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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 March 31, 2020

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

 

   Spirit Realty Capital, Inc.

001-36004

Spirit Realty, L.P.

333-216815-01

 

SPIRIT REALTY CAPITAL, INC.

SPIRIT REALTY, L.P.

(Exact name of registrant as specified in its charter)

 

 

Spirit Realty Capital, Inc.

 

Maryland

 

20-1676382

Spirit Realty, L.P.

 

Delaware

 

20-1127940

 

 

(State or other jurisdiction of

incorporation or organization)

 

(I.R.S. Employer

Identification Number)

 

 

 

 

 

 

 

2727 North Harwood Street, Suite 300,

Dallas, Texas 75201

 

(972) 476-1900

 

 

(Address of principal executive offices; zip code)

 

(Registrant’s telephone number, including area code)

 

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

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

 

Title of each class

Trading Symbol(s)

Name of each exchange on which registered

Common stock, par value $0.05 per share

SRC

New York Stock Exchange

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

SRC-A

New York Stock Exchange

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

Spirit Realty Capital, Inc.      Yes    No   

Spirit Realty, L.P.      Yes    No   

 

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted 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 such files).    

Spirit Realty Capital, Inc.      Yes    No   

Spirit Realty, L.P.      Yes    No   

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

Spirit Realty Capital, Inc.

 

 Large accelerated filer

Accelerated filer

Non-accelerated filer

 

Smaller reporting company

Emerging growth company

Spirit Realty, L.P.

 

 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.

 

Spirit Realty Capital, Inc.            

Spirit Realty, L.P.            

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

 

Spirit Realty Capital, Inc.      Yes    No  

Spirit Realty, L.P.      Yes    No  

As of May 1, 2020, there were 102,939,952 shares of common stock, par value $0.05, of Spirit Realty Capital, Inc. outstanding.

 

 


EXPLANATORY NOTE

This report combines the quarterly reports on Form 10-Q for the three months ended March 31, 2020 of Spirit Realty Capital, Inc., a Maryland corporation, and Spirit Realty, L.P., a Delaware limited partnership. Unless otherwise indicated or unless the context requires otherwise, all references in this report to “we,” “us,” “our,” or the “Company” refer to Spirit Realty Capital, Inc. together with its consolidated subsidiaries, including Spirit Realty, L.P. Unless otherwise indicated or unless the context requires otherwise, all references to the “Operating Partnership” refer to Spirit Realty, L.P. together with its consolidated subsidiaries.

Spirit General OP Holdings, LLC ("OP Holdings") is the sole general partner of the Operating Partnership. The Company is a real estate investment trust ("REIT") and the sole member of OP Holdings, as well as the special limited partner of the Operating Partnership. As sole member of the general partner of our Operating Partnership, our Company has the full, exclusive and complete responsibility for our Operating Partnership’s day-to-day management and control.

We believe combining the quarterly reports on Form 10-Q of our Company and Operating Partnership into a single report results in the following benefits:

 

enhancing investors’ understanding of our Company and Operating Partnership by enabling investors to view the business as a whole, reflective of how management views and operates the business;

 

eliminating duplicative disclosure and providing a streamlined presentation as a substantial portion of the disclosures apply to both our Company and Operating Partnership; and

 

creating time and cost efficiencies by preparing one combined report in lieu of two separate reports.

There are a few differences between our Company and Operating Partnership, which are reflected in the disclosures in this report. We believe it is important to understand these differences in the context of how we operate as an interrelated, consolidated company. Our Company is a REIT, the only material assets of which are the partnership interests in our Operating Partnership. As a result, our Company does not conduct business itself, other than acting as the sole member of the general partner of our Operating Partnership, issuing equity from time to time and guaranteeing certain debt of our Operating Partnership. Our Operating Partnership holds substantially all the assets of our Company. Our Company issued convertible notes and guarantees some of the debt of our Operating Partnership, see Note 4 to the consolidated financial statements included herein for further discussion. Our Operating Partnership conducts the operations of the business and is structured as a partnership with no publicly traded equity. Except for net proceeds from issuances of convertible notes and equity issuances by our Company, which are generally contributed to our Operating Partnership in exchange for partnership units of our Operating Partnership, our Operating Partnership generates the capital required by our Company’s business through our Operating Partnership’s operations or our Operating Partnership’s incurrence of indebtedness.

The presentation of stockholders’ equity and partners’ capital are the main areas of difference between the consolidated financial statements of our Company and those of our Operating Partnership. The partnership units in our Operating Partnership are accounted for as partners’ capital in our Operating Partnership’s consolidated financial statements. There are no non-controlling interests in the Company or the Operating Partnership.

To help investors understand the significant differences between our Company and our Operating Partnership, this report presents the consolidated financial statements separately for our Company and our Operating Partnership. All other sections of this report, including “Selected Financial Data,” “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and “Quantitative and Qualitative Disclosures About Market Risk,” are presented together for our Company and our Operating Partnership.

In order to establish that the Chief Executive Officer and the Chief Financial Officer of each entity have made the requisite certifications and that our Company and Operating Partnership are compliant with Rule 13a-15 or Rule 15d-15 of the Securities Exchange Act of 1934, or the Exchange Act, and 18 U.S.C. §1350, this report also includes separate “Part 1―Financial Information, Item 4. Controls and Procedures” sections and separate Exhibit 31 and 32 certifications for each of our Company and our Operating Partnership.

 

 

 

 

 

 

 


INDEX

 

Glossary

 

4

PART I — FINANCIAL INFORMATION

 

6

 

Item 1.

 

Financial Statements (Unaudited)

 

6

 

Item 2.

 

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

 

33

 

Item 3.

 

Quantitative and Qualitative Disclosures About Market Risk

 

48

 

Item 4.

 

Controls and Procedures

 

49

PART II — OTHER INFORMATION

 

50

 

Item 1.

 

Legal Proceedings

 

50

 

Item 1A.

 

Risk Factors

 

50

 

Item 2.

 

Unregistered Sales of Equity Securities and Use of Proceeds

 

51

 

Item 3.

 

Defaults Upon Senior Securities

 

51

 

Item 4.

 

Mine Safety Disclosures

 

52

 

Item 5.

 

Other Information

 

52

 

Item 6.

 

Exhibits

 

53

 

 

 

Signatures

 

55

 

 

 

 

 


GLOSSARY

2015 Credit Agreement

Revolving credit facility agreement between the Operating Partnership and certain lenders dated March 31, 2015, as amended or otherwise modified from time to time, providing for an $800.0 million unsecured credit facility

2015 Term Loan Agreement

Term loan agreement between the Operating Partnership and certain lenders dated November 3, 2015, as amended or otherwise modified from time to time, providing for a $420.0 million unsecured term loan facility

2017 Tax Legislation

Tax Cuts and Jobs Act of 2017

2019 Credit Facility

$800.0 million unsecured revolving credit facility pursuant to the 2019 Revolving Credit and Term Loan Agreement

2019 Facilities Agreements

2019 Revolving Credit and Term Loan Agreement and A-2 Term Loans

2019 Notes

$402.5 million convertible notes of the Corporation due in 2019

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 otherwise modified from time to time

2020 Term Loans

$300.0 million senior unsecured term facility pursuant to the 2020 Term Loan Agreement

2020 Term Loan Agreement

Term loan agreement between the Operating Partnership and certain lenders dated April 2, 2020, as amended or otherwise modified from time to time

2021 Notes

$345.0 million convertible notes of the Corporation due in 2021

2026 Senior Notes

$300.0 million aggregate principal amount of senior notes issued in August 2016

2027 Senior Notes

$300.0 million aggregate principal amount of senior notes issued in September 2019

2029 Senior Notes

$400.0 million aggregate principal amount of senior notes issued in June 2019

2030 Senior Notes

$500.0 million aggregate principal amount of senior notes issued in September 2019

A-1 Term Loans

$420.0 million unsecured term loan facility pursuant to the 2019 Revolving Credit and Term Loan Agreement

A-2 Term Loans

$400.0 million unsecured term loan facility pursuant to a term loan agreement between the Operating Partnership and certain lenders dated January 14, 2019, as amended or otherwise modified from time to time

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 EBITDAre is 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. See definition in Management's Discussion and Analysis of Financial Condition and Results of Operations

Amended Incentive Award Plan

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

AOCL

Accumulated Other Comprehensive Loss

ASC

Accounting Standards Codification

Asset Management Agreement

Asset Management Agreement between Spirit Realty, L.P. and Spirit MTA REIT dated May 31, 2018, subsequently assigned by Spirit Realty, L.P. to Spirit Realty AM Corporation on April 1, 2019 and terminated effective as of September 20, 2019

ASU

Accounting Standards Update

ATM Program

At the Market equity distribution program, pursuant to which the Corporation may offer and sell registered shares of common stock from time to time

CMBS

Commercial Mortgage-Backed Securities

Code

Internal Revenue Code of 1986, as amended

Company

The Corporation and its consolidated subsidiaries

Contractual Rent

Represents monthly contractual cash rent and earned income from direct financing leases, excluding percentage rents, from our owned properties recognized during the final month of the reporting period, adjusted to exclude amounts received from properties sold during that period and adjusted to include a full month of contractual rent for properties acquired during that period. We use Contractual Rent when calculating certain metrics that are useful to evaluate portfolio credit, asset type, industry, and geographic diversity and to manage risk.

Convertible Notes

The 2019 Notes and 2021 Notes, together

Corporation

Spirit Realty Capital, Inc., a Maryland corporation

CPI

Consumer Price Index

EBITDAre

EBITDAre is a non-GAAP financial measure and is computed in accordance with standards established by NAREIT. See definition in Management's Discussion and Analysis of Financial Condition and Results of Operations

4


 

Exchange Act

Securities Exchange Act of 1934, as amended

FASB

Financial Accounting Standards Board

FFO

Funds From Operations. See definition in Management's Discussion and Analysis of Financial Condition and Results of Operations

GAAP

Generally Accepted Accounting Principles in the United States

Interim Management Agreement

Interim Management Agreement between Spirit Realty AM Corporation, a wholly-owned subsidiary of the Company, and Spirit MTA REIT dated June 2, 2019 and effective as of  September 20, 2019

LIBOR

London Interbank Offered Rate

Master Trust 2013

The net-lease mortgage securitization trust established in December 2013

Master Trust 2014

The net-lease mortgage securitization trust established in 2005 and amended and restated in 2014

Master Trust Notes

Master Trust 2013 and Master Trust 2014, together

Master Trust Release

Proceeds from the sale of assets securing the Master Trust Notes held in restricted accounts until a qualifying substitution is made or until used for principal reduction

NAREIT

National Association of Real Estate Investment Trusts

Occupancy

The number of economically yielding owned properties divided by total owned properties

OP Holdings

Spirit General OP Holdings, LLC

Operating Partnership

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

Property Management and Servicing Agreement

Second amended and restated agreement governing the management services and special services provided to Master Trust 2014 by Spirit Realty, L.P., dated as of May 20, 2014, as amended, supplemented, amended and restated or otherwise modified

Real Estate Investment Value

The gross acquisition cost, including capitalized transaction costs, plus improvements and less impairments, if any

REIT

Real estate investment trust

S&P

S&P's Global Ratings

SEC

Securities and Exchange Commission

Securities Act

Securities Act of 1933, as amended

Senior Unsecured Notes

2026 Senior Notes, 2027 Senior Notes, 2029 Senior Notes, and 2030 Senior Notes, collectively

Series A Preferred Stock

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

Shopko

Specialty Retail Shops Holding Corp. and certain of its affiliates

SMTA

Spirit MTA REIT, a Maryland real estate investment trust, or SMTA Liquidating Trust, a Maryland common law trust, as the context dictates. On January 1, 2020, Spirit MTA REIT transferred all of its assets (subject to all of its liabilities) to SMTA Liquidating Trust.

Spin-Off

Creation of an independent, publicly traded REIT, SMTA, through our contribution of properties leased to Shopko, assets that collateralize Master Trust 2014 and other additional assets to SMTA followed by the distribution by us to our stockholders of all of the common shares of beneficial interest in SMTA.

SubREIT

Spirit MTA SubREIT, Inc., previously a wholly-owned subsidiary of SMTA. SubREIT was dissolved on October 1, 2019.

Total Debt

Principal debt outstanding before discounts, premiums or deferred financing costs

TSR

Total Shareholder Return

U.S.

United States

Vacant

Owned properties which are not economically yielding

 

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

5


 

PART I — FINANCIAL INFORMATION

Item 1. Financial Statements

SPIRIT REALTY CAPITAL, INC.

Consolidated Balance Sheets

(In Thousands, Except Share and Per Share Data)

(Unaudited)

 

 

 

March 31,

2020

 

 

December 31,

2019

 

Assets

 

 

 

 

 

 

 

 

Investments:

 

 

 

 

 

 

 

 

Real estate investments:

 

 

 

 

 

 

 

 

Land and improvements

 

$

1,929,589

 

 

$

1,910,287

 

Buildings and improvements

 

 

3,953,335

 

 

 

3,840,220

 

Total real estate investments

 

 

5,882,924

 

 

 

5,750,507

 

Less: accumulated depreciation

 

 

(736,394

)

 

 

(717,097

)

 

 

 

5,146,530

 

 

 

5,033,410

 

Loans receivable, net

 

 

30,849

 

 

 

34,465

 

Intangible lease assets, net

 

 

381,398

 

 

 

385,079

 

Real estate assets under direct financing leases, net

 

 

7,300

 

 

 

14,465

 

Real estate assets held for sale, net

 

 

3,126

 

 

 

1,144

 

Net investments

 

 

5,569,203

 

 

 

5,468,563

 

Cash and cash equivalents

 

 

216,692

 

 

 

14,492

 

Deferred costs and other assets, net

 

 

123,674

 

 

 

124,006

 

Goodwill

 

 

225,600

 

 

 

225,600

 

Total assets

 

$

6,135,169

 

 

$

5,832,661

 

 

 

 

 

 

 

 

 

 

Liabilities and stockholders’ equity

 

 

 

 

 

 

 

 

Liabilities:

 

 

 

 

 

 

 

 

Revolving credit facilities

 

$

500,000

 

 

$

116,500

 

Senior Unsecured Notes, net

 

 

1,484,473

 

 

 

1,484,066

 

Mortgages and notes payable, net

 

 

215,186

 

 

 

216,049

 

Convertible Notes, net

 

 

337,921

 

 

 

336,402

 

Total debt, net

 

 

2,537,580

 

 

 

2,153,017

 

Intangible lease liabilities, net

 

 

124,097

 

 

 

127,335

 

Accounts payable, accrued expenses and other liabilities

 

 

124,084

 

 

 

139,060

 

Total liabilities

 

 

2,785,761

 

 

 

2,419,412

 

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, 2020 and December 31, 2019

 

 

166,177

 

 

 

166,177

 

Common stock, $0.05 par value, 175,000,000 shares authorized: 102,942,162 and 102,476,152 shares issued and outstanding at March 31, 2020 and December 31, 2019, respectively

 

 

5,147

 

 

 

5,124

 

Capital in excess of common stock par value

 

 

5,707,271

 

 

 

5,686,247

 

Accumulated deficit

 

 

(2,518,428

)

 

 

(2,432,838

)

Accumulated other comprehensive loss

 

 

(10,759

)

 

 

(11,461

)

Total stockholders’ equity

 

 

3,349,408

 

 

 

3,413,249

 

Total liabilities and stockholders’ equity

 

$

6,135,169

 

 

$

5,832,661

 

 

See accompanying notes.

6


 

SPIRIT REALTY CAPITAL, INC.

Consolidated Statements of Operations

(In Thousands, Except Share and Per Share Data)

(Unaudited)

 

 

 

Three Months Ended

March 31,

 

 

 

2020

 

 

2019

 

Revenues:

 

 

 

 

 

 

 

 

Rental income

 

$

121,363

 

 

$

104,067

 

Interest income on loans receivable

 

 

419

 

 

 

986

 

Earned income from direct financing leases

 

 

177

 

 

 

396

 

Related party fee income

 

 

250

 

 

 

6,927

 

Other income

 

 

511

 

 

 

217

 

Total revenues

 

 

122,720

 

 

 

112,593

 

Expenses:

 

 

 

 

 

 

 

 

General and administrative

 

 

13,490

 

 

 

13,181

 

Property costs (including reimbursable)

 

 

5,936

 

 

 

5,154

 

Deal pursuit costs

 

 

1,019

 

 

 

71

 

Interest

 

 

25,359

 

 

 

26,611

 

Depreciation and amortization

 

 

52,236

 

 

 

41,349

 

Impairments

 

 

40,774

 

 

 

3,692

 

Total expenses

 

 

138,814

 

 

 

90,058

 

Other income:

 

 

 

 

 

 

 

 

Gain on debt extinguishment

 

 

 

 

 

8,783

 

Gain on disposition of assets

 

 

388

 

 

 

8,730

 

Preferred dividend income from SMTA

 

 

 

 

 

3,750

 

Total other income

 

 

388

 

 

 

21,263

 

(Loss) income before income tax expense

 

 

(15,706

)

 

 

43,798

 

Income tax expense

 

 

(141

)

 

 

(220

)

Net (loss) income

 

$

(15,847

)

 

$

43,578

 

Dividends paid to preferred shareholders

 

 

(2,588

)

 

 

(2,588

)

Net (loss) income attributable to common stockholders

 

$

(18,435

)

 

$

40,990

 

 

 

 

 

 

 

 

 

 

Net (loss) income per share attributable to common stockholders:

 

 

 

 

 

 

 

 

Basic

 

$

(0.18

)

 

$

0.48

 

Diluted

 

$

(0.18

)

 

$

0.48

 

 

 

 

 

 

 

 

 

 

Weighted average shares of common stock outstanding:

 

 

 

 

 

 

 

 

Basic

 

 

102,230,147

 

 

 

85,497,093

 

Diluted

 

 

102,230,147

 

 

 

85,504,897

 

 

 

 

 

 

 

 

 

 

Dividends declared per common share issued

 

$

0.6250

 

 

$

0.6250

 

 

See accompanying notes.

7


 

SPIRIT REALTY CAPITAL, INC.

Consolidated Statements of Comprehensive (Loss) Income

(In Thousands)

(Unaudited)

 

 

 

Three Months Ended

March 31,

 

 

 

2020

 

 

2019

 

Net (loss) income attributable to common stockholders

 

$

(18,435

)

 

$

40,990

 

Other comprehensive income (loss):

 

 

 

 

 

 

 

 

Net reclassification of amounts from (to) AOCL

 

 

702

 

 

 

(5,021

)

Total comprehensive (loss) income

 

$

(17,733

)

 

$

35,969

 

 

See accompanying notes.

 

8


SPIRIT REALTY CAPITAL, INC.

Consolidated Statements of Stockholders' Equity

(In Thousands, Except Share Data)

(Unaudited)

 

Three Months Ended March 31, 2020

 

Preferred Stock

 

 

Common Stock

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Shares

 

 

Par Value and

Capital in Excess

of Par Value

 

 

Shares

 

 

Par

Value

 

 

Capital in

Excess of

Par Value

 

 

Accumulated

Deficit

 

 

AOCL

 

 

Total

Stockholders’

Equity

 

Balances, December 31, 2019

 

 

6,900,000

 

 

$

166,177

 

 

 

102,476,152

 

 

$

5,124

 

 

$

5,686,247

 

 

$

(2,432,838

)

 

$

(11,461

)

 

$

3,413,249

 

Net loss

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(15,847

)

 

 

 

 

 

(15,847

)

Dividends declared on preferred stock

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(2,588

)

 

 

 

 

 

(2,588

)

Net loss attributable to common stockholders

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(18,435

)

 

 

 

 

 

(18,435

)

Other comprehensive income

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

702

 

 

 

702

 

Dividends declared on common stock

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(64,338

)

 

 

 

 

 

(64,338

)

Tax withholdings related to net stock settlements

 

 

 

 

 

 

 

 

(44,488

)

 

 

(2

)

 

 

 

 

 

(2,347

)

 

 

 

 

 

(2,349

)

Issuance of shares of common stock, net

 

 

 

 

 

 

 

 

362,481

 

 

 

18

 

 

 

17,580

 

 

 

 

 

 

 

 

 

17,598

 

Stock-based compensation, net

 

 

 

 

 

 

 

 

148,017

 

 

 

7

 

 

 

3,444

 

 

 

(470

)

 

 

 

 

 

2,981

 

Balances, March 31, 2020

 

 

6,900,000

 

 

$

166,177

 

 

 

102,942,162

 

 

$

5,147

 

 

$

5,707,271

 

 

$

(2,518,428

)

 

$

(10,759

)

 

$

3,349,408

 

 

 

Three Months Ended March 31, 2019

 

Preferred Stock

 

 

Common Stock

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Shares

 

 

Par Value and

Capital in Excess

of Par Value

 

 

Shares

 

 

Par

Value

 

 

Capital in

Excess of

Par Value

 

 

Accumulated

Deficit

 

 

AOCL

 

 

Total

Stockholders’

Equity

 

Balances, December 31, 2018

 

 

6,900,000

 

 

$

166,177

 

 

 

85,787,355

 

 

$

4,289

 

 

$

4,995,697

 

 

$

(2,357,255

)

 

$

(7,159

)

 

$

2,801,749

 

Net income

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

43,578

 

 

 

 

 

 

43,578

 

Dividends declared on preferred stock

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(2,588

)

 

 

 

 

 

(2,588

)

Net income attributable to common stockholders

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

40,990

 

 

 

 

 

 

40,990

 

Other comprehensive loss

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(5,021

)

 

 

(5,021

)

Dividends declared on common stock

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(54,254

)

 

 

 

 

 

(54,254

)

Tax withholdings related to net stock settlements

 

 

 

 

 

 

 

 

(17,800

)

 

 

(1

)

 

 

 

 

 

(703

)

 

 

 

 

 

(704

)

Issuance of shares of common stock, net

 

 

 

 

 

 

 

 

893,526

 

 

 

45

 

 

 

32,641

 

 

 

 

 

 

 

 

 

32,686

 

Other

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(79

)

 

 

 

 

 

 

 

 

(79

)

Stock-based compensation, net

 

 

 

 

 

 

 

 

148,705

 

 

 

8

 

 

 

3,570

 

 

 

(309

)

 

 

 

 

 

3,269

 

Balances, March 31, 2019

 

 

6,900,000

 

 

$

166,177

 

 

 

86,811,786

 

 

$

4,341

 

 

$

5,031,829

 

 

$

(2,371,531

)

 

$

(12,180

)

 

$

2,818,636

 

 

See accompanying notes.

 

9


SPIRIT REALTY CAPITAL, INC.

Consolidated Statements of Cash Flows

(In Thousands)

(Unaudited)

 

 

 

Three Months Ended

March 31,

 

 

 

2020

 

 

2019

 

Operating activities

 

 

 

 

 

 

 

 

Net (loss) income

 

$

(15,847

)

 

$

43,578

 

Adjustments to reconcile net (loss) income to net cash provided by operating activities:

 

 

 

 

 

 

 

 

Depreciation and amortization

 

 

52,236

 

 

 

41,349

 

Impairments

 

 

40,774

 

 

 

3,692

 

Amortization of deferred financing costs

 

 

1,142

 

 

 

2,031

 

Amortization of debt discounts

 

 

1,224

 

 

 

2,706

 

Amortization of deferred losses on interest rate swaps

 

 

702

 

 

 

 

Stock-based compensation expense

 

 

3,451

 

 

 

3,578

 

Gain on debt extinguishment

 

 

 

 

 

(8,783

)

Gain on dispositions of real estate and other assets

 

 

(388

)

 

 

(8,730

)

Non-cash revenue

 

 

(1,259

)

 

 

(4,110

)

Bad debt expense and other

 

 

233

 

 

 

799

 

Changes in operating assets and liabilities:

 

 

 

 

 

 

 

 

Deferred costs and other assets, net

 

 

(136

)

 

 

(700

)

Accounts payable, accrued expenses and other liabilities

 

 

(14,954

)

 

 

(4,057

)

Net cash provided by operating activities

 

 

67,178

 

 

 

71,353

 

Investing activities

 

 

 

 

 

 

 

 

Acquisitions of real estate

 

 

(205,818

)

 

 

(160,262

)

Capitalized real estate expenditures

 

 

(7,810

)

 

 

(19,612

)

Collections of principal on loans receivable and real estate assets under direct financing leases

 

 

1,163

 

 

 

3,653

 

Proceeds from dispositions of real estate and other assets, net

 

 

16,800

 

 

 

34,848

 

Net cash used in investing activities

 

 

(195,665

)

 

 

(141,373

)

Financing activities

 

 

 

 

 

 

 

 

Borrowings under revolving credit facilities

 

 

759,000

 

 

 

372,700

 

Repayments under revolving credit facilities

 

 

(375,500

)

 

 

(312,500

)

Repayments under mortgages and notes payable

 

 

(1,017

)

 

 

(2,906

)

Borrowings under term loans

 

 

 

 

 

420,000

 

Repayments under term loans

 

 

 

 

 

(420,000

)

Debt extinguishment costs

 

 

 

 

 

(1,009

)

Deferred financing costs

 

 

 

 

 

(11,266

)

Proceeds from issuance of common stock, net of offering costs

 

 

17,677

 

 

 

32,379

 

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

 

 

(2,349

)

 

 

(704

)

Common stock dividends paid

 

 

(64,362

)

 

 

(53,615

)

Preferred stock dividends paid

 

 

(2,588

)

 

 

(2,588

)

Net cash provided by financing activities

 

 

330,861

 

 

 

20,491

 

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

 

 

202,374

 

 

 

(49,529

)

Cash, cash equivalents and restricted cash, beginning of period

 

 

26,023

 

 

 

77,421

 

Cash, cash equivalents and restricted cash, end of period

 

$

228,397

 

 

$

27,892

 

 

 

 

 

 

 

 

 

 

Cash paid for interest

 

$

29,145

 

 

$

17,052

 

Cash paid for income taxes

 

$

86

 

 

$

262

 

 

 

 

 

 

 

 

10


 

SPIRIT REALTY CAPITAL, INC.

Consolidated Statements of Cash Flows

(In Thousands)

(Unaudited)

 

Supplemental Disclosures of Non-Cash Activities:

 

Three Months Ended

March 31,

 

 

 

2020

 

 

2019

 

Distributions declared and unpaid

 

$

64,338

 

 

$

54,254

 

Relief of debt through sale or foreclosure of real estate properties

 

 

 

 

 

10,368

 

Net real estate and other collateral assets sold or surrendered to lender

 

 

 

 

 

654

 

Cash flow hedge changes in fair value

 

 

 

 

 

5,021

 

Accrued interest capitalized to principal (1)

 

 

 

 

 

251

 

Accrued market-based award dividend rights

 

 

470

 

 

 

308

 

Accrued capitalized costs

 

 

1,015

 

 

 

1,142

 

Right-of-use lease assets

 

 

 

 

 

6,143

 

Lease liabilities

 

 

 

 

 

6,143

 

Reclass of residual value from direct financing lease to operating lease

 

 

6,831

 

 

 

 

 

(1)

Accrued and overdue interest on certain CMBS notes that were intentionally placed in default.

See accompanying notes.

11


 

SPIRIT REALTY, L.P.

Consolidated Balance Sheets

(In Thousands, Except Unit and Per Unit Data)

(Unaudited)

 

 

 

March 31,

2020

 

 

December 31,

2019

 

Assets

 

 

 

 

 

 

 

 

Investments:

 

 

 

 

 

 

 

 

Real estate investments:

 

 

 

 

 

 

 

 

Land and improvements

 

$

1,929,589

 

 

$

1,910,287

 

Buildings and improvements

 

 

3,953,335

 

 

 

3,840,220

 

Total real estate investments

 

 

5,882,924

 

 

 

5,750,507

 

Less: accumulated depreciation

 

 

(736,394

)

 

 

(717,097

)

 

 

 

5,146,530

 

 

 

5,033,410

 

Loans receivable, net

 

 

30,849

 

 

 

34,465

 

Intangible lease assets, net

 

 

381,398

 

 

 

385,079

 

Real estate assets under direct financing leases, net

 

 

7,300

 

 

 

14,465

 

Real estate assets held for sale, net

 

 

3,126

 

 

 

1,144

 

Net investments

 

 

5,569,203

 

 

 

5,468,563

 

Cash and cash equivalents

 

 

216,692

 

 

 

14,492

 

Deferred costs and other assets, net

 

 

123,674

 

 

 

124,006

 

Goodwill

 

 

225,600

 

 

 

225,600

 

Total assets

 

$

6,135,169

 

 

$

5,832,661

 

 

 

 

 

 

 

 

 

 

Liabilities and partners' capital

 

 

 

 

 

 

 

 

Liabilities:

 

 

 

 

 

 

 

 

Revolving credit facilities

 

$

500,000

 

 

$

116,500

 

Senior Unsecured Notes, net

 

 

1,484,473

 

 

 

1,484,066

 

Mortgages and notes payable, net

 

 

215,186

 

 

 

216,049

 

Notes payable to Spirit Realty Capital, Inc., net

 

 

337,921

 

 

 

336,402

 

Total debt, net

 

 

2,537,580

 

 

 

2,153,017

 

Intangible lease liabilities, net

 

 

124,097

 

 

 

127,335

 

Accounts payable, accrued expenses and other liabilities

 

 

124,084

 

 

 

139,060

 

Total liabilities

 

 

2,785,761

 

 

 

2,419,412

 

Commitments and contingencies (see Note 6)

 

 

 

 

 

 

 

 

Partners' capital:

 

 

 

 

 

 

 

 

Partnership units

 

 

 

 

 

 

 

 

General partner's capital: 797,644 units issued and outstanding as of both March 31, 2020 and December 31, 2019

 

 

21,752

 

 

 

22,389

 

Limited partners' preferred capital: 6,900,000 units issued and outstanding as of both March 31, 2020 and December 31, 2019

 

 

166,177

 

 

 

166,177

 

Limited partners' capital: 102,144,518 and 101,678,508 units issued and outstanding as of March 31, 2020 and December 31, 2019, respectively

 

 

3,161,479

 

 

 

3,224,683

 

Total partners' capital

 

 

3,349,408

 

 

 

3,413,249

 

Total liabilities and partners' capital

 

$

6,135,169

 

 

$

5,832,661

 

 

See accompanying notes.

12


 

SPIRIT REALTY, L.P.

Consolidated Statements of Operations

(In Thousands, Except Unit and Per Unit Data)

(Unaudited)

 

 

 

Three Months Ended

March 31,

 

 

 

2020

 

 

2019

 

Revenues:

 

 

 

 

 

 

 

 

Rental income

 

$

121,363

 

 

$

104,067

 

Interest income on loans receivable

 

 

419

 

 

 

986

 

Earned income from direct financing leases

 

 

177

 

 

 

396

 

Related party fee income

 

 

250

 

 

 

6,927

 

Other income

 

 

511

 

 

 

217

 

Total revenues

 

 

122,720

 

 

 

112,593

 

Expenses:

 

 

 

 

 

 

 

 

General and administrative

 

 

13,490

 

 

 

13,181

 

Property costs (including reimbursable)

 

 

5,936

 

 

 

5,154

 

Deal pursuit costs

 

 

1,019

 

 

 

71

 

Interest

 

 

25,359

 

 

 

26,611

 

Depreciation and amortization

 

 

52,236

 

 

 

41,349

 

Impairments

 

 

40,774

 

 

 

3,692

 

Total expenses

 

 

138,814

 

 

 

90,058

 

Other income:

 

 

 

 

 

 

 

 

Gain on debt extinguishment

 

 

 

 

 

8,783

 

Gain on disposition of assets

 

 

388

 

 

 

8,730

 

Preferred dividend income from SMTA

 

 

 

 

 

3,750

 

Total other income

 

 

388

 

 

 

21,263

 

(Loss) income before income tax expense

 

 

(15,706

)

 

 

43,798

 

Income tax expense

 

 

(141

)

 

 

(220

)

Net (loss) income

 

$

(15,847

)

 

$

43,578

 

Preferred distributions

 

 

(2,588

)

 

 

(2,588

)

Net (loss) income after preferred distributions

 

$

(18,435

)

 

$

40,990

 

 

 

 

 

 

 

 

 

 

Net (loss) income attributable to the general partner

 

$

(143

)

 

$

380

 

Net (loss) income attributable to the limited partners

 

$

(15,704

)

 

$

43,198

 

 

 

 

 

 

 

 

 

 

Net (loss) income per partnership unit:

 

 

 

 

 

 

 

 

Basic

 

$

(0.18

)

 

$

0.48

 

Diluted

 

$

(0.18

)

 

$

0.48

 

 

 

 

 

 

 

 

 

 

Weighted average partnership units outstanding:

 

 

 

 

 

 

 

 

Basic

 

 

102,230,147

 

 

 

85,497,093

 

Diluted

 

 

102,230,147

 

 

 

85,504,897

 

 

 

 

 

 

 

 

 

 

Dividends declared per partnership unit issued

 

$

0.6250

 

 

$

0.6250

 

  

   See accompanying notes.

13


 

SPIRIT REALTY, L.P.

Consolidated Statements of Comprehensive (Loss) Income

(In Thousands)

(Unaudited)

 

 

 

Three Months Ended

March 31,

 

 

 

2020

 

 

2019

 

Net (loss) income after preferred distributions

 

$

(18,435

)

 

$

40,990

 

Other comprehensive income (loss):

 

 

 

 

 

 

 

 

Net reclassification of amounts from (to) AOCL

 

 

702

 

 

 

(5,021

)

Total comprehensive (loss) income

 

$

(17,733

)

 

$

35,969

 

 

See accompanying notes.

 

14


SPIRIT REALTY, L.P.

Consolidated Statements of Partners' Capital

(In Thousands, Except Unit Data)

(Unaudited)

 

Three Months Ended March 31, 2020

Preferred Units

 

 

Common Units

 

 

 

 

 

 

Limited Partners' Capital (1)

 

 

General Partner's Capital (2)

 

 

Limited Partners' Capital (1)

 

 

Total Partnership

 

 

Units

 

 

Amount

 

 

Units

 

 

Amount

 

 

Units

 

 

Amount

 

 

Capital

 

Balances, December 31, 2019

 

6,900,000

 

 

$

166,177

 

 

 

797,644

 

 

$

22,389

 

 

 

101,678,508

 

 

$

3,224,683

 

 

$

3,413,249

 

Net loss

 

 

 

 

 

 

 

 

 

 

(143

)

 

 

 

 

 

(15,704

)

 

 

(15,847

)

Partnership distributions declared on preferred units

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(2,588

)

 

 

(2,588

)

Net loss after preferred distributions

 

 

 

 

 

 

 

 

 

 

 

 

(143

)

 

 

 

 

 

 

(18,292

)

 

 

(18,435

)

Other comprehensive income

 

 

 

 

 

 

 

 

 

 

5

 

 

 

 

 

 

697

 

 

 

702

 

Partnership distributions declared on common units

 

 

 

 

 

 

 

 

 

 

(499

)

 

 

 

 

 

(63,839

)

 

 

(64,338

)

Tax withholdings related to net settlement of common units

 

 

 

 

 

 

 

 

 

 

 

 

 

(44,488

)

 

 

(2,349

)

 

 

(2,349

)

Issuance of common units, net

 

 

 

 

 

 

 

 

 

 

 

 

 

362,481

 

 

 

17,598

 

 

 

17,598

 

Stock-based compensation, net

 

 

 

 

 

 

 

 

 

 

 

 

 

148,017

 

 

 

2,981

 

 

 

2,981

 

Balances, March 31, 2020

 

6,900,000

 

 

$

166,177

 

 

 

797,644

 

 

$

21,752

 

 

 

102,144,518

 

 

$

3,161,479

 

 

$

3,349,408

 

 

 

 

Three Months Ended March 31, 2019

Preferred Units

 

 

Common Units

 

 

 

 

 

 

Limited Partners' Capital (1)

 

 

General Partner's Capital (2)

 

 

Limited Partners' Capital (1)

 

 

Total Partnership

 

 

Units

 

 

Amount

 

 

Units

 

 

Amount

 

 

Units

 

 

Amount

 

 

Capital

 

Balances, December 31, 2018

 

6,900,000

 

 

$

166,177

 

 

 

797,644

 

 

$

23,061

 

 

 

84,989,711

 

 

$

2,612,511

 

 

$

2,801,749

 

Net income

 

 

 

 

 

 

 

 

 

 

380

 

 

 

 

 

 

43,198

 

 

 

43,578

 

Partnership distributions declared on preferred units

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(2,588

)

 

 

(2,588

)

Net income after preferred distributions

 

 

 

 

 

 

 

 

 

 

 

 

380

 

 

 

 

 

 

 

40,610

 

 

 

40,990

 

Other comprehensive loss

 

 

 

 

 

 

 

 

 

 

(47

)

 

 

 

 

 

(4,974

)

 

 

(5,021

)

Partnership distributions declared on common units

 

 

 

 

 

 

 

 

 

 

(504

)

 

 

 

 

 

(53,750

)

 

 

(54,254

)

Tax withholdings related to net settlement of common units

 

 

 

 

 

 

 

 

 

 

 

 

 

(17,800

)

 

 

(704

)

 

 

(704

)

Issuance of common units, net

 

 

 

 

 

 

 

 

 

 

 

 

 

893,526

 

 

 

32,686

 

 

 

32,686

 

Other

 

 

 

 

 

 

 

 

 

 

(1

)

 

 

 

 

 

(78

)

 

 

(79

)

Stock-based compensation, net

 

 

 

 

 

 

 

 

 

 

 

 

 

148,705

 

 

 

3,269

 

 

 

3,269

 

Balances, March 31, 2019

 

6,900,000

 

 

$

166,177

 

 

 

797,644

 

 

$

22,889

 

 

 

86,014,142

 

 

$

2,629,570

 

 

$

2,818,636

 

(1)

Consists of limited partnership interests held by the Corporation and Spirit Notes Partner, LLC.

(2)

Consists of general partnership interests held by OP Holdings.

See accompanying notes.

 

15


SPIRIT REALTY, L.P.

Consolidated Statements of Cash Flows

(In Thousands)

(Unaudited)

 

 

 

Three Months Ended

March 31,

 

 

 

2020

 

 

2019

 

Operating activities

 

 

 

 

 

 

 

 

Net (loss) income

 

$

(15,847

)

 

$

43,578

 

Adjustments to reconcile net (loss) income to net cash provided by operating activities:

 

 

 

 

 

 

 

 

Depreciation and amortization

 

 

52,236

 

 

 

41,349

 

Impairments

 

 

40,774

 

 

 

3,692

 

Amortization of deferred financing costs

 

 

1,142

 

 

 

2,031

 

Amortization of debt discounts

 

 

1,224

 

 

 

2,706

 

Amortization of deferred losses on interest rate swaps

 

 

702

 

 

 

 

Stock-based compensation expense

 

 

3,451

 

 

 

3,578

 

Gain on debt extinguishment

 

 

 

 

 

(8,783

)

Gain on dispositions of real estate and other assets

 

 

(388

)

 

 

(8,730

)

Non-cash revenue

 

 

(1,259

)

 

 

(4,110

)

Bad debt expense and other

 

 

233

 

 

 

799

 

Changes in operating assets and liabilities:

 

 

 

 

 

 

 

 

Deferred costs and other assets, net

 

 

(136

)

 

 

(700

)

Accounts payable, accrued expenses and other liabilities

 

 

(14,954

)

 

 

(4,057

)

Net cash provided by operating activities

 

 

67,178

 

 

 

71,353

 

Investing activities

 

 

 

 

 

 

 

 

Acquisitions of real estate

 

 

(205,818

)

 

 

(160,262

)

Capitalized real estate expenditures

 

 

(7,810

)

 

 

(19,612

)

Collections of principal on loans receivable and real estate assets under direct financing leases

 

 

1,163

 

 

 

3,653

 

Proceeds from dispositions of real estate and other assets, net

 

 

16,800

 

 

 

34,848

 

Net cash used in investing activities

 

 

(195,665

)

 

 

(141,373

)

Financing activities

 

 

 

 

 

 

 

 

Borrowings under revolving credit facilities

 

 

759,000

 

 

 

372,700

 

Repayments under revolving credit facilities

 

 

(375,500

)

 

 

(312,500

)

Repayments under mortgages and notes payable

 

 

(1,017

)

 

 

(2,906

)

Borrowings under term loans

 

 

 

 

 

420,000

 

Repayments under term loans

 

 

 

 

 

(420,000

)

Debt extinguishment costs

 

 

 

 

 

(1,009

)

Deferred financing costs

 

 

 

 

 

(11,266

)

Proceeds from issuance of partnership units, net of offering costs

 

 

17,677

 

 

 

32,379

 

Repurchase of partnership units, including tax withholdings related to net settlement of common units

 

 

(2,349

)

 

 

(704

)

Common distributions paid

 

 

(64,362

)

 

 

(53,615

)

Preferred distributions paid

 

 

(2,588

)

 

 

(2,588

)

Net cash provided by financing activities

 

 

330,861

 

 

 

20,491

 

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

 

 

202,374

 

 

 

(49,529

)

Cash, cash equivalents and restricted cash, beginning of period

 

 

26,023

 

 

 

77,421

 

Cash, cash equivalents and restricted cash, end of period

 

$

228,397

 

 

$

27,892

 

 

 

 

 

 

 

 

 

 

Cash paid for interest

 

$

29,145

 

 

$

17,052

 

Cash paid for income taxes

 

$

86

 

 

$

262

 

 

16


 

SPIRIT REALTY, L.P.

Consolidated Statements of Cash Flows

(In Thousands)

(Unaudited)

 

Supplemental Disclosures of Non-Cash Activities:

 

Three Months Ended

March 31,

 

 

 

2020

 

 

2019

 

Distributions declared and unpaid

 

$

64,338

 

 

$

54,254

 

Relief of debt through sale or foreclosure of real estate properties

 

 

 

 

 

10,368

 

Net real estate and other collateral assets sold or surrendered to lender

 

 

 

 

 

654

 

Cash flow hedge changes in fair value

 

 

 

 

 

5,021

 

Accrued interest capitalized to principal (1)

 

 

 

 

 

251

 

Accrued market-based award dividend rights

 

 

470

 

 

 

308

 

Accrued capitalized costs

 

 

1,015

 

 

 

1,142

 

Right-of-use lease assets

 

 

 

 

 

6,143

 

Lease liabilities

 

 

 

 

 

6,143

 

Reclass of residual value from direct financing lease to operating lease

 

 

6,831

 

 

 

 

 

 

(1)

Accrued and overdue interest on certain CMBS notes that were intentionally placed in default.

See accompanying notes.

 

 

17


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

Notes to Consolidated Financial Statements

March 31, 2020

(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 in and managing a portfolio of single-tenant, operationally essential real estate throughout the U.S. that is generally leased on a long-term, triple-net basis to tenants operating within retail, industrial, office and other property types. 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’s operations are generally carried out through Spirit Realty, L.P. (the "Operating Partnership") and its subsidiaries. Spirit General OP Holdings, LLC, one of the Corporation’s wholly-owned subsidiaries, is the sole general partner and owns approximately 1% of the Operating Partnership. The Corporation and a wholly-owned subsidiary (Spirit Notes Partner, LLC) are the only limited partners and together own the remaining 99% of the Operating Partnership.

On May 31, 2018, the Company completed the spin-off (the "Spin-Off") of the assets that collateralized Master Trust 2014, properties leased to Shopko, and certain other assets into an independent, publicly traded REIT, Spirit MTA REIT ("SMTA"). The Company formed Spirit Realty AM Corporation (“SRAM”), a wholly-owned taxable REIT subsidiary. The rights and obligations of the Asset Management Agreement were transferred to SRAM on April 1, 2019, which was subsequently terminated and simultaneously replaced by the Interim Management Agreement between SRAM and SMTA, effective as of September 20, 2019. The Company allocates personnel and other general and administrative costs to SRAM for management services provided to SMTA.

NOTE 2. SUMMARY OF SIGNIFICANT ACOUNTING POLICIES

Basis of Accounting and Principles of Consolidation

The accompanying consolidated financial statements of the Company and the Operating Partnership have been prepared pursuant to the rules and regulations of the SEC. 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, 2019.

The consolidated financial statements of the Company include the accounts of the Corporation and its wholly-owned subsidiaries. The consolidated financial statements of the Operating Partnership include the accounts of the Operating Partnership and its wholly-owned subsidiaries. All significant intercompany balances and transactions have been eliminated in consolidation. All expenses incurred by the Company have been allocated to the Operating Partnership in accordance with the Operating Partnership's first amended and restated agreement of limited partnership, which management determined to be a reasonable method of allocation. Therefore, expenses incurred would not be materially different if the Operating Partnership had operated as an unaffiliated entity.

These consolidated 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. As of March 31, 2020 and December 31, 2019, net assets totaling $0.35 billion and $0.38 billion, respectively, were held, and net liabilities totaling $0.22 and $0.23 billion, 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.

18


 

Segment Reporting

The Company views its operations as one segment, which consists of net leasing operations. The Company has no other reportable segments.

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. The Company does not include options to extend, terminate or purchase in its evaluation for lease classification purposes or for recognizing rental income unless the Company is reasonably certain the tenant will exercise the option.       

Another component of lease classification that requires judgment is the residual value of the property at the end of the lease term. For acquisitions, the Company assumes a value that is equal to the tangible value of the property at the date of the assessment. For lease modifications, the Company generally uses sales comparables or a direct capitalization approach to determine fair value.

The Company’s leases generally provide for rent escalations throughout the term of the lease. For leases with fixed rent escalators, rental income is recognized on a straight-line basis to produce a constant periodic rent over the term of the lease. Accordingly, accrued rental revenue, calculated as the aggregate difference between the rental revenue recognized on a straight-line basis and scheduled rents, represents unbilled rent receivables that the Company will receive only if the tenants make all rent payments required through the expiration of the initial term of the leases.

For leases with contingent rent escalators, rental income typically increases at a multiple of any increase in the CPI over a specified period and may adjust over a one-year period or over multiple-year periods. Because of the volatility and uncertainty with respect to 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 at each rent adjustment date during the entire term of these leases, increases in rental revenue from leases with this type of escalator 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 the Company recognizes as rental income when the change in the factor on which the contingent lease payment is based actually occurs.

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 records a provision for losses against 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 expenses and certain other recoverable expenses, which are non-lease components. The Company has 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 as revenue in the period in which the related expenses are incurred, with the related expenses included in property costs (including reimbursable) on the Company’s 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 carried net of the allowances for amounts that are not probable of collection.

Rental Income: Intangible Amortization

Initial direct costs associated with the origination of a lease are deferred and amortized over the related lease term as an adjustment to rental revenue. In-place lease intangibles are amortized on a straight-line basis over the remaining term of the related lease and included in depreciation and amortization expense. Above-market lease intangibles are amortized over the remaining term of the respective leases as a decrease in rental revenue, and below-market lease intangibles are amortized as an increase to rental revenue over the remaining term of the respective leases. The remaining term includes the initial term of the lease but may also include the renewal periods if the Company believes it is reasonably certain the tenant will exercise the renewal option. If the Company subsequently determines it is reasonably certain that the tenant will

19


 

not exercise the renewal option, the unamortized portion of any related lease intangible is accelerated over the remaining initial term of the lease. If the Company believes the intangible balance is no longer recoverable, the unamortized portion of any related lease intangible is immediately recognized in impairments in the Company’s consolidated statements of operations.

Cash, Cash Equivalents and Restricted Cash

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

 

 

March 31,

2020

 

 

December 31,

2019

 

 

March 31,

2019

 

Cash and cash equivalents

 

$

216,692

 

 

$

14,492

 

 

$

9,376

 

Restricted cash:

 

 

 

 

 

 

 

 

 

 

 

 

Collateral deposits (1)

 

 

381

 

 

 

347

 

 

 

401

 

Tenant improvements, repairs and leasing commissions (2)

 

 

11,324

 

 

 

10,877

 

 

 

9,539

 

Master Trust Release (3)

 

 

 

 

 

 

 

 

7,413

 

Other (4)

 

 

 

 

 

307

 

 

 

1,163

 

Total cash, cash equivalents and restricted cash

 

$

228,397

 

 

$

26,023

 

 

$

27,892

 

(1) Funds held in lender-controlled accounts generally used to meet future debt service or certain property operating expenses.

(2)

Deposits held as additional collateral support by lenders to fund improvements, repairs and leasing commissions incurred to secure a new tenant.

(3)

Proceeds from the sale of assets pledged as collateral under the Master Trust 2013 notes, which were held on deposit until a qualifying substitution was made or the funds were applied as prepayment of principal. The Master Trust 2013 notes were extinguished in June 2019.

(4)

Funds held in lender-controlled accounts released after scheduled debt service requirements are met.

Allowance for Doubtful Accounts

The Company reviews its rent and other tenant receivables for collectability on a regular basis, taking into consideration changes in factors such as the tenant’s payment history, the financial condition of the tenant, business conditions in the industry in which the tenant operates, and economic conditions in the area in which the tenant operates. If the collectability of a receivable with respect to any tenant is in doubt, a provision for uncollectible amounts will be established or a direct write-off of the specific receivable will be made. The Company provided for reserves for uncollectible amounts totaling $1.8 million and $3.8 million at March 31, 2020 and December 31, 2019, respectively, against accounts receivable balances of $8.5 million and $11.4 million, respectively. Receivables are recorded within deferred cost 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 receivable balances related to the straight-line method of reporting rental revenue, the collectability is generally assessed in conjunction with the evaluation of rental income as described above. The Company has a reserve for losses of $4.4 million and $0.4 million at March 31, 2020 and December 31, 2019, respectively, against straight-line rent receivables of $89.1 million and $84.0 million, respectively. These receivables are recorded within deferred costs and other assets, net in the accompanying consolidated balance sheets.

