Spirit Realty Capital(SRC) - 2022 Q2 - Quarterly Report

Glossary This section defines key financial terms and programs, including ATM Programs, Senior Notes, and non-GAAP financial measures like AFFO and EBITDAre - The glossary provides definitions for key financial terms and programs relevant to Spirit Realty Capital, Inc., including various ATM Programs (At-the-market equity distribution programs), Senior Notes, and non-GAAP financial measures like Adjusted Debt, Adjusted EBITDAre, AFFO, EBITDAre, and FFO[9][10] - Key operational metrics defined include Annualized Base Rent (ABR), which reflects base rent plus earned income from direct financing leases and deferred revenue from development deals, adjusted for acquisitions and dispositions[9] PART I — FINANCIAL INFORMATION This part presents the unaudited consolidated financial statements and management's discussion and analysis of Spirit Realty Capital, Inc Item 1. Financial Statements (Unaudited) This section presents the unaudited consolidated financial statements of Spirit Realty Capital, Inc. for the period ended June 30, 2022, including balance sheets, statements of operations, comprehensive income, stockholders' equity, and cash flows, along with accompanying notes detailing the Company's organization, accounting policies, investments, debt, equity, commitments, derivatives, fair value measurements, incentive plans, and subsequent events Consolidated Balance Sheets This section provides a snapshot of the Company's assets, liabilities, and equity at specific points in time | Metric | June 30, 2022 (in thousands) | December 31, 2021 (in thousands) | Change | | :--------------------------------- | :----------------------------- | :------------------------------- | :----------- | | Total assets | $8,082,233 | $7,330,870 | +$751,363 | | Total liabilities | $3,729,362 | $3,331,071 | +$398,291 | | Total stockholders' equity | $4,352,871 | $3,999,799 | +$353,072 | | Total investments, net | $7,606,827 | $6,898,655 | +$708,172 | | Total debt, net | $3,420,333 | $3,012,592 | +$407,741 | Consolidated Statements of Operations This section details the Company's revenues, expenses, and net income over specific periods | Metric | 3 Months Ended June 30, 2022 (in thousands) | 3 Months Ended June 30, 2021 (in thousands) | Change (YoY) | 6 Months Ended June 30, 2022 (in thousands) | 6 Months Ended June 30, 2021 (in thousands) | Change (YoY) | | :----------------------------------- | :---------------------------------------- | :---------------------------------------- | :----------- | :---------------------------------------- | :---------------------------------------- | :----------- | | Total revenues | $174,935 | $164,626 | +$10,309 | $343,331 | $299,767 | +$43,564 | | Total expenses | $130,916 | $114,070 | +$16,846 | $249,468 | $223,251 | +$26,217 | | Net income | $82,740 | $87,924 | -$5,184 | $138,796 | $86,455 | +$52,341 | | Net income attributable to common stockholders | $80,152 | $85,336 | -$5,184 | $133,620 | $81,279 | +$52,341 | | Basic EPS | $0.60 | $0.74 | -$0.14 | $1.02 | $0.71 | +$0.31 | | Diluted EPS | $0.60 | $0.74 | -$0.14 | $1.02 | $0.70 | +$0.32 | | Dividends declared per common share | $0.6380 | $0.6250 | +$0.0130 | $1.2760 | $1.2500 | +$0.0260 | Consolidated Statements of Comprehensive Income This section presents the Company's total comprehensive income, including net income and other comprehensive income items | Metric | 3 Months Ended June 30, 2022 (in thousands) | 3 Months Ended June 30, 2021 (in thousands) | 6 Months Ended June 30, 2022 (in thousands) | 6 Months Ended June 30, 2021 (in thousands) | | :--------------------------------------- | :---------------------------------------- | :---------------------------------------- | :---------------------------------------- | :---------------------------------------- | | Net income attributable to common stockholders | $80,152 | $85,336 | $133,620 | $81,279 | | Total comprehensive income | $80,854 | $86,038 | $135,024 | $82,683 | Consolidated Statements of Stockholders' Equity This section outlines changes in the Company's equity accounts, including common stock and retained earnings | Metric | June 30, 2022 (in thousands) | December 31, 2021 (in thousands) | | :--------------------------------- | :----------------------------- | :------------------------------- | | Total Stockholders' Equity | $4,352,871 | $3,999,799 | | Common Stock Shares