Spirit Realty Capital(SRC) - 2023 Q1 - Quarterly Report

Glossary This section defines key financial terms and non-GAAP measures, clarifying their calculation and purpose - The glossary defines key financial terms and non-GAAP measures, providing clarity on their calculation and purpose[8][9] PART I — FINANCIAL INFORMATION This part presents unaudited consolidated financial statements and management's discussion of financial condition and operations Item 1. Financial Statements (Unaudited) This section presents unaudited consolidated financial statements, including balance sheets, income, equity, and cash flows, with detailed notes Consolidated Balance Sheets This section provides a snapshot of the company's assets, liabilities, and equity at specific points in time Consolidated Balance Sheets (Thousands) | Metric | March 31, 2023 (Thousands) | December 31, 2022 (Thousands) | | :--------------------------------- | :-------------------------- | :--------------------------- | | Total assets | $8,481,696 | $8,472,866 | | Total liabilities | $3,927,797 | $3,911,550 | | Total stockholders' equity | $4,553,899 | $4,561,316 | - Total assets increased by $8.8 million, while total liabilities increased by $16.2 million, leading to a decrease in total stockholders' equity by $7.4 million from December 31, 2022, to March 31, 2023[13] Consolidated Statements of Operations This section details the company's revenues, expenses, and net income over specific periods Consolidated Statements of Operations (Thousands) | Metric | Three Months Ended March 31, 2023 (Thousands) | Three Months Ended March 31, 2022 (Thousands) | | :----------------------------------- | :------------------------------------------ | :------------------------------------------ | | Total revenues | $188,289 | $168,396 | | Total expenses | $141,080 | $118,552 | | Income before income tax expense | $96,396 | $56,228 | | Net income | $96,173 | $56,056 | | Net income attributable to common stockholders | $93,585 | $53,468 | | Basic EPS | $0.66 | $0.42 | | Diluted EPS | $0.66 | $0.42 | - Net income attributable to common stockholders increased by $40.1 million (75%) from $53.5 million in Q1 2022 to $93.6 million in Q1 2023, primarily due to a substantial gain on disposition of assets[15] Consolidated Statements of Comprehensive Income This section presents the total comprehensive income, including net income and other comprehensive income items Consolidated Statements of Comprehensive Income (Thousands) | Metric | Three Months Ended March 31, 2023 (Thousands) | Three Months Ended March 31, 2022 (Thousands) | | :----------------------------------- | :------------------------------------------ | :------------------------------------------ | | Net income attributable to common stockholders | $93,585 | $53,468 | | Net reclassification of amounts (to) from AOCIL | $(10,586) | $702 | | Total comprehensive income | $82,999 | $54,170 | - Total comprehensive income increased by $28.8 million (53.2%) year-over-year, despite a significant net reclassification of amounts to AOCIL in Q1 2023 compared to a reclassification from AOCIL in Q1 2022[17] Consolidated Statements of Stockholders' Equity This section details changes in equity from net income, dividends, and other comprehensive income Consolidated Statements of Stockholders' Equity (Thousands) | Metric | Balance, December 31, 2022 (Thousands) | Balance, March 31, 2023 (Thousands) | | :----------------------------------- | :----------------------------------- | :---------------------------------- | | Total Stockholders' Equity | $4,561,316 | $4,553,899 | | Net income | - | $96,173 | | Dividends declared on common stock | - | $(93,675) | | Other comprehensive loss | - | $(10,586) | - Total stockholders' equity decreased by $7.4 million from December 31, 2022, to March 31, 2023, primarily due to common stock dividends and other comprehensive loss, partially offset by net income and stock-based compensation[19] Consolidated Statements of Cash Flows This section summarizes cash inflows and outflows from operating, investing, and financing activities Consolidated Statements of Cash Flows (Thousands) | Cash