 

590

 

2025

 

 

610

 

 

 

300,016

 

 

 

300,626

 

2026

 

 

469

 

 

 

398,000

 

 

 

398,469

 

2027

 

 

497

 

 

 

800,000

 

 

 

800,497

 

Thereafter

 

 

2,034

 

 

 

2,150,053

 

 

 

2,152,087

 

Total

 

$

4,620

 

 

$

3,648,069

 

 

$

3,652,689

 

 
Scheduled
Principal
 
Balloon
Payment
 Total
Remainder of 2017 (1)
$7,538
 $122,634
 $130,172
2018 (2)
41,954
 569,800
 611,754
2019 (3)
44,325
 798,500
 842,825
202039,096
 413,206
 452,302
202130,658
 554,753
 585,411
Thereafter219,000
 1,096,021
 1,315,021
Total$382,571
 $3,554,914
 $3,937,485
(1) The balloon payment balance in 2017 includes $62.9 million, including $11.8 million of capitalized interest, for the acceleration of principal payable following an event of default under six non-recourse CMBS loans with a stated maturity in 2017.
(2) 2018 includes $420 million unsecured Term Loan that is extendible at borrower's option pursuant to two one-year extension options.
(3) 2019 includes the Revolving Credit Facility which is extendible for one year at the borrower's option.

Interest Expense

The following table is a summary of the components of interest expense related to the Company's borrowings were as follows (in thousands):

 Three Months Ended 
 September 30,		 Nine Months Ended 
 September 30,
 2017 2016 2017 2016
Interest expense – Revolving Credit Facility (1)
$3,075
 $1,155
 $5,632
 $2,507
Interest expense – Term Loan2,768
 1,307
 7,525
 3,376
Interest expense – Senior Unsecured Notes3,337
 1,595
 10,013
 1,595
Interest expense – mortgages and notes payable27,563
 33,291
 83,640
 113,837
Interest expense – Convertible Notes (2)
6,127
 6,127
 18,382
 18,382
Non-cash interest expense:       
Amortization of deferred financing costs2,451
 2,303
 7,274
 6,706
Amortization of net losses related to interest rate swaps—
 28
 —
 85
Amortization of debt discount, net3,359
 1,847
 9,663
 3,354
Total interest expense$48,680
 $47,653
 $142,129
 $149,842

 

 

Three Months Ended
March 31,

 

 

 

2023

 

 

2022

 

Revolving credit facilities (1)

 

$

1,839

 

 

$

1,822

 

Term loans (2)

 

 

7,006

 

 

 

—

 

Senior Unsecured Notes

 

 

22,313

 

 

 

22,313

 

Mortgages payable

 

 

69

 

 

 

77

 

Non-cash:

 

 

 

 

 

 

Amortization of deferred financing costs

 

 

1,754

 

 

 

922

 

Amortization of debt discount, net

 

 

324

 

 

 

313

 

Amortization of net losses related to interest rate swaps

 

 

702

 

 

 

702

 

Capitalized interest

 

 

(460

)

 

 

(126

)

Total interest expense

 

$

33,547

 

 

$

26,023

 

(1)Includes facility fees of approximately $0.5 million for both of the three month periods ended September 30, 2017 and 2016, and approximately $1.6$0.7 million and $1.5$0.5 million for the nine month periodsthree months ended September 30, 2017March 31, 2023 and 2016,2022, respectively.

(2)Included in interest expense on the Operating Partnership's consolidated statements Includes impact of operations are amounts paid to the Corporation by the Operating Partnership related to the notes payable to Spirit Realty Capital, Inc.

Note 5. Derivative and Hedging Activities
The Company uses interest rate derivative contracts to manage its exposure to changes in interest rates on its variable rate debt. These derivatives are considered cash flow hedges and are recorded on a gross basis at fair value. Assessments of hedge effectiveness are performed quarterly using regression analysis and the measurement of hedge ineffectiveness is based on the hypothetical derivative method. The effective portion of changes in fair value are recorded in AOCL and subsequently reclassified to earnings when the hedged transactions affect earnings. The ineffective portion is recorded immediately in earnings in general and administrative expenses. The Company does not enter into derivatives contracts for speculative or trading purposes.

27

SPIRIT REALTY CAPITAL, INC. and SPIRIT REALTY, L.P.
Notes to Consolidated Financial Statements - (continued)
September 30, 2017
(Unaudited)hedge.


The Company is exposed to credit risk in the event of non-performance by its derivative counterparties. The Company evaluates counterparty credit risk through monitoring the creditworthiness of counterparties, which includes review of debt ratings and financial performance. To mitigate its credit risk,

NOTE 5. STOCKHOLDERS’ EQUITY

Common Stock

In January 2022, the Company enters into agreements with counterparties it considers credit-worthy, such as large financial institutions with favorable credit ratings.

The Company has terminated all existing derivative contracts as of June 30, 2016 and has not entered into any new derivative contracts asforward sale agreements in connection with an offering of September 30, 2017.
The following tables provide information about the amounts recorded in AOCL, as well as the loss recorded in operations, when reclassified out of AOCL or recognized in earnings immediately, for the nine months endedSeptember 30, 2016 (in thousands):
  
Amount of Loss Recognized in AOCL on Derivative
(Effective Portion)
Derivatives in Cash Flow Hedging Relationships Three Months Ended Nine Months Ended
 September 30, 2016
Interest rate swaps $28
 $(1,145)
     
  
Amount of Loss Reclassified from AOCL into Operations
(Effective Portion)
Location of Loss Reclassified from AOCL into Operations Three Months Ended Nine Months Ended
 September 30, 2016
Interest expense $—
 $(459)
     
  
Amount of Loss Recognized in Operations on Derivative
(Ineffective Portion)
Location of Loss Recognized in Operations on Derivatives Three Months Ended Nine Months Ended
 September 30, 2016
General and administrative expense $—
 $(1,706)
     
  Derivatives Not Designated as Hedging Instruments
Location of Loss Recognized in Operations on Derivatives Three Months Ended Nine Months Ended
 September 30, 2016
General and administrative expense $—
 $(18)
Note 6. Stockholders’ Equity and Partners' Capital
Issuance of Common Stock
During the nine months ended September 30, 2017, portions of awards of restricted common stock and performance share awards granted to certain of the Company's officers and other employees vested. The vesting of these awards, granted pursuant to the Amended Incentive Award Plan, resulted in federal and state income tax liabilities for the recipients. As permitted by the terms of the Amended Incentive Award Plan and the award grants, certain executive officers and employees elected to surrender 0.49.4 million shares of common stock valued at $3.5 million, solely to pay the associated statutory tax withholdingsan initial public offering price of $47.60 per share, before underwriting discounts and offering expenses. All of these shares were settled during the nine months ended September 30, 2017.
ATM Program
2022, generating net proceeds of $427.7 million.

19

In November 2016,2021, the Company's Board of Directors approved a new $500.0 million ATM Program, and the Company terminated its existing program. 2020 ATM Program. The following details the activity under the 2021 ATM Program since its inception (in thousands):

2021 ATM

 

Forward Shares

 

 

Regular Shares

 

 

Total Shares

 

 

Net Proceeds on Issuances

 

Month ended 12/31/2021

 

 

 

 

 

 

 

 

 

 

 

 

 

Shares sold

 

 

2,268

 

 

 

438

 

 

 

2,706

 

 

 

 

 

Shares issued

 

 

(2,212

)

 

 

(438

)

 

 

(2,650

)

 

 

$

120,286

 

Unsettled shares sold as of 12/31/2021

 

 

56

 

 

 

—

 

 

 

56

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Year ended 12/31/2022

 

 

 

 

 

 

 

 

 

 

 

 

 

Shares sold

 

 

2,434

 

 

 

1,525

 

 

 

3,959

 

 

 

 

 

Shares issued

 

 

(2,490

)

 

 

(1,525

)

 

 

(4,015

)

 

 

$

167,850

 

Unsettled shares sold as of 12/31/2022

 

 

—

 

 

 

—

 

 

 

—

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Three months ended 3/31/2023

 

 

 

 

 

 

 

 

 

 

 

 

 

Shares sold

 

 

—

 

 

 

—

 

 

 

—

 

 

 

 

 

Shares issued

 

 

—

 

 

 

—

 

 

 

—

 

 

 

$

—

 

Unsettled shares sold as of 3/31/2023

 

 

—

 

 

 

—

 

 

 

—

 

 

 

 

 

As of September 30, 2017, noMarch 31, 2023, approximately $208.7 million of capacity remained available under the 2021 ATM Program.

Preferred Stock

As of March 31, 2023, the Company had 6.9 million shares of Series A Preferred Stock outstanding, which pays cumulative cash dividends of 6.00% per annum on the Company's common stock had been sold under the new ATM Program and $500.0 million in gross proceeds capacity remained available.



28

SPIRIT REALTY CAPITAL, INC. and SPIRIT REALTY, L.P.
Notes to Consolidated Financial Statements - (continued)
September 30, 2017
(Unaudited)

Stock Repurchase Programs
In August 2017, the Company's Boardliquidation preference of Directors approved a new stock repurchase program, which authorizes the Company to repurchase up to $250.0 million of its common stock. These purchases can be made in the open market or through private transactions from time to time over the 18 month time period following authorization, depending on prevailing market conditions and applicable legal and regulatory requirements. Purchase activity will be dependent on various factors, including the Company's capital position, operating results, funds generated by asset sales, dividends that may be required by those sales, and investment options that may be available, including acquiring new properties or retiring debt. The stock repurchase program does not obligate the Company to repurchase any specific number of shares and may be suspended at any time at the Company's discretion. As of September 30, 2017, 2,482,570 shares of the Company's common stock have been repurchased in open market transactions under the stock repurchase program, at a weighted average price of $8.75$25.00 per share leaving $228.3 million in available capacity. Fees associated with the repurchase, of $49,700, are included in retained earnings.
In February 2016, the Company's Board of Directors approved a stock repurchase program, which authorized the Company(equivalent to repurchase up to $200.0 million of its common stock over the 18 month time period following authorization. A total of 26,337,295 shares of the Company's outstanding common stock were repurchased in open market transactions under the stock repurchase program, at a weighted average price of $7.59$1.50 per share equivalent to the full $200.0 million authorized. Fees associated with the share repurchase of $0.5 million are included in retained earnings.
on an annual basis).

Dividends Declared

For the ninethree months ended September 30, 2017,March 31, 2023, the Corporation'sCompany's Board of Directors declared the following dividends:

Declaration Date

 

Dividend Per Share

 

 

Record Date

 

Total Amount
 (in thousands)

 

 

Payment Date

Common Stock

 

 

 

 

 

 

 

 

 

 

February 22, 2023

 

$

0.663

 

 

March 31, 2023

 

$

93,675

 

 

April 14, 2023

Preferred Stock

 

 

 

 

 

 

 

 

 

 

February 22, 2023

 

$

0.375

 

 

March 15, 2023

 

$

2,588

 

 

March 31, 2023

Declaration Date Dividend Per Share Record Date Total Amount Payment Date
      (in thousands)  
March 15, 2017 $0.1800
 March 31, 2017 $87,122
 April 14, 2017
June 15, 2017 $0.1800
 June 30, 2017 $82,422
 July 14, 2017
September 15, 2017 $0.1800
 September 29, 2017 $82,062
 October 13, 2017

The common stock dividend declared on September 15, 2017 was paid on October 13, 2017 andFebruary 22, 2023 is included in accounts payable, accrued expenses and other liabilities in the consolidated balance sheet as of September 30, 2017.March 31, 2023.

NOTE 6. COMMITMENTS AND CONTINGENCIES

The Company is periodically subject to claims or litigation in the ordinary course of business, including claims generated from business conducted by tenants on real estate owned by the Company. In these instances, the Company is typically indemnified by the tenant against any losses that might be suffered, and the Company and/or the tenant are typically insured against such claims. The Company had fully accrued a $5.7 million contingent liability related to debt owed by a tenant in 2018, however no payments were made by the Company. Therefore, upon the debt's maturity on March 15, 2022, the Company reversed the $5.7 million accrual, which is reflected as other income in the consolidated statement of operations.

The Company estimates future costs for known environmental remediation requirements when it is probable that the Company has incurred a liability and the related costs can be reasonably estimated. The Company considers various factors when estimating its environmental liabilities, and adjustments are made when additional information becomes available that affects the estimated costs to study or remediate any environmental issues. When only a wide range of estimated amounts can be reasonably established and no other amount within the range is better than another, the low end of the range is recorded in the consolidated financial statements. As of March 31, 2023, no accruals have been made.

As of March 31, 2023, there were no outstanding claims against the Company that are expected to have a material adverse effect on the Company’s financial position, results of operations or cash flows.

20

Purchase and Capital Improvement Commitments

As of March 31, 2023, the Company had commitments totaling $132.7 million, of which $9.8 million relates to future acquisitions and the remainder relates to improvements on properties the Company already owns. Acquisition commitments contain standard cancellation clauses contingent on the results of due diligence. $24.6 million of the Company’s commitments are expected to be funded during 2023, and $107.8 million are expected to be funded by the end of 2024.

Note

NOTE 7. CommitmentsDERIVATIVE AND HEDGING ACTIVITIES

The Company may use interest rate derivative contracts to manage its exposure to changes in interest rates on its variable rate debt. These derivatives are considered cash flow hedges and Contingencies

are recorded on a gross basis at fair value. Assessments of hedge effectiveness are performed quarterly using either a qualitative or quantitative approach. The Company recognizes the entire change in the fair value in AOCIL and the change is reflected as cash flow hedge changes in fair value in the supplemental disclosures of non-cash activities in the consolidated statements of cash flows. Amounts will subsequently be reclassified to earnings when the hedged item affects earnings. The Company does not enter into derivative contracts for speculative or trading purposes and does not have derivative netting arrangements.

The Company is periodically subjectexposed to claims or litigationcredit risk in the ordinary courseevent of business, including claims generated from business conductednon-performance by tenants on real estate owned byits derivative counterparties. The Company evaluates this risk through monitoring the Company. In these instances,creditworthiness of counterparties, which includes review of their debt ratings and financial performance. To mitigate credit risk, the Company is typically indemnified byenters into agreements with counterparties it considers credit-worthy, such as large financial institutions with favorable credit ratings.

In the tenant against any losses that might be suffered, andthird quarter of 2019, the Company and/or the tenant are typically insured against such claims.


On September 8, 2015, Haggen Holdings, LLC and a number of its affiliates, including Haggen Operations Holdings, LLC (collectively, the "Debtors"), filed petitions for bankruptcy protection under Chapter 11 of the U.S. Bankruptcy Code in the U.S. Bankruptcy Court for the District of Delaware. At the time of the filing, Haggen Operations Holdings, LLC ("Haggen") leased 20 properties on a triple net basis from a subsidiary of the Company under a master lease.
On November 25, 2015, Haggen and Spirit restructured the master lease in an initial settlement agreement with approved claims of $21.0 million.
On April 1, 2016, Spiritterminated interest rate swaps which had been entered into in December 2018 and accelerated the reclassification of a second settlement agreement with both Haggen and Albertsons, LLC for $3.4loss of $12.5 million and $3.0 million, respectively.
Asfrom AOCIL to termination of interest rate swaps as a result of a portion of the settlements, the leases for seven locationshedged forecasted transactions becoming probable not to occur. There were rejected and the leases for thirteen locations were assumed by the Debtors and assignedno events of default related to the following tenants: five locationsinterest rate swaps prior to Albertsons, LLC, five locations to Smart & Final, LLC, two locations to Gelson’s Markets and one location to Safeway, Inc.

29

SPIRIT REALTY CAPITAL, INC. and SPIRIT REALTY, L.P.
Notes to Consolidated Financial Statements - (continued)
September 30, 2017
(Unaudited)

As of September 30, 2017, the Company had sold seventheir termination. Given that a portion of the properties for total proceeds of $58.3 million, including five of the original seven rejected locations, resulting in 11 locations with leases in-place under substantially the same terms and rent (inclusive of the $3.0 million settlement relatedhedged transactions remained probable to rent reduction for an amended lease with Albertsons, LLC) and two locations that remain vacant.
To date, the Company has collected $5.5occur, $12.3 million of the total claimsloss was deferred in other comprehensive loss and there is no guaranty thatbeing amortized over the remaining claims initial term of the interest rate swaps, which ends January 31, 2024. As of March 31, 2023, the unamortized portion of loss in AOCIL related to terminated interest rate swaps was $2.3 million.

During the third quarter of 2022 and the first quarter of 2023, the Company entered into new interest rate swaps, which were designated as cash flow hedge instruments. Interest rate swaps that are in an asset position are recorded in deferred costs and other assets, net on the consolidated balance sheet, while interest rate swaps that are in a liability position are recorded in accounts payable, accrued expenses and other liabilities on the consolidated balance sheet. These instruments swap 1-month SOFR for a fixed payment. The following table summarizes the key terms and fair value of these instruments (in thousands):

 

 

 

 

 

 

 

 

 

 

 

Fair Value of Asset (Liability)

 

Interest Rate Swap Notional Amount

 

Fixed Interest Rate

 

Effective Date

 

Maturity Date

 

March 31, 2023

 

 

$

300,000

 

 

 

2.501%

 

September 15, 2022

 

August 22, 2027

 

$

10,708

 

 

$

200,000

 

 

 

2.507%

 

September 15, 2022

 

August 22, 2027

 

 

7,075

 

 

$

300,000

 

 

 

2.636%

 

September 15, 2022

 

August 22, 2025

 

 

8,185

 

 

$

300,000

 

 

 

3.769%

 

June 15, 2023

 

June 15, 2025

 

 

172

 

 

$

200,000

 

 

 

3.590%

 

December 15, 2023

 

June 15, 2025

 

 

(299

)

 

 

 

 

 

 

 

 

 

 

 

$

25,841

 

The following table provides information about the amounts recorded in AOCIL, as well as any amounts reclassified to operations (in thousands):

 

 

Three Months Ended
March 31,

 

 

 

2023

 

 

2022

 

Cash flow hedge derivatives

 

$

(7,304

)

 

$

—

 

Amount of gain reclassified from AOCIL to interest

 

 

(3,984

)

 

 

—

 

Amount of loss reclassified from AOCIL to interest

 

 

702

 

 

 

702

 

Total

 

$

(10,586

)

 

$

702

 

21

During the next 12 months, we estimate that approximately $2.3 millionwill be paid or otherwise satisfied in full.

As of September 30, 2017, there were no outstanding claims against the Company that are expectedreclassified as an increase to have a material adverse effect on the Company’s financial position, results of operations or cash flows.
As of September 30, 2017, the Company had commitments totaling $54.1 million, of which $11.3 million relates to future acquisitions with the majority of the remainder to fund revenue generating improvements on properties the Company currently owns. Commitmentsinterest expense related to acquisitions contain standard cancellation clauses contingent on the resultsterminated hedges of due diligence. Of the total commitments of $54.1existing floating-rate debt and $18.3 million $33.0 million is expectedwill be reclassified as a decrease to be funded during fiscal year 2017. In addition, the Company is contingently liable for $5.7 million of debt owed by one of its tenants and is indemnified by that tenant for any payments the Company may be requiredinterest expense related to make on such debt.cash flow hedge derivatives.

The Company estimates future costs for known environmental remediation requirements when it is probable that the Company has incurred a liability and the related costs can be reasonably estimated. The Company considers various factors when estimating its environmental liabilities, and adjustments are made when additional information becomes available that affects the estimated costs to study or remediate any environmental issues. When only a wide range of estimated amounts can be reasonably established and no other amount within the range is better than another, the low end of the range is recorded in the consolidated financial statements.


30

SPIRIT REALTY CAPITAL, INC. and SPIRIT REALTY, L.P.
Notes to Consolidated Financial Statements - (continued)
September 30, 2017
(Unaudited)

Note

NOTE 8. Fair Value Measurements

FAIR VALUE MEASUREMENTS

Recurring Fair Value Measurements

The Company did not have anyCompany’s interest rate swaps are measured using a market approach, using prices obtained from a nationally recognized pricing service and pricing models with market observable inputs such as interest rates and volatilities. The Company’s financial assets or liabilities that are required to be measuredwere accounted for at fair value on a recurring basis were as of September 30, 2017 and December 31, 2016.follows (in thousands):

 

 

 

 

 

Fair Value Hierarchy Level

 

Description

 

Fair Value

 

 

Level 1

 

 

Level 2

 

 

Level 3

 

Derivatives held at March 31, 2023

 

 

 

 

 

 

 

 

 

 

 

 

Interest rate swap assets

 

$

26,140

 

 

$

—

 

 

$

26,140

 

 

$

—

 

Interest rate swap liabilities

 

$

(299

)

 

$

—

 

 

$

(299

)

 

$

—

 

Nonrecurring Fair Value Measurements

Fair value measurement of an asset on a nonrecurring basis occurs when events or changes in circumstances related to an asset indicate that the carrying amount of the asset is no longer recoverable. The following table sets forth the Company’s assets that were accounted for at fair value on a nonrecurring basis (in thousands):

  Fair Value Hierarchy Level
Description Level 1 Level 2 Level 3
September 30, 2017      
Retail $—
 $—
 $17,000
Industrial —
 —
 6,954
Office —
 —
 6,020
Long-lived assets held and used —
 —
 29,974
Long-lived assets held for sale —
 —
 47,748
       
December 31, 2016      
Retail $—
 $—
 $37,934
Industrial —
 —
 3,741
Office —
 —
 8,538
Long-lived assets held and used —
 —
 50,213
Lease intangible assets —
 —
 6,384
Other assets —
 —
 27
Long-lived assets held for sale —
 —
 61,400
       
Real estate assets and their related intangible assets are evaluated for impairment based on certain indicators including, but not limited to: the asset being held for sale, vacant, non-operatingtenant bankruptcy or the lease on the assetdelinquency, and leases expiring in twelve months60 days or less. The fair values of impaired real estate and intangible assets were determined byestimated using the following information, depending on availability, in order of preference: signed purchase and sale agreements (“PSA”) or letters of intent;intent (“LOI”); broker opinions of value (“BOV”); recently quoted bid or ask prices, or market prices for comparable properties; estimates of discounted cash flow,flows, which consider, among other things, contractual and forecasted rental revenues, leasing assumptions, and expenses based upon market conditions;conditions and capitalization rates; and expectations for the use of the real estate. BasedThe Company’s assets that were accounted for at fair value on these inputs,a nonrecurring basis as of their respective measurement dates were as follows (in thousands):

 

 

 

 

 

Fair Value Hierarchy Level

 

Description

 

Fair Value

 

 

Level 1

 

 

Level 2

 

 

Level 3

 

Assets held at March 31, 2023

 

 

 

 

 

 

 

 

 

 

 

 

Impaired at March 31, 2023

 

$

28,426

 

 

$

—

 

 

$

—

 

 

$

28,426

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Assets held at December 31, 2022

 

 

 

 

 

 

 

 

 

 

 

 

Impaired at June 30, 2022

 

$

4,700

 

 

$

—

 

 

$

—

 

 

$

4,700

 

Impaired at September 30, 2022

 

$

4,094

 

 

$

—

 

 

$

—

 

 

$

4,094

 

Impaired at December 31, 2022

 

$

29,636

 

 

$

—

 

 

$

—

 

 

$

29,636

 

As of March 31, 2023, the Company determinedheld 12 properties that its valuationwere impaired during 2023. As of the impaired real estate and intangible assets falls within Level 3 of the fair value hierarchy.

