Spirit Realty Capital(SRC) - 2022 Q1 - Quarterly Report

Glossary PART I — FINANCIAL INFORMATION Item 1. Financial Statements Presents Q1 2022 unaudited consolidated financial statements, including balance sheets, operations, equity, cash flows, and key accounting notes Consolidated Balance Sheets | Metric | March 31, 2022 (Thousands) | December 31, 2021 (Thousands) | | :----------------------------------- | :-------------------------- | :--------------------------- | | Total assets | $7,789,101 | $7,330,870 | | Total liabilities | $3,523,933 | $3,331,071 | | Total stockholders' equity | $4,265,168 | $3,999,799 | - Total assets increased by approximately $458.2 million from December 31, 2021, to March 31, 2022, primarily driven by an increase in total investments, net, and cash and cash equivalents[14] - Total debt, net, increased by approximately $231.9 million, from $3,012,592 thousand at December 31, 2021, to $3,244,509 thousand at March 31, 2022, mainly due to increased borrowings under revolving credit facilities[14] Consolidated Statements of Operations | Metric (Three Months Ended March 31) | 2022 (Thousands) | 2021 (Thousands) | Change (YoY) | | :----------------------------------- | :--------------- | :--------------- | :----------- | | Total revenues | $168,396 | $135,141 | +24.6% | | Total expenses | $118,552 | $109,181 | +8.6% | | Net income (loss) | $56,056 | $(1,469) | N/A | | Net income (loss) attributable to common stockholders | $53,468 | $(4,057) | N/A | | Basic EPS | $0.42 | $(0.04) | N/A | | Diluted EPS | $0.42 | $(0.04) | N/A | - The company reported a significant turnaround from a net loss of $1,469 thousand in Q1 2021 to a net income of $56,056 thousand in Q1 2022[16] - Rental income increased by $32,417 thousand (24.1%) year-over-year, contributing significantly to the revenue growth[16] - Loss on debt extinguishment decreased substantially from $(29,177) thousand in Q1 2021 to $(172) thousand in Q1 2022, positively impacting net income[16] Consolidated Statements of Comprehensive Income (Loss) | Metric (Three Months Ended March 31) | 2022 (Thousands) | 2021 (Thousands) | | :----------------------------------- | :--------------- | :--------------- | | Net income (loss) attributable to common stockholders | $53,468 | $(4,057) | | Net reclassification of amounts from AOCL | $702 | $702 | | Total comprehensive income (loss) | $54,170 | $(3,355) | - Total comprehensive income saw a substantial improvement, moving from a loss of $3,355 thousand in Q1 2021 to an income of $54,170 thousand in Q1 2022[18] Consolidated Statements of Stockholders' Equity | Metric (March 31) | 2022 (Thousands) | 2021 (Thousands) | | :---------------- | :--------------- | :--------------- | | Total Stockholders' Equity | $4,265,168 | $3,525,056 | | Common Stock Shares Outstanding | 134,306,501 | 114,947,986 | - Total stockholders' equity increased by $265,369 thousand from December 31, 2021, to March 31, 2022, primarily due to net income and issuance of common stock[21] - The number of common shares issued and outstanding increased significantly from 127,699,235 at December 31, 2021, to 134,306,501 at March 31, 2022, reflecting new share issuances[14][21] Consolidated Statements of Cash Flows | Cash Flow Activity (Three Months Ended March 31) | 2022 (Thousands) | 2021 (Thousands) | Change (YoY) | | :----------------------------------------------- | :--------------- | :--------------- | :----------- | | Net cash provided by operating activities | $78,271 | $64,431 | +21.5% | | Net cash used in investing activities | $(499,550) | $(181,254) | -175.6% | | Net cash provided by financing activities | $430,056 | $295,414 | +45.6% | | Net increase in cash, cash equivalents and restricted cash | $8,777 | $178,591 | -95.1% | - Net cash used in investing activities significantly increased due to higher acquisitions of real estate ($474.4 million in Q1 2022 vs $194.2 million in Q1 2021) and investments in loans receivable[25] - Net cash provided by financing activities increased, driven by net borrowings under revolving credit