Spirit Realty Capital(SRC) - 2021 Q1 - Quarterly Report

Glossary This section defines key terms and financial measures used throughout the report, including debt instruments, financial metrics, and company-specific entities - The glossary defines key terms and financial measures used throughout the report, including various debt instruments (e.g., 2026 Senior Notes, Convertible Notes), financial metrics (e.g., Adjusted Debt, AFFO, EBITDAre, FFO), and company-specific agreements or entities (e.g., 2020 ATM Program, Operating Partnership, SMTA)[8][9] PART I — FINANCIAL INFORMATION This part presents the unaudited consolidated financial statements and management's discussion and analysis for the reporting period Item 1. Financial Statements (Unaudited) This section presents the unaudited consolidated financial statements for Spirit Realty Capital, Inc. for the three months ended March 31, 2021, and comparative periods. It includes the balance sheets, statements of operations, comprehensive loss, stockholders' equity, and cash flows, along with detailed notes explaining the company's organization, significant accounting policies, investments, debt, equity, commitments, derivatives, fair value measurements, incentive plans, income per share, and related party transactions Consolidated Balance Sheets This section provides a snapshot of the company's assets, liabilities, and equity at specific points in time Consolidated Balance Sheet Highlights (In Thousands): | Item | March 31, 2021 | December 31, 2020 | Change | % Change | | :--------------------------------- | :------------- | :---------------- | :----- | :------- | | Total assets | $6,695,188 | $6,396,786 | $298,402 | 4.66% | | Net investments | $6,061,913 | $5,943,530 | $118,383 | 1.99% | | Cash and cash equivalents | $261,889 | $70,303 | $191,586 | 272.52% | | Total debt, net | $2,911,762 | $2,506,341 | $405,421 | 16.18% | | Total liabilities | $3,170,132 | $2,795,666 | $374,466 | 13.39% | | Total stockholders' equity | $3,525,056 | $3,601,120 | $(76,064) | (2.11)% | Consolidated Statements of Operations This section details the company's revenues, expenses, and net loss over the reporting period Consolidated Statements of Operations Highlights (Three Months Ended March 31, In Thousands): | Item | 2021 | 2020 | Change | % Change | | :--------------------------------- | :----- | :----- | :----- | :------- | | Total revenues | $135,141 | $122,720 | $12,421 | 10.12% | | Rental income | $134,658 | $121,363 | $13,295 | 10.96% | | Total expenses | $109,181 | $138,814 | $(29,633) | (21.35)% | | Impairments | $6,730 | $40,774 | $(34,044) | (83.50)% | | Loss on debt extinguishment | $(29,177) | $0 | $(29,177) | NM | | Net loss | $(1,469) | $(15,847) | $14,378 | (90.73)% | | Net loss attributable to common stockholders | $(4,057) | $(18,435) | $14,378 | (78.00)% | | Basic net loss per share | $(0.04) | $(0.18) | $0.14 | (77.78)% | | Diluted net loss per share | $(0.04) | $(0.18) | $0.14 | (77.78)% | | Dividends declared per common share | $0.6250 | $0.6250 | $0.00 | 0.00% | Consolidated Statements of Comprehensive Loss This section presents the net loss and other comprehensive income/loss components for the reporting period Consolidated Statements of Comprehensive Loss (Three Months Ended March 31, In Thousands): | Item | 2021 | 2020 | Change | % Change | | :--------------------------------- | :----- | :----- | :----- | :------- | | Net loss attributable to common stockholders | $(4,057) | $(18,435) | $14,378 | (78.00)% | | Net reclassification of amounts from AOCL | $702 | $702 | $0 | 0.00% | | Total comprehensive loss | $(3,355) | $(17,733) | $14,378 | (81.08)% | Consolidated Statements of Stockholders' Equity This section outlines changes in the company's equity accounts, including net loss, dividends, and stock-based compensation Consolidated Statements of Stockholders' Equity Highlights (Three Months Ended March 31, In Thousands): | Item | December 31, 2020 | March 31, 2021 | Change | | :--------------------------------- | :---------------- | :------------- | :----- | | Total Stockholders' Equity | $3,601,120 | $3,525,056 | $(76,064) | | Net loss | $(1,469) | $(1,469) | $0 | | Dividends declared on common stock | $(71,837) | $(71,837) | $0 | | Stock-based compensation, net | $2,971 | $2,971 | $0 | | Common Stock Shares Outstanding | 114,812,615 | 114,947,986 | 135,371 | Consolidated Statements of Cash Flows This section summarizes the cash inflows and outflows from operating, investing, and financing activities Consolidated Statements of Cash Flows Highlights (Three Months Ended March 31, In Thousands): | Item | 2021 | 2020 | Change | % Change | | :--------------------------------- | :----- | :----- | :----- | :------- | | Net cash provided by operating activities | $64,431 | $67,178 | $(2,747) | (4.09)% | | Net cash used in investing activities | $(181,254) | $(195,665) | $14,411 | (7.36)% | | Net cash provided by financing activities | $295,414 | $330,861 | $(35,447) | (10.71)% | | Net increase in cash, cash equivalents and restricted cash | $178,591 | $202,374 | $(23,783) | (11.75)% | | Cash, cash equivalents and restricted cash, end of period | $261,889 | $228,397 | $33,492 | 14.66% | 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 and its primary investment strategy in 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 across the U.S., leased on a long-term, triple-net basis. Operations are mainly conducted through Spirit Realty, L.P., where the Corporation and a subsidiary own 99% as limited partners[28][29] NOTE 2. SUMMARY OF SIGNIFICANT ACOUNTING POLICIES This note outlines the key accounting principles and policies applied in preparing the financial statements, including revenue recognition and impairment testing - The financial statements are prepared in accordance with GAAP and SEC rules, consolidating the Corporation and its wholly-owned subsidiaries. Key policies include revenue recognition for operating leases (straight-line rent, variable rent, intangible amortization), collectability assessment for tenant receivables, and impairment testing for goodwill. The company elected to account for COVID-19 lease concessions consistent with ASC 842, recognizing $2.7 million of deferrals in rental income for Q1 2021[30][31][35] Cash, Cash Equivalents and Restricted Cash (In Thousands): | Item | March 31, 2021 | December 31, 2020 | March 31, 2020 | | :--------------------------------- | :------------- | :---------------- | :------------- | | Cash and cash equivalents | $261,889 | $70,303 | $216,692 | | Restricted cash: Collateral deposits | $0 | $335 | $381 | | Restricted cash: Tenant improvements, repairs and leasing commissions | $0 | $12,660 | $11,324 | | Total cash, cash equivalents and restricted cash | $261,889 | $83,298 | $228,397 | NOTE 3. INVESTMENTS This note details the company's real estate portfolio, including gross investment, geographic dispersion, and acquisition/disposition activities - As of March 31, 2021, the Company's gross investment in owned real estate properties totaled approximately $7.0 billion, geographically dispersed across 48 states, with Texas representing 10.7%. The portfolio consists of 1,880 properties, with 25 acquisitions and 5 dispositions during Q1 2021[51][52] Rental Income Components (Three Months Ended March 31, In Thousands): | Item | 2021 | 2020 | Change | % Change | | :--------------------------------- | :----- | :----- | :----- | :------- | | Base cash rent | $125,197 | $116,546 | $8,651 | 7.42% | | Variable cash rent (including reimbursables) | $3,014 | $3,389 | $(375) | (11.06)% | | Straight-line rent, net of uncollectible reserve | $5,673 | $1,094 | $4,579 | 418.56% | | Amortization of above- and below- market lease intangibles, net | $774 | $334 | $440 | 131.74% | | Total rental income | $134,658 | $121,363 | $13,295 | 10.96% | Total Impairments and Allowance for Credit Losses (Three Months Ended March 31, In Thousands): | Item | 2021 | 2020 | Change | % Change | | :--------------------------------- | :----- | :----- | :----- | :------- | | Real estate asset impairment | $6,034 | $37,521 | $(31,487) | (83.92)% | | Intangible asset impairment | $696 | $2,643 | $(1,947) | (73.66)% | | Allowance for credit losses on direct financing leases | $0 | $304 | $(304) | (100.00)% | | Allowance for credit losses on loans receivable | $0 | $306 | $(306) | (100.00)% | | Total impairment loss | $6,730 | $40,774 | $(34,044) | (83.50)% | NOTE 4. DEBT This note provides a comprehensive overview of the company's debt structure, including types of debt, maturities, and