During the nine months ended September 30, 2017 and for the year ended December 31, 2016, we determined2022, the Company held 18 properties that 16 and 33 long-lived assets held and used, respectively, were impaired. impaired during 2022. The Company estimated theproperty fair value of these properties using weighted average sales price per square foot of comparablefrom unobservable inputs. The unobservable inputs for these properties for 15 of the 16 impaired properties during the nine months ended September 30, 2017 and for 16 of the 33 impaired properties during the year ended December 31, 2016.are as follows:

Unobservable Input

 

Asset Type

 

Property Count

 

 

Price Per Square Foot Range

 

Weighted Average Price Per Square Foot

 

 

Square Footage

 

March 31, 2023

 

 

 

 

 

 

 

 

 

 

 

 

 

PSA, LOI or BOV

 

Retail

 

 

10

 

 

$13.93 - $183.69

 

$

92.54

 

 

 

209,409

 

PSA, LOI or BOV

 

Office

 

 

1

 

 

$104.74

 

$

104.74

 

 

 

45,686

 

PSA, LOI or BOV

 

Data Center

 

 

1

 

 

$22.61

 

$

22.61

 

 

 

188,475

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

December 31, 2022

 

 

 

 

 

 

 

 

 

 

 

 

 

PSA, LOI or BOV

 

Retail

 

 

12

 

 

$30.00 - $384.88

 

$

93.60

 

 

 

223,225

 

PSA, LOI or BOV

 

Data Center

 

 

1

 

 

$24.94

 

$

24.94

 

 

 

188,475

 

Comparable Properties

 

Retail

 

 

3

 

 

$26.05 - $197.15

 

$

56.36

 

 

 

100,195

 

Comparable Properties

 

Office

 

 

2

 

 

$71.69 - $135.00

 

$

98.97

 

 

 

73,000

 

22


31

SPIRIT REALTY CAPITAL, INC. and SPIRIT REALTY, L.P.
Notes to Consolidated Financial Statements - (continued)
September 30, 2017
(Unaudited)

The following table provides information about the weighted average sales price per square foot of comparable properties used to estimate fair value (price per square foot in dollars):
  September 30, 2017 December 31, 2016
Description Range Weighted Average Square Footage Range Weighted Average Square Footage
Long-lived assets held and used by asset type      
Retail $13.66 - 285.98 $53.99
 355,428
 $17.17 - $502.23 $58.78
 290,770
Industrial — —
 —
 $26.43 $26.43
 104,864
Office $24.82 - 244.86 $40.14
 161,346
 $35.00 $35.00
 135,675
The Company estimated the fair value on 1 of the 16 impaired properties using the weighted average listing price of comparable properties or broker opinion of value per square foot during the nine months endedSeptember 30, 2017 and on 17 of the 33 impaired properties during the year ended December 31, 2016.
The following table provides information about the weighted average listing price and broker opinion of value per square foot of comparable properties used to estimate fair value (price per square foot in dollars):
  September 30, 2017 December 31, 2016
Description Range Weighted Average Square Footage Range Weighted Average Square Footage
Long-lived assets held and used by asset type      
Retail — $—
 —
 $15.40 - $170.02 $40.80
 516,916
Industrial $5.73 $5.73
 370,824
 $9.09 $9.09
 149,627
Office — $—
 —
 $56.81 $56.81
 34,992

Estimated Fair Value of Financial Instruments

Financial assets and liabilities for which the carrying values approximate their fair values include cash and cash equivalents, restricted cash and escrow deposits, and accounts receivable and payable. Generally, these assets and liabilities are short-term in duration and are recorded at cost, which approximates fair value, on the accompanying consolidated balance sheets.

In addition, to the disclosures for assets and liabilities required to be measured at fair value at the balance sheet date, companies are required to disclose the estimated fair values of all financial instruments, even if they are not carried at their fair values. The fair values of financial instruments are estimates based upon market conditions and perceived risks at September 30, 2017 and December 31, 2016.measurement date. These estimates require management’s judgment and may not be indicative of the future fair values of the assets and liabilities.

32

SPIRIT REALTY CAPITAL, INC. and SPIRIT REALTY, L.P.
Notes to Consolidated Financial Statements - (continued)
September 30, 2017
(Unaudited)

The estimated fair values of the followingthese financial instruments have been derived either based on (i) market quotes for comparableidentical or similar instruments in markets or (ii) discounted cash flow analyses using estimates of the amount and timing of future cash flows, market rates and credit spreads. These measurementsThe estimated fair values of the Senior Unsecured Notes are classified as Level 21 of the fair value hierarchy. of the hierarchy, and the remaining estimates are classified as Level 2. The following table discloses fair value information for these financial instruments (in thousands):

 September 30, 2017 December 31, 2016
 
Carrying
Value
 
Estimated
Fair Value
 
Carrying
Value
 
Estimated
Fair Value
Loans receivable, net$76,821
 $80,396
 $66,578
 $71,895
Revolving Credit Facility386,000
 385,993
 86,000
 87,718
Term Loan, net (1)
419,091
 420,024
 418,471
 428,441
Senior Unsecured Notes, net (1)
295,242
 300,039
 295,112
 283,473
Mortgages and notes payable, net (1)
2,050,302
 2,068,788
 2,162,403
 2,282,142
Convertible Notes, net (1)
712,510
 758,085
 702,642
 784,175

 

 

March 31, 2023

 

 

December 31, 2022

 

 

 

Carrying
Value

 

 

Estimated
Fair Value

 

 

Carrying
Value

 

 

Estimated
Fair Value

 

Loans receivable, net(1)

 

$

56,270

 

 

$

57,821

 

 

$

23,023

 

 

$

23,462

 

2019 Credit Facility

 

 

98,000

 

 

 

97,999

 

 

 

55,500

 

 

 

55,502

 

2022 Term Loans, net (2)

 

 

792,813

 

 

 

801,667

 

 

 

792,309

 

 

 

802,363

 

Senior Unsecured Notes, net (2)

 

 

2,723,503

 

 

 

2,390,320

 

 

 

2,722,514

 

 

 

2,310,547

 

Mortgages payable, net (2)

 

 

4,841

 

 

 

4,650

 

 

 

4,986

 

 

 

4,685

 

(1) The carrying value of the loans receivable are net of an allowance for credit losses.

(2)The carrying value of the debt instruments are net of unamortized deferred financing costs and certain debt discounts/premiums.


Note 9. Significant Credit and Revenue Concentration
As of September 30, 2017 and December 31, 2016, the Company’s real estate investments are operated by 421 and 450 tenants, respectively, that operate within retail, office and industrial property types across various industries throughout the U.S. Shopko operates in the general merchandise industry and is the Company’s largest tenant as a percentage of rental revenue. Total rental revenues from properties leased to Shopko for the three months ended September 30, 2017 and 2016, contributed 7.5% and 8.3% of the rental revenue shown in the accompanying consolidated statements of operations. No other tenant contributed 4% or more of the rental revenue during any of the periods presented. As of September 30, 2017 and December 31, 2016, the Company's net investment in Shopko properties represents approximately 5.1% and 5.8%, respectively, of the Company’s total assets and the Company's real estate investment in Shopko represents approximately 7.0% and 7.7%, respectively, of the Company's total real estate investment portfolio.
Note 10. Supplemental Cash Flow Information
The following table presents the supplemental cash flow disclosures (in thousands):

 Nine Months Ended 
 September 30,
 2017 2016
Supplemental Disclosures of Non-Cash Investing and Financing Activities: 
Reduction of debt in exchange for collateral assets—
 47,780
Reduction and assumption of debt through sale of certain real estate properties39,141
 —
Reclass of residual value on expired deferred financing lease to operating asset11,088
 —
Net real estate and other collateral assets sold or surrendered to lender35,008
 22,728
Mortgage notes receivable transferred for real estate properties acquired—
 26,609
Accrued interest capitalized to principal (1)
2,430
 3,584
Accrued performance share dividend rights699
 340
Distributions declared and unpaid82,062
 84,730
Accrued deferred financing costs1,373
 4,043
Real estate properties acquired under 1031 exchange—
 83,560
Real estate properties sold under 1031 exchange—
 43,828
Financing provided in connection with disposition of assets15,015
 —
(1) Accrued and overdue interest on certain CMBS notes that have been intentionally placed in default.

Note 11.

NOTE 9. INCENTIVE AWARD PLAN

Amended Incentive Award Plan

Pursuant to the Amended Incentive Award Plan, restricted share awards and market-based awards are granted to certain of the Company’s officers, directors and other employees. The vesting of these awards results in federal and state income tax liabilities for the recipients. As permitted by the terms of the Amended Incentive Award Plan and the award grants, certain executive officers and employees elected to surrender shares of common stock valued at $1.3 million during the three months ended March 31, 2023 solely to pay the associated statutory tax withholdings.

Restricted Shares of Common Stock

Share Awards

During the ninethree months ended September 30, 2017,March 31, 2023, the Company granted 1.1 million103 thousand restricted shares under the Amended Incentive Award Plan to certain executive officersemployees and employees. The Company recorded $9.9$4.3 million in deferred compensation associated with these grants, whichgrants. Deferred compensation for restricted shares will be recognized in expense over the requisite service period, of the awards.which is generally three years for employees. As of September 30, 2017,March 31, 2023, there were approximately 1.5 million220 thousand unvested restricted shares outstanding.

Performance Share

Market-Based Awards

During the ninethree months ended September 30, 2017,March 31, 2023, the Board of Directors, or committee thereof, approved target grants of 0.9 million performance shares189 thousand market-based awards to executive officers of the Company. The performance period of these grants runs through December 31, 2019.is generally three years. Potential shares of the Corporation'sCorporation’s common stock that each participant is eligible to receive is based on the initial target number of shares granted, multiplied by a percentage range between 0%0% and 250%375%. Grant date fair value of the market-based awards was calculated using the Monte Carlo simulation model, which incorporated stock price correlation, projected dividend yieldsvolatility of the Company and each of the Company’s peers and other variables over the time horizons matching the performance periods. Significant inputs for the calculation for the grants approved in the three months ended March 31, 2023 were expected volatility of the Company of 36.3% and expected volatility of the Company's peers, ranging from 26.0% to 52.7%, with an average volatility of 34.0% and a risk-free interest rate of 3.72%. Expected volatility was determined using an equal weighting of implied volatility and historical volatility. The fair value of the market-based award per share of these grants was $74.30 as of the grant date.

Approximately $3.2 million and $2.5 million in dividend rights have been accrued as of March 31, 2023 and December 31, 2022, respectively. For outstanding non-vested awards at March 31, 2023, 0.5 million shares would have been released based on the Corporation’s TSR relative to the specified peer groups through that date.

23

Stock-based Compensation Expense

Stock-based compensation expense associated with unvested performance share awards is recognized on a straight-line basis over the minimum required service period which is generally three years. Based on the grant date fair value and as of September 30, 2017, the Corporation expects to recognize $8.7 million ineach award described above. The Company recorded stock-based compensation expense on a straight-line basis over the requisite service period.

Approximately $0.7of $5.2 million and $0.5$4.0 million in dividend rights have been accrued for non-vested performance share awards outstanding as of September 30, 2017 and December 31, 2016, respectively. For outstanding non-vested awards at September 30, 2017, no shares would have been released based on the Corporation's TSR relative to the specified peer groups through that date.
Stock-based Compensation Expense
For the three months ended September 30, 2017March 31, 2023 and 2016, the Company recognized $2.3 million and $3.4 million, respectively, in stock-based compensation expense, which is2022, respectively. These amounts are included in general and administrative expenses in the accompanying consolidated statements of operations. For the nine months ended September 30, 2017 and 2016, the Company recognized $13.8 million and $7.2 million, respectively, in stock-based compensation expense. Stock-based compensation expense for the nine months ended September 30, 2017 included $6.9 million related to the acceleration

The following is a summary of Restricted Stock and Performance Share Awards upon the departure of the Chief Executive Officer.

As of September 30, 2017, the remaining unamortized stock-based compensation expense including amounts relating to the performance share awards, totaled $20.6 million, including $11.9 million related to restricted stock awards and $8.7 million related to performance share awards, which is recognized as the greater of the amount amortized on a straight-line basis over the service period of each applicable award or the amount vested over the vesting periods.
Note 12. Income Per Share and Partnership Unit
Income per share has been computed using the two-class method which is computed by dividing the sum of distributed earnings to common stockholders and undistributed earnings allocated to common stockholders by the weighted average number of shares of common stock outstanding for the period. In applying the two-class method, undistributed earnings are allocated to both shares of common stock and participating securities based on the weighted average shares outstanding during the period. Classification of the Company's unvested restricted stock, which contain rights to receive non-forfeitable dividends, are deemed participating securities under the two-class method. Under the two-class method, earnings attributable to unvested restricted shares are deducted from income from continuing operations in the computation of net income attributable to common stockholders.

33(in thousands):

 

 

March 31, 2023

 

 

December 31, 2022

 

Restricted share awards

 

$

6,940

 

 

$

4,727

 

Market-based awards

 

 

25,959

 

 

 

15,165

 

Total unamortized stock-based compensation expense

 

$

32,899

 

 

$

19,892

 

NOTE 10. INCOME PER SHARE


SPIRIT REALTY CAPITAL, INC. and SPIRIT REALTY, L.P.
Notes to Consolidated Financial Statements - (continued)
September 30, 2017
(Unaudited)

The table below is a reconciliation of the numerator and denominator used in the computation of basic and diluted net incomeper share computed using the two-class method (dollars in thousands):

 Three Months Ended 
 September 30,		 Nine Months Ended 
 September 30,
 2017 2016 2017 2016
Basic and diluted income:       
Net income5,322
 27,399

41,357
 96,458
Less: income attributable to unvested restricted stock(265) (192) (682) (430)
Net income attributable to common stockholders used in basic and diluted income per share$5,057
 $27,207
 $40,675
 $96,028
        
Basic weighted average shares of common stock outstanding:       
Weighted average shares of common stock outstanding458,035,972
 480,326,857
 473,919,177
 457,992,378
Less: unvested weighted average shares of restricted stock(1,364,355) (772,495) (1,220,485) (728,852)
Weighted average shares of common stock outstanding used in basic income per share456,671,617
 479,554,362
 472,698,692
 457,263,526
Net income per share attributable to common stockholders—basic$0.01
 $0.06
 $0.09
 $0.21
        
Diluted weighted average shares of common stock outstanding: (1)
       
Unvested performance shares—
 67,506
 —
 33,938
Stock options—
 4,688
 —
 4,159
Convertible debt—
 972,054
 —
 —
Weighted average shares of common stock outstanding used in diluted income per share456,671,617
 480,598,610
 472,698,692
 457,301,623
Net income per share attributable to common stockholders—diluted$0.01
 $0.06
 $0.09
 $0.21
        
Potentially dilutive shares of common stock       
Unvested shares of restricted stock—
 181,667
 32,150
 121,230
Total—
 181,667
 32,150
 121,230

 

 

Three Months Ended
March 31,

 

 

 

2023

 

 

2022

 

Basic and diluted income:

 

 

 

 

 

 

Income from continuing operations

 

$

96,173

 

 

$

56,056

 

Less: dividends paid to preferred stockholders

 

 

(2,588

)

 

 

(2,588

)

Less: dividends and income attributable to unvested restricted stock

 

 

(139

)

 

 

(131

)

Net income attributable to common stockholders used in basic and diluted income per share

 

$

93,446

 

 

$

53,337

 

 

 

 

 

 

 

 

Basic weighted average shares of common stock outstanding:

 

 

 

 

 

 

Weighted average shares of common stock outstanding

 

 

141,300,527

 

 

 

128,193,656

 

Less: unvested weighted average shares of restricted stock

 

 

(244,677

)

 

 

(241,831

)

Basic weighted average shares of common stock outstanding

 

 

141,055,850

 

 

 

127,951,825

 

 

 

 

 

 

 

 

Net income per share attributable to common stockholders - basic

 

$

0.66

 

 

$

0.42

 

 

 

 

 

 

 

 

Diluted weighted average shares of common stock outstanding: (1)

 

 

 

 

 

 

Plus: unvested market-based awards

 

 

—

 

 

 

318,351

 

Plus: unsettled shares under open forward equity contracts

 

 

—

 

 

 

90,255

 

Diluted weighted average shares of common stock outstanding

 

 

141,055,850

 

 

 

128,360,431

 

 

 

 

 

 

 

 

Net income per share attributable to common stockholders - diluted

 

$

0.66

 

 

$

0.42

 

 

 

 

 

 

 

 

Potentially dilutive shares of common stock related to:

 

 

 

 

 

 

Unvested restricted share awards

 

 

103,756

 

 

 

110,203

 

(1) Assumes the most dilutive issuance of potentially issuable shares between the two-class and treasury stock method unless the result would be anti-dilutive.

The Corporation intends to satisfy its exchange obligation for the principal amount of the Convertible Notes to the note holders entirely in cash, therefore, the "if-converted" method does not apply and the treasury stock method is being used. For the three and nine months ended September 30, 2017, the Corporation's average stock price was below the conversion price, resulting in zero potentially dilutive shares related to the conversion spread for both periods.
Note 13. Costs Associated With Restructuring Activities
On November 16, 2015, the Company’s Board of Directors approved the strategic decision to relocate its headquarters from Scottsdale, Arizona to Dallas, Texas. The Company began occupying temporary office space in the new headquarters building in the spring of 2016, and finalized the move with the opening of the new office space in late September 2016. As a result of moving its corporate headquarters, the Company incurred various restructuring charges, including employee separation and relocation costs. Restructuring charges for the nine months endedSeptember 30, 2016 totaled $5.7 million, and are included within restructuring charges on the accompanying consolidated statements of operations. As of and for the nine months endedSeptember 30, 2017, the Company no longer had any accrued restructuring charges and incurred no additional restructuring charges.

34

24


SPIRIT REALTY CAPITAL, INC. and SPIRIT REALTY, L.P.
Notes to Consolidated Financial Statements - (continued)
September 30, 2017
(Unaudited)


Note 14. Subsequent Event
On October 3, 2017, the Company closed on an offering of 6,900,000 shares of 6.000% Series A Cumulative Redeemable Preferred Stock with a liquidation preference of $25.00 per share, for aggregate net proceeds of 166.5 million, after deducting the underwriting discount and the Company's estimated expenses.



Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

Special Note Regarding Forward-looking Statements

This quarterly report contains forward-looking statements within the meaning of Section 27A of the Securities Act, and Section 21E of the Exchange Act.Act, the Private Securities Litigation Reform Act of 1995 and other federal securities laws. When used in this quarterly report, the words “estimate,” “anticipate,” “expect,” “believe,” “intend,” “may,” “will,” “should,” “seek,” “approximately” or “plan,” or the negative of these words or similar words or phrases that are predictions of or indicate future events or trends and which do not relate solely to historical matters are intended to identify forward-looking statements. You can also identify forward-looking statements by discussions of strategy, plans or intentions of management.

Forward-looking statements involve numerous risks and uncertainties and you should not rely on them as predictions of future events. Forward-looking statements depend on assumptions, data or methods which may be incorrect or imprecise and we may not be able to realize them. We do not guarantee that the transactions and events described will happen as described (or that they will happen at all).

The following risks and uncertainties, among others, could cause actual results and future events to differ materially from those set forth or contemplated in the forward-looking statements:

•
industry and economic conditions;
•
volatility and uncertainty in the financial markets, including potential fluctuations in the CPI;
•
our success in implementing our business strategy and our ability to identify, underwrite, finance, consummate, integrate and manage diversifying acquisitions or investments;
•
the financial performance of our traditional retail tenants and the demand for traditional retail space, particularly with respect to challenges being experienced by general merchandise retailers;space;
•
our ability to diversify our tenant base and reduce the concentration of our significant tenant;base;
•
the nature and extent of future competition;
•
increases in our costs of borrowing as a result of changes in interest rates and other factors;
•
our ability to access debt and equity capital markets;
•
our ability to pay down, refinance, restructure and/or extend our indebtedness as it becomes due;
•
our ability and willingness to renew our leases upon expiration and to reposition our properties on the same or better terms upon expiration in the event such properties are not renewed by tenants or we exercise our rights to replace existing tenants upon default;
•
the impact of any financial, accounting, legal or regulatory issues or litigation that may affect us or our major tenants;
•
our ability to manage our expanded operations;
•
our ability and willingness to maintain our qualification as a REIT;
uncertainties as to •
the completionimpact on our business and timingthose of our proposed spin-off,tenants from epidemics, pandemics or other outbreaks of illness, disease or virus; and the impact of the spin-off on our business; and
•
other risks inherent in the real estate business, including tenant defaults, potential liability relating to environmental matters, illiquidity of real estate investments and potential damages from natural disasters.

The factors included in this quarterly report, including the documents incorporated by reference, and documents we subsequently file with the SEC and incorporate by reference, are not exhaustive and additional factors could adversely affect our business and financial performance. For a discussionAdditional factors that may cause risks and uncertainties include those discussed in the sections entitled "Business", "Risk Factors" and "Management's Discussion and Analysis of additional risk factors, see the factors included under the caption “Risk Factors”Financial Condition and Results of Operations" in our most recent Annual Report on Form 10-K as well as those risk factors discussed in Part II Item 1a "Risk Factors" herein.for the year ended December 31, 2022 and this report and subsequent filings with the SEC. All forward-looking statements are based on information that was available, and speak only, as ofto the date on which they were made. We disclaim any obligation to publicly update or revise any forward-looking statement to reflect changes in underlying assumptions or factors, new information, data or methods, future events or other changes, except as required by law.



25

Overview

Spirit Realty Capital, Inc. is a New York Stock Exchange listed company under the ticker symbol "SRC." We are a self-administered and self-managedan internally-managed net-lease REIT with in-house capabilitiesfunctions including acquisition, portfolio management,acquisitions, credit research, asset management, credit research,portfolio management, real estate research, legal, finance and accounting and capital markets.accounting. We invest primarily invest in single-tenant, operationally essential real estate assets throughout the U.S.,United States, which are generally acquired through strategic sale-leaseback transactions and subsequently leased on a long-term, triple-net basis to high quality tenants with business operations within predominantlyin retail, but also officeindustrial and industrial property types. Single tenant, operationally essential real estate consists of properties thatcertain other industries. As a REIT, we are generally free-standing, commercial real estate facilities where our tenants conduct activities that are essentialrequired to, the generation of their sales and profits. In supportamong other things, annually distribute at least 90% of our primary business of owning and leasing real estate, we have also strategically originated or acquired long-term, commercial mortgage and other loans to provide a range of financing solutionstaxable income (excluding net capital gains) to our tenants. stockholders. We aim to achieve this objective through consistent quarterly dividends supported by the cash flows generated by our leasing operations, which we look to continue to grow over time.

As of September 30, 2017,March 31, 2023, we owned a highly diversified portfolio of 2,083 properties operated by 347 tenants and with in-place Annualized Base Rent of $689.1 million. See "Property Portfolio Information" for further information on our owned real estate represented investments in 2,423 properties. Our properties are leased to 421 tenants across 49 states and 30 industries. As of September 30, 2017, our owned properties were approximately 99.1% occupied (based on number of properties). In addition, our investment in real estate includes commercial mortgage and other loans receivable primarily secured by an additional 88 real estate properties or other related assets.

portfolio diversification.

