UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 10-Q
☒ | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the quarterly period ended
OR
☐ | 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 | 001-36004 | |
SPIRIT REALTY CAPITAL, INC.
(Exact name of registrant as specified in its charter)
Maryland | 20-1676382 | |||
(State or other jurisdiction of incorporation or organization) | (I.R.S. Employer Identification Number) | |||
2727 North Harwood Street, Suite 300, Dallas, Texas75201 | (972) 476-1900 | |||
(Address of principal executive offices; zip code) | (Registrant’s telephone number, including area code) |
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.
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).
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.
Large accelerated filer | Accelerated filer | Non-accelerated filer |
Smaller reporting company | Emerging growth company | ||
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.
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).
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
3 | |||||
5 | |||||
Item 1. | Financial Statements (Unaudited) | 5 | |||
Item 2. | Management’s Discussion and Analysis of Financial Condition and Results of Operations | 25 | |||
Item 3. | 41 | ||||
Item 4. | 42 | ||||
43 | |||||
Item 1. | 43 | ||||
Item 1A. | 43 | ||||
Item 2. | 43 | ||||
Item 3. | 43 | ||||
Item 4. | 43 | ||||
Item 5. | 43 | ||||
Item 6. | 44 | ||||
45 |
GLOSSARY
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 |
2019 Revolving Credit and Term Loan Agreement | Revolving credit and term loan agreement between the Operating Partnership and certain lenders dated January 14, 2019, as amended or |
2020 ATM Program | 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 |
2022 Term Loans | $800.0 million senior unsecured term facility pursuant to the 2022 Term Loan Agreement |
2022 Term Loan Agreement | |
Term loan agreement between the Operating Partnership and certain lenders dated | |
2023 Term Loans | $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 |
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 | |
GAAP | |
Generally Accepted Accounting Principles in the United States | |
LIBOR | London Interbank Offered Rate |
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 |
SEC | |
Securities and Exchange Commission | |
Securities Act | Securities Act of 1933, as amended |
Senior Unsecured Notes | 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 | 6,900,000 shares of 6.000% Cumulative Redeemable Preferred Stock issued October 3, 2017, with a liquidation preference of $25.00 per |
SOFR | Secured Overnight Financing Rate |
TSR | |
Total Shareholder Return | |
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.
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 improvements | 4,702,828 | 4,775,221 | |||||
Total real estate investments | 7,303,701 | 7,479,231 | |||||
Less: accumulated depreciation | (1,018,544 | ) | (940,005 | ) | |||
6,285,157 | 6,539,226 | ||||||
Loans receivable, net | 76,821 | 66,578 | |||||
Intangible lease assets, net | 429,857 | 470,276 | |||||
Real estate assets under direct financing leases, net | 24,883 | 36,005 | |||||
Real estate assets held for sale, net | 133,382 | 160,570 | |||||
Net investments | 6,950,100 | 7,272,655 | |||||
Cash and cash equivalents | 11,947 | 10,059 | |||||
Deferred costs and other assets, net | 218,400 | 140,917 | |||||
Goodwill | 254,340 | 254,340 | |||||
Total assets | $ | 7,434,787 | $ | 7,677,971 | |||
Liabilities and stockholders’ equity | |||||||
Liabilities: | |||||||
Revolving Credit Facility | $ | 386,000 | $ | 86,000 | |||
Term Loan, net | 419,091 | 418,471 | |||||
Senior Unsecured Notes, net | 295,242 | 295,112 | |||||
Mortgages and notes payable, net | 2,050,302 | 2,162,403 | |||||
Convertible Notes, net | 712,510 | 702,642 | |||||
Total debt, net | 3,863,145 | 3,664,628 | |||||
Intangible lease liabilities, net | 162,619 | 182,320 | |||||