recent financing activities Debt Summary (In Thousands): | Item | March 31, 2021 | December 31, 2020 | Weighted Average Effective Interest Rates (2021) | | :--------------------------------- | :------------- | :---------------- | :------------------------------- | | Revolving credit facilities | $0 | $0 | 3.30% | | Term loans | $0 | $178,000 | 1.96% | | Senior Unsecured Notes | $2,750,000 | $1,950,000 | 3.61% | | Mortgages payable | $5,723 | $214,237 | 4.48% | | Convertible Notes | $190,426 | $190,426 | 5.64% | | Total debt | $2,946,149 | $2,532,663 | 3.80% | | Total debt, net | $2,911,762 | $2,506,341 | | | Weighted Average Remaining Years to Maturity | 7.7 | | | - During Q1 2021, the Company repaid the 2020 Term Loan in full and extinguished $207.4 million of CMBS indebtedness, resulting in a total loss on debt extinguishment of $29.2 million. The Company issued $800.0 million in new Senior Unsecured Notes (2028 and 2032 Senior Notes) in March 2021[68][69][76] Scheduled Debt Maturities (In Thousands): | Year | Total | | :--------------------------------- | :------ | | Remainder of 2021 | $190,800 | | 2022 | $525 | | 2023 | $556 | | 2024 | $590 | | 2025 | $626 | | Thereafter | $2,753,052 | | Total | $2,946,149 | NOTE 5. STOCKHOLDERS' EQUITY This note details changes in stockholders' equity, including ATM program activity and dividend declarations - The Company established a new $500.0 million ATM Program in November 2020, replacing the prior 2016 program. As of March 31, 2021, 4.9 million shares have been sold under the 2020 ATM Program, all through forward sale agreements, with $313.2 million remaining available. The Board declared a common stock dividend of $0.625 per share and a preferred stock dividend of $0.375 per share for Q1 2021[81][83] NOTE 6. COMMITMENTS AND CONTINGENCIES This note discloses the company's financial commitments for future acquisitions and property improvements, along with contingent liabilities - As of March 31, 2021, the Company had commitments totaling $194.3 million, with $173.8 million for future acquisitions and the remainder for property improvements, mostly expected to be funded in 2021. The Company is contingently liable for $5.7 million of debt from a former tenant until March 15, 2022, and has accrued the full liability[84][87] NOTE 7. DERIVATIVE AND HEDGING ACTIVITIES This note explains the company's use of interest rate derivatives for cash flow hedging and the amortization of related deferred losses - The Company uses interest rate derivative contracts as cash flow hedges to manage exposure to variable interest rates. A deferred loss of $12.3 million from terminated interest rate swaps is being amortized, with $0.7 million reclassified to interest expense for Q1 2021 and an estimated $2.8 million expected to be reclassified over the next 12 months[91][92][93] NOTE 8. FAIR VALUE MEASUREMENTS This note describes the fair value measurements for financial instruments and impaired assets, including valuation methodologies and inputs - Nonrecurring fair value measurements for impaired assets totaled $5.3 million as of March 31, 2021, down from $36.5 million at March 31, 2020. These valuations primarily use Level 3 inputs such as signed purchase agreements, broker opinions of value, or comparable property prices, with discounts applied for COVID-19 market impacts in 2020[95] Estimated Fair Value of Financial Instruments (In Thousands): | Item | March 31, 2021 Carrying Value | March 31, 2021 Estimated Fair Value | December 31, 2020 Carrying Value | December 31, 2020 Estimated Fair Value | | :--------------------------------- | :---------------------------- | :---------------------------------- | :---------------------------- | :---------------------------------- | | Senior Unsecured Notes, net | $2,715,814 | $2,821,832 | $1,927,348 | $2,122,409 | | Mortgages payable, net | $5,956 | $6,238 | $212,582 | $226,240 | | Convertible Notes, net | $189,992 | $195,627 | $189,102 | $194,124 | NOTE 9. INCENTIVE AWARD PLAN This note details the stock-based compensation granted under the incentive award plan and the associated expense recognized - During Q1 2021, the Company granted 91 thousand restricted shares and 170 thousand target market-based awards to executive officers, with associated deferred compensation