Goodwill

Goodwill arises from business combinations and represents 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. In January 2017, the FASB issued ASU 2017-04, Simplifying the Test for Goodwill Impairment. ASU 2017-04 simplifies the accounting for goodwill impairment by eliminating the Step 2 requirement to calculate the implied fair value of goodwill. Instead, an entity should perform its annual or interim goodwill impairment test by comparing the fair value of each reporting unit with its carrying amount. An entity should recognize an impairment charge for the amount by which the carrying amount exceeds the reporting unit’s fair value. An entity still has the option to perform the qualitative assessment for a reporting unit to determine if the quantitative impairment test is necessary. The Company adopted ASU 2017-04 effective January 1, 2020. Goodwill is tested for impairment at the reporting unit level on an annual basis and 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. No impairment was recorded for the periods presented.

20


 

Income Taxes

The Corporation has elected to be taxed as a REIT under the Code. As a REIT, the Corporation 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 the Company’s assets, the amounts distributed to the Corporation’s stockholders and the ownership of Corporation stock. Management believes the Corporation 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 Corporation 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 local taxes. The rights and obligations of the Asset Management Agreement were transferred to SRAM, a wholly-owned taxable REIT subsidiary of Spirit, on April 1, 2019, which was subsequently terminated and simultaneously replaced by the Interim Management Agreement between SRAM and SMTA, effective as of September 20, 2019. Accordingly, commencing from April 1, 2019, all asset management fees, including the termination fee income, were subject to income tax.  

The Operating Partnership is a partnership for federal income tax purposes. Partnerships are pass-through entities and are not subject to U.S. federal income taxes, therefore no provision has been made for federal income taxes in the accompanying financial statements. Although most states and cities where the Operating Partnership operates follow the U.S. federal income tax treatment, there are certain jurisdictions such as Texas, Tennessee and Ohio that impose income or franchise taxes on a partnership.

Franchise taxes are included in general and administrative expenses on the accompanying consolidated statements of operations.

New Accounting Pronouncements  

In June 2016, the FASB issued ASU 2016-13, Measurement of Credit Losses on Financial Instruments, which requires more timely recognition of credit losses associated with financial assets. ASU 2016-13 requires financial assets (or a group of financial assets) measured at an amortized cost basis to be presented at the net amount expected to be collected. ASU 2016-13 is effective for fiscal years beginning after December 15, 2019, including interim periods within those fiscal years, and as such, the Company adopted ASU 2016-13 effective January 1, 2020. Per the subsequently issued ASU 2018-19, receivables arising from operating leases are not within the scope of ASU 2016-13. As such, the Company reviewed receivables within the scope of ASU 2016-13 totaling $40.3 million, which were comprised of loans receivable and real estate assets held under direct financing lease. The Company determined the key credit quality indicator was the credit rating of the borrower, coupled with remaining time to maturity. As a result, the adoption of the new guidance resulted in the recognition of a loss of $0.3 million on January 1, 2020, which is recorded in impairments on the accompanying consolidated statement of operations.

In April 2020, the FASB released a Staff Q&A regarding the accounting for lease concessions related to the effects of the COVID-19 pandemic. The FASB noted that the underlying premise in requiring a modified lease to be accounted for as if it were a new lease under ASC 842 is that the modified terms and conditions affect the economics of the lease for the remainder of the lease term. As such, the FASB staff clarified that it would be acceptable for entities to make an election to account for lease concessions related to the effects of the COVID-19 pandemic consistent with how those concessions would be accounted for under ASC 842 as though enforceable rights and obligations for those concessions existed (regardless of whether those enforceable rights and obligations for the concessions explicitly exist in the contract). The Company expects to make this election and account for rent deferrals by increasing the straight-line rent receivables as receivables accrue and continue to recognize income during the deferral period. Lease concessions other than rent deferrals will continue to be evaluated to determine if a substantive change to the consideration in the original contract lease contract has occurred and should be accounted for as a lease modification. Management will continue to evaluate any amounts recognized for collectability, regardless of whether accounted for as a lease modification or not, and will record a provision for losses against rental income for amounts that are not probable of collection.

NOTE 3. INVESTMENTS

Owned Properties

As of March 31, 2020, the Company's gross investment in owned real estate properties totaled approximately $6.3 billion. The gross investment is comprised of land, buildings, lease intangible assets and lease intangible liabilities, as adjusted for any impairment, and real estate assets held under direct financing leases and real estate assets held for sale. The portfolio is geographically dispersed throughout 48 states with Texas, at 11.4%, as the only state with a gross investment greater than 10.0% of the total gross investment of the Company's entire portfolio.

21


 

During the three months ended March 31, 2020, the Company had the following real estate activity, net of accumulated depreciation and amortization (dollars in thousands):

 

 

Number of Properties

 

 

Dollar Amount of Investments

 

 

 

Held in Use

 

 

Held for Sale

 

 

Total

 

 

Held in Use

 

 

Held for Sale

 

 

Total

 

Gross balance, December 31, 2019

 

 

1,750

 

 

 

2

 

 

 

1,752

 

 

$

6,140,775

 

 

$

1,223

 

 

$

6,141,998

 

Acquisitions/improvements (1)

 

 

27

 

 

 

 

 

 

27

 

 

 

215,011

 

 

 

 

 

 

215,011

 

Dispositions of real estate (2)

 

 

(5

)

 

 

(2

)

 

 

(7

)

 

 

(17,114

)

 

 

(1,223

)

 

 

(18,337

)

Transfers to Held for Sale

 

 

(5

)

 

 

5

 

 

 

 

 

 

(3,362

)

 

 

3,362

 

 

 

 

Transfers from Held for Sale

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Impairments (3)

 

 

 

 

 

 

 

 

 

 

 

(40,468

)

 

 

 

 

 

(40,468

)

Write-off of intangibles

 

 

 

 

 

 

 

 

 

 

 

(26,594

)

 

 

 

 

 

(26,594

)

Other

 

 

 

 

 

 

 

 

 

 

 

(1,330

)

 

 

 

 

 

(1,330

)

Gross balance, March 31, 2020

 

 

1,767

 

 

 

5

 

 

 

1,772

 

 

 

6,266,918

 

 

 

3,362

 

 

 

6,270,280

 

Accumulated depreciation and amortization

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(855,787

)

 

 

(236

)

 

 

(856,023

)

Net balance, March 31, 2020 (4)

 

 

 

 

 

 

 

 

 

 

 

 

 

$

5,411,131

 

 

$

3,126

 

 

$

5,414,257

 

 

(1)

Includes investments of $7.6 million in revenue producing capitalized expenditures, as well as $1.6 million of non-revenue producing capitalized expenditures during the three months ended March 31, 2020.

(2)

For the three months ended March 31, 2020, the total gain on disposal of assets for properties held in use and held for sale was $0.6 million and $0.1 million, respectively.

(3)

Impairments on owned real estate is comprised of $40.2 million of real estate and intangible asset impairment and $0.3 million of allowance for credit losses on direct financing leases.  

(4)

Reconciliation of total owned investments to the accompanying consolidated balance sheet at March 31, 2020 is as follows:

Operating lease held in use land and buildings, net

 

$

5,146,530

 

Intangible lease assets, net

 

 

 

 

381,398

 

Real estate assets under direct financing leases, net

 

 

 

 

7,300

 

Real estate assets held for sale, net

 

 

 

 

3,126

 

Intangible lease liabilities, net

 

 

 

 

(124,097

)

Net balance

 

 

 

$

5,414,257

 

Operating Leases

As of March 31, 2020 and December 31, 2019, the Company held 1,760 and 1,745 properties under operating leases, respectively. The following table summarizes the components of rental income recognized on these operating leases in the accompanying consolidated statements of operations (in thousands):

 

 

Three Months Ended

March 31,

 

 

 

2020

 

 

2019

 

Base cash rent

 

$

116,546

 

 

$

96,799

 

Variable cash rent (including reimbursables)

 

 

3,389

 

 

 

3,638

 

Straight-line rent, net of bad debt expense

 

 

1,094

 

 

 

2,907

 

Amortization of above- and below- market lease intangibles, net (1)

 

 

334

 

 

 

723

 

Total rental income

 

$

121,363

 

 

$

104,067

 

(1)

Excludes amortization of in-place leases of $8.8 million and $6.7 million for the three months ended March 31, 2020 and 2019, respectively, which is included in depreciation and amortization expense in the accompanying consolidated statements of operations.

Scheduled minimum future contractual rent to be received under the remaining non-cancellable term of these operating leases (including contractual fixed rent increases occurring on or after April 1, 2020) at March 31, 2020 are as follows (in thousands):

 

 

March 31,

2020

 

Remainder of 2020

 

$

354,330

 

2021

 

 

461,791

 

2022

 

 

444,470

 

2023

 

 

423,969

 

2024

 

 

399,829

 

Thereafter

 

 

3,037,487

 

Total future minimum rentals

 

$

5,121,876

 

22


 

Because lease renewal periods are exercisable at the lessees' options, the preceding table presents future minimum lease payments due during the initial lease term only. In addition, the future minimum rentals do not include any contingent rentals based on a percentage of the lessees' gross sales or lease escalations based on future changes in the CPI.

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

 

 

March 31,

2020

 

 

December 31,

2019

 

In-place leases

 

$

454,363

 

 

$

457,616

 

Above-market leases

 

 

97,296

 

 

 

95,002

 

Less: accumulated amortization

 

 

(170,261

)

 

 

(167,539

)

Intangible lease assets, net

 

$

381,398

 

 

$

385,079

 

 

 

 

 

 

 

 

 

 

Below-market leases

 

$

174,965

 

 

$

176,816

 

Less: accumulated amortization

 

 

(50,868

)

 

 

(49,481

)

Intangible lease liabilities, net

 

$

124,097

 

 

$

127,335

 

 

Direct Financing Leases

As of March 31, 2020, the Company held one property under a direct financing lease, which was held in use. As of March 31, 2020, this property had $4.0 million in scheduled minimum future payments to be received under the remaining non-cancellable terms of its lease. The Company evaluated the collectability of the amounts receivable under the direct financing lease, and recorded a reserve for uncollectible amounts totaling $0.3 million against the net investment balance of $7.6 million as of March 31, 2020, primarily as a result of the borrower’s credit rating being non-investment grade and the initial term extending until 2027.     

Loans Receivable

As of March 31, 2020, the Company held two first-priority mortgage loans. The mortgage loans are secured by single-tenant commercial properties and have fixed interest rates over the term of the loans. There was one other note receivable as of March 31, 2020, which is secured by tenant assets and stock. As of March 31, 2020, these loans had an outstanding principal balance of $30.6 million and an unamortized premium balance of $0.5 million. The Company evaluated the collectability of the amounts receivable under the loans receivable and recorded an allowance for loan losses of $0.3 million against the carrying value of $31.1 million. The amount of the allowance was primarily driven by the borrowers’ having investment grade credit ratings and maturities in 2020.       

Impairments and Allowance for Credit Losses

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

 

 

Three Months Ended

March 31,

 

 

 

2020

 

 

2019

 

Real estate and intangible asset impairment

 

$

40,164

 

 

$

3,692

 

Allowance for credit losses on direct financing leases

 

 

304

 

 

 

 

Allowance for credit losses on loans receivable

 

 

306

 

 

 

 

Total impairment loss

 

$

40,774

 

 

$

3,692

 

 

23


 

NOTE 4. DEBT

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

 

 

Weighted Average Effective Interest Rates (1)

 

 

Weighted Average Stated Interest Rates (2)

 

 

Weighted Average Remaining Years to Maturity (3)

 

 

March 31,

2020

 

 

December 31,

2019

 

Revolving credit facilities

 

3.17%

 

 

2.26%

 

 

 

3.0

 

 

$

500,000

 

 

$

116,500

 

Senior Unsecured Notes

 

3.85%

 

 

3.73%

 

 

 

8.4

 

 

 

1,500,000

 

 

 

1,500,000

 

CMBS

 

5.81%

 

 

5.47%

 

 

 

3.6

 

 

 

217,320

 

 

 

218,338

 

Convertible Notes

 

5.63%

 

 

3.75%

 

 

 

1.1

 

 

 

345,000

 

 

 

345,000

 

Total debt

 

4.20%

 

 

3.59%

 

 

 

6.0

 

 

 

2,562,320

 

 

 

2,179,838

 

Debt discount, net

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(8,047

)

 

 

(9,272

)

Deferred financing costs, net (4)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(16,693

)

 

 

(17,549

)

Total debt, net

 

 

 

 

 

 

 

 

 

 

 

 

 

$

2,537,580

 

 

$

2,153,017

 

(1)

The effective interest rates include amortization of debt discount/premium, amortization of deferred financing costs, facility fees, and non-utilization fees, where applicable, calculated for the three months ended March 31, 2020 and based on the average principal balance outstanding during the period.

(2)

Represents the weighted average stated interest rate based on the outstanding principal balance as of March 31, 2020.

(3)

Represents the weighted average remaining years to maturity based on the outstanding principal balance as of March 31, 2020.

(4)

The Company records deferred financing costs for its revolving credit facilities in deferred costs and other assets, net on its consolidated balance sheets.

Revolving Credit Facilities

On January 14, 2019, the Operating Partnership entered into the 2019 Revolving Credit and Term Loan Agreement, comprised of the 2019 Credit Facility and the A-1 Term Loans, which replaced the 2015 Credit Agreement and 2015 Term Loan Agreement, respectively. The 2019 Credit Facility is comprised of $800.0 million of aggregate revolving commitments and an accordion feature providing for an additional $400.0 million of revolving borrowing capacity, subject to satisfying certain requirements and obtaining additional lender commitments. The 2019 Credit Facility has an initial maturity date of March 31, 2023 and includes two six-month extensions that can be exercised at the Company’s option. Borrowings may be repaid, in whole or in part, at any time, without premium or penalty, but subject to applicable LIBOR breakage fees, if any.

As of March 31, 2020, the outstanding loans under the 2019 Credit Facility bore interest at LIBOR plus an applicable margin of 0.90% per annum and the aggregate revolving commitments incurred a facility fee of 0.20% per annum, in each case, based on the Operating Partnership's credit rating, which was upgraded to BBB by S&P in May 2019. Prior to the upgrade, the 2019 Credit Facility bore interest at LIBOR plus an applicable margin of 1.10% per annum and the aggregate revolving commitments incurred a facility fee of 0.25% per annum.

Deferred financing costs incurred in connection with entering into the 2019 Credit Facility are being amortized to interest expense over its remaining initial term. The unamortized deferred financing costs were $3.4 million as of March 31, 2020, compared to $3.7 million as of December 31, 2019, and are recorded in deferred costs and other assets, net on the accompanying consolidated balance sheets.

As of March 31, 2020, $300.0 million of borrowing capacity was available under the 2019 Credit Facility. No outstanding letters of credit existed under the agreement as of March 31, 2020. The Operating Partnership's ability to borrow under the 2019 Credit Facility is subject to ongoing compliance with a number of customary financial covenants and other customary affirmative and negative covenants. As of March 31, 2020, the Company and the Operating Partnership were in compliance with these financial covenants.

24


 

Senior Unsecured Notes       

The Senior Unsecured Notes were issued by the Operating Partnership and guaranteed by the Company. The following is a summary of the Senior Unsecured Notes outstanding (dollars in thousands):

 

 

Maturity Date

 

Stated Interest Rate

 

 

March 31,

2020

 

 

December 31,

2019

 

2026 Senior Notes

 

September 15, 2026

 

4.45%

 

 

$

300,000

 

 

$

300,000

 

2027 Senior Notes

 

January 15, 2027

 

3.20%

 

 

 

300,000

 

 

 

300,000

 

2029 Senior Notes

 

July 15, 2029

 

4.00%

 

 

 

400,000

 

 

 

400,000

 

2030 Senior Notes

 

January 15, 2030

 

3.40%

 

 

 

500,000

 

 

 

500,000

 

Total Senior Unsecured Notes

 

 

 

3.73%

 

 

$

1,500,000

 

 

$

1,500,000

 

The Senior Unsecured Notes are payable on January 15 and July 15 of each year, except for the 2026 Senior Notes, which are payable on March 15 and September 15 of each year. 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: 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. If any of the Senior Unsecured Notes are redeemed three months or less (or two months or less in the case of the 2027 Senior Notes) prior to their respective maturity dates, the redemption price will not include a make-whole premium.  

Deferred financing costs and offering discounts incurred in connection with the issuance the Senior Unsecured Notes are being amortized to interest expense over the lives of the respective Senior Unsecured Notes. As of March 31, 2020 and December 31, 2019, the unamortized deferred financing costs were $12.6 million and $12.9 million, respectively, and the unamortized discount was $2.9 million and $3.0 million, respectively. Both the deferred financing costs and offering discount are recorded net against the Senior Unsecured Notes principal balance on the accompanying consolidated balance sheets.

In connection with the issuance of the Senior Unsecured Notes, the Company and Operating Partnership are subject to ongoing compliance with a number of customary financial covenants and other customary affirmative and negative covenants. As of March 31, 2020, the Company and the Operating Partnership were in compliance with these financial covenants.

CMBS

As of March 31, 2020, indirect wholly-owned special purpose entity subsidiaries of the Company were borrowers under five fixed-rate non-recourse loans, which have been securitized into CMBS and are secured by the borrowers' respective leased properties and related assets. The stated interest rates as of March 31, 2020 for the loans ranged from 5.23% to 6.00%, with a weighted average stated rate of 5.47%. As of March 31, 2020, the loans were secured by 88 properties. As of March 31, 2020 and December 31, 2019, the unamortized deferred financing costs associated with the CMBS loans were $2.4 million and $2.6 million, respectively, and the unamortized net offering premium was $0.3 million as of both periods. Both the deferred financing costs and offering premium were recorded net against the principal balance of the mortgages and notes payable on the accompanying consolidated balance sheets and are being amortized to interest expense over the term of the respective loans.

Convertible Notes

In May 2014, the Company issued $402.5 million aggregate principal amount of 2.875% convertible notes due in 2019 and $345.0 million aggregate principal amount of 3.75% convertible notes due in 2021. Proceeds from the issuance were contributed to the Operating Partnership and are recorded as a note payable to Spirit Realty Capital, Inc. on the consolidated balance sheets of the Operating Partnership. The 2019 Notes matured on May 15, 2019 and were settled in cash. The 2021 Notes will mature on May 15, 2021 and interest is payable semi-annually in arrears on May 15 and November 15 of each year.

The 2021 Notes are convertible only during certain periods and, subject to certain circumstances, into cash, shares of the Corporation’s common stock, or a combination thereof. The conversion rate is subject to adjustment for certain anti-dilution events, including special distributions and regular quarterly cash dividends exceeding a current threshold of $0.73026 per share. As of March 31, 2020, the conversion rate was 17.4458 per $1,000 principal note, which reflects the adjustment from the SMTA dividend distribution related to the Spin-Off, in addition to the other regular dividends declared during the life of the Convertible Notes. Earlier conversion may be triggered if shares of the Corporation’s common stock trade higher than the established thresholds, if the 2021 Notes trade below established thresholds, or certain corporate events occur.

Offering discount and deferred financing costs incurred in connection with the issuance of the Convertible Notes are being amortized to interest expense over the term of the respective Convertible Notes and, as such, the amounts related to the

25


 

2019 Notes were fully amortized in May 2019. As of March 31, 2020 and December 31, 2019, the unamortized discount was $5.4 million and $6.5 million, respectively. As of March 31, 2020 and December 31, 2019, the unamortized deferred financing costs were $1.7 million and $2.1 million, respectively. These amounts are shown net against the aggregate outstanding principal balance of the Convertible Notes on the accompanying consolidated balance sheets. The equity component of the conversion feature was $55.1 million as of both March 31, 2020 and December 31, 2019 and is recorded in capital in excess of par value in the accompanying consolidated balance sheets, net of financing transaction costs.

Debt Extinguishment

During the three months ended March 31, 2020, we did not extinguish any debt.

During the three months ended March 31, 2019, the Company extinguished a total of $10.4 million aggregate principal amount of CMBS indebtedness on one defaulted loan, which was secured by one property. The loan had a default interest rate of 9.85% and resulted in a gain on debt extinguishment of $9.5 million. Additionally, as a result of the termination of the 2015 Credit Agreement and the 2015 Term Loan Agreement, the Company recognized a loss on debt extinguishment of $0.7 million.

Debt Maturities

As of March 31, 2020, scheduled debt maturities, including balloon payments, were as follows (in thousands):

 

 

Scheduled

Principal

 

 

Balloon

Payment

 

 

Total

 

Remainder of 2020

 

$

3,082

 

 

$

 

 

$

3,082

 

2021

 

 

4,365

 

 

 

345,000

 

 

 

349,365

 

2022

 

 

4,617

 

 

 

 

 

 

4,617

 

2023

 

 

3,074

 

 

 

697,912

 

 

 

700,986

 

2024

 

 

590

 

 

 

 

 

 

590

 

Thereafter

 

 

3,610

 

 

 

1,500,070

 

 

 

1,503,680

 

Total

 

$

19,338

 

 

$

2,542,982

 

 

$

2,562,320

 

Interest Expense

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

 

 

Three Months Ended

March 31,

 

 

 

2020

 

 

2019

 

Interest expense – revolving credit facilities (1)

 

$

2,056

 

 

$

2,178

 

Interest expense – term loans

 

 

 

 

 

3,979

 

Interest expense – Senior Unsecured Notes

 

 

13,988

 

 

 

3,338

 

Interest expense – mortgages and notes payable

 

 

3,013

 

 

 

6,252

 

Interest expense – Convertible Notes (2)

 

 

3,234

 

 

 

6,127

 

Non-cash interest expense:

 

 

 

 

 

 

 

 

Amortization of deferred financing costs

 

 

1,142

 

 

 

2,031

 

Amortization of debt discount, net

 

 

1,224

 

 

 

2,706

 

Amortization of net losses related to interest rate swaps

 

 

702

 

 

 

 

Total interest expense

 

$

25,359

 

 

$

26,611

 

 

(1)

Includes facility fees of approximately $0.4 million and $0.7 million for the three months ended March 31, 2020 and 2019, respectively.

(2)

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

NOTE 5. STOCKHOLDERS’ EQUITY AND PARTNERS' CAPITAL

Common Stock

During the three months ended March 31, 2020, portions of awards of restricted common stock and market-based share awards granted to certain of the Company's officers and other employees vested. The vesting of these awards, granted pursuant to the Amended Incentive Award Plan, resulted in federal and state income tax liabilities for the recipients. As permitted by the terms of the Amended Incentive Award Plan and the award grants, certain executive officers and employees elected to surrender 44.5 thousand shares of common stock valued at $2.3 million, solely to pay the associated statutory tax withholdings during the three months ended March 31, 2020.               

26


 

In November 2016, the Board of Directors approved a $500 million ATM Program. The agreement provides for the offer and sale of shares of the Corporation’s common stock having an aggregate gross sales price of up to $500.0 million through the agents, as its sales agents or, if applicable, as forward sellers for forward purchasers, or directly to the agents acting as principals. The Company may sell shares in amounts and at times to be determined by the Company but has no obligation to sell any shares in the ATM program. Since inception of the ATM Program through March 31, 2020, 5.6 million shares of the Corporation’s common stock have been sold, of which 0.4 million were sold during the three months ended March 31, 2020 at a weighted average price per share of $49.30, generating $17.9 million in gross proceeds. 3.8 million of these sales were through forward sales agreements, of which 0.4 million were physically settled in shares during the three months ended March 31, 2020. There were no open forward sales agreements under the ATM Program as of March 31, 2020. Aggregate gross proceeds capacity of $246.3 million remained available under the program as of March 31, 2020.

Preferred Stock

As of March 31, 2020, the Company had 6.9 million shares of 6.00% Series A Preferred Stock outstanding. The Series A Preferred Stock pays cumulative cash dividends at the rate of 6.00% per annum on the liquidation preference of $25.00 per share (equivalent to $0.375 per share on a quarterly basis and $1.50 per share on an annual basis).  

Dividends Declared

For the three months ended March 31, 2020, the Company's Board of Directors declared the following dividends:

Declaration Date

 

Dividend Per Share

 

 

Record Date

 

Total Amount

(in thousands)

 

 

Payment Date

Common Stock

 

 

 

 

 

 

 

 

 

 

 

 

February 27, 2020

 

$

0.625

 

 

March 31, 2020

 

$

64,338

 

 

April 15, 2020

Preferred Stock

 

 

 

 

 

 

 

 

 

 

 

 

February 27, 2020

 

$

0.375

 

 

March 13, 2020

 

$

2,588

 

 

March 31, 2020

The common stock dividend declared on February 27, 2020 is included in accounts payable, accrued expenses and other liabilities in the consolidated balance sheets as of March 31, 2020.

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 is contingently liable for $5.7 million of debt owed by one of its former tenants until the maturity of the debt on March 15, 2022. The Company has accrued the full $5.7 million liability in accounts payable, accrued expenses and other liabilities in the consolidated balance sheet as of both March 31, 2020 and December 31, 2019.

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, 2020, no accruals have been made.

As of March 31, 2020, 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.

Purchase and Capital Improvement Commitments

As of March 31, 2020, the Company had commitments totaling $20.4 million, of which $7.3 million relates to future acquisitions, with the remainder to fund improvements on properties the Company currently owns. Commitments related to acquisitions contain standard cancellation clauses contingent on the results of due diligence. $18.9 million of these commitments are expected to be funded during fiscal year 2020, with the remainder to be funded by 2021.

Lessee Contracts

The Company leases its current corporate office space and certain office equipment, which are classified as operating leases. The Company's lease of its corporate office space has an initial term that expires on January 31, 2027 and is renewable at the Company's option for two additional periods of five years each after the initial term. The corporate office

27


 

lease contains a variable lease cost related to the lease of parking spaces and a non-lease component related to the reimbursement of certain common area maintenance expenses, both of which are recognized as incurred.

The Company is also a lessee under five long-term, non-cancellable ground leases under which it is obligated to pay monthly rent as of March 31, 2020. For all five of the ground leases, rental expenses are reimbursed by unrelated third parties, and the corresponding rental revenue is recorded in rental income on the accompanying consolidated statements of operations. All leases are classified as operating leases and have a weighted average remaining lease term of 7.3 years.

As of March 31, 2020, the Company had a right-of-use lease asset balance of $5.3 million and total operating lease liabilities of $7.2 million for these lessee contracts.

NOTE 7. DERIVATIVE AND HEDGING ACTIVITIES

The Company uses interest rate derivative contracts to manage its exposure to changes in interest rates on its variable rate debt. These derivatives are considered cash flow hedges and are recorded on a gross basis at fair value. Assessments of hedge effectiveness are performed quarterly using either a qualitative or quantitative approach. The Company recognizes the entire change in the fair value in AOCL and the change is reflected as cash flow hedge changes in fair value in the supplemental disclosures of non-cash investing and financing activities in the consolidated statement of cash flows. Amounts will subsequently be reclassified to earnings when the hedged item affects earnings. The Company does not enter into derivative contracts for speculative or trading purposes and does not have derivative netting arrangements.

The Company is exposed to credit risk in the event of non-performance by its derivative counterparties. The Company evaluates counterparty credit risk through monitoring the creditworthiness of counterparties, which includes review of debt ratings and financial performance. To mitigate credit risk, the Company enters into agreements with counterparties it considers credit-worthy, such as large financial institutions with favorable credit ratings.

In December 2018, the Company entered into interest rate swap agreements. In the three months ended September 30, 2019, the Company terminated its interest rate swaps and accelerated the reclassification of a loss of $12.5 million from AOCL to termination of interest rate swaps as a result of a portion of the hedged forecasted transactions becoming probable not to occur. There were no events of default related to the interest rate swaps prior to their termination. Given that a proportion of the hedged transactions remained probable to occur, $12.3 million of the loss was deferred in other comprehensive loss and will be amortized over the remaining initial term of the interest rate swaps, which ends March 31, 2024. As of March 31, 2020, the unamortized portion of loss in AOCL related to terminated interest rate swaps was $10.8 million.

The following table provides information about the amounts recorded in AOCL, as well as the loss recorded in operations, when reclassified out of AOCL or recognized in earnings immediately, for the three months ended March 31, 2020 (in thousands):

 

 

Three Months Ended

 

 

Three Months Ended

 

 

 

March 31, 2020

 

 

March 31, 2019

 

Gross amount of loss recognized in AOCL on derivatives

 

$

 

 

$

(5,229

)

Amount of loss reclassified from AOCL to termination of interest rate swaps

 

 

 

 

 

208

 

Amount of loss reclassified from AOCL to interest (1)

 

 

702

 

 

 

 

Net reclassification of amounts from (to) AOCL

 

$

702

 

 

$

(5,021

)

(1)

Interest expense for the three months ended March 31, 2020 was $25.4 million.

During the next 12 months, we estimate that approximately $2.8 million will be reclassified as an increase to interest expense related to terminated hedges of existing floating-rate debt.

NOTE 8. FAIR VALUE MEASUREMENTS

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. Real estate assets and their related intangible assets are evaluated for impairment based on certain indicators including, but not limited to: the asset being held for sale, vacant or non-operating, tenant bankruptcy or delinquency, and leases expiring in 60 days or less. The fair values of impaired real estate and intangible assets were determined by using the following information, depending on availability, in order of preference: signed purchase and sale agreements (“PSA”) or letters of intent (“LOI”); broker opinions of value (“BOV”); recently quoted bid or ask prices, or market prices for comparable properties; estimates of discounted cash flows, which consider, among other things, contractual and forecasted rental revenues, leasing assumptions, expenses based

28


 

upon market conditions and capitalization rates; and expectations for the use of the real estate. Based on these inputs, the Company determined that its valuation of the impaired real estate and intangible assets falls within Level 3 of the fair value hierarchy. The following table sets forth the Company’s assets that were accounted for at fair value on a nonrecurring basis as of their respective measurement dates (in thousands):

 

 

 

 

 

 

Fair Value Hierarchy Level

 

Description

 

Fair Value

 

 

Level 1

 

 

Level 2

 

 

Level 3

 

Assets held at March 31, 2020

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Impaired at March 31, 2020

 

$

54,688

 

 

$

 

 

$

 

 

$

54,688

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Assets held at December 31, 2019

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Impaired at June 30, 2019

 

$

1,893

 

 

$

 

 

$

 

 

$

1,893

 

Impaired at September 30, 2019

 

$

1,093

 

 

$

 

 

$

 

 

$

1,093

 

Impaired at December 31, 2019

 

$

11,594

 

 

$

 

 

$

 

 

$

11,594

 

As of March 31, 2020, the Company held 22 properties that were impaired during 2020. As of December 31, 2019, the Company held 16 properties that were impaired during 2019. For one of the properties held at March 31, 2020, the Company estimated fair value using a capitalization rate of 10.06% based on comparative capitalization rates from market comparables. For one of the properties held at December 31, 2019, the Company estimated fair value using a capitalization rate of 9.62% based on comparative capitalization rates from market comparables. For the remaining properties, the Company estimated property fair value using price per square foot from unobservable inputs and, for the properties valued using comparable properties at March 31, 2020, the price per square foot includes a discount of 0-10% to account for the market impact of COVID-19. The unobservable inputs are as follows:

Unobservable Input

 

Asset Type

 

Property Count

 

 

Price Per Square Foot Range

 

Weighted Average Price Per Square Foot

 

Square Footage

 

March 31, 2020

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Comparable Properties

 

Retail

 

 

14

 

 

$4.35 - $740.74

 

$47.89

 

 

533,803

 

PSA, LOI or BOV

 

Retail

 

 

5

 

 

$2.50 - $222.02

 

$33.27

 

 

338,484

 

PSA, LOI or BOV

 

Industrial

 

 

1

 

 

$13.79

 

$13.79

 

 

35,551

 

PSA, LOI or BOV

 

Office

 

 

1

 

 

$96.39

 

$96.39

 

 

4,310

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

December 31, 2019

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Comparable Properties

 

Retail

 

 

4

 

 

$34.45 - $740.74

 

$104.84

 

 

35,885

 

PSA, LOI or BOV

 

Retail

 

 

10

 

 

$24.78 - $323.00

 

$50.71

 

 

165,773

 

PSA, LOI or BOV

 

Office

 

 

1

 

 

$99.37

 

$99.37

 

 

4,310

 

 

Estimated Fair Value of Financial Instruments

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

In addition, companies are required to disclose the estimated fair values of all financial instruments, even if they are not carried at their fair values. The fair values of financial instruments are estimates based upon market conditions and perceived risks at March 31, 2020 and December 31, 2019. These estimates require management’s judgment and may not be indicative of the future fair values of the assets and liabilities. The estimated fair values of these financial instruments have been derived either based on (i) market quotes for identical or similar instruments in markets that are not active or (ii) discounted cash flow analyses using estimates of the amount and timing of future cash flows, market rates and credit spreads. These measurements are classified as Level 2 of the fair value hierarchy. The following table discloses fair value information for these financial instruments (in thousands):  

 

 

March 31, 2020

 

 

December 31, 2019

 

 

 

Carrying

Value

 

 

Estimated

Fair Value

 

 

Carrying

Value

 

 

Estimated

Fair Value

 

Loans receivable, net

 

$

30,849

 

 

$

31,586

 

 

$

34,465

 

 

$

35,279

 

Revolving credit facilities

 

 

500,000

 

 

 

514,004

 

 

 

116,500

 

 

 

119,802

 

Senior Unsecured Notes, net (1)

 

 

1,484,473

 

 

 

1,383,947

 

 

 

1,484,066

 

 

 

1,543,919

 

Mortgages and notes payable, net (1)

 

 

215,186

 

 

 

230,834

 

 

 

216,049

 

 

 

235,253

 

Convertible Notes, net (1)

 

 

337,921

 

 

 

326,267

 

 

 

336,402

 

 

 

356,602

 

29


 

(1)

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

NOTE 9. INCENTIVE AWARD PLAN

Restricted Shares of Common Stock

During the three months ended March 31, 2020, the Company granted 116 thousand restricted shares under the Amended Incentive Award Plan to certain executive officers and employees. The Company recorded $5.7 million in deferred compensation associated with these grants. Deferred compensation for restricted shares will be recognized in expense over the requisite service period. As of March 31, 2020, there were approximately 334 thousand unvested restricted shares outstanding.

Market-Based Awards

During the three months ended March 31, 2020, the Board of Directors, or committee thereof, approved target grants of 88 thousand market-based awards to executive officers of the Company. The performance period of these grants runs primarily through December 31, 2022. Potential shares of the Corporation’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% and 300%. Grant date fair value of the market-based share awards was calculated using the Monte Carlo simulation model, which incorporated stock price volatility 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 were expected volatility of the Company of 25.2% and expected volatility of the Company's peers, ranging from 18.1% to 27.3%, with an average volatility of 21.7% and a risk-free interest rate of 1.07%. The fair value of the market-based award per share was $67.30 as of the grant date. Stock-based compensation expense associated with unvested market-based share awards is recognized on a straight-line basis over the minimum required service period, which is generally three years.

Approximately $2.8 million and $2.7 million in dividend rights have been accrued as of March 31, 2020 and December 31, 2019, respectively. For outstanding non-vested awards at March 31, 2020, 0.4 million shares would have been released based on the Corporation’s TSR relative to the specified peer groups through that date.

Stock-based Compensation Expense

For the three months ended March 31, 2020 and 2019, the Company recognized $3.5 million and $3.6 million, respectively, in stock-based compensation expense, which is included in general and administrative expenses in the accompanying consolidated statements of operations. As of March 31, 2020, the remaining unamortized stock-based compensation expense totaled $20.6 million, comprised of $10.3 million related to both restricted stock awards and market-based awards. As of December 31, 2019, the unamortized stock-based compensation expense totaled $12.6 million, comprised of $6.6 million related to restricted stock awards and $6.0 million related to market-based awards. Amortization is recognized on a straight-line basis over the service period of each applicable award.

NOTE 10. INCOME PER SHARE AND PARTNERSHIP UNIT

Income per share and unit has been computed using the two-class method, which is computed by dividing the sum of distributed earnings to common stockholders and undistributed earnings allocated to common stockholders by the weighted average number of shares of common stock outstanding for the period. In applying the two-class method, undistributed earnings are allocated to both shares of common stock and participating securities based on the weighted average shares outstanding during the period. Classification of the Company's unvested restricted stock, which contain rights to receive nonforfeitable dividends, are deemed participating securities under the two-class method. Under the two-class method, earnings attributable to unvested restricted shares are deducted from income from continuing operations in the computation of net income attributable to common stockholders.

30


 

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

 

 

Three Months Ended

March 31,

 

 

 

2020

 

 

2019

 

Basic and diluted (loss) income:

 

 

 

 

 

 

 

 

(Loss) income from continuing operations

 

$

(15,847

)

 

$

43,578

 

Less: dividends paid to preferred stockholders

 

 

(2,588

)

 

 

(2,588

)

Less: dividends attributable to unvested restricted stock

 

 

(207

)

 

 

(272

)

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

 

$

(18,642

)

 

$

40,718

 

 

 

 

 

 

 

 

 

 

Basic weighted average shares of common stock outstanding:

 

 

 

 

 

 

 

 

Weighted average shares of common stock outstanding

 

 

102,551,315

 

 

 

85,916,656

 

Less: unvested weighted average shares of restricted stock

 

 

(321,168

)

 

 

(419,563

)

Basic weighted average shares of common stock outstanding

 

 

102,230,147

 

 

 

85,497,093

 

Net (loss) income per share attributable to common stockholders - basic

 

$

(0.18

)

 

$

0.48

 

 

 

 

 

 

 

 

 

 

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

 

 

 

 

 

 

 

 

Plus: unvested market-based awards

 

 

 

 

 

7,804

 

Diluted weighted average shares of common stock outstanding

 

 

102,230,147

 

 

 

85,504,897

 

Net (loss) income per share attributable to common stockholders - diluted

 

$

(0.18

)

 

$

0.48

 

 

 

 

 

 

 

 

 

 

Potentially dilutive shares of common stock

 

 

 

 

 

 

 

 

Unvested shares of restricted stock, less shares assumed repurchased at market

 

 

133,839

 

 

 

132,744

 

Unvested shares of market-based awards

 

 

377,449

 

 

 

 

 

(1)

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

The Corporation intends to satisfy its exchange obligation for the principal amount of the 2021 Convertible Notes to the note holders entirely in cash; therefore, the "if-converted" method does not apply and the treasury stock method is being used. For the three months ended March 31, 2020 and 2019, the Corporation’s average stock price was below the conversion price, resulting in zero potentially dilutive shares related to the conversion spread of the 2021 Convertible Notes.

Note 11. Related Party Transactions and Arrangements

Continuing Involvement

Subsequent to the Spin-Off, the Company has had continuing involvement with SMTA through related party agreements. The Company had cash inflows from SMTA of $0.3 million and cash outflows to SMTA of $4 thousand for the three months ended March 31, 2020. The Company had cash inflows from SMTA of $11.0 million and cash outflows to SMTA of $18.9 million for the three months ended March 31, 2019.

Cost Sharing Arrangements

In conjunction with the Spin-Off, the Company and SMTA entered into certain agreements, including the Separation and Distribution Agreement, Tax Matters Agreement, Registration Rights Agreement and Insurance Sharing Agreement. These agreements provide a framework for the relationship between the Company and SMTA after the Spin-Off, by which Spirit may incur certain expenses on behalf of SMTA that must be reimbursed in a timely manner. These agreements, except for the Tax Matters Agreement, were terminated in conjunction with the termination of the Asset Management Agreement. In conjunction with these arrangements, the Company had an accrued receivable balance of $0.3 million and no accrued payable balance as of March 31, 2020. As of December 31, 2019, the Company did not have material accrued receivable or payable balances in conjunction with these arrangements.

Asset Management Agreement and Interim Management Agreement

In conjunction with the Spin-Off, the Company entered into the Asset Management Agreement pursuant to which the Operating Partnership provided various management services to SMTA. On June 2, 2019, concurrently with SMTA’s entry into an agreement to sell Master Trust 2014, the Company entered into a termination agreement of the Asset Management Agreement, which became effective on September 20, 2019. On June 2, 2019, the Company and SMTA also entered into

31


 

an Interim Management Agreement, which became effective on September 20, 2019, and which provides that the Company is entitled to an annual management fee of $1 million for the initial one-year term thereof and $4 million per annum for any renewal term, in each case plus certain cost reimbursements. The Interim Management Agreement is terminable at any time by SMTA and may be terminated at any time upon 180 days’ prior written notice by the Company, in each case without payment of a termination fee. On March 18, 2020, the Company notified SMTA of its intention to terminate the Interim Asset Management Agreement effective as of September 14, 2020.  Management fees of $0.3 million and $5.0 million were earned during the three months ended March 31, 2020 and 2019, and are included in related party fee income in the consolidated statements of operations. As of both March 31, 2020 and December 31, 2019, the Company did not have material accrued receivable balances related to the Interim Management Agreement.

Property Management and Servicing Agreement

Prior to September 20, 2019, the Operating Partnership provided property management services and special services for Master Trust 2014. The property management fees accrued daily at 0.25% per annum of the collateral value of the Master Trust 2014 collateral pool less any specially serviced assets, and the special servicing fees accrued daily at 0.75% per annum of the collateral value of any assets deemed to be specially serviced per the terms of the Property Management and Servicing Agreement dated May 20, 2014. Property management fees of $1.5 million and special servicing fees of $0.4 million were earned during the three months ended March 31, 2019. These fees are included in related party fee income in the consolidated statements of operations. In conjunction with SMTA’s sale of Master Trust 2014 on September 20, 2019, the notes were retired and the Property Management and Servicing Agreement was terminated.

Note 12. Subsequent Events

2020 Term Loan

On April 2, 2020, the Operating Partnership entered into an unsecured term loan agreement (the “2020 Term Loan Agreement”). The Term Loan Agreement provides for $200 million of term loans with a maturity date of April 2, 2022 and an accordion feature to increase the available term loans up to an aggregate of $400 million, subject to obtaining lender commitments and the satisfaction of certain customary conditions. On April 10, 2020, the Operating Partnership partially exercised the accordion feature to borrow an additional $100 million of term loans. Amounts outstanding under the 2020 Term Loans bear interest at LIBOR plus an applicable margin of 1.5% per annum. In addition, if any loans are outstanding after April 2, 2021, the Operating Partnership will be required to pay a one-time fee in an amount equal to 0.20% of the outstanding principal amount of loans. The proceeds from the 2020 Term Loans were used to reduce the amounts drawn under the 2019 Credit Facility.

Impact of COVID-19

Due to the onset of the COVID-19 pandemic later in the first quarter of 2020, certain of our tenants, especially those in industries considered “non-essential” under varying state “shelter-in-place” and “stay-at-home” orders and other restrictions on types of business that may continue to operate, may experience challenges or even closures. As such, we anticipate there to be an impact on their financial condition, results of operations, liquidity, ability to pay rent and creditworthiness. That impact may directly result in a reduction in our rental income and/or an increase in our property costs and impairments, as well as indirectly result in an increase in our general and administrative expenses, as we experience higher collectability issues and incur costs to negotiate rent deferrals, lease restructures, and/or lease terminations, as we deem appropriate on a case-by-case basis. Although we are and will continue to be actively engaged in rent collection efforts related to uncollected rent, as well as working with certain tenants who have requested rent deferrals, we can provide no assurance that such efforts or our efforts in future periods will be successful, particularly in the event that the COVID-19 pandemic and restrictions intended to prevent its spread continue for a prolonged period.  

32


 

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. When used in this quarterly report, the words “estimate,” “anticipate,” “expect,” “believe,” “intend,” “may,” “will,” “should,” “seek,” “approximately” or “plan,” or the negative of these words or similar words or phrases that are predictions of or indicate future events or trends and which do not relate solely to historical matters are intended to identify forward-looking statements. You can also identify forward-looking statements by discussions of strategy, plans or intentions of management.

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

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

 

industry and economic conditions;

 

volatility and uncertainty in the financial markets, including potential fluctuations in the CPI;

 

our success in implementing our business strategy and our ability to identify, underwrite, finance, consummate, integrate and manage diversifying acquisitions or investments;

 

the financial performance of our retail tenants and the demand for retail space, particularly with respect to challenges being experienced by general merchandise retailers;

 

our ability to diversify our tenant base;

 

the nature and extent of future competition;

 

increases in our costs of borrowing as a result of changes in interest rates and other factors;

 

our ability to access debt and equity capital markets;

 

our ability to pay down, refinance, restructure and/or extend our indebtedness as it becomes due;

 

our ability and willingness to renew our leases upon expiration and to reposition our properties on the same or better terms upon expiration in the event such properties are not renewed by tenants or we exercise our rights to replace existing tenants upon default;

 

the impact of any financial, accounting, legal or regulatory issues or litigation that may affect us or our major tenants;

 

our ability to manage our expanded operations;

 

our ability and willingness to maintain our qualification as a REIT;

 

our ability to manage and liquidate the remaining SMTA assets;

 

the impact on our business and those of our tenants from epidemics, pandemics or other outbreaks of illness, disease or virus (such as the strain of coronavirus known as COVID-19); and

 

other risks inherent in the real estate business, including tenant defaults, potential liability relating to environmental matters, illiquidity of real estate investments and potential damages from natural disasters.

The factors included in this quarterly report, including the documents incorporated by reference, and documents we subsequently file with the SEC and incorporate by reference, are not exhaustive and additional factors could adversely affect our business and financial performance. Additional factors that may cause risks and uncertainties include those discussed in the sections entitled "Business", "Risk Factors" and "Management's Discussion and Analysis of Financial Condition and Results of Operations" in our most recent Annual Report on Form 10-K and this report and subsequent filings with the SEC. All forward-looking statements are based on information that was available, and speak only, to 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.

33


 

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-managed REIT with in-house capabilities including acquisition, credit research, asset management, portfolio management, real estate research, legal, finance and accounting functions. We primarily invest in single-tenant real estate assets throughout the U.S., which are generally acquired through sale-leaseback transactions and subsequently leased on a long-term, triple-net basis to high quality tenants with business operations within retail, industrial, office and other industries.

Single tenant, operationally essential real estate consists of properties that are generally free-standing, commercial real estate facilities where our tenants conduct activities that are essential to the generation of their sales and profits. 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.

As of March 31, 2020, our owned real estate represented investments in 1,772 properties. Our properties are leased to 298 tenants across 48 states and 28 retail industries. As of March 31, 2020, our owned properties were approximately 99.4% occupied (based on the number of economically yielding properties). In addition, our investment in real estate includes commercial mortgage and other loans primarily secured by 43 real estate properties or other related assets.

Our operations are carried out through the Operating Partnership. OP Holdings, one of our wholly-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. Although 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 allows us to qualify as a REIT for federal income tax purposes.

On May 31, 2018, we completed a Spin-Off of all our interests in the assets that collateralized Master Trust 2014, our properties leased to Shopko, and certain other assets into an independent, publicly traded REIT, SMTA. In conjunction with the Spin-Off, we entered into the Asset Management Agreement with SMTA, pursuant to which the Company acted as external asset manager for SMTA for an annual management fee of $20.0 million. In September 2019, SMTA sold the assets held in Master Trust 2014 and approved a plan of liquidation. The Asset Management Agreement was terminated, and the Interim Management Agreement with SMTA became effective. Pursuant to the Interim Management Agreement, we are entitled to receive $1 million during the initial one-year term and $4 million for any renewal one-year term, plus certain cost reimbursements, to manage and liquidate the remaining SMTA assets. On March 18, 2020, we provided notification that we intend to terminate the Interim Management Agreement, effective as of September 14, 2020.

Due to the onset of the COVID-19 pandemic later in the first quarter of 2020, there was little impact on our first quarter 2020 results. However, as certain of our tenants, especially those in industries considered “non-essential” under varying state “shelter-in-place” and “stay-at-home” orders and other restrictions on types of business that may continue to operate, experience challenges or even closures, we anticipate there to be an impact on their financial condition, results of operations, liquidity, ability to pay rent and creditworthiness. That impact may directly result in a reduction in our rental income and/or an increase in our property costs and impairments, as well as indirectly result in an increase in our general and administrative expenses, as we experience higher collectability issues and incur costs to negotiate rent deferrals, lease restructures and/or lease terminations, as we deem appropriate on a case-by-case basis. As of the date of this report, our discussions with tenants requesting rent deferrals (and other forms of relief) have been substantially focused on industries that are directly disrupted by the COVID-19 pandemic and restrictions intended to prevent its spread, particularly health and fitness, movie theaters, quick service and casual dining restaurants, entertainment, car washes, dealerships, home décor, home furnishings, department stores and education. These and other industries may be further impacted in the future depending on various factors, including the duration of the COVID-19 pandemic and restrictions intended to prevent its spread, and even after certain of such restrictions are lifted or reduced, the willingness of customers to visit our tenants’ businesses may be reduced due to lingering concerns regarding the continued risk of COVID-19 transmission and heightened sensitivity to risks associated with the transmission of other diseases. We are not able to predict the duration of such customer behavior.    

As of May 1, 2020, we have collected approximately 70% of April 2020 Contractual Rent of $39.3 million, including from nine of our top 10 tenants and 17 of our top 20 tenants. In addition, as of that date, we have granted rent deferral requests for tenants representing approximately 27% of our April 2020 Contractual Rent. Such rent deferrals generally defer rent payments from 30 to 90 days and require the tenant to repay the deferred rent within 12 months. Of the tenants who we have

34


 

granted rent deferrals, 25% are public companies, and the weighted average remaining lease term of leases for such tenants is 12.1 years. Although we are and will continue to be actively engaged in rent collection efforts related to uncollected rent, as well as working with certain tenants who have requested rent deferrals, we can provide no assurance that such efforts or our efforts in future periods will be successful, particularly in the event that the COVID-19 pandemic and restrictions intended to prevent its spread continue for a prolonged period. Refer to “Part II—Other Information, Item 1A. Risk Factors” for additional information about the potential impact of the COVID-19 pandemic and restrictions intended to prevent its spread on our business, financial condition, results of operations, cash flows, liquidity and ability to satisfy our debt service obligations and make distributions to our stockholders.

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 the section entitled “Management’s Discussion and Analysis of Financial Condition and Results of Operations” of our Annual Report on Form 10-K for the year ended December 31, 2019. We have not made any material changes to these policies during the periods covered by this quarterly report.