Accounts payable, accrued expenses and other liabilities | 149,858 | 148,915 | |||||
Total liabilities | 4,175,622 | 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, respectively | 4,559 | 4,836 | |||||
Capital in excess of par value | 5,190,849 | 5,177,086 | |||||
Accumulated deficit | (1,936,243 | ) | (1,499,814 | ) | |||
Accumulated other comprehensive income | — | — | |||||
Total stockholders’ equity | 3,259,165 | 3,682,108 | |||||
Total liabilities and stockholders’ equity | $ | 7,434,787 | $ | 7,677,971 |
|
| March 31, |
|
| December 31, |
| ||
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 receivable | 1,003 | 1,042 | 2,769 | 4,326 | |||||||||||
Earned income from direct financing leases | 483 | 660 | 1,613 | 2,082 | |||||||||||
Tenant reimbursement income | 4,691 | 3,469 | 13,136 | 10,493 | |||||||||||
Other income | 3,574 | 5,572 | 6,583 | 11,600 | |||||||||||
Total revenues | 169,550 | 172,508 | 503,607 | 512,591 | |||||||||||
Expenses: | |||||||||||||||
General and administrative | 13,712 | 15,112 | 49,992 | 40,611 | |||||||||||
Restructuring charges | — | 3,264 | — | 5,726 | |||||||||||
Transaction costs | 2,660 | — | 3,145 | — | |||||||||||
Property costs | 8,080 | 6,916 | 26,763 | 20,854 | |||||||||||
Real estate acquisition costs | 196 | 1,056 | 773 | 2,092 | |||||||||||
Interest | 48,680 | 47,653 | 142,129 | 149,842 | |||||||||||
Depreciation and amortization | 63,673 | 65,300 | 192,887 | 194,227 | |||||||||||
Impairments | 37,737 | 15,407 | 88,109 | 41,396 | |||||||||||
Total expenses | 174,738 | 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 extinguishment | 1,792 | (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 assets | 8,707 | 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: | |||||||||||||||
Basic | 456,671,617 | 479,554,362 | 472,698,692 | 457,263,526 | |||||||||||
Diluted | 456,671,617 | 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 |
| |||||
|
| 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 |
| |||||
|
| 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, 2016 | 483,624,120 | $ | 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, net | 1,526,206 | 15 | 13,763 | (724 | ) | 13,054 | ||||||||||||
Balances, September 30, 2017 | 455,900,032 | $ | 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 |
|
| Shares |
|
| Par |
|
| Capital in |
|
| Accumulated |
|
| AOCIL |
|
| Total |
| ||||||||
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 |
|
| Shares |
|
| Par |
|
| Capital in |
|
| Accumulated |
|
| AOCIL |
|
| Total |
| ||||||||
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 amortization | 192,887 | 194,227 | |||||
Impairments | 88,109 | 41,396 | |||||
Amortization of deferred financing costs | 7,274 | 6,706 | |||||
Payment to terminate interest rate swaps | — | (1,724 | ) | ||||
Derivative net settlements, amortization and terminations | — | 1,809 | |||||
Amortization of debt discounts | 9,663 | 3,354 | |||||
Stock-based compensation expense | 13,778 | 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 | ) | |||
Other | 4,902 | (1,514 | ) | ||||
Changes in operating assets and liabilities: | |||||||
Deferred costs and other assets, net | (8,728 | ) | (8,911 | ) | |||
Accounts payable, accrued expenses and other liabilities | 5,726 | 1,346 | |||||
Net cash provided by operating activities | 292,359 | 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 leases | 7,817 | 6,331 | |||||
Proceeds from dispositions of real estate and other assets | 342,032 | 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 Facility | 781,200 | 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 lenders | 2,480 | 383 | |||||
Net cash used in financing activities | (256,975 | ) | (138,776 | ) | |||
Net increase (decrease) in cash and cash equivalents | 1,888 | (8,606 | ) | ||||
Cash and cash equivalents, beginning of period | 10,059 | 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 |
|
| Three Months Ended |
| |||||
|
| 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.
