Spirit Realty Capital(SRC) - 2021 Q2 - Quarterly Report

Glossary The glossary provides definitions for key terms and financial measures used throughout the report - The glossary provides definitions for key terms and financial measures used throughout the report, including non-GAAP measures like Adjusted Debt, Adjusted EBITDAre, AFFO, and FFO, as well as various debt instruments and company-specific agreements[7][8][9] Part I — Financial Information This section presents the company's unaudited consolidated financial statements and management's discussion and analysis of financial condition and results of operations Item 1. Financial Statements (Unaudited) This section presents the unaudited consolidated financial statements, including the balance sheets, statements of operations, comprehensive income, 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 awards, income per share, and related party transactions for the periods ended June 30, 2021 Consolidated Balance Sheets Consolidated Balance Sheet Highlights (In Thousands) | Metric | June 30, 2021 | December 31, 2020 | Change | % Change | | :-------------------------------- | :------------ | :---------------- | :----- | :------- | | Total assets | $6,713,192 | $6,396,786 | $316,406 | 4.95% | | Total liabilities | $3,028,368 | $2,795,666 | $232,702 | 8.32% | | Total stockholders' equity | $3,684,824 | $3,601,120 | $83,704 | 2.32% | | Cash and cash equivalents | $9,403 | $70,303 | $(60,900) | -86.63% | | Senior Unsecured Notes, net | $2,716,752 | $1,927,348 | $789,404 | 40.96% | | Term loans, net | $— | $177,309 | $(177,309) | -100.00% | | Convertible Notes, net | $— | $189,102 | $(189,102) | -100.00% | - The company's total assets increased by 4.95% from December 31, 2020, to June 30, 2021, primarily driven by an increase in real estate investments and intangible lease assets. Total liabilities also increased, largely due to a significant increase in Senior Unsecured Notes, while Term Loans and Convertible Notes were fully repaid[13] Consolidated Statements of Operations Consolidated Statements of Operations Highlights (In Thousands, Except Per Share Data) | Metric | Three Months Ended June 30, 2021 | Three Months Ended June 30, 2020 | Six Months Ended June 30, 2021 | Six Months Ended June 30, 2020 | | :--------------------------------------- | :------------------------------- | :------------------------------- | :----------------------------- | :----------------------------- | | Total revenues | $164,626 | $118,524 | $299,767 | $241,244 | | Total expenses | $114,070 | $119,527 | $223,251 | $258,341 | | Net income (loss) | $87,924 | $(413) | $86,455 | $(16,260) | | Net income (loss) attributable to common stockholders | $85,336 | $(3,001) | $81,279 | $(21,436) | | Basic EPS | $0.74 | $(0.03) | $0.71 | $(0.21) | | Diluted EPS | $0.74 | $(0.03) | $0.70 | $(0.21) | - The company reported a significant turnaround in profitability, moving from a net loss in the prior year to substantial net income for both the three and six months ended June 30, 2021. This improvement was driven by increased total revenues and a decrease in total expenses, particularly a sharp reduction in impairment charges[15] Consolidated Statements of Comprehensive Income (Loss) Consolidated Statements of Comprehensive Income (Loss) Highlights (In Thousands) | Metric | Three Months Ended June 30, 2021 | Three Months Ended June 30, 2020 | Six Months Ended June 30, 2021 | Six Months Ended June 30, 2020 | | :--------------------------------------- | :------------------------------- | :------------------------------- | :----------------------------- | :----------------------------- | | Net income (loss) attributable to common stockholders | $85,336 | $(3,001) | $81,279 | $(21,436) | | Total comprehensive income (loss) | $86,038 | $(2,299) | $82,683 | $(20,032) | - Total comprehensive income showed a strong positive shift, aligning with the improved net income, reflecting a recovery from the losses experienced in the comparable periods of the prior year[18] Consolidated Statements of Stockholders' Equity Consolidated Stockholders' Equity Highlights (In Thousands, Except Share Data) | Metric | June 30, 2021 | December 31, 2020 | Change | % Change | | :--------------------------------------- | :------------ | :---------------- | :----- | :------- | | Total