Our operations are primarily carried out through the Operating Partnership. OP Holdings, one of our wholly ownedwholly-owned subsidiaries, is the sole general partner and owns approximately 1% of the Operating Partnership. We and one of our wholly-owned subsidiaries are the only limited partners, and together own the remaining 99% of the Operating Partnership. AlthoughAs of March 31, 2023, our assets, liabilities, and results of operations are materially the same as those of the Operating Partnership is wholly-owned by us, in the future, we may issue partnership interests in the Operating Partnership to third parties in exchange for property owned by such third parties. In general, any partnership interests in the Operating Partnership issued to third parties would be exchangeable for cash or, at our election, shares of our common stock at specified ratios set when such partnership interests in the Operating Partnership are issued.

Partnership.

We have elected to be taxed as a REIT for federal income tax purposes and believe we have been organized and have operated in a manner that has allowedallows us to qualify as a REIT for federal income tax purposes, and we intend to continue operating in such a manner.

On August 3, 2017, we announced a proposed spin-off of almost allpurposes.

Shares of our interests in our properties leased to Shopko, assets that collateralize Master Trust 2014 and potentially additional assets into an independent, publiclycommon stock are traded REIT ("SpinCo"). Pursuant to the plan, if the spin-off is completed, our stockholders would receive a distribution of stock issued by SpinCo. The spin-off is subject to certain conditions, including declaration by the U.S. Securities and Exchange Commission that SpinCo's registration statement on Form 10 is effective, customary third party consents, and final approval and declaration of the distribution by our Board of Directors. Such conditions and other unforeseen developments, including in the debt or equity markets or general market conditions, could delay or prevent the spin-off or cause the spin-off to occur on terms or conditions that are less favorable and/or different than those described herein. The transaction is expected to be completed in the first half of 2018. We may, at any time and for any reason until the proposed transaction is complete, abandon the spin-off or modify or change its terms, including the assets we plan to contribute to SpinCo.

Highlights
For the three months ended September 30, 2017:
Generated net income of $0.01 per share and AFFO of $0.23 per share.
Invested $73.4 million in four properties, including revenue producing capital expenditures.
Disposed of 56 properties for $124.1 million, including 42 vacant properties for $46.8 million and three revenue producing Shopko properties for $18.5 million.
Approved a new stock repurchase program under which we may repurchase up to $250 million of our outstanding common stock.
Commenced an underwritten public offering of 6.000% Series A Cumulative Redeemable Preferred Stock, which closed on October 3, 2017, for aggregate net proceeds of $166.6 million.


For the nine months ended September 30, 2017:
Generated net income of $0.09 per diluted share and AFFO of $0.64 per share, including $4.2 million in cash severance charges.
Acquired 39 properties for $314.2 million and disposed of 161 properties for $406.4 million, including 96 vacant properties for $138.4 million and 11 properties leased to Shopko for $65.0 million.
Extinguished $101.0 million of high coupon secured debt that had a 5.84% weighted average rate.


Factors that May Influence Our Operating Results
ACQUISITIONS AND LEASE STRUCTURE
Our principal business is acquiring commercial real estate properties, generally leased to tenants under triple-net leases. Our ability to grow revenue and produce superior risk adjusted returns depends on our ability to acquire additional properties at a yield sufficiently in excess of our cost of capital. We focus on opportunities to acquire attractive commercial real estate by providing capital to small and middle-market companies that we conclude have stable and proven operating histories and attractive credit characteristics. Small and middle-market companies are often willing to enter into leases with structures and terms that we consider appealing and that we believe increase the security of rental payments.
Portfolio Diversification
Our strategy emphasizes a portfolio that (1) derives no more than 10% of its Contractual Rent from any single tenant and no more than 2.0% of its Contractual Rent from any single property, (2) is leased to tenants operating in various industries and (3) is located across the U.S. without significant geographic concentration.
A core component of our business is investing in and managing a portfolio of single-tenant, operationally essential retail real estate throughout the U.S. Accordingly, our performance is substantially dependent on the performance of our retail tenants. The market for traditional retail space has previously been, and could continue to be, adversely affected by weakness inNYSE under the national, regional and local economies, the adverse financial condition of some traditional retail companies, the ongoing consolidation in the retail industry, the excess amount of retail space in a number of markets and increasing consumer purchases through catalogs or over the internet.
In particular, we have experienced and expect to continue to experience challenges with some of our retailers through increased credit losses. These credit losses resulted in lower revenues from non-performing leases and certain charges for the write-off of unrecoverable receivables. We expect the non-performance for certain of these leases to continue.
As of September 30, 2017, Shopko represents our most significant tenant. Currently we lease 101 properties to Shopko, pursuant to three master leases and two single site leases, under which we receive approximately $3.9 million in rental revenues per month. We reduced our Shopko tenant concentration to 7.8% at September 30, 2017 compared to 8.6% at September 30, 2016 (based on Contractual Rent). During the nine months ended September 30, 2017, we sold 11 Shopko properties for $65.0 million in gross proceeds as we continue our objective to reduce our exposure to Shopko.
As a result of the significant number of properties leased to Shopko, our results of operations and financial condition are significantly impacted by Shopko's performance under its leases. Shopko operates as a multi-department general merchandise retailer and retail health services provider primarily in mid-size and large communities in the Midwest, Pacific Northwest, North Central and Western Mountain states.
Based on our monitoring of Shopko's financial information and recent liquidity events and other challenges, including bankruptcies, impacting the retail industry generally relative to recent years, we continue to be concerned about Shopko's ongoing ability to meet its obligations to us under its leases. Although Shopko is current on all of its obligations to us under its lease arrangements with us as of September 30, 2017, we can give you no assurance that this will continue to be the case, particularly if Shopko (not just the stores subject to leases with us) experiences a further decline in its business, financial condition and results of operations or loses access to liquidity. If such events were to occur, Shopko may request discounts or deferrals on the rents it pays to us, seek to terminate its master leases with us or close certain of its stores, or file for bankruptcy, all of which could significantly decrease the amount of revenue we receive from it.
Operationally Essential Real Estate with Long-Term Leases
We seek to own properties that are operationally essential to our tenants, thereby reducing the risk that our tenants would choose not to renew an expiring lease or reject a lease in bankruptcy. We also seek to enter into leases with relatively long initial terms, typically 15 to 20 years, and renewal options with attractive rent escalation provisions. As of September 30, 2017, our leases had a weighted average remaining lease term of 10.1 years, compared to a weighted average remaining lease term of 11.0 years as of September 30, 2016 (based on Contractual Rent).


Rent Escalators
Our leases generally contain provisions contractually increasing the rental revenue over the term of the lease at specified dates by (1) a fixed amount or (2)the lesser of 1 to 1.25 times any increase in CPI over a specified period or a fixed amount (typically 1-2% per year). The percentage of our single-tenant properties containing rent escalators remained consistent at 89% as of both September 30, 2017 and September 30, 2016, respectively (based on Contractual Rent).
Master Lease Structure
Where appropriate, we seek to enter into master leases, whereby we lease multiple properties to a single tenant on an “all or none” basis. The master lease structure prevents a tenant from unilaterally giving up under-performing properties while retaining well-performing properties. Master lease revenue contributed approximately 44% of our Contractual Rent as of September 30, 2017, compared to approximately 47% as of September 30, 2016.
Triple-Net Leases
Our leases are predominantly triple-net leases, whereby the tenant pays all property operating expenses, including but not limited to real estate taxes, insurance premiums and repair and maintenance costs. As of September 30, 2017, approximately 82% of our properties (based on Contractual Rent) are subject to triple-net leases, compared to approximately 83% as of September 30, 2016.
ASSET MANAGEMENT
The stability of the rental revenue generated by our properties depends principally on our tenants’ ability to pay rent and our ability to:
collect rent due,
renew expiring leases or re-lease space upon expiration or other termination,
lease currently vacant properties and
maintain or increase rental rates.
Each of these could be negatively impacted by adverse economic conditions, particularly those that affect the markets in which our properties are located, downturns in our tenants’ industries, increased competition for our tenants at our property locations, or the bankruptcy of one or more of our tenants. We seek to manage these risks by using our developed underwriting and risk management processes to structure and manage our portfolio.
Active Management and Monitoring of Risks Related to Our Investments
We seek to measure tenant financial distress risk and lease renewal risk through various processes. Many of our tenants are required to provide corporate-level and/or unit-level financial information, which includes balance sheet, income statement and cash flow statement data on a quarterly and/or annual basis. Our underwriting and risk management processes are designed to structure new investments and manage existing investments to mitigate tenant credit quality risks and preserve the long-term return on our invested capital. Since our inception, our occupancy based on economically yielding properties has never been below 96.1% (based on number of properties), despite the economic downturn of 2008 through 2010. The percentage of our properties that were occupied increased to approximately 99.1% as of September 30, 2017 from approximately 98.4% as of September 30, 2016.
On September 8, 2015, Haggen Holdings, LLC and a number of its affiliates, including Haggen Operations Holdings, LLC, filed petitions for bankruptcy protection under Chapter 11 of the U.S. Bankruptcy Code. At the time of the filing, Haggen Operations Holdings, LLC leased 20 properties on a triple net basis from a subsidiary of ours under a master lease. For discussion of the related settlement and current status of these properties, see footnote 7 to the consolidated financial statements herein.
CAPITAL RECYCLING
We continuously evaluate opportunities for the disposition of properties in our portfolio when we believe such disposition is appropriate in view of our business objectives, considering criteria including, but not limited to, tenant concentration, tenant credit quality, local market conditions and lease rates, associated indebtedness, asset location and tenant operation type (e.g., industry, sector, or concept/brand), as well as potential uses of proceeds and tax considerations. As part of this strategy, we may enter into 1031 Exchanges to defer some or all of the taxable gains on the dispositions, if any, for federal and state income tax purposes. We can provide no assurance that we will dispose of any additional properties or that future acquisitions and/or dispositions, if any, will qualify as 1031 Exchanges. Furthermore, we can provide no assurance that we will deploy the proceeds from future dispositions in a manner that produces comparable or better yields. We plan to deliberately slow down our acquisition activity for the remainder of 2017 and be selective with our dispositions. Additionally, we expect lease termination fees, which are recognized when there is a signed lease termination agreement and all of the conditions of the agreement have been met, may be less than in prior periods.


CAPITAL FUNDING
Our principal demands for funds are for property acquisitions, payment of principal and interest on our outstanding indebtedness, operating and property maintenance expenses and distributions to our stockholders. Generally, property acquisitions are temporarily funded through our Revolving Credit Facility, followed by permanent financing through asset level financing or issuance of debt or equity securities. Our remaining cash needs are typically met by cash flows from operations, which are primarily driven by the rental income received from our leased properties, interest income earned on loans receivable and interest income on our cash balances.
Interest Costs
Our fixed-rate debt structure provides us with a stable and predictable cash requirement related to our debt service. Any changes to our debt structure, including borrowings under our Term Loan and Revolving Credit Facility or debt financing associated with property acquisitions, could materially influence our operating results depending on the terms of any such indebtedness. A significant amount of our debt provides for scheduled principal payments. As principal is repaid, our interest expense decreases. Fluctuations in interest rates will affect the interest expense we incur on unhedged variable interest rate debt and may impact our ability to refinance maturing debt.
symbol “SRC.”

Critical Accounting Policies and Estimates

The preparation of financial statements in conformity with GAAP requires management to use judgment in the application of accounting policies, including making estimates and assumptions. We base estimates on the best information available to us at the time, our experience and various other assumptions deemed reasonable under the circumstances. From time to time, we re-evaluate our estimates and assumptions. In the event estimates or assumptions prove to be different from actual results, adjustments are made in subsequent periods to reflect more current estimates and assumptions about matters that are inherently uncertain. A summary of our critical accounting policies is included in our Annual Report on Form 10-K for the year ended December 31, 2016 in the section entitled “Management’s Discussion and Analysis of Financial Condition and Results of Operations.”Operations” of our Annual Report on Form 10-K for the year ended December 31, 2022. We have not made any material changes to these policies during the periods covered by this quarterly report.



Results

Supplemental Guarantor Disclosures

Subsidiary issuers of Operations

Comparison of Three Months Ended September 30, 2016 to Three Months Ended September 30, 2017
 Three Months Ended September 30,
(In Thousands)2017 2016  Change  % Change
Revenues:       
Rentals$159,799
 $161,765
 $(1,966) (1.2)%
Interest income on loans receivable1,003
 1,042
 (39) (3.7)%
Earned income from direct financing leases483
 660
 (177) (26.8)%
Tenant reimbursement income4,691
 3,469
 1,222
 35.2 %
Other income3,574
 5,572
 (1,998) (35.9)%
Total revenues169,550
 172,508
 (2,958) (1.7)%
Expenses:       
General and administrative13,712
 15,112
 (1,400) (9.3)%
Restructuring charges—
 3,264
 (3,264) (100.0)%
Transaction costs2,660
 —
 2,660
 100.0 %
Property costs8,080
 6,916
 1,164
 16.8 %
Real estate acquisition costs196
 1,056
 (860) (81.4)%
Interest48,680
 47,653
 1,027
 2.2 %
Depreciation and amortization63,673
 65,300
 (1,627) (2.5)%
Impairments37,737
 15,407
 22,330
 NM
Total expenses174,738
 154,708
 20,030
 12.9 %
(Loss) income from continuing operations before other income (expense) and income tax benefit (expense)(5,188) 17,800
 (22,988) NM
Other income (expense):       
Gain (loss) on debt extinguishment1,792
 (8,349) 10,141
 NM
Total other income (expense)1,792
 (8,349) 10,141
 NM
(Loss) income from continuing operations before income tax benefit (expense)(3,396) 9,451
 (12,847) NM
Income tax benefit (expense)11
 (12) 23
 NM
(Loss) Income from continuing operations$(3,385) $9,439
 $(12,824) NM
        
Gain on disposition of assets$8,707
 $17,960
 $(9,253) (51.5)%
NM - Percentages over 100%obligations guaranteed by the parent are not displayed.
REVENUES
Rentals
Rental revenue forrequired to provide separate financial statements, provided that the comparative period remained relatively flatparent guarantee is “full and unconditional,” the subsidiary obligor is consolidated into the parent company’s consolidated financial statements and, subject to certain exceptions as decreases in contractual rent were offsetset forth below, the alternative disclosure required by decreases in tenant credit losses. Our contractual rental revenue between periods decreased 2.3% as we wereRule 13-01 is provided, which includes narrative disclosure and summarized financial information.

The Company and the Operating Partnership have filed a moderate disposerregistration statement on Form S-3 with the SEC registering, among other securities, debt securities of income producing real estate over the trailing twelve month period. Our overall dispositions resulted in a decrease in real estate investments,Operating Partnership, which totaled $7.9 billion at September 30, 2017, compared to $8.3 billion at September 30, 2016.

Non-cash rentals for the three months ended September 30, 2017will be fully and 2016 were $6.9 million and $6.7 million, respectively. These amounts represent approximately 4.3% and 4.2% of total rental revenue for the three months ended September 30, 2017 and 2016, respectively. Tenant credit losses decreased between periods due to a higher amount of nonperforming properties in the convenience store industry and restaurant - casual dining industry in the prior period.


Tenant reimbursement income
We have a number of leases that require our tenants to reimburse us for certain property costs we incur. Tenant reimbursement income is drivenunconditionally guaranteed by the tenant reimbursable property costs described below.
Other income
The period-over-period decrease was due primarily to the receipt of $2.6 million in fee income associated with the prepayment of certain mortgage loans receivable in the three months ended September 30, 2016, and no comparative receipt during the three months ended September 30, 2017.
EXPENSES
General and administrative
The period-over-period decrease in general and administrative expenses is primarily due to a $1.7 million decrease in compensation and benefits expenses, primarily due to severance costs following the departure of an executive officer recognized in the prior year. This was partially offset by a $0.5 million increase in bad debt expense recorded period-over-period. The change in bad debt expense increased primarily as a result of certain sporting goods and restaurant - casual dining properties for which the rent has been determined to be uncollectible for the three months ended September 30, 2017, offset by a decrease in bad dent expenses related to convenience store properties period-over-period.
Transaction costs
In connection with the proposed spin-off almost all of our interests in our properties leased to Shopko, assets that collateralize Master Trust 2014 and potentially additional assets into an independent, publicly traded REIT ("SpinCo"), we have incurred $2.7 million in costs. These costs are comprised of $2.0 million in legal and financial adviser fees and $0.7 million in consulting and other costs.
Property costs
The increase in property costs is primarily due to a $1.2 million increase in reimbursable property taxes. Non-reimbursable property taxes were flat, with a decrease due to a reduction in vacant properties, offset by an increase in tenant credit issues.Company. As of September 30, 2017 and 2016, respectively, 21 and 43 of our properties, representing approximately 0.9% and 1.6% of our owned properties, were vacant. Total tenant reimbursable property costs forMarch 31, 2023, the three months ended September 30, 2017 were $5.1 million, an increase from $4.3 million for the same period in 2016.
Interest
The increase in interest expense is primarily due to increased borrowings under our Revolving Credit Facility and Term Loan, as well as interest on our Senior Unsecured Notes which were issued in August 2016. This was partially offset by the extinguishment of $166.7 million of mortgage debt with a weighted average interest rate of 5.8% during the twelve months ended September 30, 2017.


outstanding. The following table summarizes our interest expense on related borrowings:
 Three Months Ended 
 September 30,
(In Thousands)2017 2016
Interest expense – Revolving Credit Facility (1)
$3,075
 $1,155
Interest expense – Term Loan2,768
 1,307
Interest expense – Senior Unsecured Notes3,337
 1,595
Interest expense – mortgages and notes payable27,563
 33,291
Interest expense – Convertible Notes6,127
 6,127
Non-cash interest expense:   
Amortization of deferred financing costs2,451
 2,303
Amortization of net losses related to interest rate swaps—
 28
Amortization of debt discount, net3,359
 1,847
Total interest expense$48,680
 $47,653
(1) Includes facility fees of approximately $0.5 million for the three months ended September 30, 2017 and September 30, 2016, respectively.
Depreciation and amortization
During the twelve months ended September 30, 2017, we acquired 81 properties, representing an investment in real estate of $562.6 million, and we disposed of 292 properties with a gross investment of $726.2 million. While we were a net disposer during the period (based on investment in real estate), the impact to depreciation was relatively flat due to the timing of acquisition and disposition activity. Our real estate investment value was further reduced due to impairment charges during the twelve-month period ended September 30, 2017 on properties that remain in our portfolio. Additionally, our real estate held-for-sale increased period-over-period. Properties held for sale are no longer depreciated. As a result, depreciation and amortization overall decreased minimally. The following table summarizes our depreciation and amortization expense:
 Three Months Ended 
 September 30,
(In Thousands)2017 2016
Depreciation of real estate assets$52,698
 $53,592
Other depreciation143
 145
Amortization of lease intangibles10,832
 11,563
Total depreciation and amortization$63,673
 $65,300
Impairment
Impairment charges for the three months ended September 30, 2017 were $37.7 million. These charges included $4.8 million on properties held for sale, including $2.5 million on three education properties and $0.8 million on vacant held for sale properties. The remaining $32.9 million was recorded on properties held and used, primarily related to $31.7 million on vacant properties held and used. There was no significant impact as a result of Hurricanes Harvey and Irma.
For the same period in 2016, impairment charges included $9.5 million on underperforming properties within the restaurant-casual dining, distribution and drug store/pharmacy industries and $4.4 million on properties held for sale.
Gain (loss) on debt extinguishment
During the three months ended September 30, 2017, we extinguished $49.8 million of mortgage debt related to two loans, resulting in a gain on debt extinguishment of $1.8 million primarily related to debt forbearance. For the same period in 2016, we extinguished $322.1 million of mortgage debt related to 62 loans and recorded a loss on debt extinguishment of $8.3 million.


Gain on disposition of assets
For the three months ended September 30, 2017, the gain on disposition of 56 properties included $0.5 million from the sale of three Shopko properties and $6.2 million from the sale of two building materials properties and one home improvement property. For the same period in 2016, the gain on disposition of 17 properties included $3.9 million from the sale of four Shopko properties and $10.3 million from the sale of one grocery property. 
Results of Operations
Comparison of Nine Months Ended September 30, 2016 to Nine Months Ended September 30, 2017
 Nine Months Ended September 30,
(In Thousands)2017 2016  Change  % Change
Revenues:       
Rentals$479,506
 $484,090
 $(4,584) (0.9)%
Interest income on loans receivable2,769
 4,326
 (1,557) (36.0)%
Earned income from direct financing leases1,613
 2,082
 (469) (22.5)%
Tenant reimbursement income13,136
 10,493
 2,643
 25.2 %
Other income6,583
 11,600
 (5,017) (43.3)%
Total revenues503,607
 512,591
 (8,984) (1.8)%
Expenses:       
General and administrative49,992
 40,611
 9,381
 23.1 %
Restructuring charges—
 5,726
 (5,726) (100.0)%
Transaction costs3,145
 —
 3,145
 100.0 %
Property costs26,763
 20,854
 5,909
 28.3 %
Real estate acquisition costs773
 2,092
 (1,319) (63.0)%
Interest142,129
 149,842
 (7,713) (5.1)%
Depreciation and amortization192,887
 194,227
 (1,340) (0.7)%
Impairments88,109
 41,396
 46,713
 NM
Total expenses503,798
 454,748
 49,050
 10.8 %
(Loss) income from continuing operations before other income and income tax expense(191) 57,843
 (58,034) NM
Other income:       
Gain on debt extinguishment1,770
 326
 1,444
 NM
Total other income1,770
 326
 1,444
 NM
Income from continuing operations before income tax expense1,579
 58,169
 (56,590) (97.3)%
Income tax expense(419) (932) 513
 (55.0)%
Income from continuing operations$1,160
 $57,237
 $(56,077) (98.0)%
        
Gain on disposition of assets$40,197
 $39,221
 $976
 2.5 %
NM - Percentages over 100% are not displayed.
REVENUES
Rentals
Rental revenue for the comparative period remained relatively flat as decreases in contractual rent and increases in tenant credit losses were partially offset by increases in non-cash rent. Our contractual rental revenue between periods decreased 1.1% as we were a moderate disposer of income producing real estate over the trailing twelve month period. Our overall dispositions resulted in a decrease in real estate investments, which totaled $7.9 billion at September 30, 2017, compared to $8.3 billion at September 30, 2016. Additionally, we had tenant credit losses in the first quarter of 2017, where the majority of our nonperforming properties were in the convenience store and movie theater industries.