facilities and proceeds from common stock issuance, partially offset by dividend payments[25] NOTE 1. ORGANIZATION - 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 United States[30] - The Company's operations are mainly conducted through Spirit Realty, L.P. (the Operating Partnership), where the Corporation and a wholly-owned subsidiary collectively own 99% as limited partners[31] NOTE 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - The financial statements are prepared in accordance with GAAP and SEC rules, including normal recurring adjustments, and should be read with the Company's 2021 Form 10-K[32] - The Company consolidates its wholly-owned subsidiaries, including the Operating Partnership, and eliminates all significant intercompany balances and transactions[33] - The Company operates as a single segment focused on net leasing operations[36] NOTE 3. INVESTMENTS - As of March 31, 2022, the Company's gross investment in owned real estate properties totaled approximately $8.4 billion, geographically dispersed across 49 states, with Texas being the only state exceeding 10% of the total gross investment at 13.1%[53] | Real Estate Activity (Three Months Ended March 31, 2022) | Number of Properties | Dollar Amount of Investments (Thousands) | | :--------------------------------------- | :------------------- | :------------------------------------- | | Gross balance, December 31, 2021 | 2,003 | $7,943,185 | | Acquisitions/improvements | 41 | $505,238 | | Dispositions of real estate | (5) | $(10,177) | | Gross balance, March 31, 2022 | 2,039 | $8,433,638 | - Total rental income for operating leases increased from $134,658 thousand in Q1 2021 to $167,075 thousand in Q1 2022, primarily driven by Base Cash Rent[57] | Scheduled Minimum Future Rent (March 31, 2022) | Amount (Thousands) | | :--------------------------------------------- | :----------------- | | Remainder of 2022 | $469,027 | | 2023 | $618,693 | | 2024 | $605,399 | | 2025 | $593,938 | | 2026 | $567,428 | | Thereafter | $4,354,297 | | Total future minimum rentals | $7,208,782 | NOTE 4. DEBT | Debt Type (Thousands) | March 31, 2022 | December 31, 2021 | | :-------------------- | :------------- | :---------------- | | Revolving credit facilities | $519,500 | $288,400 | | Senior Unsecured Notes | $2,750,000 | $2,750,000 | | Mortgages payable | $5,221 | $5,350 | | Total debt | $3,274,721 | $3,043,750 | - The 2019 Credit Facility's borrowing capacity was increased to $1.2 billion in March 2022, with $680.5 million available as of March 31, 2022[67][70] - The weighted average effective interest rate on total debt decreased from 3.80% at March 31, 2021, to 3.17% at March 31, 2022[132] | Debt Maturities (March 31, 2022, Thousands) | Total | | :------------------------------------------ | :---- | | Remainder of 2022 | $396 | | 2023 | $556 | | 2024 | $590 | | 2025 | $626 | | 2026 | $819,968 | | Thereafter | $2,452,585 | | Total | $3,274,721 | NOTE 5. STOCKHOLDERS' EQUITY - In January 2022, the Company entered into forward sale agreements for 9.4 million shares of common stock, settling 6.3 million shares by March 31, 2022, for net proceeds of $286.5 million[81] - A new $500.0 million ATM Program was approved in November 2021, with $364.9 million capacity remaining as of March 31, 2022[83][144] - The Company declared a common stock dividend of $0.638 per share and a preferred stock dividend of $0.375 per share for the three months ended March 31, 2022[85] NOTE 6. COMMITMENTS AND CONTINGENCIES - The Company reversed a $5.7 million accrued liability for a former tenant's debt in Q1 2022, as no payments were made and the debt matured[86] - As of March 31, 2022, the Company had commitments totaling $301.6 million, with $248.4 million for future acquisitions and the remainder for property improvements, mostly expected to be funded in 2022[89] NOTE 7. DERIVATIVE AND HEDGING ACTIVITIES - The Company uses interest rate derivative contracts as cash flow hedges to manage variable rate debt exposure, recognizing changes in fair value in Accumulated Other