September 30, 2017 | December 31, 2016 | ||||||
Assets | |||||||
Investments: | |||||||
Real estate investments: | |||||||
Land and improvements | $ | 2,600,873 | $ | 2,704,010 | |||
Buildings and improvements | 4,702,828 | 4,775,221 | |||||
Total real estate investments | 7,303,701 | 7,479,231 | |||||
Less: accumulated depreciation | (1,018,544 | ) | (940,005 | ) | |||
6,285,157 | 6,539,226 | ||||||
Loans receivable, net | 76,821 | 66,578 | |||||
Intangible lease assets, net | 429,857 | 470,276 | |||||
Real estate assets under direct financing leases, net | 24,883 | 36,005 | |||||
Real estate assets held for sale, net | 133,382 | 160,570 | |||||
Net investments | 6,950,100 | 7,272,655 | |||||
Cash and cash equivalents | 11,947 | 10,059 | |||||
Deferred costs and other assets, net | 218,400 | 140,917 | |||||
Goodwill | 254,340 | 254,340 | |||||
Total assets | $ | 7,434,787 | $ | 7,677,971 | |||
Liabilities and partners' capital | |||||||
Liabilities: | |||||||
Revolving Credit Facility | $ | 386,000 | $ | 86,000 | |||
Term Loan, net | 419,091 | 418,471 | |||||
Senior Unsecured Notes, net | 295,242 | 295,112 | |||||
Mortgages and notes payable, net | 2,050,302 | 2,162,403 | |||||
Notes payable to Spirit Realty Capital, Inc., net | 712,510 | 702,642 | |||||
Total debt, net | 3,863,145 | 3,664,628 | |||||
Intangible lease liabilities, net | 162,619 | 182,320 | |||||
Accounts payable, accrued expenses and other liabilities | 149,858 | 148,915 | |||||
Total liabilities | 4,175,622 | 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, 2016 | 24,835 | 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, respectively | 3,234,330 | 3,655,522 | |||||
Total partners' capital | 3,259,165 | 3,682,108 | |||||
Total liabilities and partners' capital | 7,434,787 | 7,677,971 |
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 receivable | 1,003 | 1,042 | 2,769 | 4,326 | |||||||||||
Earned income from direct financing leases | 483 | 660 | 1,613 | 2,082 | |||||||||||
Tenant reimbursement income | 4,691 | 3,469 | 13,136 | 10,493 | |||||||||||
Other income | 3,574 | 5,572 | 6,583 | 11,600 | |||||||||||
Total revenues | 169,550 | 172,508 | 503,607 | 512,591 | |||||||||||
Expenses: | |||||||||||||||
General and administrative | 13,712 | 15,112 | 49,992 | 40,611 | |||||||||||
Restructuring charges | — | 3,264 | — | 5,726 | |||||||||||
Transaction costs | 2,660 | — | 3,145 | — | |||||||||||
Property costs | 8,080 | 6,916 | 26,763 | 20,854 | |||||||||||
Real estate acquisition costs | 196 | 1,056 | 773 | 2,092 | |||||||||||
Interest | 48,680 | 47,653 | 142,129 | 149,842 | |||||||||||
Depreciation and amortization | 63,673 | 65,300 | 192,887 | 194,227 | |||||||||||
Impairments | 37,737 | 15,407 | 88,109 | 41,396 | |||||||||||
Total expenses | 174,738 | 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 extinguishment | 1,792 | (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 assets | 8,707 | 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: | |||||||||||||||
Basic | 456,671,617 | 479,554,362 | 472,698,692 | 457,263,526 | |||||||||||
Diluted | 456,671,617 | 480,598,610 | 472,698,692 | 457,301,623 | |||||||||||
Distributions declared per partnership unit issued | $ | 0.1800 | $ | 0.1750 | $ | 0.5400 | $ | 0.5250 |
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 |
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 |
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 amortization | 192,887 | 194,227 | |||||
Impairments | 88,109 | 41,396 | |||||
Amortization of deferred financing costs | 7,274 | 6,706 | |||||
Payment to terminate interest rate swaps | — | (1,724 | ) | ||||
Derivative net settlements, amortization and terminations | — | 1,809 | |||||
Amortization of debt discounts | 9,663 | 3,354 | |||||
Stock-based compensation expense | 13,778 | 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 | ) | |||
Other | 4,902 | (1,514 | ) | ||||
Changes in operating assets and liabilities: | |||||||
Deferred costs and other assets, net | (8,728 | ) | (8,911 | ) | |||
Accounts payable, accrued expenses and other liabilities | 5,726 | 1,346 | |||||
Net cash provided by operating activities | 292,359 | 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 leases | 7,817 | 6,331 | |||||
Proceeds from dispositions of real estate and other assets | 342,032 | 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 Facility | 781,200 | 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 lenders | 2,480 | 383 | |||||
Net cash used in financing activities | (256,975 | ) | (138,776 | ) | |||
Net increase (decrease) in cash and cash equivalents | 1,888 | (8,606 | ) | ||||
Cash and cash equivalents, beginning of period | 10,059 | 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 |
| |||||
|
| 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.