Outstanding | 136,341,685 | 127,699,235 | Consolidated Statements of Cash Flows This section details the Company's cash inflows and outflows from operating, investing, and financing activities | Metric | 6 Months Ended June 30, 2022 (in thousands) | 6 Months Ended June 30, 2021 (in thousands) | Change (YoY) | | :--------------------------------------- | :---------------------------------------- | :---------------------------------------- | :----------- | | Net cash provided by operating activities | $224,342 | $191,493 | +$32,849 | | Net cash used in investing activities | $(811,517) | $(395,368) | -$(416,149) | | Net cash provided by financing activities | $606,337 | $188,134 | +$418,203 | | Net increase in cash, cash equivalents and restricted cash | $19,162 | $(15,741) | +$34,903 | | Cash, cash equivalents and restricted cash, end of period | $36,961 | $67,557 | -$30,596 | Notes to Consolidated Financial Statements This section provides detailed explanations and disclosures supporting the consolidated financial statements NOTE 1. ORGANIZATION This note describes the Company's structure as a self-administered REIT focused on single-tenant real estate - Spirit Realty Capital, Inc. operates as a self-administered and self-managed REIT, primarily investing in and managing a portfolio of single-tenant, operationally essential real estate throughout the United States, leased on a long-term, triple-net basis[32] - The Company's operations are generally carried out through Spirit Realty, L.P. (the Operating Partnership), with the Corporation and a wholly-owned subsidiary owning 99% as limited partners[33] NOTE 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES This note outlines the key accounting principles and methods used in preparing the financial statements - The Company elected to account for lease concessions related to the COVID-19 pandemic consistent with ASC 842, recognizing rent deferrals as an increase to rent receivables[40] - For the six months ended June 30, 2022, $0.4 million of deferrals were recognized in rental income, a significant decrease from $11.8 million for the same period in 2021[40] - The Corporation has elected to be taxed as a REIT and believes it continues to qualify, generally not being subject to federal income tax[50] NOTE 3. INVESTMENTS This note details the Company's real estate investments, including acquisitions, dispositions, and impairment losses - As of June 30, 2022, the Company's gross investment in owned real estate properties totaled approximately $8.8 billion, geographically dispersed throughout 49 states, with Texas at 14.1%[54] - During the six months ended June 30, 2022, the Company acquired 97 properties for $920.4 million and disposed of 22 properties for $78.1 million[54] | Metric | 6 Months Ended June 30, 2022 (in thousands) | 6 Months Ended June 30, 2021 (in thousands) | | :--------------------------------------- | :---------------------------------------- | :---------------------------------------- | | Total rental income (operating leases) | $340,634 | $299,107 | | Total future minimum rentals (operating leases) | $7,394,318 | N/A | | Impairment Type | 6 Months Ended June 30, 2022 (in thousands) | 6 Months Ended June 30, 2021 (in thousands) | | :-------------------------- | :---------------------------------------- | :---------------------------------------- | | Real estate asset impairment | $8,903 | $13,783 | | Intangible asset impairment | $495 | $747 | | Allowance for credit losses | $127 | $0 | | Total impairment loss | $9,525 | $14,530 | NOTE 4. DEBT This note provides information on the Company's debt structure, including credit facilities, senior notes, and mortgages | Metric | June 30, 2022 (in thousands) | December 31, 2021 (in thousands) | | :---------------------- | :----------------------------- | :------------------------------- | | Revolving credit facilities | $694,500 | $288,400 | | Senior Unsecured Notes | $2,750,000 | $2,750,000 | | Mortgages payable | $5,091 | $5,350 | | Total debt | $3,449,591 | $3,043,750 | | Total debt, net | $3,420,333 | $3,012,592 | - The 2019 Credit Facility's borrowing capacity was increased to $1.2 billion in March 2022, with $694.5 million outstanding as of June 30, 2022, bearing interest at 1-Month adjusted SOFR plus 0.775%[69][70] - A $0.2 million loss on debt extinguishment was recognized in the six months ended June 30, 2022, due to the amendment and