of $3.4 million. Total stock-based compensation expense recognized was $3.4 million for Q1 2021, with $25.4 million remaining unamortized[100][101][104] NOTE 10. INCOME PER SHARE This note presents the basic and diluted net loss per share attributable to common stockholders for the reporting periods Net Loss Per Share Attributable to Common Stockholders (Three Months Ended March 31): | Item | 2021 | 2020 | | :--------------------------------- | :----- | :----- | | Basic net loss per share | $(0.04) | $(0.18) | | Diluted net loss per share | $(0.04) | $(0.18) | | Basic weighted average shares outstanding | 114,673,218 | 102,230,147 | | Diluted weighted average shares outstanding | 114,673,218 | 102,230,147 | Note 11. Related Party Transactions and Arrangements This note discloses transactions and arrangements with related parties, including changes in fee income - Related party fee income decreased to $0 for Q1 2021 from $0.3 million in Q1 2020, following the termination of the Interim Management Agreement with SMTA effective September 4, 2020[108] 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 the COVID-19 pandemic. It covers revenue and expense changes, property portfolio diversification, liquidity, capital resources, and non-GAAP financial measures like FFO and AFFO Overview This section provides a high-level description of Spirit Realty Capital, Inc.'s business, portfolio, and COVID-19 related rent concessions - Spirit Realty Capital, Inc. is a self-administered and self-managed REIT listed on the NYSE (SRC), primarily investing in single-tenant, operationally essential real estate across the U.S. As of March 31, 2021, the portfolio comprised 1,880 properties, leased to 301 tenants across 48 states and 28 retail industries, with an occupancy rate of approximately 99.5%[115][116] - The company deferred $3.6 million of rent and abated $0.9 million of rent for Q1 2021 due to COVID-19, with $2.7 million of deferred rent recognized as income. As of March 31, 2021, $18.5 million in deferred rent receivables remained, and maximum future deferrals/abatements granted post-March 31, 2021, totaled $7.7 million and $0.1 million, respectively[120] Results of Operations This section analyzes the company's financial performance, including changes in revenues, expenses, net loss, and impairments Key Financial Performance (Three Months Ended March 31, In Thousands): | Item | 2021 | 2020 | Change | % Change | | :--------------------------------- | :----- | :----- | :----- | :------- | | Total revenues | $135,141 | $122,720 | $12,421 | 10.1% | | Total expenses | $109,181 | $138,814 | $(29,633) | (21.3)% | | Net loss | $(1,469) | $(15,847) | $14,378 | (90.7)% | | Rental income | $134,658 | $121,363 | $13,295 | 11.0% | | Impairments | $6,730 | $40,774 | $(34,044) | (83.5)% | | Loss on debt extinguishment | $(29,177) | $0 | $(29,177) | NM | | Gain on disposition of assets | $1,836 | $388 | $1,448 | NM | - The increase in Base Cash Rent was driven by net acquisitions, with 144 properties acquired ($59.5 million annual in-place rent) and 36 properties disposed ($4.9 million annual in-place rent) over the trailing twelve months ended March 31, 2021. Impairments significantly decreased by 83.5% year-over-year, from $40.8 million in Q1 2020 to $6.7 million in Q1 2021, reflecting market recovery from the initial COVID-19 downturn[125][129] - Total interest expense slightly increased by 5.0% to $26.6 million in Q1 2021, despite an overall increase in total debt outstanding, due to a reduction in the weighted average interest rate from 3.59% (March 31, 2020) to 3.28% (March 31, 2021). General and administrative expenses decreased by $0.4 million, primarily due to lower professional fees, partially offset by COVID-19 related legal fees[136][137][138] Property Portfolio Information This section details the company's real estate portfolio characteristics, including occupancy, diversification, and lease terms - As of March 31, 2021, the portfolio consisted of 1,880 owned properties with 99.5% occupancy, diversified across 48 states, 301 tenants, and 28 retail industries. The weighted average remaining non-cancelable initial lease term was 10.1 years[139][140] Top 10 Tenant Concentrations by Percent of ABR (as of March 31, 2021): | Tenant | Percent