10
SPIRIT REALTY CAPITAL, INC. and SPIRIT REALTY, L.P.
Notes to Consolidated Financial Statements
March 31, 2023
(Unaudited)
NOTE 1. 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.
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.
NOTE 2. Summary of Significant Accounting 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.
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.
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.
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, |
|
| December 31, |
|
| March 31, |
| |||
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.
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 |
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.
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
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.
NOTE 3. 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, 2016 | 2,541 | 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, 2017 | 2,423 | 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 |
|
| 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(2) For the three months ended March 31, 2023, the net gains on disposal of September 30, 2017.
(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 Three Months Ended 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. Lease renewal periods are exercisable at the lessees’ option and, as such, minimum future rent only includes the remaining initial non-cancellable term of 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 The following table details lease intangible assets and liabilities, net of accumulated amortization (in thousands): March 31, December 31, 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 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 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 The The following table 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 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):
March 31, September 30,
2017Remainder of 2017 $ 151,042 2018 597,808 2019 583,233 2020 566,864 2021 538,273 Thereafter 4,084,670 Total future minimum rentals $ 6,521,890 Because leasethe 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.19SPIRIT REALTY CAPITAL, INC. and SPIRIT REALTY, L.P.Notes to Consolidated Financial Statements - (continued)September 30, 2017(Unaudited)Loans ReceivableThe 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): September 30,
2017 December 31,
2016Mortgage loans - principal $ 62,833 $ 55,410 Mortgage loans - premium, net of amortization 5,568 7,194 Mortgages loans, net 68,401 62,604 Other note receivables - principal 8,420 4,474 Allowance for loan losses — (500 ) Other note receivables, net 8,420 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
2023
2022 September 30,
2017 December 31,
2016In-place leases $ 599,905 $ 624,723 Above-market leases 91,274 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 amortizednet increase to rental revenueresult of the initial term of the direct financing lease extending until 2027.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.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.Real Estate Assets Under Direct Financing LeasesThe components of real estate investments held under direct financing leases were as follows (in thousands): September 30,
2017 December 31,
2016Minimum lease payments receivable $ 7,809 $ 9,456 Estimated residual value of leased assets 24,552 35,640 Unearned income (7,478 ) (9,091 ) Real estate assets under direct financing leases, net $ 24,883 $ 36,005 20SPIRIT REALTY CAPITAL, INC. and SPIRIT REALTY, L.P.Notes to Consolidated Financial Statements - (continued)September 30, 2017(Unaudited)Real Estate Assets Held for Saleshows thedetails our loans receivable activity in real estate assets held(in thousands):sale for the nine months ended September 30, 2017 (dollars in thousands):
Number of Properties | Carrying Value | |||||
Balance, December 31, 2016 | 44 | $ | 160,570 | |||
Transfers from real estate investments held and used | 80 | 212,726 | ||||
Sales | (78 | ) | (157,156 | ) | ||
Transfers to real estate investments held and used | (8 | ) | (63,597 | ) | ||
Impairments | (19,161 | ) | ||||
Balance, September 30, 2017 | 38 | $ | 133,382 |