restatement of the 2019 Revolving Credit and Term Loan Agreement[79] | Debt Type | Total (in thousands) | Remainder of 2022 (in thousands) | 2023 (in thousands) | 2024 (in thousands) | 2025 (in thousands) | 2026 (in thousands) | Thereafter (in thousands) | | :---------------------- | :------------------- | :------------------------------- | :------------------ | :------------------ | :------------------ | :------------------ | :------------------------ | | 2019 Credit Facility | $694,500 | — | — | — | — | $694,500 | — | | Senior Unsecured Notes | $2,750,000 | — | — | — | — | $300,000 | $2,450,000 | | Mortgages payable | $5,091 | $266 | $556 | $590 | $626 | $468 | $2,585 | | Total | $3,449,591 | $266 | $556 | $590 | $626 | $994,968 | $2,452,585 | | Interest Expense Component | 6 Months Ended June 30, 2022 (in thousands) | 6 Months Ended June 30, 2021 (in thousands) | | :--------------------------------------- | :---------------------------------------- | :---------------------------------------- | | Revolving credit facilities | $4,970 | $1,353 | | Senior Unsecured Notes | $44,626 | $41,370 | | Mortgages payable | $152 | $2,346 | | Convertible Notes | $0 | $2,658 | | Non-cash (amortization, swaps) | $4,195 | $5,043 | | Capitalized interest | $(326) | $0 | | Total interest expense | $53,617 | $52,794 | NOTE 5. STOCKHOLDERS' EQUITY This note details changes in the Company's equity, including share issuances and dividend declarations - In January 2022, the Company entered into forward sale agreements for 9.4 million shares of common stock at $47.60 per share, settling 8.3 million shares for $376.4 million by June 30, 2022, with 1.1 million shares remaining open[83] - Under the 2021 ATM Program, 2.9 million shares of common stock have been sold since inception through June 30, 2022, with approximately $364.9 million of capacity remaining[85] | Dividend Type | Declaration Date | Dividend Per Share | Total Amount (in thousands) | | :-------------- | :--------------- | :----------------- | :-------------------------- | | Common Stock | Feb 9, 2022 | $0.638 | $85,688 | | Common Stock | May 18, 2022 | $0.638 | $86,987 | | Preferred Stock | Feb 9, 2022 | $0.375 | $2,588 | | Preferred Stock | May 18, 2022 | $0.375 | $2,588 | NOTE 6. COMMITMENTS AND CONTINGENCIES This note discloses the Company's financial commitments and potential liabilities - As of June 30, 2022, the Company had commitments totaling $214.5 million, with $126.1 million for future acquisitions and the remainder for property improvements, mostly expected to be funded in 2022[91] - The Company reversed a $5.7 million accrued liability in Q1 2022, previously reserved for debt owed by a former tenant, as no payments were made and the debt matured[88] NOTE 7. DERIVATIVE AND HEDGING ACTIVITIES This note describes the Company's use of derivative instruments to manage interest rate risk - The Company uses interest rate derivative contracts (cash flow hedges) to manage its exposure to changes in interest rates on variable rate debt[94] - An unamortized loss of $4.4 million related to terminated interest rate swaps remains in Accumulated Other Comprehensive Loss (AOCL) as of June 30, 2022, with an estimated $2.8 million to be reclassified as an increase to interest expense in the next 12 months[95][96] NOTE 8. FAIR VALUE MEASUREMENTS This note provides information on how the Company measures the fair value of its financial instruments and impaired assets - Fair value measurements for impaired assets are primarily classified as Level 3, using unobservable inputs such as purchase and sale agreements (PSAs), letters of intent (LOIs), broker opinions of value (BOVs), or comparable property prices[98] | Financial Instrument | Carrying Value (June 30, 2022, in thousands) | Estimated Fair Value (June 30, 2022, in thousands) | | :----------------------- | :------------------------------------------- | :------------------------------------------------- | | Loans receivable, net | $23,023 | $23,884 | | 2019 Credit Facility | $694,500 | $717,596 | | Senior Unsecured Notes, net | $2,720,562 | $2,408,658 | | Mortgages payable, net | $5,271 | $5,088 | NOTE 9. INCENTIVE AWARD PLAN This note details the Company's stock-based compensation and incentive awards granted to employees - During the six months ended June 30, 2022, the Company granted 122 thousand restricted shares and approved target grants of 166 thousand market-based awards