Results of Operations

Comparison of Three Months Ended March 31, 2020 to Three Months Ended March 31, 2019

 

 

Three Months Ended March 31,

 

(In Thousands)

 

2020

 

 

2019

 

 

Change

 

 

% Change

 

Revenues:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Rental income

 

$

121,363

 

 

$

104,067

 

 

$

17,296

 

 

 

16.6

%

Interest income on loans receivable

 

 

419

 

 

 

986

 

 

 

(567

)

 

 

(57.5

)%

Earned income from direct financing leases

 

 

177

 

 

 

396

 

 

 

(219

)

 

 

(55.3

)%

Related party fee income

 

 

250

 

 

 

6,927

 

 

 

(6,677

)

 

 

(96.4

)%

Other income

 

 

511

 

 

 

217

 

 

 

294

 

 

NM

 

Total revenues

 

 

122,720

 

 

 

112,593

 

 

 

10,127

 

 

 

9.0

%

Expenses:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

General and administrative

 

 

13,490

 

 

 

13,181

 

 

 

309

 

 

 

2.3

%

Property costs (including reimbursable)

 

 

5,936

 

 

 

5,154

 

 

 

782

 

 

 

15.2

%

Deal pursuit costs

 

 

1,019

 

 

 

71

 

 

 

948

 

 

NM

 

Interest

 

 

25,359

 

 

 

26,611

 

 

 

(1,252

)

 

 

(4.7

)%

Depreciation and amortization

 

 

52,236

 

 

 

41,349

 

 

 

10,887

 

 

 

26.3

%

Impairments

 

 

40,774

 

 

 

3,692

 

 

 

37,082

 

 

NM

 

Total expenses

 

 

138,814

 

 

 

90,058

 

 

 

48,756

 

 

 

54.1

%

Other income:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Gain on debt extinguishment

 

 

 

 

 

8,783

 

 

 

(8,783

)

 

 

(100.0

)%

Gain on disposition of assets

 

 

388

 

 

 

8,730

 

 

 

(8,342

)

 

 

(95.6

)%

Preferred dividend income from SMTA

 

 

 

 

 

3,750

 

 

 

(3,750

)

 

 

(100.0

)%

Total other income

 

 

388

 

 

 

21,263

 

 

 

(20,875

)

 

 

(98.2

)%

(Loss) income before income tax expense

 

 

(15,706

)

 

 

43,798

 

 

 

(59,504

)

 

NM

 

Income tax expense

 

 

(141

)

 

 

(220

)

 

 

79

 

 

 

(35.9

)%

Net (loss) income

 

$

(15,847

)

 

$

43,578

 

 

$

(59,425

)

 

NM

 

 

NM - Percentages over 100% are not displayed.

REVENUES

Rental income

We were a net acquirer of income producing real estate over the trailing twelve-month period, resulting in an increase in our base cash rents between periods of 21.4%. Included in continuing operations for the trailing twelve months ended March 31, 2020 were acquisitions of 339 properties, with a Real Estate Investment Value of $1.34 billion, and dispositions of 44 properties, with a Real Estate Investment Value of $225.7 million.

35


 

Also included in rental income are tenant reimbursements, where our tenants are obligated under the lease agreement to reimburse us for certain property costs we incur, and non-cash rental income. Tenant reimbursement income was $3.1 million and $3.5 million for the three months ended March 31, 2020 and 2019, respectively, and is driven by the tenant reimbursable property costs described below. These amounts represent approximately 2.6% and 3.3% of rental income for the three months ended March 31, 2020 and 2019, respectively.

Non-cash rental income consists of straight-line rental revenue, amortization of above- and below-market lease intangibles and bad debt expense. Non-cash rental income, net of bad debt expense, for the three months ended March 31, 2020 was $1.4 million, compared to $3.6 million for the three months ended March 31, 2019. The decrease in non-cash rental income was primarily driven by a write-off of straight-line rent due to a lease modification. These amounts represent approximately 1.2% and 3.5% of total rental income for the three months ended March 31, 2020 and 2019, respectively.

Related party fee income

In conjunction with the Spin-Off, we entered into the Asset Management Agreement with SMTA pursuant to which we provided a management team responsible for implementing SMTA ’s business strategy and performing certain services for SMTA. Under this agreement, we recognized $5.0 million of revenues during the three months ended March 31, 2019. This agreement was terminated in conjunction with SMTA’s sale of Master Trust 2014 on September 20, 2019. We entered into an Interim Management Agreement for an initial annual fee of $1.0 million, under which we agreed to manage and liquidate the remaining SMTA assets. Under this agreement, we recognized $0.3 million of revenues for the three months ended March 31, 2020. On March 18, 2020, we provided notification to SMTA that we intend to terminate the Interim Management Agreement, effective as of September 14, 2020.

Additionally, we provided property management services and special services for Master Trust 2014, which was contributed to SMTA as part of the Spin-Off. As a result, for the three months ended March 31, 2019, we recognized $1.9 million in revenue under the terms of the Property Management and Servicing Agreement. This agreement was terminated in the third quarter of 2019 in conjunction with SMTA’s sale of Master Trust 2014.

EXPENSES

General and administrative

Period-over-period general and administrative expenses increased, driven by an increase in professional fees of $0.6 million, primarily as a result of increased legal and consulting fees. This increase was partially offset by a decrease in compensation expenses of $0.4 million period-over-period.

Property costs (including reimbursable)

For the three months ended March 31, 2020, property costs were $5.9 million (including $3.6 million of tenant reimbursable expenses) compared to $5.2 million (including $4.1 million of tenant reimbursable expenses) for the same period in 2019. As such, reimbursable property costs decreased period-over-period, primarily due to less snow removal expenses and less reimbursable property taxes. The increase in non-reimbursable costs of $1.2 million was driven primarily by an increase in non-reimbursable property taxes as a result of an increase in tenant credit issues.

Interest

The decrease in interest expense was driven by the following:

 

the extinguishment of $10.4 million aggregate principal amount of CMBS indebtedness on one defaulted loan in the first quarter of 2019, which had a default interest rate of 9.85%,

 

the maturity and repayment of the $402.5 million aggregate principal amount of 2.875% Convertible 2019 Notes on May 15, 2019,

 

the early repayment of the Master Trust 2013 notes on June 20, 2019, and

 

the repayment and termination of the A-1 Term Loans and A-2 Term Loans on September 16, 2019.  

The decrease was partially offset by increased interest expenses due to the issuance of the 2027 Senior Notes, 2029 Senior Notes and 2030 Senior Notes during 2019.

36


 

The following table summarizes our interest expense on related borrowings:

 

 

Three Months Ended

March 31,

 

(In Thousands)

 

2020

 

 

2019

 

Interest expense – revolving credit facilities (1)

 

$

2,056

 

 

$

2,178

 

Interest expense – term loans

 

 

 

 

 

3,979

 

Interest expense – Senior Unsecured Notes

 

 

13,988

 

 

 

3,338

 

Interest expense – mortgages and notes payable

 

 

3,013

 

 

 

6,252

 

Interest expense – Convertible Notes

 

 

3,234

 

 

 

6,127

 

Non-cash interest expense

 

 

3,068

 

 

 

4,737

 

Total interest expense

 

$

25,359

 

 

$

26,611

 

(1)

Includes facility fees of approximately $0.4 million and $0.7 million for the three months ended March 31, 2020 and 2019, respectively.

Depreciation and amortization

While we were a net acquirer during the trailing twelve-month period of $1.11 billion of Real Estate Investment Value, depreciation and amortization increased to a lesser degree period-over-period as a result of timing of the acquisition/disposition activity, with about half of both the acquisitions and dispositions closings occurred in the last six months. The following table summarizes our depreciation and amortization expense:

 

 

Three Months Ended

March 31,

 

(In Thousands)

 

2020

 

 

2019

 

Depreciation of real estate assets

 

$

43,276

 

 

$

34,469

 

Amortization of lease intangibles

 

 

8,815

 

 

 

6,738

 

Other depreciation

 

 

145

 

 

 

142

 

Total depreciation and amortization

 

$

52,236

 

 

$

41,349

 

Impairments

During the three months ended March 31, 2020, we recorded impairment losses of $40.8 million. $39.9 million of impairment was recorded on 18 underperforming properties held for use. $0.3 million was recorded on four Vacant properties held for use. Only two of the impaired properties had impairment triggers directly caused by the impacts of the COVID-19 pandemic. However, our evaluation of fair value as of March 31, 2020 for all properties tested for impairment was impacted by the overall downturn in markets as a result of the COVID-19 pandemic, resulting in increased impairment charges during the three months ended March 31, 2020. Additionally, we recorded allowances for credit losses of $0.3 million on our direct financing lease and $0.3 million on our two loans receivable.

During the three months ended March 31, 2019, we recorded impairment losses of $3.7 million. $1.2 million of the impairment was recorded on Vacant properties, comprised of $0.2 million recorded on one vacant held for use property and $1.0 million recorded on one vacant held for sale property. $3.0 million of impairment was recorded on eight underperforming properties. These impairment charges were partially offset by $0.5 million of impairment on lease intangible liabilities.

Gain on debt extinguishment

During the three months ended March 31, 2020, we did not extinguish any debt. During the three months ended March 31, 2019, we extinguished $10.4 million aggregate principal amount of CMBS indebtedness on one defaulted loan, which was secured by one property, resulting in a gain on debt extinguishment of $9.5 million. This was partially offset by a loss on debt extinguishment of $0.7 million as a result of the termination of the 2015 Credit Agreement and 2015 Term Loan Agreement in conjunction with entering into the 2019 Revolving Credit and Term Loan Agreement.

Gain on disposition of assets

During the three months ended March 31, 2020, we disposed of seven properties, resulting in net gains totaling $0.7 million. There were $0.7 million in net gains on the sale of three Vacant properties and minimal net gains on the sale of four active properties. These gains were partially offset by a $0.2 million loss recorded on the sale of a notes receivable and $0.2 million in other net losses.  

For the same period in 2019, we disposed of seven properties and recorded net gains totaling $8.7 million. There were $8.8 million in net gains on the sale of four active properties, partially offset by $0.1 million in other net losses. One property was returned to the lender in conjunction with CMBS debt extinguishment, which did not result in a gain or loss on disposition.

37


 

Preferred dividend income from SMTA

As part of the Spin-Off, SMTA issued to us 10% Series A preferred shares with an aggregate liquidation preference of $150.0 million. For the three months ended March 31, 2019, we recognized preferred dividend income of $3.8 million from these shares. In September 2019, in conjunction with SMTA’s sale of Master Trust 2014, SMTA repurchased the preferred shares at their aggregate liquidation preference.

Property Portfolio Information

 

 

 

 

 

 

1,772

99.4%

48

298

28

Owned Properties

Occupancy

States

Tenants

Retail Industries

Diversification By Tenant

Tenant concentration represents the tenant's contribution to Contractual Rent of our owned real estate properties as of March 31, 2020:

Tenant (1)

 

Number of

Properties

 

 

Total Square Feet

(in thousands)

 

 

Percent of

Contractual Rent

 

Cajun Global LLC

 

 

167

 

 

 

240

 

 

 

2.8

%

The Home Depot, Inc.

 

 

7

 

 

 

848

 

 

 

2.4

%

Walgreen Co.

 

 

36

 

 

 

517

 

 

 

2.3

%

Alimentation Couche-Tard, Inc.

 

 

77

 

 

 

232

 

 

 

2.3

%

GPM Investments, LLC

 

 

113

 

 

 

306

 

 

 

2.1

%

At Home Group Inc.

 

 

12

 

 

 

1,487

 

 

 

2.1

%

Dollar Tree, Inc.

 

 

106

 

 

 

927

 

 

 

2.0

%

CVS Caremark Corporation

 

 

34

 

 

 

422

 

 

 

1.9

%

Life Time Fitness, Inc

 

 

5

 

 

 

588

 

 

 

1.9

%

Party City Holdings Inc.

 

 

3

 

 

 

1,090

 

 

 

1.7

%

Other

 

 

1,201

 

 

 

29,103

 

 

 

78.5

%

Vacant

 

 

11

 

 

 

379

 

 

 

 

Total

 

 

1,772

 

 

 

36,139

 

 

 

100.0

%

(1) Tenants represent legal entities ultimately responsible for obligations under the lease agreements or affiliated entities. Other tenants may operate the same or similar business concepts or brands set forth above.

Lease Expirations

The following table sets forth a summary schedule of expiration dates for leases in place as of March 31, 2020. As of March 31, 2020, the weighted average remaining non-cancelable initial term of our leases (based on Contractual Rent) was 10.0 years. The information set forth in the table assumes that tenants do not exercise renewal options and or any early termination rights:

Leases Expiring In:

 

Number of

Properties

 

 

Contractual Rent

Annualized

(in thousands) (1)

 

 

Total Square

Feet

(in thousands)

 

 

Percent of

Contractual Rent

 

Remainder of 2020

 

 

18

 

 

$

6,835

 

 

 

661

 

 

 

1.4

%

2021

 

 

75

 

 

 

22,203

 

 

 

1,933

 

 

 

4.7

%

2022

 

 

46

 

 

 

18,324

 

 

 

1,671

 

 

 

3.8

%

2023

 

 

116

 

 

 

34,414

 

 

 

3,079

 

 

 

7.2

%

2024

 

 

51

 

 

 

20,797

 

 

 

1,829

 

 

 

4.4

%

2025

 

 

43

 

 

 

15,516

 

 

 

1,216

 

 

 

3.3

%

2026

 

 

92

 

 

 

29,914

 

 

 

2,155

 

 

 

6.3

%

2027

 

 

125

 

 

 

37,234

 

 

 

2,473

 

 

 

7.8

%

2028

 

 

108

 

 

 

31,712

 

 

 

1,919

 

 

 

6.7

%

2029

 

 

323

 

 

 

42,081

 

 

 

2,752

 

 

 

8.8

%

Thereafter

 

 

764

 

 

 

217,329

 

 

 

16,072

 

 

 

45.6

%

Vacant

 

 

11

 

 

 

 

 

 

379

 

 

 

 

Total owned properties

 

 

1,772

 

 

$

476,359

 

 

 

36,139

 

 

 

100.0

%

(1) Contractual Rent for the month ended March 31, 2020 for properties owned at March 31, 2020, multiplied by twelve.

38


 

Diversification By Asset Type and Tenant Industry

Asset type and tenant industry concentration represents the type of asset’s contribution to Contractual Rent of our owned real estate properties and, for retail asset types, the tenant industry's contribution to Contractual Rent of our owned properties as of March 31, 2020:

Asset Type

Tenant Industry

Number of

Properties

 

 

Total Square Feet

(in thousands)

 

 

Percent of

Contractual Rent

 

Retail

 

 

1,662

 

 

 

25,243

 

 

 

81.2

%

 

Convenience Stores

 

333

 

 

 

1,050

 

 

 

8.3

%

 

Health and Fitness

 

45

 

 

 

2,308

 

 

 

7.2

%

 

Movie Theaters

 

37

 

 

 

1,953

 

 

 

6.9

%

 

Restaurants - Quick Service

 

367

 

 

 

800

 

 

 

6.9

%

 

Restaurants - Casual Dining

 

136

 

 

 

967

 

 

 

6.2

%

 

Drug Stores / Pharmacies

 

80

 

 

 

1,034

 

 

 

4.9

%

 

Grocery

 

39

 

 

 

1,792

 

 

 

3.7

%

 

Entertainment

 

24

 

 

 

1,022

 

 

 

3.5

%

 

Car Washes

 

65

 

 

 

308

 

 

 

3.4

%

 

Dealerships

 

24

 

 

 

796

 

 

 

3.1

%

 

Home Improvement

 

15

 

 

 

1,605

 

 

 

3.1

%

 

Dollar Stores

 

162

 

 

 

1,481

 

 

 

3.1

%

 

Home Décor

 

15

 

 

 

2,049

 

 

 

2.6

%

 

Specialty Retail

 

53

 

 

 

1,142

 

 

 

2.5

%

 

Warehouse Club and Supercenters

 

12

 

 

 

1,319

 

 

 

2.4

%

 

Automotive Service

 

70

 

 

 

592

 

 

 

2.3

%

 

Department Stores

 

14

 

 

 

1,281

 

 

 

2.0

%

 

Home Furnishings

 

18

 

 

 

865

 

 

 

1.9

%

 

Sporting Goods

 

14

 

 

 

739

 

 

 

1.7

%

 

Education

 

36

 

 

 

427

 

 

 

1.7

%

 

Automotive Parts

 

55

 

 

 

388

 

 

 

1.2

%

 

Office Supplies

 

16

 

 

 

351

 

 

 

0.8

%

 

Other

 

8

 

 

 

251

 

 

 

0.6

%

 

Medical Office

 

5

 

 

 

65

 

 

 

0.5

%

 

Pet Supplies & Service

 

4

 

 

 

133

 

 

 

0.4

%

 

Apparel

 

5

 

 

 

150

 

 

 

0.3

%

 

Vacant

 

10

 

 

 

375

 

 

 

0.0

%

Industrial

 

 

67

 

 

 

8,881

 

 

 

11.2

%

Office and Other

 

 

43

 

 

 

2,015

 

 

 

7.6

%

 

Total

 

1,772

 

 

 

36,139

 

 

 

100.0

%

39


 

Diversification By Geography

Geographic concentration represents the geographic region's contribution to Contractual Rent of our owned real estate properties as of March 31, 2020:

 

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

 

 

258

 

 

 

4,167

 

 

 

11.3

%

 

Louisiana

 

 

23

 

 

 

368

 

 

 

1.3

%

Florida

 

 

121

 

 

 

2,132

 

 

 

7.6

%

 

Utah

 

 

18

 

 

 

333

 

 

 

1.3

%

Georgia

 

 

123

 

 

 

1,985

 

 

 

6.5

%

 

Pennsylvania

 

 

20

 

 

 

488

 

 

 

1.2

%

Ohio

 

 

86

 

 

 

2,396

 

 

 

5.4

%

 

Alaska

 

 

9

 

 

 

319

 

 

 

1.1

%

California

 

 

24

 

 

 

1,236

 

 

 

4.7

%

 

New Hampshire

 

 

16

 

 

 

640

 

 

 

1.1

%

Tennessee

 

 

105

 

 

 

1,798

 

 

 

4.2

%

 

Idaho

 

 

16

 

 

 

273

 

 

 

1.0

%

Illinois

 

 

50

 

 

 

1,258

 

 

 

4.0

%

 

Kansas

 

 

18

 

 

 

345

 

 

 

0.8

%

Michigan

 

 

85

 

 

 

1,511

 

 

 

3.8

%

 

Connecticut

 

 

5

 

 

 

686

 

 

 

0.8

%

New York

 

 

30

 

 

 

1,895

 

 

 

3.6

%

 

Wisconsin

 

 

10

 

 

 

391

 

 

 

0.7

%

Arizona

 

 

46

 

 

 

834

 

 

 

3.0

%

 

Iowa

 

 

12

 

 

 

194

 

 

 

0.6

%

South Carolina

 

 

42

 

 

 

677

 

 

 

2.8

%

 

Washington

 

 

8

 

 

 

185

 

 

 

0.6

%

Missouri

 

 

65

 

 

 

966

 

 

 

2.7

%

 

Maine

 

 

26

 

 

 

76

 

 

 

0.5

%

North Carolina

 

 

57

 

 

 

1,138

 

 

 

2.6

%

 

Oregon

 

 

4

 

 

 

144

 

 

 

0.4

%

Virginia

 

 

44

 

 

 

1,335

 

 

 

2.6

%

 

West Virginia

 

 

13

 

 

 

202

 

 

 

0.4

%

Alabama

 

 

93

 

 

 

618

 

 

 

2.5

%

 

Nebraska

 

 

9

 

 

 

221

 

 

 

0.4

%

Maryland

 

 

9

 

 

 

714

 

 

 

2.5

%

 

Montana

 

 

3

 

 

 

152

 

 

 

0.4

%

Minnesota

 

 

25

 

 

 

936

 

 

 

2.3

%

 

Massachusetts

 

 

2

 

 

 

130

 

 

 

0.4

%

Colorado

 

 

25

 

 

 

978

 

 

 

2.3

%

 

North Dakota

 

 

3

 

 

 

105

 

 

 

0.3

%

Indiana

 

 

40

 

 

 

830

 

 

 

2.2

%

 

Rhode Island

 

 

3

 

 

 

95

 

 

 

0.3

%

New Mexico

 

 

28

 

 

 

583

 

 

 

1.7

%

 

Wyoming

 

 

1

 

 

 

35

 

 

 

0.1

%

Oklahoma

 

 

51

 

 

 

448

 

 

 

1.6

%

 

U.S. V.I.

 

 

1

 

 

 

38

 

 

 

0.1

%

Mississippi

 

 

50

 

 

 

421

 

 

 

1.6

%

 

South Dakota

 

 

1

 

 

 

20

 

 

 

0.1

%

Kentucky

 

 

37

 

 

 

482

 

 

 

1.6

%

 

Delaware

 

 

1

 

 

 

5

 

 

 

0.1

%

Arkansas

 

 

42

 

 

 

637

 

 

 

1.5

%

 

Vermont

 

 

1

 

 

 

2

 

 

*

 

New Jersey

 

 

13

 

 

 

717

 

 

 

1.4

%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

*

Less than 0.1%

40


 

Liquidity and Capital Resources

ATM PROGRAM

In November 2016, the Board of Directors approved a $500.0 million ATM Program. In February 2019, we updated the ATM Program, pursuant to which we may from time to time offer and sell shares of our common stock having an aggregate gross sales price of up to $500.0 million through the agents, as our sales agents or, if applicable, as forward sellers, or directly to the agents acting as principals. Sales of shares of our common stock under the ATM Program may be made in sales deemed to be “at the market offerings” as defined in Rule 415 under the Securities Act.

The ATM Program contemplates that, in addition to the issuance and sale by us of shares of our common stock to or through the agents, we may enter into separate forward sale agreements with one of the agents or one of their respective affiliates (in such capacity, each, a “forward purchaser” and, collectively, the “forward purchasers”). When we enter into a forward sale agreement with any forward purchaser, we expect that such forward purchaser will attempt to borrow from third parties and sell, through the relevant agent, acting as sales agent for such forward purchaser, shares of our common stock to hedge such forward purchaser's exposure under such forward sale agreement. We will not 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 currently expect to fully physically settle any forward sale agreement with the relevant forward purchaser on one or more dates specified by us on or prior to the 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. However, subject to certain exceptions, we may also elect, in our sole discretion, to cash settle or net share settle all or any portion of our obligations 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 the relevant forward purchaser.

As of March 31, 2020, 5.6 million shares of our common stock have been sold under the ATM Program. 3.8 million of the sales were sold by forward purchasers through agents under the ATM Program and pursuant to forward sales agreements. The forward sale price that we received upon physical settlement of the agreements was 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. 0.4 million of the shares were sold during the three months ended March 31, 2020, all under forward sales agreements, for net proceeds of $17.6 million, after giving effect to sales agent commissions and other issuance fees of $0.3 million. As of March 31, 2020, we had physically settled our obligations under our existing forward sales agreements and there were no open forward sales agreements. As of March 31, 2020, and we had remaining capacity to sell common stock having an aggregate gross sales price of up to $246.3 million under the ATM Program.

SHORT-TERM LIQUIDITY AND CAPITAL RESOURCES

On a short-term basis, our principal demands for funds will be for operating expenses, acquisitions, distributions to stockholders and payment of interest and principal on current and any future debt financings. We expect to fund these demands primarily through cash provided by operating activities, borrowings under the 2019 Credit Facility and, when market conditions warrant, issuances of equity securities, including shares of our common stock under our ATM program. As of March 31, 2020, available liquidity was comprised of $216.7 million in cash and cash equivalents, $300 million of borrowing capacity under the 2019 Credit Facility and $11.7 million in restricted cash and restricted cash equivalents. We also have remaining capacity to sell common stock having an aggregate gross sales price of up to $246.3 million under our ATM Program as of March 31, 2020. We believe that this available liquidity makes us well positioned to navigate any macroeconomic uncertainty resulting from the COVID-19 pandemic restrictions intended to prevent its spread.

LONG-TERM LIQUIDITY AND CAPITAL RESOURCES

We plan to meet our long-term capital needs, including long-term financing of property acquisitions, by issuing registered debt or equity securities, by obtaining asset level financing and by issuing fixed-rate secured or unsecured notes and bonds. In the future, some of our property acquisitions could be made by issuing partnership interests of our Operating Partnership in exchange for property owned by third parties. These partnership interests would be exchangeable for cash or, at our election, shares of our common stock. We continually evaluate financing alternatives and believe that we can obtain financing on reasonable terms. However, we cannot be sure that we will have access to the capital markets at times and on terms that are acceptable to us. Refer to “Part II—Other Information, Item 1A. Risk Factors” for additional information about the potential impact of the COVID-19 pandemic and restrictions intended to prevent its spread on our business, financial condition, results of operations, cash flows, liquidity and ability to satisfy our debt service obligations and make distributions

41


 

to our stockholders. We expect that our primary uses of capital will be for property and other asset acquisitions, the payment of tenant improvements, operating expenses, debt service payments and distributions to our stockholders.

DESCRIPTION OF CERTAIN DEBT

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

2019 Credit Facility

As of March 31, 2020, the aggregate gross commitment under the 2019 Credit Facility was $800.0 million, which may be increased up to $1.2 billion by exercising an accordion feature, subject to satisfying certain requirements and obtaining additional lender commitments. As of March 31, 2020, $500.0 million of the available gross commitment was drawn. The 2019 Credit Facility has a maturity of March 31, 2023 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 unconditionally guaranteed by the Company and material subsidiaries that meet certain conditions (as defined in the 2019 Facilities Agreements). As of March 31, 2020, there were no subsidiaries that met this requirement.

As of March 31, 2020, the 2019 Credit Facility bore interest at 1-Month LIBOR plus 0.90% and a ratings-based facility fee in the amount of 0.20% per annum. As of March 31, 2020, there were no letters of credit outstanding.

Senior Unsecured Notes

As of March 31, 2020, we had the following Senior Unsecured Notes outstanding (dollars in thousands):

 

 

Maturity Date

 

Stated Interest Rate

 

 

March 31,

2020

 

2026 Senior Notes

 

September 15, 2026

 

4.45%

 

 

$

300,000

 

2027 Senior Notes

 

January 15, 2027

 

3.20%

 

 

$

300,000

 

2029 Senior Notes

 

July 15, 2029

 

4.00%

 

 

$

400,000

 

2030 Senior Notes

 

January 15, 2030

 

3.40%

 

 

$

500,000

 

Total Senior Unsecured Notes

 

 

 

3.73%

 

 

$

1,500,000

 

The Senior Unsecured Notes are payable on January 15 and July 15 of each year, except for the 2026 Senior Notes, which are payable on March 15 and September 15 of each year. 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 three months or less (or two months or less in the case of the 2027 Senior Notes) prior to their respective maturity dates, the redemption price will not include a make-whole premium.

CMBS

In general, the obligor of our asset level debt is a special purpose entity that holds the real estate and other collateral securing the indebtedness. Each special purpose entity is a bankruptcy remote separate legal entity and is the sole owner of its assets and solely responsible for its liabilities other than typical non-recurring covenants.

As of March 31, 2020, we had five fixed-rate CMBS loans with $217.3 million of aggregate outstanding principal, a weighted-average contractual interest rate of 5.47% and a weighted-average maturity of 3.6 years. Approximately 87.1% of this debt is partially amortizing and requires a balloon payment at maturity. The following table shows the scheduled principal repayments, including amortization, of the CMBS fixed-rate loans as of March 31, 2020 (dollars in thousands):

Year of Maturity

 

Number of

Loans

 

 

Number of

Properties

 

 

Stated Interest

Rate Range

 

Weighted

Average

Stated Rate

 

 

Scheduled

Principal

 

 

Balloon

 

 

Total

 

Remainder of 2020

 

 

 

 

 

 

 

—%

 

 

%

 

$

3,082

 

 

$

 

 

$

3,082

 

2021

 

 

 

 

 

 

 

—%

 

 

 

 

 

4,365

 

 

 

 

 

 

4,365

 

2022

 

 

 

 

 

 

 

—%

 

 

 

 

 

4,617

 

 

 

 

 

 

4,617

 

2023

 

 

3

 

 

 

86

 

 

5.23%-5.50%

 

 

5.46

 

 

 

3,074

 

 

 

197,912

 

 

 

200,986

 

2024

 

 

 

 

 

 

 

—%

 

 

 

 

 

590

 

 

 

 

 

 

590

 

Thereafter

 

 

2

 

 

 

2

 

 

5.80%-6.00%

 

 

5.83

 

 

 

3,610

 

 

 

70

 

 

 

3,680

 

Total

 

 

5

 

 

 

88

 

 

 

 

 

5.47

%

 

$

19,338

 

 

$

197,982

 

 

$

217,320

 

42


 

Convertible Notes

As of March 31, 2020, the Convertible Notes were comprised of $345.0 million aggregate principal amount of 3.75% convertible notes maturing on May 15, 2021. Interest on the 2021 Notes is payable semiannually in arrears on May 15 and November 15 of each year.

Holders may convert the 2021 Notes prior to November 15, 2020 only under specific circumstances: (1) if the closing price of our common stock for each of at last 20 trading days (whether or not consecutive) during the last 30 consecutive trading days in the quarter is greater than or equal to 130% of the conversion price for the Convertible Notes; (2) during the five business day period after any 10 consecutive trading day period in which the trading price per $1,000 principal amount of the Convertible Notes for each trading day of the measurement period was less than 98% of the product of the last closing price of our common stock and the conversion rate for the Convertible Notes; (3) if we call any or all of the Convertible Notes for redemption prior to the redemption date; or (4) upon the occurrence of specified corporate events as described in the Convertible Notes prospectus supplement. On or after November 15, 2020, until the close of business on the second scheduled trading day immediately preceding the maturity date of the 2021 Notes, holders may convert the 2021 Notes at any time, regardless of the foregoing circumstances. Upon conversion, we will pay or deliver cash, shares of common stock or a combination of cash and shares of common stock, at our election.

The conversion rate is subject to adjustment for some events, including dividends paid in excess of threshold amounts stipulated in the agreement, but will not be adjusted for any accrued and unpaid interest. As of March 31, 2020, the conversion rate was 17.4458 per $1,000 principal note. If we undergo a fundamental change (as defined in the 2021 Notes’ supplemental indenture), holders may require us to repurchase all or any portion of their notes at a repurchase price equal to 100% of the principal amount of such notes to be repurchased, plus accrued and unpaid interest.

DEBT MATURITIES

Future principal payments due on our various types of debt outstanding as of March 31, 2020 (in thousands):

 

 

Total

 

 

Remainder of 2020

 

 

2021

 

 

2022

 

 

2023

 

 

2024

 

 

Thereafter

 

2019 Credit Facility

 

$

500,000

 

 

$

 

 

$

 

 

$

 

 

$

500,000

 

 

$

 

 

$

 

Senior Unsecured Notes

 

 

1,500,000

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

1,500,000

 

CMBS

 

 

217,320

 

 

 

3,082

 

 

 

4,365

 

 

 

4,617

 

 

 

200,986

 

 

 

590

 

 

 

3,680

 

Convertible Notes

 

 

345,000

 

 

 

 

 

 

345,000

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

$

2,562,320

 

 

$

3,082

 

 

$

349,365

 

 

$

4,617

 

 

$

700,986

 

 

$

590

 

 

$

1,503,680

 

 

CONTRACTUAL OBLIGATIONS

On April 2, 2020, we entered into the 2020 Term Loan Agreement, which provides for $200.0 million of term loans with a maturity date of April 2, 2022. The 2020 Term Loan Agreement also includes an accordion feature to increase the available term loans up to an aggregate of $400.0 million, subject to obtaining lender commitments and the satisfaction of certain customary conditions. On April 10, 2020, we exercised $100.0 million of the accordion feature. Amounts outstanding under the 2020 Term Loans bear interest at LIBOR plus an applicable margin of 1.50% per annum. In addition, if any loans are outstanding after April 2, 2021, the Operating Partnership will be required to pay a one-time fee in an amount equal to 0.20% of the outstanding principal amount of loans. The proceeds from the 2020 Term Loans were used to reduce the amounts drawn under the 2019 Credit Facility.

There were no other material changes 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, 2019, 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.

DISTRIBUTION POLICY

Distributions from our current or accumulated earnings are generally classified as ordinary income, whereas distributions in excess of our current and accumulated earnings, to the extent of a stockholder’s federal income tax basis in our common stock, are generally characterized as a return of capital. Under the 2017 Tax Legislation, 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,

43


 

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 Board of 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 Board of Directors deems relevant. Refer  to “Part II—Other Information, Item 1A. Risk Factors” for additional information about the potential impact of the COVID-19 pandemic and restrictions intended to prevent its spread on our business, financial condition, results of operations, cash flows, liquidity and ability to satisfy our debt service obligations and make distributions to our stockholders.

Cash Flows

The following table presents a summary of our cash flows for the three months ended March 31, 2020 and March 31, 2019, respectively (in thousands):

 

 

Three Months Ended March 31,

 

 

 

 

 

 

 

2020

 

 

2019

 

 

Change

 

Net cash provided by operating activities

 

$

67,178

 

 

$

71,353

 

 

$

(4,175

)

Net cash used in investing activities

 

 

(195,665

)

 

 

(141,373

)

 

 

(54,292

)

Net cash provided by financing activities

 

 

330,861

 

 

 

20,491

 

 

 

310,370

 

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

 

$

202,374

 

 

$

(49,529

)

 

$

251,903

 

 

As of March 31, 2020, we had $228.4 million of cash, cash equivalents and restricted cash as compared to $26.0 million as of December 31, 2019 and $27.9 million as of March 31, 2019.

Operating Activities

Our cash flows from operating activities are primarily dependent upon the occupancy level of our portfolio, the rental rates specified in our leases, the collectability of rent and the level of our operating expenses and other general and administrative costs.

The decrease in net cash provided by operating activities was primarily attributable to the following:

 

an increase in cash interest paid of $12.1 million,

 

a decrease in related party fee income of $6.7 million,

 

a decrease in preferred dividends received from SMTA of $3.8 million, and

 

an increase in deal pursuit costs of $0.9 million.

The decrease was partially offset by a net increase in cash rental revenue and interest on loans receivable of $19.2 million.

Investing Activities

Cash used in investing activities is generally used to fund property acquisitions, for investments in loans receivable and for capital expenditures. Cash provided by investing activities generally relates to the disposition of real estate and other assets.

Net cash used in investing activities during the three months ended March 31, 2020 included $205.8 million for the acquisition of 27 properties and $7.8 million of capitalized real estate expenditures. These outflows were partially offset by the $16.8 million in net proceeds from the disposition of seven properties and the sale of one loan receivable. Additionally, the outflows were further offset by the collection of $1.2 million of principal on loans receivable.

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During the same period in 2019, net cash used in investing activities included $160.3 million for the acquisition of 22 properties and $19.6 million of capitalized real estate expenditures. These outflows were partially offset by $34.8 million in net proceeds from the disposition of six properties and $3.7 million in collections of principal on loans receivable.

Financing Activities

Generally, our net cash provided by or used in financing activities is impacted by our borrowings under our revolving credit facilities and term loans, issuances of net-lease mortgage notes, common stock and debt offerings and repurchases and dividend payments on our common and preferred stock.

Net cash provided by financing activities during the three months ended March 31, 2020 was primarily attributable to net borrowings of $383.5 million under our revolving credit facilities and net proceeds from the issuance of common stock of $17.7 million. These amounts were partially offset by the payment of dividends to equity owners of $67.0 million, repayment of $1.0 million on mortgages and notes payable and common stock repurchases totaling $2.3 million.

During the same period in 2019, net cash provided by financing activities was primarily attributable to net borrowings of $60.2 million under our revolving credit facilities and net proceeds from the issuance of common stock of $32.4 million. These amounts were partially offset by the payment of dividends to equity owners of $56.2 million, repayment of $2.9 million on mortgages and notes payable, deferred financing costs of $11.3 million, debt extinguishment costs of $1.0 million and common stock share repurchases totaling $0.7 million.

Off-Balance Sheet Arrangements

As of March 31, 2020, we did not have any material off-balance sheet arrangements.

New Accounting Pronouncements

See Note 2 to the consolidated financial statements herein.

Non-GAAP Financial Measures

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

AFFO: AFFO is a non-GAAP financial measure of operating performance used by many companies in the REIT industry. We adjust FFO to eliminate the impact of certain items that we believe are not indicative of our core operating performance, such as debt extinguishment gains (losses), costs associated with termination of interest rate swaps and certain non-cash items. These certain non-cash items include non-cash revenues (comprised of straight-line rents net of bad debt expense and amortization of lease and loan receivable intangibles), non-cash interest expense (comprised of amortization of deferred financing costs and debt discounts/premiums) and non-cash compensation expense. 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’ FFO and AFFO. FFO and AFFO do not represent cash generated from operating activities determined in accordance with GAAP, are not necessarily indicative of cash available to fund cash needs and should only be considered a supplement, and not an alternative, 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 cash reserves on deposit with lenders as additional security. The result provides an estimate of the contractual amount of borrowed capital to be repaid, net of cash available to repay it. We believe this calculation constitutes a beneficial supplemental non-GAAP financial disclosure to investors in understanding our financial condition.

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EBITDAre: EBITDAre is computed in accordance with standards established by NAREIT. EBITDAre is computed as net income (loss) (computed in accordance with GAAP), plus interest expense, income tax expense (if any), depreciation and amortization, impairments of depreciated property and plus/(minus) losses/(gains) on the disposition of depreciated property.

Adjusted EBITDAre: Adjusted EBITDAre represents EBITDAre as adjusted for revenue producing acquisitions and dispositions for the quarter as if such acquisitions and dispositions had occurred as of the beginning of the quarter and for certain items that we believe are not indicative of our core operating performance, such as debt extinguishment gains (losses). We believe that excluding these items, which are not key drivers of our investment decisions and may cause short-term fluctuations in net income, 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 only be considered a supplement, and not an alternative, to net income (loss) (computed in accordance with GAAP) as a performance measure.

Annualized Adjusted EBITDAre: Annualized Adjusted EBITDAre is calculated as Adjusted EBITDAre for the quarter, adjusted for items where annualization would not be appropriate, multiplied by four. Our computation of Adjusted EBITDAre and Annualized Adjusted EBITDAre may differ from the methodology used by other equity REITs to calculate these measures and, therefore, may not be comparable to such other REITs.

Adjusted Debt to Annualized Adjusted EBITDAre: Adjusted Debt to Annualized Adjusted EBITDAre is a supplemental non-GAAP financial measure we use to evaluate the level of borrowed capital being used to increase the potential return of our real estate investments, and a proxy for a measure we believe is used by many lenders and ratings agencies to evaluate our ability to repay and service our debt obligations over time. We believe the ratio is a beneficial disclosure to investors as a supplemental means of evaluating our ability to meet obligations senior to those of our equity holders. Our computation of this ratio may differ from the methodology used by other equity REITs, and, therefore, may not be comparable to such other REITs.

FFO and AFFO

 

 

Three Months Ended March 31,

 

(Dollars in thousands)

 

2020

 

 

2019

 

Net (loss) income attributable to common stockholders

 

$

(18,435

)

 

$

40,990

 

Portfolio depreciation and amortization

 

 

52,091

 

 

 

41,207

 

Portfolio impairments

 

 

40,774

 

 

 

3,692

 

Gain on disposition of assets

 

 

(388

)

 

 

(8,730

)

FFO attributable to common stockholders

 

$

74,042

 

 

$

77,159

 

Gain on debt extinguishment

 

 

 

 

 

(8,783

)

Deal pursuit costs

 

 

1,019

 

 

 

71

 

Non-cash interest expense

 

 

3,068

 

 

 

4,737

 

Accrued interest and fees on defaulted loans

 

 

 

 

 

285

 

Straight-line rent, net of related bad debt expense

 

 

(1,094

)

 

 

(2,907

)

Other amortization and non-cash charges

 

 

37

 

 

 

(325

)

Non-cash compensation expense

 

 

3,451

 

 

 

3,578

 

AFFO attributable to common stockholders

 

$

80,523

 

 

$

73,815

 

 

 

 

 

 

 

 

 

 

Net (loss) income per share of common stock - Diluted

 

$

(0.18

)

 

$

0.48

 

FFO per share of common stock - Diluted (1)

 

$

0.72

 

 

$

0.90

 

AFFO per share of common stock - Diluted (1)

 

$

0.78

 

 

$

0.86

 

 

 

 

 

 

 

 

 

 

Weighted average shares of common stock outstanding - Diluted

 

 

102,230,147

 

 

 

85,504,897

 

Weighted average shares of common stock outstanding for non-GAAP measures - Diluted (1)

 

 

102,607,596

 

 

 

85,504,897

 

 

(1)

Weighted average shares of common stock for non-GAAP measures includes unvested market-based awards for the three months ended March 31, 2020, which are dilutive for the non-GAAP calculations. For the three months ended March 31, 2020, undistributed earnings (including dividends paid) allocated to unvested restricted stockholders of $0.2 million and $0.3 million are deducted from FFO and AFFO, respectively, attributable to common stockholders in the computation of per share amounts. For the three months ended March 31, 2019, undistributed earnings (including dividends paid) to unvested restricted stockholders of $0.3 million and $0.4 million are deducted from FFO and AFFO, respectively, attributable to common stockholders in the computation of per share amounts.

46


 

Adjusted Debt, Adjusted EBITDAre and Annualized Adjusted EBITDAre

 

 

March 31,

 

(Dollars in thousands)

 

2020

 

 

2019

 

Revolving credit facilities

 

$

500,000

 

 

$

206,500

 

Term loans

 

 

 

 

 

413,905

 

Senior Unsecured Notes, net

 

 

1,484,473

 

 

 

295,882

 

Mortgages and notes payable, net

 

 

215,186

 

 

 

450,534

 

Convertible Notes, net

 

 

337,921

 

 

 

733,412

 

Total debt, net

 

 

2,537,580

 

 

 

2,100,233

 

Unamortized debt discount, net

 

 

8,047

 

 

 

12,027

 

Unamortized deferred financing costs

 

 

16,693

 

 

 

19,220

 

Cash and cash equivalents

 

 

(216,692

)

 

 

(9,376

)

Restricted cash balances held for the benefit of lenders

 

 

(11,705

)

 

 

(18,516

)

Adjusted Debt

 

$

2,333,923

 

 

$

2,103,588

 

 

 

 

Three Months Ended March 31,

 

(Dollars in thousands)

 

2020

 

 

2019

 

Net (loss) income

 

$

(15,847

)

 

$

43,578

 

Interest

 

 

25,359

 

 

 

26,611

 

Depreciation and amortization

 

 

52,236

 

 

 

41,349

 

Income tax expense

 

 

141

 

 

 

220

 

Gain on disposition of assets

 

 

(388

)

 

 

(8,730

)

Portfolio impairments

 

 

40,774

 

 

 

3,692

 

EBITDAre

 

$

102,275

 

 

$

106,720

 

Adjustments to revenue producing acquisitions and dispositions

 

 

1,967

 

 

 

2,644

 

Deal pursuit costs

 

 

1,019

 

 

 

71

 

Gain on debt extinguishment

 

 

 

 

 

(8,783

)

Adjusted EBITDAre

 

$

105,261

 

 

$

100,652

 

Adjustments for bad debt expense related to straight-line rent (1)

 

 

4,006

 

 

 

659

 

Other adjustments for Annualized EBITDAre (2)

 

 

907

 

 

 

321

 

Annualized Adjusted EBITDAre

 

$

440,696

 

 

$

406,528

 

Adjusted Debt / Annualized Adjusted EBITDAre

 

 

5.3

x

 

 

5.2

x

(1)

Adjustment for the three months ended March 31, 2020 relates to $4.2 million of bad debt expense on straight-line rent receivable balances, where only $0.2 million of the expense relates to straight-line rent that would have been recognized during the three months ended March 31, 2020. As such, annualization of the $4.0 million of bad debt expense related to straight-line rental revenue recognized in previous periods would not be appropriate. Adjustment for the three months ended March 31, 2019 relates to $0.9 million of bad debt expense on straight-line rent receivable balances, where annualization would only be appropriate for $0.2 million.   

 

(2)

Adjustments for the three months ended March 31, 2020 are comprised of certain other income and expenses where annualization would not be appropriate. Adjustments for the three months ended March 31, 2019 are comprised of compensation adjustments where annualization would not be appropriate.

 

 

 

 

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Item 3. Quantitative and Qualitative Disclosures About Market Risk

We are exposed to financial market risks, including interest rate risk. Interest rates and other factors, such as occupancy, rental rates and the 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 above, we generally offer 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 the 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 rate debt in the future, including amounts that we may borrow under our 2019 Credit Facility. In addition, decreases in interest rates may lead to additional competition for the acquisition of real estate due to a reduction in desirable alternative income-producing investments, which may lead to a decrease in the yields on real estate we have targeted for acquisition. In such circumstances, if we are not able to offset the decrease in yields by obtaining lower interest costs on our borrowings, our results of operations will be adversely affected. Significant increases in interest rates may also have an adverse impact on our earnings if we are unable to acquire real estate with rental rates high enough to offset the increase in interest rates on our borrowings.

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

As of March 31, 2020, our assets were primarily long-term, fixed-rate leases (though most have scheduled rental increases during the terms of the leases). As of March 31, 2020, $2.1 billion of our indebtedness outstanding was fixed-rate, consisting of our Senior Unsecured Notes, mortgages and notes payable and Convertible Notes, with a weighted average stated interest rate of 3.92%, excluding amortization of deferred financing costs and debt discounts/premiums. As of March 31, 2020, $500.0 million of our indebtedness was variable-rate, consisting of our 2019 Credit Facility, with a stated interest rate of 2.26%.

The estimated fair values of our 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 March 31, 2020 are as follows (in thousands):

 

 

Carrying

Value

 

 

Estimated

Fair Value

 

2019 Credit Facility

 

$

500,000

 

 

$

514,004

 

Senior Unsecured Notes, net (1)

 

 

1,484,473

 

 

 

1,383,947

 

Mortgages and notes payable, net (1)

 

 

215,186

 

 

 

230,834

 

Convertible Notes, net (1)

 

 

337,921

 

 

 

326,267

 

(1)

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


48


 

Item 4. Controls and Procedures

SPIRIT REALTY CAPITAL, INC.

Evaluation of Disclosure Controls and Procedures

An evaluation was performed under the supervision and with the participation of Spirit Realty Capital, Inc.'s management, including the Chief Executive Officer and Chief Financial Officer, of the effectiveness as of March 31, 2020 of the design and operation of Spirit Realty Capital, Inc.'s disclosure controls and procedures as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act. Based on that evaluation, the Chief Executive Officer and Chief Financial Officer concluded that the design and operation of these disclosure controls and procedures were effective as of the end of the period covered by this quarterly report.

Changes in Internal Control over Financial Reporting

There were no changes to Spirit Realty Capital, Inc.'s internal control over financial reporting (as defined in Rule 13a-15(e) and 15d-15(e) under the Exchange Act) that occurred during the quarter ended March 31, 2020 that have materially affected, or are reasonably likely to materially affect, Spirit Realty Capital, Inc.'s internal control over financial reporting.

SPIRIT REALTY, L.P.

Evaluation of Disclosure Controls and Procedures

An evaluation was performed under the supervision and with the participation of Spirit Realty, L.P.'s management, including the Chief Executive Officer and Chief Financial Officer, of the effectiveness as of March 31, 2020 of the design and operation of Spirit Realty, L.P.'s disclosure controls and procedures as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act. Based on that evaluation, the Chief Executive Officer and Chief Financial Officer concluded that the design and operation of these disclosure controls and procedures were effective as of the end of the period covered by this quarterly report.

Changes in Internal Control over Financial Reporting

There were no changes to Spirit Realty, L.P.'s internal control over financial reporting (as defined in Rule 13a-15(e) and 15d-15(e) under the Exchange Act) that occurred during the quarter ended March 31, 2020 that have materially affected, or are reasonably likely to materially affect, Spirit Realty, L.P.'s internal control over financial reporting.

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PART II — OTHER INFORMATION

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

Item 1A. Risk Factors.

There have been no material changes to the risk factors as disclosed in Part I, Item 1A. Risk Factors in our most recent Annual Report on Form 10-K, other than as set forth below, which supplements the above referenced risk factors disclosed in our most recent Annual Report on Form 10-K.

Actual or perceived threats associated with epidemics, pandemics or public health crises could have a material adverse effect on our and our tenants’ businesses, financial condition, results of operations, cash flow, liquidity and ability to access the capital markets and satisfy debt service obligations and make distributions to our stockholders.

Epidemics, pandemics or other public health crises, including the recent spread of novel strain of coronavirus known as COVID-19, that impact economic and market conditions, particularly in markets where our properties are located, and preventative measures taken to alleviate any public health crises, including “shelter-in-place” or “stay-at-home” orders issued by local, state or federal authorities, may have a material adverse effect on our and our tenants’ businesses, financial condition, results of operations, liquidity and ability to access capital markets and satisfy our debt service obligations and make distributions to our stockholders, and may affect our ability as a net-lease real estate investment trust to acquire properties or lease properties to our tenants, who may be unable, as a result of any economic downturn occasioned by public health crises, to make rental payments when due.

As certain of our tenants, especially those in industries considered “non-essential” under varying state “shelter-in-place” and “stay-at-home” orders and other restrictions on types of business that may continue to operate, experience challenges or even closures, we anticipate there to be an impact on their financial condition, results of operations, liquidity, ability to pay rent and creditworthiness. That impact may directly result in a reduction in our rental income and/or an increase in our property costs and impairments, as well as indirectly result in an increase in our general and administrative expenses, as we experience higher collectability issues and incur costs to negotiate rent deferrals, lease restructures and/or lease terminations, as we deem appropriate on a case-by-case basis. As of the date of this report, our discussions with tenants requesting rent deferrals (and other forms of relief) have been substantially focused on industries that are directly disrupted by the COVID-19 pandemic and restrictions intended to prevent its spread, particularly health and fitness, movie theaters, quick service and casual dining restaurants, entertainment, car washes, dealerships, home décor, home furnishings, department stores and education. These and other industries may be further impacted in the future depending on various factors, including the duration of the COVID-19 pandemic and restrictions intended to prevent its spread, and even after certain of such restrictions are lifted or reduced, the willingness of customers to visit our tenants’ businesses may be reduced due to lingering concerns regarding the continued risk of COVID-19 transmission and heightened sensitivity to risks associated with the transmission of other diseases. We are not able to predict the duration of such customer behavior.    