The following table summarizes total impairmentimpairments and allowance for credit losses recognized onin the accompanying consolidated statements of operations (in thousands):
|
| Three Months Ended |
| |||||
|
| 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, net | 5,061 | 1,491 | 5,556 | 6,463 | |||||||||||
Loans receivable recovery | — | — | — | (324 | ) | ||||||||||
Total impairments from real estate investment net assets | 37,737 | 15,385 | 88,109 | 41,375 | |||||||||||
Other impairment | — | 22 | — | 21 | |||||||||||
Total impairment loss | $ | 37,737 | $ | 15,407 | $ | 88,109 | $ | 41,396 |
NOTE 4. Debt
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 Facility | 3.43 | % | 2.49 | % | 1.5 | $ | 386,000 | $ | 86,000 | ||||||
Term Loan | 2.83 | % | 2.59 | % | 1.1 | 420,000 | 420,000 | ||||||||
Senior Unsecured Notes | 4.59 | % | 4.45 | % | 9.0 | 300,000 | 300,000 | ||||||||
Master Trust Notes | 5.58 | % | 5.03 | % | 5.5 | 1,657,402 | 1,672,706 | ||||||||
CMBS fixed-rate | 5.85 | % | 5.89 | % | 3.9 | 426,583 | 528,427 | ||||||||
Convertible Notes | 5.32 | % | 3.28 | % | 2.5 | 747,500 | 747,500 | ||||||||
Total debt | 4.97 | % | 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 |
|
| Weighted Average Effective Interest Rates (1) |
| Weighted Average Stated Interest Rates (2) |
| Weighted Average Remaining Years to Maturity (3) |
|
| March 31, |
|
| December 31, |
| |||
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)
(2)
(3) Based on the outstanding principal balance as of September 30, 2017.
(4)
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, Revolving Credit On As of March 31, 2023, outstanding loans under the In connection with the As of 17 Term On On November 17, 2022, the Operating Partnership entered into the 2023 Term Loan 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 Senior Unsecured Notesnet on its consolidated balance sheets.FacilityMarch 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.22SPIRIT 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. PaymentRevolving2019 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.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.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.LoanNovember 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.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.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.23SPIRIT REALTY CAPITAL, INC. and SPIRIT REALTY, L.P.Notes to Consolidated Financial Statements - (continued)September 30, 2017(Unaudited)
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, |
|
| December 31, |
| |||
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.
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.
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 |
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.
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 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 |
|
| Balloon |
|
| 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 | ||||||||
2020 | 39,096 | 413,206 | 452,302 | ||||||||
2021 | 30,658 | 554,753 | 585,411 | ||||||||
Thereafter | 219,000 | 1,096,021 | 1,315,021 | ||||||||
Total | $ | 382,571 | $ | 3,554,914 | $ | 3,937,485 |
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 Loan | 2,768 | 1,307 | 7,525 | 3,376 | |||||||||||
Interest expense – Senior Unsecured Notes | 3,337 | 1,595 | 10,013 | 1,595 | |||||||||||
Interest expense – mortgages and notes payable | 27,563 | 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 costs | 2,451 | 2,303 | 7,274 | 6,706 | |||||||||||
Amortization of net losses related to interest rate swaps | — | 28 | — | 85 | |||||||||||
Amortization of debt discount, net | 3,359 | 1,847 | 9,663 | 3,354 | |||||||||||
Total interest expense | $ | 48,680 | $ | 47,653 | $ | 142,129 | $ | 149,842 |
|
| Three Months Ended |
| |||||
|
| 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(2)
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.
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 | ) |
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.
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 |
|
| 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 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
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.