to executive officers[103][104] | Metric | 6 Months Ended June 30, 2022 (in thousands) | 6 Months Ended June 30, 2021 (in thousands) | | :--------------------------------------- | :---------------------------------------- | :---------------------------------------- | | Stock-based compensation expense | $8,412 | $6,992 | | Total unamortized stock-based compensation expense (June 30, 2022) | $28,681 | N/A | NOTE 10. INCOME PER SHARE This note presents the basic and diluted earnings per share calculations for common stockholders | Metric | 3 Months Ended June 30, 2022 | 6 Months Ended June 30, 2022 | | :--------------------------------------- | :--------------------------- | :--------------------------- | | Net income per share attributable to common stockholders - Basic | $0.60 | $1.02 | | Net income per share attributable to common stockholders - Diluted | $0.60 | $1.02 | | Diluted weighted average shares of common stock outstanding | 134,219,450 | 131,307,057 | NOTE 11. SUBSEQUENT EVENTS This note discloses significant events that occurred after the balance sheet date but before the financial statements were issued - On July 28, 2022, the Company entered into two interest rate swaps for notional amounts of $300.0 million and $200.0 million, swapping 1-Month SOFR with fixed interest rates of 2.501% and 2.507%, respectively, maturing on August 22, 2027[110] - On August 1, 2022, the Company entered into one interest rate swap for a notional amount of $300.0 million, swapping 1-Month SOFR with a fixed interest rate of 2.636%, maturing on August 22, 2025[111] Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations This section provides management's perspective on the Company's financial condition and results of operations, highlighting key trends, significant events, and the impact of various factors, including the COVID-19 pandemic, on its performance for the three and six months ended June 30, 2022. It covers revenue and expense changes, property portfolio details, liquidity, debt, and non-GAAP financial measures Special Note Regarding Forward-looking Statements This section cautions readers about forward-looking statements and associated risks - The report contains forward-looking statements that involve numerous risks and uncertainties, including industry and economic conditions, financial market volatility, interest rate changes, and the ability to implement business strategy[113][114] - The Company disclaims any obligation to publicly update or revise forward-looking statements, except as required by law[114] Overview This section provides a high-level summary of Spirit Realty Capital, Inc.'s business and portfolio - Spirit Realty Capital, Inc. is a self-administered and self-managed REIT listed on the NYSE (SRC), specializing in single-tenant, operationally essential real estate leased on a long-term, triple-net basis[115] - As of June 30, 2022, the portfolio comprised 2,078 owned properties across 49 states, leased to 342 tenants in 35 industries, with approximately 99.8% occupancy[116] Business Impact of the COVID-19 Pandemic This section discusses the ongoing effects of the COVID-19 pandemic on the Company's operations and financial performance - The impact of the COVID-19 pandemic on the Company's business has significantly reduced since the beginning of 2021[119] - For the six months ended June 30, 2022, the Company deferred $0.2 million of rent and reversed $0.2 million of previous reserves against deferred rent, with no rent abatements[119] - As of June 30, 2022, $11.5 million in deferred rent receivables remained, with 61% expected to be repaid by the end of 2023[120] Critical Accounting Policies and Estimates This section highlights the accounting policies and estimates that require significant management judgment - Management uses judgment in applying accounting policies and making estimates, which are re-evaluated periodically[121] - No material changes to critical accounting policies were made during the periods covered by this quarterly report[121] Results of Operations This section analyzes the Company's financial performance, including revenue, expenses, and net income trends Changes related to operating properties This section details the factors influencing changes in rental income and other property-related revenues - Base Cash Rent increased due to net acquisitions, with 220 properties acquired ($105.5 million annual in-place