Flow Activity | Three Months Ended March 31, 2023 (Thousands) | Three Months Ended March 31, 2022 (Thousands) | | :----------------------------------- | :------------------------------------------ | :------------------------------------------ | | Net cash provided by operating activities | $101,691 | $78,271 | | Net cash used in investing activities | $(89,974) | $(499,550) | | Net cash (used) provided by financing activities | $(55,172) | $430,056 | | Net (decrease) increase in cash, cash equivalents and restricted cash | $(43,455) | $8,777 | - Net cash provided by operating activities increased by $23.4 million year-over-year[22] - Net cash used in investing activities decreased significantly by $409.6 million, primarily due to fewer real estate acquisitions[22][135][137] - Net cash from financing activities shifted from a $430.1 million inflow in Q1 2022 to a $55.2 million outflow in Q1 2023, mainly due to reduced borrowings and stock issuances[22][135][137] Notes to Consolidated Financial Statements This section provides detailed explanations of accounting policies, significant transactions, and financial instrument disclosures NOTE 1. ORGANIZATION This note describes the company's business as a self-administered, self-managed REIT investing in single-tenant real estate - Spirit Realty Capital, Inc. operates as a self-administered and self-managed REIT, investing in single-tenant, operationally essential real estate across the U.S. on a long-term, triple-net basis[27] NOTE 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES This note outlines the company's accounting principles, including GAAP compliance, consolidation, and revenue recognition policies - Financial statements are prepared in accordance with GAAP, with detailed revenue recognition policies for rental income and interest income on loans receivable[29][30][34][35][38][39][40] Cash, Cash Equivalents and Restricted Cash (Thousands) | Category | March 31, 2023 | December 31, 2022 | | :----------------------------------- | :------------- | :---------------- | | Cash and cash equivalents | $4,871 | $8,770 | | Restricted cash (1031 Exchange proceeds) | $12,983 | $53,183 | | Total cash, cash equivalents and restricted cash | $18,498 | $61,953 | NOTE 3. INVESTMENTS This note details the company's real estate investments, including acquisitions, dispositions, and rental income components - As of March 31, 2023, the Company's gross investment in owned real estate properties totaled $9.3 billion, diversified across 49 states, with Texas exceeding 10%[51] Real Estate Activity (Three Months Ended March 31, 2023) (Thousands) | Activity | Number of Properties | Dollar Amount of Investments | | :----------------------------------- | :------------------- | :--------------------------- | | Gross balance, December 31, 2022 | 2,115 | $9,183,744 | | Acquisitions/improvements | 7 | $206,143 | | Dispositions of real estate | (39) | $(115,104) | | Gross balance, March 31, 2023 | 2,083 | $9,262,434 | Rental Income Components (Three Months Ended March 31) (Thousands) | Component | 2023 | 2022 | | :----------------------------------- | :---------- | :---------- | | Base Cash Rent | $171,230 | $150,635 | | Variable cash rent (incl. reimbursables) | $5,795 | $7,218 | | Straight-line rent, net | $9,920 | $8,575 | | Amortization of above-/below-market lease intangibles, net | $349 | $647 | | Total rental income | $187,294 | $167,075 | - The Company recorded $5.3 million in total impairment loss for Q1 2023, significantly higher than $0.1 million in Q1 2022, primarily due to real estate asset impairment and increased allowance for credit losses[62] NOTE 4. DEBT This note details the company's debt structure, including revolving credit facilities, term loans, and senior unsecured notes Total Debt, Net (Thousands) | Metric | March 31, 2023 | December 31, 2022 | | :----------------------------------- | :------------- | :---------------- | | Revolving credit facilities | $98,000 | $55,500 | | Term loans, net | $792,813 | $792,309 | | Senior Unsecured Notes, net | $2,723,503 | $2,722,514 | | Mortgages payable, net | $4,841 | $4,986 | | Total debt, net | $3,619,157 | $3,575,309 | - Total debt, net, increased by $43.8 million from December 31, 2022, to March 31, 2023, primarily due to an increase in revolving credit facilities[13][63] Interest Expense Components (Three Months Ended March 31) (Thousands) | Component | 2023 | 2022 | | :----------------------------------- | :---------- | :---------- | | Revolving credit facilities | $1,839 | $1,822 | | Term loans | $7,006 | — | | Senior Unsecured Notes | $22,313 | $22,313 | | Mortgages payable | $69 | $77 | | Non-cash amortization | $2,770 | $1,937 | | Capitalized interest | $(460) | $(126) | | Total interest expense | $33,547 | $26,023 | - Total interest expense increased by $7.5 million (28.9%) year-over-year, largely due to interest on new term loans and higher non-cash amortization[80] NOTE 5. STOCKHOLDERS' EQUITY This note details the company's equity structure, including preferred stock, common stock, and dividend declarations - As of March 31, 2023, the Company had 6.9 million shares of Series A Preferred Stock outstanding, paying cumulative cash dividends of 6.00% per annum ($1.50 per share annually)[83] Dividends Declared (Three Months Ended March 31, 2023) (Thousands) | Stock Type | Dividend Per Share | Total Amount | | :----------------------------------- | :----------------- | :----------- | | Common Stock | $0.663 | $93,675 | | Preferred Stock | $0.375 | $2,588 | NOTE 6. COMMITMENTS AND CONTINGENCIES This note outlines the company's financial commitments for acquisitions and improvements, and contingent liabilities - As of March 31, 2023, the Company had commitments totaling $132.7 million, with $9.8 million for future acquisitions and the remainder for property improvements[88] - The Company reversed a $5.7 million accrual related to a contingent liability for tenant debt in Q1 2022, as no payments were made and the debt matured[85] NOTE 7. DERIVATIVE AND HEDGING ACTIVITIES This note describes the company's use of interest rate derivatives as cash flow hedges to manage variable interest rate exposure - The Company uses interest rate derivative contracts as cash flow hedges to manage exposure to variable interest rates, recording changes in fair value in AOCIL[89] Interest Rate Swap Fair Value (March 31, 2023) (Thousands) | Notional Amount | Fixed Interest Rate | Maturity Date | Fair Value of Asset (Liability) | | :---------------- | :------------------ | :------------ | :------------------------------ | | $300,000 | 2.501% | August 22, 2027 | $10,708 | | $200,000 | 2.507% | August 22, 2027 | $7,075 | | $300,000 | 2.636% | August 22, 2025 | $8,185 | | $300,000 | 3.769% | June 15, 2025 | $172 | | $200,000 | 3.590% | June 15, 2025 | $(299) | | Total | | | $25,841 | - Approximately $2.3 million is estimated to be reclassified as an increase to interest expense related to terminated hedges, and $18.3 million as a decrease to interest expense related to cash flow hedge derivatives over the next 12 months[93] NOTE 8. FAIR VALUE MEASUREMENTS This note describes the methodologies used to measure the fair value of financial instruments and other assets - Interest rate swaps are measured at fair value using market observable inputs (Level 2), while nonrecurring fair value measurements for impaired assets use PSAs, LOIs, BOVs, or discounted cash flows (Level 3)[94][95] Estimated Fair Value of Financial Instruments (Thousands) | Instrument | Carrying Value (March 31, 2023) | Estimated Fair Value (March 31, 2023) | | :----------------------------------- | :------------------------------ | :------------------------------------ | | Loans receivable, net | $56,270 | $57,821 | | 2019 Credit Facility | $98,000 | $97,999 | | 2022 Term Loans, net | $792,813 | $801,667 | | Senior Unsecured Notes, net | $2,723,503 | $2,390,320 | | Mortgages payable, net | $4,841 | $4,650 | NOTE 9. INCENTIVE AWARD PLAN This note details the company's stock-based compensation plans, including restricted shares and market-based awards - The Company granted 103 thousand restricted shares and 189 thousand target market-based awards in Q1 2023[99][100][102] - Stock-based compensation expense for Q1 2023 was $5.2 million, up from $4.0 million