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 |
| |||||
|
| 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.
NOTE 8. 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 | |||||||||
|
|
|
|
| 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.
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
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 |
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.
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 Facility | 386,000 | 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 |
|
| Estimated |
|
| Carrying |
|
| Estimated |
| ||||
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.
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 properties | 39,141 | — | |||
Reclass of residual value on expired deferred financing lease to operating asset | 11,088 | — | |||
Net real estate and other collateral assets sold or surrendered to lender | 35,008 | 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 rights | 699 | 340 | |||
Distributions declared and unpaid | 82,062 | 84,730 | |||
Accrued deferred financing costs | 1,373 | 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 assets | 15,015 | — |
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
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.
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.
The following is a summary of Restricted Stock and Performance Share Awards upon the departure of the Chief Executive Officer.
|
| 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
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 income | 5,322 | 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 outstanding | 458,035,972 | 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 share | 456,671,617 | 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 share | 456,671,617 | 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 |
| |||||
|
| 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.24
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:
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.
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.
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.
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.
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.
Supplemental Guarantor Disclosures
Subsidiary issuers of Operations
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 receivable | 1,003 | 1,042 | (39 | ) | (3.7 | )% | ||||||||
Earned income from direct financing leases | 483 | 660 | (177 | ) | (26.8 | )% | ||||||||
Tenant reimbursement income | 4,691 | 3,469 | 1,222 | 35.2 | % | |||||||||
Other income | 3,574 | 5,572 | (1,998 | ) | (35.9 | )% | ||||||||
Total revenues | 169,550 | 172,508 | (2,958 | ) | (1.7 | )% | ||||||||
Expenses: | ||||||||||||||
General and administrative | 13,712 | 15,112 | (1,400 | ) | (9.3 | )% | ||||||||
Restructuring charges | — | 3,264 | (3,264 | ) | (100.0 | )% | ||||||||
Transaction costs | 2,660 | — | 2,660 | 100.0 | % | |||||||||
Property costs | 8,080 | 6,916 | 1,164 | 16.8 | % | |||||||||
Real estate acquisition costs | 196 | 1,056 | (860 | ) | (81.4 | )% | ||||||||
Interest | 48,680 | 47,653 | 1,027 | 2.2 | % | |||||||||
Depreciation and amortization | 63,673 | 65,300 | (1,627 | ) | (2.5 | )% | ||||||||
Impairments | 37,737 | 15,407 | 22,330 | NM | ||||||||||
Total expenses | 174,738 | 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 extinguishment | 1,792 | (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 | )% |
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
Three Months Ended September 30, | |||||||
(In Thousands) | 2017 | 2016 | |||||
Interest expense – Revolving Credit Facility (1) | $ | 3,075 | $ | 1,155 | |||
Interest expense – Term Loan | 2,768 | 1,307 | |||||
Interest expense – Senior Unsecured Notes | 3,337 | 1,595 | |||||
Interest expense – mortgages and notes payable | 27,563 | 33,291 | |||||
Interest expense – Convertible Notes | 6,127 | 6,127 | |||||
Non-cash interest expense: | |||||||
Amortization of deferred financing costs | 2,451 | 2,303 | |||||
Amortization of net losses related to interest rate swaps | — | 28 | |||||
Amortization of debt discount, net | 3,359 | 1,847 | |||||
Total interest expense | $ | 48,680 | $ | 47,653 |
Three Months Ended September 30, | |||||||
(In Thousands) | 2017 | 2016 | |||||
Depreciation of real estate assets | $ | 52,698 | $ | 53,592 | |||
Other depreciation | 143 | 145 | |||||
Amortization of lease intangibles | 10,832 | 11,563 | |||||
Total depreciation and amortization | $ | 63,673 | $ | 65,300 |
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 receivable | 2,769 | 4,326 | (1,557 | ) | (36.0 | )% | ||||||||
Earned income from direct financing leases | 1,613 | 2,082 | (469 | ) | (22.5 | )% | ||||||||
Tenant reimbursement income | 13,136 | 10,493 | 2,643 | 25.2 | % | |||||||||