These decreases were partially offset by increases in non-cash rentals over the comparative period. Non-cash rentals for the nine months ended September 30, 2017 and 2016 were $22.3 million and $19.9 million, respectively. These amounts represent 4.6% and 4.1% of total rental revenue for the nine months ended September 30, 2017 and 2016, respectively.
Interest income on loans receivable
While financed properties increased from 75 at September 30, 2016 to 88 at September 30, 2017, resulting in an increase of 1.2% in mortgage loans receivable balances for the comparative period, interest income on loans receivable decreased as a result of a timingobligations of the change in financed properties. We held 144 financed properties at the beginning of 2016, of which 66 were paid off in mid-2016. Additionally, the new properties financed in 2017 were all originated at the end of the nine months ended September 30, 2017.
Tenant reimbursement income
We have a number of leases that require our tenantsOperating Partnership to reimburse us for certain property costs we incur. Tenant reimbursement income is driven by the tenant reimbursable property costs described below.
Other income
The period-over-period decrease was due primarily to the receipt of $5.5 million in fee income associated with the prepayment of certain mortgage loans receivable in the nine months ended September 30, 2016,pay principal, premiums, if any, and no comparative receipt during the nine months ended September 30, 2017. This was partially offset by a $0.7 million increase in lease termination income over the comparative period.
EXPENSES
General and administrative
The period-over-period increase in general and administrative expenses is primarily due to $11.1 million in severance related costs, comprising $4.2 million of cash compensation and $6.9 million of non-cash compensation, recorded in the nine months ended September 30, 2017 following the departure of our chief executive officer and an increase of $2.8 million in bad debt expense recorded period-over-period. The change in bad debt expense increased primarily as a result of certain sporting goods and restaurant - casual dining properties for which the rent has been determined to be uncollectible for the nine months ended September 30, 2017, offset by a decrease in bad debt expenses related to convenience store properties period-over-period. Finally, the period-over-period increase in general and administrative expenses was partially offset by the $1.7 million loss recognized in the comparable prior period related to swap termination fees.
Property costs
The increase in property costs is primarily due to an increase in non-reimbursable property taxes of $3.8 million and an increase in reimbursable property taxes of $2.1 million. The increase in non-reimbursable property taxes resulted from an increase in average vacancy rates over the comparative periods, as well as tenant credit issues. Additionally, tenant reimbursable property costs for the nine months ended September 30, 2017 were $15.3 million, an increase from $13.4 million for the same period in 2016.
Interest
The decrease in interest expense is primarily due to the extinguishment of $166.7 million of mortgage debt with a weighted average interest rate of 5.8% during the twelve months ended September 30, 2017, in addition to the extinguishment of $322.1 million of mortgage debt in the third quarter of 2016 with a weighted average interest rate of 5.6%. This was partially offset by an increase in interest due to increased borrowings under our Revolving Credit Facility and Term Loan, as well as interest on ourthe Senior Unsecured Notes which were issued in August 2016.


are guaranteed on a senior, full and unconditional basis by the Company. The following table summarizes our interest expense on related borrowings:
 Nine Months Ended 
 September 30,
(In Thousands)2017 2016
Interest expense – Revolving Credit Facility (1)
$5,632
 $2,507
Interest expense – Term Loan7,525
 3,376
Interest expense – Senior Unsecured Notes10,013
 1,595
Interest expense – mortgages and notes payable83,640
 113,837
Interest expense – Convertible Notes18,382
 18,382
Non-cash interest expense:   
Amortization of deferred financing costs7,274
 6,706
Amortization of net losses related to interest rate swaps—
 85
Amortization of debt discount, net9,663
 3,354
Total interest expense$142,129
 $149,842
(1) Includes facility feesOperating Partnership is consolidated into the Company’s financial statements. Accordingly, separate consolidated financial statements of approximately $1.6 million and $1.5 millionthe Operating Partnership are not presented.

In accordance with SEC rules, the Company has excluded summarized financial information for the nine months ended September 30, 2017Company and September 30, 2016, respectively.

Depreciationthe Operating Partnership because the assets, liabilities and amortization
Duringresults of operations of the twelve months ended September 30, 2017, we acquired 81 properties representing an investmentCompany and the Operating Partnership (other than unencumbered assets held in real estatesubsidiaries of $562.6 millionthe Operating Partnership and we disposedthe related results of 292 properties with a gross investment of $726.2 million. While we were a net disposer (based on investment in real estate),operations thereof) are not materially different than the impact to depreciation was relatively flat due to the timing of acquisition and disposition activity. Our real estate investment value was further reduced due to impairment charges during the twelve-month period ended September 30, 2017 on properties that remain in our portfolio. Additionally, our real estate held-for-sale increased period-over-period. Properties held for sale are no longer depreciated. As a result, depreciation and amortization overall decreased minimally. The following table summarizes our depreciation and amortization expense:
 Nine Months Ended 
 September 30,
(In Thousands)2017 2016
Depreciation of real estate assets$159,510
 $158,804
Other depreciation420
 335
Amortization of lease intangibles32,957
 35,088
Total depreciation and amortization$192,887
 $194,227
Impairment
Impairment charges for the nine months ended September 30, 2017 were $88.1 million. These charges included $19.2 million on properties held for sale, including $14.7 million on vacant held for sale properties. The remaining $68.9 million was recorded on properties held and used, including $53.5 million on vacant properties held and used and $10.0 million of impairment on eight underperforming properties within the drug store/pharmacy and consumer electronics industries.
During the nine months ended September 30, 2016, impairment losses included $20.0 million on seven under-performing properties within the restaurant-casual dining, movie theatre, distribution and drug store/pharmacy industries. In addition, impairment losses of $14.1 million were recorded on properties held for sale and $6.5 million were recorded from intangible lease write-offs, which were partially offset by a $0.3 million impairment recovery on a loan receivable. 
Gain on debt extinguishment
During the nine months ended September 30, 2017, we extinguished $101.0 million of mortgage debt related to four loans and recorded a $1.8 million gain. For the same period in 2016, we extinguished $817.3 million of mortgage debt and recognized a gain on debt extinguishment of $0.3 million. The gain was primarily attributable to the extinguishment of four defaulted mortgage loans upon transferring the properties collateralizing these loans to the lender, offset by losses from the defeasance fees on 391 properties.


Gain on disposition of assets
For the nine months ended September 30, 2017, the gain on disposition of 161 properties included $13.5 million from the sale of eleven Shopko properties, $7.6 million from the sale of five building materials properties, $7.4 million from the sale of 20 restaurant - casual dining and restaurant - quick service properties, and $9.0 million from the sale vacant properties. During the nine months ended September 30, 2016, we disposed of 82 properties and recorded gains totaling $39.2 million. These gains were primarily attributable to a $25.4 million gain from the sale of 21 properties within the restaurant - quick service industries, $10.3 million from the sale of one grocery property and a $8.4 million gain from the sale of nine Shopko properties. 
Property Portfolio Information
PROPERTY PORTFOLIO DIVERSIFICATION
2,42399.1%4942130
PropertiesOccupancyStatesTenantsIndustries
Diversification By Tenant
Tenant concentration represents the tenant's contribution to Contractual Rent of our owned real estate properties as of September 30, 2017:
Tenant
Number of
Properties
Total
Square Feet
(in thousands)
Percent of
Contractual Rent
       
Shopko (Specialty Retail Shops Holding Corp.)
 101
 6,812
 7.8%
AMC Entertainment, Inc. / Carmike Cinemas 18
 917
 2.6
Walgreen Company 42
 622
 2.4
Church's Chicken (Cajun Global, LLC)
 186
 264
 2.2
Academy Sports + Outdoors (Academy, LTD )
 6
 1,805
 1.9
Circle K (Alimentation Couche-Tard, Inc.)
 82
 248
 1.9
Albertsons (AB Acquisition, LLC)
 23
 1,030
 1.7
The Home Depot, Inc. 7
 821
 1.7
CVS Caremark Corporation 36
 405
 1.5
Carmax, Inc. 8
 356
 1.5
Other 1,893
 34,119
 74.8
Vacant 21
 1,763
 —
Total
2,423
 49,162
 100.0%
(1)Tenants represent legal entities ultimately responsible for obligations under the lease agreements or affiliated entities. Other tenants may operate the same or similar business concepts or brands set forth above.
Diversification By Asset Type
Asset type concentration represents the type of asset's contribution to Contractual Rent of our owned real estate properties among different asset types as of September 30, 2017:
Asset Type Number of Properties Total Square Feet
(in thousands)
     
Retail 2,235
 36,913
Industrial 70
 9,730
Office 118
 2,519
Total 2,423
 49,162
a2017q3-sc_chartx43901.jpg


Diversification By Industry
Industry concentration represents the industry's contribution to Contractual Rent of our owned real estate properties as of September 30, 2017:
Industry
Number of Owned Properties Total
Square Feet
(in thousands)		 Percent of
Contractual Rent
       
General Merchandise 139
 8,191
 9.4%
Restaurants - Casual Dining 306
 1,830
 8.6
Restaurants - Quick Service 586
 1,364
 8.1
Movie Theaters 62
 3,115
 7.4
Convenience Stores 318
 1,026
 7.0
Grocery 64
 3,094
 5.2
Drug Stores / Pharmacies 102
 1,437
 4.9
Medical / Other Office 120
 1,268
 4.8
Health and Fitness 44
 1,775
 4.1
Sporting Goods 18
 2,547
 3.4
Specialty Retail 42
 2,175
 3.3
Entertainment 26
 1,199
 3.1
Home Improvement 15
 1,681
 2.7
Education 55
 821
 2.7
Automotive Services 128
 748
 2.5
Home Furnishings 26
 1,638
 2.4
Building Materials 61
 2,169
 2.3
Automotive Dealers 23
 665
 2.3
Apparel 13
 1,996
 2.2
Distribution 12
 1,239
 2.1
Car Washes 41
 231
 1.9
Other 6
 978
 1.6
Manufacturing 17
 2,289
 1.4
Automotive Parts 61
 523
 1.2
Dollar Stores 77
 788
 1.2
Wholesale Clubs 5
 512
 1.1
Pet Supplies & Service 6
 1,016
 1.0
Financial Services 4
 342
 0.8
Office Supplies 18
 488
 0.8
Consumer Electronics 7
 254
 0.5
Vacant 21
 1,763
 —
Total
2,423
 49,162
 100.0%









Diversification By Geography
Geographic concentration represents the geographic region's contribution to Contractual Rent of our owned real estate properties as of September 30, 2017:
heatmapa04.jpg
Location
Number of Properties
Total Square Feet (in thousands)
Percent of Contractual Rent 
Location (continued)
 Number of Properties Total Square Feet (in thousands) Percent of Contractual Rent
               
Texas 305
 5,933
 11.9% Arkansas 53
 608
 1.3
Georgia 182
 2,080
 6.0
 Washington 14
 578
 1.2
Florida 155
 1,579
 5.7
 Massachusetts 3
 887
 1.2
Illinois 112
 2,890
 5.7
 Iowa 32
 565
 1.1
Ohio 124
 2,448
 5.2
 New Jersey 14
 883
 1.1
California 37
 1,421
 4.3
 Oregon 10
 444
 1.0
Michigan 137
 2,105
 3.9
 Idaho 16
 679
 1.0
Wisconsin 45
 3,054
 3.9
 Mississippi 41
 360
 0.9
Minnesota 50
 2,169
 3.5
 New Hampshire 16
 640
 0.8
Arizona 60
 940
 3.0
 Maryland 19
 242
 0.7
Tennessee 104
 1,428
 3.0
 Louisiana 24
 208
 0.7
Missouri 91
 1,369
 2.9
 South Dakota 8
 390
 0.7
Indiana 77
 1,175
 2.8
 Montana 6
 406
 0.6
South Carolina 45
 951
 2.5
 Connecticut 5
 686
 0.6
North Carolina 69
 1,250
 2.4
 West Virginia 18
 297
 0.6
Alabama 106
 726
 2.2
 Utah 7
 618
 0.5
Pennsylvania 55
 1,174
 2.0
 Nebraska 12
 363
 0.4
Virginia 60
 1,358
 2.0
 North Dakota 5
 236
 0.4
Colorado 29
 993
 1.9
 Maine 25
 68
 0.4
New York 39
 923
 1.7
 Rhode Island 4
 117
 0.3
New Mexico 38
 548
 1.7
 Wyoming 8
 180
 0.2
Kansas 37
 810
 1.6
 Alaska 5
 63
 0.1
Oklahoma 66
 613
 1.5
 U.S. V.I. 1
 38
 0.1
Kentucky 47
 564
 1.5
 Delaware 1
 5
 —
Nevada 5
 1,099
 1.3
 Vermont 1
 1
 —


Lease Expirations
The following table sets forth a summary schedule of expiration dates for leases in place as of September 30, 2017. As of September 30, 2017, the weighted average remaining non-cancelable initial term of our leases (based on Contractual Rent) was 10.1 years. The information set forthcorresponding amounts in the table assumes that tenants doCompany’s consolidated financial statements, and management believes such summarized financial information would be repetitive and would not exercise renewal options and or any early termination rights:
Leases Expiring In:
Number of Properties
Contractual Rent Annualized
(in thousands) (1)

Total Square Feet
(in thousands)
Percent of Contractual Rent
         
Remainder of 2017
29

$8,230

1,013

1.4%
2018
72

22,295

1,824

3.7
2019
103

19,193

1,758

3.2
2020
73

18,966

1,508

3.1
2021
186

44,525

3,861

7.3
2022
116

32,015

2,849

5.3
2023
107

31,318

3,330

5.1
2024
57

22,306

1,369

3.7
2025
77

35,704

2,078

5.9
2026
192

43,940

3,945

7.2
2027 and thereafter
1,390

330,082

23,864

54.1
Vacant
21

—

1,763

—
Total owned properties
2,423
 $608,574
 49,162

100.0%
(1) Contractual Rent for the month ended September 30, 2017 for properties owned at September 30, 2017 multiplied by twelve.
provide incremental value to investors.

26

Liquidity and Capital Resources

SHARE REPURCHASE

ATM PROGRAM

In August 2017, ourNovember 2021, the Board of Directors approved a new stock repurchase program, which authorizes$500.0 million 2021 ATM Program, and we terminated the repurchase2020 ATM Program. Sales of up to $250.0 millionshares of our common stock. These purchases canstock under the 2021 ATM Program may be made in sales deemed to be “at the open market offerings” as defined in Rule 415 under the Securities Act.The 2021 ATM Program contemplates that, in addition to the issuance and sale by us of shares of our common stock to or through private transactionsagents, we may enter into separate forward sale agreements with an agent or one of their respective affiliates (in such capacity, each, a “forward purchaser”). When we enter into a forward sale agreement, we expect that the forward purchaser will attempt to borrow from timethird parties and sell, through a forward seller, shares of our common stock to time overhedge the 18-month time period following authorization. Purchase activityforward purchaser's exposure under the forward sale agreement. We will be dependentnot initially receive any proceeds from any sale of shares of our common stock borrowed by a forward purchaser and sold through a forward seller.

We generally expect to fully physically settle any forward sale agreement with the respective forward purchaser on various factors, including our capital position, operating results, funds generatedone or more dates specified by asset sales, dividends that may be required by those sales, and investment options that may be available, including acquiring new propertiesus on or retiring debt. The stock repurchase program does not obligate usprior to repurchase any specificthe maturity date of such forward sale agreement, in which case we expect to receive aggregate net cash proceeds at settlement equal to the number of shares specified in such forward sale agreement multiplied by the relevant forward price per share. The forward sale price that we receive upon physical settlement of the agreements is subject to adjustment for (i) a floating interest rate factor equal to a specified daily rate less a spread, (ii) the forward purchasers’ stock borrowing costs and (iii) scheduled dividends during the term of the forward sale agreements. However, subject to certain exceptions, we may be suspended atalso elect, in our sole discretion, to cash settle or net share settle all or any time atportion of our discretion. We intendobligations under any forward sale agreement, in which case we may not receive any proceeds (in the case of cash settlement) or will not receive any proceeds (in the case of net share settlement), and we may owe cash (in the case of cash settlement) or shares of our common stock (in the case of net share settlement) to fund any repurchases with the new proceeds from asset sales, cash flows from operations, existing cash on the balance sheet and other sources. relevant forward purchaser.

As of September 30, 2017, 2,482,570March 31, 2023, 6.7 million shares of our common stock have been repurchased in open market transactionssold under the stock repurchase program, at a weighted average price2021 ATM Program, of $8.75 per share, leaving $228.3 million in available capacity. Fees associated with the repurchase, of $49,700, are included in retained earnings.

In February 2016, our Board of Directors authorized a share repurchase program, under which we may repurchase up to $200.04.7 million of our outstanding common stock. Underthese shares were sold through forward sale agreements. None of these shares were sold during the prior program, we have repurchased, inthree months ended March 31, 2023. There were no open market transactions, 26.3forward contracts and approximately $208.7 million shares of our outstanding common stock,at a weighted average pricecapacity remained available under the 2021 ATM Program as of $7.59 per share, equivalent to the $200.0 million authorized.
March 31, 2023.

SHORT-TERM LIQUIDITY AND CAPITAL RESOURCES

On a short-term basis, our principal demands for funds arewill be for financing ofoperating expenses, acquisitions, distributions to stockholders and payment of interest and principal on our indebtednesscurrent and operating expenses (including property improvements and re-leasing costs).any future debt financings. We expect to fund these demands primarily through cash provided by operating activities, and borrowings under the Revolving2019 Credit Facility.Facility and 2023 Term Loans and, if market conditions warrant, issuances of equity securities, including shares of our common stock under our 2021 ATM program. As of September 30, 2017, $414.0 million borrowing capacityMarch 31, 2023, available liquidity was available under the Revolving Credit Facility along with $96.3 million in cash reserves on deposit with lenders and $11.9comprised of $4.9 million in cash and cash equivalents.


equivalents, $13.0 million in 1031 Exchange proceeds, $1.1 billion of borrowing capacity under the 2019 Credit Facility and $500.0 million of availability under the delayed-draw 2023 Term Loans.

LONG-TERM LIQUIDITY AND CAPITAL RESOURSES

RESOURCES

We plan to meet our long-term capital needs, including long-term financing of property acquisitions, by issuing registered debt or equity securities, by obtaining asset level financing and occasionally by issuing fixed ratefixed-rate secured or unsecured notes and bonds.

We have a shelf registration statement on file with the SEC under which we may offer shares of our common stock from time to time in amounts, at prices and on terms to be announced when and if such shares are offered. We may issue common stock when we believe our share price is at a level that allows for any offering proceeds to be accretively invested into additional properties or to permanently finance properties that were initially financed by our Revolving Credit Facility, Term Loan or other indebtedness.
In the future, some of our property acquisitions could be made by exchangingissuing partnership units ininterests of our Operating Partnership in exchange for property owned by third parties. These partnership unitsinterests would be exchangeable for cash or, at our election, shares of our common stock.
We continually evaluate alternative financing alternatives and believe that we can obtain financing on reasonable terms. However, we cannot assurebe sure that we will have access to the capital markets at times and on terms that are acceptable to us.
us, particularly as uncertainty related to rising interest rates, rising inflation rates, economic outlook, geopolitical events (including the military conflict between Russia and Ukraine) and other factors have contributed and may continue to contribute to significant volatility and negative pressure in financial markets. We expect that our primary uses of capital will be for property and other asset acquisitions, the payment of tenant improvements, operating expenses, debt service payments and distributions to our stockholders.

27

DESCRIPTION OF CERTAIN DEBT

The following descriptions of debt should be read in conjunction with footnoteNote 4 to the combined, consolidated financial statements herein.

Spirit Master Funding Program

2019 Credit Facility

On March 30, 2022, we amended and restated the 2019 Revolving Credit and Term Loan Agreement. As of March 31, 2023, the aggregate gross commitment under the 2019 Credit Facility was $1.2 billion, which may be increased up to $1.7 billion by exercising an accordion feature, subject to satisfying certain requirements. The Spirit Master Funding Program2019 Credit Facility has a maturity of March 31, 2026 and includes two six-month extensions that can be exercised at our option.

We may voluntarily prepay the 2019 Credit Facility, in whole or in part, at any time without premium or penalty. Payment of the 2019 Credit Facility is an asset-backed securitization platform through which we raise capital by issuing non-recourse net lease mortgage notes collateralized by commercial real estate, net leases and mortgage loans. The commercial real estate is managedunconditionally guaranteed by the Company and material subsidiaries that meet certain conditions. As of March 31, 2023, there were no subsidiaries that met this requirement.

As of March 31, 2023, the 2019 Credit Facility bore interest at a 1-month adjusted SOFR rate plus 0.775% and incurred a facility fee of 0.150% per annum, in our capacity as property manager. Rental and mortgage receipts with respect to the leases and mortgage loans are deposited with the indenture trustee, who first utilizes these funds to satisfy the debt service requirements on the notes and any fees and costs of administration of the Spirit Master Funding Program. Any remaining funds are remitted to the issuers on the monthly note payment date.

Upon satisfaction of certain conditions, we may, from time to time, sell or exchange real estate properties or mortgage loans from the Collateral Pools. Proceeds from the sale of these assets are held on deposit by the indenture trustee until a qualifying substitution is made or the amounts are distributed as an early repayment of principal. At September 30, 2017, $79.4 million was held on deposit and classified as restricted cash within deferred costs and other assets, net in our consolidated balance sheets.
The Spirit Master Funding Program consists of two separate securitization trusts that have one or multiple bankruptcy-remote, special purpose entities as issuers of the Master Trust 2013 and Master Trust 2014 notes. Each issuer is an indirect wholly-owned subsidiary of ours. All outstanding series of Master Trust Notes were rated investment grade as of September 30, 2017.

The Master Trust Notes as of September 30, 2017 are summarized below (principal in thousands):
  
Stated
Rates (1)
 Maturity September 30,
2017		 December 31,
2016
    (in Years) (in Thousands)
Series 2014-1 Class A1 5.1% 2.7 $45,141
 $53,919
Series 2014-1 Class A2 5.4% 2.8 253,300
 253,300
Series 2014-2 5.8% 3.5 223,604
 226,283
Series 2014-3 5.7% 4.5 311,459
 311,820
Series 2014-4 Class A1 3.5% 2.3 150,000
 150,000
Series 2014-4 Class A2 4.6% 12.3 360,000
 360,000
Total Master Trust 2014 notes 5.1% 5.8 1,343,504
 1,355,322
Series 2013-1 Class A 3.9% 1.2 125,000
 125,000
Series 2013-2 Class A 5.3% 6.2 188,898
 192,384
Total Master Trust 2013 notes 4.7% 4.2 313,898
 317,384
Total Master Trust notes     1,657,402
 1,672,706
Debt discount, net     (15,613) (18,787)
Deferred financing costs, net     (14,050) (16,376)
Total Master Trust Notes, net     $1,627,739
 $1,637,543
(1) Represents the individual series stated interest rate as of September 30, 2017 and the weighted average stated rate of the total Master Trust Notes,each case, based on the collective series outstanding principal balances as of September 30, 2017.
Convertible Notes
The Convertible Notes are comprised of two series of notes: $402.5 million aggregate principal amount of 2.875% convertible notes maturing on May 15, 2019Operating Partnership’s credit rating and $345.0 million aggregate principal amount of 3.75% convertible notes maturing on May 15, 2021. Interest on the Convertible Notes is payable semiannually in arrears on May 15 and November 15 of each year. As of September 30, 2017, the carrying amount of the Convertible Notes was $712.5 million, which is net of discounts (for the value of the embedded conversion feature) and unamortized deferred financing costs.
Holders may convert notes of either series prior to November 15, 2018, in the case of the 2019 Notes, or November 15, 2020, in the case of the 2021 Notes, only under specific circumstances. On or after November 15, 2018, in the case of the 2019 Notes, or November 15, 2020, in the case of the 2021 Notes, until the close of business on the second scheduled trading day immediately preceding the maturity date of the Convertible Notes, holders may convert the Convertible Notes of the applicable series at any time, regardless of the foregoing circumstances. If we undergo a fundamental changeleverage ratio (as defined in the Convertible Notes supplemental indentures), holders may require us to repurchase all or any portionagreement). As of their notes at a repurchase price equal to 100%March 31, 2023, there were $98.0 million in borrowings outstanding and no letters of credit outstanding.

Term Loans

On August 22, 2022, we entered into the principal2022 Term Loan Agreement which provides for borrowings in an aggregate amount of the notes to be repurchased, plusaccrued and unpaid interest. Upon conversion, we will pay or deliver cash, shares of common stock or a combination of cash and shares of common stock, at our election. As of September 30, 2017, the conversion rate was 77.1889 per $1,000 principal note.