As of May 1, 2020, we have collected approximately 70% of April 2020 Contractual Rent of $39.3 million, including from nine of our top 10 tenants and 17 of our top 20 tenants. In addition, as of that date, we have granted rent deferral requests for tenants representing approximately 27% of our April 2020 Contractual Rent. Such rent deferrals generally defer rent payments from 30 to 90 days and require the tenant to repay the deferred rent within 12 months. Of the tenants who we have granted rent deferrals, 25% are public companies, and the weighted average remaining lease term of leases for such tenants is 12.1 years. Although we are and will continue to be actively engaged in rent collection efforts related to uncollected rent, as well as working with certain tenants who have requested rent deferrals, we can provide no assurance that such efforts or our efforts in future periods will be successful, particularly in the event that the COVID-19 pandemic and restrictions intended to prevent its spread continue for a prolonged period.

The ongoing COVID-19 pandemic and restrictions intended to prevent its spread have already had a significant adverse impact in the first quarter of 2020 on economic and market conditions, including in the United States where our properties are located. Further, the ongoing COVID-19 pandemic and related restrictions could trigger a period of sustained global and U.S. economic downturn or recession. Moreover, the ongoing COVID-19 pandemic and restrictions intended to prevent its spread could have significant adverse impacts on our business, financial condition, results of operations, cash flows,

50


 

liquidity and ability to access the capital markets and satisfy our debt service obligations and make distributions to our stockholders in a variety of ways that are difficult to predict. Such adverse impacts could depend on, among other factors:

 

the financial condition and viability of our tenants – many of which are in the retail industry – and their ability or willingness to pay rent in full on a timely basis;

 

state, local, federal and industry-initiated efforts that may adversely affect landlords, including us, and their ability to collect rent and/or enforce remedies for the failure to pay rent;

 

our need to restructure leases with our tenants and our ability to do so on favorable terms or at all;

 

our ability to renew leases or re-lease available space in our properties on favorable terms or at all in the event of nonrenewal or in the event we exercise our right to replace an existing tenant, and obligations we may incur in connection with the replacement of an existing tenant, including as a result of a deterioration in the economic and market conditions in markets where our properties are located or due to restrictions intended to prevent the spread of COVID-19 that frustrate our leasing activities, particularly in light of the adverse impact to the financial health of many of our tenants or potential tenants that has occurred and continues to occur as a result of the COVID-19 pandemic and the significant uncertainty as to when and the conditions under which potential tenants will be able to operate in future;

 

a severe and prolonged disruption and instability in the global financial markets, including the debt and equity capital markets, all of which have already experienced and may continue to experience significant volatility, or deteriorations in credit and financing conditions (or a refusal or failure of one or more lenders under the 2019 Revolving Credit and Term Loan Agreement or the 2020 Term Loan Agreement to fund their respective financing commitment to us), as well as the recent significant decline in our share price from prices prior to the spread of the COVID-19 pandemic, may affect our or our tenants’ ability to access capital necessary to fund our respective business operations or retire, replace or renew maturing liabilities on a timely basis, on attractive terms or at all and may adversely affect the valuation of financial assets and liabilities, any of which could affect our and/or our tenants’ ability to meet liquidity and capital expenditure requirements;

 

the broader impact of the severe economic contraction due to the COVID-19 pandemic and restrictions intended to prevent its spread, the resulting increase in unemployment that has occurred and its effect on consumer behavior, and negative consequences that will occur if these trends are not timely reversed;

 

complete or partial shutdowns of one or more of our tenants’ facilities or distribution centers, temporary or long-term disruptions in our tenants’ supply chains from local, national and international suppliers or delays in the delivery of products, services or other materials necessary for our tenants’ operations, which could force our tenants’ to reduce, delay or eliminate offerings of their products and services, reduce or eliminate their revenues and liquidity and/or result in their bankruptcy or insolvency;

 

the further utilization of e-commerce in certain industries as a result of the temporary closure of many retail properties, which may lead to the closure of underperforming properties by retailers;

 

our and our tenants’ ability to manage our respective businesses to the extent our and their management or personnel (including on-site employees) are impacted in significant numbers by the COVID-19 pandemic and are otherwise not willing, available or allowed to conduct work; and

 

our and our tenants’ ability to ensure business continuity in the event our continuity of operations plan is not effective or improperly implemented or deployed during the COVID-19 pandemic.

 

The rapid development and fluidity of this situation precludes any prediction as to the ultimate adverse impact of the COVID-19 pandemic or restrictions intended to prevent its spread, and we are not able to predict whether other epidemics, pandemics or other public health crises will occur in the future that may have similar impacts. Nevertheless, the ongoing COVID-19 pandemic and restrictions intended to prevent its spread and the current financial, economic and capital markets environment and future developments in these and other areas present material risks and uncertainties with respect to our business, financial condition, results of operations, cash flows, liquidity and ability to access the capital markets and satisfy our debt service obligations and make distributions to our stockholders and could also have a material adverse effect on the market value of our securities. Moreover, to the extent any of these risks and uncertainties adversely impact us in the ways described above or otherwise, they may also have the effect of heightening many of the other risks set forth in this “Risk Factors” section and in the section entitled “Part I, Item 1A. Risk Factors” in our Annual Report on Form 10-K for the year ended December 31, 2019.

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

None.

Item 3. Defaults Upon Senior Securities.

None.

51


 

Item 4. Mine Safety Disclosures.

None.

Item 5. Other Information.

The discussion under the heading “Federal Income Tax Considerations” in Exhibit 99.1 hereto supersedes and replaces, in its entirety, (i) the discussion the heading “Federal Income Tax Considerations” in the prospectus dated September 25, 2017, which is a part of the Company’s and the Operating Partnership’s Registration Statement on Form S-3 (File Nos. 333-220618 and 333-220618-01) filed with the Securities and Exchange Commission (the “SEC”) on September 25, 2017 and (ii) the discussion under the heading “Item 8.01 Other Events, Federal Income Tax Considerations” in the Company’s and the Operating Partnership’s Current Reports on Form 8-K filed with the SEC on February 22, 2019 and November 13, 2018.

52


 

Item 6. Exhibits.

 

Exhibit No.

Description

 

 

3.1

Articles of Restatement of Spirit Realty Capital, Inc. filed as Exhibit 3.1 to the Company's Registration Statement on Form S-3 on November 8, 2013 and incorporated herein by reference.

 

 

3.2

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

 

 

3.3

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

 

 

3.4

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

 

 

3.5

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

 

 

3.6

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

 

 

3.7

Certificate of Limited Partnership of Spirit Realty, L.P. dated September 25, 2012, filed as Exhibit 4.5 to the Company's Form S-4 on March 20, 2017 and incorporated herein by reference.

 

 

3.8

Articles of Amendment of Spirit Realty Capital, Inc. filed as Exhibit 3.1 to the Company's Form 8-K on April 29, 2019 and incorporated herein by reference.

 

 

10.1

Second Amended and Restated Employment Agreement among Spirit Realty Capital, Inc. and Jackson Hsieh, dated February 27, 2020, filed as Exhibit 10.1 to the Company’s Form 8-K on March 2, 2020 and incorporated herein by reference.

 

 

10.2

Amendment to Employment Agreement, dated February 27, 2020, by and between Spirit Realty Capital, Inc. and Michael Hughes, filed as Exhibit 10.2 to the Company’s Form 8-K on March 2, 2020 and incorporated herein by reference.

 

 

10.3

Amendment to Amended and Restated Employment Agreement, dated February 27, 2020, by and between Spirit Realty Capital, Inc. and Jay Young, filed as Exhibit 10.3 to the Company’s Form 8-K on March 2, 2020 and incorporated herein by reference.

 

 

10.4

Amendment to Employment Agreement, dated February 27, 2020, by and between Spirit Realty Capital, Inc. and Kenneth Heimlich, filed as Exhibit 10.4 to the Company’s Form 8-K on March 2, 2020 and incorporated herein by reference.

 

 

31.1*

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

 

 

31.2*

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

 

 

31.3*

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

 

 

31.4*

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

 

 

32.1*

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

 

 

32.2*

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

 

 

99.1*

Federal Income Tax Considerations

 

 

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.

 

 

53


 

Exhibit No.

Description

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.

 

54


 

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)

 

 

SPIRIT REALTY, L.P.

 

(Registrant)

 

 

 

 

 

By:

 

Spirit Realty Capital, Inc. in its capacity as sole member of Spirit General OP Holdings, LLC, as general partner and behalf of Spirit Realty, L.P.

 

 

 

 

 

 

 

/s/ Prakash J. Parag

 

 

 

Prakash J. Parag

 

 

 

Senior Vice President and Chief Accounting Officer

 

 

 

(Principal Accounting Officer)

 

Date: May 5, 2020

55

src-ex311_6.htm

Exhibit 31.1

CERTIFICATIONS OF PRINCIPAL EXECUTIVE OFFICER

PURSUANT TO SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002

I, Jackson Hsieh, certify that:

 

1.

I have reviewed this Quarterly Report on Form 10-Q of Spirit Realty Capital, Inc.;

 

2.

Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

 

3.

Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

 

4.

The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

 

(a)

Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

 

(b)

Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

 

(c)

Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

 

(d)

Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

 

5.

The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

 

(a)

All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

 

(b)

Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

 

Date:

May 5, 2020

/s/ Jackson Hsieh

 

 

Jackson Hsieh

 

 

President and Chief Executive Officer

 

src-ex312_9.htm

Exhibit 31.2

CERTIFICATIONS OF PRINCIPAL FINANCIAL OFFICER

PURSUANT TO SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002

I, Michael Hughes, certify that:

 

1.

I have reviewed this Quarterly Report on Form 10-Q of Spirit Realty Capital, Inc.;

 

2.

Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

 

3.

Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

 

4.

The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

 

(a)

Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

 

(b)

Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

 

(c)

Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

 

(d)

Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

 

5.

The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

 

(a)

All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

 

(b)

Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

 

Date:

May 5, 2020

/s/ Michael Hughes

 

 

Michael Hughes

 

 

Chief Financial Officer and Executive Vice President

 

 

 

 

src-ex313_8.htm

Exhibit 31.3

CERTIFICATIONS OF PRINCIPAL EXECUTIVE OFFICER

PURSUANT TO SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002

I, Jackson Hsieh, certify that:

 

1.

I have reviewed this Quarterly Report on Form 10-Q of Spirit Realty, L.P.;

 

2.

Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

 

3.

Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4. The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

 

(a)

Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

 

(b)

Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

 

(c)

Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

 

(d)

Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

 

5.

The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

 

(a)

All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

 

(b)

Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

 

Date:

May 5, 2020

/s/ Jackson Hsieh

 

 

Name:

Jackson Hsieh

 

 

Title:

President and Chief Executive Officer

 

 

 

Spirit Realty Capital, Inc., in its capacity as sole member of Spirit General OP Holdings, LLC, as sole general partner and on behalf of Spirit Realty, L.P.

 

src-ex314_12.htm

Exhibit 31.4

CERTIFICATIONS OF PRINCIPAL EXECUTIVE OFFICER

PURSUANT TO SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002

I, Michael Hughes, certify that:

 

1.

I have reviewed this Quarterly Report on Form 10-Q of Spirit Realty, L.P.;

 

2.

Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

 

3.

Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4. The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

 

(a)

Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

 

(b)

Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

 

(c)

Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

 

(d)

Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

 

5.

The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

 

(a)

All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

 

(b)

Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

 

Date:

May 5, 2020

/s/ Michael Hughes

 

 

Name:

Michael Hughes

 

 

Title:

Chief Financial Officer and Executive Vice President

 

 

 

Spirit Realty Capital, Inc., in its capacity as sole member of Spirit General OP Holdings, LLC, as sole general partner and on behalf of Spirit Realty, L.P.

 

src-ex321_7.htm

Exhibit 32.1

 

CERTIFICATIONS OF PRINCIPAL EXECUTIVE OFFICER AND PRINCIPAL FINANCIAL OFFICER

PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

(18 U.S.C 1350)

Each of the undersigned officers of Spirit Realty Capital, Inc. (the “Company”) hereby certifies, for purposes of Section 1350 of Chapter 63 of Title 18 of the United States Code, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that, to his knowledge:

 

 

(i)

the accompanying Quarterly Report on Form 10-Q of the Company for the period ended March 31, 2020 (the “Report”) fully complies with the requirements of Section 13(a) or 15(d), as applicable, of the Securities Exchange Act of 1934, as amended, and

 

(ii)

the information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.

 

Date:

May 5, 2020

/s/ Jackson Hsieh

 

 

Jackson Hsieh

 

 

President and Chief Executive Officer

 

 

 

 

 

/s/ Michael Hughes

 

 

Michael Hughes

 

 

Chief Financial Officer and Executive Vice President

 

The foregoing certification is being furnished with the Company’s Quarterly Report on Form 10-Q for the period ended March 31, 2020 pursuant to 18 U.S.C. Section 1350. It is not being filed for purposes of Section 18 of the Securities Exchange Act of 1934, as amended, and it is not to be incorporated by reference into any filing of the Company, whether made before or after the date hereof, regardless of any general incorporation language in such filing.

A signed original of this written statement required by Section 906 has been provided to the Company and will be retained by the Company and furnished to the Securities and Exchange Commission or its staff upon request.

src-ex322_10.htm

Exhibit 32.2

 

CERTIFICATIONS OF PRINCIPAL EXECUTIVE OFFICER AND PRINCIPAL FINANCIAL OFFICER

PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

(18 U.S.C 1350)

Each of the undersigned officers of Spirit Realty Capital, Inc., the sole member of Spirit General OP Holdings, LLC, the general partner of Spirit Realty, L.P. (the “Company”), hereby certifies, for purposes of Section 1350 of Chapter 63 of Title 18 of the United States Code, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that, to his knowledge:

 

(i)

the accompanying Quarterly Report on Form 10-Q of the Company for the period ended March 31, 2020 (the “Report”) fully complies with the requirements of Section 13(a) or 15(d), as applicable, of the Securities Exchange Act of 1934, as amended, and

 

(ii)

the information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.

 

Date:

May 5, 2020

/s/ Jackson Hsieh

 

 

Name:

Jackson Hsieh

 

 

Title:

President and Chief Executive Officer

 

 

 

Spirit Realty Capital, Inc., in its capacity as sole member of Spirit General OP Holdings, LLC, as sole general partner and on behalf of Spirit Realty, L.P.

 

 

 

 

 

 

/s/ Michael Hughes

 

 

Name:

Michael Hughes

 

 

Title:

Chief Financial Officer and Executive Vice President

 

 

 

Spirit Realty Capital, Inc., in its capacity as sole member of Spirit General OP Holdings, LLC, as sole general partner and on behalf of Spirit Realty, L.P.

 

The foregoing certification is being furnished with the Company’s Quarterly Report on Form 10-Q for the period ended March 31, 2020 pursuant to 18 U.S.C. Section 1350. It is not being filed for purposes of Section 18 of the Securities Exchange Act of 1934, as amended, and it is not to be incorporated by reference into any filing of the Company, whether made before or after the date hereof, regardless of any general incorporation language in such filing.

A signed original of this written statement required by Section 906 has been provided to the Company and will be retained by the Company and furnished to the Securities and Exchange Commission or its staff upon request.

src-ex991_375.htm

 

Exhibit 99.1

This discussion supersedes and replaces (i) the discussion under the heading “Federal Income Tax Considerations” in the prospectus dated September 25, 2017 (the “Base Prospectus”), which is a part of Spirit Realty Corporation’s (the “Company’s”) and Spirit Realty, L.P.’s (the “operating partnership’s”) Registration Statement on Form S-3 (File Nos. 333-220618 and 333-220618-01) filed with the Securities and Exchange Commission (the “SEC”) on September 25, 2017 and which is also attached to a prospectus supplement dated November 13, 2018 filed by the Company with the SEC on November 13, 2018 pursuant to Rule 424(b) of the Securities Act of 1933, as amended, and (ii) the discussion under the heading “Federal Income Tax Considerations” in Exhibit 99.1 to the Company’s and the operating partnership’s Current Report on Form 8-K dated February 22, 2019, which was filed with respect to Item 8.01 of Form 8-K.

FEDERAL INCOME TAX CONSIDERATIONS

The following is a general summary of certain material U.S. federal income tax considerations regarding our election to be taxed as a real estate investment trust (“REIT”) and the acquisition, ownership and disposition of our capital stock or debt securities or our operating partnership’s debt securities. Supplemental U.S. federal income tax considerations relevant to holders of the securities offered by this prospectus may be provided in the prospectus supplement that relates to those securities. For purposes of this discussion, references to “we,” “our” and “us” mean only Spirit Realty Capital, Inc. and do not include any of its subsidiaries, except as otherwise indicated. This summary is for general information only and is not tax advice. The information in this summary is based on:

 

the Internal Revenue Code of 1986, as amended (the “Code”);

 

current, temporary and proposed Treasury regulations promulgated under the Code (the “Treasury Regulations”);

 

the legislative history of the Code;

 

administrative interpretations and practices of the Internal Revenue Service (the “IRS”); and

 

court decisions;

in each case, as of May 5, 2020. In addition, the administrative interpretations and practices of the IRS include its practices and policies as expressed in private letter rulings that are not binding on the IRS except with respect to the particular taxpayers who requested and received those rulings. The sections of the Code and the corresponding Treasury Regulations that relate to qualification and taxation as a REIT are highly technical and complex. The following discussion sets forth certain material aspects of the sections of the Code that govern the U.S. federal income tax treatment of a REIT and its stockholders. This summary is qualified in its entirety by the applicable Code provisions, Treasury Regulations promulgated under the Code, and administrative and judicial interpretations thereof. Potential tax reforms may result in significant changes to the rules governing U.S. federal income taxation. New legislation, Treasury Regulations, administrative interpretations and practices and/or court decisions may significantly and adversely affect our ability to qualify as a REIT, the U.S. federal income tax consequences of such qualification, or the U.S. federal income tax consequences of an investment in us, including those described in this discussion. Moreover, the law relating to the tax treatment of other entities, or an investment in other entities, could change, making an investment in such other entities more attractive relative to an investment in a REIT. Any such changes could apply retroactively to transactions preceding the date of the change. We have not requested, and do not plan to request, any rulings from the IRS that we qualify as a REIT, and the statements in this prospectus are not binding on the IRS or any court. Thus, we can provide no assurance that the tax considerations contained in this discussion will not be challenged by the IRS or will be sustained by a court if challenged by the IRS. This summary does not discuss any state, local or non-U.S. tax consequences, or any tax consequences arising under any U.S. federal tax laws other than U.S. federal income tax laws, associated with the acquisition, ownership or disposition of our capital stock or debt securities or our operating partnership’s debt securities, or our election to be taxed as a REIT.

1


 

You are urged to consult your tax advisor regarding the tax consequences to you of:

 

the acquisition, ownership and disposition of our capital stock or debt securities or our operating partnership’s debt securities, including the U.S. federal, state, local, non-U.S. and other tax consequences;

 

our election to be taxed as a REIT for U.S. federal income tax purposes; and

 

potential changes in applicable tax laws.

Taxation of Our Company

General. We have elected to be taxed as a REIT under Sections 856 through 860 of the Code commencing with our taxable year ended December 31, 2005. We believe that we have been organized and have operated in a manner that has allowed us to qualify for taxation as a REIT under the Code commencing with such taxable year, and we intend to continue to be organized and operate in this manner. However, qualification and taxation as a REIT depend upon our ability to meet the various qualification tests imposed under the Code, including through actual operating results, asset composition, distribution levels and diversity of stock ownership. Accordingly, no assurance can be given that we have been organized and have operated, or will continue to be organized and operate, in a manner so as to qualify or remain qualified as a REIT. See “—Failure to Qualify” for potential tax consequences if we fail to qualify as a REIT.

Latham & Watkins LLP has acted as our tax counsel in connection with the Base Prospectus and our election to be taxed as a REIT. Latham & Watkins LLP has rendered an opinion to us, as of September 25, 2017 (the date of the Base Prospectus), to the effect that, commencing with our taxable year ended December 31, 2005, we have been organized and have operated in conformity with the requirements for qualification and taxation as a REIT under the Code, and our proposed method of operation will enable us to continue to meet the requirements for qualification and taxation as a REIT under the Code. It must be emphasized that this opinion was based on various assumptions and representations as to factual matters, including representations made by us in a factual certificate provided by one of our officers. In addition, this opinion was based upon our factual representations set forth in the Base Prospectus. Moreover, our qualification and taxation as a REIT depend upon our ability to meet the various qualification tests imposed under the Code, which are discussed below, including through actual operating results, asset composition, distribution levels and diversity of stock ownership, the results of which have not been and will not be reviewed by Latham & Watkins LLP. Accordingly, no assurance can be given that our actual results of operations for any particular taxable year have satisfied or will satisfy those requirements. Further, the anticipated U.S. federal income tax treatment described herein may be changed, perhaps retroactively, by legislative, administrative or judicial action at any time. Latham & Watkins LLP has no obligation to update its opinion subsequent to the date of such opinion.

Provided we qualify for taxation as a REIT, we generally will not be required to pay U.S. federal corporate income taxes on our REIT taxable income that is currently distributed to our stockholders. This treatment substantially eliminates the “double taxation” that ordinarily results from investment in a C corporation. A C corporation is a corporation that generally is required to pay tax at the corporate level. Double taxation means taxation once at the corporate level when income is earned and once again at the stockholder level when the income is distributed. We will, however, be required to pay U.S. federal income tax as follows:

 

First, we will be required to pay regular U.S. federal corporate income tax on any undistributed REIT taxable income, including undistributed capital gain.

 

Second, if we have (1) net income from the sale or other disposition of “foreclosure property” held primarily for sale to customers in the ordinary course of business or (2) other nonqualifying income from foreclosure property, we will be required to pay regular U.S. federal corporate income tax on this income. To the extent that income from foreclosure property is otherwise qualifying income for purposes of the 75% gross income test, this tax is not applicable. Subject to certain other requirements, foreclosure property generally is defined as property we acquired through foreclosure or after a default on a loan secured by the property or a lease of the property.  See “—Foreclosure Property.”

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Third, we will be required to pay a 100% tax on any net income from prohibited transactions. Prohibited transactions are, in general, sales or other taxable dispositions of property, other than foreclosure property, held as inventory or primarily for sale to customers in the ordinary course of business.

 

Fourth, if we fail to satisfy the 75% gross income test or the 95% gross income test, as described below, but have otherwise maintained our qualification as a REIT because certain other requirements are met, we will be required to pay a tax equal to (1) the greater of (A) the amount by which we fail to satisfy the 75% gross income test and (B) the amount by which we fail to satisfy the 95% gross income test, multiplied by (2) a fraction intended to reflect our profitability.

 

Fifth, if we fail to satisfy any of the asset tests (other than a de minimis failure of the 5% or 10% asset test), as described below, due to reasonable cause and not due to willful neglect, and we nonetheless maintain our REIT qualification because of specified cure provisions, we will be required to pay a tax equal to the greater of $50,000 or the U.S. federal corporate income tax rate multiplied by the net income generated by the nonqualifying assets that caused us to fail such test.

 

Sixth, if we fail to satisfy any provision of the Code that would result in our failure to qualify as a REIT (other than a violation of the gross income tests or certain violations of the asset tests, as described below) and the violation is due to reasonable cause and not due to willful neglect, we may retain our REIT qualification but we will be required to pay a penalty of $50,000 for each such failure.

 

Seventh, we will be required to pay a 4% excise tax to the extent we fail to distribute during each calendar year at least the sum of (1) 85% of our ordinary income for the year, (2) 95% of our capital gain net income for the year, and (3) any undistributed taxable income from prior periods.

 

Eighth, if we acquire any asset from a corporation that is or has been a C corporation in a transaction in which our tax basis in the asset is less than the fair market value of the asset, in each case determined as of the date on which we acquired the asset, and we subsequently recognize gain on the disposition of the asset during the five-year period beginning on the date on which we acquired the asset, then we generally will be required to pay regular U.S. federal corporate income tax on this gain to the extent of the excess of (1) the fair market value of the asset over (2) our adjusted tax basis in the asset, in each case determined as of the date on which we acquired the asset. The results described in this paragraph with respect to the recognition of gain assume that the C corporation will refrain from making an election to receive different treatment under applicable Treasury Regulations on its tax return for the year in which we acquire the asset from the C corporation. Under applicable Treasury Regulations, any gain from the sale of property we acquired in an exchange under Section 1031 (a like-kind exchange) or Section 1033 (an involuntary conversion) of the Code generally is excluded from the application of this built-in gains tax.

 

Ninth, our subsidiaries that are C corporations, including our “taxable REIT subsidiaries” described below, generally will be required to pay regular U.S. federal corporate income tax on their earnings.

 

Tenth, we will be required to pay a 100% tax on any “redetermined rents,” “redetermined deductions,” “excess interest” or “redetermined TRS service income,” as described below under “—Penalty Tax.” In general, redetermined rents are rents from real property that are overstated as a result of services furnished to any of our tenants by a taxable REIT subsidiary of ours. Redetermined deductions and excess interest generally represent amounts that are deducted by a taxable REIT subsidiary of ours for amounts paid to us that are in excess of the amounts that would have been deducted based on arm’s length negotiations. Redetermined TRS service income generally represents income of a taxable REIT subsidiary that is understated as a result of services provided to us or on our behalf.

 

Eleventh, we may elect to retain and pay income tax on our net capital gain. In that case, a stockholder would include its proportionate share of our undistributed capital gain (to the extent we make a timely designation of such gain to the stockholder) in its income, would be deemed to have paid the tax that we paid on such gain, and would be allowed a credit for its proportionate share of the tax deemed to have been paid, and an adjustment would be made to increase the tax basis of the stockholder in our capital stock.

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Twelfth, if we fail to comply with the requirement to send annual letters to our stockholders holding at least a certain percentage of our stock, as determined under applicable Treasury Regulations, requesting information regarding the actual ownership of our stock, and the failure is not due to reasonable cause or is due to willful neglect, we will be subject to a $25,000 penalty, or if the failure is intentional, a $50,000 penalty.

We and our subsidiaries may be subject to a variety of taxes other than U.S. federal income tax, including payroll taxes and state and local income, property and other taxes on our assets and operations.

Requirements for Qualification as a REIT. The Code defines a REIT as a corporation, trust or association:

(1)that is managed by one or more trustees or directors;

(2)that issues transferable shares or transferable certificates to evidence its beneficial ownership;

(3)that would be taxable as a domestic corporation, but for Sections 856 through 860 of the Code;

(4)that is not a financial institution or an insurance company within the meaning of certain provisions of the Code;

(5)that is beneficially owned by 100 or more persons;

(6)not more than 50% in value of the outstanding stock of which is owned, actually or constructively, by five or fewer individuals, including certain specified entities, during the last half of each taxable year; and

(7)that meets other tests, described below, regarding the nature of its income and assets and the amount of its distributions.

The Code provides that conditions (1) to (4), inclusive, must be met during the entire taxable year and that condition (5) must be met during at least 335 days of a taxable year of 12 months, or during a proportionate part of a taxable year of less than 12 months. Conditions (5) and (6) do not apply until after the first taxable year for which an election is made to be taxed as a REIT. For purposes of condition (6), the term “individual” includes a supplemental unemployment compensation benefit plan, a private foundation or a portion of a trust permanently set aside or used exclusively for charitable purposes, but generally does not include a qualified pension plan or profit sharing trust.

We believe that we have been organized and have operated in a manner that has allowed us, and will continue to allow us, to satisfy conditions (1) through (7), inclusive, during the relevant time periods. In addition, our charter provides for restrictions regarding ownership and transfer of our shares that are intended to assist us in continuing to satisfy the share ownership requirements described in conditions (5) and (6) above. A description of the share ownership and transfer restrictions relating to our capital stock is contained in the discussion in the Base Prospectus under the heading “Description of Capital Stock-Restrictions on Ownership and Transfer.” These restrictions, however, do not ensure that we have previously satisfied, and may not ensure that we will, in all cases, be able to continue to satisfy, the share ownership requirements described in conditions (5) and (6) above. If we fail to satisfy these share ownership requirements, then except as provided in the next sentence, our status as a REIT will terminate. If, however, we comply with the rules contained in applicable Treasury Regulations that require us to ascertain the actual ownership of our shares and we do not know, or would not have known through the exercise of reasonable diligence, that we failed to meet the requirement described in condition (6) above, we will be treated as having met this requirement. See “—Failure to Qualify.”

In addition, we may not maintain our status as a REIT unless our taxable year is the calendar year. We have and will continue to have a calendar taxable year.

Ownership of Interests in Partnerships, Limited Liability Companies and Qualified REIT Subsidiaries. In the case of a REIT that is a partner in a partnership (for purposes of this discussion, references to “partnership” include a limited liability company treated as a partnership for U.S. federal income tax purposes, and references to “partner” include a member in such a limited liability company), Treasury Regulations provide that the REIT will be deemed to own its proportionate share of the assets of the partnership based on its interest in partnership capital,

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subject to special rules relating to the 10% asset test described below. Also, the REIT will be deemed to be entitled to its proportionate share of the income of that entity. The assets and gross income of the partnership retain the same character in the hands of the REIT for purposes of Section 856 of the Code, including satisfying the gross income tests and the asset tests. Thus, our pro rata share of the assets and items of income of our operating partnership, including our operating partnership’s share of these items of any partnership or disregarded entity for U.S. federal income tax purposes in which it owns an interest, is treated as our assets and items of income for purposes of applying the requirements described in this discussion, including the gross income and asset tests described below. A brief summary of the rules governing the U.S. federal income taxation of partnerships is set forth below in “Tax Aspects of Our Operating Partnership, the Subsidiary Partnerships and the Limited Liability Companies.”

We have control of our operating partnership and the subsidiary partnerships and intend to operate them in a manner consistent with the requirements for our qualification as a REIT. If we become a limited partner or non-managing member in any partnership and such entity takes or expects to take actions that could jeopardize our status as a REIT or require us to pay tax, we may be forced to dispose of our interest in such entity. In addition, it is possible that a partnership could take an action which could cause us to fail a gross income or asset test, and that we would not become aware of such action in time to dispose of our interest in the partnership or take other corrective action on a timely basis. In such a case, we could fail to qualify as a REIT unless we were entitled to relief, as described below.

We may from time to time own and operate certain properties through wholly-owned subsidiaries that we intend to be treated as “qualified REIT subsidiaries” under the Code. A corporation (or other entity treated as a corporation for U.S. federal income tax purposes) will qualify as our qualified REIT subsidiary if we own 100% of the corporation’s outstanding stock and do not elect with the subsidiary to treat it as a “taxable REIT subsidiary,” as described below. A qualified REIT subsidiary is not treated as a separate corporation, and all assets, liabilities and items of income, gain, loss, deduction and credit of a qualified REIT subsidiary are treated as assets, liabilities and items of income, gain, loss, deduction and credit of the parent REIT for all purposes under the Code, including all REIT qualification tests. Thus, in applying the U.S. federal income tax requirements described in this discussion, any qualified REIT subsidiaries we own are ignored, and all assets, liabilities and items of income, gain, loss, deduction and credit of such corporations are treated as our assets, liabilities and items of income, gain, loss, deduction and credit. A qualified REIT subsidiary is not subject to U.S. federal income tax, and our ownership of the stock of a qualified REIT subsidiary will not violate the restrictions on ownership of securities, as described below under “—Asset Tests.”

Ownership of Interests in Taxable REIT Subsidiaries. We and our operating partnership own interests in companies that have elected, together with us, to be treated as our taxable REIT subsidiaries, and we may acquire securities in additional taxable REIT subsidiaries in the future. A taxable REIT subsidiary is a corporation (or other entity treated as a corporation for U.S. federal income tax purposes) other than a REIT in which a REIT directly or indirectly holds stock, and that has made a joint election with such REIT to be treated as a taxable REIT subsidiary. If a taxable REIT subsidiary owns more than 35% of the total voting power or value of the outstanding securities of another corporation, such other corporation will also be treated as a taxable REIT subsidiary. Other than some activities relating to lodging and health care facilities, a taxable REIT subsidiary may generally engage in any business, including the provision of customary or non-customary services to tenants of its parent REIT. A taxable REIT subsidiary is subject to U.S. federal income tax as a regular C corporation. A REIT is not treated as holding the assets of a taxable REIT subsidiary or as receiving any income that the taxable REIT subsidiary earns. Rather, the stock issued by the taxable REIT subsidiary is an asset in the hands of the REIT, and the REIT generally recognizes as income the dividends, if any, that it receives from the taxable REIT subsidiary. A REIT’s ownership of securities of a taxable REIT subsidiary is not subject to the 5% or 10% asset test described below. See “—Asset Tests.” For taxable years beginning after December 31, 2017, taxpayers are subject to a limitation on their ability to deduct net business interest generally equal to 30% of adjusted taxable income, subject to certain exceptions. For any taxable year beginning in 2019 or 2020, the 30% limitation has been increased to a 50% limitation, provided that for partnerships the 50% limitation applies for any taxable year beginning in 2020 only. Taxpayers may elect to use their 2019 adjusted taxable income for purposes of computing their 2020 limitation. See “—Annual Distribution

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Requirements.” While not certain, this provision may limit the ability of our taxable REIT subsidiaries to deduct interest, which could increase their taxable income.

Ownership of Interests in Subsidiary REITs. We have owned and may in the future acquire direct or indirect interests in one or more entities that have elected or will elect to be taxed as REITs under the Code (each, a “Subsidiary REIT”). A Subsidiary REIT is subject to the various REIT qualification requirements and other limitations described herein that are applicable to us. If a Subsidiary REIT were to fail to qualify as a REIT, then (i) that Subsidiary REIT would become subject to U.S. federal income tax and (ii) the Subsidiary REIT’s failure to qualify could have an adverse effect on our ability to comply with the REIT income and asset tests, and thus could impair our ability to qualify as a REIT unless we could avail ourselves of certain relief provisions.

Income Tests. We must satisfy two gross income requirements annually to maintain our qualification as a REIT. First, in each taxable year we must derive directly or indirectly at least 75% of our gross income (excluding gross income from prohibited transactions, certain hedging transactions and certain foreign currency gains) from investments relating to real property or mortgages on real property, including “rents from real property,” dividends from other REITs and, in certain circumstances, interest, or certain types of temporary investments. Second, in each taxable year we must derive at least 95% of our gross income (excluding gross income from prohibited transactions, certain hedging transactions and certain foreign currency gains) from the real property investments described above or dividends, interest and gain from the sale or disposition of stock or securities, or from any combination of the foregoing. For these purposes, the term “interest” generally does not include any amount received or accrued, directly or indirectly, if the determination of all or some of the amount depends in any way on the income or profits of any person. However, an amount received or accrued generally will not be excluded from the term “interest” solely by reason of being based on a fixed percentage or percentages of receipts or sales.

Rents we receive from a tenant will qualify as “rents from real property” for the purpose of satisfying the gross income requirements for a REIT described above only if all of the following conditions are met:

 

The amount of rent is not based in whole or in part on the income or profits of any person. However, an amount we receive or accrue generally will not be excluded from the term “rents from real property” solely because it is based on a fixed percentage or percentages of receipts or sales or if it is based on the net income of a tenant which derives substantially all of its income with respect to such property from subleasing of substantially all of such property, to the extent that the rents paid by the subtenants would qualify as rents from real property if we earned such amounts directly;

 

Neither we nor an actual or constructive owner of 10% or more of our capital stock actually or constructively owns 10% or more of the interests in the assets or net profits of a non-corporate tenant, or, if the tenant is a corporation, 10% or more of the total combined voting power of all classes of stock entitled to vote or 10% or more of the total value of all classes of stock of the tenant. Rents we receive from such a tenant that is a taxable REIT subsidiary of ours, however, will not be excluded from the definition of “rents from real property” as a result of this condition if at least 90% of the space at the property to which the rents relate is leased to third parties, and the rents paid by the taxable REIT subsidiary are substantially comparable to rents paid by our other tenants for comparable space. Whether rents paid by a taxable REIT subsidiary are substantially comparable to rents paid by other tenants is determined at the time the lease with the taxable REIT subsidiary is entered into, extended, and modified, if such modification increases the rents due under such lease. Notwithstanding the foregoing, however, if a lease with a “controlled taxable REIT subsidiary” is modified and such modification results in an increase in the rents payable by such taxable REIT subsidiary, any such increase will not qualify as “rents from real property.” For purposes of this rule, a “controlled taxable REIT subsidiary” is a taxable REIT subsidiary in which the parent REIT owns stock possessing more than 50% of the voting power or more than 50% of the total value of the outstanding stock of such taxable REIT subsidiary;

 

Rent attributable to personal property, leased in connection with a lease of real property, is not greater than 15% of the total rent received under the lease. If this condition is not met, then the portion of the rent attributable to personal property will not qualify as “rents from real property.” To the extent that rent attributable to personal property, leased in connection with a lease of real property, exceeds 15% of the total rent received under the lease, we may transfer a portion of such personal property to a taxable REIT subsidiary; and

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We generally may not operate or manage the property or furnish or render services to our tenants, subject to a 1% de minimis exception and except as provided below. We may, however, perform services that are “usually or customarily rendered” in connection with the rental of space for occupancy only and are not otherwise considered “rendered to the occupant” of the property. Examples of these services include the provision of light, heat, or other utilities, trash removal and general maintenance of common areas. In addition, we may employ an independent contractor from whom we derive no revenue to provide customary services to our tenants, or a taxable REIT subsidiary (which may be wholly or partially owned by us) to provide both customary and non-customary services to our tenants without causing the rent we receive from those tenants to fail to qualify as “rents from real property.”

We generally do not intend, and, as the sole owner of the general partner of our operating partnership, we do not intend to permit our operating partnership, to take actions we believe will cause us to fail to satisfy the rental conditions described above. However, we may intentionally fail to satisfy some of these conditions to the extent we determine, based on the advice of our tax counsel, that the failure will not jeopardize our tax status as a REIT. In addition, with respect to the limitation on the rental of personal property, we generally have not obtained appraisals of the real property and personal property leased to tenants. Accordingly, there can be no assurance that the IRS will not disagree with our determinations of value.

From time to time, we may enter into hedging transactions with respect to one or more of our assets or liabilities. Our hedging activities may include entering into interest rate swaps, caps, and floors, options to purchase these items, and futures and forward contracts. Income from a hedging transaction, including gain from the sale or disposition of such a transaction, that is clearly identified as a hedging transaction as specified in the Code will not constitute gross income under, and thus will be exempt from, the 75% and 95% gross income tests. The term “hedging transaction,” as used above, generally means (A) any transaction we enter into in the normal course of our business primarily to manage risk of (1) interest rate changes or fluctuations with respect to borrowings made or to be made by us to acquire or carry real estate assets, or (2) currency fluctuations with respect to an item of qualifying income under the 75% or 95% gross income test or any property which generates such income and (B) new transactions entered into to hedge the income or loss from prior hedging transactions, where the property or indebtedness which was the subject of the prior hedging transaction was extinguished or disposed of. To the extent that we do not properly identify such transactions as hedges or we hedge with other types of financial instruments, the income from those transactions is not likely to be treated as qualifying income for purposes of the gross income tests. We intend to structure any hedging transactions in a manner that does not jeopardize our status as a REIT.

To the extent our taxable REIT subsidiaries pay dividends or interest, our allocable share of such dividend or interest income will qualify under the 95%, but not the 75%, gross income test (except that our allocable share of such interest would also qualify under the 75% gross income test to the extent the interest is paid on a loan that is adequately secured by real property).

We will monitor the amount of the dividend and other income from our taxable REIT subsidiaries and will take actions intended to keep this income, and any other nonqualifying income, within the limitations of the gross income tests. Although we expect these actions will be sufficient to prevent a violation of the gross income tests, we cannot guarantee that such actions will in all cases prevent such a violation.

If we fail to satisfy one or both of the 75% or 95% gross income tests for any taxable year, we may nevertheless qualify as a REIT for the year if we are entitled to relief under certain provisions of the Code. We generally may make use of the relief provisions if:

 

following our identification of the failure to meet the 75% or 95% gross income tests for any taxable year, we file a schedule with the IRS setting forth each item of our gross income for purposes of the 75% or 95% gross income tests for such taxable year in accordance with Treasury Regulations to be issued; and

 

our failure to meet these tests was due to reasonable cause and not due to willful neglect.

It is not possible, however, to state whether in all circumstances we would be entitled to the benefit of these relief provisions. For example, if we fail to satisfy the gross income tests because nonqualifying income that we intentionally accrue or receive exceeds the limits on nonqualifying income, the IRS could conclude that our failure

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to satisfy the tests was not due to reasonable cause. If these relief provisions do not apply to a particular set of circumstances, we will not qualify as a REIT. See “Failure to Qualify” below. As discussed above in “—General,” even if these relief provisions apply, and we retain our status as a REIT, a tax would be imposed with respect to our nonqualifying income. We may not always be able to comply with the gross income tests for REIT qualification despite periodic monitoring of our income.

Prohibited Transaction Income. Any gain that we realize on the sale of property (other than any foreclosure property) held as inventory or otherwise held primarily for sale to customers in the ordinary course of business, including our share of any such gain realized by our operating partnership, either directly or through its subsidiary partnerships, will be treated as income from a prohibited transaction that is subject to a 100% penalty tax, unless certain safe harbor exceptions apply. This prohibited transaction income may also adversely affect our ability to satisfy the gross income tests for qualification as a REIT. Under existing law, whether property is held as inventory or primarily for sale to customers in the ordinary course of a trade or business is a question of fact that depends on all the facts and circumstances surrounding the particular transaction. As the sole owner of the general partner of our operating partnership, we intend to cause our operating partnership to hold its properties for investment with a view to long-term appreciation, to engage in the business of acquiring, developing and owning its properties and to make occasional sales of the properties as are consistent with our investment objectives. We do not intend, and do not intend to permit our operating partnership or its subsidiary partnerships, to enter into any sales that are prohibited transactions. However, the IRS may successfully contend that some or all of the sales made by our operating partnership or its subsidiary partnerships are prohibited transactions. We would be required to pay the 100% penalty tax on our allocable share of the gains resulting from any such sales. The 100% penalty tax will not apply to gains from the sale of assets that are held through a taxable REIT subsidiary, but such income will be subject to regular U.S. federal corporate income tax.

Penalty Tax. Any redetermined rents, redetermined deductions, excess interest or redetermined TRS service income we generate will be subject to a 100% penalty tax. In general, redetermined rents are rents from real property that are overstated as a result of any services furnished to any of our tenants by a taxable REIT subsidiary of ours, redetermined deductions and excess interest represent any amounts that are deducted by a taxable REIT subsidiary of ours for amounts paid to us that are in excess of the amounts that would have been deducted based on arm’s length negotiations, and redetermined TRS service income is income of a taxable REIT subsidiary that is understated as a result of services provided to us or on our behalf. Rents we receive will not constitute redetermined rents if they qualify for certain safe harbor provisions contained in the Code.

We do not believe we have been, and do not expect to be, subject to this penalty tax, although any rental or service arrangements we enter into from time to time may not satisfy the safe-harbor provisions described above. These determinations are inherently factual, and the IRS has broad discretion to assert that amounts paid between related parties should be reallocated to clearly reflect their respective incomes. If the IRS successfully made such an assertion, we would be required to pay a 100% penalty tax on any overstated rents paid to us, or any excess deductions or understated income of our taxable REIT subsidiaries.

Asset Tests. At the close of each calendar quarter of our taxable year, we must also satisfy certain tests relating to the nature and diversification of our assets. First, at least 75% of the value of our total assets must be represented by real estate assets, cash, cash items and U.S. government securities. For purposes of this test, the term “real estate assets” generally means real property (including interests in real property and interests in mortgages on real property or on both real property and, to a limited extent, personal property), shares (or transferable certificates of beneficial interest) in other REITs, any stock or debt instrument attributable to the investment of the proceeds of a stock offering or a public offering of debt with a term of at least five years (but only for the one-year period beginning on the date the REIT receives such proceeds), debt instruments of publicly offered REITs, and personal property leased in connection with a lease of real property for which the rent attributable to personal property is not greater than 15% of the total rent received under the lease.

Second, not more than 25% of the value of our total assets may be represented by securities (including securities of taxable REIT subsidiaries), other than those securities includable in the 75% asset test.

Third, of the investments included in the 25% asset class, and except for certain investments in other REITs, our qualified REIT subsidiaries and taxable REIT subsidiaries, the value of any one issuer’s securities may not exceed 5% of the value of our total assets, and we may not own more than 10% of the total vote or value of the

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outstanding securities of any one issuer. Certain types of securities we may own are disregarded as securities solely for purposes of the 10% value test, including, but not limited to, securities satisfying the “straight debt” safe harbor, securities issued by a partnership that itself would satisfy the 75% income test if it were a REIT, any loan to an individual or an estate, any obligation to pay rents from real property and any security issued by a REIT. In addition, solely for purposes of the 10% value test, the determination of our interest in the assets of a partnership in which we own an interest will be based on our proportionate interest in any securities issued by the partnership, excluding for this purpose certain securities described in the Code. From time to time we may own securities (including debt securities) of issuers that do not qualify as a REIT, a qualified REIT subsidiary or a taxable REIT subsidiary.

We intend that our ownership of any such securities will be structured in a manner that allows us to comply with the asset tests described above.

Fourth, not more than 20% (25% for taxable years beginning after July 30, 2008 and before January 1, 2018) of the value of our total assets may be represented by the securities of one or more taxable REIT subsidiaries. We and our operating partnership own interests in companies that have elected, together with us, to be treated as our taxable REIT subsidiaries, and we may acquire securities in additional taxable REIT subsidiaries in the future. So long as each of these companies qualifies as a taxable REIT subsidiary of ours, we will not be subject to the 5% asset test, the 10% voting securities limitation or the 10% value limitation with respect to our ownership of the securities of such companies. We believe that the aggregate value of our taxable REIT subsidiaries has not exceeded, and in the future will not exceed, 20% (25% for taxable years beginning after July 30, 2008 and before January 1, 2018) of the aggregate value of our gross assets. We generally do not obtain independent appraisals to support these conclusions. In addition, there can be no assurance that the IRS will not disagree with our determinations of value.

Fifth, not more than 25% of the value of our total assets may be represented by debt instruments of publicly offered REITs to the extent those debt instruments would not be real estate assets but for the inclusion of debt instruments of publicly offered REITs in the meaning of real estate assets, as described above (e.g., a debt instrument issued by a publicly offered REIT that is not secured by a mortgage on real property).

The asset tests must be satisfied at the close of each calendar quarter of our taxable year in which we (directly or through any partnership or qualified REIT subsidiary) acquire securities in the applicable issuer, and also at the close of each calendar quarter in which we increase our ownership of securities of such issuer (including as a result of an increase in our interest in any partnership that owns such securities). For example, our indirect ownership of securities of each issuer will increase as a result of our capital contributions to our operating partnership or as limited partners exercise any redemption/exchange rights. Also, after initially meeting the asset tests at the close of any quarter, we will not lose our status as a REIT for failure to satisfy the asset tests at the end of a later quarter solely by reason of changes in asset values. If we fail to satisfy an asset test because we acquire securities or other property during a quarter (including as a result of an increase in our interest in any partnership), we may cure this failure by disposing of sufficient nonqualifying assets within 30 days after the close of that quarter. We believe that we have maintained, and we intend to maintain, adequate records of the value of our assets to ensure compliance with the asset tests. If we fail to cure any noncompliance with the asset tests within the 30-day cure period, we would cease to qualify as a REIT unless we are eligible for certain relief provisions discussed below.

Certain relief provisions may be available to us if we discover a failure to satisfy the asset tests described above after the 30-day cure period. Under these provisions, we will be deemed to have met the 5% and 10% asset tests if the value of our nonqualifying assets (i) does not exceed the lesser of (a) 1% of the total value of our assets at the end of the applicable quarter or (b) $10,000,000, and (ii) we dispose of the nonqualifying assets or otherwise satisfy such tests within (a) six months after the last day of the quarter in which the failure to satisfy the asset tests is discovered or (b) the period of time prescribed by Treasury Regulations to be issued. For violations of any of the asset tests due to reasonable cause and not due to willful neglect and that are, in the case of the 5% and 10% asset tests, in excess of the de minimis exception described above, we may avoid disqualification as a REIT after the 30-day cure period by taking steps including (i) the disposition of sufficient nonqualifying assets, or the taking of other actions, which allow us to meet the asset tests within (a) six months after the last day of the quarter in which the failure to satisfy the asset tests is discovered or (b) the period of time prescribed by Treasury Regulations to be issued, (ii) paying a tax equal to the greater of (a) $50,000 or (b) the U.S. federal corporate income tax rate multiplied by the net income generated by the nonqualifying assets, and (iii) disclosing certain information to the IRS.

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Although we believe we have satisfied the asset tests described above and plan to take steps to ensure that we satisfy such tests for any quarter with respect to which retesting is to occur, there can be no assurance that we will always be successful, or will not require a reduction in our operating partnership’s overall interest in an issuer (including in a taxable REIT subsidiary). If we fail to cure any noncompliance with the asset tests in a timely manner, and the relief provisions described above are not available, we would cease to qualify as a REIT.

Annual Distribution Requirements. To maintain our qualification as a REIT, we are required to distribute dividends, other than capital gain dividends, to our stockholders in an amount at least equal to the sum of:

 

90% of our REIT taxable income; and

 

90% of our after-tax net income, if any, from foreclosure property; minus

 

the excess of the sum of certain items of non-cash income over 5% of our REIT taxable income.

For these purposes, our REIT taxable income is computed without regard to the dividends paid deduction and our net capital gain. In addition, for purposes of this test, non-cash income generally means income attributable to leveled stepped rents, original issue discount, cancellation of indebtedness, or a like-kind exchange that is later determined to be taxable.