rent) and 29 disposed ($4.2 million annual in-place rent) in the trailing twelve months ended June 30, 2022[125] - Net recoveries of Base Cash Rent previously reserved due to COVID-19 were minimal in H1 2022 ($0.1 million) compared to $5.7 million in H1 2021[126] - Variable cash rent increased due to higher tenant reimbursements for property costs, primarily property taxes, following net acquisitions[127] - Non-cash rental income (straight-line rent and intangible amortization) increased minimally, with net reserves of $0.1 million in H1 2022 compared to net recoveries of $11.0 million in H1 2021[129] Impairments This section discusses the recognition of impairment losses on real estate and intangible assets - Impairments declined in 2022, with $8.6 million recorded on two underperforming properties and $0.8 million on one vacant property for the six months ended June 30, 2022, compared to $11.8 million on 15 properties and $2.7 million on five vacant properties in H1 2021[130] - An allowance for credit loss of $0.1 million was recorded in 2022 as a result of entering into a new loan receivable[131] Gain on disposition of assets This section reports the gains realized from the sale of properties - Gain on disposition of assets remained relatively flat, with $39.8 million for the six months ended June 30, 2022, compared to $39.3 million in H1 2021[132] - In H1 2022, 11 active properties were disposed of for $37.4 million in net gains, and 11 vacant properties for $2.0 million in net gains[132] Changes related to debt This section analyzes the impact of debt structure changes on interest expense and related financial metrics - The weighted average effective interest rate decreased from 3.64% at June 30, 2021, to 3.19% at June 30, 2022, primarily due to changes in the debt structure[136] - Interest expense increased due to higher borrowings and increased effective interest rates on the 2019 Credit Facility[136] - A $0.2 million loss on debt extinguishment was recognized in H1 2022 from amending the 2019 Revolving Credit and Term Loan Agreement[134] Changes related to general and administrative expenses This section explains the fluctuations in general and administrative costs - General and administrative expenses increased by $1.6 million for the six months ended June 30, 2022, primarily driven by a $2.6 million increase in compensation expenses (cash and non-cash)[137] - This increase was partially offset by a $0.7 million decrease in expenses related to the COVID-19 pandemic[137] Changes related to other income This section details non-operating income sources and their impact on financial results - The Company recognized $5.7 million in other income in Q1 2022 by reversing a fully reserved contingent liability for a former tenant's debt that matured without payment[138] Property Portfolio Information This section provides detailed statistics and diversification metrics for the Company's real estate portfolio Diversification By Tenant This section illustrates the distribution of Annualized Base Rent across various tenant concepts - As of June 30, 2022, the portfolio consisted of 2,078 properties leased to 342 tenants in 35 industries, with approximately 99.8% occupancy[116][139] - No single tenant concept accounts for more than 4.2% of Annualized Base Rent (ABR)[139][140] | Tenant Concept | Percent of ABR | | :--------------- | :------------- | | Life Time Fitness | 4.2% | | ClubCorp | 2.6% | | BJ's Wholesale Club | 2.2% | | At Home | 2.2% | | Dave & Buster's / Main Event | 2.2% | | Church's Chicken | 2.0% | Lease Expirations This section presents a schedule of lease expirations and their impact on Annualized Base Rent - As of June 30, 2022, the weighted average remaining non-cancelable initial term of leases was 10.3 years[141] | Leases Expiring In: | Percent of ABR | | :------------------ | :------------- | | Remainder of 2022 | 0.5% | | 2023 | 3.6% | | 2024 | 2.7% | | 2025 | 3.5% | | 2026 | 7.0% | | Thereafter | 51.5% | Diversification By Geography This section outlines the geographical distribution of the Company's property portfolio - The portfolio is geographically diversified across 49 states[142] | Location | Percent of ABR | | :--------- | :------------- | | Texas | 13.8% | | Florida | 7.8% | | Georgia | 6.2% | | Ohio | 5.5% | | Michigan | 4.3% | | California | 4.2% | Diversification By Asset Type and Tenant Industry This section categorizes the portfolio