Revolving Credit Facility
As of September 30, 2017, the borrowing capacity under the Revolving Credit Facility was $800.0 million whichcomprised of a $300.0 million tranche with a maturity date of August 22, 2025 and a $500.0 million tranche with a maturity date of August 20, 2027. Borrowings may be increased up to $1.0 billion by exercising an accordion feature, subject to satisfying certain requirements and obtaining additional lender commitments.requirements. The Revolving Credit Facility also includes a $50.0full borrowing capacity of $800.0 million sub-limit for swing-line loans and up to $60.0 million available for issuances of letters of credit. Swing-line loans and letters of credit reduce availability under the Revolving Credit Facility on a dollar-for-dollar basis. the Revolving Credit Facility has an initial maturityterm loans was fully drawn as of March 31, 2019, which is extendable for one year at our option.2023.

Borrowings may be repaid without premium or penalty. As of September 30, 2017,March 31, 2023, the Revolving Credit Facility2022 Term Loans bore interest at LIBORa 1-month adjusted SOFR rate plus 1.25%0.850% per annum, based on ourthe Operating Partnership’s credit rating and incurredrating. In conjunction with entering into the 2022 Term Loans, we entered into interest rate swaps to swap 1-month SOFR for a facility feeweighted average fixed rate of 0.25% per annum. As of September 30, 2017, $386.0 million in borrowings were outstanding and $414.02.55%.

On November 17, 2022, we entered into the 2023 Term Loan Agreement, which provides for $500.0 million of borrowing capacity was available under the Revolving Credit Facility.

Amounts available for borrowing under the Revolving Credit Facility remain subjectunsecured term loans with a maturity date of June 16, 2025 and allows funds to compliance with certain customary restrictive covenants. As of September 30, 2017, the Corporation and the Operating Partnership were in compliance with these covenants.

Term Loan
As of September 30, 2017, the borrowing capacity under the Term Loan was $420.0 million andbe drawn up to July 2, 2023. Borrowings may be increased up to $600.0 million by exercising an accordion feature, subject to obtaining additional lender commitments.satisfying certain requirements. The 2023 Term Loan hasLoans will bear interest at a 1-month adjusted SOFR rate plus an initialapplicable margin of 0.950% per annum, based on the Operating Partnership’s credit rating. Borrowings may be repaid without premium or penalty. As we expect to draw the 2023 Term Loans, we entered into interest rate swaps to swap 1-month SOFR for a weighted average fixed rate of 3.70% with a maturity date of November 2, 2018, which may be extended at our option pursuant to two one-year extension options, subject to the satisfaction of certain conditions and payment of an extension fee. As of September 30, 2017, the Term Loan bore interest at LIBOR plus 1.35% based on our credit rating and the Term Loan was fully drawn.
Amounts availableJune 15, 2025. One swap is for borrowing under the Term Loan remain subject to compliance with certain customary restrictive covenants. As of September 30, 2017, the Corporation and the Operating Partnership were in compliance with these financial covenants.
Senior Unsecured Notes
The Senior Unsecured Notes of the Operating Partnership have an aggregate principala notional amount of $300.0 million with an effective date of June 15, 2023 and are guaranteed byone swap is for a notional amount of $200.0 million with an effective date of December 15, 2023. As of March 31, 2023, the Corporation. Thefull $500.0 million of borrowing capacity was available under the 2023 Term Loan Agreement.

Senior Unsecured Notes

As of March 31, 2023, we had the following Senior Unsecured Notes accrue interest at a rate of 4.45% per year, payable on March 15 and September 15 of each year, until the maturity date of September 15, 2026. The Company filed a registration statement with the SEC to exchange the private Senior Unsecured Notes for registered Senior Unsecured Notes with substantially identical terms, which became effective April 14, 2017. All $300.0 million aggregate principal amount of private Senior Unsecured Notes were tenderedoutstanding (dollars in the exchange for registered Senior Unsecured Notes.

thousands):

 

Maturity Date

 

Interest Payment Dates

 

Stated Interest Rate

 

March 31,
2023

 

2026 Senior Notes

 

September 15, 2026

 

March 15 and September 15

 

4.45%

 

$

300,000

 

2027 Senior Notes

 

January 15, 2027

 

January 15 and July 15

 

3.20%

 

 

300,000

 

2028 Senior Notes

 

March 15, 2028

 

March 15 and September 15

 

2.10%

 

 

450,000

 

2029 Senior Notes

 

July 15, 2029

 

January 15 and July 15

 

4.00%

 

 

400,000

 

2030 Senior Notes

 

January 15, 2030

 

January 15 and July 15

 

3.40%

 

 

500,000

 

2031 Senior Notes

 

February 15, 2031

 

February 15 and August 15

 

3.20%

 

 

450,000

 

2032 Senior Notes

 

February 15, 2032

 

February 15 and August 15

 

2.70%

 

 

350,000

 

Total Senior Unsecured Notes

 

 

 

3.25%

 

$

2,750,000

 

28

The Senior Unsecured Notes are redeemable in whole at any time or in part from time to time, at the Operating Partnership’s option, at a redemption price equal to the sum of: an amount equal to 100% of the principal amount of the respective Senior Unsecured Notes to be redeemed plus accrued and unpaid interest and liquidated damages, if any, up to, but not including, the redemption date; and a make-whole premium calculated in accordance with the respective indenture. Notwithstanding the foregoing, if any of the Senior Unsecured Notes are redeemed onthree months or after June 15, 2026,less (or two months or less in the case of the 2027 Senior Notes and 2028 Senior Notes) prior to their respective maturity dates, the redemption price will not include a make-whole premium.

In connection with the issuance of the Senior Unsecured Notes, the Corporation and the Operating Partnership remain subject to compliance with certain customary restrictive covenants. As of September 30, 2017, the Corporation and the Operating Partnership were in compliance with these financial covenants.
CMBS
We may use long-term, fixed-rate debt to finance our properties on a “match-funded” basis. In such events, we generally seek to use asset level financing that bears annual interest less than the annual rent on the related lease(s) and that matures prior to the expiration of such lease(s). In general, the obligor

Mortgages payable

The obligors of our assetproperty level debt is aare special purpose entityentities that holdshold the real estate and other collateral securing the indebtedness. Each special purpose entity is a bankruptcy remote separate legal entity and is the sole owner of its assets and solely responsible for its liabilities other than typical non-recurring covenants.

As of September 30, 2017,March 31, 2023, we had 16 fixed ratetwo fixed-rate CMBS loans with $426.6$4.7 million of aggregate outstanding principal. One of the CMBS loans, with principal outstanding of $4.2 million, matures in August 2031 and has a weighted average contractualstated interest rate of 5.89%5.80%. The other CMBS loan, with principal outstanding of $0.5 million, matures in December 2025 and has a weighted average maturitystated interest rate of 3.9 years. Approximately 71% of this debt is6.00%. Both CMBS loans are partially amortizing and requiresrequire a balloon payment at maturity. These balances include six CMBS fixed-rate loans that are in default, discussed further below. The following table shows the outstanding principal of the CMBS fixed-rate loans excluding the defaulted loans as of September 30, 2017 (dollars in thousands):
Year of Maturity Number of Loans Number of Properties Stated Interest Rate Range Weighted Average Stated Rate Scheduled Principal Balloon Total
               
Remainder of 2017 1
 1
 6.52% 6.50% $51
 $39,830
 $39,881
2018 2
 7
 3.90% - 4.60% 4.21% —
 44,550
 44,550
2019 1
 5
 4.61% 4.61% —
 10,000
 10,000
2020 —
 —
 — —
 —
 —
 —
2021 —
 —
 — —
 —
 —
 —
Thereafter 6
 100
 4.67% - 6.00% 5.33% 28,853
 240,380
 269,233
Total 10
 113
   5.32% $28,904
 $334,760
 $363,664

CMBS Liquidity Matters
As of September 30, 2017, we are in default on six CMBS fixed-rate loans due to the underperformance of the eight properties securing the loans. The aggregate principal balance under the defaulted loans was $62.9 million, including $11.8 million of accrued interest. We believe the value of the eight properties is less than the related debt. As a result, we have notified the lender of the special purpose entity that we anticipate either surrendering these properties to the lender or selling them in exchange for relieving the indebtedness, including any accrued interest, encumbering the properties.
The following table provides key elements of the defaulted mortgage loans as of September 30, 2017 (dollars in thousands):
Industry Properties Net Book Value Monthly Base Rent Pre-Default Outstanding Principal 
Capitalized interest (1)
 Total Debt Outstanding 
Restricted Cash (2)
 Stated Rate Default Rate 
Accrued Interest (1)
                     
Manufacturing 2 $4,895
 $—
 $5,460
 $10,942
 $16,402
 $—
 5.85% 9.85% $135
Sporting Goods 1 3,098
 —
 6,321
 251
 6,572
 57
 5.62
 10.62
 58
Consumer Electronics 1 3,057
 —
 8,592
 367
 8,959
 286
 5.87
 9.87
 74
Multi-Tenant Retail 1 12,773
 —
 17,250
 148
 17,398
 265
 5.53
 7.53
 73
Sporting Goods 2 3,480
 —
 9,625
 78
 9,703
 455
 4.39
 9.39
 76
Sporting Goods 1 2,019
 —
 3,853
 32
 3,885
 169
 4.65
 9.65
 31
Total 8 $29,322
 $—
 $51,101
 $11,818
 $62,919
 $1,232
 5.44% 8.3% $447
(1) Interest capitalized to principal that remains unpaid.
(2) Represents restricted cash controlled by the lender that may be applied to reduce the outstanding principal balance.

DEBT MATURITIES

Future principal payments due on our various types of debt outstanding as of September 30, 2017March 31, 2023 are as follows (in thousands):

  Total Remainder of 2017 2018 2019 2020 2021 Thereafter
               
Revolving Credit Facility (1)
 $386,000
 $—
 $—
 $386,000
 $—
 $—
 $—
Term Loan (2)

420,000
 —
 420,000
 —
 —
 —
 —
Senior Unsecured Notes 300,000
 —
 —
 —
 —
 —
 300,000
Master Trust Notes 1,657,402
 6,589
 163,262
 40,420
 448,202
 236,046
 762,883
CMBS - fixed-rate (3)
 426,583
 123,583
 28,492
 13,905
 4,100
 4,365
 252,138
Convertible Notes 747,500
 —
 —
 402,500
 —
 345,000
 —
  $3,937,485
 $130,172
 $611,754
 $842,825
 $452,302
 $585,411
 $1,315,021
(1) 2019 includes the Revolving Credit Facility which is extendible for one year at the borrower's option.
(2) 2018 includes the $420 million unsecured Term Loan that is extendible at borrower's option pursuant to two one-year extension options.
(3) The CMBS - fixed-rate payment balance in 2017 includes $62.9 million, including $11.8 million of capitalized interest, for the acceleration of principal payable following an event of default under six CMBS fixed-rate loans with stated maturities in 2017.

 

 

Total

 

 

Remainder of 2023

 

 

2024

 

 

2025

 

 

2026

 

 

2027

 

 

Thereafter

 

2019 Credit Facility

 

$

98,000

 

 

$

—

 

 

$

—

 

 

$

—

 

 

$

98,000

 

 

$

—

 

 

$

—

 

Term loans

 

 

800,000

 

 

 

—

 

 

 

—

 

 

 

300,000

 

 

 

—

 

 

 

500,000

 

 

 

—

 

Senior Unsecured Notes

 

 

2,750,000

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

300,000

 

 

 

300,000

 

 

 

2,150,000

 

Mortgages payable

 

 

4,689

 

 

 

420

 

 

 

590

 

 

 

626

 

 

 

469

 

 

 

497

 

 

 

2,087

 

 

 

$

3,652,689

 

 

$

420

 

 

$

590

 

 

$

300,626

 

 

$

398,469

 

 

$

800,497

 

 

$

2,152,087

 

CONTRACTUAL OBLIGATIONS

There were no material changes during the three months ended March 31, 2023 outside the ordinary course of business to the information regarding specified contractual obligations contained in our Annual Report on Form 10-K for the year ended December 31, 2016,2022, as filed with the SEC.

We may enter into commitments to purchase goods and services in connection with the operations of our properties. Those commitments generally have terms of one-year or less and reflect expenditure levels comparable to our historical expenditures.

CASH FLOWS

The following table presents a summary of our cash flows for the three months ended March 31, 2023 and 2022 (in thousands):

 

 

Three Months Ended March 31,

 

 

 

 

 

 

2023

 

 

2022

 

 

Change

 

Net cash provided by operating activities

 

$

101,691

 

 

$

78,271

 

 

$

23,420

 

Net cash used in investing activities

 

 

(89,974

)

 

 

(499,550

)

 

 

409,576

 

Net cash (used) provided by financing activities

 

 

(55,172

)

 

 

430,056

 

 

 

(485,228

)

Net (decrease) increase in cash, cash equivalents and restricted cash

 

$

(43,455

)

 

$

8,777

 

 

$

(52,232

)

Substantially all of our operating cash flows are generated by our investment portfolio and are primarily dependent upon the rental rates specified in our leases, the collectability of rent and the level of our property and general and administrative costs. The increase in net cash provided by operating activities was driven by a $20.2 million net increase in cash rental revenue, largely as a result of our net acquisitions over the trailing twelve month period. The primary offset to this increase was an increase in cash interest paid of $9.8 million driven by the increased interest rates and changes within our debt

29

structure. See Management’s Discussion and Analysis of Financial Condition: Results of Operations for further discussion on our rental income and interest expenses.

We acquired seven properties during the three months ended March 31, 2023 compared to 41 during the three months ended March 31, 2022, driving the decrease in investing cash outflows of $306.1 million. Our investment activity is funded through cash provided by operations, proceeds from dispositions, proceeds from stock issuances, and proceeds from long-term debt issuances. In addition to the increase in operating cash flows as described above, changes related to our sources of funding were as follows:

•
We sold 39 and 5 properties during the three months ended March 31, 2023 and 2022, respectively, which resulted in an increase in investing cash inflows of $103.5 million.

•
We issued 6.6 million shares in 2022 compared to none in 2023, resulting in a decrease in proceeds of $300.0 million.
•
We had a net decrease in cash provided by financing debt activity of $180.1 million, which was driven by less borrowings under the 2019 Credit Facility in 2023 than 2022.

Finally, there was an increase in dividends paid to equity owners of $10.4 million year-over-year, driven by an increase in shares outstanding and an increase in our quarterly dividend rate starting in the third quarter of 2022.

DISTRIBUTION POLICY

Distributions from our current or accumulated earnings and profits are generally classified as ordinary income, whereas distributions in excess of our current and accumulated earnings, and profits, to the extent of a stockholder’s federal income tax basis in our common stock, are generally characterized as a return of capital. U.S. stockholders that are individuals, trusts and estates generally may deduct up to 20% of the ordinary dividends (e.g., dividends not designated as capital gain dividends or qualified dividend income) received from a REIT for taxable years beginning after December 31, 2017 and before January 1, 2026. Distributions in excess of a stockholder’s federal income tax basis in our common stock are generally characterized as capital gain.

We are required to distribute 90% of our taxable income (subject to certain adjustments and excluding net capital gains) on an annual basis to maintain qualification as a REIT for federal income tax purposes and are required to pay federal income tax at regular corporate rates to the extent we distribute less than 100% of our taxable income (including capital gains).

We intend to make distributions that will enable us to meet the distribution requirements applicable to REITs and to eliminate or minimize our obligation to pay corporate-level federal income and excise taxes.

Any distributions will be at the sole discretion of our boardBoard of directors,Directors, and their form, timing and amount, if any, will depend upon a number of factors, including our actual and projected results of operations, FFO, liquidity, cash flows and financial condition, the revenue we actually receive from our properties, our operating expenses, our debt service requirements, our capital expenditures, prohibitions and other limitations under our financing arrangements, our REIT taxable income, the annual REIT distribution requirements, applicable laws and such other factors as our boardBoard of directorsDirectors deems relevant.

Cash Flows
The following table presents a summary

30

Results of our cash flows forOperations

Comparison of the ninethree months ended September 30, 2017March 31, 2023 to the three months ended March 31, 2022

 

 

Three Months Ended
March 31,

 

 

Increase / (Decrease)

 

(In Thousands)

 

2023

 

 

2022

 

 

 

 

Revenues:

 

 

 

 

 

 

 

 

 

Rental income

 

$

187,294

 

 

$

167,075

 

 

$

20,219

 

Interest income on loans receivable

 

 

817

 

 

 

319

 

 

 

498

 

Earned income from direct financing leases

 

 

131

 

 

 

131

 

 

 

—

 

Other operating income

 

 

47

 

 

 

871

 

 

 

(824

)

Total revenues

 

 

188,289

 

 

 

168,396

 

 

 

19,893

 

Expenses:

 

 

 

 

 

 

 

 

 

General and administrative

 

 

15,879

 

 

 

14,674

 

 

 

1,205

 

Property costs (including reimbursable)

 

 

7,613

 

 

 

8,255

 

 

 

(642

)

Deal pursuit costs

 

 

573

 

 

 

365

 

 

 

208

 

Interest

 

 

33,547

 

 

 

26,023

 

 

 

7,524

 

Depreciation and amortization

 

 

78,213

 

 

 

69,108

 

 

 

9,105

 

Impairments

 

 

5,255

 

 

 

127

 

 

 

5,128

 

Total expenses

 

 

141,080

 

 

 

118,552

 

 

 

22,528

 

Other income:

 

 

 

 

 

 

 

 

 

Loss on debt extinguishment

 

 

—

 

 

 

(172

)

 

 

172

 

Gain on disposition of assets

 

 

49,187

 

 

 

877

 

 

 

48,310

 

Other income

 

 

—

 

 

 

5,679

 

 

 

(5,679

)

Total other income

 

 

49,187

 

 

 

6,384

 

 

 

42,803

 

Income before income tax expense

 

 

96,396

 

 

 

56,228

 

 

 

40,168

 

Income tax expense

 

 

(223

)

 

 

(172

)

 

 

(51

)

Net income

 

$

96,173

 

 

$

56,056

 

 

$

40,117

 

Changes related to operating properties

The components of rental income are summarized below (in thousands):

img141597417_0.jpg 

31

Base Cash Rent; Depreciation and September 30, 2016, respectively:

 Nine Months Ended 
 September 30,		  
 2017 2016 Change
 (in Thousands)
Net cash provided by operating activities$292,359
 $259,291
 $33,068
Net cash used in investing activities(33,496) (129,121) 95,625
Net cash used in financing activities(256,975) (138,776) (118,199)
Net increase (decrease) in cash and cash equivalents$1,888
 $(8,606) $10,494
As of September 30, 2017, we had $11.9 million of cash and cash equivalents as compared to $10.1 million as of December 31, 2016.
Operating Activities
Our cash flows from operating activities are primarily dependent upon the occupancy level of our portfolio, the rental rates specified in our leases, the collectability of rent and the level of our operating expenses and other general and administrative costs.
amortization

The increase in Base Cash Rent, the largest component of rental income, was driven by our net cash provided by operating activitiesacquisitions, which also was primarily attributable to decreasesthe driver for the increase in debt extinguishment costsdepreciation and amortization. We acquired 138 properties during the trailing twelve months ended March 31, 2023, with a total of $25.3$78.3 million cash paidof annual in-place rent. During the same period, we disposed of 94 properties, of which 14 were vacant and the remaining 80 had annual in-place rents of $25.1 million. Our acquisitions and dispositions for interestthe trailing twelve months ended March 31, 2023 is summarized below (in thousands):

img141597417_1.jpg 

We have had minimal tenant credit issues since March 31, 2021 and recognized net recoveries of $14.5 million, restructuring charge paymentsamounts previously reserved of $7.9$0.2 million and net changes$0.1 million for the three months ended March 31, 2023 and 2022, respectively.

Variable cash rent; Property costs (including reimbursable)

Variable cash rent is primarily comprised of tenant reimbursements, where our tenants are obligated under the lease agreement to reimburse us for certain property costs we incur, less reimbursements we deem not probable of collection. The decrease in operating assetsboth variable cash rent (including reimbursable) and liabilities of $4.5 million, and paymentsproperty costs (including reimbursable) was driven by a decrease in reimbursable property taxes due to terminate interest rate swaps of $1.7 million .certain one-time amounts recorded during the three months ended March 31, 2022. This decrease in property costs (including reimbursable) was partially offset by a reductionan increase in non-reimbursable legal fees due to one-time amounts recorded in the comparative period.

The components of variable cash rent and property costs are as follows (in thousands):

 

 

Three Months Ended
March 31,

 

 

Increase /

 

 

 

2023

 

 

2022

 

 

(Decrease)

 

Tenant reimbursable income, net of uncollectable reserve

 

$

5,049

 

 

$

6,202

 

 

$

(1,153

)

Other variable cash rent

 

 

746

 

 

 

1,016

 

 

 

(270

)

Total variable cash rent (including reimbursable)

 

$

5,795

 

 

$

7,218

 

 

$

(1,423

)

 

 

 

 

 

 

 

 

 

 

Reimbursable property costs

 

$

5,049

 

 

$

6,174

 

 

$

(1,125

)

Non-reimbursable property costs

 

 

2,564

 

 

 

2,081

 

 

 

483

 

Total property costs (including reimbursable)

 

$

7,613

 

 

$

8,255

 

 

$

(642

)

Straight-line rent, net of uncollectible reserve; Amortization of above- and below- market lease intangibles, net

Non-cash rental income consists of straight-line rental revenue and amortization of $13.5 million,above- and below-market lease intangibles, less amounts we deem not probable of collection. Straight-line rental revenue increased for the comparative period, driven by net acquisitions. Due to our minimal tenant credit lossesissues, we had zero reserves for straight-line rental revenue in either comparative period.

32

Impairments

For both comparative periods, we maintained low tenant credit issues and low vacancy rates. We recorded impairment as follows (impairment in thousands):

 

Three Months Ended
March 31,

 

 

2023

 

 

2022

 

 

Count:

 

 

Impairment:

 

 

Count:

 

 

Impairment:

 

Underperforming properties

 

11

 

 

$

4,424

 

 

 

—

 

 

$

—

 

Vacant properties

 

1

 

 

 

328

 

 

 

—

 

 

 

—

 

Total

 

 

 

$

4,752

 

 

 

 

 

$

—

 

Additionally, in accordance with ASU 2016-13, we recognize an allowance for credit loss when we issue a loan. As such, we recorded a $0.1 million allowance upon issuing a loan receivable in the timingfirst quarter of acquisitions2022. In the first quarter of 2023, we issued a new loan receivable and dispositions,funded an add-on to an existing loan, for which we recorded a total allowance of $0.5 million.