in Q1 2022[99][100][102] Unamortized Stock-based Compensation Expense (Thousands) | Award Type | March 31, 2023 | December 31, 2022 | | :----------------------------------- | :------------- | :---------------- | | Restricted share awards | $6,940 | $4,727 | | Market-based awards | $25,959 | $15,165 | | Total unamortized stock-based compensation expense | $32,899 | $19,892 | NOTE 10. INCOME PER SHARE This note provides a breakdown of basic and diluted net income per share attributable to common stockholders Net Income Per Share Attributable to Common Stockholders (Three Months Ended March 31) | Metric | 2023 | 2022 | | :----------------------------------- | :---------- | :---------- | | Net income attributable to common stockholders used in basic and diluted income per share | $93,446 | $53,337 | | Basic weighted average shares of common stock outstanding | 141,055,850 | 127,951,825 | | Diluted weighted average shares of common stock outstanding | 141,055,850 | 128,360,431 | | Net income per share - Basic | $0.66 | $0.42 | | Net income per share - Diluted | $0.66 | $0.42 | - Basic and diluted EPS increased from $0.42 in Q1 2022 to $0.66 in Q1 2023, reflecting higher net income despite an increase in weighted average shares outstanding[104] Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations This section provides management's perspective on financial condition, liquidity, capital resources, and results of operations Special Note Regarding Forward-looking Statements This section highlights that the report contains forward-looking statements subject to various risks and uncertainties - The report contains forward-looking statements subject to numerous risks and uncertainties, including industry conditions, market volatility, and business strategy implementation[105][107][108] Overview This section provides a high-level summary of the company's business model and portfolio characteristics - Spirit Realty Capital, Inc. is an internally-managed net-lease REIT, investing in single-tenant, operationally essential real estate across the U.S.[109][110] - As of March 31, 2023, the Company owned 2,083 properties with 347 tenants and an in-place Annualized Base Rent (ABR) of $689.1 million[109][110] Liquidity and Capital Resources This section outlines the company's short-term and long-term liquidity strategies, detailing credit facilities and debt instruments - As of March 31, 2023, available liquidity included $4.9 million in cash, $13.0 million in 1031 Exchange proceeds, $1.1 billion of borrowing capacity under the 2019 Credit Facility, and $500.0 million under the 2023 Term Loans[119] - 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[120] Debt Maturities as of March 31, 2023 (Thousands) | Debt Type | Total Outstanding | Remainder of 2023 | 2024 | 2025 | 2026 | 2027 | Thereafter | | :----------------------------------- | :---------------- | :---------------- | :--- | :--- | :--- | :--- | :--------- | | 2019 Credit Facility | $98,000 | $0 | $0 | $0 | $98,000 | $0 | $0 | | Term loans | $800,000 | $0 | $0 | $300,000 | $0 | $500,000 | $0 | | Senior Unsecured Notes | $2,750,000 | $0 | $0 | $0 | $300,000 | $300,000 | $2,150,000 | | Mortgages payable | $4,689 | $420 | $590 | $626 | $469 | $497 | $2,087 | | Total | $3,652,689 | $420 | $590 | $300,626 | $398,469 | $800,497 | $2,152,087 | Cash Flows This section analyzes the company's cash flow changes from operating, investing, and financing activities Summary of Cash Flows (Three Months Ended March 31) (Thousands) | Cash Flow Activity | 2023 | 2022 | Change | | :----------------------------------- | :---------- | :---------- | :---------- | | Net cash provided by operating activities | $101,691 | $78,271 | $23,420 | | Net cash used in investing activities | $(89,974) | $(499,550) | $409,576 | | Net cash (used) provided by financing activities | $(55,172) | $430,056 | $(485,228) | | Net (decrease) increase in cash, cash equivalents and restricted cash | $(43,455) | $8,777 | $(52,232) | - The increase in operating cash flows was driven by a $20.2 million net increase in cash rental revenue from net acquisitions, partially offset by a $9.8 million