of ABR | | :--------------------------------- | :------------- | | Life Time Fitness, Inc. | 3.4% | | Cajun Global LLC | 2.5% | | BJ's Wholesale Club, Inc. | 2.5% | | The Home Depot, Inc. | 2.2% | | At Home Group, Inc. | 2.2% | | Alimentation Couche-Tard, Inc. | 2.1% | | Walgreen Co. | 2.0% | | GPM Investments, LLC | 1.9% | | Dollar Tree, Inc. | 1.9% | | CVS Caremark Corporation | 1.7% | Diversification by Asset Type and Tenant Industry (as of March 31, 2021): | Asset Type | Tenant Industry | Percent of ABR | | :--------------------------------- | :--------------------------------- | :------------- | | Retail | | 77.1% | | | Health and Fitness | 8.0% | | | Convenience Stores | 7.5% | | | Restaurants - Quick Service | 6.3% | | | Restaurants - Casual Dining | 5.7% | | | Movie Theaters | 4.4% | | Industrial | | 16.2% | | Office and Other | | 6.7% | Liquidity and Capital Resources This section discusses the company's available cash, credit facilities, and strategies for meeting short-term and long-term capital needs - As of March 31, 2021, the Company had $261.9 million in cash and cash equivalents and $800.0 million available under its 2019 Credit Facility, providing $1.06 billion in total available liquidity. Additionally, $207.3 million in expected proceeds from open forward equity contracts and $313.2 million in remaining capacity under the 2020 ATM Program contribute to liquidity[148] - The Company's long-term capital needs are planned to be met through issuing registered debt or equity securities, asset-level financing, and fixed-rate secured or unsecured notes and bonds. The 2019 Credit Facility has an $800.0 million aggregate commitment, maturing March 31, 2023, with an accordion feature for an additional $400.0 million[149][151] Debt Maturities (In Thousands): | Year | Total | | :--------------------------------- | :------ | | Remainder of 2021 | $190,800 | | 2022 | $525 | | 2023 | $556 | | 2024 | $590 | | 2025 | $626 | | Thereafter | $2,753,052 | | Total | $2,946,149 | Cash Flows This section provides a detailed breakdown of cash flows from operating, investing, and financing activities and their drivers Summary of Cash Flows (Three Months Ended March 31, In Thousands): | Item | 2021 | 2020 | Change | | :--------------------------------- | :----- | :----- | :----- | | Net cash provided by operating activities | $64,431 | $67,178 | $(2,747) | | Net cash used in investing activities | $(181,254) | $(195,665) | $14,411 | | Net cash provided by financing activities | $295,414 | $330,861 | $(35,447) | | Net increase in cash, cash equivalents and restricted cash | $178,591 | $202,374 | $(23,783) | - Operating cash flow decreased by $2.7 million, primarily due to a $10.4 million increase in cash interest paid and decreases in interest income and related party fee income, partially offset by a $10.5 million increase in cash rental revenue from net acquisitions[167] - Investing activities used $181.3 million, mainly for $194.2 million in property acquisitions and $1.6 million in capital expenditures, partially offset by $14.5 million from asset dispositions. Financing activities provided $295.4 million, driven by $794.8 million in Senior Unsecured Notes borrowings, offset by $208.5 million in mortgage repayments, $178.0 million in term loan repayments, and $75.5 million in dividend payments[169][172] Non-GAAP Financial Measures This section defines and reconciles non-GAAP financial measures used to assess the company's operational performance and financial health - The Company uses non-GAAP financial measures such as FFO, AFFO, Adjusted Debt, EBITDAre, Adjusted EBITDAre, and Annualized Adjusted EBITDAre to provide supplemental insights into operational performance and financial condition, as defined by NAREIT standards or company-specific adjustments[176][177][178][179][180][181][182] FFO and AFFO Attributable to Common Stockholders (Three Months Ended March 31, In Thousands): | Item | 2021 | 2020 | Change | % Change | | :--------------------------------- | :----- | :----- | :----- | :------- | | FFO attributable to common stockholders | $57,779 | $74,042 | $(16,263) | (21.96)% | | AFFO attributable to common stockholders | $87,260 | $80,523 | $6,737 | 8.37% | | FFO per share of common stock - Diluted | $0.50 | $0.72 | $(0.22) | (30.56)% | | AFFO