Gain on disposition of assets

Gain on disposition of assets increased year-over-year due to an increase in disposition volume, specifically of occupied properties as a result of an increased focus on accretive capital recycling, which we expect to continue throughout 2023. We recognized net gains on disposition of assets as follows (net gain/(loss) in thousands):

 

Three Months Ended
March 31,

 

 

2023

 

 

2022

 

 

Count:

 

 

Net Gain / (Loss):

 

 

Count:

 

Net Gain / (Loss):

 

Occupied properties sold

39

 

 

$

49,187

 

 

1

 

$

178

 

Vacant properties sold

 

—

 

 

 

—

 

 

4

 

 

562

 

Other

 

 

 

 

—

 

 

 

 

 

137

 

Total

 

 

 

$

49,187

 

 

 

 

$

877

 

Changes related to debt

Interest expense; Loss on debt extinguishment

Our debt outstanding is summarized below (in thousands):

img141597417_2.jpg 

In March 2022, we amended and increasesrestated the 2019 Revolving Credit and Term Loan Agreement, resulting in property costsa loss of $5.9$0.2 million on the partial debt extinguishment. In August 2022, we entered into the 2022 Term Loans, comprised of a $300.0 million tranche which matures in 2025 and a $500.0 million tranche which matures in 2027. In conjunction with the 2022 Term Loans, we entered into interest rate swaps beginning in September 2022 to swap the variable rate for a fixed rate. In November 2022, we entered into the 2023 Term Loan Agreement for $500.0 million of 2.5-year delayed-draw term loans with a six month draw period, none of which has been drawn as of March 31, 2023.

33

Our weighted average stated interest rate increased from 2.92% at March 31, 2022 to 3.36% at March 31, 2023 primarily as a result of a higher level of total debt outstanding, along with a rise in market interest rates. The components of interest expense are summarized below (in thousands):

img141597417_3.jpg 

Changes related to general and administrative expenses

The increase in general and administrative expense was primarily driven by an increase in compensation expenses of $2.8 million.

Investing Activities
Cash used$1.3 million year-over-year. The increase in investing activities is generally usedcompensation expenses was due to fund property acquisitions, for investmentsincreases in loans receivable and,non-cash compensation, primarily due to a lessor extent,higher grant date fair value for capital expenditures. Cash providedthe 2023 market-based awards granted in the first quarter of 2023 compared the fair value of the 2020 market-based awards which expired unvested, as well as internal promotions.

Changes related to other income

We were contingently liable for $5.7 million of debt owed by investing activities generally relatesone of our former tenants, which we fully reserved in 2018 due to the dispositiontenant filing for bankruptcy. No payments were made in relation to this contingent liability and, as the underlying debt had a maturity of March 15, 2022, we reversed our reserve in the first quarter of 2022.

34

Property Portfolio Information

 

 

 

 

 

 

2,083

 99.8%

49

347

37

Properties

Occupancy

States

Tenants

Tenant Industries

Diversification By Tenant

The following is a summary of tenant concentration for our owned real estate andproperties as of March 31, 2023:

Tenant Concept (1)

 

Number of
Properties

 

 

Total Square Feet
(in thousands)

 

 

Percent of
ABR

 

Life Time Fitness

 

 

13

 

 

 

1,474

 

 

 

4.3

%

Invited Clubs

 

 

21

 

 

 

1,005

 

 

 

2.7

%

BJ's Wholesale Club

 

 

11

 

 

 

1,233

 

 

 

2.3

%

At Home

 

 

16

 

 

 

1,861

 

 

 

2.1

%

Church's Chicken

 

 

160

 

 

 

231

 

 

 

1.9

%

Dave & Buster's / Main Event

 

 

15

 

 

 

807

 

 

 

1.9

%

Circle K / Clean Freak

 

 

77

 

 

 

245

 

 

 

1.9

%

Dollar Tree / Family Dollar

 

 

133

 

 

 

1,230

 

 

 

1.9

%

Home Depot

 

 

8

 

 

 

946

 

 

 

1.7

%

GPM

 

 

107

 

 

 

301

 

 

 

1.5

%

Other(2)

 

 

1,517

 

 

 

50,428

 

 

 

77.8

%

Vacant

 

 

5

 

 

 

556

 

 

 

—

 

Total

 

 

2,083

 

 

 

60,317

 

 

 

100.0

%

(1) Tenant concentration represents concentration by the legal entities ultimately responsible for obligations under the lease agreements or affiliated entities. Concentration is shown by tenant concept, which represents the brand or trade name under which the tenant operates. Other tenants may operate under the same or similar brand or trade name.

(2) No tenants within other assets.



Net cash used in investing activities duringindividually account for greater than 1.5% of ABR.

Lease Expirations

As of March 31, 2023, the nine months ended September 30, 2017 included $278.5 million to fund the acquisitionweighted average remaining non-cancellable initial term of 39 properties (oneour leases (based on ABR) was 10.4 years. The following is a summary of which was acquired through a $2.7 million non-cash 1031 Exchange) and capitalizedlease expirations for our owned real estate expendituresas of $34.9 million, and , the transferMarch 31, 2023, assuming that tenants do not exercise any renewal options or early termination rights:

Leases Expiring In:

 

Number of
Properties

 

 

Total Square Feet
(in thousands)

 

 

ABR
(in thousands)

 

 

Percent of
ABR

 

Remainder of 2023

 

 

57

 

 

 

1,080

 

 

$

14,455

 

 

 

2.1

%

2024

 

 

46

 

 

 

1,521

 

 

 

17,312

 

 

 

2.5

%

2025

 

 

51

 

 

 

2,398

 

 

 

21,864

 

 

 

3.2

%

2026

 

 

119

 

 

 

4,987

 

 

 

45,496

 

 

 

6.6

%

2027

 

 

167

 

 

 

4,395

 

 

 

59,504

 

 

 

8.6

%

2028

 

 

151

 

 

 

3,610

 

 

 

46,972

 

 

 

6.8

%

2029

 

 

319

 

 

 

2,965

 

 

 

44,441

 

 

 

6.5

%

2030

 

 

69

 

 

 

2,506

 

 

 

24,225

 

 

 

3.5

%

2031

 

 

77

 

 

 

3,675

 

 

 

36,223

 

 

 

5.3

%

2032

 

 

141

 

 

 

3,632

 

 

 

35,291

 

 

 

5.1

%

Thereafter

 

 

881

 

 

 

28,992

 

 

 

343,346

 

 

 

49.8

%

Vacant

 

 

5

 

 

 

556

 

 

 

—

 

 

 

—

 

Total owned properties

 

 

2,083

 

 

 

60,317

 

 

$

689,129

 

 

 

100.0

%

35

Diversification By Geography

The following is a summary of $64.9 million in net sales proceeds to restricted cash accounts, mostly offset by cash proceeds of $342.0 million from the disposition of 161 properties (two of which were disposed of through a $2.7 million 1031 Exchange).

During the same period in 2016, net cash used by investing activities included $424.5 million to fund the acquisition of 227 properties (33 of which were acquired through a $83.6 million non-cash 1031 Exchange) and capitalizedgeographic concentration for our owned real estate expendituresproperties as of $8.3 million, partially offset by proceedsMarch 31, 2023:

img141597417_4.jpg 

Location

 

Number of
Properties

 

 

Total Square Feet
(in thousands)

 

 

Percent of
ABR

 

 

Location
(continued)

 

Number of
Properties

 

 

Total Square Feet
(in thousands)

 

 

Percent of
ABR

 

Texas

 

 

297

 

 

 

7,403

 

 

 

14.6

%

 

Kentucky

 

 

47

 

 

 

563

 

 

 

1.3

%

Florida

 

 

154

 

 

 

2,813

 

 

 

7.6

%

 

Massachusetts

 

 

8

 

 

 

750

 

 

 

1.2

%

Ohio

 

 

104

 

 

 

5,640

 

 

 

6.6

%

 

Louisiana

 

 

26

 

 

 

653

 

 

 

1.2

%

Georgia

 

 

145

 

 

 

2,840

 

 

 

5.9

%

 

Arkansas

 

 

47

 

 

 

690

 

 

 

1.1

%

Michigan

 

 

98

 

 

 

2,859

 

 

 

4.3

%

 

Kansas

 

 

20

 

 

 

958

 

 

 

0.9

%

Tennessee

 

 

118

 

 

 

2,518

 

 

 

3.8

%

 

New Hampshire

 

 

18

 

 

 

660

 

 

 

0.8

%

California

 

 

29

 

 

 

1,569

 

 

 

3.5

%

 

Alaska

 

 

9

 

 

 

319

 

 

 

0.8

%

Illinois

 

 

57

 

 

 

1,513

 

 

 

3.3

%

 

New Jersey

 

 

13

 

 

 

466

 

 

 

0.7

%

Indiana

 

 

43

 

 

 

3,734

 

 

 

3.0

%

 

Connecticut

 

 

7

 

 

 

910

 

 

 

0.7

%

North Carolina

 

 

84

 

 

 

1,854

 

 

 

2.8

%

 

Idaho

 

 

14

 

 

 

226

 

 

 

0.6

%

Alabama

 

 

105

 

 

 

1,470

 

 

 

2.6

%

 

Iowa

 

 

12

 

 

 

1,304

 

 

 

0.6

%

New York

 

 

36

 

 

 

1,930

 

 

 

2.5

%

 

Washington

 

 

9

 

 

 

160

 

 

 

0.5

%

Arizona

 

 

44

 

 

 

903

 

 

 

2.4

%

 

Maine

 

 

28

 

 

 

103

 

 

 

0.4

%

Missouri

 

 

66

 

 

 

1,541

 

 

 

2.4

%

 

West Virginia

 

 

12

 

 

 

198

 

 

 

0.4

%

Colorado

 

 

33

 

 

 

1,264

 

 

 

2.4

%

 

Nebraska

 

 

10

 

 

 

262

 

 

 

0.4

%

South Carolina

 

 

69

 

 

 

1,168

 

 

 

2.4

%

 

Rhode Island

 

 

4

 

 

 

152

 

 

 

0.3

%

Maryland

 

 

12

 

 

 

1,413

 

 

 

2.4

%

 

Delaware

 

 

2

 

 

 

128

 

 

 

0.3

%

Virginia

 

 

47

 

 

 

1,526

 

 

 

2.3

%

 

North Dakota

 

 

4

 

 

 

110

 

 

 

0.3

%

Minnesota

 

 

30

 

 

 

1,241

 

 

 

2.3

%

 

Montana

 

 

3

 

 

 

152

 

 

 

0.3

%

New Mexico

 

 

35

 

 

 

863

 

 

 

1.8

%

 

Oregon

 

 

3

 

 

 

104

 

 

 

0.2

%

Oklahoma

 

 

59

 

 

 

1,139

 

 

 

1.7

%

 

South Dakota

 

 

2

 

 

 

30

 

 

 

0.1

%

Pennsylvania

 

 

31

 

 

 

1,057

 

 

 

1.6

%

 

Wyoming

 

 

1

 

 

 

35

 

 

 

0.1

%

Mississippi

 

 

51

 

 

 

993

 

 

 

1.6

%

 

U.S. Virgin Islands

 

 

1

 

 

 

38

 

 

 

0.1

%

Utah

 

 

18

 

 

 

976

 

 

 

1.5

%

 

Nevada

 

 

1

 

 

 

12

 

 

*

 

Wisconsin

 

 

16

 

 

 

1,105

 

 

 

1.4

%

 

Vermont

 

 

1

 

 

 

2

 

 

*

 

* Less than 0.1%

36

Diversification By Asset Type and Tenant Industry

The following is a summary of $245.9 million fromasset type concentration, the dispositionindustry of 82the underlying tenant operations for our retail properties (six of which were disposed of through a $43.7 million 1031 Exchange) and the transferunderlying property use for our non-retail properties as of $58.2 million in net sales proceeds from restricted accounts pursuant to 1031 Exchanges.

Financing Activities
Generally, our net cash used in financing activities is impacted by our net borrowings and common stock offerings, including sales of our common stock under our ATM Program, common stock offerings, borrowings under our Revolving Credit Facility and Term Loan, and issuances of net-lease mortgage notes under our Spirit Master Funding Program.
Net cash used in financing activities during the nine months ended September 30, 2017 was primarily attributable to the payment of dividends to equity owners of $257.1 million, the repurchase of shares of common stock totaling $225.7 million, $3.5 million of which related to net settlement of restricted shares, and the repayment of mortgages and notes payable of $76.4 million, all of which were paid primarily through sources from our operating cash flows and net borrowings under our Revolving Credit Facility. These amounts were partially offset by net borrowings under our Revolving Credit Facility of $300.0 million.
During the same period in 2016, net cash used in financing activities was primarily attributable to repayment of our indebtedness of $790.2 million and the payment of dividends to equity owners of $238.9 million, both of which were paid primarily through sources from our operating cash flows and net borrowings under our Revolving Credit Facility, Term Loan and Senior Unsecured Notes. These amounts were partially offset by the issuance of 34.5 million shares of our common stock through an underwritten public offering and sale of 6.3 million shares of our common stock under our ATM Program for aggregate net proceeds of $446.6 million, and net borrowings under our Revolving Credit Facility and Term Loan of $150.0 million and net proceeds of $296.2 million from the issuance of $300 million aggregate principal Senior Unsecured Notes (see Note 4).


March 31, 2023:

Asset Type

Tenant Industry / Underlying Use

Number of
Properties

 

 

Total Square Feet
(in thousands)

 

 

Percent of
ABR

 

Retail

 

 

1,772

 

 

 

29,615

 

 

 

67.0

%

 

Health & Fitness

 

53

 

 

 

3,208

 

 

 

7.9

%

 

Convenience Stores

 

302

 

 

 

961

 

 

 

5.3

%

 

Quick Service Restaurants

 

335

 

 

 

731

 

 

 

4.6

%

 

Car Washes

 

110

 

 

 

525

 

 

 

4.6

%

 

Casual Dining

 

125

 

 

 

892

 

 

 

4.4

%

 

Movie Theaters

 

32

 

 

 

1,656

 

 

 

3.5

%

 

Dealerships

 

33

 

 

 

1,091

 

 

 

3.3

%

 

Entertainment

 

29

 

 

 

1,275

 

 

 

3.1

%

 

Drug Stores

 

75

 

 

 

966

 

 

 

3.1

%

 

Dollar Stores

 

217

 

 

 

2,058

 

 

 

3.0

%

 

Automotive Service

 

125

 

 

 

1,025

 

 

 

3.0

%

 

Home Improvement

 

35

 

 

 

2,114

 

 

 

3.0

%

 

Supercenters & Clubs

 

17

 

 

 

1,864

 

 

 

2.7

%

 

Home Décor

 

21

 

 

 

2,459

 

 

 

2.5

%

 

Home Furnishings

 

28

 

 

 

1,277

 

 

 

2.1

%

 

Sporting Goods

 

20

 

 

 

1,154

 

 

 

1.9

%

 

Department Stores

 

18

 

 

 

1,619

 

 

 

1.8

%

 

Grocery

 

31

 

 

 

1,459

 

 

 

1.7

%

 

Other

 

29

 

 

 

900

 

 

 

1.6

%

 

Early Education

 

41

 

 

 

450

 

 

 

1.4

%

 

Specialty Retail

 

31

 

 

 

668

 

 

 

1.1

%

 

Automotive Parts

 

54

 

 

 

381

 

 

 

0.7

%

 

Discount Retail

 

4

 

 

 

341

 

 

 

0.4

%

 

Pet Supplies & Service

 

4

 

 

 

201

 

 

 

0.3

%

 

Vacant

 

3

 

 

 

340

 

 

 

—

 

Non-Retail

 

 

311

 

 

 

30,702

 

 

 

33.0

%

 

Distribution

 

136

 

 

 

13,588

 

 

 

11.2

%

 

Manufacturing

 

76

 

 

 

12,241

 

 

 

10.6

%

 

Office

 

9

 

 

 

1,182

 

 

 

3.0

%

 

Country Club

 

21

 

 

 

1,005

 

 

 

2.7

%

 

Industrial Outdoor Storage

 

21

 

 

 

1,145

 

 

 

2.0

%

 

Medical

 

29

 

 

 

416

 

 

 

1.6

%

 

Flex

 

14

 

 

 

511

 

 

 

0.8

%

 

Data Center

 

2

 

 

 

276

 

 

 

0.7

%

 

Hotel

 

1

 

 

 

122

 

 

 

0.4

%

 

Vacant

 

2

 

 

 

216

 

 

 

—

 

Total

 

 

2,083

 

 

 

60,317

 

 

 

100.0

%

Off-Balance Sheet Arrangements

As of September 30, 2017,March 31, 2023, we did not have any material off-balance sheet arrangements.

New Accounting Pronouncements

See footnote 2 to the consolidated financial statements herein.

None.

37

Non-GAAP Financial Measures

FFO: FFO AND AFFO

We calculate FFOis calculated in accordance with the standards established by NAREIT. FFO representsNAREIT as net income (loss) attributable to common stockholders (computed in accordance with GAAP), excluding real estate-related depreciation and amortization, impairment charges and net (gains) losses (gains) from property dispositions. FFO is a supplemental non-GAAP financial measure. We use FFO as a supplemental performance measure because we believe that FFO is beneficial to investors as a starting point in measuring our operational performance. Specifically, inBy excluding real estate related depreciation and amortization, gains and losses from property dispositions and impairment charges,amounts which do not relate to or are not indicative of operating performance, we believe FFO provides a performance measure that when compared year-over-year, captures trends in occupancy rates, rental rates and operating costs.costs when compared year-over-year. We also believe that, as a widely recognized measure of the performance of equity REITs, FFO will be used by investors as a basis to compare our operating performance with that of other equity REITs. However, because FFO excludes depreciation and amortization and does not capture the changes in the value of our properties that result from use or market conditions, all of which have real economic effects and could materially impact our results from operations, the utility of FFO as a measure of our performance is limited. In addition, other equity REITs may not calculate FFO as we do, and, accordingly, our FFO may not be comparable to such other equity REITs’ FFO. Accordingly, FFO should be considered only as a supplement to net income (loss) attributable to common stockholders as a measure of our performance.

AFFO: AFFO is a non-GAAP financial measure ofan operating performance measure used by many companies in the REIT industry. Accordingly, AFFO should be considered only as a supplement to net income (loss) attributable to common stockholders as a measure of our performance. We adjust FFO to eliminate the impact of certain items that we believe are not indicative of our core operating performance, including restructuringsuch as net gains (losses) on debt extinguishment, deal pursuit costs, other general and administrative costs related to the COVID-19 pandemic, income associated with relocationexpiration of our headquarters, transaction costs associated with our proposed spin-off, default interest on non-recourse mortgage indebtedness,a contingent liability related to a guarantee of a former tenant's debt extinguishment gains (losses), transaction costs incurred in connection with the acquisition of real estate investments subject to existing leases and certain non-cash items. These certain non-cash items include non-cash revenues (comprised of straight-line rents, amortization of above and below market rent on our leases, amortization of lease incentives, amortization of net premium (discount) on loans receivable and amortization of capitalized lease transaction costs),certain non-cash interest expenseexpenses (comprised of amortization of deferred financing costs, and amortization of net debt discount/premium)premium, and amortization of interest rate swap losses), non-cash revenues (comprised of straight-line rents net of bad debt expense, amortization of lease intangibles, and amortization of net premium/discount on loans receivable), and non-cash compensation expense (stock-based compensation expense). In addition, otherexpense.

Other equity REITs may not calculate FFO and AFFO as we do, and, accordingly, our FFO and AFFO may not be comparable to such other equity REITs'REITs’ FFO and AFFO. FFO and AFFO doesdo not represent cash generated from operating activities determined in accordance with GAAP, isare not necessarily indicative of cash available to fund cash needs and should notonly be considered asa supplement, and not an alternative, to net income determined in accordance with GAAP as a performance measure. A reconciliation of our FFO and AFFO to net income (loss) attributable to common stockholders (computed in accordance with GAAP) as a performance measure.

Adjusted Debt: Adjusted Debt represents interest bearing debt (reported in accordance with GAAP) adjusted to exclude unamortized debt discount/premium and deferred financing costs and reduced by cash and cash equivalents and 1031 Exchange proceeds. By excluding these amounts, the result provides an estimate of the contractual amount of borrowed capital to be repaid, net of cash available to repay it. We believe this calculationconstitutes a beneficial supplemental non-GAAP financial disclosure to investors in understanding our financial condition.

EBITDAre: EBITDAre is includedcomputed in accordance with the financial information accompanying this report.



Adjusted EBITDA and Annualized Adjusted EBITDA
Adjusted EBITDA represents EBITDA modified to include other adjustments to GAAPstandards established by NAREIT as net income (loss) attributable to common stockholders for restructuring charges, real estate acquisition costs, impairment losses, gains/(computed in accordance with GAAP), excluding interest expense, income tax expense, depreciation and amortization, net (gains) losses from property dispositions, and impairment charges.

Adjusted EBITDAre: Adjusted EBITDAre represents EBITDAre as adjusted for revenue producing acquisitions, capital expenditures and dispositions for the salequarter (as if such acquisitions and dispositions had occurred as of real estatethe beginning of the quarter), construction rent collected, not yet recognized in earnings, and debt transactions andfor other certain items that we dobelieve are not consider to be indicative of our on-goingcore operating performance. We focus our business plansThese other certain items include deal pursuit costs, net (gains) losses on debt extinguishment, costs related to enable us to sustain increasing shareholder value. Accordingly, wethe COVID-19 pandemic, and non-cash compensation. We believe that excluding these items, which are not key drivers of our investment decisions and may cause short-term fluctuations in net income (loss), provides a useful supplemental measure to investors and analysts in assessing the net earnings contribution of our real estate portfolio. Because these measures do not represent net income (loss) that is computed in accordance with GAAP, they should notonly be considered alternativesa supplement, and not an alternative, to net income (loss) or as an indicator of financial performance. A reconciliation of net income (loss) attributable to common stockholders (computed in accordance with GAAP) to EBITDA,as a performance measure.

Annualized Adjusted EBITDAre: Annualized Adjusted EBITDAre is calculated as Adjusted EBITDAre, adjusted for straight-line rent related to prior periods, including amounts deemed not probable of collection (recoveries), and items where annualization would not be appropriate, multiplied by four. Our computation of Adjusted EBITDAre and Annualized Adjusted EBITDA is included inEBITDAre may differ from the financial information accompanying this report.

methodology used by other equity REITs to calculate these measures and, therefore, may not be comparable to such other REITs.