by asset type and the industries of its tenants | Asset Type | Percent of ABR | | :----------- | :------------- | | Retail | 70.9% | | Non-Retail | 29.1% | | Top Retail Tenant Industries | Percent of ABR | | :--------------------------- | :------------- | | Health and Fitness | 8.2% | | Convenience Stores | 6.0% | | Restaurants - Quick Service | 5.1% | | Restaurants - Casual Dining | 4.8% | | Car Washes | 4.5% | | Top Non-Retail Underlying Use | Percent of ABR | | :---------------------------- | :------------- | | Distribution | 10.5% | | Manufacturing | 7.5% | | Office | 2.7% | | Country Club | 2.6% | | Medical | 2.2% | Liquidity and Capital Resources This section analyzes the Company's ability to meet its short-term and long-term financial obligations ATM PROGRAM This section describes the Company's At-the-Market equity distribution program - A new $500.0 million 2021 ATM Program was approved in November 2021[145] - As of June 30, 2022, 2.9 million shares were sold under the 2021 ATM Program, with approximately $364.9 million of capacity remaining[147] FORWARD EQUITY OFFERING This section details the Company's forward sale agreements for common stock - In January 2022, the Company entered into forward sale agreements for 9.4 million shares of common stock at an initial public offering price of $47.60 per share[148] - By June 30, 2022, 8.3 million shares were settled, generating net proceeds of $376.4 million, with 1.1 million shares remaining open for settlement by July 19, 2023[148] SHORT-TERM LIQUIDITY AND CAPITAL RESOURCES This section outlines the Company's immediate sources of funds and financial flexibility - Short-term funding sources include cash from operating activities, borrowings under the 2019 Credit Facility, and equity issuances[149] - As of June 30, 2022, available liquidity included $5.4 million in cash, $31.5 million in restricted cash, $505.5 million of borrowing capacity under the 2019 Credit Facility, and $51.8 million of expected proceeds from open forward equity contracts[149] LONG-TERM LIQUIDITY AND CAPITAL RESOURCES This section describes the Company's strategies for securing capital to fund long-term growth and operations - Long-term capital needs are planned to be met by issuing registered debt or equity securities, obtaining asset-level financing, and issuing fixed-rate secured or unsecured notes and bonds[150] - The Company acknowledges market uncertainties (rising interest rates, inflation, geopolitical events) that could impact access to capital markets[150] DESCRIPTION OF CERTAIN DEBT This section provides details on the Company's various debt instruments 2019 Credit Facility This section describes the terms and outstanding amounts of the Company's revolving credit facility - The 2019 Credit Facility was amended in March 2022, increasing borrowing capacity to $1.2 billion (expandable to $1.7 billion) with a maturity of March 31, 2026[152] - As of June 30, 2022, $694.5 million was outstanding, bearing interest at a 1-Month adjusted SOFR rate plus 0.775%[154] Senior Unsecured Notes This section lists the Company's senior unsecured notes, including maturity dates and interest rates | Senior Unsecured Notes | Maturity Date | Stated Interest Rate | Outstanding Principal (June 30, 2022, in thousands) | | :--------------------- | :------------ | :------------------- | :------------------------------------------------ | | 2026 Senior Notes | Sep 15, 2026 | 4.45% | $300,000 | | 2027 Senior Notes | Jan 15, 2027 | 3.20% | $300,000 | | 2028 Senior Notes | Mar 15, 2028 | 2.10% | $450,000 | | 2029 Senior Notes | Jul 15, 2029 | 4.00% | $400,000 | | 2030 Senior Notes | Jan 15, 2030 | 3.40% | $500,000 | | 2031 Senior Notes | Feb 15, 2031 | 3.20% | $450,000 | | 2032 Senior Notes | Feb 15, 2032 | 2.70% | $350,000 | | Total | | 3.25% | $2,750,000 | Mortgages payable This section provides details on the Company's outstanding mortgage loans - As of June 30, 2022, the Company had two fixed-rate CMBS loans totaling $5.1 million in aggregate outstanding principal, with stated interest rates of 5.80% and 6.00%, maturing in August 2031 and December 2025, respectively[156] DEBT MATURITIES This section presents a schedule of the Company's debt obligations by maturity year | Debt Type | Total (in thousands) | Remainder of 2022 (in thousands) | 2023 (in thousands) | 2024 (in thousands) | 2025 (in thousands) | 2026 (in thousands) | Thereafter (in