Stockholders' Equity | $3,684,824 | $3,601,120 | $83,704 | 2.32% | | Common stock shares outstanding | 119,103,912 | 114,812,615 | 4,291,297 | 3.74% | | Capital in excess of common stock par value | $6,278,735 | $6,126,503 | $152,232 | 2.49% | | Accumulated deficit | $(2,758,793) | $(2,688,647) | $(70,146) | 2.61% | - Stockholders' equity increased by 2.32% primarily due to net income and issuance of common stock, partially offset by dividends declared. The number of common shares outstanding increased by 3.74% during the six months ended June 30, 2021[21][24] Consolidated Statements of Cash Flows Consolidated Statements of Cash Flows Highlights (Six Months Ended June 30, In Thousands) | Metric | 2021 | 2020 | Change | % Change | | :--------------------------------------- | :----------- | :----------- | :------- | :------- | | Net cash provided by operating activities | $191,493 | $133,011 | $58,482 | 43.97% | | Net cash used in investing activities | $(395,368) | $(206,840) | $(188,528) | 91.15% | | Net cash provided by financing activities | $188,134 | $157,191 | $30,943 | 19.69% | | Net (decrease) increase in cash, cash equivalents and restricted cash | $(15,741) | $83,362 | $(99,103) | -118.88% | | Cash, cash equivalents and restricted cash, end of period | $67,557 | $109,385 | $(41,828) | -38.24% | - Operating cash flow significantly increased by 43.97% in the first half of 2021, while cash used in investing activities more than doubled due to increased real estate acquisitions. Financing activities also provided more cash, primarily from Senior Unsecured Notes issuance and common stock, but overall cash and equivalents decreased due to higher investment outflows[28] Notes to Consolidated Financial Statements - Spirit Realty Capital, Inc. operates as a self-administered and self-managed REIT, primarily investing in single-tenant, operationally essential real estate leased on a long-term, triple-net basis across retail, industrial, and office sectors in the United States[33] - The company's gross investment in owned real estate properties totaled approximately $7.2 billion as of June 30, 2021. During the six months ended June 30, 2021, the company acquired 43 properties for $478.6 million and disposed of 16 properties for $54.2 million[56][57] Debt Summary (In Thousands) | Debt Type | June 30, 2021 | December 31, 2020 | Weighted Average Effective Interest Rate (2021) | | :------------------------ | :------------ | :---------------- | :---------------------------------------------- | | Revolving credit facilities | $13,000 | $— | 4.06% | | Term loans | $— | $178,000 | 1.96% | | Senior Unsecured Notes | $2,750,000 | $1,950,000 | 3.51% | | Mortgages payable | $5,601 | $214,237 | 4.40% | | Convertible Notes | $— | $190,426 | 5.03% | | Total debt, net | $2,735,575 | $2,506,341 | 3.64% | - During the six months ended June 30, 2021, the company repaid $178.0 million of 2020 Term Loans and $190.4 million of Convertible Notes upon maturity. It also issued $800.0 million in new Senior Unsecured Notes (2028 and 2032 series) and repaid $207.4 million of CMBS indebtedness, incurring a $28.5 million loss on debt extinguishment primarily due to prepayment penalties[74][75][78][83] - As of June 30, 2021, the company had $289.1 million remaining available under its $500.0 million 2020 ATM Program. It declared common stock dividends of $0.625 per share for both Q1 and Q2 2021, and preferred stock dividends of $0.375 per share[86][88] - Commitments as of June 30, 2021, totaled $269.9 million, with $246.3 million allocated to future acquisitions, expected to be funded primarily during 2021[92] 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 operational performance, highlighting key drivers of revenue and expense changes, portfolio diversification, liquidity, and capital resources. It also includes a discussion of non-GAAP financial measures crucial for REIT performance evaluation Overview - Spirit Realty Capital, Inc. is a self-administered and self-managed REIT focused on single-tenant, operationally essential real estate in the U.S., leased on a long-term, triple-net basis. As of June 30, 2021, its portfolio comprised 1,887 owned properties across 48 states, with 99.7% occupancy, leased to 306 tenants in over 28 industries[120][121] - The impact of the COVID-19 pandemic on tenants