In addition, our REIT taxable income will be reduced by any taxes we are required to pay on any gain we recognize from the disposition of any asset we acquired from a corporation that is or has been a C corporation in a transaction in which our tax basis in the asset is less than the fair market value of the asset, in each case determined as of the date on which we acquired the asset, within the five-year period following our acquisition of such asset, as described above under “—General.”

For taxable years beginning after December 31, 2017, and except as provided below, a taxpayer’s deduction for net business interest expense will generally be limited to 30% of its taxable income, as adjusted for certain items of income, gain, deduction or loss. For any taxable year beginning in 2019 or 2020, the 30% limitation has been increased to a 50% limitation, provided that for partnerships the 50% limitation applies for any taxable year beginning in 2020 only.  Taxpayers may elect to use their 2019 adjusted taxable income for purposes of computing their 2020 limitation. Any business interest deduction that is disallowed due to this limitation may be carried forward to future taxable years, subject to special rules applicable to partnerships. If we or any of our subsidiary partnerships (including our operating partnership) are subject to this interest expense limitation, our REIT taxable income for a taxable year may be increased. Taxpayers that conduct certain real estate businesses may elect not to have this interest expense limitation apply to them, provided that they use an alternative depreciation system to depreciate certain property. We believe that we or any of our subsidiary partnerships that are subject to this interest expense limitation will be eligible to make this election. If such election is made, although we or such subsidiary partnership, as applicable, would not be subject to the interest expense limitation described above, depreciation deductions may be reduced and, as a result, our REIT taxable income for a taxable year may be increased.

We generally must pay, or be treated as paying, the distributions described above in the taxable year to which they relate. At our election, a distribution will be treated as paid in a taxable year if it is declared before we timely file our tax return for such year and paid on or before the first regular dividend payment after such declaration, provided such payment is made during the 12-month period following the close of such year. These distributions are treated as received by our stockholders in the year in which they are paid. This is so even though these distributions relate to the prior year for purposes of the 90% distribution requirement. In order to be taken into account for purposes of our distribution requirement, except as provided below, the amount distributed must not be preferential-i.e., every stockholder of the class of stock to which a distribution is made must be treated the same as every other stockholder of that class, and no class of stock may be treated other than according to its dividend rights as a class. This preferential dividend limitation will not apply to distributions made by us, provided we qualify as a “publicly offered REIT.” We believe that we are, and expect we will continue to be, a “publicly offered REIT.” To the extent that we do not distribute all of our net capital gain, or distribute at least 90%, but less than 100%, of our REIT taxable income, as adjusted, we will be required to pay regular U.S. federal corporate income tax on the undistributed amount. We believe that we have made, and we intend to continue to make, timely distributions sufficient to satisfy these annual distribution requirements and to minimize our corporate tax obligations. In this

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regard, the partnership agreement of our operating partnership authorizes us, as the sole owner of the general partner of our operating partnership, to take such steps as may be necessary to cause our operating partnership to distribute to its partners an amount sufficient to permit us to meet these distribution requirements and to minimize our corporate tax obligation.

We expect that our REIT taxable income will be less than our cash flow because of depreciation and other non-cash charges included in computing REIT taxable income. Accordingly, we anticipate that we generally will have sufficient cash or liquid assets to enable us to satisfy the distribution requirements described above. However, from time to time, we may not have sufficient cash or other liquid assets to meet these distribution requirements due to timing differences between the actual receipt of income and actual payment of deductible expenses, and the inclusion of income and deduction of expenses in determining our taxable income. In addition, we may decide to retain our cash, rather than distribute it, in order to repay debt or for other reasons. If these timing differences occur, we may borrow funds to pay dividends or pay dividends in the form of taxable stock distributions in order to meet the distribution requirements, while preserving our cash.

We have in the past and may in the future distribute interests in other entities to our shareholders. In such a case, and assuming the distribution does not qualify as a tax-free spinoff under the Code, we would generally recognize taxable income equal to the excess, if any, of the value of such interests over our tax basis in such interests, and we would be treated as making a distribution to shareholders equal to the fair market value of such interests.

Under some circumstances, we may be able to rectify an inadvertent failure to meet the 90% distribution requirement for a year by paying “deficiency dividends” to our stockholders in a later year, which may be included in our deduction for dividends paid for the earlier year. In that case, we may be able to avoid being taxed on amounts distributed as deficiency dividends, subject to the 4% excise tax described below. However, we will be required to pay interest to the IRS based upon the amount of any deduction claimed for deficiency dividends. While the payment of a deficiency dividend will apply to a prior year for purposes of our REIT distribution requirements, it will be treated as an additional distribution to our stockholders in the year such dividend is paid.

Furthermore, we will be required to pay a 4% excise tax to the extent we fail to distribute during each calendar year at least the sum of 85% of our ordinary income for such year, 95% of our capital gain net income for the year and any undistributed taxable income from prior periods. Any ordinary income and net capital gain on which corporate income tax is imposed for any year is treated as an amount distributed during that year for purposes of calculating this excise tax.

For purposes of the 90% distribution requirement and excise tax described above, dividends declared during the last three months of the taxable year, payable to stockholders of record on a specified date during such period and paid during January of the following year, will be treated as paid by us and received by our stockholders on December 31 of the year in which they are declared.

Like-Kind Exchanges. We may dispose of real property that is not held primarily for sale in transactions intended to qualify as like-kind exchanges under the Code. Such like-kind exchanges are intended to result in the deferral of gain for U.S. federal income tax purposes. The failure of any such transaction to qualify as a like-kind exchange could require us to pay U.S. federal income tax, possibly including the 100% prohibited transaction tax or deficiency dividends, depending on the facts and circumstances surrounding the particular transaction.

Tax Liabilities and Attributes Inherited in Connection with Acquisitions. From time to time, we or our operating partnership may acquire other corporations or entities and, in connection with such acquisitions, we may succeed to the historical tax attributes and liabilities of such entities. For example, if we acquire a C corporation and subsequently dispose of its assets within five years of the acquisition, we could be required to pay the built-in gain tax described above under “—General.” In addition, in order to qualify as a REIT, at the end of any taxable year, we must not have any earnings and profits accumulated in a non-REIT year. As a result, if we acquire a C corporation, we must distribute the corporation’s earnings and profits accumulated prior to the acquisition before the end of the

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taxable year in which we acquire the corporation. We also could be required to pay the acquired entity’s unpaid taxes even though such liabilities arose prior to the time we acquired the entity.

Moreover, we may from time to time acquire other REITs through a merger or acquisition. If any such REIT failed to qualify as a REIT for any of its taxable years, such REIT would be liable for (and we, as the surviving corporation in the merger or acquisition, would be obligated to pay) regular U.S. federal corporate income tax on its taxable income for such taxable years. In addition, if such REIT was a C corporation at the time of the merger or acquisition, the tax consequences described in the preceding paragraph generally would apply. If such REIT failed to qualify as a REIT for any of its taxable years, but qualified as a REIT at the time of such merger or acquisition, and we acquired such REIT’s assets in a transaction in which our tax basis in the assets of such REIT is determined, in whole or in part, by reference to such REIT’s tax basis in such assets, we generally would be subject to tax on the built-in gain on each asset of such REIT as described above if we were to dispose of the asset in a taxable transaction during the five-year period following such REIT’s requalification as a REIT, subject to certain exceptions. Moreover, even if such REIT qualified as a REIT at all relevant times, we would similarly be liable for other unpaid taxes (if any) of such REIT (such as the 100% tax on gains from any sales treated as “prohibited transactions” as described above under “—Prohibited Transaction Income”).

Furthermore, after our acquisition of another corporation or entity, the asset and income tests will apply to all of our assets, including the assets we acquire from such corporation or entity, and to all of our income, including the income derived from the assets we acquire from such corporation or entity. As a result, the nature of the assets that we acquire from such corporation or entity and the income we derive from those assets may have an effect on our tax status as a REIT.

Foreclosure Property. The foreclosure property rules permit us (by our election) to foreclose or repossess properties without being disqualified as a REIT as a result of receiving income that does not qualify under the gross income tests. However, in such a case, we would be subject to the U.S. federal corporate income tax on the net non-qualifying income from “foreclosure property,” and the after-tax amount would increase the dividends we would be required to distribute to stockholders. See “—Annual Distribution Requirements.” This corporate tax would not apply to income that qualifies under the REIT 75% income test.

Foreclosure property treatment is generally available for an initial period of three years and may, in certain circumstances, be extended for an additional three years. However, foreclosure property treatment will end on the first day on which we enter into a lease of the applicable property that will give rise to income that does not qualify under the REIT 75% income test, but will not end if the lease will give rise only to qualifying income under such test. Foreclosure property treatment also will end if any construction takes place on the property (other than completion of a building or other improvement that was more than 10% complete before default became imminent).

Failure to Qualify. If we discover a violation of a provision of the Code that would result in our failure to qualify as a REIT, certain specified cure provisions may be available to us. Except with respect to violations of the gross income tests and asset tests (for which the cure provisions are described above), and provided the violation is due to reasonable cause and not due to willful neglect, these cure provisions generally impose a $50,000 penalty for each violation in lieu of a loss of REIT status. If we fail to satisfy the requirements for taxation as a REIT in any taxable year, and the relief provisions do not apply, we will be required to pay regular U.S. federal corporate income tax, including any applicable alternative minimum tax for taxable years beginning before January 1, 2018, on our taxable income. Distributions to stockholders in any year in which we fail to qualify as a REIT will not be deductible by us. As a result, we anticipate that our failure to qualify as a REIT would reduce the cash available for distribution by us to our stockholders. In addition, if we fail to qualify as a REIT, we will not be required to distribute any amounts to our stockholders and all distributions to stockholders will be taxable as regular corporate dividends to the extent of our current and accumulated earnings and profits. In such event, corporate stockholders may be eligible for the dividends-received deduction. In addition, non-corporate stockholders, including individuals, may be eligible for the preferential tax rates on qualified dividend income. Non-corporate stockholders, including individuals, generally may deduct up to 20% of dividends from a REIT, other than capital gain dividends and dividends treated as qualified dividend income, for taxable years beginning after December 31, 2017 and before January 1, 2026 for purposes of determining their U.S. federal income tax (but not for purposes of the 3.8% Medicare tax), subject to certain limitations. If we fail to qualify as a REIT, such stockholders may not claim this deduction with respect to dividends paid by us. Unless entitled to relief under specific statutory provisions, we would also be ineligible to elect to be treated as a REIT for the four taxable years following the year for which we

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lose our qualification. It is not possible to state whether in all circumstances we would be entitled to this statutory relief.

Tax Aspects of Our Operating Partnership, the Subsidiary Partnerships and the Limited Liability Companies

General. All of our investments are held indirectly through our operating partnership. In addition, our operating partnership holds certain of its investments indirectly through subsidiary partnerships and limited liability companies that we believe are and will continue to be treated as partnerships or disregarded entities for U.S. federal income tax purposes. In general, entities that are treated as partnerships or disregarded entities for U.S. federal income tax purposes are “pass-through” entities which are not required to pay U.S. federal income tax. Rather, partners of such partnerships are allocated their shares of the items of income, gain, loss, deduction and credit of the partnership, and are potentially required to pay tax on this income, without regard to whether they receive a distribution from the partnership. We will include in our income our share of these partnership items for purposes of the various gross income tests, the computation of our REIT taxable income, and the REIT distribution requirements. Moreover, for purposes of the asset tests, we will include our pro rata share of assets held by our operating partnership, including its share of the assets of its subsidiary partnerships, based on our capital interests in each such entity. See “—Taxation of Our Company-Ownership of Interests in Partnerships, Limited Liability Companies and Qualified REIT Subsidiaries.” A disregarded entity is not treated as a separate entity for U.S. federal income tax purposes, and all assets, liabilities and items of income, gain, loss, deduction and credit of a disregarded entity are treated as assets, liabilities and items of income, gain, loss, deduction and credit of its parent that is not a disregarded entity (e.g., our operating partnership) for all purposes under the Code, including all REIT qualification tests.

Entity Classification. Our interests in our operating partnership and the subsidiary partnerships and limited liability companies involve special tax considerations, including the possibility that the IRS might challenge the status of these entities as partnerships or disregarded entities for U.S. federal income tax purposes. For example, an entity that would otherwise be treated as a partnership for U.S. federal income tax purposes may nonetheless be taxable as a corporation if it is a “publicly traded partnership” and certain other requirements are met. A partnership would be treated as a publicly traded partnership if its interests are traded on an established securities market or are readily tradable on a secondary market or a substantial equivalent thereof, within the meaning of applicable Treasury Regulations. We do not anticipate that our operating partnership or any subsidiary partnership will be treated as a publicly traded partnership that is taxable as a corporation. However, if any such entity were treated as a corporation, it would be required to pay an entity-level tax on its income. In this situation, the character of our assets and items of gross income would change and could prevent us from satisfying the REIT asset tests and possibly the REIT income tests. See “—Taxation of Our Company-Asset Tests” and “—Income Tests.” This, in turn, could prevent us from qualifying as a REIT. See “—Taxation of Our Company-Failure to Qualify” for a discussion of the effect of our failure to meet these tests. In addition, a change in the tax status of our operating partnership or a subsidiary treated as a partnership or disregarded entity to a corporation might be treated as a taxable event. If so, we might incur a tax liability without any related cash payment. We believe our operating partnership and each of the subsidiary partnerships and limited liability companies are and will continue to be treated as partnerships or disregarded entities for U.S. federal income tax purposes.

Allocations of Items of Income, Gain, Loss and Deduction. A partnership agreement (or, in the case of a limited liability company treated as a partnership for U.S. federal income tax purposes, the limited liability company agreement) generally will determine the allocation of income and loss among partners. These allocations, however, will be disregarded for tax purposes if they do not comply with the provisions of Section 704(b) of the Code and the Treasury Regulations thereunder. Generally, Section 704(b) of the Code and the Treasury Regulations thereunder require that partnership allocations respect the economic arrangement of the partners. If an allocation of partnership income or loss does not comply with the requirements of Section 704(b) of the Code and the Treasury Regulations thereunder, the item subject to the allocation will be reallocated in accordance with the partners’ interests in the partnership. This reallocation will be determined by taking into account all of the facts and circumstances relating to the economic arrangement of the partners with respect to such item. The allocations of taxable income and loss of our operating partnership and any subsidiaries that are treated as partnerships for U.S. federal income tax purposes

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are intended to comply with the requirements of Section 704(b) of the Code and the Treasury Regulations thereunder.

Tax Allocations With Respect to the Properties. Under Section 704(c) of the Code, items of income, gain, loss and deduction attributable to appreciated or depreciated property that is contributed to a partnership in exchange for an interest in the partnership, must be allocated in a manner so that the contributing partner is charged with the unrealized gain or benefits from the unrealized loss associated with the property at the time of the contribution. The amount of the unrealized gain or unrealized loss generally is equal to the difference between the fair market value or book value and the adjusted tax basis of the contributed property at the time of contribution (this difference is referred to as a book-tax difference), as adjusted from time to time. These allocations are solely for U.S. federal income tax purposes and do not affect the book capital accounts or other economic or legal arrangements among the partners.

Our operating partnership may, from time to time, acquire interests in property in exchange for interests in our operating partnership. In that case, the tax basis of these property interests generally will carry over to our operating partnership, notwithstanding their different book (i.e., fair market) value. The partnership agreement requires that income and loss allocations with respect to these properties be made in a manner consistent with Section 704(c) of the Code. Treasury Regulations issued under Section 704(c) of the Code provide partnerships with a choice of several methods of accounting for book-tax differences. Depending on the method we choose in connection with any particular contribution, the carryover basis of each of the contributed interests in the properties in the hands of our operating partnership (1) could cause us to be allocated lower amounts of depreciation deductions for tax purposes than would be allocated to us if any of the contributed properties were to have a tax basis equal to its respective fair market value at the time of the contribution and (2) could cause us to be allocated taxable gain in the event of a sale of such contributed interests or properties in excess of the economic or book income allocated to us as a result of such sale, with a corresponding benefit to the other partners in our operating partnership. An allocation described in clause (2) above might cause us or the other partners to recognize taxable income in excess of cash proceeds in the event of a sale or other disposition of property, which might adversely affect our ability to comply with the REIT distribution requirements. See “—Taxation of Our Company-Requirements for Qualification as a REIT” and “—Annual Distribution Requirements.”

Any property acquired by our operating partnership in a taxable transaction will initially have a tax basis equal to its fair market value, and Section 704(c) of the Code generally will not apply.

Partnership Audit Rules. The Bipartisan Budget Act of 2015 changed the rules applicable to U.S. federal income tax audits of partnerships. Under the new rules (which are generally effective for taxable years beginning after December 31, 2017), among other changes and subject to certain exceptions, any audit adjustment to items of income, gain, loss, deduction, or credit of a partnership (and any partner’s distributive share thereof) is determined, and taxes, interest, or penalties attributable thereto are assessed and collected, at the partnership level. Although it remains uncertain how certain aspects of these new rules will be implemented, it is possible that they could result in partnerships in which we directly or indirectly invest, including our operating partnership, being required to pay additional taxes, interest and penalties as a result of an audit adjustment, and we, as a direct or indirect partner of these partnerships, could be required to bear the economic burden of those taxes, interest, and penalties even though we, as a REIT, may not otherwise have been required to pay additional corporate-level taxes as a result of the related audit adjustment. Investors are urged to consult their tax advisors with respect to these changes and their potential impact on their investment in our capital stock or debt securities or our operating partnership’s debt securities.

Material U.S. Federal Income Tax Consequences to Holders of Our Capital Stock and Debt Securities and Our Operating Partnership’s Debt Securities

The following discussion is a summary of the material U.S. federal income tax consequences to you of acquiring, owning and disposing of our capital stock or debt securities or our operating partnership’s debt securities. This discussion is limited to holders who hold our capital stock or debt securities or our operating partnership’s debt securities as “capital assets” within the meaning of Section 1221 of the Code (generally, property held for investment). This discussion does not address all U.S. federal income tax consequences relevant to a holder’s particular circumstances. In addition, except where specifically noted, it does not address consequences relevant to holders subject to special rules, including, without limitation:

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U.S. expatriates and former citizens or long-term residents of the United States;

 

persons subject to the alternative minimum tax;

 

U.S. holders (as defined below) whose functional currency is not the U.S. dollar;

 

persons holding our capital stock or debt securities or our operating partnership’s debt securities as part of a hedge, straddle or other risk reduction strategy or as part of a conversion transaction or other integrated investment;

 

banks, insurance companies, and other financial institutions;

 

REITs or regulated investment companies;

 

brokers, dealers or traders in securities;

 

“controlled foreign corporations,” “passive foreign investment companies,” and corporations that accumulate earnings to avoid U.S. federal income tax;

 

S corporations, partnerships or other entities or arrangements treated as partnerships for U.S. federal income tax purposes (and investors therein);

 

tax-exempt organizations or governmental organizations;

 

persons subject to special tax accounting rules as a result of any item of gross income with respect to our capital stock or debt securities or our operating partnership’s debt securities being taken into account in an “applicable financial statement” (as defined in the Code);

 

persons deemed to sell our capital stock or debt securities or our operating partnership’s debt securities under the constructive sale provisions of the Code; and

 

persons who hold or receive our capital stock pursuant to the exercise of any employee stock option or otherwise as compensation.

THIS DISCUSSION IS FOR INFORMATIONAL PURPOSES ONLY AND IS NOT INTENDED AS TAX ADVICE. INVESTORS SHOULD CONSULT THEIR TAX ADVISORS WITH RESPECT TO THE APPLICATION OF THE U.S. FEDERAL INCOME TAX LAWS TO THEIR PARTICULAR SITUATIONS AS WELL AS ANY TAX CONSEQUENCES OF THE ACQUISITION, OWNERSHIP AND DISPOSITION OF OUR CAPITAL STOCK OR DEBT SECURITIES OR OUR OPERATING PARTNERSHIP’S DEBT SECURITIES ARISING UNDER OTHER U.S. FEDERAL TAX LAWS (INCLUDING ESTATE AND GIFT TAX LAWS), UNDER THE LAWS OF ANY STATE, LOCAL OR NON-U.S. TAXING JURISDICTION OR UNDER ANY APPLICABLE TAX TREATY.

For purposes of this discussion, a “U.S. holder” is a beneficial owner of our capital stock or debt securities or our operating partnership’s debt securities that, for U.S. federal income tax purposes, is or is treated as:

 

an individual who is a citizen or resident of the United States;

 

a corporation created or organized under the laws of the United States, any state thereof, or the District of Columbia;

 

an estate, the income of which is subject to U.S. federal income tax regardless of its source; or

 

a trust that (1) is subject to the primary supervision of a U.S. court and the control of one or more “United States persons” (within the meaning of Section 7701(a)(30) of the Code) or (2) has a valid election in effect to be treated as a United States person for U.S. federal income tax purposes.

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For purposes of this discussion, a “non-U.S. holder” is any beneficial owner of our capital stock or debt securities or our operating partnership’s debt securities that is neither a U.S. holder nor an entity treated as a partnership for U.S. federal income tax purposes.

If an entity treated as a partnership for U.S. federal income tax purposes holds our capital stock or debt securities or our operating partnership’s debt securities, the tax treatment of a partner in the partnership will depend on the status of the partner, the activities of the partnership and certain determinations made at the partner level. Accordingly, partnerships holding our capital stock or debt securities or our operating partnership’s debt securities and the partners in such partnerships should consult their tax advisors regarding the U.S. federal income tax consequences to them.

Taxation of Taxable U.S. Holders of Our Capital Stock

Distributions Generally. Distributions out of our current or accumulated earnings and profits will be treated as dividends and, other than with respect to capital gain dividends and certain amounts which have previously been subject to corporate level tax, as discussed below, will be taxable to our taxable U.S. holders as ordinary income when actually or constructively received. See “—Tax Rates” below. As long as we qualify as a REIT, these distributions will not be eligible for the dividends-received deduction in the case of U.S. holders that are corporations or, except to the extent described in “—Tax Rates” below, the preferential rates on qualified dividend income applicable to non-corporate U.S. holders, including individuals. For purposes of determining whether distributions to holders of our capital stock are out of our current or accumulated earnings and profits, our earnings and profits will be allocated first to our outstanding preferred stock, if any, and then to our outstanding common stock.

To the extent that we make distributions on our capital stock in excess of our current and accumulated earnings and profits allocable to such stock, these distributions will be treated first as a tax-free return of capital to a U.S. holder to the extent of the U.S. holder’s adjusted tax basis in such shares of stock. This treatment will reduce the U.S. holder’s adjusted tax basis in such shares of stock by such amount, but not below zero. Distributions in excess of our current and accumulated earnings and profits and in excess of a U.S. holder’s adjusted tax basis in its shares will be taxable as capital gain. Such gain will be taxable as long-term capital gain if the shares have been held for more than one year. Dividends we declare in October, November, or December of any year and which are payable to a holder of record on a specified date in any of these months will be treated as both paid by us and received by the holder on December 31 of that year, provided we actually pay the dividend on or before January 31 of the following year. U.S. holders may not include in their own income tax returns any of our net operating losses or capital losses.

U.S. holders that receive taxable stock distributions, including distributions partially payable in our capital stock and partially payable in cash, would be required to include the full amount of the distribution (i.e., the cash and the stock portion) as a dividend (subject to limited exceptions) to the extent of our current and accumulated earnings and profits for U.S. federal income tax purposes, as described above. The amount of any distribution payable in our capital stock generally is equal to the amount of cash that could have been received instead of the capital stock. Depending on the circumstances of a U.S. holder, the tax on the distribution may exceed the amount of the distribution received in cash, in which case such U.S. holder would have to pay the tax using cash from other sources. If a U.S. holder sells the capital stock it received in connection with a taxable stock distribution in order to pay this tax and the proceeds of such sale are less than the amount required to be included in income with respect to the stock portion of the distribution, such U.S. holder could have a capital loss with respect to the stock sale that could not be used to offset such income. A U.S. holder that receives capital stock pursuant to such distribution generally has a tax basis in such capital stock equal to the amount of cash that could have been received instead of such capital stock as described above, and has a holding period in such capital stock that begins on the day immediately following the payment date for the distribution.

Capital Gain Dividends. Dividends that we properly designate as capital gain dividends will be taxable to our taxable U.S. holders as a gain from the sale or disposition of a capital asset held for more than one year, to the extent that such gain does not exceed our actual net capital gain for the taxable year and may not exceed our dividends paid for the taxable year, including dividends paid the following year that are treated as paid in the current year. U.S. holders that are corporations may, however, be required to treat up to 20% of certain capital gain dividends as ordinary income. If we properly designate any portion of a dividend as a capital gain dividend, then,

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except as otherwise required by law, we presently intend to allocate a portion of the total capital gain dividends paid or made available to holders of all classes of our capital stock for the year to the holders of each class of our capital stock in proportion to the amount that our total dividends, as determined for U.S. federal income tax purposes, paid or made available to the holders of each such class of our capital stock for the year bears to the total dividends, as determined for U.S. federal income tax purposes, paid or made available to holders of all classes of our capital stock for the year. In addition, except as otherwise required by law, we will make a similar allocation with respect to any undistributed long-term capital gains which are to be included in our stockholders’ long-term capital gains, based on the allocation of the capital gain amount which would have resulted if those undistributed long-term capital gains had been distributed as “capital gain dividends” by us to our stockholders.

Retention of Net Capital Gains. We may elect to retain, rather than distribute as a capital gain dividend, all or a portion of our net capital gains. If we make this election, we would pay tax on our retained net capital gains. In addition, to the extent we so elect, our earnings and profits (determined for U.S. federal income tax purposes) would be adjusted accordingly, and a U.S. holder generally would:

 

include its pro rata share of our undistributed capital gain in computing its long-term capital gains in its U.S. federal income tax return for its taxable year in which the last day of our taxable year falls, subject to certain limitations as to the amount that is includable;

 

be deemed to have paid its share of the capital gains tax imposed on us on the designated amounts included in the U.S. holder’s income as long-term capital gain;

 

receive a credit or refund for the amount of tax deemed paid by it;

 

increase the adjusted tax basis of its capital stock by the difference between the amount of includable gains and the tax deemed to have been paid by it; and

 

in the case of a U.S. holder that is a corporation, appropriately adjust its earnings and profits for the retained capital gains in accordance with Treasury Regulations to be promulgated by the IRS.

Passive Activity Losses and Investment Interest Limitations. Distributions we make and gain arising from the sale or exchange by a U.S. holder of our capital stock will not be treated as passive activity income. As a result, U.S. holders generally will not be able to apply any “passive losses” against this income or gain. A U.S. holder generally may elect to treat capital gain dividends, capital gains from the disposition of our capital stock and income designated as qualified dividend income, as described in “—Tax Rates” below, as investment income for purposes of computing the investment interest limitation, but in such case, the holder will be taxed at ordinary income rates on such amount. Other distributions made by us, to the extent they do not constitute a return of capital, generally will be treated as investment income for purposes of computing the investment interest limitation.

Dispositions of Our Capital Stock. Except as described below under “—Taxation of Taxable U.S. Holders of Our Capital Stock-Redemption or Repurchase by Us,” if a U.S. holder sells or disposes of shares of our capital stock, it will recognize gain or loss for U.S. federal income tax purposes in an amount equal to the difference between the amount of cash and the fair market value of any property received on the sale or other disposition and the holder’s adjusted tax basis in the shares. This gain or loss, except as provided below, will be long-term capital gain or loss if the holder has held such capital stock for more than one year. However, if a U.S. holder recognizes a loss upon the sale or other disposition of capital stock that it has held for six months or less, after applying certain holding period rules, the loss recognized will be treated as a long-term capital loss to the extent the U.S. holder received distributions from us which were required to be treated as long-term capital gains.

Redemption or Repurchase by Us. A redemption or repurchase of shares of our capital stock will be treated under Section 302 of the Code as a distribution (and taxable as a dividend to the extent of our current and accumulated earnings and profits as described above under “—Distributions Generally”) unless the redemption or repurchase satisfies one of the tests set forth in Section 302(b) of the Code and is therefore treated as a sale or exchange of the redeemed or repurchased shares. The redemption or repurchase generally will be treated as a sale or exchange if it:

 

is “substantially disproportionate” with respect to the U.S. holder,

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results in a “complete redemption” of the U.S. holder’s stock interest in us, or

 

is “not essentially equivalent to a dividend” with respect to the U.S. holder,

all within the meaning of Section 302(b) of the Code.

In determining whether any of these tests has been met, shares of our capital stock, including common stock and other equity interests in us, considered to be owned by the U.S. holder by reason of certain constructive ownership rules set forth in the Code, as well as shares of our capital stock actually owned by the U.S. holder, generally must be taken into account. Because the determination as to whether any of the alternative tests of Section 302(b) of the Code will be satisfied with respect to the U.S. holder depends upon the facts and circumstances at the time that the determination must be made, U.S. holders are advised to consult their tax advisors to determine such tax treatment.

If a redemption or repurchase of shares of our capital stock is treated as a distribution, the amount of the distribution will be measured by the amount of cash and the fair market value of any property received. See “—Distributions Generally.” A U.S. holder’s adjusted tax basis in the redeemed or repurchased shares generally will be transferred to the holder’s remaining shares of our capital stock, if any. If a U.S. holder owns no other shares of our capital stock, under certain circumstances, such basis may be transferred to a related person or it may be lost entirely. Prospective investors should consult their tax advisors regarding the U.S. federal income tax consequences of a redemption or repurchase of our capital stock.

If a redemption or repurchase of shares of our capital stock is not treated as a distribution, it will be treated as a taxable sale or exchange in the manner described under “—Dispositions of Our Capital Stock.”

Tax Rates. The maximum tax rate for non-corporate taxpayers for (1) long-term capital gains, including certain “capital gain dividends,” generally is 20% (although depending on the characteristics of the assets which produced these gains and on designations which we may make, certain capital gain dividends may be taxed at a 25% rate) and (2) “qualified dividend income” generally is 20%. In general, dividends payable by REITs are not eligible for the reduced tax rate on qualified dividend income, except to the extent that certain holding period requirements have been met and the REIT’s dividends are attributable to dividends received from taxable corporations (such as its taxable REIT subsidiaries) or to income that was subject to tax at the corporate/REIT level (for example, if the REIT distributed taxable income that it retained and paid tax on in the prior taxable year). Capital gain dividends will only be eligible for the rates described above to the extent that they are properly designated by the REIT as “capital gain dividends.” U.S. holders that are corporations may be required to treat up to 20% of some capital gain dividends as ordinary income. In addition, non-corporate U.S. holders, including individuals, generally may deduct up to 20% of dividends from a REIT, other than capital gain dividends and dividends treated as qualified dividend income, for taxable years beginning after December 31, 2017 and before January 1, 2026 for purposes of determining their U.S. federal income tax (but not for purposes of the 3.8% Medicare tax), subject to certain limitations.

Taxation of Tax-Exempt Holders of Our Capital Stock

Dividend income from us and gain arising upon a sale of shares of our capital stock generally should not be unrelated business taxable income (“UBTI”) to a tax-exempt holder, except as described below. This income or gain will be UBTI, however, to the extent a tax-exempt holder holds its shares as “debt-financed property” within the meaning of the Code. Generally, “debt-financed property” is property the acquisition or holding of which was financed through a borrowing by the tax-exempt holder.

For tax-exempt holders that are social clubs, voluntary employee benefit associations or supplemental unemployment benefit trusts exempt from U.S. federal income taxation under Sections 501(c)(7), (c)(9) or (c)(17) of the Code, respectively, income from an investment in our shares will constitute UBTI unless the organization is able to properly claim a deduction for amounts set aside or placed in reserve for specific purposes so as to offset the income generated by its investment in our shares. These prospective investors should consult their tax advisors concerning these “set aside” and reserve requirements.

Notwithstanding the above, however, a portion of the dividends paid by a “pension-held REIT” may be treated as UBTI as to certain trusts that hold more than 10%, by value, of the interests in the REIT. A REIT will not

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be a “pension-held REIT” if it is able to satisfy the “not closely held” requirement without relying on the “look-through” exception with respect to certain trusts or if such REIT is not “predominantly held” by “qualified trusts.” As a result of restrictions on ownership and transfer of our stock contained in our charter, we do not expect to be classified as a “pension-held REIT,” and as a result, the tax treatment described above should be inapplicable to our holders. However, because our common stock is (and, we anticipate, will continue to be) publicly traded, we cannot guarantee that this will always be the case.

Taxation of Non-U.S. Holders of Our Capital Stock

The following discussion addresses the rules governing U.S. federal income taxation of the acquisition, ownership and disposition of our capital stock by non-U.S. holders. These rules are complex, and no attempt is made herein to provide more than a brief summary of such rules. Accordingly, the discussion does not address all aspects of U.S. federal income taxation and does not address other federal, state, local or non-U.S. tax consequences that may be relevant to a non-U.S. holder in light of its particular circumstances. We urge non-U.S. holders to consult their tax advisors to determine the impact of U.S. federal, state, local and non-U.S. income and other tax laws and any applicable tax treaty on the acquisition, ownership and disposition of shares of our capital stock, including any reporting requirements.

Distributions Generally. Distributions (including any taxable stock distributions) that are neither attributable to gains from sales or exchanges by us of United States real property interests (“USRPIs”) nor designated by us as capital gain dividends (except as described below) will be treated as dividends of ordinary income to the extent that they are made out of our current or accumulated earnings and profits. Such distributions ordinarily will be subject to withholding of U.S. federal income tax at a 30% rate or such lower rate as may be specified by an applicable income tax treaty, unless the distributions are treated as effectively connected with the conduct by the non-U.S. holder of a trade or business within the United States (and, if required by an applicable income tax treaty, the non-U.S. holder maintains a permanent establishment in the United States to which such dividends are attributable). Under certain treaties, however, lower withholding rates generally applicable to dividends do not apply to dividends from a REIT. Certain certification and disclosure requirements must be satisfied for a non-U.S. holder to be exempt from withholding under the effectively connected income exemption. Dividends that are treated as effectively connected with a U.S. trade or business generally will not be subject to withholding but will be subject to U.S. federal income tax on a net basis at the regular graduated rates, in the same manner as dividends paid to U.S. holders are subject to U.S. federal income tax. Any such dividends received by a non-U.S. holder that is a corporation may also be subject to an additional branch profits tax at a 30% rate (applicable after deducting U.S. federal income taxes paid on such effectively connected income) or such lower rate as may be specified by an applicable income tax treaty.

Except as otherwise provided below, we expect to withhold U.S. federal income tax at the rate of 30% on any distributions made to a non-U.S. holder unless:

(1) a lower treaty rate applies and the non-U.S. holder furnishes an IRS Form W-8BEN or W-8BEN-E (or other applicable documentation) evidencing eligibility for that reduced treaty rate; or

(2) the non-U.S. holder furnishes an IRS Form W-8ECI (or other applicable documentation) claiming that the distribution is income effectively connected with the non-U.S. holder’s trade or business.

Distributions in excess of our current and accumulated earnings and profits will not be taxable to a non-U.S. holder to the extent that such distributions do not exceed the adjusted tax basis of the holder’s capital stock, but rather will reduce the adjusted tax basis of such stock. To the extent that such distributions exceed the non-U.S. holder’s adjusted tax basis in such capital stock, they generally will give rise to gain from the sale or exchange of such stock, the tax treatment of which is described below. However, such excess distributions may be treated as dividend income for certain non-U.S. holders. For withholding purposes, we expect to treat all distributions as made out of our current or accumulated earnings and profits. However, amounts withheld may be refundable if it is subsequently determined that the distribution was, in fact, in excess of our current and accumulated earnings and profits, provided that certain conditions are met.

Capital Gain Dividends and Distributions Attributable to a Sale or Exchange of United States Real Property Interests. Distributions to a non-U.S. holder that we properly designate as capital gain dividends, other

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than those arising from the disposition of a USRPI, generally should not be subject to U.S. federal income taxation, unless:

(1) the investment in our capital stock is treated as effectively connected with the conduct by the non-U.S. holder of a trade or business within the United States (and, if required by an applicable income tax treaty, the non-U.S. holder maintains a permanent establishment in the United States to which such dividends are attributable), in which case the non-U.S. holder will be subject to the same treatment as U.S. holders with respect to such gain, except that a non-U.S. holder that is a corporation may also be subject to a branch profits tax of up to 30%, as discussed above; or

(2) the non-U.S. holder is a nonresident alien individual who is present in the United States for 183 days or more during the taxable year and certain other conditions are met, in which case the non-U.S. holder will be subject to U.S. federal income tax at a rate of 30% on the non-U.S. holder’s capital gains (or such lower rate specified by an applicable income tax treaty), which may be offset by U.S. source capital losses of such non-U.S. holder (even though the individual is not considered a resident of the United States), provided the non-U.S. holder has timely filed U.S. federal income tax returns with respect to such losses.

Pursuant to the Foreign Investment in Real Property Tax Act, which is referred to as “FIRPTA,” distributions to a non-U.S. holder that are attributable to gain from sales or exchanges by us of USRPIs, whether or not designated as capital gain dividends, will cause the non-U.S. holder to be treated as recognizing such gain as income effectively connected with a U.S. trade or business. Non-U.S. holders generally would be taxed at the regular graduated rates applicable to U.S. holders, subject to any applicable alternative minimum tax and a special alternative minimum tax in the case of nonresident alien individuals. We also will be required to withhold and to remit to the IRS 21% of any distribution to non-U.S. holders attributable to gain from sales or exchanges by us of USRPIs. Distributions subject to FIRPTA may also be subject to a 30% branch profits tax in the hands of a non-U.S. holder that is a corporation. The amount withheld is creditable against the non-U.S. holder’s U.S. federal income tax liability. However, any distribution with respect to any class of stock that is “regularly traded,” as defined by applicable Treasury Regulations, on an established securities market located in the United States is not subject to FIRPTA, and therefore, not subject to the 21% U.S. withholding tax described above, if the non-U.S. holder did not own more than 10% of such class of stock at any time during the one-year period ending on the date of the distribution. Instead, such distributions generally will be treated as ordinary dividend distributions and subject to withholding in the manner described above with respect to ordinary dividends. In addition, distributions to certain non-U.S. publicly traded shareholders that meet certain record-keeping and other requirements (“qualified shareholders”) are exempt from FIRPTA, except to the extent owners of such qualified shareholders that are not also qualified shareholders own, actually or constructively, more than 10% of our capital stock. Furthermore, distributions to “qualified foreign pension funds” or entities all of the interests of which are held by “qualified foreign pension funds” are exempt from FIRPTA. Non-U.S. holders should consult their tax advisors regarding the application of these rules.

Retention of Net Capital Gains. Although the law is not clear on the matter, it appears that amounts we designate as retained net capital gains in respect of our capital stock should be treated with respect to non-U.S. holders as actual distributions of capital gain dividends. Under this approach, the non-U.S. holders may be able to offset as a credit against their U.S. federal income tax liability their proportionate share of the tax paid by us on such retained net capital gains and to receive from the IRS a refund to the extent their proportionate share of such tax paid by us exceeds their actual U.S. federal income tax liability. If we were to designate any portion of our net capital gain as retained net capital gain, non-U.S. holders should consult their tax advisors regarding the taxation of such retained net capital gain.

Sale of Our Capital Stock. Except as described below under “—Redemption or Repurchase by Us,” gain realized by a non-U.S. holder upon the sale, exchange or other taxable disposition of our capital stock generally will not be subject to U.S. federal income tax unless such stock constitutes a USRPI. In general, stock of a domestic corporation that constitutes a “United States real property holding corporation,” or USRPHC, will constitute a USRPI. We believe that we are a USRPHC. Our capital stock will not, however, constitute a USRPI so long as we are a “domestically controlled qualified investment entity.” A “domestically controlled qualified investment entity” includes a REIT in which at all times during a five-year testing period less than 50% in value of its stock is held directly or indirectly by non-United States persons, subject to certain rules. For purposes of determining whether a REIT is a “domestically controlled qualified investment entity,” a person who at all applicable times holds less than

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5% of a class of stock that is “regularly traded” is treated as a United States person unless the REIT has actual knowledge that such person is not a United States person. We believe, but cannot guarantee, that we are a “domestically controlled qualified investment entity.” Because our common stock is (and, we anticipate, will continue to be) publicly traded, no assurance can be given that we will continue to be a “domestically controlled qualified investment entity.”

Even if we do not qualify as a “domestically controlled qualified investment entity” at the time a non-U.S. holder sells our capital stock, gain realized from the sale or other taxable disposition by a non-U.S. holder of such capital stock would not be subject to U.S. federal income tax under FIRPTA as a sale of a USRPI if:

(1) such class of stock is “regularly traded,” as defined by applicable Treasury Regulations, on an established securities market such as the NYSE; and

(2) such non-U.S. holder owned, actually and constructively, 10% or less of such class of stock throughout the shorter of the five-year period ending on the date of the sale or other taxable disposition or the non-U.S. holder’s holding period.

In addition, dispositions of our capital stock by qualified shareholders are exempt from FIRPTA, except to the extent owners of such qualified shareholders that are not also qualified shareholders own, actually or constructively, more than 10% of our capital stock. Furthermore, dispositions of our capital stock by “qualified foreign pension funds” or entities all of the interests of which are held by “qualified foreign pension funds” are exempt from FIRPTA. Non-U.S. holders should consult their tax advisors regarding the application of these rules.

Notwithstanding the foregoing, gain from the sale, exchange or other taxable disposition of our capital stock not otherwise subject to FIRPTA will be taxable to a non-U.S. holder if either (a) the investment in our capital stock is treated as effectively connected with the conduct by the non-U.S. holder of a trade or business within the United States (and, if required by an applicable income tax treaty, the non-U.S. holder maintains a permanent establishment in the United States to which such gain is attributable), in which case the non-U.S. holder will be subject to the same treatment as U.S. holders with respect to such gain, except that a non-U.S. holder that is a corporation may also be subject to the 30% branch profits tax (or such lower rate as may be specified by an applicable income tax treaty) on such gain, as adjusted for certain items, or (b) the non-U.S. holder is a nonresident alien individual who is present in the United States for 183 days or more during the taxable year and certain other conditions are met, in which case the non-U.S. holder will be subject to a 30% tax on the non-U.S. holder’s capital gains (or such lower rate specified by an applicable income tax treaty), which may be offset by U.S. source capital losses of the non-U.S. holder (even though the individual is not considered a resident of the United States), provided the non-U.S. holder has timely filed U.S. federal income tax returns with respect to such losses. In addition, even if we are a domestically controlled qualified investment entity, upon disposition of our capital stock, a non-U.S. holder may be treated as having gain from the sale or other taxable disposition of a USRPI if the non-U.S. holder (1) disposes of such stock within a 30-day period preceding the ex-dividend date of a distribution, any portion of which, but for the disposition, would have been treated as gain from the sale or exchange of a USRPI and (2) acquires, or enters into a contract or option to acquire, or is deemed to acquire, other shares of that stock during the 61-day period beginning with the first day of the 30-day period described in clause (1), unless such class of stock is “regularly traded” and the non-U.S. holder did not own more than 10% of such class of  stock at any time during the one-year period ending on the date of the distribution described in clause (1).

If gain on the sale, exchange or other taxable disposition of our capital stock were subject to taxation under FIRPTA, the non-U.S. holder would be required to file a U.S. federal income tax return and would be subject to regular U.S. federal income tax with respect to such gain in the same manner as a taxable U.S. holder (subject to any applicable alternative minimum tax and a special alternative minimum tax in the case of nonresident alien individuals). In addition, if the sale, exchange or other taxable disposition of our capital stock were subject to taxation under FIRPTA, and if shares of the applicable class of our capital stock were not “regularly traded” on an established securities market, the purchaser of such capital stock generally would be required to withhold and remit to the IRS 15% of the purchase price.

Redemption or Repurchase by Us. A redemption or repurchase of shares of our capital stock will be treated under Section 302 of the Code as a distribution (and taxable as a dividend to the extent of our current and accumulated earnings and profits) unless the redemption or repurchase satisfies one of the tests set forth in Section

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302(b) of the Code and is therefore treated as a sale or exchange of the redeemed or repurchased shares. See “—Taxation of Taxable U.S. Holders of Our Capital Stock-Redemption or Repurchase by Us.” Qualified shareholders and their owners may be subject to different rules, and should consult their tax advisors regarding the application of such rules. If the redemption or repurchase of shares is treated as a distribution, the amount of the distribution will be measured by the amount of cash and the fair market value of any property received. See “—Taxation of Non-U.S. Holders of Our Capital Stock-Distributions Generally” above. If the redemption or repurchase of shares is not treated as a distribution, it will be treated as a taxable sale or exchange in the manner described above under “—Sale of Our Capital Stock.”

Taxation of Holders of Our Debt Securities or Our Operating Partnership’s Debt Securities

The following summary describes the material U.S. federal income tax consequences of acquiring, owning and disposing of our debt securities or our operating partnership’s debt securities. This discussion assumes the debt securities will be issued with less than a statutory de minimis amount of original issue discount for U.S. federal income tax purposes. In addition, this discussion is limited to persons purchasing the debt securities for cash at original issue and at their original “issue price” within the meaning of Section 1273 of the Code (i.e., the first price at which a substantial amount of the debt securities is sold to the public for cash).

U.S. Holders

Payments of Interest. Interest on a debt security generally will be taxable to a U.S. holder as ordinary income at the time such interest is received or accrued, in accordance with such U.S. holder’s method of accounting for U.S. federal income tax purposes.

Sale or Other Taxable Disposition. A U.S. holder will recognize gain or loss on the sale, exchange, redemption, retirement or other taxable disposition of a debt security. The amount of such gain or loss generally will be equal to the difference between the amount received for the debt security in cash or other property valued at fair market value (less amounts attributable to any accrued but unpaid interest, which will be taxable as interest to the extent not previously included in income) and the U.S. holder’s adjusted tax basis in the debt security. A U.S. holder’s adjusted tax basis in a debt security generally will be equal to the amount the U.S. holder paid for the debt security. Any gain or loss generally will be capital gain or loss, and will be long-term capital gain or loss if the U.S. holder has held the debt security for more than one year at the time of such sale or other taxable disposition. Otherwise, such gain or loss will be short-term capital gain or loss. Long-term capital gains recognized by certain non-corporate U.S. holders, including individuals, generally will be taxable at reduced rates. The deductibility of capital losses is subject to limitations.

Non-U.S. Holders

Payments of Interest. Interest paid on a debt security to a non-U.S. holder that is not effectively connected with the non-U.S. holder’s conduct of a trade or business within the United States generally will not be subject to U.S. federal income tax or withholding, provided that:

 

the non-U.S. holder does not, actually or constructively, own 10% or more of the total combined voting power of all classes of our voting stock, in the case of interest paid on our debt securities, or 10% or more of our operating partnership’s capital or profits, in the case of interest paid on our operating partnership’s debt securities;

 

the non-U.S. holder is not a controlled foreign corporation related to us, in the case of our debt securities, or our operating partnership, in the case of our operating partnership’s debt securities, through actual or constructive stock ownership; and

 

either (1) the non-U.S. holder certifies in a statement provided to the applicable withholding agent under penalties of perjury that it is not a United States person and provides its name and address; (2) a securities clearing organization, bank or other financial institution that holds customers’ securities in the ordinary course of its trade or business and holds the debt security on behalf of the non-U.S. holder certifies to the applicable withholding agent under penalties of perjury that it, or the financial institution between it and the non-U.S. holder, has received from the non-U.S. holder a statement under penalties of perjury that such

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holder is not a United States person and provides the applicable withholding agent with a copy of such statement; or (3) the non-U.S. holder holds its debt security directly through a “qualified intermediary” (within the meaning of the applicable Treasury Regulations) and certain conditions are satisfied.

If a non-U.S. holder does not satisfy the requirements above, such non-U.S. holder will be subject to withholding tax of 30%, subject to a reduction in or an exemption from withholding on such interest as a result of an applicable tax treaty. To claim such entitlement, the non-U.S. holder must provide the applicable withholding agent with a properly executed IRS Form W-8BEN or W-8BEN-E (or other applicable documentation) claiming a reduction in or exemption from withholding tax under the benefit of an income tax treaty between the United States and the country in which the non-U.S. holder resides or is established.

If interest paid to a non-U.S. holder is effectively connected with the non-U.S. holder’s conduct of a trade or business within the United States (and, if required by an applicable income tax treaty, the non-U.S. holder maintains a permanent establishment in the United States to which such interest is attributable), the non-U.S. holder will be exempt from the U.S. federal withholding tax described above. To claim the exemption, the non-U.S. holder must furnish to the applicable withholding agent a valid IRS Form W-8ECI, certifying that interest paid on a debt security is not subject to withholding tax because it is effectively connected with the conduct by the non-U.S. holder of a trade or business within the United States.

Any such effectively connected interest generally will be subject to U.S. federal income tax at the regular graduated rates. A non-U.S. holder that is a corporation may also be subject to a branch profits tax at a rate of 30% (or such lower rate specified by an applicable income tax treaty) on such effectively connected interest, as adjusted for certain items.

The certifications described above must be provided to the applicable withholding agent prior to the payment of interest and must be updated periodically. Non-U.S. holders that do not timely provide the applicable withholding agent with the required certification, but that qualify for a reduced rate under an applicable income tax treaty, may obtain a refund of any excess amounts withheld by timely filing an appropriate claim for refund with the IRS. Non-U.S. holders should consult their tax advisors regarding their entitlement to benefits under any applicable income tax treaty.

Sale or Other Taxable Disposition. A non-U.S. holder will not be subject to U.S. federal income tax on any gain realized upon the sale, exchange, redemption, retirement or other taxable disposition of a debt security (such amount excludes any amount allocable to accrued and unpaid interest, which generally will be treated as interest and may be subject to the rules discussed above in “—Taxation of Holders of Our Debt Securities or Our Operating Partnership’s Debt Securities-Non-U.S. Holders-Payments of Interest”) unless:

 

the gain is effectively connected with the non-U.S. holder’s conduct of a trade or business within the United States (and, if required by an applicable income tax treaty, the non-U.S. holder maintains a permanent establishment in the United States to which such gain is attributable); or

 

the non-U.S. holder is a nonresident alien individual present in the United States for 183 days or more during the taxable year of the disposition and certain other requirements are met.