Other income | 6,583 | 11,600 | (5,017 | ) | (43.3 | )% | ||||||||
Total revenues | 503,607 | 512,591 | (8,984 | ) | (1.8 | )% | ||||||||
Expenses: | ||||||||||||||
General and administrative | 49,992 | 40,611 | 9,381 | 23.1 | % | |||||||||
Restructuring charges | — | 5,726 | (5,726 | ) | (100.0 | )% | ||||||||
Transaction costs | 3,145 | — | 3,145 | 100.0 | % | |||||||||
Property costs | 26,763 | 20,854 | 5,909 | 28.3 | % | |||||||||
Real estate acquisition costs | 773 | 2,092 | (1,319 | ) | (63.0 | )% | ||||||||
Interest | 142,129 | 149,842 | (7,713 | ) | (5.1 | )% | ||||||||
Depreciation and amortization | 192,887 | 194,227 | (1,340 | ) | (0.7 | )% | ||||||||
Impairments | 88,109 | 41,396 | 46,713 | NM | ||||||||||
Total expenses | 503,798 | 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 extinguishment | 1,770 | 326 | 1,444 | NM | ||||||||||
Total other income | 1,770 | 326 | 1,444 | NM | ||||||||||
Income from continuing operations before income tax expense | 1,579 | 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 | % |
Nine Months Ended September 30, | |||||||
(In Thousands) | 2017 | 2016 | |||||
Interest expense – Revolving Credit Facility (1) | $ | 5,632 | $ | 2,507 | |||
Interest expense – Term Loan | 7,525 | 3,376 | |||||
Interest expense – Senior Unsecured Notes | 10,013 | 1,595 | |||||
Interest expense – mortgages and notes payable | 83,640 | 113,837 | |||||
Interest expense – Convertible Notes | 18,382 | 18,382 | |||||
Non-cash interest expense: | |||||||
Amortization of deferred financing costs | 7,274 | 6,706 | |||||
Amortization of net losses related to interest rate swaps | — | 85 | |||||
Amortization of debt discount, net | 9,663 | 3,354 | |||||
Total interest expense | $ | 142,129 | $ | 149,842 |
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.
Nine Months Ended September 30, | |||||||
(In Thousands) | 2017 | 2016 | |||||
Depreciation of real estate assets | $ | 159,510 | $ | 158,804 | |||
Other depreciation | 420 | 335 | |||||
Amortization of lease intangibles | 32,957 | 35,088 | |||||
Total depreciation and amortization | $ | 192,887 | $ | 194,227 |
2,423 | 99.1% | 49 | 421 | 30 |
Properties | Occupancy | States | Tenants | Industries |
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 | % |
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 |
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 | % |
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 | — |
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 | % |
26
Liquidity and Capital Resources
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.
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.
LONG-TERM LIQUIDITY AND CAPITAL RESOURSES
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.
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.
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.
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 |
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, plus
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.
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.
| Maturity Date |
| Interest Payment Dates |
| Stated Interest Rate |
| March 31, |
| ||
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.
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.
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 |
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 |
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 |
|
| 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:
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.
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 |
|
| 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):
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 |
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):
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 |
|
| 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 |
| |||||||||||||
| 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 |
| |||||||||||
| 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):
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):
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.
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 |
|
| Total Square Feet |
|
| Percent of |
| |||
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.
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 |
|
| Total Square Feet |
|
| ABR |
|
| Percent of |
| ||||
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).
Location |
| Number of |
|
| Total Square Feet |
|
| Percent of |
|
| Location |
| Number of |
|
| Total Square Feet |
|
| Percent of |
| ||||||
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.
Asset Type | Tenant Industry / Underlying Use | Number of |
|
| Total Square Feet |
|
| Percent of |
| |||
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
None.