increase in cash interest paid due to higher interest rates and debt structure changes[135][136] - Investing cash outflows decreased by $306.1 million due to fewer property acquisitions (7 in Q1 2023 vs. 41 in Q1 2022)[137] - Financing cash flows decreased by $485.2 million, primarily due to reduced borrowings and no common stock issuances in 2023 compared to 2022[137] Distribution Policy This section outlines the company's policy for distributing taxable income to stockholders as a REIT - As a REIT, the Company is required to distribute at least 90% of its taxable income annually to stockholders to maintain federal income tax qualification[139] - Distributions are at the sole discretion of the Board of Directors, dependent on operations, FFO, liquidity, cash flows, debt service, capital expenditures, and REIT requirements[141] Results of Operations This section compares revenues, expenses, and other income for Q1 2023 versus Q1 2022, highlighting key drivers of change Consolidated Statements of Operations (Three Months Ended March 31) (Thousands) | Metric | 2023 | 2022 | Increase / (Decrease) | | :----------------------------------- | :---------- | :---------- | :-------------------- | | Total revenues | $188,289 | $168,396 | $19,893 | | Total expenses | $141,080 | $118,552 | $22,528 | | Total other income | $49,187 | $6,384 | $42,803 | | Net income | $96,173 | $56,056 | $40,117 | - Rental income increased by $20.2 million, primarily driven by net acquisitions of 138 properties with $78.3 million in annual in-place rent over the trailing twelve months[145] - Interest expense increased by $7.5 million due to higher total debt and rising market interest rates, with the weighted average stated interest rate increasing from 2.92% to 3.36% year-over-year[154] - Gain on disposition of assets increased significantly by $48.3 million, from $0.9 million in Q1 2022 to $49.2 million in Q1 2023, due to increased disposition volume of occupied properties[151] Property Portfolio Information This section details the company's property portfolio, including diversification by tenant, lease expirations, and geographic concentration - As of March 31, 2023, the portfolio comprised 2,083 properties with 99.8% occupancy, spread across 49 states and 347 tenant industries, with a weighted average remaining lease term of 10.4 years[156][159] Top Tenant Concentration by ABR (March 31, 2023) | Tenant Concept | Percent of ABR | | :----------------------------------- | :------------- | | Life Time Fitness | 4.3% | | Invited Clubs | 2.7% | | BJ's Wholesale Club | 2.3% | | At Home | 2.1% | | Church's Chicken | 1.9% | | Dave & Buster's / Main Event | 1.9% | | Circle K / Clean Freak | 1.9% | | Dollar Tree / Family Dollar | 1.9% | | Home Depot | 1.7% | | GPM | 1.5% | | Other (no individual tenant > 1.5%) | 77.8% | Geographic Concentration by ABR (Top 5 States, March 31, 2023) | Location | Percent of ABR | | :----------------------------------- | :------------- | | Texas | 14.6% | | Florida | 7.6% | | Ohio | 6.6% | | Georgia | 5.9% | | Michigan | 4.3% | Asset Type and Tenant Industry Concentration by ABR (March 31, 2023) | Asset Type | Tenant Industry / Underlying Use | Percent of ABR | | :----------------------------------- | :------------------------------- | :------------- | | Retail | | 67.0% | | | Health & Fitness | 7.9% | | | Convenience Stores | 5.3% | | | Quick Service Restaurants | 4.6% | | | Car Washes | 4.6% | | Non-Retail | | 33.0% | | | Distribution | 11.2% | | | Manufacturing | 10.6% | | | Office | 3.0% | Off-Balance Sheet Arrangements This section confirms the absence of any material off-balance sheet arrangements as of the reporting date - As of March 31, 2023, the Company did not have any material off-balance sheet arrangements[163] New Accounting Pronouncements This section reports that there were no new material accounting pronouncements during the reporting period - There were no new material accounting pronouncements during the period[164] Non-GAAP Financial Measures This section defines and reconciles key non-GAAP financial measures, providing insights into operating performance and financial leverage FFO and