thousands) | | :---------------------- | :------------------- | :------------------------------- | :------------------ | :------------------ | :------------------ | :------------------ | :------------------------ | | 2019 Credit Facility | $694,500 | — | — | — | — | $694,500 | — | | Senior Unsecured Notes | $2,750,000 | — | — | — | — | $300,000 | $2,450,000 | | Mortgages payable | $5,091 | $266 | $556 | $590 | $626 | $468 | $2,585 | | Total | $3,449,591 | $266 | $556 | $590 | $626 | $994,968 | $2,452,585 | CONTRACTUAL OBLIGATIONS This section outlines the Company's significant contractual commitments and payment obligations - No material changes to contractual obligations occurred during the six months ended June 30, 2022, outside the ordinary course of business, other than the amendment and restatement of the 2019 Revolving Credit and Term Loan Agreement[158] DISTRIBUTION POLICY This section describes the Company's policy for distributing income to shareholders as a REIT - The Company is required to distribute 90% of its taxable income (subject to certain adjustments and excluding net capital gains) annually to maintain qualification as a REIT for federal income tax purposes[161] - Distributions are at the sole discretion of the Board of Directors, with form, timing, and amount dependent on factors including actual and projected results of operations, FFO, liquidity, cash flows, and REIT taxable income[163] Cash Flows This section analyzes the Company's cash generation and usage across operating, investing, and financing activities | Metric | 6 Months Ended June 30, 2022 (in thousands) | 6 Months Ended June 30, 2021 (in thousands) | Change (YoY) | | :--------------------------------------- | :---------------------------------------- | :---------------------------------------- | :----------- | | Net cash provided by operating activities | $224,342 | $191,493 | +$32,849 | | Net cash used in investing activities | $(811,517) | $(395,368) | -$(416,149) | | Net cash provided by financing activities | $606,337 | $188,134 | +$418,203 | | Net increase in cash, cash equivalents and restricted cash | $19,162 | $(15,741) | +$34,903 | - Operating cash flow increased by $32.8 million, driven by a $53.2 million increase in cash rental revenue from net acquisitions, partially offset by higher cash interest paid and lease incentives[166] - Investing activities used $811.5 million, primarily for 97 property acquisitions ($872.7 million) and capitalized expenditures, partially offset by $111.2 million in net proceeds from dispositions[168] - Financing activities provided $606.3 million, mainly from net borrowings under revolving credit facilities ($406.1 million) and common stock issuance ($389.7 million), offset by dividend payments ($174.1 million)[171] Off-Balance Sheet Arrangements This section discloses any material off-balance sheet transactions or obligations - As of June 30, 2022, the Company did not have any material off-balance sheet arrangements[172] New Accounting Pronouncements This section refers to disclosures regarding recently adopted or issued accounting standards - Refer to Note 2 to the consolidated financial statements for details on new accounting pronouncements[173] Non-GAAP Financial Measures This section provides reconciliations and explanations for non-GAAP financial metrics used by management FFO and AFFO This section presents the Company's Funds From Operations (FFO) and Adjusted Funds From Operations (AFFO) | Metric | 3 Months Ended June 30, 2022 (in thousands) | 3 Months Ended June 30, 2021 (in thousands) | 6 Months Ended June 30, 2022 (in thousands) | 6 Months Ended June 30, 2021 (in thousands) | | :--------------------------------------- | :---------------------------------------- | :---------------------------------------- | :---------------------------------------- | :---------------------------------------- | | FFO attributable to common stockholders | $123,377 | $115,562 | $245,060 | $173,341 | | AFFO attributable to common stockholders | $121,084 | $99,872 | $234,371 | $187,132 | | FFO per share of common stock - Diluted | $0.92 | $1.00 | $1.86 | $1.50 | | AFFO per share of common stock - Diluted | $0.90 | $0.86 | $1.78 | $1.62 | - FFO increased by $7.8 million (6.8%) for Q2 2022 and $71.7 million (41.4%) for H1 2022[183] - AFFO increased by $21.2 million (21.2%) for Q2 2022 and $47.2 million (25.2%) for H1 2022[183] Adjusted Debt, Adjusted