37
Non-GAAP Financial Measures
FFO: FFO AND AFFO
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 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.
Adjusted Debt
38
FFO and AFFO
|
| Three Months Ended |
| |||||
(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 |
|
|
| 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):
|
| 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 |
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 amortization | 63,530 | 65,155 | 192,465 | 193,892 | |||||||||||
Portfolio impairments | 37,737 | 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 income | 92,560 | 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 costs | 2,660 | — | 3,145 | — | |||||||||||
Real estate acquisition costs | 196 | 1,056 | 773 | 2,092 | |||||||||||
Non-cash interest expense | 5,810 | 4,178 | 16,937 | 10,144 | |||||||||||
Accrued interest and fees on defaulted loans | 1,344 | 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 FFO | 6,597 | 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: | |||||||||||||||
Basic | 456,671,617 | 479,554,362 | 472,698,692 | 457,263,526 | |||||||||||
Diluted | 456,671,617 | 480,598,610 | 472,698,692 | 457,301,623 |
September 30, | |||||||
2017 | 2016 | ||||||
(Unaudited) | |||||||
Revolving Credit Facility | $ | 386,000 | $ | 105,000 | |||
Term Loan, net | 419,091 | 368,400 | |||||
Unsecured Senior Notes, net | 295,242 | 295,215 | |||||
Mortgages and notes payable, net | 2,050,302 | 2,241,783 | |||||
Convertible Notes, net | 712,510 | 699,465 | |||||
3,863,145 | 3,709,863 | ||||||
Add/(less): | |||||||
Unamortized debt discount, net | 43,327 | 54,975 | |||||
Unamortized deferred financing costs | 31,013 | 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): | |||||||
Interest | 48,680 | 47,653 | |||||
Depreciation and amortization | 63,673 | 65,300 | |||||
Income tax expense | (11 | ) | 12 | ||||
Total adjustments | 112,342 | 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 costs | 2,660 | — | |||||
Real estate acquisition costs | 196 | 1,056 | |||||
Impairments on real estate assets | 37,737 | 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 EBITDA | 30,094 | 11,594 | |||||
Adjusted EBITDA | $ | 147,758 | $ | 151,958 | |||
Annualized Adjusted EBITDA (1) | $ | 591,032 | $ | 607,832 | |||
Adjusted Debt / Annualized Adjusted EBITDA | 6.5 | x | 6.2 | x | |||
(1) Adjusted EBITDA of the current quarter multiplied by four. |
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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.
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
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.
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 |
|
| Estimated |
| ||
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 and41
Item 4. Controls and Procedures
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.
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PART II — OTHER INFORMATION
Item 1. Legal Proceedings.
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.
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.
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.
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Item 6. Exhibits.
Exhibit No. | Description |
3.1 | |
3.2 | |
3.3 | |
3.4 | |
3.5 | |
3.6 | |
3.7 | |
10.1* | |
10.2* | |
22.1* | |
31.1* | |
31.2* | |
32.1* | |
101.INS* | |
Inline XBRL Instance Document – The instance document does not appear in the interactive data file because its XBRL tags are embedded within the inline XBRL document. | |
101.SCH* | Inline XBRL Taxonomy Extension Schema |
101.CAL* | Inline XBRL Taxonomy Extension Calculation Linkbase |
101.DEF* | Inline XBRL Taxonomy Extension Definition Linkbase |
101.LAB* | Inline XBRL Taxonomy Extension Label Linkbase |
101.PRE* | Inline XBRL Taxonomy Extension Presentation Linkbase |
104.1* | Cover Page Interactive Data File - The cover page interactive data file does not appear in the interactive data file because its XBRL tags are embedded within the inline XBRL document. |
* | Filed herewith. |
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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) | ||||
By: | /s/ Prakash J. Parag | |||
Name: | Prakash J. Parag | |||
Title: | Senior Vice President and Chief Accounting Officer | |||
(Principal Accounting Officer) |
Date: November 2, 2017
45