per share of common stock - Diluted | $0.76 | $0.78 | $(0.02) | (2.56)% | | Weighted average shares for non-GAAP measures - Diluted | 115,272,802 | 102,607,596 | 12,665,206 | 12.34% | Adjusted Debt and EBITDAre Metrics (In Thousands): | Item | March 31, 2021 | March 31, 2020 | Change | % Change | | :--------------------------------- | :------------- | :------------- | :----- | :------- | | Adjusted Debt | $2,684,260 | $2,333,923 | $350,337 | 15.01% | | Adjusted EBITDAre (Q1) | $122,932 | $105,261 | $17,671 | 16.79% | | Annualized Adjusted EBITDAre | $487,752 | $440,696 | $47,056 | 10.68% | | Adjusted Debt / Annualized Adjusted EBITDAre | 5.5x | 5.3x | 0.2x | 3.77% | Item 3. Quantitative and Qualitative Disclosures About Market Risk This section discusses the Company's exposure to financial market risks, primarily interest rate risk. It highlights that operating results are influenced more by occupancy, rental rates, and tenant financial condition than inflation, as triple-net leases mitigate rising property operating costs. The Company's debt is predominantly fixed-rate, reducing direct exposure to interest rate fluctuations - As of March 31, 2021, all $2.9 billion of the Company's outstanding indebtedness was fixed-rate, with a weighted average stated interest rate of 3.28%, excluding amortization of deferred financing costs and debt discounts/premiums. There were no borrowings outstanding under the 2019 Credit Facility[192] - The Company's assets are primarily long-term, fixed-rate leases, many with scheduled rental increases, which helps mitigate the effect of inflation. Exposure to rising property operating costs is also mitigated by triple-net leases, where tenants are responsible for such expenses[190][192] Item 4. Controls and Procedures This section confirms the effectiveness of the Company's disclosure controls and procedures and reports on any changes in internal control over financial reporting - The Chief Executive Officer and Chief Financial Officer concluded that the design and operation of the Company's disclosure controls and procedures were effective as of March 31, 2021[195] - There were no material changes to the Company's internal control over financial reporting during the quarter ended March 31, 2021[196] PART II — OTHER INFORMATION This part contains disclosures on legal proceedings, risk factors, equity sales, defaults, mine safety, and exhibits Item 1. Legal Proceedings This section states that the Company is not currently involved in any material legal proceedings that would significantly impact 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 would have a material adverse effect on its business, financial condition, or results of operations[199] Item 1A. Risk Factors This section indicates that 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, 2020 - 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, 2020[200] Item 2. Unregistered Sales of Equity Securities and Use of Proceeds This section reports that there were no unregistered sales of equity securities or use of proceeds during the period - No unregistered sales of equity securities and use of proceeds[201] Item 3. Defaults Upon Senior Securities This section confirms that there were no defaults upon senior securities during the reporting period - No defaults upon senior securities[202] Item 4. Mine Safety Disclosures This section states that there are no mine safety disclosures to report - No mine safety disclosures[203] Item 5. Other Information This section indicates that there is no other information to report - No other information to report[204] Item 6. Exhibits This section lists all exhibits filed with the Form 10-Q, including organizational documents, indentures, compensation plans, and certifications - The exhibits include Articles of Restatement and Amendment, Bylaws, Partnership Agreements, Supplemental Indentures for Senior Notes, Performance Share Award Agreements, Director Compensation Program, and various certifications (CEO, CFO, Sarbanes-Oxley Act)[205] SIGNATURES This section provides the official signatures certifying the accuracy and completeness of the report - The report is signed by Prakash J. Parag, Senior Vice President and Chief Accounting Officer of Spirit Realty Capital, Inc., on May 5, 2021[208]