Comprehensive Loss (AOCL)[92] - An unamortized loss of $5.1 million related to terminated interest rate swaps remained in AOCL as of March 31, 2022, with an estimated $2.8 million expected to be reclassified to interest expense in the next 12 months[93][94] NOTE 8. FAIR VALUE MEASUREMENTS - No properties were impaired during the three months ended March 31, 2022, compared to 14 properties impaired in 2021[97] | Financial Instrument (Thousands) | Carrying Value (March 31, 2022) | Estimated Fair Value (March 31, 2022) | | :------------------------------- | :------------------------------ | :------------------------------------ | | Loans receivable, net | $23,023 | $24,367 | | 2019 Credit Facility | $519,500 | $539,182 | | Senior Unsecured Notes, net | $2,719,597 | $2,645,123 | | Mortgages payable, net | $5,412 | $5,362 | NOTE 9. INCENTIVE AWARD PLAN - The Company granted 87 thousand restricted shares and 166 thousand target market-based awards in Q1 2022, resulting in $4.1 million in deferred compensation for restricted shares[102][103] - Stock-based compensation expense increased to $4.0 million for Q1 2022 from $3.4 million for Q1 2021[105] | Unamortized Stock-based Compensation Expense (Thousands) | March 31, 2022 | December 31, 2021 | | :------------------------------------------------------- | :------------- | :---------------- | | Restricted share awards | $7,476 | $4,787 | | Market-based awards | $24,113 | $11,143 | | Total unamortized stock-based compensation expense | $31,589 | $15,930 | NOTE 10. INCOME PER SHARE | Metric (Three Months Ended March 31) | 2022 | 2021 | | :----------------------------------- | :------------- | :------------- | | Basic EPS | $0.42 | $(0.04) | | Diluted EPS | $0.42 | $(0.04) | | Basic weighted average shares outstanding | 127,951,825 | 114,673,218 | | Diluted weighted average shares outstanding | 128,360,431 | 114,673,218 | - Net income attributable to common stockholders used in EPS calculation significantly improved from a loss of $4,201 thousand in Q1 2021 to an income of $53,337 thousand in Q1 2022[107] Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations Management's discussion of Q1 2022 financial performance, covering operations, COVID-19 impact, revenues, expenses, portfolio, liquidity, cash flow, and non-GAAP measures Special Note Regarding Forward-looking Statements - The report contains forward-looking statements, which involve numerous risks and uncertainties, and readers should not rely on them as predictions of future events[109][110] - Key risks include industry and economic conditions, financial market volatility, success of business strategy, tenant financial performance, competition, borrowing costs, access to capital markets, lease renewals, legal/regulatory issues, and real estate business inherent risks[111] Overview - Spirit Realty Capital, Inc. is a self-administered and self-managed REIT, investing in single-tenant, operationally essential real estate leased on a long-term, triple-net basis[112] - As of March 31, 2022, the portfolio comprised 2,039 owned properties across 49 states, leased to 334 tenants in 35 industries, with approximately 99.8% occupancy[113] Business Impact of the COVID-19 Pandemic - The impact of the COVID-19 pandemic significantly reduced in Q1 2022, with no deferred rent or rent abatements recognized, and $0.2 million in recoveries of previous reserves[116] - As of March 31, 2022, $13.0 million in deferred rent receivables remained, with 68% expected to be repaid by the end of 2023[117] Critical Accounting Policies and Estimates - Management uses judgment and estimates in applying accounting policies, with no material changes to these policies during the current reporting period[118] Results of Operations | Metric (Three Months Ended March 31) | 2022 (Thousands) | 2021 (Thousands) | Increase / (Decrease) | | :----------------------------------- | :--------------- | :--------------- | :-------------------- | | Total revenues | $168,396 | $135,141 | $33,255 | | Total expenses | $118,552 | $109,181 | $9,371 | | Net income (loss) | $56,056 | $(1,469) | $57,525 | - Rental income increased by $32.4 million, primarily due to net acquisitions and recoveries of previously reserved Base Cash Rent[122][123] - Impairments decreased significantly from $6.7 million in Q1 2021 to $0.1 million in Q1 2022, reflecting commercial real estate market recovery[127] - Interest expense decreased by $0.6 million despite increased debt, due to new debt issuances at lower interest rates, reducing the weighted average interest rate to 3.17% from 3.80%[132] - General and administrative expenses increased by $1.6 million, mainly due to higher compensation expenses from internal promotions, new hires, and non-cash compensation[133] Property Portfolio Information - The portfolio consists of 2,039 properties with 99.8% occupancy across 49 states, leased to 334 tenants in 35 industries[136] | Top Tenant Concepts (as of March 31, 2022) | Percent of ABR | | :----------------------------------------- | :------------- | | Life Time Fitness | 3.5% | | ClubCorp | 2.7% | | BJ's Wholesale Club | 2.3% | | Church's Chicken | 2.1% | | At Home | 1.9% | | Home Depot | 1.9% | | Main Event | 1.8% | | Circle K | 1.8% | | Dollar Tree / Family Dollar | 1.7% | | GPM | 1.6% | - The weighted average remaining non-cancelable initial lease term is 10.4 years, with 0.8% of ABR expiring in the remainder of 2022[138] | Top Geographic Concentrations (as of March 31, 2022) | Percent of ABR | | :--------------------------------------------------- | :------------- | | Texas | 13.1% | | Florida | 8.5% | | Georgia | 6.2% | | Ohio | 5.2% | | Michigan | 4.2% | | California | 4.2% | | Tennessee | 4.1% | | Asset Type / Tenant Industry (as of March 31, 2022) | Percent of ABR | | :-------------------------------------------------- | :------------- | | Retail | 70.7% | | Health and Fitness | 7.5% | | Convenience Stores | 6.3% | | Restaurants - Quick Service | 5.2% | | Non-Retail | 29.3% | | Distribution | 11.5% | | Manufacturing | 7.7% | | Office | 2.8% | Liquidity and Capital Resources - As of March 31, 2022, available liquidity included $24.2 million in cash, $680.5 million borrowing capacity under the 2019 Credit Facility, and $141.8 million in expected proceeds from open forward equity contracts[146] - The Company plans to meet long-term capital needs through debt or equity securities, asset-level financing, and fixed-rate notes, while continuously evaluating financing alternatives[147] - The 2019 Credit Facility was amended to increase borrowing capacity to $1.2 billion, with a maturity of March 31, 2026, and two six-month extension options[149] - The Company is required to distribute 90% of its taxable income annually to maintain REIT qualification and intends to make distributions to minimize corporate-level federal income and excise taxes[158][159] Cash Flows | Cash Flow Activity (Three Months Ended March 31) | 2022 (Thousands) | 2021 (Thousands) | Change (YoY) | | :----------------------------------------------- | :--------------- | :--------------- | :----------- | | Net cash provided by operating activities | $78,271 | $64,431 | +$13,840 | | Net cash used in investing activities | $(499,550) | $(181,254) | -$(318,296) | | Net cash provided by financing activities | $430,056 | $295,414 | +$134,642 | - Operating cash flow increased by $13.8 million, driven by a $26.3 million increase in cash rental revenue from net acquisitions, partially offset by higher cash interest paid and bonus payments[163] - Investing activities used significantly more cash ($499.6 million vs $181.3 million YoY) due to increased real estate acquisitions ($474.4 million for 41 properties) and new loan investments[165][166] - Financing cash flow increased by $134.6 million, primarily from $299.8 million in common stock issuance proceeds and $231.1 million in net revolving credit facility borrowings, partially offset by $85.8 million in dividends[168] Off-Balance Sheet Arrangements - As of March 31, 2022, the Company did not have any material off-balance sheet arrangements[169] Non-GAAP Financial Measures - FFO (Funds From