Gain described in the first bullet point above generally will be subject to U.S. federal income tax on a net income basis at the regular graduated rates. A non-U.S. holder that is a corporation also may be subject to a branch profits tax at a rate of 30% (or such lower rate specified by an applicable income tax treaty) on such effectively connected gain, as adjusted for certain items.

Gain described in the second bullet point above will be subject to U.S. federal income tax at a rate of 30% (or such lower rate specified by an applicable income tax treaty), which may be offset by U.S. source capital losses of the non-U.S. holder (even though the individual is not considered a resident of the United States), provided the non-U.S. holder has timely filed U.S. federal income tax returns with respect to such losses.

Non-U.S. holders should consult their tax advisors regarding any applicable income tax treaties that may provide for different rules.

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Information Reporting and Backup Withholding

U.S. Holders. A U.S. holder may be subject to information reporting and backup withholding when such holder receives payments on our capital stock or debt securities or our operating partnership’s debt securities or proceeds from the sale or other taxable disposition of such stock or debt securities (including a redemption or retirement of a debt security). Certain U.S. holders are exempt from backup withholding, including corporations and certain tax-exempt organizations. A U.S. holder will be subject to backup withholding if such holder is not otherwise exempt and:

 

the holder fails to furnish the holder’s taxpayer identification number, which for an individual is ordinarily his or her social security number;

 

the holder furnishes an incorrect taxpayer identification number;

 

the applicable withholding agent is notified by the IRS that the holder previously failed to properly report payments of interest or dividends; or

 

the holder fails to certify under penalties of perjury that the holder has furnished a correct taxpayer identification number and that the IRS has not notified the holder that the holder is subject to backup withholding.

Backup withholding is not an additional tax. Any amounts withheld under the backup withholding rules may be allowed as a refund or a credit against a U.S. holder’s U.S. federal income tax liability, provided the required information is timely furnished to the IRS. U.S. holders should consult their tax advisors regarding their qualification for an exemption from backup withholding and the procedures for obtaining such an exemption.

Non-U.S. Holders. Payments of dividends on our capital stock or interest on our debt securities or our operating partnership’s debt securities generally will not be subject to backup withholding, provided the applicable withholding agent does not have actual knowledge or reason to know the holder is a United States person and the holder either certifies its non-U.S. status, such as by furnishing a valid IRS Form W-8BEN, W-8BEN-E or W-8ECI, or otherwise establishes an exemption. However, information returns are required to be filed with the IRS in connection with any dividends on our capital stock or interest on our debt securities or our operating partnership’s debt securities paid to the non-U.S. holder, regardless of whether any tax was actually withheld. In addition, proceeds of the sale or other taxable disposition of such stock or debt securities (including a retirement or redemption of a debt security) within the United States or conducted through certain U.S.-related brokers generally will not be subject to backup withholding or information reporting, if the applicable withholding agent receives the certification described above and does not have actual knowledge or reason to know that such holder is a United States person, or the holder otherwise establishes an exemption. Proceeds of a disposition of such stock or debt securities conducted through a non-U.S. office of a non-U.S. broker generally will not be subject to backup withholding or information reporting.

Copies of information returns that are filed with the IRS may also be made available under the provisions of an applicable treaty or agreement to the tax authorities of the country in which the non-U.S. holder resides or is established.

Backup withholding is not an additional tax. Any amounts withheld under the backup withholding rules may be allowed as a refund or a credit against a non-U.S. holder’s U.S. federal income tax liability, provided the required information is timely furnished to the IRS.

Medicare Contribution Tax on Unearned Income

Certain U.S. holders that are individuals, estates or trusts are required to pay an additional 3.8% tax on, among other things, dividends on stock, interest on debt obligations and capital gains from the sale or other disposition of stock or debt obligations, subject to certain limitations. U.S. holders should consult their tax advisors regarding the effect, if any, of these rules on their ownership and disposition of our capital stock or debt securities or our operating partnership’s debt securities.

24


 

Additional Withholding Tax on Payments Made to Foreign Accounts

Withholding taxes may be imposed under Sections 1471 to 1474 of the Code (such sections commonly referred to as the Foreign Account Tax Compliance Act (“FATCA”)) on certain types of payments made to non-U.S. financial institutions and certain other non-U.S. entities. Specifically, a 30% withholding tax may be imposed on dividends on our capital stock, interest on our debt securities or our operating partnership’s debt securities, or (subject to the proposed Treasury Regulations discussed below) gross proceeds from the sale or other disposition of our capital stock or debt securities or our operating partnership’s debt securities, in each case paid to a “foreign financial institution” or a “non-financial foreign entity” (each as defined in the Code), unless (1) the foreign financial institution undertakes certain diligence and reporting obligations, (2) the non-financial foreign entity either certifies it does not have any “substantial United States owners” (as defined in the Code) or furnishes identifying information regarding each substantial United States owner, or (3) the foreign financial institution or non-financial foreign entity otherwise qualifies for an exemption from these rules. If the payee is a foreign financial institution and is subject to the diligence and reporting requirements in clause (1) above, it must enter into an agreement with the U.S. Department of the Treasury requiring, among other things, that it undertake to identify accounts held by certain “specified United States persons” or “United States owned foreign entities” (each as defined in the Code), annually report certain information about such accounts, and withhold 30% on certain payments to non-compliant foreign financial institutions and certain other account holders. Foreign financial institutions located in jurisdictions that have an intergovernmental agreement with the United States governing FATCA may be subject to different rules.

Under the applicable Treasury Regulations and administrative guidance, withholding under FATCA generally applies to payments of dividends on our capital stock or interest on our debt securities or our operating partnership’s debt securities. While withholding under FATCA would have applied also to payments of gross proceeds from the sale or other disposition of stock or debt securities on or after January 1, 2019, proposed Treasury Regulations eliminate FATCA withholding on payments of gross proceeds entirely. Taxpayers generally may rely on these proposed Treasury Regulations until final Treasury Regulations are issued. Because we may not know the extent to which a distribution is a dividend for U.S. federal income tax purposes at the time it is made, for purposes of these withholding rules we may treat the entire distribution as a dividend.

Prospective investors should consult their tax advisors regarding the potential application of withholding under FATCA to their investment in our capital stock or debt securities or our operating partnership’s debt securities.

Other Tax Consequences

State, local and non-U.S. income tax laws may differ substantially from the corresponding U.S. federal income tax laws, and this discussion does not purport to describe any aspect of the tax laws of any state, local or non-U.S. jurisdiction, or any U.S. federal tax other than income tax. You should consult your tax advisor regarding the effect of state, local and non-U.S. tax laws with respect to our tax treatment as a REIT and on an investment in our capital stock or debt securities or our operating partnership’s debt securities.

25

v3.20.1
Related Party Transactions - Property Management and Servicing Agreement (Details) - USD ($)
$ in Thousands
3 Months Ended
May 20, 2014
Mar. 31, 2020
Mar. 31, 2019
Related Party Transaction [Line Items]      
Related party fee income   $ 250 $ 6,927
Affiliated Entity | Property Management      
Related Party Transaction [Line Items]      
Annual management fees rate 0.25%    
Related party fee income     1,500
Affiliated Entity | Special Servicing Fees      
Related Party Transaction [Line Items]      
Annual management fees rate 0.75%    
Related party fee income     $ 400
v3.20.1
Stockholders' Equity and Partners' Capital - Narrative (Details) - USD ($)
3 Months Ended 41 Months Ended
Mar. 31, 2020
Mar. 31, 2019
Mar. 31, 2020
Dec. 31, 2019
Class Of Stock [Line Items]        
Shares withheld for taxes 44,500      
Shares withheld for taxes, value $ 2,300,000      
Gross proceeds from issuance of common stock $ 17,677,000 $ 32,379,000    
Preferred stock, shares outstanding 6,900,000   6,900,000 6,900,000
Dividend rate 6.00%      
Liquidation value (in USD per share) $ 25.00   $ 25.00  
Dividend rate, quarterly basis (in USD per share) 0.375      
Dividend rate, annual basis (in USD per share) $ 1.50      
ATM Program November2016        
Class Of Stock [Line Items]        
Common stock authorized $ 500,000,000.0      
Issuance of common shares 400,000   5,600,000  
Gross proceeds from issuance of common stock $ 17,900,000      
Gross proceeds capacity remaining $ 246,300,000   $ 246,300,000  
ATM Program November2016 | Weighted Average        
Class Of Stock [Line Items]        
Share issued during the period (in dollars per share) $ 49.30      
ATM Program, Forward Sales        
Class Of Stock [Line Items]        
Issuance of common shares 400,000   3,800,000  
Number of open forward sales agreements 0   0  
v3.20.1
Debt - Revolving Credit Facilities - Narrative (Details) - Credit Facility 2019 - Revolving credit facilities - Unsecured Debt
$ in Thousands
4 Months Ended 11 Months Ended
Jan. 14, 2019
USD ($)
ExtensionOption
Apr. 30, 2019
Mar. 31, 2020
USD ($)
Dec. 31, 2019
USD ($)
Line of Credit Facility [Line Items]        
Maximum borrowing capacity $ 800,000      
Number of extension options | ExtensionOption 2      
Term of extension option 6 months      
Increased borrowing capacity under accordion feature $ 400,000      
Credit facility maturity date Mar. 31, 2023      
Facility fee percentage   0.25% 0.20%  
Line of credit facility remaining borrowing capacity     $ 300,000  
Letters of credit outstanding     0  
Deferred Costs and Other Assets        
Line of Credit Facility [Line Items]        
Unamortized deferred financing costs     $ 3,400 $ 3,700
LIBOR        
Line of Credit Facility [Line Items]        
Basis spread on variable rate   1.10% 0.90%  
v3.20.1
Consolidated Balance Sheets - USD ($)
$ in Thousands
Mar. 31, 2020
Dec. 31, 2019
Real estate investments:    
Land and improvements $ 1,929,589 $ 1,910,287
Buildings and improvements 3,953,335 3,840,220
Total real estate investments 5,882,924 5,750,507
Less: accumulated depreciation (736,394) (717,097)
Net real estate held for investment 5,146,530 5,033,410
Loans receivable, net 30,849 34,465
Intangible lease assets, net 381,398 385,079
Real estate assets under direct financing leases, net 7,300 14,465
Real estate assets held for sale, net 3,126 1,144
Net investments 5,569,203 5,468,563
Cash and cash equivalents 216,692 14,492
Deferred costs and other assets, net 123,674 124,006
Goodwill 225,600 225,600
Total assets 6,135,169 5,832,661
Liabilities:    
Revolving credit facilities 500,000 116,500
Senior Unsecured Notes, net 1,484,473 1,484,066
Mortgages and notes payable, net 215,186 216,049
Convertible Notes, net 337,921 336,402
Total debt, net 2,537,580 2,153,017
Intangible lease liabilities, net 124,097 127,335
Accounts payable, accrued expenses and other liabilities 124,084 139,060
Total liabilities 2,785,761 2,419,412
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, 2020 and December 31, 2019 166,177 166,177
Common stock, $0.05 par value, 175,000,000 shares authorized: 102,942,162 and 102,476,152 shares issued and outstanding at March 31, 2020 and December 31, 2019, respectively 5,147 5,124
Capital in excess of common stock par value 5,707,271 5,686,247
Accumulated deficit (2,518,428) (2,432,838)
Accumulated other comprehensive loss (10,759) (11,461)
Total stockholders’ equity 3,349,408 3,413,249
Partnership units    
Total liabilities and stockholders’ equity/partners' capital 6,135,169 5,832,661
Spirit Realty, L.P.    
Real estate investments:    
Land and improvements 1,929,589 1,910,287
Buildings and improvements 3,953,335 3,840,220
Total real estate investments 5,882,924 5,750,507
Less: accumulated depreciation (736,394) (717,097)
Net real estate held for investment 5,146,530 5,033,410
Loans receivable, net 30,849 34,465
Intangible lease assets, net 381,398 385,079
Real estate assets under direct financing leases, net 7,300 14,465
Real estate assets held for sale, net 3,126 1,144
Net investments 5,569,203 5,468,563
Cash and cash equivalents 216,692 14,492
Deferred costs and other assets, net 123,674 124,006
Goodwill 225,600 225,600
Total assets 6,135,169 5,832,661
Liabilities:    
Revolving credit facilities 500,000 116,500
Senior Unsecured Notes, net 1,484,473 1,484,066
Notes payable to Spirit Realty Capital, Inc., net 337,921 336,402
Mortgages and notes payable, net 215,186 216,049
Total debt, net 2,537,580 2,153,017
Intangible lease liabilities, net 124,097 127,335
Accounts payable, accrued expenses and other liabilities 124,084 139,060
Total liabilities 2,785,761 2,419,412
Commitments and contingencies (see Note 6)
Partnership units    
General partner's capital: 797,644 units issued and outstanding as of both March 31, 2020 and December 31, 2019 21,752 22,389
Limited partners' preferred capital: 6,900,000 units issued and outstanding as of both March 31, 2020 and December 31, 2019 166,177 166,177
Limited partners' capital: 102,144,518 and 101,678,508 units issued and outstanding as of March 31, 2020 and December 31, 2019, respectively 3,161,479 3,224,683
Total partners' capital 3,349,408 3,413,249
Total liabilities and stockholders’ equity/partners' capital $ 6,135,169 $ 5,832,661
v3.20.1
Debt - Convertible Notes (Details)
1 Months Ended 3 Months Ended
May 31, 2014
USD ($)
Mar. 31, 2020
USD ($)
$ / shares
Dec. 31, 2019
USD ($)
Debt Instrument [Line Items]      
Unamortized deferred financing costs   $ 16,693,000 $ 17,549,000
Convertible Senior Notes      
Debt Instrument [Line Items]      
Stated interest rate   3.75%  
Unamortized discount   $ 5,400,000 6,500,000
Unamortized deferred financing costs   1,700,000 2,100,000
Equity component of the conversion feature   $ 55,100,000 $ 55,100,000
Convertible Senior Notes | Convertible Senior Notes Due 2019      
Debt Instrument [Line Items]      
Aggregate principal amount of debt $ 402,500,000    
Stated interest rate 2.875%    
Debt instrument, maturity date May 15, 2019    
Convertible Senior Notes | Convertible Senior Notes Due 2021      
Debt Instrument [Line Items]      
Aggregate principal amount of debt $ 345,000,000.0    
Stated interest rate 3.75%    
Debt instrument, maturity date May 15, 2021    
Debt conversion ratio   17.4458  
Anti-dilutive cash dividends, exceeding (in USD per share) | $ / shares   $ 0.73026  
v3.20.1
Consolidated Statements of Stockholders' Equity - USD ($)
$ in Thousands
Total
Preferred Stock
Common Stock
Capital in Excess of Par Value
Accumulated Deficit
AOCL
Beginning balance, value at Dec. 31, 2018 $ 2,801,749 $ 166,177 $ 4,289 $ 4,995,697 $ (2,357,255) $ (7,159)
Preferred shares outstanding, beginning balance at Dec. 31, 2018   6,900,000        
Common shares outstanding, beginning balance at Dec. 31, 2018     85,787,355      
Increase (Decrease) in Stockholders' Equity [Roll Forward]            
Net (loss) income 43,578       43,578  
Dividends declared on preferred stock (2,588)       (2,588)  
Net (loss) income attributable to common stockholders/after preferred distributions 40,990       40,990  
Other comprehensive income (loss) (5,021)         (5,021)
Dividends declared on common stock (54,254)       (54,254)  
Tax withholdings related to net stock settlements (704)   $ (1)   (703)  
Tax withholdings related to net stock settlements (in shares)     (17,800)      
Issuance of stock 32,686   $ 45 32,641    
Issuance of stock (in shares)     893,526      
Other (79)     (79)    
Stock-based compensation, net 3,269   $ 8 3,570 (309)  
Stock-based compensation, net (in shares)     148,705      
Ending balance, value at Mar. 31, 2019 2,818,636 $ 166,177 $ 4,341 5,031,829 (2,371,531) (12,180)
Preferred shares outstanding, ending balance at Mar. 31, 2019   6,900,000        
Common shares outstanding, ending balance at Mar. 31, 2019     86,811,786      
Beginning balance, value at Dec. 31, 2019 $ 3,413,249 $ 166,177 $ 5,124 5,686,247 (2,432,838) (11,461)
Preferred shares outstanding, beginning balance at Dec. 31, 2019 6,900,000 6,900,000        
Common shares outstanding, beginning balance at Dec. 31, 2019 102,476,152   102,476,152      
Increase (Decrease) in Stockholders' Equity [Roll Forward]            
Net (loss) income $ (15,847)       (15,847)  
Dividends declared on preferred stock (2,588)       (2,588)  
Net (loss) income attributable to common stockholders/after preferred distributions (18,435)       (18,435)  
Other comprehensive income (loss) 702         702
Dividends declared on common stock (64,338)       (64,338)  
Tax withholdings related to net stock settlements $ (2,349)   $ (2)   (2,347)  
Tax withholdings related to net stock settlements (in shares) (44,500)   (44,488)      
Issuance of stock $ 17,598   $ 18 17,580    
Issuance of stock (in shares)     362,481      
Stock-based compensation, net 2,981   $ 7 3,444 (470)  
Stock-based compensation, net (in shares)     148,017      
Ending balance, value at Mar. 31, 2020 $ 3,349,408 $ 166,177 $ 5,147 $ 5,707,271 $ (2,518,428) $ (10,759)
Preferred shares outstanding, ending balance at Mar. 31, 2020 6,900,000 6,900,000        
Common shares outstanding, ending balance at Mar. 31, 2020 102,942,162   102,942,162      
v3.20.1
Stockholders' Equity and Partners' Capital (Tables)
3 Months Ended
Mar. 31, 2020
Equity [Abstract]  
Summary of Dividends Declared

For the three months ended March 31, 2020, the Company's Board of Directors declared the following dividends:

Declaration Date

 

Dividend Per Share

 

 

Record Date

 

Total Amount

(in thousands)

 

 

Payment Date

Common Stock

 

 

 

 

 

 

 

 

 

 

 

 

February 27, 2020

 

$

0.625

 

 

March 31, 2020

 

$

64,338

 

 

April 15, 2020

Preferred Stock

 

 

 

 

 

 

 

 

 

 

 

 

February 27, 2020

 

$

0.375

 

 

March 13, 2020

 

$

2,588

 

 

March 31, 2020

v3.20.1
Summary of Significant Accounting Policies (Policies)
3 Months Ended
Mar. 31, 2020
Accounting Policies [Abstract]  
Basis of Accounting

The accompanying consolidated financial statements of the Company and the Operating Partnership have been prepared pursuant to the rules and regulations of the SEC. 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, 2019.

Consolidation

The consolidated financial statements of the Company include the accounts of the Corporation and its wholly-owned subsidiaries. The consolidated financial statements of the Operating Partnership include the accounts of the Operating Partnership and its wholly-owned subsidiaries. All significant intercompany balances and transactions have been eliminated in consolidation. All expenses incurred by the Company have been allocated to the Operating Partnership in accordance with the Operating Partnership's first amended and restated agreement of limited partnership, which management determined to be a reasonable method of allocation. Therefore, expenses incurred would not be materially different if the Operating Partnership had operated as an unaffiliated entity.

These consolidated 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. As of March 31, 2020 and December 31, 2019, net assets totaling $0.35 billion and $0.38 billion, respectively, were held, and net liabilities totaling $0.22 and $0.23 billion, respectively, were owed by these encumbered special purpose entities and are included in the accompanying consolidated balance sheets.

Use of Estimates

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

Segment Reporting

The Company views its operations as one segment, which consists of net leasing operations. The Company has no other reportable segments.

Revenue Recognition

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. The Company does not include options to extend, terminate or purchase in its evaluation for lease classification purposes or for recognizing rental income unless the Company is reasonably certain the tenant will exercise the option.       

Another component of lease classification that requires judgment is the residual value of the property at the end of the lease term. For acquisitions, the Company assumes a value that is equal to the tangible value of the property at the date of the assessment. For lease modifications, the Company generally uses sales comparables or a direct capitalization approach to determine fair value.

The Company’s leases generally provide for rent escalations throughout the term of the lease. For leases with fixed rent escalators, rental income is recognized on a straight-line basis to produce a constant periodic rent over the term of the lease. Accordingly, accrued rental revenue, calculated as the aggregate difference between the rental revenue recognized on a straight-line basis and scheduled rents, represents unbilled rent receivables that the Company will receive only if the tenants make all rent payments required through the expiration of the initial term of the leases.

For leases with contingent rent escalators, rental income typically increases at a multiple of any increase in the CPI over a specified period and may adjust over a one-year period or over multiple-year periods. Because of the volatility and uncertainty with respect to 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 at each rent adjustment date during the entire term of these leases, increases in rental revenue from leases with this type of escalator 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 the Company recognizes as rental income when the change in the factor on which the contingent lease payment is based actually occurs.

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 records a provision for losses against 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 expenses and certain other recoverable expenses, which are non-lease components. The Company has 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 as revenue in the period in which the related expenses are incurred, with the related expenses included in property costs (including reimbursable) on the Company’s 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 carried net of the allowances for amounts that are not probable of collection.

Rental Income: Intangible Amortization

Initial direct costs associated with the origination of a lease are deferred and amortized over the related lease term as an adjustment to rental revenue. In-place lease intangibles are amortized on a straight-line basis over the remaining term of the related lease and included in depreciation and amortization expense. Above-market lease intangibles are amortized over the remaining term of the respective leases as a decrease in rental revenue, and below-market lease intangibles are amortized as an increase to rental revenue over the remaining term of the respective leases. The remaining term includes the initial term of the lease but may also include the renewal periods if the Company believes it is reasonably certain the tenant will exercise the renewal option. If the Company subsequently determines it is reasonably certain that the tenant will

not exercise the renewal option, the unamortized portion of any related lease intangible is accelerated over the remaining initial term of the lease. If the Company believes the intangible balance is no longer recoverable, the unamortized portion of any related lease intangible is immediately recognized in impairments in the Company’s consolidated statements of operations.

Cash, Cash Equivalents and Restricted Cash

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 investments. Restricted cash is classified within deferred costs and other assets, net in the accompanying consolidated balance sheets. Cash, cash equivalents and restricted cash consisted of the following (in thousands):

 

 

March 31,

2020

 

 

December 31,

2019

 

 

March 31,

2019

 

Cash and cash equivalents

 

$

216,692

 

 

$

14,492

 

 

$

9,376

 

Restricted cash:

 

 

 

 

 

 

 

 

 

 

 

 

Collateral deposits (1)

 

 

381

 

 

 

347

 

 

 

401

 

Tenant improvements, repairs and leasing commissions (2)

 

 

11,324

 

 

 

10,877

 

 

 

9,539

 

Master Trust Release (3)

 

 

 

 

 

 

 

 

7,413

 

Other (4)

 

 

 

 

 

307

 

 

 

1,163

 

Total cash, cash equivalents and restricted cash

 

$

228,397

 

 

$

26,023

 

 

$

27,892

 

(1) Funds held in lender-controlled accounts generally used to meet future debt service or certain property operating expenses.

(2)

Deposits held as additional collateral support by lenders to fund improvements, repairs and leasing commissions incurred to secure a new tenant.

(3)

Proceeds from the sale of assets pledged as collateral under the Master Trust 2013 notes, which were held on deposit until a qualifying substitution was made or the funds were applied as prepayment of principal. The Master Trust 2013 notes were extinguished in June 2019.

(4)

Funds held in lender-controlled accounts released after scheduled debt service requirements are met.

Allowance for Doubtful Accounts

Allowance for Doubtful Accounts

The Company reviews its rent and other tenant receivables for collectability on a regular basis, taking into consideration changes in factors such as the tenant’s payment history, the financial condition of the tenant, business conditions in the industry in which the tenant operates, and economic conditions in the area in which the tenant operates. If the collectability of a receivable with respect to any tenant is in doubt, a provision for uncollectible amounts will be established or a direct write-off of the specific receivable will be made. The Company provided for reserves for uncollectible amounts totaling $1.8 million and $3.8 million at March 31, 2020 and December 31, 2019, respectively, against accounts receivable balances of $8.5 million and $11.4 million, respectively. Receivables are recorded within deferred cost 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 receivable balances related to the straight-line method of reporting rental revenue, the collectability is generally assessed in conjunction with the evaluation of rental income as described above. The Company has a reserve for losses of $4.4 million and $0.4 million at March 31, 2020 and December 31, 2019, respectively, against straight-line rent receivables of $89.1 million and $84.0 million, respectively. These receivables are recorded within deferred costs and other assets, net in the accompanying consolidated balance sheets.

Goodwill

Goodwill

Goodwill arises from business combinations and represents 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. In January 2017, the FASB issued ASU 2017-04, Simplifying the Test for Goodwill Impairment. ASU 2017-04 simplifies the accounting for goodwill impairment by eliminating the Step 2 requirement to calculate the implied fair value of goodwill. Instead, an entity should perform its annual or interim goodwill impairment test by comparing the fair value of each reporting unit with its carrying amount. An entity should recognize an impairment charge for the amount by which the carrying amount exceeds the reporting unit’s fair value. An entity still has the option to perform the qualitative assessment for a reporting unit to determine if the quantitative impairment test is necessary. The Company adopted ASU 2017-04 effective January 1, 2020. Goodwill is tested for impairment at the reporting unit level on an annual basis and 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. No impairment was recorded for the periods presented.

Income Taxes

Income Taxes

The Corporation has elected to be taxed as a REIT under the Code. As a REIT, the Corporation 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 the Company’s assets, the amounts distributed to the Corporation’s stockholders and the ownership of Corporation stock. Management believes the Corporation 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 Corporation 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 local taxes. The rights and obligations of the Asset Management Agreement were transferred to SRAM, a wholly-owned taxable REIT subsidiary of Spirit, on April 1, 2019, which was subsequently terminated and simultaneously replaced by the Interim Management Agreement between SRAM and SMTA, effective as of September 20, 2019. Accordingly, commencing from April 1, 2019, all asset management fees, including the termination fee income, were subject to income tax.  

The Operating Partnership is a partnership for federal income tax purposes. Partnerships are pass-through entities and are not subject to U.S. federal income taxes, therefore no provision has been made for federal income taxes in the accompanying financial statements. Although most states and cities where the Operating Partnership operates follow the U.S. federal income tax treatment, there are certain jurisdictions such as Texas, Tennessee and Ohio that impose income or franchise taxes on a partnership.

Franchise taxes are included in general and administrative expenses on the accompanying consolidated statements of operations.

New Accounting Pronouncements

New Accounting Pronouncements  

In June 2016, the FASB issued ASU 2016-13, Measurement of Credit Losses on Financial Instruments, which requires more timely recognition of credit losses associated with financial assets. ASU 2016-13 requires financial assets (or a group of financial assets) measured at an amortized cost basis to be presented at the net amount expected to be collected. ASU 2016-13 is effective for fiscal years beginning after December 15, 2019, including interim periods within those fiscal years, and as such, the Company adopted ASU 2016-13 effective January 1, 2020. Per the subsequently issued ASU 2018-19, receivables arising from operating leases are not within the scope of ASU 2016-13. As such, the Company reviewed receivables within the scope of ASU 2016-13 totaling $40.3 million, which were comprised of loans receivable and real estate assets held under direct financing lease. The Company determined the key credit quality indicator was the credit rating of the borrower, coupled with remaining time to maturity. As a result, the adoption of the new guidance resulted in the recognition of a loss of $0.3 million on January 1, 2020, which is recorded in impairments on the accompanying consolidated statement of operations.

In April 2020, the FASB released a Staff Q&A regarding the accounting for lease concessions related to the effects of the COVID-19 pandemic. The FASB noted that the underlying premise in requiring a modified lease to be accounted for as if it were a new lease under ASC 842 is that the modified terms and conditions affect the economics of the lease for the remainder of the lease term. As such, the FASB staff clarified that it would be acceptable for entities to make an election to account for lease concessions related to the effects of the COVID-19 pandemic consistent with how those concessions would be accounted for under ASC 842 as though enforceable rights and obligations for those concessions existed (regardless of whether those enforceable rights and obligations for the concessions explicitly exist in the contract). The Company expects to make this election and account for rent deferrals by increasing the straight-line rent receivables as receivables accrue and continue to recognize income during the deferral period. Lease concessions other than rent deferrals will continue to be evaluated to determine if a substantive change to the consideration in the original contract lease contract has occurred and should be accounted for as a lease modification. Management will continue to evaluate any amounts recognized for collectability, regardless of whether accounted for as a lease modification or not, and will record a provision for losses against rental income for amounts that are not probable of collection.

v3.20.1
Organization - Narrative (Details) - Operating Partnership
3 Months Ended
Mar. 31, 2020
Subsidiary of Limited Liability Company or Limited Partnership [Line Items]  
General partner ownership of operating partnership 1.00%
Limited partner ownership of operating partnership 99.00%
v3.20.1
Investments - Summary of Impairment and Credit Losses Recognized (Details) - USD ($)
$ in Thousands
3 Months Ended
Mar. 31, 2020
Mar. 31, 2019
Real Estate [Abstract]    
Real estate and intangible asset impairment $ 40,164 $ 3,692
Allowance for credit losses on direct financing leases 304 0
Allowance for credit losses on loans receivable 306 0
Total impairment loss $ 40,774 $ 3,692
v3.20.1
Summary of Significant Accounting Policies - Narrative (Details)
3 Months Ended
Jan. 01, 2020
USD ($)
Mar. 31, 2020
USD ($)
segment
Dec. 31, 2019
USD ($)
Summary Of Significant Accounting Policies [Line Items]      
Net assets   $ 6,135,169,000 $ 5,832,661,000
Net liabilities   $ 2,785,761,000 2,419,412,000
Number of segments | segment   1  
Rent escalators adjustment period   1 year  
Reserves for uncollectible amounts   $ 1,800,000 3,800,000
Accounts receivable   8,500,000 11,400,000
Reserve for losses   4,400,000 400,000
Deferred rental revenue receivables   89,100,000 84,000,000.0
Goodwill impairment   0  
Provision for income taxes   0  
Accounting Standards Update 2016-13      
Summary Of Significant Accounting Policies [Line Items]      
Recognition of loss due to adoption of new guidance $ 300,000    
Loans receivable and real estate assets held under direct financing lease $ 40,300,000    
Special Purpose Entity      
Summary Of Significant Accounting Policies [Line Items]      
Net assets   350,000,000 380,000,000
Net liabilities   $ 220,000,000 $ 230,000,000
v3.20.1
Investments - Summary of Owned Real Estate Activity (Footnote) (Details) - USD ($)
$ in Thousands
3 Months Ended
Mar. 31, 2020
Mar. 31, 2019
Dec. 31, 2019
Real Estate [Line Items]      
Revenue producing capitalized expenditures $ 7,600    
Capitalized maintenance expenditures 1,600    
Impairments on owned real estate 40,164 $ 3,692  
Allowance for credit losses on direct financing leases 304 $ 0  
Operating lease held in use land and buildings, net 5,146,530    
Intangible lease assets, net 381,398   $ 385,079
Real estate assets under direct financing leases, net 7,300   14,465
Real estate assets held for sale, net 3,126   1,144
Intangible lease liabilities, net (124,097)   $ (127,335)
Net balance 5,414,257    
Held-in-use      
Real Estate [Line Items]      
Gain on disposal of assets for properties 600    
Held-for-sale      
Real Estate [Line Items]      
Gain on disposal of assets for properties $ 100    
v3.20.1
Incentive Award Plan
3 Months Ended
Mar. 31, 2020
Compensation Related Costs [Abstract]  
Incentive Award Plan

NOTE 9. INCENTIVE AWARD PLAN

Restricted Shares of Common Stock

During the three months ended March 31, 2020, the Company granted 116 thousand restricted shares under the Amended Incentive Award Plan to certain executive officers and employees. The Company recorded $5.7 million in deferred compensation associated with these grants. Deferred compensation for restricted shares will be recognized in expense over the requisite service period. As of March 31, 2020, there were approximately 334 thousand unvested restricted shares outstanding.

Market-Based Awards

During the three months ended March 31, 2020, the Board of Directors, or committee thereof, approved target grants of 88 thousand market-based awards to executive officers of the Company. The performance period of these grants runs primarily through December 31, 2022. Potential shares of the Corporation’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% and 300%. Grant date fair value of the market-based share awards was calculated using the Monte Carlo simulation model, which incorporated stock price volatility 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 were expected volatility of the Company of 25.2% and expected volatility of the Company's peers, ranging from 18.1% to 27.3%, with an average volatility of 21.7% and a risk-free interest rate of 1.07%. The fair value of the market-based award per share was $67.30 as of the grant date. Stock-based compensation expense associated with unvested market-based share awards is recognized on a straight-line basis over the minimum required service period, which is generally three years.

Approximately $2.8 million and $2.7 million in dividend rights have been accrued as of March 31, 2020 and December 31, 2019, respectively. For outstanding non-vested awards at March 31, 2020, 0.4 million shares would have been released based on the Corporation’s TSR relative to the specified peer groups through that date.

Stock-based Compensation Expense

For the three months ended March 31, 2020 and 2019, the Company recognized $3.5 million and $3.6 million, respectively, in stock-based compensation expense, which is included in general and administrative expenses in the accompanying consolidated statements of operations. As of March 31, 2020, the remaining unamortized stock-based compensation expense totaled $20.6 million, comprised of $10.3 million related to both restricted stock awards and market-based awards. As of December 31, 2019, the unamortized stock-based compensation expense totaled $12.6 million, comprised of $6.6 million related to restricted stock awards and $6.0 million related to market-based awards. Amortization is recognized on a straight-line basis over the service period of each applicable award.

v3.20.1
Stockholders' Equity and Partners' Capital
3 Months Ended
Mar. 31, 2020
Equity [Abstract]  
Stockholders' Equity and Partners' Capital

NOTE 5. STOCKHOLDERS’ EQUITY AND PARTNERS' CAPITAL

Common Stock

During the three months ended March 31, 2020, portions of awards of restricted common stock and market-based share awards granted to certain of the Company's officers and other employees vested. The vesting of these awards, granted pursuant to the Amended Incentive Award Plan, resulted in federal and state income tax liabilities for the recipients. As permitted by the terms of the Amended Incentive Award Plan and the award grants, certain executive officers and employees elected to surrender 44.5 thousand shares of common stock valued at $2.3 million, solely to pay the associated statutory tax withholdings during the three months ended March 31, 2020.               

In November 2016, the Board of Directors approved a $500 million ATM Program. The agreement provides for the offer and sale of shares of the Corporation’s common stock having an aggregate gross sales price of up to $500.0 million through the agents, as its sales agents or, if applicable, as forward sellers for forward purchasers, or directly to the agents acting as principals. The Company may sell shares in amounts and at times to be determined by the Company but has no obligation to sell any shares in the ATM program. Since inception of the ATM Program through March 31, 2020, 5.6 million shares of the Corporation’s common stock have been sold, of which 0.4 million were sold during the three months ended March 31, 2020 at a weighted average price per share of $49.30, generating $17.9 million in gross proceeds. 3.8 million of these sales were through forward sales agreements, of which 0.4 million were physically settled in shares during the three months ended March 31, 2020. There were no open forward sales agreements under the ATM Program as of March 31, 2020. Aggregate gross proceeds capacity of $246.3 million remained available under the program as of March 31, 2020.

Preferred Stock

As of March 31, 2020, the Company had 6.9 million shares of 6.00% Series A Preferred Stock outstanding. The Series A Preferred Stock pays cumulative cash dividends at the rate of 6.00% per annum on the liquidation preference of $25.00 per share (equivalent to $0.375 per share on a quarterly basis and $1.50 per share on an annual basis).  

Dividends Declared

For the three months ended March 31, 2020, the Company's Board of Directors declared the following dividends:

Declaration Date

 

Dividend Per Share

 

 

Record Date

 

Total Amount

(in thousands)

 

 

Payment Date

Common Stock

 

 

 

 

 

 

 

 

 

 

 

 

February 27, 2020

 

$

0.625

 

 

March 31, 2020

 

$

64,338

 

 

April 15, 2020

Preferred Stock

 

 

 

 

 

 

 

 

 

 

 

 

February 27, 2020

 

$

0.375

 

 

March 13, 2020

 

$

2,588

 

 

March 31, 2020

The common stock dividend declared on February 27, 2020 is included in accounts payable, accrued expenses and other liabilities in the consolidated balance sheets as of March 31, 2020.

v3.20.1
Fair Value Measurements - Fair Value Inputs of Long-Lived Assets Held and Used (Details)
3 Months Ended 12 Months Ended
Mar. 31, 2020
ft²
Property
$ / ft²
Dec. 31, 2019
ft²
Property
$ / ft²
Fair Value Estimated Using Comparable Properties | Retail    
Impaired Long Lived Assets Held Used And Held For Sale Properties [Line Items]    
Number Of Properties Accounted For At Fair Value | Property 14 4
Fair Value Estimated Using Comparable Properties | Retail | Weighted Average    
Impaired Long Lived Assets Held Used And Held For Sale Properties [Line Items]    
Weighted Average Price (in dollars per sq ft) 47.89 104.84
Fair Value Estimated Using Comparable Properties | Retail | Measurement Input, Price Per Square Foot | Minimum    
Impaired Long Lived Assets Held Used And Held For Sale Properties [Line Items]    
Price per square foot range 4.35 34.45
Fair Value Estimated Using Comparable Properties | Retail | Measurement Input, Price Per Square Foot | Maximum    
Impaired Long Lived Assets Held Used And Held For Sale Properties [Line Items]    
Price per square foot range 740.74 740.74
Fair Value Estimated Using Comparable Properties | Retail | Measurement Input Square Footage    
Impaired Long Lived Assets Held Used And Held For Sale Properties [Line Items]    
Square Footage | ft² 533,803 35,885
Fair Value Estimated Using Listing Price or Broker Opinion of Value | Retail    
Impaired Long Lived Assets Held Used And Held For Sale Properties [Line Items]    
Number Of Properties Accounted For At Fair Value | Property 5 10
Fair Value Estimated Using Listing Price or Broker Opinion of Value | Retail | Weighted Average    
Impaired Long Lived Assets Held Used And Held For Sale Properties [Line Items]    
Weighted Average Price (in dollars per sq ft) 33.27 50.71
Fair Value Estimated Using Listing Price or Broker Opinion of Value | Retail | Measurement Input, Price Per Square Foot | Minimum    
Impaired Long Lived Assets Held Used And Held For Sale Properties [Line Items]    
Price per square foot range 2.50 24.78
Fair Value Estimated Using Listing Price or Broker Opinion of Value | Retail | Measurement Input, Price Per Square Foot | Maximum    
Impaired Long Lived Assets Held Used And Held For Sale Properties [Line Items]    
Price per square foot range 222.02 323.00
Fair Value Estimated Using Listing Price or Broker Opinion of Value | Retail | Measurement Input Square Footage    
Impaired Long Lived Assets Held Used And Held For Sale Properties [Line Items]    
Square Footage | ft² 338,484 165,773
Fair Value Estimated Using Listing Price or Broker Opinion of Value | Industrial    
Impaired Long Lived Assets Held Used And Held For Sale Properties [Line Items]    
Number Of Properties Accounted For At Fair Value | Property 1  
Fair Value Estimated Using Listing Price or Broker Opinion of Value | Industrial | Weighted Average    
Impaired Long Lived Assets Held Used And Held For Sale Properties [Line Items]    
Weighted Average Price (in dollars per sq ft) 13.79  
Fair Value Estimated Using Listing Price or Broker Opinion of Value | Industrial | Measurement Input, Price Per Square Foot    
Impaired Long Lived Assets Held Used And Held For Sale Properties [Line Items]    
Price per square foot range 13.79  
Fair Value Estimated Using Listing Price or Broker Opinion of Value | Industrial | Measurement Input Square Footage    
Impaired Long Lived Assets Held Used And Held For Sale Properties [Line Items]    
Square Footage | ft² 35,551  
Fair Value Estimated Using Listing Price or Broker Opinion of Value | Office    
Impaired Long Lived Assets Held Used And Held For Sale Properties [Line Items]    
Number Of Properties Accounted For At Fair Value | Property 1 1
Fair Value Estimated Using Listing Price or Broker Opinion of Value | Office | Weighted Average    
Impaired Long Lived Assets Held Used And Held For Sale Properties [Line Items]    
Weighted Average Price (in dollars per sq ft) 96.39 99.37
Fair Value Estimated Using Listing Price or Broker Opinion of Value | Office | Measurement Input, Price Per Square Foot    
Impaired Long Lived Assets Held Used And Held For Sale Properties [Line Items]    
Price per square foot range 96.39 99.37
Fair Value Estimated Using Listing Price or Broker Opinion of Value | Office | Measurement Input Square Footage    
Impaired Long Lived Assets Held Used And Held For Sale Properties [Line Items]    
Square Footage | ft² 4,310 4,310
v3.20.1
Derivative and Hedging Activities - Narrative (Details) - USD ($)
$ in Thousands
3 Months Ended
Mar. 31, 2020
Sep. 30, 2019
Dec. 31, 2019
Derivative [Line Items]      
Accumulated other comprehensive loss $ (10,759)   $ (11,461)
Amount reclassified as an increase to interest expense related to terminated hedges of existing floating-rate debt within the next 12 months 2,800    
Interest Rate Swap      
Derivative [Line Items]      
Accumulated other comprehensive loss $ 10,800    
Designated as Hedging Instrument | Interest Rate Swap      
Derivative [Line Items]      
Termination of interest rate swaps   $ 12,500  
Deferred loss on termination of interest rate swaps   $ 12,300  
v3.20.1
Income Per Share and Partnership Unit - Narrative (Details) - shares
3 Months Ended
Mar. 31, 2020
Mar. 31, 2019
Earnings Per Share [Abstract]    
Potentially dilutive shares, convertible debt 0 0
v3.20.1
Summary of Significant Accounting Policies - Schedule of Cash, Cash Equivalents and Restricted Cash (Details) - USD ($)
$ in Thousands
Mar. 31, 2020
Dec. 31, 2019
Mar. 31, 2019
Dec. 31, 2018
Restricted Cash and Cash Equivalents Items [Line Items]        
Cash and cash equivalents $ 216,692 $ 14,492 $ 9,376  
Total cash, cash equivalents and restricted cash 228,397 26,023 27,892 $ 77,421
Collateral deposits        
Restricted Cash and Cash Equivalents Items [Line Items]        
Restricted cash 381 347 401  
Tenant improvements, repairs and leasing commissions        
Restricted Cash and Cash Equivalents Items [Line Items]        
Restricted cash 11,324 10,877 9,539  
Master Trust Release        
Restricted Cash and Cash Equivalents Items [Line Items]        
Restricted cash 0 0 7,413  
Other        
Restricted Cash and Cash Equivalents Items [Line Items]        
Restricted cash $ 0 $ 307 $ 1,163  
v3.20.1
Investments - Operating Lease Income (Details) - USD ($)
$ in Thousands
3 Months Ended
Mar. 31, 2020
Mar. 31, 2019
Lessor, Lease, Description [Line Items]    
Base cash rent $ 116,546 $ 96,799
Variable cash rent (including reimbursables) 3,389 3,638
Straight-line rent, net of bad debt expense 1,094 2,907
Amortization of above- and below- market lease intangibles, net 334 723
Total rental income 121,363 104,067
In-place leases    
Lessor, Lease, Description [Line Items]    
Leases amortization expenses $ 8,800 $ 6,700
v3.20.1
Debt - Summary of Debt (Details) - USD ($)
$ in Thousands
3 Months Ended
Mar. 31, 2020
Dec. 31, 2019
Debt Instrument [Line Items]    
Total debt, gross $ 2,562,320 $ 2,179,838
Debt discount, net (8,047) (9,272)
Deferred financing costs, net (16,693) (17,549)
Total debt, net $ 2,537,580 2,153,017
Weighted Average    
Debt Instrument [Line Items]    
Effective Interest Rates 4.20%  
Stated Interest Rate 3.59%  
Remaining Years to Maturity 6 years  
Revolving credit facilities    
Debt Instrument [Line Items]    
Total debt, gross $ 500,000 116,500
Revolving credit facilities | Weighted Average    
Debt Instrument [Line Items]    
Effective Interest Rates 3.17%  
Stated Interest Rate 2.26%  
Remaining Years to Maturity 3 years  
Senior Unsecured Notes    
Debt Instrument [Line Items]    
Total debt, gross $ 1,500,000 1,500,000
Deferred financing costs, net $ (12,600) (12,900)
Senior Unsecured Notes | Weighted Average    
Debt Instrument [Line Items]    
Effective Interest Rates 3.85%  
Stated Interest Rate 3.73%  
Remaining Years to Maturity 8 years 4 months 24 days  
CMBS    
Debt Instrument [Line Items]    
Total debt, gross $ 217,320 218,338
Deferred financing costs, net $ (2,400) (2,600)
CMBS | Weighted Average    
Debt Instrument [Line Items]    
Effective Interest Rates 5.81%  
Stated Interest Rate 5.47%  
Remaining Years to Maturity 3 years 7 months 6 days  
CMBS | Minimum    
Debt Instrument [Line Items]    
Stated Interest Rate 5.23%  
CMBS | Maximum    
Debt Instrument [Line Items]    
Stated Interest Rate 6.00%  
Convertible Notes    
Debt Instrument [Line Items]    
Effective Interest Rates 5.63%  
Stated Interest Rate 3.75%  
Remaining Years to Maturity 1 year 1 month 6 days  
Total debt, gross $ 345,000 345,000
Deferred financing costs, net $ (1,700) $ (2,100)
v3.20.1
Fair Value Measurements
3 Months Ended
Mar. 31, 2020
Fair Value Disclosures [Abstract]  
Fair Value Measurements

NOTE 8. FAIR VALUE MEASUREMENTS

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. Real estate assets and their related intangible assets are evaluated for impairment based on certain indicators including, but not limited to: the asset being held for sale, vacant or non-operating, tenant bankruptcy or delinquency, and leases expiring in 60 days or less. The fair values of impaired real estate and intangible assets were determined by using the following information, depending on availability, in order of preference: signed purchase and sale agreements (“PSA”) or letters of intent (“LOI”); broker opinions of value (“BOV”); recently quoted bid or ask prices, or market prices for comparable properties; estimates of discounted cash flows, which consider, among other things, contractual and forecasted rental revenues, leasing assumptions, expenses based

upon market conditions and capitalization rates; and expectations for the use of the real estate. Based on these inputs, the Company determined that its valuation of the impaired real estate and intangible assets falls within Level 3 of the fair value hierarchy. The following table sets forth the Company’s assets that were accounted for at fair value on a nonrecurring basis as of their respective measurement dates (in thousands):

 

 

 

 

 

 

Fair Value Hierarchy Level

 

Description

 

Fair Value

 

 

Level 1

 

 

Level 2

 

 

Level 3

 

Assets held at March 31, 2020

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Impaired at March 31, 2020

 

$

54,688

 

 

$

 

 

$

 

 

$

54,688

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Assets held at December 31, 2019

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Impaired at June 30, 2019

 

$

1,893

 

 

$

 

 

$

 

 

$

1,893

 

Impaired at September 30, 2019

 

$

1,093

 

 

$

 

 

$

 

 

$

1,093

 

Impaired at December 31, 2019

 

$

11,594

 

 

$

 

 

$

 

 

$

11,594

 

As of March 31, 2020, the Company held 22 properties that were impaired during 2020. As of December 31, 2019, the Company held 16 properties that were impaired during 2019. For one of the properties held at March 31, 2020, the Company estimated fair value using a capitalization rate of 10.06% based on comparative capitalization rates from market comparables. For one of the properties held at December 31, 2019, the Company estimated fair value using a capitalization rate of 9.62% based on comparative capitalization rates from market comparables. For the remaining properties, the Company estimated property fair value using price per square foot from unobservable inputs and, for the properties valued using comparable properties at March 31, 2020, the price per square foot includes a discount of 0-10% to account for the market impact of COVID-19. The unobservable inputs are as follows:

Unobservable Input

 

Asset Type

 

Property Count

 

 

Price Per Square Foot Range

 

Weighted Average Price Per Square Foot

 

Square Footage

 

March 31, 2020

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Comparable Properties

 

Retail

 

 

14

 

 

$4.35 - $740.74

 

$47.89

 

 

533,803

 

PSA, LOI or BOV

 

Retail

 

 

5

 

 

$2.50 - $222.02

 

$33.27

 

 

338,484

 

PSA, LOI or BOV

 

Industrial

 

 

1

 

 

$13.79

 

$13.79

 

 

35,551

 

PSA, LOI or BOV

 

Office

 

 

1

 

 

$96.39

 

$96.39

 

 

4,310

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

December 31, 2019

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Comparable Properties

 

Retail

 

 

4

 

 

$34.45 - $740.74

 

$104.84

 

 

35,885

 

PSA, LOI or BOV

 

Retail

 

 

10

 

 

$24.78 - $323.00

 

$50.71

 

 

165,773

 

PSA, LOI or BOV

 

Office

 

 

1

 

 

$99.37

 

$99.37

 

 

4,310

 

 

Estimated Fair Value of Financial Instruments

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

In addition, companies are required to disclose the estimated fair values of all financial instruments, even if they are not carried at their fair values. The fair values of financial instruments are estimates based upon market conditions and perceived risks at March 31, 2020 and December 31, 2019. These estimates require management’s judgment and may not be indicative of the future fair values of the assets and liabilities. The estimated fair values of these financial instruments have been derived either based on (i) market quotes for identical or similar instruments in markets that are not active or (ii) discounted cash flow analyses using estimates of the amount and timing of future cash flows, market rates and credit spreads. These measurements are classified as Level 2 of the fair value hierarchy. The following table discloses fair value information for these financial instruments (in thousands):  

 

 

March 31, 2020

 

 

December 31, 2019

 

 

 

Carrying

Value

 

 

Estimated

Fair Value

 

 

Carrying

Value

 

 

Estimated

Fair Value

 

Loans receivable, net

 

$

30,849

 

 

$

31,586

 

 

$

34,465

 

 

$

35,279

 

Revolving credit facilities

 

 

500,000

 

 

 

514,004

 

 

 

116,500

 

 

 

119,802

 

Senior Unsecured Notes, net (1)

 

 

1,484,473

 

 

 

1,383,947

 

 

 

1,484,066

 

 

 

1,543,919

 

Mortgages and notes payable, net (1)

 

 

215,186

 

 

 

230,834

 

 

 

216,049

 

 

 

235,253

 

Convertible Notes, net (1)

 

 

337,921

 

 

 

326,267

 

 

 

336,402

 

 

 

356,602

 

(1)

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

v3.20.1
Debt
3 Months Ended
Mar. 31, 2020
Debt Disclosure [Abstract]  
Debt

NOTE 4. DEBT

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

 

 

Weighted Average Effective Interest Rates (1)

 

 

Weighted Average Stated Interest Rates (2)

 

 

Weighted Average Remaining Years to Maturity (3)

 

 

March 31,

2020

 

 

December 31,

2019

 

Revolving credit facilities

 

3.17%

 

 

2.26%

 

 

 

3.0

 

 

$

500,000

 

 

$

116,500

 

Senior Unsecured Notes

 

3.85%

 

 

3.73%

 

 

 

8.4

 

 

 

1,500,000

 

 

 

1,500,000

 

CMBS

 

5.81%

 

 

5.47%

 

 

 

3.6

 

 

 

217,320

 

 

 

218,338

 

Convertible Notes

 

5.63%

 

 

3.75%

 

 

 

1.1

 

 

 

345,000

 

 

 

345,000

 

Total debt

 

4.20%

 

 

3.59%

 

 

 

6.0

 

 

 

2,562,320

 

 

 

2,179,838

 

Debt discount, net

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(8,047

)

 

 

(9,272

)

Deferred financing costs, net (4)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(16,693

)

 

 

(17,549

)

Total debt, net

 

 

 

 

 

 

 

 

 

 

 

 

 

$

2,537,580

 

 

$

2,153,017

 

(1)

The effective interest rates include amortization of debt discount/premium, amortization of deferred financing costs, facility fees, and non-utilization fees, where applicable, calculated for the three months ended March 31, 2020 and based on the average principal balance outstanding during the period.