EBITDAre and Annualized Adjusted EBITDAre This section provides details on the Company's adjusted debt and EBITDAre metrics | Metric | June 30, 2022 (in thousands) | June 30, 2021 (in thousands) | Change (YoY) | | :--------------------------------------- | :----------------------------- | :----------------------------- | :----------- | | Adjusted Debt | $3,412,630 | $2,701,044 | +$711,586 | | Annualized Adjusted EBITDAre | $651,368 | $540,224 | +$111,144 | | Adjusted Debt / Annualized Adjusted EBITDAre | 5.2x | 5.0x | +0.2x | - Adjusted EBITDAre for Q2 2022 was $163.0 million, up from $150.3 million in Q2 2021[185] Item 3. Quantitative and Qualitative Disclosures About Market Risk The Company is exposed to financial market risks, primarily interest rate risk, which influences its performance more than inflation due to its long-term, triple-net leases. While the majority of its indebtedness is fixed-rate, variable-rate borrowings under the 2019 Credit Facility expose it to rising interest rates, potentially increasing annual interest expense - The Company's operating results depend heavily on the difference between revenue from assets and interest expense incurred on borrowings[190] - As of June 30, 2022, $2.8 billion of indebtedness was fixed-rate (3.25% weighted average stated interest rate), and $694.5 million was variable-rate under the 2019 Credit Facility (2.31% stated interest rate)[191] - A 100 basis point (1.0%) increase in 1-Month SOFR would increase annual interest expense by $6.9 million on the outstanding 2019 Credit Facility borrowings[191] Item 4. Controls and Procedures Management, including the Chief Executive Officer and Chief Financial Officer, concluded that the Company's disclosure controls and procedures were effective as of June 30, 2022. No material changes to internal control over financial reporting occurred during the quarter - An evaluation concluded that the design and operation of disclosure controls and procedures were effective as of June 30, 2022[193] - There were no changes to internal control over financial reporting that materially affected, or are reasonably likely to materially affect, internal control over financial reporting during the quarter ended June 30, 2022[194] PART II — OTHER INFORMATION This part includes disclosures on legal proceedings, risk factors, equity sales, defaults, and exhibits Item 1. Legal Proceedings The Company is not currently a party to any material legal proceedings that are expected to have a significant adverse effect on its business, financial condition, or results of operations - The Company is not currently a party to any legal proceedings that are believed to be material or that would individually or in the aggregate be expected to have a material effect on its business, financial condition, or results of operations[196] Item 1A. Risk Factors There have been no material changes to the risk factors previously disclosed in the Company's Annual Report on Form 10-K for the year ended December 31, 2021 - No material changes to the risk factors as disclosed in Part I, Item 1A. Risk Factors in the Annual Report on Form 10-K for the year ended December 31, 2021[197] Item 2. Unregistered Sales of Equity Securities and Use of Proceeds There were no unregistered sales of equity securities or use of proceeds to report for the period - None[198] Item 3. Defaults Upon Senior Securities There were no defaults upon senior securities to report for the period - None[199] Item 4. Mine Safety Disclosures There were no mine safety disclosures to report for the period - None[200] Item 5. Other Information No other information is required to be disclosed under this item for the period - None[201] Item 6. Exhibits This section lists all exhibits filed with the Form 10-Q, including organizational documents, incentive award plans, certifications, and XBRL-related documents - Exhibits include Articles of Restatement, Articles of Amendment, Bylaws, the Second Amended and Restated Spirit Realty Capital, Inc. and Spirit Realty, L.P. 2012 Incentive Award Plan, Form of Indemnification Agreement, and certifications from the Chief Executive Officer and Chief Financial Officer[202] SIGNATURES This section confirms the official signing and submission of the report - The report was signed on behalf of Spirit Realty Capital, Inc. by Prakash J. Parag, Senior Vice President and Chief Accounting Officer, on August 3, 2022[205]