Adjusted Debt

to Annualized Adjusted Debt represents interest bearing debt (reported in accordance with GAAP) adjusted to exclude unamortized debt discount/premium and deferred financing costs, as further reduced by cash and cash equivalents and cash reserves on deposit with lenders as additional security. By excluding unamortized debt discount/premium and deferred financing costs, cash and cash equivalents, and cash reserves on deposit with lenders as additional security, the result provides an estimate of the contractual amount of borrowed capital to be repaid, net of cash available to repay it. We believe this calculation constitutes a beneficial supplemental non-GAAP financial disclosure to investors in understanding our financial condition.
EBITDAre: Adjusted Debt to Annualized Adjusted EBITDAEBITDAre is a supplemental non-GAAP financial measure we useused to evaluate the level of borrowed capital being used to increase the potential return of our real estate investments, and a proxy for a measure we believe is used by many lenders and ratings agencies to evaluate our ability to repay and service our debt obligations over time.obligations. We believe the ratio is a beneficial disclosure to investors as a supplemental means of evaluating our ability to meet obligations senior to those of our equity holders. Our computation of this ratio may differ from the methodology used by other equity REITs, and, therefore, may not be comparable to such other REITs. A reconciliation of interest bearing debt (reported in accordance with GAAP)

38

FFO and AFFO

 

 

Three Months Ended
March 31,

 

(In thousands, except per share data)

 

2023

 

 

2022

 

Net income attributable to common stockholders

 

$

93,585

 

 

$

53,468

 

Portfolio depreciation and amortization

 

 

78,069

 

 

 

68,965

 

Portfolio impairments

 

 

5,255

 

 

 

127

 

Gain on disposition of assets

 

 

(49,187

)

 

 

(877

)

FFO attributable to common stockholders

 

$

127,722

 

 

$

121,683

 

Loss on debt extinguishment

 

 

—

 

 

 

172

 

Deal pursuit costs

 

 

573

 

 

 

365

 

Non-cash interest expense, excluding capitalized interest

 

 

2,780

 

 

 

1,937

 

Straight-line rent, net of uncollectible reserve

 

 

(9,920

)

 

 

(8,575

)

Other amortization and non-cash charges

 

 

(349

)

 

 

(647

)

Non-cash compensation expense

 

 

5,230

 

 

 

4,025

 

Costs related to COVID-19 (1)

 

 

—

 

 

 

6

 

Other income

 

 

—

 

 

 

(5,679

)

AFFO attributable to common stockholders

 

$

126,036

 

 

$

113,287

 

 

 

 

 

 

 

 

Net income per share of common stock - Diluted

 

$

0.66

 

 

$

0.42

 

FFO per share of common stock - Diluted (2)

 

$

0.90

 

 

$

0.95

 

AFFO per share of common stock - Diluted (2)

 

$

0.89

 

 

$

0.88

 

 

 

 

 

 

 

 

Weighted average shares of common stock outstanding - Diluted

 

 

141,055,850

 

 

 

128,360,431

 

(1)
Costs related to Adjusted Debt isCOVID-19 are included in the financial information accompanying this report.general and administrative expense and primarily relate to legal fees for executing rent deferral or abatement agreements.
Initial Cash Yield
(2)
We calculate initial cash yield from properties by dividing the annualized first month base rent (excludingDividends paid and undistributed earnings allocated, if any, future rent escalations provided for in the lease) by the gross investment in the related properties. Gross investment for an acquired property represents gross acquisition costs including the contracted purchase price and related capitalized transaction costs. Initial cash yield is a measure (expressed as a percentage) of the contractual cash rent expected to be earned on an acquired property in the first year. Because it excludes any future rent increases or additional rent that may be contractually provided for in the lease, as well as any other income or fees that may be earned from lease modifications or asset dispositions, initial cash yield does not represent the annualized investment rate of return of our acquired properties. Additionally, actual contractual cash rent earned from the properties acquired may differ from the initial cash yield based on other factors, including difficulties collecting anticipated rental revenues and unanticipated expenses at these properties that we cannot pass on to tenants, as well as the risk factors set forth in our Annual Report on Form 10-K for the year ended December 31, 2016.
Capitalization Rate
We calculate the capitalization rate for disposed properties as the annualized cash rent on the date of disposition divided by the gross sales price. For multi-tenant properties, non-reimbursable property costsunvested restricted stockholders are deducted from the annualized cash rent prior to computing the capitalization rate. Annualized cash rent for a disposed property represents the annualized monthly contractual cash rent under the related lease at time of disposition.


FFO and AFFO
for the computation of the per share amounts. The following is a reconciliation of net income attributable to common stockholders (which we believe is the most comparable GAAP measure) to FFOamounts were deducted:

 

 

Three Months Ended March 31,

 

 

2023

 

2022

FFO

 

$0.2 million

 

$0.2 million

AFFO

 

$0.2 million

 

$0.2 million

39

Adjusted Debt, Adjusted EBITDAre and AFFO. Also presented is information regarding distributions paid to common stockholders and the weighted average shares of common stock outstanding used for the basic and diluted computations per share (dollars in thousands, except per share amounts):

Annualized Adjusted EBITDAre

 

 

March 31,

 

(In thousands)

 

2023

 

 

2022

 

2019 Credit Facility

 

$

98,000

 

 

$

519,500

 

2022 Term Loans, net

 

 

792,813

 

 

 

—

 

Senior Unsecured Notes, net

 

 

2,723,503

 

 

 

2,719,597

 

Mortgages payable, net

 

 

4,841

 

 

 

5,412

 

Total debt, net

 

 

3,619,157

 

 

 

3,244,509

 

Unamortized debt discount, net

 

 

9,231

 

 

 

10,511

 

Unamortized deferred financing costs

 

 

24,301

 

 

 

19,701

 

Cash and cash equivalents

 

 

(4,871

)

 

 

(24,229

)

1031 Exchange proceeds / Funds held in escrow

 

 

(12,983

)

 

 

(2,347

)

Adjusted Debt

 

$

3,634,835

 

 

$

3,248,145

 

 

 

Three Months Ended March 31,

 

(In thousands)

 

2023

 

 

2022

 

Net income

 

$

96,173

 

 

$

56,056

 

Interest

 

 

33,547

 

 

 

26,023

 

Depreciation and amortization

 

 

78,213

 

 

 

69,108

 

Income tax expense

 

 

223

 

 

 

172

 

Gain on disposition of assets

 

 

(49,187

)

 

 

(877

)

Portfolio impairments

 

 

5,255

 

 

 

127

 

EBITDAre

 

$

164,224

 

 

$

150,609

 

Adjustments to revenue producing acquisitions and dispositions

 

 

1,193

 

 

 

5,314

 

Construction rent collected, not yet recognized in earnings

 

 

503

 

 

 

509

 

Deal pursuit costs

 

 

573

 

 

 

365

 

Gain on debt extinguishment

 

 

—

 

 

 

172

 

Costs related to COVID-19 (1)

 

 

—

 

 

 

6

 

Non-cash compensation expense

 

 

5,230

 

 

 

4,025

 

Other income

 

 

—

 

 

 

(5,679

)

Adjusted EBITDAre

 

$

171,723

 

 

$

155,321

 

Other adjustments for Annualized EBITDAre (2)

 

 

(487

)

 

 

(213

)

Annualized Adjusted EBITDAre

 

$

684,944

 

 

$

620,432

 

 

 

 

 

 

 

 

Total Debt, Net / Annualized Net Income (3)

 

 

9.4

x

 

 

14.5

x

Adjusted Debt / Annualized Adjusted EBITDAre (4)

 

 

5.3

x

 

 

5.2

x

(1)
 Three Months Ended 
 September 30,		 Nine Months Ended 
 September 30,
 2017 2016 2017 2016
Net income attributable to common stockholders (1) (2)
$5,322

$27,399

$41,357

$96,458
Add/(less):






Portfolio depreciation and amortization63,530

65,155

192,465

193,892
Portfolio impairments37,737

15,384

88,109

41,693
Realized gains on sales of real estate(8,707)
(17,960)
(40,197)
(39,221)
Total adjustments to net income92,560
 62,579
 240,377
 196,364
 






FFO$97,882
 $89,978
 $281,734
 $292,822
Add/(less):






(Gain) loss on debt extinguishment(1,792)
8,349

(1,770)
(326)
Restructuring charges—

3,264

—

5,726
Other costs included in general and administrative associated with headquarters relocation—

1,501

—

3,442
Transaction costs2,660
 —
 3,145
 —
Real estate acquisition costs196

1,056

773

2,092
Non-cash interest expense5,810

4,178

16,937

10,144
Accrued interest and fees on defaulted loans1,344

853

2,917

3,951
Swap termination costs (included in general and administrative)—
 —
 —
 1,724
Straight-line rent, net of related bad debt expense (4)
(3,217)
(3,246)
(13,427)
(14,097)
Other amortization and non-cash charges(743) (954) (2,447) (2,058)
Non-cash compensation expense (1)
2,339

3,399

13,778

7,189
Total adjustments to FFO6,597
 18,400

19,906
 17,787
 






AFFO$104,479
 $108,378
 $301,640
 $310,609
        
Dividends declared to common stockholders$82,062

$84,606

$251,606

$246,151
Net income per share of common stock






Basic (3)
$0.01

$0.06

$0.09

$0.21
Diluted (3)
$0.01

$0.06

$0.09
 $0.21
FFO per share of common stock






Diluted (3)
$0.21

$0.19

$0.59

$0.64
AFFO per share of common stock






Diluted (3)
$0.23

$0.22

$0.64

$0.68
Weighted average shares of common stock outstanding:






Basic456,671,617

479,554,362

472,698,692

457,263,526
Diluted456,671,617
 480,598,610
 472,698,692
 457,301,623
(1) Included in G&A balances for the nine months ended September 30, 2017 is $11.1 million of severance related costs, comprising $4.2 million of cash compensation and $6.9 million of non-cash compensationCosts related to the acceleration of Restricted Stock and Performance Share Awards.
(2) For the nine months ended September 30, 2016, Net Income Attributable to Common Stockholders includes compensation for lost rent received from the Haggen Holdings, LLC settlement for 6 rejected stores as follows (in millions):
Contractual rent from date of rejection through either sale or September 30, 2016        $ 1.3
Three month of prepaid rent for the 3 stores subsequently sold                0.5
TotalCOVID-19 are included in AFFO                            $ 1.8general and administrative expense and primarily relate to legal fees for executing rent deferral or abatement agreements.
(3) For(2)
Adjustment for the three months ended September 30, 2017March 31, 2023 relates to current period recoveries related to prior period property costs and 2016, dividends paidrent deemed not probable of collection. For the same period in 2022, the adjustments are comprised of net current period recoveries related to unvested restricted stockholdersprior period rent deemed not probable of $0.3 millioncollection and $0.2 million, respectively, and for the nine months ended September 30, 2017 and 2016, dividends paid to unvested restricted stockholders of $0.7 million and $0.4 million , respectively, are deducted fromprior period property costs.
(3)
Represents net income FFO and AFFO attributable to common stockholders in the computation of per share amounts (see Note 12 to the consolidated financial statements herein).
(4) Straight-line bad debt expense totaled $2.4 million and $4.7 million for the three and nine months ended September 30, 2017, respectively.March 31, 2023 and 2022, respectively, annualized.

(4)


Adjusted Debt Adjusted EBITDA and/ Annualized Adjusted EBITDA - Leverage
The following provides a calculationre would be 5.0x if the 3.1 million shares under open forward sales agreements had been settled as of adjusted debt and a reconciliation of EBITDA and annualized adjusted EBITDA (dollars in thousands):
March 31, 2022.
 September 30,
 2017 2016
 (Unaudited)
Revolving Credit Facility$386,000

$105,000
Term Loan, net419,091
 368,400
Unsecured Senior Notes, net295,242
 295,215
Mortgages and notes payable, net2,050,302

2,241,783
Convertible Notes, net712,510

699,465
 3,863,145
 3,709,863
Add/(less):




Unamortized debt discount, net43,327

54,975
Unamortized deferred financing costs31,013

38,812
Cash and cash equivalents(11,947)
(13,184)
Restricted cash balances held for the benefit of lenders(96,344)
(39,038)
Total adjustments(33,951) 41,565
Adjusted Debt$3,829,194
 $3,751,428
    
 Three Months Ended 
 September 30,
 2017 2016
 (Unaudited)
Net income attributable to common stockholders$5,322

$27,399
Add/(less):




Interest48,680

47,653
Depreciation and amortization63,673

65,300
Income tax expense(11)
12
Total adjustments112,342
 112,965
EBITDA$117,664
 $140,364
Add/(less):




Restructuring charges—
 3,264
Other costs in general and administrative associated with headquarters relocation—

1,501
Transaction costs2,660
 —
Real estate acquisition costs196

1,056
Impairments on real estate assets37,737

15,384
Swap termination costs (included in general and administrative)—
 —
Realized gain on sales of real estate(8,707)
(17,960)
Loss on debt extinguishment(1,792)
8,349
Total adjustments to EBITDA30,094
 11,594
Adjusted EBITDA$147,758
 $151,958
Annualized Adjusted EBITDA (1)
$591,032

$607,832
 


Adjusted Debt / Annualized Adjusted EBITDA6.5x
6.2x
    
(1)  Adjusted EBITDA of the current quarter multiplied by four.
   



40

Item 3. Quantitative and Qualitative Disclosures About Market Risk

We are exposed to financial market risks, especiallyincluding interest rate risk. Interest rates and other factors, such as occupancy, rental rates and theour tenants’ financial condition, of our tenants, influence our performance more so than does inflation. Changes in interest rates do not necessarily correlate with inflation rates or changes in inflation rates. As described in Item 2,above, we generally offerenter into leases that provide for payments of base rent with scheduled increases and, to a lesser extent, contingent rent based on a percentage of the tenant’s gross sales, to help mitigate the effect of inflation. Because theour properties in our portfolio are generally leased to tenants under triple-net leases, our exposure to rising property operating costs due to inflation is mitigated.

Interest rates are highly sensitive to many factors, including governmental monetary policies and domestic and global economic and political conditions, which are beyond our control. Our operating results depend heavily on the difference between the revenue from our assets and the interest expense incurred on our borrowings. We may incur additional variable ratevariable-rate debt in the future, including amounts that we may borrow under our Revolving2019 Credit Facility and Term Loan.Facility. In addition, decreases in interest rates may lead to additional competition for the acquisition of real estate due to a reduction in desirable alternative income-producing investments, which may lead to a decrease in the yields on real estate we have targeted for acquisition. In such circumstances, if we are not able to offset the decrease in yields by obtaining lower interest costs on our borrowings, our results of operations will be adversely affected. Significant increases in interest rates may also have an adverse impact on our earnings if we are unable to acquire real estate with rental rates high enough to offset the increase in interest rates on our borrowings.

In the event interest rates rise significantly or there is an economic downturn, defaults may increase and result in credit losses, which may adversely affect our liquidity and operating results. In a decreasing interest rate environment, borrowers are generally more likely to prepay their loans in order to obtain financing at lower interest rates. However, the vast majority of our mortgage notes payable have prepayment clauses that make refinancing during a decreasing interest rate environment uneconomical. Investments in our mortgage loans receivable, however, have significant prepayment protection in the form of yield maintenance provisions, which provide us with substantial yield protection in a decreasing interest rate environment with respect to this portion of our investment portfolio.
The objective of our interest rate risk management policy is to match fund fixed-rate assets with fixed-rate liabilities.

As of September 30, 2017,March 31, 2023, our assets were primarily leased on a long-term, fixed-rate leases (though most have scheduled rentaltriple-net basis with contractual rent increases during the termsterm of the leases).lease. As of September 30, 2017, $3.1March 31, 2023, $2.8 billion of our indebtedness outstanding was fixed-rate, consisting of our Master Trust Notes, fixed-rate CMBS loans, Senior Unsecured Notes and Convertible Notes,mortgages payable, with a weighted average stated interest rate of 4.67%3.25%, excluding amortization of deferred financing costs and debt discounts/premiums. As$800.0 million of September 30, 2017, $806.0our indebtedness as of March 31, 2023 was variable-rate borrowings outstanding under our 2022 Term Loans, which bear interest at 1-month adjusted SOFR plus an applicable margin of 0.850% per annum. However, in conjunction with the 2022 Term Loans, we entered into interest rate swaps to swap 1-month SOFR, resulting in an effective weighted average fixed rate of 3.50%.

The remaining $98.0 million of our indebtedness was variable-rate consisting ofborrowings outstanding under our Revolving2019 Credit Facility, and Term Loan, with a weighted average stated interest rate of 2.54%, excluding amortization of deferred financing costs and debt discounts/premiums.5.42% for the three months ended March 31, 2023. If one-month LIBOR1-month SOFR as of September 30, 2017March 31, 2023 increased by 100 basis points, or 1.0%, the resulting increase in annual interest expense with respect to the $806.0$98.0 million outstanding under the Revolving2019 Credit Facility and Term Loan would impact our future earnings and cash flows by $8.1$1.0 million.

However, there continues to be uncertainty in market and economic conditions, including the possibility of additional measures that could be taken by the Federal Reserve and other government agencies related to concerns over inflation risk, which could result in continued increases in market interest rates and, thus, increased interest expenses on any future borrowings under our 2019 Credit Facility.

The estimated fair values of our Senior Unsecured Notes have been derived based on quoted prices in active markets, while the estimated fair values of the remaining debt instruments have been derived based on market quotes for comparable instruments or discounted cash flow analysis using estimates of the amount and timing of future cash flows, market rates and credit spreads. The debt instrument balances as of September 30, 2017March 31, 2023 are as follows (in thousands):

 Carrying
Value		 Estimated
Fair Value
    
Revolving Credit Facility$386,000
 $385,993
Term Loan, net (1)
419,091
 420,024
Senior Unsecured Notes, net (1)
295,242
 300,039
Mortgages and notes payable, net (1)
2,050,302
 2,068,788
Convertible Notes, net (1)
712,510
 758,085

 

 

Carrying
Value

 

 

Estimated
Fair Value

 

2019 Credit Facility

 

$

98,000

 

 

$

97,999

 

2022 Term Loans, net (1)

 

 

792,813

 

 

 

801,667

 

Senior Unsecured Notes, net (1)

 

 

2,723,503

 

 

 

2,390,320

 

Mortgages payable, net (1)

 

 

4,841

 

 

 

4,650

 

(1)The carrying value of the debt instruments are net of unamortized deferred financing costs and certain debt discounts/premiums.

41

Item 4. Controls and Procedures

SPIRIT REALTY CAPITAL, INC.

Evaluation of Disclosure Controls and Procedures

An evaluation was performed under the supervision and with the participation of Spirit Realty Capital, Inc.'sour management, including theour Chief Executive Officer and Chief Financial Officer, of the effectiveness as of September 30, 2017March 31, 2023 of the design and operation of Spirit Realty Capital, Inc.'sour disclosure controls and procedures as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act. Based on that evaluation, theour Chief Executive Officer and Chief Financial Officer concluded that the design and operation of these disclosure controls and procedures were effective as of the end of the period covered by this quarterly report.

Changes in Internal Control over Financial Reporting

There were no changes to Spirit Realty Capital, Inc.'sour internal control over financial reporting (as defined in Rule 13a-15(e) and 15d-15(e) under the Exchange Act) that occurred during the quarter ended September 30, 2017March 31, 2023 that have materially affected, or are reasonably likely to materially affect, Spirit Realty Capital, Inc.'sour internal control over financial reporting.

SPIRIT REALTY, L.P.
Evaluation of Disclosure Controls and Procedures
An evaluation was performed under the supervision and with the participation of Spirit Realty, L.P.'s management, including the Chief Executive Officer and Chief Financial Officer, of the effectiveness as of September 30, 2017 of the design and operation of Spirit Realty, L.P.'s disclosure controls and procedures as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act. Based on that evaluation, the Chief Executive Officer and Chief Financial Officer concluded that the design and operation of these disclosure controls and procedures were effective as of the end of the period covered by this quarterly report.
Changes in Internal Control over Financial Reporting
There were no changes to Spirit Realty, L.P.'s internal control over financial reporting (as defined in Rule 13a-15(e) and 15d-15(e) under the Exchange Act) that occurred during the quarter ended September 30, 2017 that have materially affected, or are reasonably likely to materially affect, Spirit Realty, L.P.'s internal control over financial reporting.



42

PART II — OTHER INFORMATION

From time-to-time, we may be subject to certain claims and lawsuits in the ordinary course of business, the outcome of which cannot be determined at this time. We are not currently a party as plaintiff or defendant to any legal proceedings that we believe to be material or that individually or in the aggregate would be expected to have a material effect on our business, financial condition or results of operations if determined adversely to us.

Item 1A. Risk Factors.

Please review

There have been no material changes to the risk factors as disclosed in Part I, Item 1A. Risk Factors disclosed in the section entitled “Risk Factors” beginning on page 13 of our Annual Report on Form 10-K for the year ended December 31, 2016 and filed with the SEC on February 24, 2017, as well as the supplemental risk factors below. There were no other material changes to the risk factors as described in our Annual Report on Form 10-K.

A substantial number of our properties are leased to one tenant, which may result in increased risk due to tenant and industry concentration.
Currently, we lease 101 properties to Shopko, primarily pursuant to three master leases and two single-site leases. The Shopko leases are guaranteed by Specialty Retail Shops Holding Corp., the parent company of Shopko. Revenues generated from Shopko represented 7.8% of our Contractual Rent for the month ended September 30, 2017. Because a significant portion of our revenues are derived from rental revenues received from Shopko, any default, breach or delay in the payment of rent by Shopko may materially and adversely affect us.
As a result of the significant number of properties leased to Shopko, our results of operations and financial condition are significantly impacted by Shopko's performance under its leases. Shopko operates as a multi-department general merchandise retailer and retail health services provider primarily in mid-size and large communities in the Midwest, Pacific Northwest, North Central and Western Mountain states. Shopko is subject to the following risks, as well as other risks that we are not currently aware of, that could adversely affect its performance and thus its ability to pay rent to us:
The retail industry in which Shopko operates is highly competitive, which could impair its operations and liquidity, limit its growth opportunities and reduce profitability. Shopko competes with other discount retail merchants as well as mass merchants, catalog merchants, internet retailers and other general merchandise, apparel and household merchandise retailers. It faces strong competition from large national discount retailers, such as Walmart, Kmart and Target, and mid-tier merchants such as Kohl’s and J.C. Penney.
Shopko stores are geographically concentrated in the Midwest, Pacific Northwest, North Central and Western Mountain states. As a result, adverse economic conditions in these regions may materially and adversely affect its results of operations and retail sales.
The seasonality in retail operations may cause fluctuations in Shopko’s quarterly performance and results of operations and could adversely affect its cash flows.
Shopko stores are dependent on the efficient functioning of its distribution networks. Problems that cause delays or interruptions in the distribution networks could materially and adversely affect its results of operations.
Shopko stores depend on attracting and retaining quality employees. Many employees are entry-level or part-time with historically high rates of turnover.
Based on our monitoring of Shopko's financial information and recent liquidity events and other challenges, including bankruptcies, impacting the retail industry generally relative to recent years, we continue to be concerned about Shopko's ongoing ability to meet its obligations to us under its leases. Although Shopko is current on all of its obligations under its lease arrangements with us as of September 30, 2017, we can give you no assurance that this will continue to be the case, particularly if Shopko (not just the stores subject to leases with us) experiences a further decline in its business, financial condition and results of operations or loses access to liquidity. If such events were to occur, Shopko may request discounts or deferrals on the rents it pays to us, seek to terminate its master leases with us, close certain of its stores, or file for bankruptcy, all of which could significantly decrease the amount of revenue we receive from it.
While we seek to reduce the tenant concentration of Shopko, we may have difficulty in selling or leasing to other tenants the properties currently leased to Shopko, due to, among other things, market demand or tax constraints.