Operations) and AFFO (Adjusted Funds From Operations) are non-GAAP measures used to assess operational performance, excluding items like depreciation, impairment, and debt extinguishment losses[171][173] | Non-GAAP Metric (Three Months Ended March 31) | 2022 (Thousands) | 2021 (Thousands) | | :-------------------------------------------- | :--------------- | :--------------- | | FFO attributable to common stockholders | $121,683 | $57,779 | | AFFO attributable to common stockholders | $113,287 | $87,260 | | FFO per share of common stock - Diluted | $0.95 | $0.50 | | AFFO per share of common stock - Diluted | $0.88 | $0.76 | - Adjusted Debt to Annualized Adjusted EBITDAre improved to 5.2x as of March 31, 2022, from 5.5x as of March 31, 2021, indicating improved leverage[184] | Adjusted Debt & EBITDAre (Thousands) | March 31, 2022 | March 31, 2021 | | :----------------------------------- | :------------- | :------------- | | Adjusted Debt | $3,248,145 | $2,684,260 | | Adjusted EBITDAre | $155,321 | $122,932 | | Annualized Adjusted EBITDAre | $620,432 | $487,752 | Item 3. Quantitative and Qualitative Disclosures About Market Risk Discusses the Company's exposure to financial market risks, primarily interest rate risk, and its management and mitigation strategies - The Company is exposed to interest rate risk, with operating results heavily dependent on the difference between asset revenue and interest expense on borrowings[189][190] - As of March 31, 2022, $2.8 billion of indebtedness was fixed-rate (Senior Unsecured Notes and mortgages payable) with a weighted average stated interest rate of 3.25%[191] - The remaining $519.5 million was variable-rate borrowings under the 2019 Credit Facility (stated interest rate of 1.18%). A 100 basis point increase in 1-Month SOFR would increase annual interest expense by $5.2 million[191] Item 4. Controls and Procedures Confirms effective disclosure controls and procedures, with no material changes to internal control over financial reporting during the quarter - Management, including the CEO and CFO, concluded that the design and operation of disclosure controls and procedures were effective as of March 31, 2022[193] - There were no material changes to internal control over financial reporting during the quarter ended March 31, 2022[194] PART II — OTHER INFORMATION Item 1. Legal Proceedings The Company is not a party to any material legal proceedings significantly impacting its business or financial condition - The Company is not currently involved in any legal proceedings expected to have a material adverse effect on its financial position, results of operations, or cash flows[196] Item 1A. Risk Factors No material changes to risk factors were reported compared to the 2021 Annual Report on Form 10-K - No material changes to the risk factors were reported compared to those disclosed 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 No unregistered sales of equity securities or use of proceeds were reported for the period - There were no unregistered sales of equity securities or use of proceeds to report[198] Item 3. Defaults Upon Senior Securities No defaults upon senior securities occurred during the reporting period - No defaults upon senior securities occurred during the reporting period[199] Item 4. Mine Safety Disclosures No mine safety disclosures were reported - No mine safety disclosures were reported[200] Item 5. Other Information No other information was reported - No other information was reported[201] Item 6. Exhibits Lists all exhibits filed with the Form 10-Q, including corporate governance documents, agreements, and certifications - The exhibits include various corporate governance documents, such as Articles of Restatement, Articles of Amendment, and Fifth Amended and Restated Bylaws[202] - Key operational agreements like the Amended and Restated Revolving Credit Agreement are also filed as exhibits[202] - Certifications from the Chief Executive Officer and Chief Financial Officer, as required by the Exchange Act and Sarbanes-Oxley Act, are included[202]