AFFO Attributable to Common Stockholders (Thousands, except per share data) | Metric | 2023 | 2022 | | :----------------------------------- | :---------- | :---------- | | FFO attributable to common stockholders | $127,722 | $121,683 | | AFFO attributable to common stockholders | $126,036 | $113,287 | | FFO per share of common stock - Diluted | $0.90 | $0.95 | | AFFO per share of common stock - Diluted | $0.89 | $0.88 | - FFO attributable to common stockholders increased by $6.0 million (4.9%) year-over-year, while AFFO increased by $12.7 million (11.2%)[173] - Diluted FFO per share decreased from $0.95 to $0.90, and diluted AFFO per share increased from $0.88 to $0.89[173] Adjusted Debt and Annualized Adjusted EBITDAre (Thousands) | Metric | March 31, 2023 | March 31, 2022 | | :----------------------------------- | :------------- | :------------- | | Adjusted Debt | $3,634,835 | $3,248,145 | | Adjusted EBITDAre | $171,723 | $155,321 | | Annualized Adjusted EBITDAre | $684,944 | $620,432 | | Adjusted Debt / Annualized Adjusted EBITDAre | 5.3x | 5.2x | - Adjusted Debt increased by $386.7 million, and Annualized Adjusted EBITDAre increased by $64.5 million year-over-year[174] - The Adjusted Debt to Annualized Adjusted EBITDAre ratio slightly increased from 5.2x to 5.3x[174] Item 3. Quantitative and Qualitative Disclosures About Market Risk This section discusses the company's exposure to financial market risks, primarily interest rate risk, and mitigation strategies - As of March 31, 2023, $2.8 billion of indebtedness was fixed-rate (Senior Unsecured Notes and mortgages payable) with a weighted average stated interest rate of 3.25%[177] - $800.0 million of variable-rate 2022 Term Loans were effectively fixed at 3.50% through interest rate swaps[177][178] - The remaining $98.0 million under the 2019 Credit Facility was variable-rate, with a 100 basis point increase in 1-month SOFR impacting annual interest expense by $1.0 million[177][178] Item 4. Controls and Procedures This section confirms the effectiveness of disclosure controls and procedures and reports no material changes in internal control - Management concluded that the design and operation of disclosure controls and procedures were effective as of March 31, 2023[180] - There were no material changes to internal control over financial reporting during the quarter ended March 31, 2023[181] PART II — OTHER INFORMATION This part includes disclosures on legal proceedings, risk factors, equity sales, defaults, and other miscellaneous information Item 1. Legal Proceedings This section states that the company is not currently involved in any material legal proceedings - The Company is not a party to any legal proceedings expected to have a material adverse effect on its business, financial condition, or results of operations[183] Item 1A. Risk Factors This section confirms no material changes to the risk factors previously disclosed in the Annual Report on Form 10-K - No material changes to the risk factors as disclosed in the Annual Report on Form 10-K for the year ended December 31, 2022[184] Item 2. Unregistered Sales of Equity Securities and Use of Proceeds This section indicates no unregistered sales of equity securities or use of proceeds to report - None to report[185] Item 3. Defaults Upon Senior Securities This section reports no defaults upon senior securities - None to report[186] Item 4. Mine Safety Disclosures This section states no mine safety disclosures to report - None to report[187] Item 5. Other Information This section indicates no other information to report - None to report[188] Item 6. Exhibits This section lists all exhibits filed with the quarterly report, including organizational documents and certifications - The report includes various exhibits such as Articles of Restatement, Bylaws, Preferred Stock designations, award notices, and certifications from the CEO and CFO[189] Signatures This section contains the official signatures certifying the filing of the quarterly report - The report was signed by Prakash J. Parag, Senior Vice President and Chief Accounting Officer of Spirit Realty Capital, Inc. on May 3, 2023[192]