Furthermore, we can provide no assurance that we will deploy the proceeds from the disposition of any Shopko properties in a manner that would produce comparable or better yields.
Decrease in demand for retail and restaurant space may materially and adversely affect us.
As of September 30, 2017, leases representing approximately 33% and 17% of our Contractual Rent were with tenants in the retail and restaurant industries, respectively, and we may acquire additional retail and restaurant properties in the future. Accordingly, decreases in the demand for retail and/or restaurant spaces adversely impact us. The market for retail and restaurant space has previously been, and could continue to be, adversely affected by weakness in the national, regional and local economies, the adverse financial condition of some large retail and restaurant companies, the ongoing consolidation in the retail and restaurant industries, the excess amount of retail and restaurant space in a number of markets and, in the case of the retail industry, increasing consumer purchases through catalogs or over the Internet. In recent years a number of companies in the retail industry, including some of our tenants, have declared bankruptcy, have gone out of business or have significantly reduced the number of their retail stores. In particular, we have experienced, and expect to continue to experience, challenges with some of our general merchandise retailers through increased credit losses.
To the extent that the adverse conditions listed above continue, they are likely to negatively affect market rents for retail and restaurant space, thereby reducing rents payable to us, and they may lead to increased vacancy rates at our properties and diminish our ability to attract and retain retail and restaurant tenants.
The proposed spin-off of almost all of our properties leased to Shopko, assets that collateralize Master Trust 2014 and potentially other assets into an independent, publicly-traded REIT may not be completed on the currently contemplated timeline or terms, or at all, and may not achieve the intended benefits.
On August 3, 2017, we announced a plan to spin off our interests in almost all of our properties leased to Shopko, assets that collateralize Master Trust 2014 and potentially other assets into an independent, publicly traded REIT. If we complete the spin-off, we expect we would make a distribution of stock issued by SpinCo to our stockholders. We expect SpinCo to elect to be treated and qualify for taxation as a REIT for U.S. federal income tax purposes. We currently expect we would complete the spin-off in the first half of 2018, although there can be no assurance as to whether or when the spin-off will occur, or the final structure of the spin-off. The completion of the spin-off will be subject to various conditions, including declaration by the SEC that SpinCo's registration statement on Form 10 is effective, customary third-party consents and final approval and declaration of the distribution to our stockholders of SpinCo stock by our Board of Directors. Such conditions and other unforeseen developments, including in the debt or equity markets or general market conditions, could delay or prevent the spin-off or cause the spin-off to occur on terms or conditions that are less favorable and/or different than anticipated. We also expect to incur significant expenses in connection with the spin-off.
We may not be able to achieve the full strategic and financial benefits that we anticipate to result from the spin-off, or such benefits may be delayed or not occur at all. Additionally, we may experience negative reactions from financial markets if we do not complete the spin-off in a reasonable time period. Following the spin-off, the combined value of the common stock of the two publicly-traded companies may not be equal to or greater than what the value of our common stock would have been had the spin-off not occurred.
The assets that we would spin-off represent a significant portion of our gross real estate investment and annualized contractual rents. Under our current planning, we anticipate SpinCo would own over 915 properties, with a gross real estate investment of $2.7 billion to $2.9 billion. Additionally, we expect SpinCo would have approximately $220.0 million to $235 million in annualized contractual rent. As of June 30, 2017, the assets included in Master Trust 2014 secured $1,347.5 million of indebtedness and bore interest at a weighted average interest rate of 5.1% per annum. We expect the entire amount of this indebtedness would be transferred to SpinCo, and we are currently exploring issuing additional indebtedness in Master Trust 2014 prior to the spin-off, that would ultimately increase SpinCo’s leverage, with the net cash proceeds from any such incremental debt issuance by Master Trust 2014 to remain with our company. We are also currently exploring contributing additional assets to SpinCo that would be subject to mortgage debt. The identity of these assets and the amount of the mortgages that would encumber them has not yet been finally determined. While the number of properties, gross real estate investment and annualized contractual rents set forth above represent our current estimates, the number of properties that would be included in SpinCo and their related gross real estate investment and annualized contractual rent could change significantly. Moreover, gross real estate investment does not represent fair market value, and we expect that the fair market value of the assets that would be included in SpinCo could exceed our historical gross real estate investment in them.



2022.

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds.

None.

Item 3. Defaults Upon Senior Securities.

None.

Item 4. Mine Safety Disclosures.

None.

Item 5. Other Information.

None.




43

Item 6. Exhibits.

Exhibit No.

Description

2.1

3.1

Agreement and Plan of Merger, dated as of January 22, 2013, as amended by the First Amendment to Agreement and Plan of Merger, dated as of May 8, 2013, by and among Spirit Realty Capital, Inc. (f/k/a Cole Credit Property Trust II, Inc.), a Maryland corporation, Spirit Realty Capital, Inc., a Maryland corporation, Cole Operating Partnership II, LP, a Delaware limited partnership and Spirit Realty, L.P., a Delaware limited partnership. Previously filed by Spirit Realty Capital, Inc. as an exhibit to the Company’s Form 8-K filed with the Securities and Exchange Commission on January 22, 2013 and Exhibit 2.1 to the Company’s Form 8-K filed with the Securities and Exchange Commission on May 9, 2013, respectively.

2.2
Articles of Merger by and between Spirit Realty Capital, Inc. (f/k/a Cole Credit Property Trust II, Inc.), a Maryland corporation, and Spirit Realty Capital, Inc., a Maryland corporation and the Amended and Restated Charter of Spirit Realty Capital, Inc. (f/k/a Cole Credit Property Trust II, Inc.) filed as Exhibit (Incorporated by reference to Exhibit 3.1 to the Company’s Current Report on Form 8-K (File No. 000-51963), filed on July 17, 2013).
3.1
Articles of Restatement of Spirit Realty Capital, Inc. filed as Exhibit 3.1 to the Company's Registration Statement on Form S-3 on November 8, 2013 and incorporated herein by reference.

3.2

Articles of Amendment of Spirit Realty Capital, Inc. filed as Exhibit 3.1 to the Company's Current Report on Form 8-K on May 13, 2014 and incorporated herein by reference.

3.3

Articles Supplementary of Spirit Realty Capital, Inc. filed as Exhibit 3.1 to the Company's Current Report on Form 8-K on March 3, 2017 and incorporated herein by reference.

3.4

Fifth Amended and Restated Bylaws of Spirit Realty Capital, Inc. filed as Exhibit 3.1 to the Company’s Current Report on Form 8-K on August 15, 2017 and incorporated herein by reference.

3.4

3.5

Second Amended and Restated Agreement of Limited Partnership of Spirit Realty, L.P. filed as Exhibit 3.1 to the Operating Partnership's Form 8-K on October 3, 2017 and incorporated herein by reference.

3.5
Articles Supplementary designating Spirit Realty Capital, Inc.'s 6.000% Series A Cumulative Redeemable Preferred Stock filed as Exhibit 3.4 to the Company's Registration Statement on Form 8-A on October 2, 2017 and incorporated herein by reference.

4.1

3.6

FormArticles of Certificate for Common StockAmendment of Spirit Realty Capital, Inc. filed as Exhibit 4.13.1 to the Registration StatementCompany's Current Report on Form S-48-K on MarchApril 29, 20132019 and incorporated herein by reference.

4.2

3.7

Specimen Certificate for Spirit Realty Capital Inc.'s 6.000% Series A Cumulative Redeemable Preferred Stock filed as Exhibit 3.6 to the Company's Registration Statement on Form 8-A on October 2, 2017 and incorporated herein by reference.

4.3
Second Amended and Restated Master Indenture among Spirit Master Funding, LLC, Spirit Master Funding II, LLC, Spirit Master Funding III, LLC and Citibank, N.A., dated May 20, 2014 filed as Exhibit 4.1 to the Company's Form 8-K on May 20, 2014 and incorporated herein by reference.
4.4
Amendment No. 1 to the Second Amended and Restated Master Indenture among Spirit Master Funding, LLC, Spirit Master Funding II, LLC, Spirit Master Funding III, LLC and Citibank, N.A., dated November 26, 2014 filed as Exhibit 4.1 to the Company's Form 8-K on December 1, 2014 and incorporated herein by reference.
4.5
Series 2014-1 Indenture Supplement among Spirit Master Funding, LLC, Spirit Master Funding II, LLC, Spirit Master Funding III, LLC and Citibank, N.A., dated May 21, 2014 filed as Exhibit 4.2 to the Company's Form 8-K on May 2, 2014 and incorporated herein by reference.
4.6
Series 2014-2 Indenture Supplement among Spirit Master Funding, LLC, Spirit Master Funding II, LLC, Spirit Master Funding III, LLC and Citibank, N.A., dated May 21, 2014 filed as Exhibit 4.3 to the Company's Form 8-K on May 20, 2014 and incorporated herein by reference.
4.7
Series 2014-3 Indenture Supplement among Spirit Master Funding, LLC, Spirit Master Funding II, LLC, Spirit Master Funding III, LLC and Citibank, N.A., dated May 21, 2014 filed as Exhibit 4.3 to the Company's Form 8-K on May 20, 2014 and incorporated herein by reference.
4.8
Series 2014-4 Indenture Supplement among Spirit Master Funding, LLC, Spirit Master Funding II, LLC, Spirit Master Funding III, LLC, Spirit Master Funding VI, LLC, Spirit Master Funding VIII, LLC and Citibank, N.A., dated November 26, 2014 filed as Exhibit 4.2 to the Company's Form 8-K on December 1, 2014 and incorporated herein by reference.


Exhibit No.
Description
4.9
Master Indenture, between Citibank, N.A. and Spirit Master Funding VII, LLC, dated asArticles of December 23, 2013. Previously filed by Spirit Realty Capital, Inc. as Exhibit 10.21 to the Company's Annual Report on Form 10-K on March 4, 2014 and incorporated herein by reference.
4.10
Series 2013-1 Supplement, between Citibank, N.A. and Spirit Master Funding VII, LLC, dated as of December 23, 2013, filed as Exhibit 10.22 to the Company's Annual Report on Form 10-K filed with the Securities and Exchange Commission on March 4, 2014 and incorporated herein by reference.
4.11
Series 2013-2 Supplement, between Citibank, N.A. and Spirit Master Funding VII, LLC, dated as of December 23, 2013, filed as Exhibit 10.23 to the Company's Annual Report on Form 10-K on March 4, 2014 and incorporated herein by reference.
4.12
Indenture, dated May 20, 2014, between the Company and Wilmington Trust, National Association, filed as Exhibit 4.1 to the Company's Form 8-K on May 20, 2014 and incorporated herein by reference.
4.13
First Supplemental Indenture, dated May 20, 2014, by and between Spirit Realty Capital, Inc. and Wilmington Trust, National Association (including the form of 2.875% Convertible Senior Note due 2019) filed as Exhibit 4.2 to the Company's Form 8-K on May 20, 2014 and incorporated herein by reference.
4.14
Second Supplemental Indenture, dated May 20, 2014, by and between Spirit Realty Capital, Inc. and Wilmington Trust, National Association (including the form of 3.75% Convertible Senior Note due 2021) filed as Exhibit 4.3 to the Company's Form 8-K on May 20, 2014 and incorporated herein by reference.
4.15
Indenture, dated August 18, 2016, between Spirit Realty, L.P. and U.S. Bank National Association, filed as Exhibit 4.1 to the Company's Form 8-K on August 19, 2016 and incorporated herein by reference.
4.16
First Supplemental Indenture, dated August 18, 2016, among Spirit Realty, L.P., Spirit Realty Capital, Inc., and U.S. Bank National Association (including the form of 4.450% Senior Notes due 2026), filed as Exhibit 4.2 to the Company's Form 8-K on August 19, 2016 and incorporated herein by reference.
4.17
Registration Rights Agreement, dated August 18, 2016, by and among Spirit Realty, L.P., Spirit Realty Capital, Inc., J.P. Morgan Securities LLC, Wells Fargo Securities, LLC, Merrill Lynch, Pierce, Fenner & Smith Incorporated and Morgan Stanley & Co. LLC, filed as Exhibit 4.3 to the Company's Form 8-K on August 19, 2016 and incorporated herein by reference.
10.1
Amended and Restated Spirit Realty Capital, Inc. and Spirit Realty, L.P. 2012 Incentive Award Plan filed as Appendix A within the Company’s Definitive Proxy Statement on Schedule 14A filed with the Commission on April 11, 2016 and incorporated herein by reference.
10.2
Form of 2012 Incentive Award Plan Restricted Stock Award Grant Notice and Agreement filed as Exhibit 10.8 to the Company’s Form 8-K on July 17, 2013 and incorporated herein by reference.
10.3
Form of 2012 Incentive Award Plan Stock Payment Award Grant Notice and Agreement filed as Exhibit 10.9 to the Company’s Form 8-K on July 17, 2013 and incorporated herein by reference.
10.4
Form of Performance Share Award Agreement. Previously filed by Spirit Realty Capital, Inc. as Exhibit 99.1 to the Company’s Form 8-K filed with the Securities and Exchange Commission on August 6, 2013 and incorporated herein by reference.
10.5
Credit Agreement, by and among Deutsche Bank Securities Inc., Deutsche Bank AG New York Branch, Spirit Realty, L.P. and various lenders, dated as of July 17, 2013 filed as Exhibit 10.01 to the Company’s Form 8-K on July 17, 2013 and incorporated herein by reference.
10.6
Guaranty, by and among Spirit Realty Capital, Inc., Spirit General OP Holdings, LLC, Deutsche Bank Securities Inc. and various lenders, dated as of July 17, 2013 filed as Exhibit 10.2 to the Company’s Form 8-K filed on July 17, 2013 and incorporated herein by reference.
10.7
Security Agreement, by and among Spirit Realty Capital, Inc., Spirit General OP Holdings, LLC, Spirit Realty, L.P., Spirit Master Funding IV, LLC, Spirit Master Funding V, LLC, Deutsche Bank Securities Inc. and various lenders, dated as of July 17, 2013 filed as Exhibit 10.3 to the Company’s Form 8-K on July 17, 2013 and incorporated herein by reference.


Exhibit No.
Description
10.8
Omnibus Collateral Assignment of Material Agreements, Permits and Licenses, by and among Spirit Realty Capital, Inc., Spirit General OP Holdings, LLC, Spirit Realty, L.P., Spirit Master Funding IV, LLC, Spirit Master Funding V, LLC, Deutsche Bank Securities Inc. and various lenders, dated as of July 17, 2013. Previously filed by Spirit Realty Capital, Inc. as Exhibit 10.4 to the Company’s Form 8-K filed with the Securities and Exchange Commission on July 17, 2013 and incorporated herein by reference.
10.9
Loan Agreement, between German American Capital Corporation and Spirit SPE Loan Portfolio 2013-2, LLC, dated as of July 17, 2013, filed as Exhibit 10.5 to the Company’s Form 8-K on July 17, 2013 and incorporated herein by reference.
10.10
Guaranty of Recourse Obligations of Borrower, by Spirit Realty, L.P. in favor of German American Capital Corporation, dated as of July 17, 2013, filed as Exhibit 10.6 to the Company’s Form 8-K on July 17, 2013 and incorporated herein by reference.
10.11
Loan Agreement, between Barclays Bank PLC and Spirit SPE Loan Portfolio 2013-3, LLC, dated as of July 17, 2013 filed as Exhibit 10.7 to the Company’s Form 8-K on July 17, 2013 and incorporated herein by reference.
10.12
Guaranty of Recourse Obligations of Borrower by Spirit Realty, L.P. in favor of Barclays Bank PLC, dated as of July 17, 2013, filed as Exhibit 10.8 to the Company’s Form 8-K on July 17, 2013 and incorporated herein by reference.
10.13
Second Amended and Restated Property Management and Servicing Agreement dated May 20, 2014, by and among Spirit Realty, L.P., Spirit Master Funding, LLC, Spirit Master Funding II, LLC, Spirit Master Funding III, LLC and Midland Loan Services, a division of PNC Bank, National Association filed as Exhibit 1.1 of the Company's Form 8-K on May 20, 2014 and incorporated herein by reference.
10.14
Amendment No. 1 to the Second Amended and Restated Property Management and Servicing Agreement dated November 26, 2014, by and among Spirit Realty, L.P., Spirit Master Funding, LLC, Spirit Master Funding II, LLC, Spirit Master Funding III, LLC and Midland Loan Services, a division of PNC Bank, National Association filed as Exhibit 1.2 of the Company's Form 8-K on December 1, 2014 and incorporated herein by reference.
10.15
Property Management and Servicing Agreement, between Midland Loan Services, Spirit Master Funding VII, LLC and Spirit Realty, L.P., dated as of December 23, 2013, filed as Exhibit 10.24 to the Company's Annual Report on Form 10-K filed on March 4, 2014 and incorporated herein by reference.
10.16
Defeasance, Assignment, Assumption and Release Agreement, dated June 5, 2014, by and among Spirit SPE Portfolio 2006-1, LLC and Spirit SPE Portfolio 2006-2, LLC, U.S. Bank, National Association as Trustee for the Lender, Midland Loan Servicer, a division of PNC Bank, National Association as servicer and U.S. Bank, National Association as Securities Intermediary and Custodian filed as Exhibit 1.1 of the Company's Form 8-K on June 9, 2014 and incorporated herein by reference.
10.17
First Amended and Restated Agreement of Limited Partnership of Spirit Realty, L.P. dated as of September 12, 2014, filed as Exhibit 10.16 to the Company's Form 10-Q on November 5, 2014 and incorporated herein by reference.
10.18
Amended and Restated Master Lease between Spirit SPE Portfolio 2006-1, LLC and Spirit SPE Portfolio 2006-2, LLC, and Shopko Stores Operating CO., LLC, dated December 15, 2014 filed as Exhibit 1.2 of the Company's Form 8-K on December 16, 2014 and incorporated herein by reference.
10.19
Form of Indemnification Agreement of Spirit Realty Capital, Inc. filed as Exhibit 10.1 of3.1 to the Company's Current Report on Form 8-K on July 17, 2013November 18, 2021 and incorporated herein by reference.

10.21

10.1*

AmendedForm of Restricted Stock Award Grant Notice and Restated Employment Agreement among Spirit Realty Capital, Inc. and Michael A. Bender, dated as of July 17, 2013 filed as Exhibit 10.3 of the Company's Form 8-K on July 17, 2013 and incorporated herein by reference.Agreement.

10.23

10.2*

TransitionForm of 2023 Performance Share Award Grant Notice and Separation Agreement among Spirit Realty Capital, Inc. and Michael A. Bender dated as of August 27, 2015 and filed as Exhibit 10.4 of the Company's form 8-K on August 28, 2015 and incorporated herein by reference.Agreement.

10.25

22.1*

Director Compensation ProgramList of Spirit Realty Capital, Inc. asIssuers of January 1, 2015 filed as Exhibit 10.25 of the Company's Form 10-Q on August 5, 2016 and incorporated herein by reference.



Exhibit No.
Description
10.26
Employment Agreement among Spirit Realty Capital, Inc. and Phillip D. Joseph, Jr., dated as of March 25, 2015 filed as Exhibit 10.1 of the Company's Form 8-K on March 27, 2015 and incorporated herein by reference.
10.27
Employment Letter Agreement between Spirit Realty Capital, Inc. and Philip D. Joseph, Jr. dated as of October 14, 2015 filed as Exhibit 10.27 of the Company's Annual Report on Form 10-K on February 26, 2016 and incorporated herein by reference.
10.28
First Amended and Restated Employment Agreement among Spirit Realty Capital, Inc. and Phillip D. Joseph, Jr, dated as of February 23, 2016 filed as Exhibit 10.28 of the Company's Annual Report on Form 10-K on February 26, 2016 and incorporated herein by reference.
10.29
Credit Agreement among Spirit Realty L.P., Wells Fargo Bank, N.A., as the administrative agent, and the various financial institutions as are or may become parties thereto, datedGuaranteed Securities as of March 31, 2015, filed as Exhibit 10.1 of the Company's Form 8-K on April 2, 2015 and incorporated herein by reference.2023.

10.30

31.1*

Third Amended and Restated Employment Agreement among Spirit Realty Capital, Inc. and Gregg A. Seibert, dated as of August 27, 2015 filed as Exhibit 10.2 of the Company's Form 8-K on August 28, 2015 and incorporated herein by reference.

10.31
Second Amended and Restated Employment Agreement among Spirit Realty Capital, Inc. and Mark Manheimer, dated as of August 27, 2015 filed as Exhibit 10.3 of the Company's Form 8-K on August 28, 2015 and incorporated herein by reference.
10.32
Term Loan Agreement among Spirit Realty L.P., various financial institutions, as lenders, and Bank of America, N.A., as the administrative agent, dated as of November 3, 2015, filed as Exhibit 10.1 of the Company's Form 8-K on November 6, 2015 and incorporated herein by reference.
10.33
First Amendment to the Credit Agreement among Spirit Realty L.P., various financial institutions, as lenders, and Wells Fargo Bank, N.A., as the administrative agent, dated as of November 3, 2015, filed as Exhibit 10.34 of the Company's Annual Report Form 10-K on February 26, 2016 and incorporated herein by reference.
10.34
Credit Agreement Guaranty dated as of March 31, 2015 in favor of Wells Fargo Bank National Association, the Administrative Agent for the lenders, and among Spirit Realty, L.P., filed as Exhibit 10.35 of the Company's Annual Report on Form 10-K on February 26, 2016 and incorporated herein by reference.
10.35
The 2016 executive cash bonus program, was approved by the Compensation Committee of the Board of Directors of Spirit Realty Capital, Inc. on February 18, 2016 and filed as Exhibit 10.36 of the Company's Annual Report on Form 10-K on February 26, 2016 and incorporated herein by reference.
10.36
Employment Agreement among Spirit Realty Capital, Inc. and Boyd Messmann, dated as of June 3, 2016, filed as Exhibit 10.1 of the Company's Form 8-K on June 6, 2016 and incorporated herein by reference.
10.37
Employment Agreement among Spirit Realty Capital, Inc. and Jackson Hsieh, dated as of September 7, 2016 filed as Exhibit 10.1 of the Company's Form 8-K on July 27, 2016 and incorporated herein by reference.
10.38
Second Amendment among Spirit Realty L.P., various financial institutions, as lenders, and Wells Fargo Bank, National Association, as the administrative agent, dated as of April 28, 2017 and filed as Exhibit 10.40 on the Company's Quarterly Report on Form 10-Q on April 3, 2017 and incorporated herein by reference.
10.39
First Amended and Restated Employment Agreement among Spirit Realty Capital, Inc. and Jackson Hsieh, dated as of July 25, 2017, filed as Exhibit 10.1 of the Company's Form 8-K on July 25, 2017 and incorporated herein by reference.
31.1*
Certification of Chief Executive Officer pursuant to Rule 13a-14(a) or Rule 15d-14(a) under the Exchange Act, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 for Spirit Realty Capital, Inc.



31.2*

Exhibit No.
Description
31.2*

Certification of Chief Financial Officer pursuant to Rule 13a-14(a) or Rule 15d-14(a) under the Exchange Act, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 for Spirit Realty Capital, Inc.

31.3*

32.1*

Certification of Chief Executive Officer pursuant to Rule 13a-14(a) or Rule 15d-14(a) under the Exchange Act, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 for Spirit Realty, L.P.

31.4*
Certification of Chief Financial Officer pursuant to Rule 13a-14(a) or Rule 15d-14(a) under the Exchange Act, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 for Spirit Realty, L.P.
32.1*
Certification of Chief Executive Officer and Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 for Spirit Realty Capital, Inc.

32.2*

101.INS*

Certification of Chief Executive Officer and Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 for Spirit Realty, L.P.
101.INS

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101.SCH

101.SCH*

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101.CAL

101.CAL*

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101.DEF

101.DEF*

Inline XBRL Taxonomy Extension Definition Linkbase

101.LAB

101.LAB*

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101.PRE

101.PRE*

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*

104.1*

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*

Filed herewith.




44

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrants have duly caused this report to be signed on their behalf by the undersigned thereunto duly authorized.

SPIRIT REALTY CAPITAL, INC.

(Registrant)

(Registrant)

By:

By:

/s/ Prakash J. Parag

Name:

Prakash J. Parag

Title:

Chief Accounting Officer and

Senior Vice President and Chief Accounting Officer

(Principal Accounting Officer)

SPIRIT REALTY, L.P.
(Registrant)
By:Spirit General OP Holdings, LLC, as general partner of Spirit Realty, L.P.
/s/ Prakash J. Parag
Prakash J. Parag
Chief Accounting Officer and Senior Vice President (Principal Accounting Officer)

Date: November 2, 2017



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May 3, 2023

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