(2)

Represents the weighted average stated interest rate based on the outstanding principal balance as of March 31, 2020.

(3)

Represents the weighted average remaining years to maturity based on the outstanding principal balance as of March 31, 2020.

(4)

The Company records deferred financing costs for its revolving credit facilities in deferred costs and other assets, net on its consolidated balance sheets.

Revolving Credit Facilities

On January 14, 2019, the Operating Partnership entered into the 2019 Revolving Credit and Term Loan Agreement, comprised of the 2019 Credit Facility and the A-1 Term Loans, which replaced the 2015 Credit Agreement and 2015 Term Loan Agreement, respectively. The 2019 Credit Facility is comprised of $800.0 million of aggregate revolving commitments and an accordion feature providing for an additional $400.0 million of revolving borrowing capacity, subject to satisfying certain requirements and obtaining additional lender commitments. The 2019 Credit Facility has an initial maturity date of March 31, 2023 and includes two six-month extensions that can be exercised at the Company’s option. Borrowings may be repaid, in whole or in part, at any time, without premium or penalty, but subject to applicable LIBOR breakage fees, if any.

As of March 31, 2020, the outstanding loans under the 2019 Credit Facility bore interest at LIBOR plus an applicable margin of 0.90% per annum and the aggregate revolving commitments incurred a facility fee of 0.20% per annum, in each case, based on the Operating Partnership's credit rating, which was upgraded to BBB by S&P in May 2019. Prior to the upgrade, the 2019 Credit Facility bore interest at LIBOR plus an applicable margin of 1.10% per annum and the aggregate revolving commitments incurred a facility fee of 0.25% per annum.

Deferred financing costs incurred in connection with entering into the 2019 Credit Facility are being amortized to interest expense over its remaining initial term. The unamortized deferred financing costs were $3.4 million as of March 31, 2020, compared to $3.7 million as of December 31, 2019, and are recorded in deferred costs and other assets, net on the accompanying consolidated balance sheets.

As of March 31, 2020, $300.0 million of borrowing capacity was available under the 2019 Credit Facility. No outstanding letters of credit existed under the agreement as of March 31, 2020. The Operating Partnership's ability to borrow under the 2019 Credit Facility is subject to ongoing compliance with a number of customary financial covenants and other customary affirmative and negative covenants. As of March 31, 2020, the Company and the Operating Partnership were in compliance with these financial covenants.

Senior Unsecured Notes       

The Senior Unsecured Notes were issued by the Operating Partnership and guaranteed by the Company. The following is a summary of the Senior Unsecured Notes outstanding (dollars in thousands):

 

 

Maturity Date

 

Stated Interest Rate

 

 

March 31,

2020

 

 

December 31,

2019

 

2026 Senior Notes

 

September 15, 2026

 

4.45%

 

 

$

300,000

 

 

$

300,000

 

2027 Senior Notes

 

January 15, 2027

 

3.20%

 

 

 

300,000

 

 

 

300,000

 

2029 Senior Notes

 

July 15, 2029

 

4.00%

 

 

 

400,000

 

 

 

400,000

 

2030 Senior Notes

 

January 15, 2030

 

3.40%

 

 

 

500,000

 

 

 

500,000

 

Total Senior Unsecured Notes

 

 

 

3.73%

 

 

$

1,500,000

 

 

$

1,500,000

 

The Senior Unsecured Notes are payable on January 15 and July 15 of each year, except for the 2026 Senior Notes, which are payable on March 15 and September 15 of each year. 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: 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. If any of the Senior Unsecured Notes are redeemed three months or less (or two months or less in the case of the 2027 Senior Notes) prior to their respective maturity dates, the redemption price will not include a make-whole premium.  

Deferred financing costs and offering discounts incurred in connection with the issuance the Senior Unsecured Notes are being amortized to interest expense over the lives of the respective Senior Unsecured Notes. As of March 31, 2020 and December 31, 2019, the unamortized deferred financing costs were $12.6 million and $12.9 million, respectively, and the unamortized discount was $2.9 million and $3.0 million, respectively. Both the deferred financing costs and offering discount are recorded net against the Senior Unsecured Notes principal balance on the accompanying consolidated balance sheets.

In connection with the issuance of the Senior Unsecured Notes, the Company and Operating Partnership are subject to ongoing compliance with a number of customary financial covenants and other customary affirmative and negative covenants. As of March 31, 2020, the Company and the Operating Partnership were in compliance with these financial covenants.

CMBS

As of March 31, 2020, indirect wholly-owned special purpose entity subsidiaries of the Company were borrowers under five fixed-rate non-recourse loans, which have been securitized into CMBS and are secured by the borrowers' respective leased properties and related assets. The stated interest rates as of March 31, 2020 for the loans ranged from 5.23% to 6.00%, with a weighted average stated rate of 5.47%. As of March 31, 2020, the loans were secured by 88 properties. As of March 31, 2020 and December 31, 2019, the unamortized deferred financing costs associated with the CMBS loans were $2.4 million and $2.6 million, respectively, and the unamortized net offering premium was $0.3 million as of both periods. Both the deferred financing costs and offering premium were recorded net against the principal balance of the mortgages and notes payable on the accompanying consolidated balance sheets and are being amortized to interest expense over the term of the respective loans.

Convertible Notes

In May 2014, the Company issued $402.5 million aggregate principal amount of 2.875% convertible notes due in 2019 and $345.0 million aggregate principal amount of 3.75% convertible notes due in 2021. Proceeds from the issuance were contributed to the Operating Partnership and are recorded as a note payable to Spirit Realty Capital, Inc. on the consolidated balance sheets of the Operating Partnership. The 2019 Notes matured on May 15, 2019 and were settled in cash. The 2021 Notes will mature on May 15, 2021 and interest is payable semi-annually in arrears on May 15 and November 15 of each year.

The 2021 Notes are convertible only during certain periods and, subject to certain circumstances, into cash, shares of the Corporation’s common stock, or a combination thereof. The conversion rate is subject to adjustment for certain anti-dilution events, including special distributions and regular quarterly cash dividends exceeding a current threshold of $0.73026 per share. As of March 31, 2020, the conversion rate was 17.4458 per $1,000 principal note, which reflects the adjustment from the SMTA dividend distribution related to the Spin-Off, in addition to the other regular dividends declared during the life of the Convertible Notes. Earlier conversion may be triggered if shares of the Corporation’s common stock trade higher than the established thresholds, if the 2021 Notes trade below established thresholds, or certain corporate events occur.

Offering discount and deferred financing costs incurred in connection with the issuance of the Convertible Notes are being amortized to interest expense over the term of the respective Convertible Notes and, as such, the amounts related to the

2019 Notes were fully amortized in May 2019. As of March 31, 2020 and December 31, 2019, the unamortized discount was $5.4 million and $6.5 million, respectively. As of March 31, 2020 and December 31, 2019, the unamortized deferred financing costs were $1.7 million and $2.1 million, respectively. These amounts are shown net against the aggregate outstanding principal balance of the Convertible Notes on the accompanying consolidated balance sheets. The equity component of the conversion feature was $55.1 million as of both March 31, 2020 and December 31, 2019 and is recorded in capital in excess of par value in the accompanying consolidated balance sheets, net of financing transaction costs.

Debt Extinguishment

During the three months ended March 31, 2020, we did not extinguish any debt.

During the three months ended March 31, 2019, the Company extinguished a total of $10.4 million aggregate principal amount of CMBS indebtedness on one defaulted loan, which was secured by one property. The loan had a default interest rate of 9.85% and resulted in a gain on debt extinguishment of $9.5 million. Additionally, as a result of the termination of the 2015 Credit Agreement and the 2015 Term Loan Agreement, the Company recognized a loss on debt extinguishment of $0.7 million.

Debt Maturities

As of March 31, 2020, scheduled debt maturities, including balloon payments, were as follows (in thousands):

 

 

Scheduled

Principal

 

 

Balloon

Payment

 

 

Total

 

Remainder of 2020

 

$

3,082

 

 

$

 

 

$

3,082

 

2021

 

 

4,365

 

 

 

345,000

 

 

 

349,365

 

2022

 

 

4,617

 

 

 

 

 

 

4,617

 

2023

 

 

3,074

 

 

 

697,912

 

 

 

700,986

 

2024

 

 

590

 

 

 

 

 

 

590

 

Thereafter

 

 

3,610

 

 

 

1,500,070

 

 

 

1,503,680

 

Total

 

$

19,338

 

 

$

2,542,982

 

 

$

2,562,320

 

Interest Expense

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

 

 

Three Months Ended

March 31,

 

 

 

2020

 

 

2019

 

Interest expense – revolving credit facilities (1)

 

$

2,056

 

 

$

2,178

 

Interest expense – term loans

 

 

 

 

 

3,979

 

Interest expense – Senior Unsecured Notes

 

 

13,988

 

 

 

3,338

 

Interest expense – mortgages and notes payable

 

 

3,013

 

 

 

6,252

 

Interest expense – Convertible Notes (2)

 

 

3,234

 

 

 

6,127

 

Non-cash interest expense:

 

 

 

 

 

 

 

 

Amortization of deferred financing costs

 

 

1,142

 

 

 

2,031

 

Amortization of debt discount, net

 

 

1,224

 

 

 

2,706

 

Amortization of net losses related to interest rate swaps

 

 

702

 

 

 

 

Total interest expense

 

$

25,359

 

 

$

26,611

 

 

(1)

Includes facility fees of approximately $0.4 million and $0.7 million for the three months ended March 31, 2020 and 2019, respectively.

(2)

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

v3.20.1
Income Per Share and Partnership Unit - Schedule of Reconciliation of the Numerator and Denominator Used in the Computation of Basic and Diluted Income Per Share (Details) - USD ($)
$ / shares in Units, $ in Thousands
3 Months Ended
Mar. 31, 2020
Mar. 31, 2019
Basic and diluted (loss) income:    
(Loss) income from continuing operations $ (15,847) $ 43,578
Less: dividends paid to preferred stockholders (2,588) (2,588)
Less: dividends attributable to unvested restricted stock (207) (272)
Net (loss) income attributable to common stockholders used in basic and diluted (loss) income per share $ (18,642) $ 40,718
Basic weighted average shares of common stock outstanding:    
Weighted average shares of common stock outstanding 102,551,315 85,916,656
Less: unvested weighted average shares of restricted stock (321,168) (419,563)
Basic weighted average shares of common stock outstanding 102,230,147 85,497,093
Basic (in USD per share) $ (0.18) $ 0.48
Diluted weighted average shares of common stock outstanding:    
Diluted weighted average shares of common stock outstanding 102,230,147 85,504,897
Diluted (in USD per share) $ (0.18) $ 0.48
Market-Based Awards    
Basic weighted average shares of common stock outstanding:    
Plus: unvested market-based awards   7,804
Potentially dilutive shares of common stock    
Dilutive shares 377,449  
Unvested shares of restricted stock, less shares assumed repurchased at market    
Potentially dilutive shares of common stock    
Dilutive shares 133,839 132,744
v3.20.1
Fair Value Measurements - Schedule of Assets at Fair Value on Nonrecurring Basis (Details) - Fair Value, Measurements, Nonrecurring - USD ($)
$ in Thousands
Mar. 31, 2020
Dec. 31, 2019
Sep. 30, 2019
Jun. 30, 2019
Assets Held Impaired At March 31, 2020        
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]        
Assets Impaired Fair Value Disclosure $ 54,688      
Assets Held Impaired At June 30 2019        
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]        
Assets Impaired Fair Value Disclosure       $ 1,893
Assets Held Impaired At September 30 2019        
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]        
Assets Impaired Fair Value Disclosure     $ 1,093  
Assets Held Impaired At December 31 2019        
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]        
Assets Impaired Fair Value Disclosure   $ 11,594    
Level 1 | Assets Held Impaired At March 31, 2020        
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]        
Assets Impaired Fair Value Disclosure 0      
Level 1 | Assets Held Impaired At June 30 2019        
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]        
Assets Impaired Fair Value Disclosure       0
Level 1 | Assets Held Impaired At September 30 2019        
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]        
Assets Impaired Fair Value Disclosure     0  
Level 1 | Assets Held Impaired At December 31 2019        
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]        
Assets Impaired Fair Value Disclosure   0    
Level 2 | Assets Held Impaired At March 31, 2020        
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]        
Assets Impaired Fair Value Disclosure 0      
Level 2 | Assets Held Impaired At June 30 2019        
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]        
Assets Impaired Fair Value Disclosure       0
Level 2 | Assets Held Impaired At September 30 2019        
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]        
Assets Impaired Fair Value Disclosure     0  
Level 2 | Assets Held Impaired At December 31 2019        
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]        
Assets Impaired Fair Value Disclosure   0    
Level 3 | Assets Held Impaired At March 31, 2020        
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]        
Assets Impaired Fair Value Disclosure $ 54,688      
Level 3 | Assets Held Impaired At June 30 2019        
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]        
Assets Impaired Fair Value Disclosure       $ 1,893
Level 3 | Assets Held Impaired At September 30 2019        
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]        
Assets Impaired Fair Value Disclosure     $ 1,093  
Level 3 | Assets Held Impaired At December 31 2019        
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]        
Assets Impaired Fair Value Disclosure   $ 11,594    
v3.20.1
Commitments and Contingencies - Narrative (Details)
3 Months Ended
Mar. 31, 2020
USD ($)
tenant
claim
ground_lease
Dec. 31, 2019
USD ($)
Commitments And Contingencies Disclosure [Abstract]    
Contingently liable amount of debt owed by tenant $ 5,700,000 $ 5,700,000
Number of tenants indemnified by | tenant 1  
Accruals made for environmental remediation $ 0  
Outstanding claims | claim 0  
Total commitments $ 20,400,000  
Total commitments relating to future acquisitions 7,300,000  
Commitments to purchase capital assets within one year expected to be funded within one year $ 18,900,000  
Operating lease renewal option two  
Operating lease renewal term 5 years  
Number of long-term non-cancelable ground leases | ground_lease 5  
Operating lease, weighted average remaining lease term 7 years 3 months 18 days  
Operating lease, right-of-use assets $ 5,300,000  
Operating lease liabilities $ 7,200,000  
v3.20.1
Related Party Transactions and Arrangements - Asset Management Agreement and Interim Management Agreement (Details) - USD ($)
$ in Thousands
3 Months Ended
Mar. 31, 2020
Mar. 31, 2019
Sep. 20, 2019
Related Party Transaction [Line Items]      
Related party fee income $ 250 $ 6,927  
Asset Management Fees | Spirit MTA REIT      
Related Party Transaction [Line Items]      
Related party fee income $ 300 $ 5,000  
Asset Management Agreement | Spirit MTA REIT      
Related Party Transaction [Line Items]      
Agreement termination date Sep. 20, 2019    
Initial one-year term | Interim Management Agreement | Spirit MTA REIT      
Related Party Transaction [Line Items]      
Due from related parties     $ 1,000
Renewal Term | Interim Management Agreement | Spirit MTA REIT      
Related Party Transaction [Line Items]      
Due from related parties     $ 4,000
v3.20.1
Debt - Summary of Senior Unsecured Notes (Details) - USD ($)
$ in Thousands
3 Months Ended
Mar. 31, 2020
Dec. 31, 2019
Debt Instrument [Line Items]    
Total Senior Unsecured Notes $ 2,562,320 $ 2,179,838
Weighted Average    
Debt Instrument [Line Items]    
Stated Interest Rate 3.59%  
Senior Notes    
Debt Instrument [Line Items]    
Total Senior Unsecured Notes $ 1,500,000 1,500,000
Senior Notes | Weighted Average    
Debt Instrument [Line Items]    
Stated Interest Rate 3.73%  
2026 Senior Notes | Senior Notes    
Debt Instrument [Line Items]    
Maturity Date Sep. 15, 2026  
Stated Interest Rate 4.45%  
Total Senior Unsecured Notes $ 300,000 300,000
2027 Senior Notes | Senior Notes    
Debt Instrument [Line Items]    
Maturity Date Jan. 15, 2027  
Stated Interest Rate 3.20%  
Total Senior Unsecured Notes $ 300,000 300,000
2029 Senior Notes | Senior Notes    
Debt Instrument [Line Items]    
Maturity Date Jul. 15, 2029  
Stated Interest Rate 4.00%  
Total Senior Unsecured Notes $ 400,000 400,000
2030 Senior Notes | Senior Notes    
Debt Instrument [Line Items]    
Maturity Date Jan. 15, 2030  
Stated Interest Rate 3.40%  
Total Senior Unsecured Notes $ 500,000 $ 500,000
v3.20.1
Consolidated Balance Sheets (Parenthetical) - $ / shares
Mar. 31, 2020
Dec. 31, 2019
Stockholders’ equity:    
Preferred stock, par value (in USD per share) $ 0.01 $ 0.01
Preferred stock, shares authorized 20,000,000 20,000,000
Preferred stock, shares issued 6,900,000 6,900,000
Preferred stock, shares outstanding 6,900,000 6,900,000
Common stock, par value per share (in USD per share) $ 0.05 $ 0.05
Common stock, shares authorized 175,000,000 175,000,000
Common stock, shares issued 102,942,162 102,476,152
Common stock, shares outstanding 102,942,162 102,476,152
Spirit Realty, L.P. | General Partner's Capital    
Partnership units    
General partners' capital, units issued 797,644 797,644
General partners' capital, units outstanding [1] 797,644 797,644
Spirit Realty, L.P. | Limited Partners' Capital    
Partnership units    
Limited partners' capital, units issued 102,144,518 101,678,508
Limited partners' capital, units outstanding [2] 102,144,518 101,678,508
Spirit Realty, L.P. | Limited Partners' Capital | Limited Partner Series A Preferred Units    
Partnership units    
Limited partners' preferred capital, units issued 6,900,000 6,900,000
Limited partners' preferred capital, units outstanding [2] 6,900,000 6,900,000
[1] Consists of general partnership interests held by OP Holdings.
[2] Consists of limited partnership interests held by the Corporation and Spirit Notes Partner, LLC.
v3.20.1
Debt - Debt Extinguishment - Narrative (Details)
3 Months Ended
Mar. 31, 2020
USD ($)
Mar. 31, 2019
USD ($)
Property
loan
Debt Instrument [Line Items]    
Debt extinguished $ 0  
Gain (Loss) on extinguishment of debt   $ 8,783,000
Two Thousand Fifteen Credit Agreement    
Debt Instrument [Line Items]    
Gain (Loss) on extinguishment of debt   (700,000)
Mortgages | CMBS    
Debt Instrument [Line Items]    
Debt extinguished   $ 10,400,000
Number of loans paid off | loan   1
Number of real estate properties, securing debt | Property   1
Weighted average contractual interest rate   9.85%
Gain (Loss) on extinguishment of debt   $ 9,500,000
v3.20.1
Consolidated Statements of Cash Flows - USD ($)
$ in Thousands
3 Months Ended
Mar. 31, 2020
Mar. 31, 2019
Operating activities    
Net (loss) income $ (15,847) $ 43,578
Adjustments to reconcile net (loss) income to net cash provided by operating activities:    
Depreciation and amortization 52,236 41,349
Impairments 40,774 3,692
Amortization of deferred financing costs 1,142 2,031
Amortization of debt discounts 1,224 2,706
Amortization of deferred losses on interest rate swaps 702  
Stock-based compensation expense 3,451 3,578
Gain on debt extinguishment   (8,783)
Gain on dispositions of real estate and other assets (388) (8,730)
Non-cash revenue (1,259) (4,110)
Bad debt expense and other 233 799
Changes in operating assets and liabilities:    
Deferred costs and other assets, net (136) (700)
Accounts payable, accrued expenses and other liabilities (14,954) (4,057)
Net cash provided by operating activities 67,178 71,353
Investing activities    
Acquisitions of real estate (205,818) (160,262)
Capitalized real estate expenditures (7,810) (19,612)
Collections of principal on loans receivable and real estate assets under direct financing leases 1,163 3,653
Proceeds from dispositions of real estate and other assets, net 16,800 34,848
Net cash used in investing activities (195,665) (141,373)
Financing activities    
Borrowings under revolving credit facilities 759,000 372,700
Repayments under revolving credit facilities (375,500) (312,500)
Repayments under mortgages and notes payable (1,017) (2,906)
Borrowings under term loans   420,000
Repayments under term loans   (420,000)
Debt extinguishment costs   (1,009)
Deferred financing costs   (11,266)
Proceeds from issuance of common stock, net of offering costs 17,677 32,379
Repurchase of shares of common stock, including tax withholdings related to net stock settlements (2,349) (704)
Common stock dividends paid (64,362) (53,615)
Preferred stock dividends paid (2,588) (2,588)
Net cash provided by financing activities 330,861 20,491
Net increase (decrease) in cash, cash equivalents and restricted cash 202,374 (49,529)
Cash, cash equivalents and restricted cash, beginning of period 26,023 77,421
Cash, cash equivalents and restricted cash, end of period 228,397 27,892
Cash paid for interest 29,145 17,052
Cash paid for income taxes 86 262
Supplemental Disclosures of Non-Cash Activities:    
Distributions declared and unpaid 64,338 54,254
Relief of debt through sale or foreclosure of real estate properties   10,368
Net real estate and other collateral assets sold or surrendered to lender   654
Cash flow hedge changes in fair value   5,021
Accrued interest capitalized to principal [1]   251
Accrued market-based award dividend rights 470 308
Accrued capitalized costs 1,015 1,142
Right-of-use lease assets   6,143
Lease liabilities   6,143
Reclass of residual value from direct financing lease to operating lease 6,831  
Spirit Realty, L.P.    
Operating activities    
Net (loss) income (15,847) 43,578
Adjustments to reconcile net (loss) income to net cash provided by operating activities:    
Depreciation and amortization 52,236 41,349
Impairments 40,774 3,692
Amortization of deferred financing costs 1,142 2,031
Amortization of debt discounts 1,224 2,706
Amortization of deferred losses on interest rate swaps 702  
Stock-based compensation expense 3,451 3,578
Gain on debt extinguishment   (8,783)
Gain on dispositions of real estate and other assets (388) (8,730)
Non-cash revenue (1,259) (4,110)
Bad debt expense and other 233 799
Changes in operating assets and liabilities:    
Deferred costs and other assets, net (136) (700)
Accounts payable, accrued expenses and other liabilities (14,954) (4,057)
Net cash provided by operating activities 67,178 71,353
Investing activities    
Acquisitions of real estate (205,818) (160,262)
Capitalized real estate expenditures (7,810) (19,612)
Collections of principal on loans receivable and real estate assets under direct financing leases 1,163 3,653
Proceeds from dispositions of real estate and other assets, net 16,800 34,848
Net cash used in investing activities (195,665) (141,373)
Financing activities    
Borrowings under revolving credit facilities 759,000 372,700
Repayments under revolving credit facilities (375,500) (312,500)
Repayments under mortgages and notes payable (1,017) (2,906)
Borrowings under term loans   420,000
Repayments under term loans   (420,000)
Debt extinguishment costs   (1,009)
Deferred financing costs   (11,266)
Proceeds from issuance of common stock, net of offering costs 17,677 32,379
Repurchase of shares of common stock, including tax withholdings related to net stock settlements (2,349) (704)
Common stock dividends paid (64,362) (53,615)
Preferred stock dividends paid (2,588) (2,588)
Net cash provided by financing activities 330,861 20,491
Net increase (decrease) in cash, cash equivalents and restricted cash 202,374 (49,529)
Cash, cash equivalents and restricted cash, beginning of period 26,023 77,421
Cash, cash equivalents and restricted cash, end of period 228,397 27,892
Cash paid for interest 29,145 17,052
Cash paid for income taxes 86 262
Supplemental Disclosures of Non-Cash Activities:    
Distributions declared and unpaid 64,338 54,254
Relief of debt through sale or foreclosure of real estate properties   10,368
Net real estate and other collateral assets sold or surrendered to lender   654
Cash flow hedge changes in fair value   5,021
Accrued interest capitalized to principal [1]   251
Accrued market-based award dividend rights 470 308
Accrued capitalized costs 1,015 1,142
Right-of-use lease assets   6,143
Lease liabilities   $ 6,143
Reclass of residual value from direct financing lease to operating lease $ 6,831  
[1] Accrued and overdue interest on certain CMBS notes that were intentionally placed in default.
v3.20.1
Stockholders' Equity and Partners' Capital - Summary of Dividends Declared (Details) - USD ($)
$ / shares in Units, $ in Thousands
3 Months Ended
Feb. 27, 2020
Mar. 31, 2020
Mar. 31, 2019
Equity [Abstract]      
Preferred stock, dividend per share (in USD per share) $ 0.375    
Preferred stock, total amount $ 2,588 $ 2,588 $ 2,588
Common stock, dividend per share (in USD per share) $ 0.625 $ 0.6250 $ 0.6250
Common stock, total amount $ 64,338 $ 64,338 $ 54,254
v3.20.1
Income Per Share and Partnership Unit (Tables)
3 Months Ended
Mar. 31, 2020
Earnings Per Share [Abstract]  
Reconciliation of the Numerator and Denominator Used in the Computation of Basic and Diluted Income Per Share

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

 

 

Three Months Ended

March 31,

 

 

 

2020

 

 

2019

 

Basic and diluted (loss) income:

 

 

 

 

 

 

 

 

(Loss) income from continuing operations

 

$

(15,847

)

 

$

43,578

 

Less: dividends paid to preferred stockholders

 

 

(2,588

)

 

 

(2,588

)

Less: dividends attributable to unvested restricted stock

 

 

(207

)

 

 

(272

)

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

 

$

(18,642

)

 

$

40,718

 

 

 

 

 

 

 

 

 

 

Basic weighted average shares of common stock outstanding:

 

 

 

 

 

 

 

 

Weighted average shares of common stock outstanding

 

 

102,551,315

 

 

 

85,916,656

 

Less: unvested weighted average shares of restricted stock

 

 

(321,168

)

 

 

(419,563

)

Basic weighted average shares of common stock outstanding

 

 

102,230,147

 

 

 

85,497,093

 

Net (loss) income per share attributable to common stockholders - basic

 

$

(0.18

)

 

$

0.48

 

 

 

 

 

 

 

 

 

 

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

 

 

 

 

 

 

 

 

Plus: unvested market-based awards

 

 

 

 

 

7,804

 

Diluted weighted average shares of common stock outstanding

 

 

102,230,147

 

 

 

85,504,897

 

Net (loss) income per share attributable to common stockholders - diluted

 

$

(0.18

)

 

$

0.48

 

 

 

 

 

 

 

 

 

 

Potentially dilutive shares of common stock

 

 

 

 

 

 

 

 

Unvested shares of restricted stock, less shares assumed repurchased at market

 

 

133,839

 

 

 

132,744

 

Unvested shares of market-based awards

 

 

377,449

 

 

 

 

 

(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.

v3.20.1
Debt (Tables)
3 Months Ended
Mar. 31, 2020
Debt Disclosure [Abstract]  
Summary of Debt The Company's debt is summarized below (dollars in thousands):

 

 

Weighted Average Effective Interest Rates (1)

 

 

Weighted Average Stated Interest Rates (2)

 

 

Weighted Average Remaining Years to Maturity (3)

 

 

March 31,

2020

 

 

December 31,

2019

 

Revolving credit facilities

 

3.17%

 

 

2.26%

 

 

 

3.0

 

 

$

500,000

 

 

$

116,500

 

Senior Unsecured Notes

 

3.85%

 

 

3.73%

 

 

 

8.4

 

 

 

1,500,000

 

 

 

1,500,000

 

CMBS

 

5.81%

 

 

5.47%

 

 

 

3.6

 

 

 

217,320

 

 

 

218,338

 

Convertible Notes

 

5.63%

 

 

3.75%

 

 

 

1.1

 

 

 

345,000

 

 

 

345,000

 

Total debt

 

4.20%

 

 

3.59%

 

 

 

6.0

 

 

 

2,562,320

 

 

 

2,179,838

 

Debt discount, net

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(8,047

)

 

 

(9,272

)

Deferred financing costs, net (4)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(16,693

)

 

 

(17,549

)

Total debt, net

 

 

 

 

 

 

 

 

 

 

 

 

 

$

2,537,580

 

 

$

2,153,017

 

(1)

The effective interest rates include amortization of debt discount/premium, amortization of deferred financing costs, facility fees, and non-utilization fees, where applicable, calculated for the three months ended March 31, 2020 and based on the average principal balance outstanding during the period.

(2)

Represents the weighted average stated interest rate based on the outstanding principal balance as of March 31, 2020.

(3)

Represents the weighted average remaining years to maturity based on the outstanding principal balance as of March 31, 2020.

(4)

The Company records deferred financing costs for its revolving credit facilities in deferred costs and other assets, net on its consolidated balance sheets.

Summary of Senior Unsecured Notes The following is a summary of the Senior Unsecured Notes outstanding (dollars in thousands):

 

 

Maturity Date

 

Stated Interest Rate

 

 

March 31,

2020

 

 

December 31,

2019

 

2026 Senior Notes

 

September 15, 2026

 

4.45%

 

 

$

300,000

 

 

$

300,000

 

2027 Senior Notes

 

January 15, 2027

 

3.20%

 

 

 

300,000

 

 

 

300,000

 

2029 Senior Notes

 

July 15, 2029

 

4.00%

 

 

 

400,000

 

 

 

400,000

 

2030 Senior Notes

 

January 15, 2030

 

3.40%

 

 

 

500,000

 

 

 

500,000

 

Total Senior Unsecured Notes

 

 

 

3.73%

 

 

$

1,500,000

 

 

$

1,500,000

 

Schedule of Debt Maturities

As of March 31, 2020, scheduled debt maturities, including balloon payments, were as follows (in thousands):

 

 

Scheduled

Principal

 

 

Balloon

Payment

 

 

Total

 

Remainder of 2020

 

$

3,082

 

 

$

 

 

$

3,082

 

2021

 

 

4,365

 

 

 

345,000

 

 

 

349,365

 

2022

 

 

4,617

 

 

 

 

 

 

4,617

 

2023

 

 

3,074

 

 

 

697,912

 

 

 

700,986

 

2024

 

 

590

 

 

 

 

 

 

590

 

Thereafter

 

 

3,610

 

 

 

1,500,070

 

 

 

1,503,680

 

Total

 

$

19,338

 

 

$

2,542,982

 

 

$

2,562,320

 

Summary of Components of Interest Expense Related to Borrowings

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

 

 

Three Months Ended

March 31,

 

 

 

2020

 

 

2019

 

Interest expense – revolving credit facilities (1)

 

$

2,056

 

 

$

2,178

 

Interest expense – term loans

 

 

 

 

 

3,979

 

Interest expense – Senior Unsecured Notes

 

 

13,988

 

 

 

3,338

 

Interest expense – mortgages and notes payable

 

 

3,013

 

 

 

6,252

 

Interest expense – Convertible Notes (2)

 

 

3,234

 

 

 

6,127

 

Non-cash interest expense:

 

 

 

 

 

 

 

 

Amortization of deferred financing costs

 

 

1,142

 

 

 

2,031

 

Amortization of debt discount, net

 

 

1,224

 

 

 

2,706

 

Amortization of net losses related to interest rate swaps

 

 

702

 

 

 

 

Total interest expense

 

$

25,359

 

 

$

26,611

 

 

(1)

Includes facility fees of approximately $0.4 million and $0.7 million for the three months ended March 31, 2020 and 2019, respectively.

(2)

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

v3.20.1
Subsequent Events
3 Months Ended
Mar. 31, 2020
Subsequent Events [Abstract]  
Subsequent Events

Note 12. Subsequent Events

2020 Term Loan

On April 2, 2020, the Operating Partnership entered into an unsecured term loan agreement (the “2020 Term Loan Agreement”). The Term Loan Agreement provides for $200 million of term loans with a maturity date of April 2, 2022 and an accordion feature to increase the available term loans up to an aggregate of $400 million, subject to obtaining lender commitments and the satisfaction of certain customary conditions. On April 10, 2020, the Operating Partnership partially exercised the accordion feature to borrow an additional $100 million of term loans. Amounts outstanding under the 2020 Term Loans bear interest at LIBOR plus an applicable margin of 1.5% per annum. In addition, if any loans are outstanding after April 2, 2021, the Operating Partnership will be required to pay a one-time fee in an amount equal to 0.20% of the outstanding principal amount of loans. The proceeds from the 2020 Term Loans were used to reduce the amounts drawn under the 2019 Credit Facility.

Impact of COVID-19

Due to the onset of the COVID-19 pandemic later in the first quarter of 2020, certain of our tenants, especially those in industries considered “non-essential” under varying state “shelter-in-place” and “stay-at-home” orders and other restrictions on types of business that may continue to operate, may experience challenges or even closures. As such, we anticipate there to be an impact on their financial condition, results of operations, liquidity, ability to pay rent and creditworthiness. That impact may directly result in a reduction in our rental income and/or an increase in our property costs and impairments, as well as indirectly result in an increase in our general and administrative expenses, as we experience higher collectability issues and incur costs to negotiate rent deferrals, lease restructures, and/or lease terminations, as we deem appropriate on a case-by-case basis. Although we are and will continue to be actively engaged in rent collection efforts related to uncollected rent, as well as working with certain tenants who have requested rent deferrals, we can provide no assurance that such efforts or our efforts in future periods will be successful, particularly in the event that the COVID-19 pandemic and restrictions intended to prevent its spread continue for a prolonged period.  

v3.20.1
Commitments and Contingencies
3 Months Ended
Mar. 31, 2020
Commitments And Contingencies Disclosure [Abstract]  
Commitments and Contingencies

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 is contingently liable for $5.7 million of debt owed by one of its former tenants until the maturity of the debt on March 15, 2022. The Company has accrued the full $5.7 million liability in accounts payable, accrued expenses and other liabilities in the consolidated balance sheet as of both March 31, 2020 and December 31, 2019.

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, 2020, no accruals have been made.

As of March 31, 2020, 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.

Purchase and Capital Improvement Commitments

As of March 31, 2020, the Company had commitments totaling $20.4 million, of which $7.3 million relates to future acquisitions, with the remainder to fund improvements on properties the Company currently owns. Commitments related to acquisitions contain standard cancellation clauses contingent on the results of due diligence. $18.9 million of these commitments are expected to be funded during fiscal year 2020, with the remainder to be funded by 2021.

Lessee Contracts

The Company leases its current corporate office space and certain office equipment, which are classified as operating leases. The Company's lease of its corporate office space has an initial term that expires on January 31, 2027 and is renewable at the Company's option for two additional periods of five years each after the initial term. The corporate office

lease contains a variable lease cost related to the lease of parking spaces and a non-lease component related to the reimbursement of certain common area maintenance expenses, both of which are recognized as incurred.

The Company is also a lessee under five long-term, non-cancellable ground leases under which it is obligated to pay monthly rent as of March 31, 2020. For all five of the ground leases, rental expenses are reimbursed by unrelated third parties, and the corresponding rental revenue is recorded in rental income on the accompanying consolidated statements of operations. All leases are classified as operating leases and have a weighted average remaining lease term of 7.3 years.

As of March 31, 2020, the Company had a right-of-use lease asset balance of $5.3 million and total operating lease liabilities of $7.2 million for these lessee contracts.

v3.20.1
Summary of Significant Accounting Policies
3 Months Ended
Mar. 31, 2020
Accounting Policies [Abstract]  
Summary of Significant Accounting Policies

NOTE 2. SUMMARY OF SIGNIFICANT ACOUNTING POLICIES

Basis of Accounting and Principles of Consolidation

The accompanying consolidated financial statements of the Company and the Operating Partnership have been prepared pursuant to the rules and regulations of the SEC. 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, 2019.

The consolidated financial statements of the Company include the accounts of the Corporation and its wholly-owned subsidiaries. The consolidated financial statements of the Operating Partnership include the accounts of the Operating Partnership and its wholly-owned subsidiaries. All significant intercompany balances and transactions have been eliminated in consolidation. All expenses incurred by the Company have been allocated to the Operating Partnership in accordance with the Operating Partnership's first amended and restated agreement of limited partnership, which management determined to be a reasonable method of allocation. Therefore, expenses incurred would not be materially different if the Operating Partnership had operated as an unaffiliated entity.

These consolidated 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. As of March 31, 2020 and December 31, 2019, net assets totaling $0.35 billion and $0.38 billion, respectively, were held, and net liabilities totaling $0.22 and $0.23 billion, 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 segment, which consists of net leasing operations. The Company has no other reportable segments.

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. The Company does not include options to extend, terminate or purchase in its evaluation for lease classification purposes or for recognizing rental income unless the Company is reasonably certain the tenant will exercise the option.       

Another component of lease classification that requires judgment is the residual value of the property at the end of the lease term. For acquisitions, the Company assumes a value that is equal to the tangible value of the property at the date of the assessment. For lease modifications, the Company generally uses sales comparables or a direct capitalization approach to determine fair value.

The Company’s leases generally provide for rent escalations throughout the term of the lease. For leases with fixed rent escalators, rental income is recognized on a straight-line basis to produce a constant periodic rent over the term of the lease. Accordingly, accrued rental revenue, calculated as the aggregate difference between the rental revenue recognized on a straight-line basis and scheduled rents, represents unbilled rent receivables that the Company will receive only if the tenants make all rent payments required through the expiration of the initial term of the leases.

For leases with contingent rent escalators, rental income typically increases at a multiple of any increase in the CPI over a specified period and may adjust over a one-year period or over multiple-year periods. Because of the volatility and uncertainty with respect to 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 at each rent adjustment date during the entire term of these leases, increases in rental revenue from leases with this type of escalator 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 the Company recognizes as rental income when the change in the factor on which the contingent lease payment is based actually occurs.

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 records a provision for losses against 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 expenses and certain other recoverable expenses, which are non-lease components. The Company has 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 as revenue in the period in which the related expenses are incurred, with the related expenses included in property costs (including reimbursable) on the Company’s 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 carried net of the allowances for amounts that are not probable of collection.

Rental Income: Intangible Amortization

Initial direct costs associated with the origination of a lease are deferred and amortized over the related lease term as an adjustment to rental revenue. In-place lease intangibles are amortized on a straight-line basis over the remaining term of the related lease and included in depreciation and amortization expense. Above-market lease intangibles are amortized over the remaining term of the respective leases as a decrease in rental revenue, and below-market lease intangibles are amortized as an increase to rental revenue over the remaining term of the respective leases. The remaining term includes the initial term of the lease but may also include the renewal periods if the Company believes it is reasonably certain the tenant will exercise the renewal option. If the Company subsequently determines it is reasonably certain that the tenant will

not exercise the renewal option, the unamortized portion of any related lease intangible is accelerated over the remaining initial term of the lease. If the Company believes the intangible balance is no longer recoverable, the unamortized portion of any related lease intangible is immediately recognized in impairments in the Company’s consolidated statements of operations.

Cash, Cash Equivalents and Restricted Cash

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

 

 

March 31,

2020

 

 

December 31,

2019

 

 

March 31,

2019

 

Cash and cash equivalents

 

$

216,692

 

 

$

14,492

 

 

$

9,376

 

Restricted cash:

 

 

 

 

 

 

 

 

 

 

 

 

Collateral deposits (1)

 

 

381

 

 

 

347

 

 

 

401

 

Tenant improvements, repairs and leasing commissions (2)

 

 

11,324

 

 

 

10,877

 

 

 

9,539

 

Master Trust Release (3)

 

 

 

 

 

 

 

 

7,413

 

Other (4)

 

 

 

 

 

307

 

 

 

1,163

 

Total cash, cash equivalents and restricted cash

 

$

228,397

 

 

$

26,023

 

 

$

27,892

 

(1) Funds held in lender-controlled accounts generally used to meet future debt service or certain property operating expenses.

(2)

Deposits held as additional collateral support by lenders to fund improvements, repairs and leasing commissions incurred to secure a new tenant.

(3)

Proceeds from the sale of assets pledged as collateral under the Master Trust 2013 notes, which were held on deposit until a qualifying substitution was made or the funds were applied as prepayment of principal. The Master Trust 2013 notes were extinguished in June 2019.

(4)

Funds held in lender-controlled accounts released after scheduled debt service requirements are met.

Allowance for Doubtful Accounts

The Company reviews its rent and other tenant receivables for collectability on a regular basis, taking into consideration changes in factors such as the tenant’s payment history, the financial condition of the tenant, business conditions in the industry in which the tenant operates, and economic conditions in the area in which the tenant operates. If the collectability of a receivable with respect to any tenant is in doubt, a provision for uncollectible amounts will be established or a direct write-off of the specific receivable will be made. The Company provided for reserves for uncollectible amounts totaling $1.8 million and $3.8 million at March 31, 2020 and December 31, 2019, respectively, against accounts receivable balances of $8.5 million and $11.4 million, respectively. Receivables are recorded within deferred cost 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 receivable balances related to the straight-line method of reporting rental revenue, the collectability is generally assessed in conjunction with the evaluation of rental income as described above. The Company has a reserve for losses of $4.4 million and $0.4 million at March 31, 2020 and December 31, 2019, respectively, against straight-line rent receivables of $89.1 million and $84.0 million, respectively. These receivables are recorded within deferred costs and other assets, net in the accompanying consolidated balance sheets.

Goodwill

Goodwill arises from business combinations and represents 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. In January 2017, the FASB issued ASU 2017-04, Simplifying the Test for Goodwill Impairment. ASU 2017-04 simplifies the accounting for goodwill impairment by eliminating the Step 2 requirement to calculate the implied fair value of goodwill. Instead, an entity should perform its annual or interim goodwill impairment test by comparing the fair value of each reporting unit with its carrying amount. An entity should recognize an impairment charge for the amount by which the carrying amount exceeds the reporting unit’s fair value. An entity still has the option to perform the qualitative assessment for a reporting unit to determine if the quantitative impairment test is necessary. The Company adopted ASU 2017-04 effective January 1, 2020. Goodwill is tested for impairment at the reporting unit level on an annual basis and 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. No impairment was recorded for the periods presented.

Income Taxes

The Corporation has elected to be taxed as a REIT under the Code. As a REIT, the Corporation 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 the Company’s assets, the amounts distributed to the Corporation’s stockholders and the ownership of Corporation stock. Management believes the Corporation 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 Corporation 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 local taxes. The rights and obligations of the Asset Management Agreement were transferred to SRAM, a wholly-owned taxable REIT subsidiary of Spirit, on April 1, 2019, which was subsequently terminated and simultaneously replaced by the Interim Management Agreement between SRAM and SMTA, effective as of September 20, 2019. Accordingly, commencing from April 1, 2019, all asset management fees, including the termination fee income, were subject to income tax.  

The Operating Partnership is a partnership for federal income tax purposes. Partnerships are pass-through entities and are not subject to U.S. federal income taxes, therefore no provision has been made for federal income taxes in the accompanying financial statements. Although most states and cities where the Operating Partnership operates follow the U.S. federal income tax treatment, there are certain jurisdictions such as Texas, Tennessee and Ohio that impose income or franchise taxes on a partnership.

Franchise taxes are included in general and administrative expenses on the accompanying consolidated statements of operations.

New Accounting Pronouncements  

In June 2016, the FASB issued ASU 2016-13, Measurement of Credit Losses on Financial Instruments, which requires more timely recognition of credit losses associated with financial assets. ASU 2016-13 requires financial assets (or a group of financial assets) measured at an amortized cost basis to be presented at the net amount expected to be collected. ASU 2016-13 is effective for fiscal years beginning after December 15, 2019, including interim periods within those fiscal years, and as such, the Company adopted ASU 2016-13 effective January 1, 2020. Per the subsequently issued ASU 2018-19, receivables arising from operating leases are not within the scope of ASU 2016-13. As such, the Company reviewed receivables within the scope of ASU 2016-13 totaling $40.3 million, which were comprised of loans receivable and real estate assets held under direct financing lease. The Company determined the key credit quality indicator was the credit rating of the borrower, coupled with remaining time to maturity. As a result, the adoption of the new guidance resulted in the recognition of a loss of $0.3 million on January 1, 2020, which is recorded in impairments on the accompanying consolidated statement of operations.

In April 2020, the FASB released a Staff Q&A regarding the accounting for lease concessions related to the effects of the COVID-19 pandemic. The FASB noted that the underlying premise in requiring a modified lease to be accounted for as if it were a new lease under ASC 842 is that the modified terms and conditions affect the economics of the lease for the remainder of the lease term. As such, the FASB staff clarified that it would be acceptable for entities to make an election to account for lease concessions related to the effects of the COVID-19 pandemic consistent with how those concessions would be accounted for under ASC 842 as though enforceable rights and obligations for those concessions existed (regardless of whether those enforceable rights and obligations for the concessions explicitly exist in the contract). The Company expects to make this election and account for rent deferrals by increasing the straight-line rent receivables as receivables accrue and continue to recognize income during the deferral period. Lease concessions other than rent deferrals will continue to be evaluated to determine if a substantive change to the consideration in the original contract lease contract has occurred and should be accounted for as a lease modification. Management will continue to evaluate any amounts recognized for collectability, regardless of whether accounted for as a lease modification or not, and will record a provision for losses against rental income for amounts that are not probable of collection.

v3.20.1
Income Per Share and Partnership Unit
3 Months Ended
Mar. 31, 2020
Earnings Per Share [Abstract]  
Income Per Share and Partnership Unit

NOTE 10. INCOME PER SHARE AND PARTNERSHIP UNIT

Income per share and unit has been computed using the two-class method, which is computed by dividing the sum of distributed earnings to common stockholders and undistributed earnings allocated to common stockholders by the weighted average number of shares of common stock outstanding for the period. In applying the two-class method, undistributed earnings are allocated to both shares of common stock and participating securities based on the weighted average shares outstanding during the period. Classification of the Company's unvested restricted stock, which contain rights to receive nonforfeitable dividends, are deemed participating securities under the two-class method. Under the two-class method, earnings attributable to unvested restricted shares are deducted from income from continuing operations in the computation of net income attributable to common stockholders.