has significantly reduced since the beginning of 2021. For the three and six months ended June 30, 2021, the company recognized $9.1 million and $11.8 million, respectively, in rental income from rent deferrals, and abated $0.2 million and $1.1 million of rent, respectively[124] Results of Operations Key Revenue and Expense Changes (In Thousands) | Metric | 3 Months Ended June 30, 2021 vs 2020 (Change) | 6 Months Ended June 30, 2021 vs 2020 (Change) | | :--------------------------------------- | :--------------------------------------------- | :--------------------------------------------- | | Rental income | $47,259 | $60,554 | | General and administrative expenses | $1,475 | $1,031 | | Interest expense | $75 | $1,340 | | Depreciation and amortization | $6,914 | $11,765 | | Impairments | $(13,249) | $(47,293) | | Gain on disposition of assets | $36,849 | $38,297 | | Net income (loss) | $88,337 | $102,715 | - The increase in rental income was primarily driven by net acquisitions and a significant reversal of reserves for Base Cash Rent previously deemed uncollectible, reflecting improved tenant credit conditions post-COVID-19. Rent abatements also decreased[129][130] - Impairment charges decreased substantially due to the absence of significant tenant bankruptcies in 2021 and a recovery in market conditions compared to the downturn in 2020. Gains on asset dispositions also increased significantly[133][137] - Interest expense saw a slight increase despite a reduction in the weighted average interest rate from 3.55% (June 30, 2020) to 3.24% (June 30, 2021), primarily due to an overall increase in total debt outstanding[142] Property Portfolio Information - As of June 30, 2021, the company's portfolio consisted of 1,887 owned properties with 99.7% occupancy across 48 states, leased to 306 tenants in 28 retail industries. The weighted average remaining non-cancelable initial lease term was 10.1 years[145][147] Top Tenant Concentration (As of June 30, 2021) | Tenant | Percent of ABR | | :-------------------------- | :------------- | | Life Time Fitness, Inc. | 3.2% | | Cajun Global LLC | 2.4% | | BJ's Wholesale Club, Inc. | 2.4% | | At Home Group, Inc. | 2.2% | | The Home Depot, Inc. | 2.2% | Geographic and Asset Type Diversification (As of June 30, 2021) | Category | Top Concentration | Percent of ABR | | :---------------- | :---------------- | :------------- | | Geography | Texas | 10.7% | | | Florida | 9.4% | | Asset Type | Retail | 75.1% | | | Industrial | 17.9% | | | Office and Other | 7.0% | Liquidity and Capital Resources - As of June 30, 2021, the company's available liquidity included $9.4 million in cash and cash equivalents, $787.0 million of borrowing capacity under the 2019 Credit Facility, and $58.2 million in restricted cash. Additionally, $289.1 million remained available under the 2020 ATM Program[156] - 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[157] Cash Flow Summary (Six Months Ended June 30, In Thousands) | Cash Flow Type | 2021 | 2020 | Change | | :------------------------------- | :----------- | :----------- | :------- | | Net cash provided by operating activities | $191,493 | $133,011 | $58,482 | | Net cash used in investing activities | $(395,368) | $(206,840) | $(188,528) | | Net cash provided by financing activities | $188,134 | $157,191 | $30,943 | - Operating cash flow increased due to higher cash rental revenue, reduced rent abatements, and decreased deferred rent. Investing cash outflow increased significantly due to $480.2 million in real estate acquisitions. Financing cash flow was boosted by $794.8 million in Senior Unsecured Notes and $145.7 million from common stock issuance, partially offset by debt repayments and dividend payments[173][175][178] Non-GAAP Financial Measures - The company uses non-GAAP financial measures such as FFO (Funds From Operations) and AFFO (Adjusted Funds From Operations) to evaluate operational performance, and Adjusted Debt, EBITDAre, and Adjusted EBITDAre to assess financial condition and debt servicing capability[183][184][185][186][187][188] Non-GAAP Performance Metrics (Three Months Ended June 30, In Thousands, Except Per Share Data) | Metric | 2021 | 2020 | | :--------------------------------------- | :----------- | :----------- | | FFO attributable to common stockholders | $115,562 | $70,404 | | AFFO attributable to common stockholders | $99,872 | $73,605 | | FFO per share of common stock - Diluted | $1.00 | $0.68 | | AFFO per share of common stock - Diluted | $0.86 | $0.71 | Adjusted Debt and Leverage Ratio (In Thousands) | Metric | June 30, 2021 | June 30, 2020 | | :--------------------------------------- | :------------ | :------------ | | Adjusted Debt | $2,701,044 | $2,351,931 | | Annualized Adjusted EBITDAre | $540,224 | $410,972 | | Adjusted Debt / Annualized Adjusted EBITDAre | 5.0x | 5.7x | - The Adjusted Debt to Annualized Adjusted EBITDAre ratio improved to 5.0x as of June 30, 2021, from 5.7x in the prior year, indicating improved leverage[194] Item 3. Quantitative and Qualitative Disclosures About Market Risk This section outlines the company's exposure to financial market risks, primarily interest rate risk, and discusses how its asset and debt structures mitigate these risks. It also provides a sensitivity analysis for variable-rate debt - The company is primarily exposed to interest rate risk, but this is mitigated by its long-term, fixed-rate leases with scheduled rent increases. As of June 30, 2021, $2.8 billion of its indebtedness was fixed-rate (3.25% weighted average stated interest rate), while $13.0 million was variable-rate (1.05% stated interest rate)[199][201] - A 100 basis point (1.0%) increase in 1-Month LIBOR would result in an estimated $0.1 million increase in annual interest expense on the variable-rate debt outstanding as of June 30, 2021[201] Item 4. Controls and Procedures This section confirms management's evaluation of the effectiveness of the company's disclosure controls and procedures and reports on any changes in internal control over financial reporting - Management, including the CEO and CFO, concluded that the company's disclosure controls and procedures were effective as of June 30, 2021[203] - There were no changes to the company's internal control over financial reporting during the quarter ended June 30, 2021, that materially affected, or are reasonably likely to materially affect, its internal control over financial reporting[204] Part II — Other Information This section provides disclosures on legal proceedings, risk factors, equity sales, defaults, mine safety, other information, and exhibits Item 1. Legal Proceedings This section discloses the status of any material legal proceedings involving the company - 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[206] Item 1A. Risk Factors This section addresses any material changes to the risk factors previously disclosed in the company's annual report - There have been no material changes to the risk factors as disclosed in Part I, Item 1A. Risk Factors in the company's Annual Report on Form 10-K for the year ended December 31, 2020[207] Item 2. Unregistered Sales of Equity Securities and Use of Proceeds This section reports on any unregistered sales of equity securities and the use of proceeds from such sales - There were no unregistered sales of equity securities or use of proceeds to report for the period[208] Item 3. Defaults Upon Senior Securities This section discloses any defaults upon senior securities - There were no defaults upon senior securities to report for the period[209] Item 4. Mine Safety Disclosures This section provides any required mine safety disclosures - There were no mine safety disclosures to report for the period[210] Item 5. Other Information This section includes any other information required to be disclosed that is not covered by other items - There was no other information to report for the period[211] Item 6. Exhibits This section lists all exhibits filed as part of the quarterly report, including corporate governance documents, debt indentures, and certifications - The exhibits include Articles of Restatement and Amendment, Bylaws, Partnership Agreements, Supplemental Indentures for Senior Unsecured Notes, and certifications from the Chief Executive Officer and Chief Financial Officer[212] Signatures This section contains the official signatures confirming the report's compliance with regulatory requirements - The report is duly signed on behalf of Spirit Realty Capital, Inc. by Prakash J. Parag, Senior Vice President and Chief Accounting Officer, confirming compliance with Securities Exchange Act of 1934 requirements[214][215]