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

 

 

Three Months Ended

March 31,

 

 

 

2020

 

 

2019

 

Basic and diluted (loss) income:

 

 

 

 

 

 

 

 

(Loss) income from continuing operations

 

$

(15,847

)

 

$

43,578

 

Less: dividends paid to preferred stockholders

 

 

(2,588

)

 

 

(2,588

)

Less: dividends attributable to unvested restricted stock

 

 

(207

)

 

 

(272

)

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

 

$

(18,642

)

 

$

40,718

 

 

 

 

 

 

 

 

 

 

Basic weighted average shares of common stock outstanding:

 

 

 

 

 

 

 

 

Weighted average shares of common stock outstanding

 

 

102,551,315

 

 

 

85,916,656

 

Less: unvested weighted average shares of restricted stock

 

 

(321,168

)

 

 

(419,563

)

Basic weighted average shares of common stock outstanding

 

 

102,230,147

 

 

 

85,497,093

 

Net (loss) income per share attributable to common stockholders - basic

 

$

(0.18

)

 

$

0.48

 

 

 

 

 

 

 

 

 

 

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

 

 

 

 

 

 

 

 

Plus: unvested market-based awards

 

 

 

 

 

7,804

 

Diluted weighted average shares of common stock outstanding

 

 

102,230,147

 

 

 

85,504,897

 

Net (loss) income per share attributable to common stockholders - diluted

 

$

(0.18

)

 

$

0.48

 

 

 

 

 

 

 

 

 

 

Potentially dilutive shares of common stock

 

 

 

 

 

 

 

 

Unvested shares of restricted stock, less shares assumed repurchased at market

 

 

133,839

 

 

 

132,744

 

Unvested shares of market-based awards

 

 

377,449

 

 

 

 

 

(1)

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

The Corporation intends to satisfy its exchange obligation for the principal amount of the 2021 Convertible Notes to the note holders entirely in cash; therefore, the "if-converted" method does not apply and the treasury stock method is being used. For the three months ended March 31, 2020 and 2019, the Corporation’s average stock price was below the conversion price, resulting in zero potentially dilutive shares related to the conversion spread of the 2021 Convertible Notes.

v3.20.1
Investments - Summary of Owned Real Estate Activity (Details)
$ in Thousands
3 Months Ended
Mar. 31, 2020
USD ($)
Property
Mar. 31, 2019
USD ($)
Dollar Amount of Investments    
Impairments $ (40,164) $ (3,692)
Ending balance 6,300,000  
Net balance $ 5,414,257  
Held in Use    
Number of Properties    
Beginning balance (in properties) | Property 1,750  
Acquisitions/improvements (in properties) | Property 27  
Dispositions of real estate (in properties) | Property (5)  
Transfers to Held for Sale (in properties) | Property (5)  
Transfers from Held for Sale (in properties) | Property 0  
Impairments (in properties) | Property 0  
Write-off of intangibles (in properties) | Property 0  
Other (in properties) | Property 0  
Ending balance (in properties) | Property 1,767  
Dollar Amount of Investments    
Beginning balance $ 6,140,775  
Acquisitions 215,011  
Dispositions (17,114)  
Transfers to Held for Sale (3,362)  
Transfers from Held for Sale 0  
Impairments (40,468)  
Write-off of intangibles (26,594)  
Other (1,330)  
Ending balance 6,266,918  
Accumulated depreciation and amortization (855,787)  
Net balance $ 5,411,131  
Held for Sale    
Number of Properties    
Beginning balance (in properties) | Property 2  
Acquisitions/improvements (in properties) | Property 0  
Dispositions of real estate (in properties) | Property (2)  
Transfers to Held for Sale (in properties) | Property 5  
Transfers from Held for Sale (in properties) | Property 0  
Impairments (in properties) | Property 0  
Write-off of intangibles (in properties) | Property 0  
Other (in properties) | Property 0  
Ending balance (in properties) | Property 5  
Dollar Amount of Investments    
Beginning balance $ 1,223  
Acquisitions 0  
Dispositions (1,223)  
Transfers to Held for Sale 3,362  
Transfers from Held for Sale 0  
Impairments 0  
Write-off of intangibles 0  
Other 0  
Ending balance 3,362  
Accumulated depreciation and amortization (236)  
Net balance $ 3,126  
Total    
Number of Properties    
Beginning balance (in properties) | Property 1,752  
Acquisitions/improvements (in properties) | Property 27  
Dispositions of real estate (in properties) | Property (7)  
Transfers to Held for Sale (in properties) | Property 0  
Transfers from Held for Sale (in properties) | Property 0  
Impairments (in properties) | Property 0  
Write-off of intangibles (in properties) | Property 0  
Other (in properties) | Property 0  
Ending balance (in properties) | Property 1,772  
Dollar Amount of Investments    
Beginning balance $ 6,141,998  
Acquisitions 215,011  
Dispositions (18,337)  
Transfers to Held for Sale 0  
Transfers from Held for Sale 0  
Impairments (40,468)  
Write-off of intangibles (26,594)  
Other (1,330)  
Ending balance 6,270,280  
Accumulated depreciation and amortization (856,023)  
Net balance $ 5,414,257  
v3.20.1
Investments - Schedule of Lease Intangible Assets and Liabilities, Net of Accumulated Amortization (Details) - USD ($)
$ in Thousands
Mar. 31, 2020
Dec. 31, 2019
Lessor, Lease, Description [Line Items]    
Less: accumulated amortization $ (170,261) $ (167,539)
Intangible lease assets, net 381,398 385,079
Below-market leases 174,965 176,816
Less: accumulated amortization (50,868) (49,481)
Intangible lease liabilities, net 124,097 127,335
In-place leases    
Lessor, Lease, Description [Line Items]    
Intangible lease assets, gross 454,363 457,616
Above-market leases    
Lessor, Lease, Description [Line Items]    
Intangible lease assets, gross $ 97,296 $ 95,002
v3.20.1
Fair Value Measurements - Schedule of Carrying Amount and Estimated Fair Value Of Financial Instruments (Details) - USD ($)
$ in Thousands
Mar. 31, 2020
Dec. 31, 2019
Fair Value, Balance Sheet Grouping, Financial Statement Captions [Line Items]    
Loans receivable, net $ 30,849 $ 34,465
Revolving credit facilities 500,000 116,500
Senior Unsecured Notes, net 1,484,473 1,484,066
Mortgages and notes payable, net 215,186 216,049
Convertible Notes, net 337,921 336,402
Estimated Fair Value    
Fair Value, Balance Sheet Grouping, Financial Statement Captions [Line Items]    
Loans receivable, net 31,586 35,279
Revolving credit facilities 514,004 119,802
Senior Unsecured Notes, net 1,383,947 1,543,919
Mortgages and notes payable, net 230,834 235,253
Convertible Notes, net $ 326,267 $ 356,602
v3.20.1
Derivative and Hedging Activities - Summary of Amounts Recorded in AOCL and Gain (Loss) Recorded in Operations when Reclassified out of AOCL or Recognized in Earnings (Details) - USD ($)
$ in Thousands
3 Months Ended
Mar. 31, 2020
Mar. 31, 2019
Derivative Instruments, Gain (Loss) [Line Items]    
Net reclassification of amounts from (to) AOCL $ 702 $ (5,021)
Interest expense 25,359 26,611
Interest Rate Swap    
Derivative Instruments, Gain (Loss) [Line Items]    
Gross amount of loss recognized in AOCL on derivatives   (5,229)
Amount of loss reclassified from AOCL to termination of interest rate swaps   $ 208
Interest Expense | Interest Rate Swap    
Derivative Instruments, Gain (Loss) [Line Items]    
Amount of loss reclassified from AOCL to interest [1] $ 702  
[1] Interest expense for the three months ended March 31, 2020 was $25.4 million.
v3.20.1
Document and Entity Information - shares
3 Months Ended
Mar. 31, 2020
May 01, 2020
Document Information [Line Items]    
Entity Registrant Name SPIRIT REALTY CAPITAL, INC.  
Entity Central Index Key 0001308606  
Entity Current Reporting Status Yes  
Current Fiscal Year End Date --12-31  
Entity Filer Category Large Accelerated Filer  
Document Type 10-Q  
Document Period End Date Mar. 31, 2020  
Document Fiscal Year Focus 2020  
Document Fiscal Period Focus Q1  
Amendment Flag false  
Entity Emerging Growth Company false  
Entity Small Business false  
Entity Shell Company false  
Entity Common Stock, Shares Outstanding   102,939,952
Entity File Number 001-36004  
Entity Tax Identification Number 20-1676382  
Entity Incorporation, State or Country Code MD  
Entity Address, Address Line One 2727 North Harwood Street  
Entity Address, Address Line Two Suite 300  
Entity Address, City or Town Dallas  
Entity Address, State or Province TX  
Entity Address, Postal Zip Code 75201  
City Area Code 972  
Local Phone Number 476-1900  
Document Quarterly Report true  
Document Transition Report false  
Entity Interactive Data Current Yes  
Common Stock    
Document Information [Line Items]    
Trading Symbol SRC  
Title of 12(b) Security Common stock, par value $0.05 per share  
Security Exchange Name NYSE  
6.000% Series A Cumulative Redeemable Preferred Stock    
Document Information [Line Items]    
Trading Symbol SRC-A  
Title of 12(b) Security 6.000% Series A Cumulative Redeemable Preferred Stock, par value $0.01 per share  
Security Exchange Name NYSE  
Spirit Realty, L.P.    
Document Information [Line Items]    
Entity Registrant Name SPIRIT REALTY, L.P.  
Entity Current Reporting Status Yes  
Current Fiscal Year End Date --12-31  
Entity Filer Category Non-accelerated Filer  
Document Type 10-Q  
Document Period End Date Mar. 31, 2020  
Document Fiscal Year Focus 2020  
Document Fiscal Period Focus Q1  
Amendment Flag false  
Entity Emerging Growth Company false  
Entity Small Business false  
Entity Shell Company false  
Entity File Number 333-216815-01  
Entity Tax Identification Number 20-1127940  
Entity Incorporation, State or Country Code DE  
Entity Interactive Data Current Yes  
v3.20.1
Debt - CMBS - Narrative (Details)
$ in Thousands
Mar. 31, 2020
USD ($)
Property
loan
Dec. 31, 2019
USD ($)
Debt Instrument [Line Items]    
Unamortized deferred financing costs $ 16,693 $ 17,549
Weighted Average    
Debt Instrument [Line Items]    
Stated interest rate 3.59%  
CMBS    
Debt Instrument [Line Items]    
Number of loans secured by mortgage on leased properties and related assets | loan 5  
Number of properties securing borrowings | Property 88  
Unamortized deferred financing costs $ 2,400 2,600
Unamortized net offering premium $ 300 $ 300
CMBS | Weighted Average    
Debt Instrument [Line Items]    
Stated interest rate 5.47%  
CMBS | Minimum    
Debt Instrument [Line Items]    
Stated interest rate 5.23%  
CMBS | Maximum    
Debt Instrument [Line Items]    
Stated interest rate 6.00%  
v3.20.1
Consolidated Statements of Comprehensive (Loss) Income - USD ($)
$ in Thousands
3 Months Ended
Mar. 31, 2020
Mar. 31, 2019
Net (loss) income available to common stockholders $ (18,435) $ 40,990
Other comprehensive income (loss):    
Net reclassification of amounts from (to) AOCL 702 (5,021)
Total comprehensive (loss) income (17,733) 35,969
Spirit Realty, L.P.    
Net (loss) income available to common stockholders (18,435) 40,990
Other comprehensive income (loss):    
Net reclassification of amounts from (to) AOCL 702 (5,021)
Total comprehensive (loss) income $ (17,733) $ 35,969
v3.20.1
Debt - Summary of Components of Interest Expense Related to Borrowings (Details) - USD ($)
$ in Thousands
3 Months Ended
Mar. 31, 2020
Mar. 31, 2019
Non-cash interest expense:    
Amortization of deferred financing costs $ 1,142 $ 2,031
Amortization of debt discount, net 1,224 2,706
Amortization of net losses related to interest rate swaps 702  
Total interest expense 25,359 26,611
Revolving credit facilities    
Schedule Of Interest Expenses [Line Items]    
Facility fees 400 700
Interest expense 2,056 2,178
Term loans    
Schedule Of Interest Expenses [Line Items]    
Interest expense   3,979
Senior Unsecured Notes    
Schedule Of Interest Expenses [Line Items]    
Interest expense 13,988 3,338
Mortgages and Notes Payable    
Schedule Of Interest Expenses [Line Items]    
Interest expense 3,013 6,252
Convertible Notes    
Schedule Of Interest Expenses [Line Items]    
Interest expense $ 3,234 $ 6,127
v3.20.1
Organization
3 Months Ended
Mar. 31, 2020
Organization Consolidation And Presentation Of Financial Statements [Abstract]  
Organization

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 in and managing a portfolio of single-tenant, operationally essential real estate throughout the U.S. that is generally leased on a long-term, triple-net basis to tenants operating within retail, industrial, office and other property types. 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’s operations are generally carried out through Spirit Realty, L.P. (the "Operating Partnership") and its subsidiaries. Spirit General OP Holdings, LLC, one of the Corporation’s wholly-owned subsidiaries, is the sole general partner and owns approximately 1% of the Operating Partnership. The Corporation and a wholly-owned subsidiary (Spirit Notes Partner, LLC) are the only limited partners and together own the remaining 99% of the Operating Partnership.

On May 31, 2018, the Company completed the spin-off (the "Spin-Off") of the assets that collateralized Master Trust 2014, properties leased to Shopko, and certain other assets into an independent, publicly traded REIT, Spirit MTA REIT ("SMTA"). The Company formed Spirit Realty AM Corporation (“SRAM”), a wholly-owned taxable REIT subsidiary. The rights and obligations of the Asset Management Agreement were transferred to SRAM on April 1, 2019, which was subsequently terminated and simultaneously replaced by the Interim Management Agreement between SRAM and SMTA, effective as of September 20, 2019. The Company allocates personnel and other general and administrative costs to SRAM for management services provided to SMTA.

v3.20.1
Subsequent Events - Narrative (Details) - Term loans - USD ($)
Apr. 10, 2020
Apr. 02, 2020
Apr. 02, 2021
Scenario Forecast      
Subsequent Event [Line Items]      
One-time fee payable on outstanding principal amount of loans     0.20%
Subsequent Event      
Subsequent Event [Line Items]      
Maximum borrowing capacity   $ 200,000,000  
Credit facility maturity date   Apr. 02, 2022  
Accordion feature partially exercised $ 100,000,000    
Subsequent Event | Maximum      
Subsequent Event [Line Items]      
Increased borrowing capacity under accordion feature   $ 400,000,000  
LIBOR | Subsequent Event      
Subsequent Event [Line Items]      
Basis spread on variable rate   1.50%  
v3.20.1
Related Party Transactions and Arrangements - Continuing Involvement (Details) - Spirit MTA REIT - USD ($)
$ in Thousands
3 Months Ended
Mar. 31, 2020
Mar. 31, 2019
Related Party Transaction [Line Items]    
Cash inflow from SMTA subsequent to spin-off $ 300 $ 11,000
Cash outflow to SMTA subsequent to spin-off $ 4 $ 18,900
v3.20.1
Derivative and Hedging Activities (Tables)
3 Months Ended
Mar. 31, 2020
Derivative Instruments And Hedging Activities Disclosure [Abstract]  
Summary of Amounts Recorded in AOCL

The following table provides information about the amounts recorded in AOCL, as well as the loss recorded in operations, when reclassified out of AOCL or recognized in earnings immediately, for the three months ended March 31, 2020 (in thousands):

 

 

Three Months Ended

 

 

Three Months Ended

 

 

 

March 31, 2020

 

 

March 31, 2019

 

Gross amount of loss recognized in AOCL on derivatives

 

$

 

 

$

(5,229

)

Amount of loss reclassified from AOCL to termination of interest rate swaps

 

 

 

 

 

208

 

Amount of loss reclassified from AOCL to interest (1)

 

 

702

 

 

 

 

Net reclassification of amounts from (to) AOCL

 

$

702

 

 

$

(5,021

)

(1)

Interest expense for the three months ended March 31, 2020 was $25.4 million.

v3.20.1
Summary of Significant Accounting Policies (Tables)
3 Months Ended
Mar. 31, 2020
Accounting Policies [Abstract]  
Schedule of Cash, Cash Equivalents and Restricted Cash Cash, cash equivalents and restricted cash consisted of the following (in thousands):

 

 

March 31,

2020

 

 

December 31,

2019

 

 

March 31,

2019

 

Cash and cash equivalents

 

$

216,692

 

 

$

14,492

 

 

$

9,376

 

Restricted cash:

 

 

 

 

 

 

 

 

 

 

 

 

Collateral deposits (1)

 

 

381

 

 

 

347

 

 

 

401

 

Tenant improvements, repairs and leasing commissions (2)

 

 

11,324

 

 

 

10,877

 

 

 

9,539

 

Master Trust Release (3)

 

 

 

 

 

 

 

 

7,413

 

Other (4)

 

 

 

 

 

307

 

 

 

1,163

 

Total cash, cash equivalents and restricted cash

 

$

228,397

 

 

$

26,023

 

 

$

27,892

 

(1) Funds held in lender-controlled accounts generally used to meet future debt service or certain property operating expenses.

(2)

Deposits held as additional collateral support by lenders to fund improvements, repairs and leasing commissions incurred to secure a new tenant.

(3)

Proceeds from the sale of assets pledged as collateral under the Master Trust 2013 notes, which were held on deposit until a qualifying substitution was made or the funds were applied as prepayment of principal. The Master Trust 2013 notes were extinguished in June 2019.

(4)

Funds held in lender-controlled accounts released after scheduled debt service requirements are met.

v3.20.1
Consolidated Statements of Partners' Capital - USD ($)
$ in Thousands
Total
Spirit Realty, L.P.
Spirit Realty, L.P.
Limited Partners' Capital
Spirit Realty, L.P.
General Partner's Capital
Limited Partner Series A Preferred Units
Spirit Realty, L.P.
Limited Partners' Capital
Beginning balance, value at Dec. 31, 2018   $ 2,801,749 $ 2,612,511 [1] $ 23,061 [2] $ 166,177 [1]
Limited partners' preferred units, beginning balance at Dec. 31, 2018 [1]         6,900,000
General partners' common units, beginning balance at Dec. 31, 2018 [2]       797,644  
Limited partners' common units, beginning balance at Dec. 31, 2018 [1]     84,989,711    
Increase (Decrease) in Stockholders' Equity [Roll Forward]          
Net (loss) income $ 43,578 43,578 $ 43,198 [1] $ 380 [2]  
Dividends declared on preferred stock (2,588) (2,588) (2,588) [1]    
Net (loss) income attributable to common stockholders/after preferred distributions 40,990 40,990 40,610 [1] 380 [2]  
Other comprehensive income (loss) (5,021) (5,021) (4,974) [1] (47) [2]  
Dividends declared on common stock (54,254) (54,254) (53,750) [1] (504) [2]  
Tax withholdings related to net stock settlements (704) (704) $ (704) [1]    
Tax withholdings related to net stock settlements (in shares) [1]     (17,800)    
Issuance of common units, net   32,686 $ 32,686 [1]    
Issuance of common units, net (in shares) [1]     893,526    
Other   (79) $ (78) [1] (1) [2]  
Stock-based compensation, net   3,269 $ 3,269 [1]    
Stock-based compensation, net (in shares) [1]     148,705    
Ending balance, value at Mar. 31, 2019   2,818,636 $ 2,629,570 [1] $ 22,889 [2] $ 166,177 [1]
Limited partners' preferred units, ending balance at Mar. 31, 2019 [1]         6,900,000
General partners' common units, ending balance at Mar. 31, 2019 [2]       797,644  
Limited partners' common units, ending balance at Mar. 31, 2019 [1]     86,014,142    
Beginning balance, value at Dec. 31, 2019   3,413,249 $ 3,224,683 [1] $ 22,389 [2] $ 166,177 [1]
Limited partners' preferred units, beginning balance at Dec. 31, 2019 [1]         6,900,000
General partners' common units, beginning balance at Dec. 31, 2019 [2]       797,644  
Limited partners' common units, beginning balance at Dec. 31, 2019 [1]     101,678,508    
Increase (Decrease) in Stockholders' Equity [Roll Forward]          
Net (loss) income (15,847) (15,847) $ (15,704) [1] $ (143) [2]  
Dividends declared on preferred stock (2,588) (2,588) (2,588) [1]    
Net (loss) income attributable to common stockholders/after preferred distributions (18,435) (18,435) (18,292) [1] (143) [2]  
Other comprehensive income (loss) 702 702 697 [1] 5 [2]  
Dividends declared on common stock (64,338) (64,338) (63,839) [1] (499) [2]  
Tax withholdings related to net stock settlements $ (2,349) (2,349) $ (2,349) [1]    
Tax withholdings related to net stock settlements (in shares) (44,500)   (44,488) [1]    
Issuance of common units, net   17,598 $ 17,598 [1]    
Issuance of common units, net (in shares) [1]     362,481    
Stock-based compensation, net   2,981 $ 2,981 [1]    
Stock-based compensation, net (in shares) [1]     148,017    
Ending balance, value at Mar. 31, 2020   $ 3,349,408 $ 3,161,479 [1] $ 21,752 [2] $ 166,177 [1]
Limited partners' preferred units, ending balance at Mar. 31, 2020 [1]         6,900,000
General partners' common units, ending balance at Mar. 31, 2020 [2]       797,644  
Limited partners' common units, ending balance at Mar. 31, 2020 [1]     102,144,518    
[1] Consists of limited partnership interests held by the Corporation and Spirit Notes Partner, LLC.
[2] Consists of general partnership interests held by OP Holdings.
v3.20.1
Debt - Senior Unsecured Notes - Narrative (Details) - USD ($)
$ in Thousands
3 Months Ended
Mar. 31, 2020
Dec. 31, 2019
Debt Instrument [Line Items]    
Unamortized deferred financing costs $ 16,693 $ 17,549
Senior Notes    
Debt Instrument [Line Items]    
Redemption price, percent of principal amount 100.00%  
Unamortized discount $ 2,900 3,000
Unamortized deferred financing costs $ 12,600 $ 12,900
v3.20.1
Consolidated Statements of Operations - USD ($)
$ in Thousands
3 Months Ended
Mar. 31, 2020
Mar. 31, 2019
Revenues:    
Rental income $ 121,363 $ 104,067
Interest income on loans receivable 419 986
Earned income from direct financing leases 177 396
Related party fee income 250 6,927
Other income 511 217
Total revenues 122,720 112,593
Expenses:    
General and administrative 13,490 13,181
Property costs (including reimbursable) 5,936 5,154
Deal pursuit costs 1,019 71
Interest 25,359 26,611
Depreciation and amortization 52,236 41,349
Impairments 40,774 3,692
Total expenses 138,814 90,058
Other income:    
Gain on debt extinguishment   8,783
Gain on disposition of assets 388 8,730
Preferred dividend income from SMTA   3,750
Total other income 388 21,263
(Loss) income before income tax expense (15,706) 43,798
Income tax expense (141) (220)
Net (loss) income (15,847) 43,578
Dividends paid to preferred shareholders (2,588) (2,588)
Net (loss) income attributable to common stockholders/after preferred distributions $ (18,435) $ 40,990
Net (loss) income per share attributable to common stockholders:    
Basic (in USD per share) $ (0.18) $ 0.48
Diluted (in USD per share) $ (0.18) $ 0.48
Weighted average shares of common stock outstanding:    
Basic (in shares) 102,230,147 85,497,093
Diluted (in shares) 102,230,147 85,504,897
Dividends declared per common share/per partnership unit issued (in USD per share) $ 0.6250 $ 0.6250
Spirit Realty, L.P.    
Revenues:    
Rental income $ 121,363 $ 104,067
Interest income on loans receivable 419 986
Earned income from direct financing leases 177 396
Related party fee income 250 6,927
Other income 511 217
Total revenues 122,720 112,593
Expenses:    
General and administrative 13,490 13,181
Property costs (including reimbursable) 5,936 5,154
Deal pursuit costs 1,019 71
Interest 25,359 26,611
Depreciation and amortization 52,236 41,349
Impairments 40,774 3,692
Total expenses 138,814 90,058
Other income:    
Gain on debt extinguishment   8,783
Gain on disposition of assets 388 8,730
Preferred dividend income from SMTA   3,750
Total other income 388 21,263
(Loss) income before income tax expense (15,706) 43,798
Income tax expense (141) (220)
Net (loss) income (15,847) 43,578
Dividends paid to preferred shareholders (2,588) (2,588)
Net (loss) income attributable to common stockholders/after preferred distributions $ (18,435) $ 40,990
Weighted average shares of common stock outstanding:    
Dividends declared per common share/per partnership unit issued (in USD per share) $ 0.6250 $ 0.6250
Net (loss) income attributable to the general partner $ (143) $ 380
Net (loss) income attributable to the limited partners $ (15,704) $ 43,198
Net (loss) income per partnership unit:    
Basic $ (0.18) $ 0.48
Diluted $ (0.18) $ 0.48
Weighted average partnership units outstanding:    
Basic 102,230,147 85,497,093
Diluted 102,230,147 85,504,897
v3.20.1
Debt - Schedule of Debt Maturities (Details) - USD ($)
$ in Thousands
Mar. 31, 2020
Dec. 31, 2019
Scheduled Debt Maturities    
Remainder of 2020 $ 3,082  
2021 349,365  
2022 4,617  
2023 700,986  
2024 590  
Thereafter 1,503,680  
Total debt, net 2,562,320 $ 2,179,838
Scheduled Principal    
Scheduled Debt Maturities    
Remainder of 2020 3,082  
2021 4,365  
2022 4,617  
2023 3,074  
2024 590  
Thereafter 3,610  
Total debt, net 19,338  
Balloon Payment    
Scheduled Debt Maturities    
2021 345,000  
2023 697,912  
Thereafter 1,500,070  
Total debt, net $ 2,542,982  
v3.20.1
Related Party Transactions - Cost Sharing Arrangements (Details) - Spirit MTA REIT - Affiliated Entity - Cost Sharing Arrangements
Mar. 31, 2020
USD ($)
Related Party Transaction [Line Items]  
Due from related parties $ 300,000
Due to related parties $ 0
v3.20.1
Fair Value Measurements (Tables)
3 Months Ended
Mar. 31, 2020
Fair Value Disclosures [Abstract]  
Fair Value Measurements, Nonrecurring The following table sets forth the Company’s assets that were accounted for at fair value on a nonrecurring basis as of their respective measurement dates (in thousands):

 

 

 

 

 

 

Fair Value Hierarchy Level

 

Description

 

Fair Value

 

 

Level 1

 

 

Level 2

 

 

Level 3

 

Assets held at March 31, 2020

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Impaired at March 31, 2020

 

$

54,688

 

 

$

 

 

$

 

 

$

54,688

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Assets held at December 31, 2019

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Impaired at June 30, 2019

 

$

1,893

 

 

$

 

 

$

 

 

$

1,893

 

Impaired at September 30, 2019

 

$

1,093

 

 

$

 

 

$

 

 

$

1,093

 

Impaired at December 31, 2019

 

$

11,594

 

 

$

 

 

$

 

 

$

11,594

 

Fair Value Inputs of Long-Lived Assets Held and Used and Held for Sale For the remaining properties, the Company estimated property fair value using price per square foot from unobservable inputs and, for the properties valued using comparable properties at March 31, 2020, the price per square foot includes a discount of 0-10% to account for the market impact of COVID-19. The unobservable inputs are as follows:

Unobservable Input

 

Asset Type

 

Property Count

 

 

Price Per Square Foot Range

 

Weighted Average Price Per Square Foot

 

Square Footage

 

March 31, 2020

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Comparable Properties

 

Retail

 

 

14

 

 

$4.35 - $740.74

 

$47.89

 

 

533,803

 

PSA, LOI or BOV

 

Retail

 

 

5

 

 

$2.50 - $222.02

 

$33.27

 

 

338,484

 

PSA, LOI or BOV

 

Industrial

 

 

1

 

 

$13.79

 

$13.79

 

 

35,551

 

PSA, LOI or BOV

 

Office

 

 

1

 

 

$96.39

 

$96.39

 

 

4,310

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

December 31, 2019

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Comparable Properties

 

Retail

 

 

4

 

 

$34.45 - $740.74

 

$104.84

 

 

35,885

 

PSA, LOI or BOV

 

Retail

 

 

10

 

 

$24.78 - $323.00

 

$50.71

 

 

165,773

 

PSA, LOI or BOV

 

Office

 

 

1

 

 

$99.37

 

$99.37

 

 

4,310

 

 

Schedule of Carrying Amount and Estimated Fair Value of Financial Instruments The following table discloses fair value information for these financial instruments (in thousands):  

 

 

March 31, 2020

 

 

December 31, 2019

 

 

 

Carrying

Value

 

 

Estimated

Fair Value

 

 

Carrying

Value

 

 

Estimated

Fair Value

 

Loans receivable, net

 

$

30,849

 

 

$

31,586

 

 

$

34,465

 

 

$

35,279

 

Revolving credit facilities

 

 

500,000

 

 

 

514,004

 

 

 

116,500

 

 

 

119,802

 

Senior Unsecured Notes, net (1)

 

 

1,484,473

 

 

 

1,383,947

 

 

 

1,484,066

 

 

 

1,543,919

 

Mortgages and notes payable, net (1)

 

 

215,186

 

 

 

230,834

 

 

 

216,049

 

 

 

235,253

 

Convertible Notes, net (1)

 

 

337,921

 

 

 

326,267

 

 

 

336,402

 

 

 

356,602

 

(1)

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

v3.20.1
Investments (Tables)
3 Months Ended
Mar. 31, 2020
Real Estate [Abstract]  
Summary of Real Estate Activity

During the three months ended March 31, 2020, the Company had the following real estate activity, net of accumulated depreciation and amortization (dollars in thousands):

 

 

Number of Properties

 

 

Dollar Amount of Investments

 

 

 

Held in Use

 

 

Held for Sale

 

 

Total

 

 

Held in Use

 

 

Held for Sale

 

 

Total

 

Gross balance, December 31, 2019

 

 

1,750

 

 

 

2

 

 

 

1,752

 

 

$

6,140,775

 

 

$

1,223

 

 

$

6,141,998

 

Acquisitions/improvements (1)

 

 

27

 

 

 

 

 

 

27

 

 

 

215,011

 

 

 

 

 

 

215,011

 

Dispositions of real estate (2)

 

 

(5

)

 

 

(2

)

 

 

(7

)

 

 

(17,114

)

 

 

(1,223

)

 

 

(18,337

)

Transfers to Held for Sale

 

 

(5

)

 

 

5

 

 

 

 

 

 

(3,362

)

 

 

3,362

 

 

 

 

Transfers from Held for Sale

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Impairments (3)

 

 

 

 

 

 

 

 

 

 

 

(40,468

)

 

 

 

 

 

(40,468

)

Write-off of intangibles

 

 

 

 

 

 

 

 

 

 

 

(26,594

)

 

 

 

 

 

(26,594

)

Other

 

 

 

 

 

 

 

 

 

 

 

(1,330

)

 

 

 

 

 

(1,330

)

Gross balance, March 31, 2020

 

 

1,767

 

 

 

5

 

 

 

1,772

 

 

 

6,266,918

 

 

 

3,362

 

 

 

6,270,280

 

Accumulated depreciation and amortization

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(855,787

)

 

 

(236

)

 

 

(856,023

)

Net balance, March 31, 2020 (4)

 

 

 

 

 

 

 

 

 

 

 

 

 

$

5,411,131

 

 

$

3,126

 

 

$

5,414,257

 

 

(1)

Includes investments of $7.6 million in revenue producing capitalized expenditures, as well as $1.6 million of non-revenue producing capitalized expenditures during the three months ended March 31, 2020.

(2)

For the three months ended March 31, 2020, the total gain on disposal of assets for properties held in use and held for sale was $0.6 million and $0.1 million, respectively.

(3)

Impairments on owned real estate is comprised of $40.2 million of real estate and intangible asset impairment and $0.3 million of allowance for credit losses on direct financing leases.  

(4)

Reconciliation of total owned investments to the accompanying consolidated balance sheet at March 31, 2020 is as follows:

Operating lease held in use land and buildings, net

 

$

5,146,530

 

Intangible lease assets, net

 

 

 

 

381,398

 

Real estate assets under direct financing leases, net

 

 

 

 

7,300

 

Real estate assets held for sale, net

 

 

 

 

3,126

 

Intangible lease liabilities, net

 

 

 

 

(124,097

)

Net balance

 

 

 

$

5,414,257

 

Schedule of Operating Lease Income The following table summarizes the components of rental income recognized on these operating leases in the accompanying consolidated statements of operations (in thousands):

 

 

Three Months Ended

March 31,

 

 

 

2020

 

 

2019

 

Base cash rent

 

$

116,546

 

 

$

96,799

 

Variable cash rent (including reimbursables)

 

 

3,389

 

 

 

3,638

 

Straight-line rent, net of bad debt expense

 

 

1,094

 

 

 

2,907

 

Amortization of above- and below- market lease intangibles, net (1)

 

 

334

 

 

 

723

 

Total rental income

 

$

121,363

 

 

$

104,067

 

(1)

Excludes amortization of in-place leases of $8.8 million and $6.7 million for the three months ended March 31, 2020 and 2019, respectively, which is included in depreciation and amortization expense in the accompanying consolidated statements of operations.

Schedule of Minimum Future Contractual Rent to be Received from Operating Lease

Scheduled minimum future contractual rent to be received under the remaining non-cancellable term of these operating leases (including contractual fixed rent increases occurring on or after April 1, 2020) at March 31, 2020 are as follows (in thousands):

 

 

March 31,

2020

 

Remainder of 2020

 

$

354,330

 

2021

 

 

461,791

 

2022

 

 

444,470

 

2023

 

 

423,969

 

2024

 

 

399,829

 

Thereafter

 

 

3,037,487

 

Total future minimum rentals

 

$

5,121,876

 

Schedule of Lease Intangible Assets and Liabilities, Net of Accumulated Amortization

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

 

 

March 31,

2020

 

 

December 31,

2019

 

In-place leases

 

$

454,363

 

 

$

457,616

 

Above-market leases

 

 

97,296

 

 

 

95,002

 

Less: accumulated amortization

 

 

(170,261

)

 

 

(167,539

)

Intangible lease assets, net

 

$

381,398

 

 

$

385,079

 

 

 

 

 

 

 

 

 

 

Below-market leases

 

$

174,965

 

 

$

176,816

 

Less: accumulated amortization

 

 

(50,868

)

 

 

(49,481

)

Intangible lease liabilities, net

 

$

124,097

 

 

$

127,335

 

 

Summary of Impairment and Credit Losses Recognized

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

 

 

Three Months Ended

March 31,

 

 

 

2020

 

 

2019

 

Real estate and intangible asset impairment

 

$

40,164

 

 

$

3,692

 

Allowance for credit losses on direct financing leases

 

 

304

 

 

 

 

Allowance for credit losses on loans receivable

 

 

306

 

 

 

 

Total impairment loss

 

$

40,774

 

 

$

3,692

 

 

v3.20.1
Related Party Transactions and Arrangements
3 Months Ended
Mar. 31, 2020
Related Party Transactions [Abstract]  
Related Party Transactions and Arrangements

Note 11. Related Party Transactions and Arrangements

Continuing Involvement

Subsequent to the Spin-Off, the Company has had continuing involvement with SMTA through related party agreements. The Company had cash inflows from SMTA of $0.3 million and cash outflows to SMTA of $4 thousand for the three months ended March 31, 2020. The Company had cash inflows from SMTA of $11.0 million and cash outflows to SMTA of $18.9 million for the three months ended March 31, 2019.

Cost Sharing Arrangements

In conjunction with the Spin-Off, the Company and SMTA entered into certain agreements, including the Separation and Distribution Agreement, Tax Matters Agreement, Registration Rights Agreement and Insurance Sharing Agreement. These agreements provide a framework for the relationship between the Company and SMTA after the Spin-Off, by which Spirit may incur certain expenses on behalf of SMTA that must be reimbursed in a timely manner. These agreements, except for the Tax Matters Agreement, were terminated in conjunction with the termination of the Asset Management Agreement. In conjunction with these arrangements, the Company had an accrued receivable balance of $0.3 million and no accrued payable balance as of March 31, 2020. As of December 31, 2019, the Company did not have material accrued receivable or payable balances in conjunction with these arrangements.

Asset Management Agreement and Interim Management Agreement

In conjunction with the Spin-Off, the Company entered into the Asset Management Agreement pursuant to which the Operating Partnership provided various management services to SMTA. On June 2, 2019, concurrently with SMTA’s entry into an agreement to sell Master Trust 2014, the Company entered into a termination agreement of the Asset Management Agreement, which became effective on September 20, 2019. On June 2, 2019, the Company and SMTA also entered into

an Interim Management Agreement, which became effective on September 20, 2019, and which provides that the Company is entitled to an annual management fee of $1 million for the initial one-year term thereof and $million per annum for any renewal term, in each case plus certain cost reimbursements. The Interim Management Agreement is terminable at any time by SMTA and may be terminated at any time upon 180 days’ prior written notice by the Company, in each case without payment of a termination fee. On March 18, 2020, the Company notified SMTA of its intention to terminate the Interim Asset Management Agreement effective as of September 14, 2020.  Management fees of $0.3 million and $5.0 million were earned during the three months ended March 31, 2020 and 2019, and are included in related party fee income in the consolidated statements of operations. As of both March 31, 2020 and December 31, 2019, the Company did not have material accrued receivable balances related to the Interim Management Agreement.

Property Management and Servicing Agreement

Prior to September 20, 2019, the Operating Partnership provided property management services and special services for Master Trust 2014. The property management fees accrued daily at 0.25% per annum of the collateral value of the Master Trust 2014 collateral pool less any specially serviced assets, and the special servicing fees accrued daily at 0.75% per annum of the collateral value of any assets deemed to be specially serviced per the terms of the Property Management and Servicing Agreement dated May 20, 2014. Property management fees of $1.5 million and special servicing fees of $0.4 million were earned during the three months ended March 31, 2019. These fees are included in related party fee income in the consolidated statements of operations. In conjunction with SMTA’s sale of Master Trust 2014 on September 20, 2019, the notes were retired and the Property Management and Servicing Agreement was terminated.

v3.20.1
Derivative and Hedging Activities
3 Months Ended
Mar. 31, 2020
Derivative Instruments And Hedging Activities Disclosure [Abstract]  
Derivative and Hedging Activities

NOTE 7. DERIVATIVE AND HEDGING ACTIVITIES

The Company uses interest rate derivative contracts to manage its exposure to changes in interest rates on its variable rate debt. These derivatives are considered cash flow hedges and are recorded on a gross basis at fair value. Assessments of hedge effectiveness are performed quarterly using either a qualitative or quantitative approach. The Company recognizes the entire change in the fair value in AOCL and the change is reflected as cash flow hedge changes in fair value in the supplemental disclosures of non-cash investing and financing activities in the consolidated statement of cash flows. Amounts will subsequently be reclassified to earnings when the hedged item affects earnings. The Company does not enter into derivative contracts for speculative or trading purposes and does not have derivative netting arrangements.

The Company is exposed to credit risk in the event of non-performance by its derivative counterparties. The Company evaluates counterparty credit risk through monitoring the creditworthiness of counterparties, which includes review of debt ratings and financial performance. To mitigate credit risk, the Company enters into agreements with counterparties it considers credit-worthy, such as large financial institutions with favorable credit ratings.

In December 2018, the Company entered into interest rate swap agreements. In the three months ended September 30, 2019, the Company terminated its interest rate swaps and accelerated the reclassification of a loss of $12.5 million from AOCL to termination of interest rate swaps as a result of a portion of the hedged forecasted transactions becoming probable not to occur. There were no events of default related to the interest rate swaps prior to their termination. Given that a proportion of the hedged transactions remained probable to occur, $12.3 million of the loss was deferred in other comprehensive loss and will be amortized over the remaining initial term of the interest rate swaps, which ends March 31, 2024. As of March 31, 2020, the unamortized portion of loss in AOCL related to terminated interest rate swaps was $10.8 million.

The following table provides information about the amounts recorded in AOCL, as well as the loss recorded in operations, when reclassified out of AOCL or recognized in earnings immediately, for the three months ended March 31, 2020 (in thousands):

 

 

Three Months Ended

 

 

Three Months Ended

 

 

 

March 31, 2020

 

 

March 31, 2019

 

Gross amount of loss recognized in AOCL on derivatives

 

$

 

 

$

(5,229

)

Amount of loss reclassified from AOCL to termination of interest rate swaps

 

 

 

 

 

208

 

Amount of loss reclassified from AOCL to interest (1)

 

 

702

 

 

 

 

Net reclassification of amounts from (to) AOCL

 

$

702

 

 

$

(5,021

)

(1)

Interest expense for the three months ended March 31, 2020 was $25.4 million.

During the next 12 months, we estimate that approximately $2.8 million will be reclassified as an increase to interest expense related to terminated hedges of existing floating-rate debt.

v3.20.1
Investments
3 Months Ended
Mar. 31, 2020
Real Estate [Abstract]  
Investments

NOTE 3. INVESTMENTS

Owned Properties

As of March 31, 2020, the Company's gross investment in owned real estate properties totaled approximately $6.3 billion. The gross investment is comprised of land, buildings, lease intangible assets and lease intangible liabilities, as adjusted for any impairment, and real estate assets held under direct financing leases and real estate assets held for sale. The portfolio is geographically dispersed throughout 48 states with Texas, at 11.4%, as the only state with a gross investment greater than 10.0% of the total gross investment of the Company's entire portfolio.

During the three months ended March 31, 2020, the Company had the following real estate activity, net of accumulated depreciation and amortization (dollars in thousands):

 

 

Number of Properties

 

 

Dollar Amount of Investments

 

 

 

Held in Use

 

 

Held for Sale

 

 

Total

 

 

Held in Use

 

 

Held for Sale

 

 

Total

 

Gross balance, December 31, 2019

 

 

1,750

 

 

 

2

 

 

 

1,752

 

 

$

6,140,775

 

 

$

1,223

 

 

$

6,141,998

 

Acquisitions/improvements (1)

 

 

27

 

 

 

 

 

 

27

 

 

 

215,011

 

 

 

 

 

 

215,011

 

Dispositions of real estate (2)

 

 

(5

)

 

 

(2

)

 

 

(7

)

 

 

(17,114

)

 

 

(1,223

)

 

 

(18,337

)

Transfers to Held for Sale

 

 

(5

)

 

 

5

 

 

 

 

 

 

(3,362

)

 

 

3,362

 

 

 

 

Transfers from Held for Sale

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Impairments (3)

 

 

 

 

 

 

 

 

 

 

 

(40,468

)

 

 

 

 

 

(40,468

)

Write-off of intangibles

 

 

 

 

 

 

 

 

 

 

 

(26,594

)

 

 

 

 

 

(26,594

)

Other

 

 

 

 

 

 

 

 

 

 

 

(1,330

)

 

 

 

 

 

(1,330

)

Gross balance, March 31, 2020

 

 

1,767

 

 

 

5

 

 

 

1,772

 

 

 

6,266,918

 

 

 

3,362

 

 

 

6,270,280

 

Accumulated depreciation and amortization

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(855,787

)

 

 

(236

)

 

 

(856,023

)

Net balance, March 31, 2020 (4)

 

 

 

 

 

 

 

 

 

 

 

 

 

$

5,411,131

 

 

$

3,126

 

 

$

5,414,257

 

 

(1)

Includes investments of $7.6 million in revenue producing capitalized expenditures, as well as $1.6 million of non-revenue producing capitalized expenditures during the three months ended March 31, 2020.

(2)

For the three months ended March 31, 2020, the total gain on disposal of assets for properties held in use and held for sale was $0.6 million and $0.1 million, respectively.

(3)

Impairments on owned real estate is comprised of $40.2 million of real estate and intangible asset impairment and $0.3 million of allowance for credit losses on direct financing leases.  

(4)

Reconciliation of total owned investments to the accompanying consolidated balance sheet at March 31, 2020 is as follows:

Operating lease held in use land and buildings, net

 

$

5,146,530

 

Intangible lease assets, net

 

 

 

 

381,398

 

Real estate assets under direct financing leases, net

 

 

 

 

7,300

 

Real estate assets held for sale, net

 

 

 

 

3,126

 

Intangible lease liabilities, net

 

 

 

 

(124,097

)

Net balance

 

 

 

$

5,414,257

 

Operating Leases

As of March 31, 2020 and December 31, 2019, the Company held 1,760 and 1,745 properties under operating leases, respectively. The following table summarizes the components of rental income recognized on these operating leases in the accompanying consolidated statements of operations (in thousands):

 

 

Three Months Ended

March 31,

 

 

 

2020

 

 

2019

 

Base cash rent

 

$

116,546

 

 

$

96,799

 

Variable cash rent (including reimbursables)

 

 

3,389

 

 

 

3,638

 

Straight-line rent, net of bad debt expense

 

 

1,094

 

 

 

2,907

 

Amortization of above- and below- market lease intangibles, net (1)

 

 

334

 

 

 

723

 

Total rental income

 

$

121,363

 

 

$

104,067

 

(1)

Excludes amortization of in-place leases of $8.8 million and $6.7 million for the three months ended March 31, 2020 and 2019, respectively, which is included in depreciation and amortization expense in the accompanying consolidated statements of operations.

Scheduled minimum future contractual rent to be received under the remaining non-cancellable term of these operating leases (including contractual fixed rent increases occurring on or after April 1, 2020) at March 31, 2020 are as follows (in thousands):

 

 

March 31,

2020

 

Remainder of 2020

 

$

354,330

 

2021

 

 

461,791

 

2022

 

 

444,470

 

2023

 

 

423,969

 

2024

 

 

399,829

 

Thereafter

 

 

3,037,487

 

Total future minimum rentals

 

$

5,121,876

 

Because lease renewal periods are exercisable at the lessees' options, the preceding table presents future minimum lease payments due during the initial lease term only. In addition, the future minimum rentals do not include any contingent rentals based on a percentage of the lessees' gross sales or lease escalations based on future changes in the CPI.

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

 

 

March 31,

2020

 

 

December 31,

2019

 

In-place leases

 

$

454,363

 

 

$

457,616

 

Above-market leases

 

 

97,296

 

 

 

95,002

 

Less: accumulated amortization

 

 

(170,261

)

 

 

(167,539

)

Intangible lease assets, net

 

$

381,398

 

 

$

385,079

 

 

 

 

 

 

 

 

 

 

Below-market leases

 

$

174,965

 

 

$

176,816

 

Less: accumulated amortization

 

 

(50,868

)

 

 

(49,481

)

Intangible lease liabilities, net

 

$

124,097

 

 

$

127,335

 

 

Direct Financing Leases

As of March 31, 2020, the Company held one property under a direct financing lease, which was held in use. As of March 31, 2020, this property had $4.0 million in scheduled minimum future payments to be received under the remaining non-cancellable terms of its lease. The Company evaluated the collectability of the amounts receivable under the direct financing lease, and recorded a reserve for uncollectible amounts totaling $0.3 million against the net investment balance of $7.6 million as of March 31, 2020, primarily as a result of the borrower’s credit rating being non-investment grade and the initial term extending until 2027.     

Loans Receivable

As of March 31, 2020, the Company held two first-priority mortgage loans. The mortgage loans are secured by single-tenant commercial properties and have fixed interest rates over the term of the loans. There was one other note receivable as of March 31, 2020, which is secured by tenant assets and stock. As of March 31, 2020, these loans had an outstanding principal balance of $30.6 million and an unamortized premium balance of $0.5 million. The Company evaluated the collectability of the amounts receivable under the loans receivable and recorded an allowance for loan losses of $0.3 million against the carrying value of $31.1 million. The amount of the allowance was primarily driven by the borrowers’ having investment grade credit ratings and maturities in 2020.       

Impairments and Allowance for Credit Losses

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

 

 

Three Months Ended

March 31,

 

 

 

2020

 

 

2019

 

Real estate and intangible asset impairment

 

$

40,164

 

 

$

3,692

 

Allowance for credit losses on direct financing leases

 

 

304

 

 

 

 

Allowance for credit losses on loans receivable

 

 

306

 

 

 

 

Total impairment loss

 

$

40,774

 

 

$

3,692

 

 

v3.20.1
Investments - Narrative (Details)
$ in Millions
3 Months Ended
Mar. 31, 2020
USD ($)
State
Property
loan
Note
Dec. 31, 2019
Property
Real Estate Properties [Line Items]    
Gross investment in owned real estate properties $ 6,300.0  
Portfolio disbursement, number of states | State 48  
Minimum of investment in real estate properties 10.00%  
Number of properties under operating leases | Property 1,760 1,745
Number of properties under direct financing lease | Property 1  
Sales-type and direct financing leases minimum future payments to be received $ 4.0  
Direct financing leases, reserves for uncollectible amount 0.3  
Direct financing leases, net investment balance $ 7.6  
Mortgage Receivables And Other Notes Receivable    
Real Estate Properties [Line Items]    
Number of other note receivable | Note 1  
Loans outstanding principal balance $ 30.6  
Unamortized premium balance 0.5  
Allowance for loan losses 0.3  
Loans receivable carrying value $ 31.1  
Single-Tenant Commercial Properties | First Mortgage | Mortgage Receivables And Other Notes Receivable    
Real Estate Properties [Line Items]    
Number of first-priority mortgage loans | loan 2  
Texas    
Real Estate Properties [Line Items]    
Investment in real estate properties 11.40%  
v3.20.1
Investments - Schedule of Minimum Future Contractual Rent to be Received from Operating Leases (Details)
$ in Thousands
Mar. 31, 2020
USD ($)
Operating Leases, Future Contractual Rent Receivable  
Remainder of 2020 $ 354,330
2021 461,791
2022 444,470
2023 423,969
2024 399,829
Thereafter 3,037,487
Total future minimum rentals $ 5,121,876
v3.20.1
Incentive Award Plan - Narrative (Details) - USD ($)
$ / shares in Units, shares in Thousands, $ in Millions
3 Months Ended
Mar. 31, 2020
Mar. 31, 2019
Dec. 31, 2019
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]      
Unamortized stock-based compensation expense $ 20.6   $ 12.6
General and Administrative Expense      
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]      
Stock-based compensation expense $ 3.5 $ 3.6  
Non-vested Shares of Restricted Stock      
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]      
Grants in period (in shares) 116    
Deferred compensation expense $ 5.7    
Outstanding unvested shares 334    
Unamortized stock-based compensation expense $ 10.3   6.6
Market-Based Awards      
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]      
Number of shares available for grant 88    
Expected volatility 25.20%    
Minimum required service period 3 years    
Average volatility rate 21.70%    
Risk free interest rate 1.07%    
Market-based award, grant date fair value $ 67.30    
Accrued dividend rights $ 2.8   2.7
Shares released for awards 400    
Unamortized stock-based compensation expense $ 10.3   $ 6.0
Market-Based Awards | Minimum      
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]      
Percent multiplier for shares granted 0.00%    
Market-Based Awards | Maximum      
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]      
Percent multiplier for shares granted 300.00%    
Market-Based Awards | Group of Industry Peers      
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]      
Volatility rate, minimum 18.10%    
Volatility rate, maximum 27.30%    
v3.20.1
Fair Value Measurements - Narrative (Details) - Property
3 Months Ended 12 Months Ended
Mar. 31, 2020
Dec. 31, 2019
Measurement Input, Price Per Square Foot | Minimum | Impact of COVID-19    
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]    
Price per square foot, discount rate 0.00%  
Measurement Input, Price Per Square Foot | Maximum | Impact of COVID-19    
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]    
Price per square foot, discount rate 10.00%  
Fair Value, Measurements, Nonrecurring    
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]    
Impairment of lease, expiration period (or less) 60 days  
Number Of Properties Accounted For At Fair Value 22 16
Fair Value, Measurements, Nonrecurring | Fair Value Estimated Using Capitalization Rate | Measurement Input Capitalization Rate    
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]    
Number Of Properties Accounted For At Fair Value 1 1
Long Lived Assets Estimated Capitalization Rate Fair Value Disclosure 10.06% 9.62%